When Josh Frydenberg invokes Thatcher and Reagan as some sort of template for post-pandemic Australia, he’s either profoundly ignorant or has in mind something quite different from the government’s professed agenda of jobs growth.
Perhaps Frydenberg pays more attention to Reagan’s rhetoric than the historical record. Despite Reagan’s legendary hostility to government, its size significantly increased on his watch: US government spending increased as a proportion of GDP from under 36% under Carter to nearly 38% under Reagan (much of it flowing to defence corporations), and debt to GDP soared from below 40% of GDP to over 50%.
In fact, Reagan perfectly fits the post-war US tradition that Republican presidents are less fiscally disciplined than their Democratic counterparts — though Reagan was the worst of the lot until Trump. For a “hate figure of the left”, Reagan sure loved big government.
Reagan’s problem was he loved tax cuts, but never backed them up with spending cuts — indeed, his “supply side” advisers insisted tax cuts magically paid for themselves. But if Frydenberg bothered to check, he’d know Reagan cut taxes twice, but also increased them.
In 1986, Reagan cut the top marginal rate, but actually eliminated a lot of loopholes and ended up raising tax revenue as a percentage of total federal revenues. The federal revenue share of GDP fell from 19.6% in fiscal 1981 to 17.3% in 1984 — but rose back to 18.4% by fiscal year 1989.
Thatcher was more disciplined than Reagan, but only in the second half of her premiership; the first half was dominated by what was at that time the second-highest government spending in post-war UK history, and it was still over 35% of GDP when her own party kicked her out.
Given Frydenberg is boosting spending to nearly 34% of GDP this year, he’s well on his way to emulating his heroes, just not in the way that he perhaps thinks.
But it appears that it is in industrial relations — “the first cab off the rank” for government reform, we’re told — that Frydenberg wants to copy his ’80s icons. If they weren’t especially successful at reducing the size of government, Reagan and Thatcher were more successful at curbing the power of trade unions.
That’s reflected in wages growth in that period. In the US, wages growth since 1979 has been a fraction of wages growth in the post-war years to 1979. Real wages actually went backwards for most workers under Reagan. Moreover, wages growth became very unequal, with the wages of the top 10% of workers growing far more strongly than for low-paid and non-management workers.
In the UK, while real wages growth stayed positive in the 1980s, Thatcher ushered in a period of declining real wages growth that culminated in real wages falling over much of the last decade. That played a crucial role in driving the Brexit vote, along with the continued economic desolation of much of northern England since the shutdown of mining and manufacturing under Thatcher.
With wages growth having been stagnant while the Coalition has been in power, and with the wage price index forecast to crawl to just 1.25% growth this year, how much more wage restraint does Frydenberg think we can take? How much more can the economy take, given wage stagnation has been so important to reducing economic growth that the Reserve Bank governor resorted to pleading for wage rises?
And how much more “flexibility” does Frydenberg think workers can handle? Victoria is now enduring the direct impacts of workplace “flexibility”, with casual, gig economy and precarious employment workers forced to go to work in service jobs while infected, spreading COVID-19, endangering lives and causing an economic lockdown.
One legacy of Thatcher’s Britain that has received growing attention in recent years is zero-hours contracts, in which workers, usually female and often young, have no minimum guaranteed hours a week and are permanently on-call for shifts. The use of zero-hours contracts has increased by over 300% in the UK in recent years and Australian employers are now calling for an extension of JobKeeper “flexibility” to permanently enable the use of similar rostering arrangements.
While pitched by employers as temporary arrangements for students and young people, around a quarter of UK zero-hours contract workers have been in them for five years. Evidence shows they impede career and job prospects, deprive workers of training opportunities and enact a significant mental and physical toll.
Will more wage stagnation and more precarious workers drive economic growth?
In citing Reagan and Thatcher, as well as Howard and Costello, Frydenberg ostentatiously avoids mentioning two far more successful reformers, Hawke and Keating, who deregulated and liberalised the Australian economy while protecting workers’ living standards through industrial relations protections, Medicare and superannuation.
Perhaps Frydenberg’s goal, though, isn’t strong growth of well-paying jobs, but something else that reflects the legacy of Ronald Reagan. While wages went backwards for many American workers and inequality surged under Reagan, he also enabled a long-term rise in corporate profitability, mainly via deregulation that allowed America’s biggest firms to merge, decreasing competition while boosting returns to shareholders and company executives. The result now is an economy that even The Economist argues has too little competition and too many rich, lazy firms.
Is that the legacy Frydenberg really has in mind?