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Challenging a paradigm

In my travels today, I have hour-to-hour commitments (sort of like wall-to-wall) and so I have called in our guest blogger, Victor Quirk to provide some further fuel for debate in my absence. I will be back in my office on Monday although the Saturday quiz will appear tomorrow sometime. So today Victor is talking about how we go about challenging a paradigm from his perspective as a political sociologist. Over to him.

The challenge

As some of you already know, I’ve spent a few years now looking at the issue of why Australians forgot that their government eliminated unemployment for thirty years after WWII, during which time living standards improved, the nations productive capacity expanded, and in many respects, the country enjoyed a golden economic period.

Then in the 1970s, in line with similar moves around the world, full employment was abandoned, initially by way of treacherous bureaucrats inducing a credit squeeze behind the back of the Whitlam government, and subsequently consolidated through cuts to public sector employment under conservative Australian Prime Minister Fraser. These developments were accompanied by a corporate funded “economic education’ campaign that began in 1976, modelled on a campaign that had been running for several years in the USA, that espoused the free market, small government, household budget propaganda in which we have now marinated for a generation.

Strapped for cash after fighting four federal elections in five years, the Australian Labor Party (ALP) under Bill Hayden from 1977, abandoned its commitment to full employment and embraced the “sound economics” mantra in order to attract corporate financial support for the ALP. When Labor returned to office under Hawke in 1983, despite the rhetoric of the National Economic Summit, there was no intention of restoring full employment. Labor was safe for capital. The Hawke/Keating governments proceeded to then embed the corporations agenda in Australia.

The economic orthodoxy that was installed during this period has prevailed despite never achieving the levels of employment and social equity achieved under the economic regime it displaced. As advocates of a restoration of full employment, Bill Mitchell and certain other post-Keynesian economists have mounted a strong case that preserving the current regime is not justifiable on any empirical basis. It is not efficient, it is not equitable, it is socially destructive, it is unnecessary. Plentiful employment is perfectly feasible, and the country would benefit in a multitude of ways by its establishment.

The old paradigm nevertheless remains firmly embedded as the foundation ideology of economic and public policy in this country. Why?

Conjunctions of economic and political power

Of the quarter million US embassy cables gradually being released by Wikileaks, the most interesting to me are those that reveal the unethical and clandestine strategic ploys of the wielders of economic power, where we see corporations pursuing their interests through covert and unethical political activities which government(s) around the world evidently knowingly condone and abet.

Some examples are the Paris Embassy cable calling for sanctions against European states opposed to the introduction of Monsanto’s genetically modified crops, Shell Oil’s extensive penetration of the Nigerian public service that enables it to monitor every move the Government makes, Pfizers use of private investigators to get blackmail material on an Attorney General … and so on.

The deference and respect governments outwardly appear to have for these companies in public has to be squared with the certain evidence being almost daily released that the US government (and probably most others) know precisely how these companies misconduct themselves across the globe. What we see is that corporations and governments do not behave as they would have the public believe.

Generally, it is this discrepancy between what the public is told and what is actually happening that produces the shock value of these releases, as Carne Ross in the New Statesmen (January 12, 2011) spells out:

… the most embarrassing thing about the WikiLeaks disclosures is not that they happened (though this is bad enough for the American government), but the revelation – long suspected but now proven – of the yawning discrepancy between US words and actions in that most contested area, the Middle East. Cable after cable details the extraordinarily intimate and codependent relations between the US and various despotic and unpleasant Arab regimes. One Arab intelligence chief plots with the Americans to target Iranian groups, or destroy Hamas. Another undemocratic Arab leader invites US bombers to attack targets in his own territory. It is this discrepancy – between word and deed – that will keep fuel in WikiLeaks’s tanks and those of others like it.

We should not be too surprised by the Wikileaks accounts of governments colluding with business in their unethical practices, since without this occurring a wide scale, openly known global business practices could not happen:

More than half of world trade passes, at least on paper, through tax havens. More than half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. An impression has been created in sections of the world’s media, since a series of stirring denunciations of tax havens by world leaders in 2008 and 2009, that the offshore system has been dismantled, or at least tamed. In fact quite the opposite has happened. The offshore system is in very rude health – and growing fast (Nicholas Shaxson, Guardian, January 9, 2011).

Certainly, the idea that governments and business interests collude and pursue their economic interests through unethical and clandestine means, is not really new. Practices such as those being revealed in the Wikileaks material are captured by the term “extra-market operations”, first coined by the Australian economist E.R. Walker in the 1930s:

Extra-market activities might be taken to cover all behaviour outside the market; extra-market operations are only those extra-market activities which are directed toward ends which may be sought and are sought also through operations in the market (Walker, 1943:100).

He cites as examples the National Cash Register Company which “has been convicted for malicious libels in regard to competitors; and for causing its agents to injure internal parts of rival machines when in use, and similar practices”, and J.D Rockefeller’s “attempts to prevent the construction of pipelines in competition with the railways under his control”:

His agents frightened the farmers over whose lands the pipes must pass, by stories of poisonous gas leakages and unquenchable fires, and gangs of railway employees attacked the workman laying the pipes” (Walker, 1943:102).

Walker questioned why economists failed to acknowledge economic phenomena beyond sterile conceptions of “the market”. Drawing on Gunnar Myrdahl’s 1929 study The political element in the development of economic theory, Walker criticised the “theoretic blight’ of his discipline, in which the discordance of its theories with observed reality led to many spurious conclusions:

… the abstraction of economic aspects of behaviour from the rest of social life is a comparatively new achievement of the human intellect and its value is not self evident (Walker, 1943:4).

Walker thought that extra-market operations arise “because they promise better results than can be achieved by strict adherence to market activities under existing conditions” (Walker, 1943:111).

Even observers of early capitalism noticed these propensities to discretely rig the results of market activity, as when Adam Smith famously observed:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The propensity of business people to organise themselves to gain advantage over the wider community was just as candidly particularised by 19th Century Australian business leader Bruce Smith, founder, in 1885, of the Victorian Employers Union, when he declared:

Almost every section of our mercantile community, that is to say those who conduct their business on the most modern principles, has its “ring”. The banks “associate” themselves for the purpose of keeping up the rate of interest on their advances, and keeping down the interest on deposits. The merchants, who deal in any particular line of merchandise such as timber, iron, or coal, are constantly endeavouring to keep up the selling price by a process of combination; and they actually do so for a time, until, as a result of greediness or deception, they come to distrust one another, when the “ring”, so to speak, falls to pieces and competition is again rife until some fresh arrangement can be agreed among the competitors. The shipowners, in the same way, have their “ring”, and by doing so they maintain their freight rates so long as the “ring” can be held together (Svenson, 1995:8).

Of course both Smiths lived in times and places when parliaments were dominated by wealthy interests, owing to property qualifications and restrictions of suffrage, and so the mixing of commercial interest with public policy took place in plain view.

For a while during the early 20th century some thought that universal suffrage and working class parliamentary representation would make government more of an instrument of the people, protecting them from exploitation and other manifestations of greed by the financially powerful. Alas, it was not to be. As the late Alex Carey observed:

The twentieth century has been characterised by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy (Carey, 1995: 18).

This development has been itself an exercise in clandestine strategic coordination, since it is most effectively done when those who pay for it are not openly associated with those who front for it. Despite these practices becoming increasingly well documented and understood, the corporate funded propagandists are so well established that they continue to be treated as legitimate sources of information even when they are openly understood to be paid propagandists for unidentified interests. The frequency with which Centre for Independent Studies speakers appear on the ABC is a case in point.

As for the contribution private think-tanks make to public debate, often their only objective is to muddy the waters – not to propose something different that they believe to be true and can support with evidence, but to make others doubt the truth when they hear it.

For example, you can listen to Naomi Oreske’s (Professor of History and Science Sstudies, University of California) fascinating talk on the ABC Science Show about corporate think-tank techniques used by the tobacco industry and now adopted by corporate-funded propagandists opposed to environmental regulation to cast doubt on inconvenient scientific evidence.

While business propagandists had existed for decades prior to the paradigm shift of the 1970s (the Institute of Public Affairs was established in 1945), much of the modern corporate propaganda that today pours from corporate think-tanks around the globe, seems to owe its origins to a call to arms drafted for the US Chamber of Commerce in 1971 that is worth briefly considering.

The Powell Memorandum

If we travel back in time to the early 1970s, to the time of continuing post-war full employment in countries like Australia that so empowered their labour movements, or to the USA following the social liberalisation of the 1960s, where the civil rights and anti war movements had such impact, we observe significant numbers of people in the press and academia openly critical of the corporate establishment and its interconnectedness with government.

University students protested against the military industrial complex of which Dwight Eisenhower warned in his final Presidential address, speculated on official complicity in the killing of JFK and RFK, saw the Vietnam War as an act of imperialist aggression, and anticipated a better world when it was their generation’s turn to take the helm.

These developments were viewed with alarm by the US business establishment. On August 23, 1971, corporate lawyer Lewis F. Powell Jr. wrote a confidential memorandum entitled – Attack of American Free Enterprise System – for the U.S. Chamber of Commerce. It was discussed the next day by the board’s executive and circulated to the company CEO’s comprising the Chamber’s membership. A few months later, Richard Nixon appointed Powell to the bench of the US Supreme Court.

It depicts US capitalism as under siege from within, and criticises corporate America for its failure to meet the threat with sufficient resolve. Along with outspoken radicals, mildly critical liberal academics, progressive journalists and entertainers were also condemned:

… famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.

Powell continued:

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”

Any criticism of business interests was evidence of the system under attack. He cites a columnist arguing proposed tax concessions would benefit:

… only the rich, the owners of big companies.

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

Powell urged corporate America to see it as a fight for survival:

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself.

A primary focus, he argued, must be the university campus:

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or of moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues

Establishing “balance’ meant equal time be given to pro-business speakers at social science seminars.

The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Which makes one wonder what Milton Friedman and his colleagues at the Chicago school were teaching.

His recommended strategy for meeting the campus crisis included urging the Chamber of Commerce to establish a:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom.

More generally he urged collective action:

Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations. Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

Various wealthy CEO recipients of this memorandum responded by establishing now infamous think tanks and libertarian foundations for the purpose of strenuously advancing the “free enterprise”, small government, anti-regulation mantra we have now heard for a generation.

It also led to the massive 1970s “economic education” campaign, at that time the largest marketing exercise in US history, in which the message was hammered into the schools, workplaces, the media, bureaucracy, with text books, training films, radio broadcasts, public lectures, Friedman’s Free to Choose TV series, etc, all of which paved the way for the Thatcher and Reagan years.

The organisers of the campaign were brought to Australia in 1976 to run it here to prepare the ground for the Fraser, Hawke/Keating and Howard governments.

The details of this episode are documented in Alex Carey’s Taking the Risk out of Democracy, and more recently in several papers and books by Professor Sharon Beder.

Ah plutonomy!

So – we know governments and corporations act in ways that they shield from public view. We know that corporations pay for the propaganda that established and maintains the theoretical underpinning that governments use to fashion much of the public policy of recent decades. Are they simply misguided? Why would they intentionally want to preserve unemployment and poverty?

I realise that from where most of us sit, it is hard to fathom the mindset that would justify the socio-economic domination of the world by nation-straddling corporations, using poverty and unemployment as a weapon for subduing national workforces, but the evidence for it is not hard to find.

I have spent quite a few years documenting the history of business opposition to full employment in Britain and Australia as part of my Phd, but even I was surprised by the hubris with which the authors of the October 2005 Citigroup Equity Strategy report applaud the disparities in wealth of the western Anglo societies (USA, UK, Canada, Australia), what they called Plutonomies, run by and for the top 1 per cent of wealthiest households. It reads like a left wing parody!

… the top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie!

… the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) – the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together (Citigroup, 2005: 3).

What do they deduce from this analysis?

… How do we make money from this theme? We see two ways. The first is simple. If you believe, like us, that the Plutonomy exists, and explains why global imbalances have built up (for example the savings rate differentials), and you believe there is no imminent threat to plutonomy, you must in turn believe that the current “end of the world is nigh” risk premium on equities, due to current account deficits, is too high. Conclusion: buy equities.

There is however a more refined way to play plutonomy, and this is to buy shares in the companies that make the toys that the Plutonomists enjoy (Citigroup, 2005: 22).

In one section of the report they scan the horizon for any signs that the poorer citizens of these countries might call a halt to this wonderful situation.

At the heart of Plutonomy is income inequality. Societies that are willing to tolerate/endorse income inequality are willing to tolerate/endorse plutonomy.

Earlier we postulated a number of key tenets for the creation of plutonomy. As a reminder, these were: 1) an ongoing technology/biotechnology revolution 2) capitalist friendly governments and tax regimes, 3) globalisation that re-arranges global supply chains with mobile well capitalised elites and immigrants, 4) greater financial complexity and innovation, 5) the rule of law, and 6) patent protection.

We make the assumption that the technology revolution and financial innovation are likely to continue. So an examination of what might disrupt plutonomy – or worse, reverse it – falls to societal analysis: will electorates continue to endorse it, or will they end it and why.

Organised societies have two ways expropriating wealth – through the revocation of property rights or through the tax system … [ which they then argue was unlikely to happen].

… There is a third way to change things though not necessarily by expropriation, and that is to slow down the rate of wealth creation or accumulation by the rich – generally through a reduction in the profit share of GDP. This could occur through a change in rules that affect the balance of power between labour and capital. (Citigroup, 2005: 22).

Of course, preserving the power differential between labour and capital, though not explicitly admitted, entails maintaining labour underutilisation.

Conclusion

We have a dominant macroeconomic paradigm, in this country and elsewhere, that budget surpluses are good, deficits are unsustainable, public sector employment is inefficient, governments need to cut spending or raise taxes or borrow money, which drive up interest rates, that full employment means 6-8 per cent unemployment because of a NAIRU … and so on.

Its proclaimed by politicians, bureaucrats, media commentators, think tanks, taught in the universities and high schools, its on the nightly news broadcasts, its in the textbooks.

Despite this Bill Mitchell and his colleagues say on the basis of empirical evidence accumulated for over a decade that these ideas entrench poverty and unemployment, they waste human resources, and deny millions of people around the world a decent standard of living. They argue it is perfectly feasible to have full employment, price stability and ecological sustainability, through well designed public sector job creation systems. Slowly, this idea is gaining ground.

One of the spin-offs that may emerge from the steady drip of Wikileaks material is that people may become more open to the suggestion that all is not what it seems, that governments and corporations regularly lie about what they do and why they do it, to keep the public in the dark, and that this includes why they run the global economy the way they do.

The value of propaganda is that if we are conditioned to believe something cannot be done, we won’t ask our governments to do it. The fact that so much of what politicians do is masked from the public means they do care what the public thinks of them. I will wager my ukulele that if people in democratic countries start seriously demanding full employment of their elected representatives it will happen. Getting enough people to start doing so remains the tricky bit.

Best wishes to all for 2011.

Victor Quirk

Some useful references:

Beder, S. (2006) Free Market Missionaries: The corporate manipulation of community values, Earthscan, London.

Beder, S. (2005) ‘The Role of ‘Economic Education’ in Achieving Capitalist Hegemony’, paper presented to the Hegemony: Explorations into Consensus, Coercion and Culture Workshop, University of Wollongong, NSW, February 14-15.

Kapur, A, Macleod, N., Singh, N. (2005) Plutonomy: Buying luxury, explaining global imbalances , Citigroup Equity Strategy Industry Note, October, Citigroup.

Myrdahl, G. (1965) The political element in the development of economic theory , Harvard University Press.

Svenson, S. (1995) The Sinews of War: The 1890 Maritime Strike, University of New South Wales Press, Sydney.

Walker, E.R. (1943) From Economic Theory to Policy , University of Chicago Press, Chicago.

Saturday Quiz

Bill will be back with the Saturday Quiz sometime tomorrow – even harder than last week!

That is enough for today!

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    This Post Has 24 Comments
    1. It is and has been de facto government by corporation for decades now. Politicians are beholden to corporates in a multitude of ways – and hope to secure lucrative consultancy, direct employment and board positions post politics, as do senior public servants. Private investment firms love of public infrastructure and subsequent longterm cashflow generation. Once public assets and utilities privatised. It’s all comes down to the craven pursuit of money by all involved.

      A must see movie, Inside Job:
      http://www.youtube.com/watch?v=X2DRm5ES-uA

      And MIT presentation by Charles Ferguson, the director, who discusses the endemic corruption at both government and corporate level in recent times leading to the GFC and post GFC:
      http://mitworld.mit.edu/video/861

    2. Victor,

      great article. Is there any chance you can post the whole Citi document or provide a link to it?
      Thanks and keep up the great work!

    3. Great piece.

      We may be in the end game of this corporate plutocracy. What will be interesting to see is how long such crime syndicate can be sustained at the expense of the people of the world.

    4. Perhaps we should have published endless extracts of that Citigroup Equity Strategy when these same plutocrats came begging to us hat in hand. It is astonishing how robotically they purge from their memories their prior pronouncements of self-glory when these do not fit with their new sales pitch du jour. They consider themselves professionals, while I only see weasels, all the way down.

    5. Simply brilliant. I came across this blog and other similar economics blogs as a result of my frustration over the Australian Housing Bubble (not that I wanted to buy a house but when the time comes I’d like to know I could actually afford one). Needless to say, it has really opened up my eyes to this world and the power structures at play. The question is now, what do I do with this new found knowledge??

    6. @Tomme
      You can find the links to the two Plutonomy reports here Obviously the Plutocrats were so happy about the first one that they demanded a second one. In the meantime City Group tries desperately to remove these reports from the net.

    7. Great post Victor. Those Citigroup notes are priceless, and helped to open my eyes a while back (h/t Michael Moore). Thanks for the other docs too… all useful!

    8. @disillusioned,

      Great links. Thanks.

      I especially like this paragraph from the MIT website:

      “The dominance of a single industry constitutes a deep change and danger for America, believes Ferguson. The nation “has evolved a political duopoly where two political parties agree on things related to finance and money.” Without a political structure immune to such influence, Ferguson sees little likelihood of challenging the interests of the financial giants.”

    9. Victor, an interesting read as always, although somewhat short on data to back up your claims.

      How is this one for a start? In 1969/1970 the average weekly wage was $75*. In today’s dollars that is equivalent to $740. The average weekly wage today is $1384. So during the period of “sound economics” the real wage has increased by 87%. What exactly is the problem here?

      In your section on “Conjunctions of economic and political power” you talk about the propensity for “business interests to collude and pursue their economic interests through unethical and clandestine means”. This is well known and understood, I’m trying to see what additional point you are making.

      Even Milton Friedman (who I would guess is not someone you hold in great regard) wrote extensively on the dangers of corporate monopoly and oligopoly. In Australia we have regulations against this behavior which work reasonably well. Can you identify any concrete examples from recent times in which the Australian public has been substantially disadvantaged or exploited by these sort of “clandestine means”?

      Regards

      * source: http://www.ausstats.abs.gov.au/ausstats/free.nsf/0/3CE0FD337A1F0AB6CA2575160010C5CC/$File/63020_SEP1970.pdf)

    10. Thank you all for your encouragement and critique, and to Stephen particularly for the links to the Citigroup documents (I’ve been away in Sydney).

      Rhi: How to proceed is a work-in-progress for us all, but just taking the trouble to get your head around Bill’s material, and contribute to (and critique) the ideas, is useful. Contribute to the public policy debate in other places if you can. Its all good.

      Skeptic: apt quote for Australia certainly.

      Gamma.

      Well I’m glad you found it interesting, thanks, but presuming you already appreciated Senex’s point, that you can have a sharply polarised distribution of income, mass unemployment, and still have higher mean average incomes (for those in employment), why did you think that statistic particularly revealing? Isn’t what happened to labour underutilisation in that period, the rising precariousness of working people, increased indebtedness, loss of public amenity, etc, fairly well established? I think I have missed your point so you might like to elaborate.

      My general point, I suppose, was that “the idea that governments and business interests collude and pursue their economic interests through unethical and clandestine means, is not really new”, but how this works in relation to this specific issue – the resistance to full employment – is not, I suggest, understood very widely at all.

      Gunnar Myrdahl and E.R. Walker argued that it is spurious to explain economic issues (such as the re-emergence of unemployment after a thirty year absence in Australia) on the assumption that governments and business do not actively collude to cause such things to happen, which I suggest, is the mainstream view of the matter.

      Accordingly, the two documents I reviewed here, that were not originally intended for public consumption, contribute to a larger case that the ubiquitous ‘free market, small government, etc’ economic paradigm (that we hear from Bill and others is so anathema to restoring full employment), was consciously, strategically constructed and propagated, and is currently preserved, by advocates of corporate power. Citigroup’s exposition as to the benefits of the prevailing balance of power in the labour market is, I think, a particularly useful admission for the case I am (as a long-term project) attempting to establish. Do you not think so? I have written more about the specifics of the abandonment of full employment in Australia elsewhere – until the Phd gets finalised a paper called ‘Problem of a full employment economy’ is available on the CofFEE website, for example.

      Milton Friedman may have written extensively about many things, but as an active participant in the ideological struggle of 1975 in Australia (a corporate funded speaking tour direct from Pinochet’s Chile) and as a Nixon administration insider, there is a great deal he knew about many other things that he kept to himself. As for my regard for him – since you raise it – he was obviously a brilliant strategic thinker, self-promoter and communicator, whose guru status owed less to the accuracy of his predictions than it did to the confidence with which he made them, and the prominence the media accorded them at the time.

      So when you ask: Can you identify any concrete examples from recent times in which the Australian public has been substantially disadvantaged or exploited by these sort of “clandestine means?”, I say we had full employment for thirty years between 1944 and 1974 and by such means we have had socially destructive levels of labour underutilisation ever since. If the evidence for this is not sufficiently ‘concrete’ in your opinion, I’ll be interested in your views as to what would constitute sufficient evidence, perhaps after you read the above mentioned paper.

      Leon: Well, if a majority of Australians actively demanded full employment of their parliament and it ignored them, I probably wouldn’t feel much like playing it anyway. But you do reassure me.

      Thanks to all for your input!

    11. Victor,

      For the record I would support a job guarantee system in Australia in some form. So I am far from hostile to the ideas of yourself and Bill. And my mind is open to the possibility that the reason for the abandonment of full employment is corporate-government conspiracy designed to enrich the elite, but I can see scant evidence for this in what you have provided.

      You mainly reference two documents: a 2005 research piece from a US-based investment banker; and a memorandum from 1971. Neither goes any way to establishing that there is any sort of “conspiracy” between the Australian government and corporations, Australian or otherwise.

      The Citigroup piece is one of the thousands of research notes produced by thousands of researchers in investment banks. I have read it. It is not a manifesto in any way. It does not necessarily advocate “plutonomy” as a desirable outcome, it is putting forward the idea as an alternative explanation to more commonly held reasons for the existence of “global imbalances”.

      Furthermore, the authors say this on page 25:

      “We should at this point make clear that we have no view on whether plutonomies are good or bad, our analysis here is based on the facts, not what we want society to look like.”

      I am not saying I agree with it or even think it is particularly convincing article, but you must evaluate it for what it is. And anyway, where is the connection between this piece and the Australian government? There is none I can see.

      Your second main source is The Powell Memorandum. How is this relevant to the Australian government of today? Is it also not possible that advocates held these beliefs and sought to promote them because they actually believed them to be good for society on balance? Simply pointing out that certain people hold an ideological position is no evidence that that position is wrong or detrimental to society.

      Ultimately Victor, you are playing the man and not the ball.

      If you are trying to explain why we abandoned full employment, why not start with the reasons that are commonly given rather than trying to piece together evidence of a grand conspiracy from flotsam and jetsam from here and there?

      In the full employment period from 1944 to 1974 we had two periods of major inflation. The first was in the early 50s when inflation went to above 25% pa, then again in the early 70s when inflation was at almost 10% pa even before the OPEC oil price increases, and was running as high as 16% by the end of 1974. Broadly speaking, inflation was the justification for abandoning full employment.

      I don’t think you mentioned inflation in your blog entry at all. If you are seeking to challenge a paradigm, surely you must actually identify what the existing paradigm is first?

      Cheers.

    12. While I don’t agree with all of what Gamma says I think there is a missing link in the analysis between corporations/ rwing govts being hostile to socialism or “extreme liberalism” and being in favour of abandoning the “full employment” framework. Certainly abandoning full employment weakens labour’s bargaining power, but it would also run the risk of radicalising labour further – turning unions and academics away from Keynes towards Marx – and of producing recessions and depressions from the decline in demand (as is now happening).
      I would like Victor to give more sources or discussion on exactly how the decision to “abandon” full employment was taken and how it ties into the class conflict theme rather than leaving this implicit. Certainly supply shock inflation from OPEC must have played a role.

    13. Senex – In the period in which I worked closely with unemployed people (some twenty years), I found it hard to imagine how anyone could think it acceptable to deliberately inflict that condition on them, or systematically punish them for unconsciously adapting to being unemployed. The notion that scene captured was how such things became easier to countenance the further the perpetrator is personally removed from the people affected. The people who orchestrated the abandonment of full employment, and who have designed increasingly coercive regimes to manage the unemployed ever since, had little personal exposure to unemployment or the lives of the unemployed.

      Harry Lime is explaining to his old friend, who can’t understand how he can live with himself, that he had no problem selling watered-down penicillin that was used on children suffering meningitis with horrendous consequences, because he didn’t personally know the people it affected, and the financial rewards for doing it were sufficiently attractive. I think it follows a section where I quote Paul Keating’s media handlers having to remind him to express sympathy for the unemployed despite his view (reported by Neil Blewett) that a dose of unemployment was good for the country. I thought it worked at the time (seven years ago?) – but perhaps not.

      Gamma – This blog is not telling the story of the abandonment of full employment in Australia and hence provides no specific evidence concerning that. It is addressing the narrower question of paradigm construction and entrenchment, and how this becomes clearer when we see the mechanics of how financial and political power operates (eg., ala Wikileaks).

      Powell’s memo and the great explosion of think-tanks that followed in its wake is simply an historical note locating a significant origin for the ubiquitous mindset that we advocates of a rival macroeconomic and social policy framework are seeking to displace. Other writers have written very extensively on the role of this document in spawning the Heritage Foundation, Cato Institute, Coors etc., and of their role in propagating neo-liberal political economy. My argument is that the orthodox paradigm is ubiquitous, not because the general public just saw its intrinsic merits and adopted it, but because of a detailed, conscious, deliberate strategy of large scale corporate-funded cultural re-engineering.

      The Citigroup report: If you are advocating an investment strategy based on making a profit from human misery, not only does it reflect an inhuman worldview, but surely it creates a vested interest among those who pursue that strategy to ensure the misery continues? The polarisation of wealth is argued in this report to be predicated on the continuation of a power imbalance in the labour market. There have been times when I have been called a conspiracy theorist for saying exactly the same thing, so I think it is a useful admission to have it in this form. Labour underutilisation has been the principle mechanism for disempowering workers vis-a-vis employers throughout the history of waged labour.

      Of course, as you say, inflation is considered the key issue in relation to full employment, which is why the design of the Job Guarantee is so concerned with preserving price stability, and why around forty pages of my Phd covers the period of the 50s and 70s inflations. Interestingly, a slight deviation from full employment (2 per cent) was rapidly corrected during the early 1950s inflation spike, even though it was higher than that of 1973-74, because maintaining full employment was essential for the political survival of the Menzies government.

      But as I say, and perhaps I failed to introduce the subject matter with adequate precision, I’m not attempting to recount the specifics of the abandonment of full employment in Australia in this particular blog. Had I suggested that it was specifically about this you would be perfectly justified in your criticism.

      JamesH – Well I can see I’ll have to pay more attention to how I introduce this sort of material. I get a bit self-conscious about repeating myself too much and boring those who are familiar with my work, and tend to focus on smaller pieces of the puzzle that probably don’t make too much sense by themselves. I think, Gamma, this goes also to your critique. If you have a look at ‘The problem of a full employment economy’ (Available at: http://e1.newcastle.edu.au/coffee/pubs/wp/2004/04-02.pdf) you’ll get an early take I had on this story. I’ll be pleased to respond to questions on that paper.

      Once the examiners are through with the Phd I’ll endeavour to publish extracts of where this earlier research took me.

      Thanks to Senex, Gamma and JamesH for your input.

    14. Victor,
      I enjoyed your piece and found it informative, providing sources I was unfamiliar with. Some people seem to want a ”smoking gun” regarding high unemployment and an employer cabal of some sort. The evidence you provide is convincing to me in that highly placed people in business wanted to further their interests and expressed that to others of their class and action was taken subsequently. Frankly, if Warren Buffett’s statement that class warfare is being waged and his class is winning isn’t enough to convince someone I can’t imagine what would be!

      Higher inflation was indeed the trigger for the rise of the economics justifying the anti-worker public policy. The policy changes were anti-worker and there was little doubt of that at the time as it was clearly expressed by workers’ organisations and others. I suppose if other serious policy options had been tried and failed then perhaps the anti-worker approach could in some way be justified however that isn’t what happened in the countries I am familiar with at any rate.

      Actually my main motivation for writing is that the link to ”The Problem of a Full Employment Economy” isn’t working. Could you please provide another link.
      Thanks.

    15. Thanks Keith. It was the right hand parenthesis that caused the problem.

      For this and some other papers try:

      http://e1.newcastle.edu.au/coffee/pubs/wp/2004/04-02.pdf (Problem of a full employment Economy)
      http://e1.newcastle.edu.au/coffee/pubs/wp/2005/05-17.pdf (Methods and motivation of social domination)
      http://e1.newcastle.edu.au/coffee/pubs/wp/2006/06-15.pdf (Job Guarantee in Practice)
      http://e1.newcastle.edu.au/coffee/pubs/wp/2007/07-14.pdf (The Job Guarantee of 1848)
      http://e1.newcastle.edu.au/coffee/pubs/wp/2009/09-04.pdf (21st century solution to Skills Shortages)
      http://www.newcastle.edu.au/Resources/Schools/Newcastle%20Business%20School/APSA/ANZPOL/Quirk-Victor.pdf (Lessons from the English Poor Laws)

      Generally, the website for Bill Mitchell’s research centre, the Centre of Full Employment and Equity (CofFEE), holds a decade of academic papers by Bill and others that readers of this blogsite may find useful.

      http://e1.newcastle.edu.au/coffee/

      From the publications link on the left of the page people can access free working papers (mostly conference papers) and larger reports.

    16. A current example of plutonomics: http://smh.domain.com.au/real-estate-news/ells-waterfront-megamansion-faces-its-first-big-test-20110116-19slz.html

      From yesterday’s Sydney Morning Herald.
      Quote: “The billionaire developer Bob Ell plans to swing a wrecking ball in Cremorne to create an extravagant mega-mansion.
      ……(snip)….
      His company, Leda Holdings, has applied to build a nine-bedroom house with two pools on what will be one of the largest waterfront properties on the North Shore. Mr Ell told the Herald the house was a speculative development. He said it was part of Leda’s move into a new market – large homes for the ultra wealthy.”

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