The lessons of the Accord for Modern Times: think outside the box

The Accord tried to set the course for alternative economic policy, but despite the talk from Labor figures such as Kevin Rudd and Wayne Swan, this has not come to fruition with the current government. AAP/Lukas Coch

The Prices and Incomes Accord, that historic agreement between government and unions born 30 years ago, may have disappeared into history. But its most enduring and important lesson arises from its role as a challenge to dominant ideas.

The Accord developed at a time when the only response to inflation appeared to be to slow down the economy.

The market liberal agenda had swept through the English-speaking world, especially in the UK with “Thatcherism”, the US with “Reaganomics”, and New Zealand with “Rogernomics”.

The Accord was a challenge to this model. It brought about a period in which the government worked under contesting ideas. There was no uniformity of thought. When these two big ideas were in contest – market liberalism and the modified Keynesianism of the Accord – sometimes one idea won out, sometimes the other idea did.

The development of an alternative model culminated in the production of Australia Reconstructed. That encountered huge resistance from the central coordinating departments, who were happy to see wage restraint but not the interventions to underpin it and who mostly, but not entirely, blocked it.

But that was not the death of the Accord. Many initiatives were developed. Many new spending decisions only got up because they were Accord commitments. The Accord also packed a punch when it came to resisting some of the more strident reforms proposed by Finance or supported by Treasury.

As times change, so do the problems.

In the 1970s and 1980s, the problem was competition for rents. In an economy with many areas where product markets were poorly competitive, especially in relation to overseas-produced goods, there were opportunities for parts of both labour and capital to extract rents. This competition for rents became a spiral that heightened the problems of simultaneous unemployment and inflation.

A different kind of Accord is needed now. AAP

But these days labour’s ability to extract rents is minimal, because unionisation is much lower and product markets more competitive. You might read about “wage explosions” on the front page of some newspapers, but you cannot actually find them here.

These days rents are still being extracted, but by different groups - essentially the extremely high income earners, the CEOs, directors and managers of top firms, parts of the finance sector, and the like. The old problem of general inflation (and of responding to it) has been superseded by the narrower inflation of executive remuneration and of the incomes of the rich – what some people call “the 1%” – and asset price bubbles.

So a key problem now is that the benefits of growth are being skewed towards that group. It is true that some people have said that government should not be about class warfare. But in an interview published in November 2006, Warren Buffett, one of the world’s richest men, said:

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

And there are reasons why he said that.

Three decades of market liberalism have brought about no productivity benefits – productivity growth has been no higher since the reforms started than beforehand – but they have brought about a major shift in who benefits from that growth in productivity.

A key part of that approach, not just nationally and not just in Australia, has been cutting back the public sector - so there’s been erosion of the social wage. Despite media teeth gnashing over “middle class welfare”, the social wage, relatively, benefits the low-paid the most, and so cuts to the relative size of the public sector have been part of a transfer from the less well-off to the very well-off.

And we’re not just talking about problems of production and distribution. Deep down, we’re looking at a crisis that gets to societal survival. That’s the challenge posed to us by accelerating climate change.

Rather than make the economy more resilient, the ascendancy of market liberalism exposed the world to the vulnerabilities demonstrated by the global financial crisis. Six million workers lost their jobs – though luckily Australia was more protected than most as a result of its greater regulation of financial markets and its implementing one of the strongest Keynesian responses to the crisis in the OECD.

The “Great Moderation” of the 1990s and early 2000s failed spectacularly - what we needed was the “Great Alternative”.

So with the financial crisis came signs that the Labor government in Australia was developing an alternative view of the economy that was more critical of and less dependent on markets. There was Kevin Rudd’s famous essay decrying neoliberalism. And more recently there have been a couple of efforts from treasurer Wayne Swan.

But in between, and since, there has been little sign of a coherent alternative view of the economy, or indeed of much at all. The discipline provided by the Accord idea, that constrained Labor and kept on bringing it back on track, or at least towards the track, has been absent.

The discipline provided by the Accord idea has been absent for Labor.

Instead, over the last four years, apart from those brief flirtations with counter-hegemony, the only institutionalised balance to market liberalism has been the focus groups and the hollow men with their self-perceived need to feed the media machines.

And an incoherent outcome has followed, not unlike the undirected wonderings and traumas in response to the pressures of modern times experienced by Charlie Chaplin’s character in the movie of that name. There have been some brilliant policies, but also some shockers.

When commentators and party insiders say “there’s no narrative to Labor”, what it really means is “there’s no coherence”.

It’s not a uniquely Australian problem. In Europe, as here, a moment seemed to exist in the midst of the global financial crisis when there was a chance of an alternative approach being followed. But that moment passed when the coherent alternative failed to be articulated, and unions there now see the question as being not “how should we respond to this crisis” but “how can we respond to the inevitable next one”.

An Accord-style agreement between the industrial and political arms of the Australian labour movement was needed to deal with the incomes competition of the 1980s, but it is a different type of incomes competition now.

It does not mean that what might have once been called Accordism is no longer relevant. Certainly, that 1980s style agreement would not solve today’s problems. The issues have to be approached differently – but with a key concept in common.

If the Labor Party is to be a viable governing party it needs to extend beyond its present confines, as it did in the 1980s, and work with others. It needs to again develop an alternative to the dominant paradigm, to enable the distortion of income shares to be dealt with.

If there were to be a new Accord, it would obviously be a very different approach to that in the 1980s and 1990s. It would, very obviously, have a different name. It would be constituted differently – involving not just the ALP and unions, but also non-government organisations – in welfare, environmental, women’s and related areas – and probably academics. Because it would be about developing coherent alternative ideas, and developing coherent responses to a different, and in some senses broader, set of problems.

That does not mean it would be aimed at developing a nationwide consensus. That would not be possible. (Neither was the old Accord aimed at consensus, though it was often seen as linked to the temporary and illusory consensus that emerged with business after the summit.)

That said, in thinking big, about the Great Alternative, for want of a better term, there is some potential for consensus with parts of capital, in particular over climate issues.

Facing the wilderness: When commentators say there is no narrative to Labor, they mean there is no coherence. AAP

I say that because there is, even within finance capital, a conflict under way between short-term and long-term interests – the former represented by those belonging to such bodies as the Investor Group on Climate Change, the UN Principles for Responsible Investment, or John Hewson’s Asset Owners Disclosure Project; the latter represented by hedge funds and many private equity and other investors.

So there may be some role for engaging with the more forward-thinking parts of capital, including crucially parts of finance capital. Though the names involved might not be the commonly used names that Labor has liked to get inside its tent.

But this process of developing a Great Alternative, through acting and thinking outside the boxes in and around Capital Hill, can be done. And it needs to be done.

Labor faced the wilderness after 1975, if it did not come up with a new way of thinking to deal with the crisis that had emerged while it was in government. So it did. And it needs again, now, to find a way out of the wilderness it seems destined to shortly enter. That is the lesson of the Accord, for now.

(This is an edited extract from an address to The Accord 30 Years On Symposium in Sydney.)