Yes, But

Civilising Global Capital:  New Thinking for Australian Labor
by Mark Latham
Allen & Unwin, 1998

Civilising Global Capital is a Procrustean book:  on the one hand, a thorough and thoughtful attempt to grapple with the realities of globalisation and market economics;  on the other, an attempt to trim and even hack these realities to make them fit Labor ideology.  Latham faces the same constraint as all serving politicians, of how to be both intellectually honest and politically loyal, simultaneously.

His courage (particularly in the Sir Humphrey Appleby sense of being politically rash) is demonstrable.  A few examples:  "The path to national economic sovereignty will not be found ... in reductionist critiques of so-called economic rationalism." (4)  "Indeed, no society has found a better way of facilitating growth and generating wealth than by holding out personal incentives and the profit motive." (38)  "Whereas in its origins unionism was a force for economic change and progress, it has now fallen into the habit of opposing change in its contribution to most issues." (85)  "A recurring theme in this book is the need for government to abandon its assumption that "one size fits all" in the making of social provision." (xxxix.  Not a misprint -- the introduction reaches xliii.  We're into serious Roman numerals here.)

Reading such comments, this Liberal felt comfortably at home.  While there is the occasional obligatory sideswipe at the Howard Government or the Liberal Party, Latham's fundamental thesis reads like the Liberal Party platform:  a defence of individual incentive and economic rationalism;  criticism of the operation of the union movement;  recognition that too-high tax will cost jobs, as global capital flees;  acceptance that the big-government nanny state has failed, and respect for the individual and scepticism about the capacity of state planning.(xxxvi)

And as Tim Shaw might say -- wait, there's more.  Latham treads perilously close to calling for voucher systems in education and health, although he carefully avoids the V-word.  He abandons the traditional Labor equality-of-result call for equal outcomes in education, in favour of "an education environment within which the innate qualities of each individual are developed to their maximum skill and cognitive potential." (237)  His method for achieving this is a form of charter schooling, with freedom for schools to develop their own individual charters, and with strong competition between schools, including closing down schools "which fail to add value to the learning capabilities of their students" (243).  Presumably, students and parents would be allowed the freedom to choose the school most suitable to their needs, or such a system would be meaningless (how would the poor schools be revealed, other than by customers voting with their feet?), but Latham does not make this clear.  At the adult, tertiary level, his "learning accounts" (248), entitlements allocated to individuals, are simply vouchers by another name.

He calls for a similar "policy devolution" in health care, with each citizen being paid a "risk-rated capitation amount" to cover their health care needs. (305)  Patients could then pool their vouchers (whoops -- risk-rated capitation amounts) into mutual funds.  The goal is for individual empowerment, and the establishment of a demand-side market.

Then there is his critique of welfare based on "behavioural characteristics" such as gender, culture and race (164):  the welfare state has lost legitimacy and public support, as well as becoming overloaded, as "[c]ommon ground has collapsed into a contest of targeted entitlements." (162)  Latham skims over the role of Labor in creating these entitlements, although he does admit that "the ALP needs to abandon its segmentation of policy based on the behavioural characteristics of life." (192)  His credibility is considerably dented, though, when he attempts to blame divisiveness and "wedge-issue politics" (167) on the Howard Government.  It was community anger over the previous government's wedge-issue segmentation politics that, as much as anything, brought the Howard Government to power -- an anger that we are still seeing in the response to Pauline Hanson's calls for welfare based on need not race, and to her attacks on multiculturalism.

Again, Latham is courageous in confronting the realities of a Labor migration policy that resulted in one in four migrants remaining on welfare five years after their arrival, and that added to the stresses of urban underclass neighbourhoods (250).

In short, Latham's thesis is the need to replace big government and mass welfare with individual empowerment, equality of result with equality of opportunity.  Welcome to the Liberal Party, Mark!  But not so fast -- the problem is not with the thesis, but in how he applies it.  What he wants is more of the same, or in his words, a social democracy that is not "vulnerable to the small government agenda of the political Right." (191)

Establishment of demand-side markets in education and health may not be cheap, depending on the generosity of the government voucher -- and Latham's scheme sounds very generous.  There is no attempt, for instance, to address the problem of middle-class welfare:  entitlement is for every citizen.  So, how is it all to be paid for, in an economy where toohigh taxes will drive investment capital overseas?  Latham's answer is a progressive expenditure tax (PET) -- a GST on steroids.  Like the GST, it is levied on consumption, but unlike the GST, the level of the tax depends on one's expenditure per annum.

One has to look deep in the back of the book, in Appendix III, to find the details of this tax, and they are not pretty:  on an annual expenditure of $40,000, the marginal tax rate would be 400 per cent.  So you want to buy groceries?  Quadruple the bill -- and that's just the tax.  An interesting result of such punitive taxes for high earners would be the massive brain drain Australia would experience, with those capable of earning high incomes (and trained to that capability by Latham's generous higher-education vouchers) looking for less punitive pastures overseas.  It is not just capital that can flee in the era of globalisation.

In spite of his disavowal of the nanny state and recognition of individual need, Latham cannot quite bring himself to trust individuals to make their own choices.  So his "devolution paradigm" is half-hearted:  he sees citizens "aggregat[ing] their entitlements into selfgoverning units of public administration" (301).  Of course, this would solve his dilemma of what to do with all the public servants whose jobs might otherwise disappear with the empowerment of individual citizens.  To give him his due, he also sees such units as a way of building trust and co-operation, those necessary building blocks of civil society.  However, as coercion is the least likely way to produce these civic virtues, the success of Latham's plan would depend considerably on just how far he was prepared to empower -- trust -- the individual.  Latham's thesis throughout the book is built on the failures of the state, yet the solutions he proposes are ultimately statist:  he cannot accept the consequences of his own arguments.

In his words, the devolution paradigm "recognises the limits of state control and coercion, while also rejecting the primacy of the individual as an answer to social needs and the logic of collective action." (299)  In a century when the logic of collective action has brought us governments from Nazism to Communism and the failed welfare state, one wonders what it takes to destroy faith in such a system.  Nor will such "logic" bring trust, as Latham argues.  A society and its government need a healthy respect for the individual before that individual will reciprocate with trust:  the insecure don't trust.

Apart from the many disjunctions in the book arising presumably from the attempt to be both intellectually honest and politically loyal, there are a number of arguments which do not stand up.  For instance, Latham criticises Australia for not having developed "the voluntary networks of civic life" (283).  Had he grown up in the country, as I did, he would never have made such an assertion.  Even in urban Australia, there has been a flourishing network of community organisations, from Rotary clubs to rosegrowers.  Such community networks are now in decline across the developed world (although bushfire brigades and other organisations are still a fundamental feature of rural communities), but our history cannot be reduced to a "bi-polar" dichotomy between "State paternalism and mateship bonding" (283).  That is too simplistic by half.

Again, Latham uses John Rawls' theory of justice to defend his big-spending welfare policies.  This argues that, ideally, resources should be allocated behind a "veil of ignorance" -- with the allocators not knowing whether or not they would benefit -- and should be distributed equally, unless an unequal distribution is to everyone's advantage (152-154).  Apart from the slight inconvenience that the veil of ignorance can never be more than theoretical or at best partial, the problem with Rawls is that his theory is a justification for all the sorts of "segmentation" that Latham argues against elsewhere:  discrimination on the basis of group and behavioural characteristics.  And where to stop?  As the American Steven Landsburg has demonstrated in his refutation of Rawls (Fair Play:  What Your Child Can Teach You about Economics, Values, and the Meaning of Life), the logical consequence of Rawlsian theory is to tax arbitrary traits that are reliable indicators of earning power -- for example, maleness and height.  Then again, as I am neither female nor short. ...

Yet these criticisms and others should not discredit Latham's enterprise.  The book is a rich mine of ideas.  Some of them may be fool's gold, but there remain many seams to be exploited, and the overall result is an enrichment of political debate in Australia.  I still have hope for the author:  anyone who can say things like "most forms of competition, be they economic or social, are underpinned by active co-operation and social interdependence" (292) and "the state ... needs to get out of the habit of telling people what to do" (304) is surely ripe for recruitment to the Liberal Party.