Austrians and Australian public ideas

It's hard to find refuge from the market place.


Our evening meals are interrupted by a call from an electricity company with a new mobile package, or from a real-estate agent to say they have a buyer for our house — even though we have no intention of selling. Our media are saturated with advertising and there are calls to hand over the ABC to commercial interests. Our casual clothing is festooned with brand names. Our airports have been transformed into shopping malls. Our highways have become avenues of advertising billboards. Even our sports are not immune; playing fields are girt by advertising and the Melbourne Cup has become the Foster's Melbourne Cup.

There was a time when participation in the market was a matter of choice. It was my decision whether to put my house on the market. If I bought a ticket to the football or the Melbourne Cup, I did so to enjoy that sport, not to be delivered by an advertising agency as a captive audience for airlines, banks and breweries.

Similarly we made certain collective choices about the boundaries around markets. We chose to finance some of our broadcasting through our taxes rather than advertising, so that we would have more real choice of media. We chose that our basic utilities would be delivered through natural monopolies, but now, in the name of ‘competition policy' we are forced to make a choice between retailers, even though we cannot be offered any product choice; we all want the same clean water and reliable electricity delivered at 50 cycles and 240 volts.

The freedom to choose when to engage in the market, and what to leave out of it, is being denied. It is hard to escape the 24/7 market, or what may be called the ‘market society'. All space is market space; all time is market time. Like graffiti artists who paint ‘tags' to claim their territory, commercial enterprises search out and lay claim to any space remaining in the public sphere, the most recent example being the SBS.

Freidrich Hayek — the champion of the ‘market society'

The ‘market society' is the realization of Freidrich Hayek's vision. Hayek was born in Vienna in 1899, but, like so many intellectuals from the old Austro-Hungarian Empire, he found his academic home in the US and the UK. In 1974 he received the Nobel Prize in Economics, and is widely regarded as the doyen of what is known as the ‘Austrian' School of Economics; an ideology which places the market at the centre of our societies, displacing all or most other social arrangements.

According to the Austrian School, the market, with its wonderful mechanisms of regulation and adjustment through price signals, replaces more ‘primitive' arrangements, such as sharing and collective agreements based on social norms. To the extent that individuals behave with motives other than their own self-interest they are seen to be hurting the interests of all.

In Hayek's view the role of government should be limited to ensuring that markets work, and to providing a parsimonious level of welfare. Governments which intervene in markets are heading down what Hayek described as the slippery slope of totalitarianism, for the only freedom worthy of the name is market freedom. The only institution to be quarantined from the market is the family, though Hayek gives no justification for this view and his definition of ‘family' is confined to a small group separated from the wider world. When we step outside the white picket fence we leave behind values such as compassion, friendship and solidarity. All transactions are market transactions; there is no point in doing anything for anyone else, unless it's part of a market exchange. We lend a helping hand only to those likely to reciprocate.

Hayek's influence came to the forefront in the 1980s, particularly with the election of Margaret Thatcher in the UK, and by the time he died in 1992 he was to see governments of both conservative and social democratic traditions embrace much of his rhetoric and at least some of his policy recommendations. In Australia the most visible influence of the Austrian School is what is known as ‘National Competition Policy', which has seen the break-up of energy, water and telephone utilities, and a championing of competition as an end in itself, even when it brings no demonstrable benefits. The deregulationist push of the last twenty years also owes much to the ideology of the Austrian School.

No government has really picked up the full Austrian philosophy. Democratic governments need to get re-elected, and non-democratic governments are notorious for suppressing all freedoms, usually including market freedoms. Governments tend to hold back on competition and deregulation when their political allies would be threatened. In Australia pharmacists and health insurers have been protected, and Hayek would certainly not have approved of the gift to the financial sector represented by compulsory superannuation.

The main influence of the Austrian School has been more subtle and pervasive than its direct application to competition and deregulation. It has helped embed a notion that governments are intrinsically incompetent. Even if the market sometimes fails, such failure is less deleterious than the inevitable failure of government. Whatever the shortcomings of the private sector — such as the disastrous private-public partnerships in NSW's road and rail works — the public sector would have done worse. (It's a notion which another Austrian philosopher, Karl Popper, would have ridiculed, for the claim that the public sector would be less competent than the private sector is incapable of test and refutation.)

Governments themselves are described in market terms, where the currency is votes rather than dollars — a dismal theory known as ‘public choice'. Politicians' only interest is their own re-election, and public servants' only interest is in spending the money they collect through taxes. Citizens give way to ‘consumers' or ‘clients', and political parties compete not on the basis of public ideas, but on the basis of the short-term marketability of their proposals.

This is the background to decisions such as transforming universities into businesses, selling government assets, and generally neglecting public infrastructure. The notion that there are no values other than market values has eroded our social capital. Charities have become businesses, paying six digit salaries to their executives. We have become suspicious of people who give their time or other resources to community service, as if the only explanation for such service is some extrinsic reward, such as appointment to a paid public office.

Karl Polanyi — the prophet

Another Viennese-born economic philosopher was Karl Polanyi. His lifespan was a little earlier than Hayek's, but his formative experiences would have been similar. Polanyi was born in 1886, and over his life he fled from two totalitarian regimes — the Hungarian Soviet Republic and the Nazis' domination of Austria. Like Hayek, he lived and worked in the UK, but there the comparison ends.

His most influential work was The Great Transformation, written in 1944. In this book Polanyi pointed out that throughout most of history markets had been subservient to and contained within society, governed by society's norms. He had seen the tyranny of two brutal ideologies in his own lifetime, and he prophetically foresaw the emergence in the postwar era another tyranny — the all-encompassing market. He was particularly critical of the notion of a ‘labour market'; while we may produce clothes, cars and other goods for sale on a market, we do not produce people for such instrumental ends.

Polanyi died in 1964, before he was to see realization of his prophetic warning. In 1964 the market was still carefully contained. There were import tariffs and quotas, shopping hours were regulated, and universities did not have marketing executives in their administrations. Most importantly, there were strong policies and institutions to protect workers from the brutality of a market in which many workers possessed little economic power. The ‘market society' was yet to emerge.

Many of these mechanisms are no longer workable, and many had perverse consequences for people's welfare. Tariffs, import quotas, restricted shopping hours, and protection of cartels all resulted in some level of exploitation of the most vulnerable, to the benefit of corporate profits. Governments, particularly those in English-speaking countries, have generally helped demolish these mechanisms, and few people regret their passing, but governments have failed to acknowledge any need to contain the market through other means.

Polanyi's work was influential in mainland Europe, and, until economics courses devolved into the fantasies of mathematical modelling, most economic undergraduates would have been introduced to his ideas. In Australia, however, he remains virtually unknown. His ideas are too hard to classify in a world where simple labels must be put on ideologies. But they have recently re-emerged in an articulate critique of Hayek's philosophy.

Kevin Rudd's critique

This critique was Kevin Rudd's address to the Centre for Independent Studies (CIS) on November 16 2006, at which he articulated a vision refuting Hayek's extremism, while still acknowledging, as Adam Smith did, the tremendous power and potential benefits of markets, providing they are properly regulated. While he did not explicitly refer to Polanyi, Rudd's address was virtually a condensation of his work. He was particularly critical of the notion of the all-pervasive market, and echoed Polanyi's moral point that ‘labour' is not a commodity produced for exchange in an impersonal market.

In contrasting Hayek and Smith, Rudd said:

Smith concluded that human beings were, in their nature, both self-regarding and other-regarding and that political economy should reflect both these concerns. Hayek also recognises the existence of both natures but concludes one is primitive, the other modern; that the primitive must yield to the modern; and that part of the purpose of the market is to re-engineer primitive altruism out of the human condition altogether. I would suggest that Christian enthusiasts for the neo-liberal agenda should reflect carefully on where Professor Hayek may be taking them on this count.

Rudd wasn't groping around for some insipid ‘middle ground' or ‘third way' — an immiscible concoction of socialism and capitalism, of laissez faire and regulation, of individualism and collectivism. Rather, he was articulating an economic philosophy strongly reminiscent of Polanyi's — the market has its place, but society is paramount. There was no talk of a tradeoff or balance between ‘social' and ‘economic' objectives, because it is a fundamental error of categorization to suggest a policy can be good for the economy but bad for society. Such an articulation makes no more sense than the apocryphal statement from Vietnam ‘we had to destroy the village in order to save it'.

He also articulated the plain and time-honoured notion of the role of government in stepping in where markets fail:

. . . social democrats, consistent with Smith's more expansive definition of public goods, argue that education, health and the environment fall properly within the definition of that which markets will, of themselves, fail to provide effectively. The manner in which these public goods are delivered is a separate matter. A cocktail of private and public delivery modes may be appropriate, depending on the relative cost-effectiveness in the physical delivery of the public goods in question.

Those who believe that Rudd is harking back to an earlier era of a closed economy or industry protection would do well to read his CIS speech carefully. Rudd, with his observations of modern China, hardly needs to be convinced of the benefits markets can bring. Furthermore, in articulating a clear, conventional role of government, he is not arguing for ‘big' government. A government guided by such a clear demarcation of its role would be unlikely to waste billions on rebates for private health insurance, pork-barrel projects such as the ‘Roads to Recovery', or subsidies to the banks in the name of drought assistance.

We may be seeing a re-awakening of debate on ideas. If so, the 2007 election will be about something more substantial than the budgetary costing of election promises, the disjointed programs targeted at voters in marginal electorates or the misleading claims about competence in economic management. It will be an election about public ideas.