Malcolm Turnbull has a big problem. No, it's not Peter Costello. Turnbull's problem is much larger than that. The problem for Turnbull is that in the present economic crisis, his and his party's economic philosophy appears to be deeply unpopular. All the indications are that the electorate believes that "neo-liberalism" is to blame for the crisis.
Such a belief is understandable. There aren't too many people who have argued that the crisis could be the result of too much government rather than not enough government. We have discovered that the adherence to neo-liberal orthodoxy over the past few decades might have been broad, but it wasn't deep. The self-proclaimed champions of reform have either stayed silent or have fully embraced the new Keynesian orthodoxy.
Turnbull and the Liberal Party have been left isolated as the only ones arguing against more government spending, more debt, and more regulation.
The scale of the task confronting anyone who still wants to argue the merits of neo-liberalism is made stark when someone like Paul Volcker, a former chairman of the US Federal Reserve, says, as he did a few days ago, that the global economy is only operating "by the grace of government intervention".
In a few years, as federal budget deficits grow, government debt balloons and interest rates rise as a result of the decisions Labor is now taking, it will be satisfying for the Liberals to announce "I told you so". But this is at least one, if not two elections into the future. Turnbull has to decide what his strategy should be in the meantime.
So, as Lenin once famously asked, what is to be done? For a start, the Liberals can begin by realising there's no point in following the ALP down the path of bigger government and more regulation. To do so would be to contradict everything they stand for.
Worse, there's no political benefit in doing so. Had Turnbull endorsed Prime Minister Kevin Rudd's second stimulus package, he would have made himself irrelevant as there then would have been no difference between the parties.
If the average voter were to decide on "which political party do you believe will do a better job at re-regulating the economy", there's no contest. As soon as the Liberals start fighting not about the merits of regulation but about the details, they've already lost because they're fighting on Labor's terms. It's a point state Liberals haven't yet appreciated. Labor premiers have turned the politics of state government into a debate about who'll spend more money on teachers and nurses. It's an argument Liberal state oppositions will always lose.
The key task for Turnbull is to make it clear that free markets are not an end in themselves. Free markets allow people to make their own decisions based on their own assessment of what is best for themselves. Free markets are simply the means to a better quality of life for individuals and their families.
The Liberals have to be brave enough to say that when decisions are removed from the market process and handed instead to public servants, people lose their freedom of choice.
Take, for example, the measures announced this week by the federal government attempting to ensure banks only engage in "responsible" lending. Leaving aside the question of what's "responsible" lending in the first place, there's the issue of the extent to which individuals should be allowed to make their own decisions.
The practical effect of "responsible" lending policies is to deny those on low incomes the freedom to enter into a contract to borrow money.
It's probably little consolation to Turnbull that he's not the only political leader facing this sort of problem. Centre-right political parties around the world are confronting the fact that what's happened to the world economy seems to repudiate everything they stand for. Whether centre-right parties are quite as neo-liberal as their critics portray them is beside the point -- those parties are perceived to be neo-liberal.
Furthermore, the parties perceive themselves as neo-liberal. It would be impossible for Turnbull to stand up tomorrow and say "we got it wrong, neo-liberalism is a failure". For one thing no one would believe this is what he actually thinks. And he'd last five minutes as leader. Although they don't always put it into practice, most Liberal MPs still believe in smaller government, lower taxes and less regulation. In the midst of the assault on neo-liberalism, the challenge for the Liberal Party is to stand by those beliefs.
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