The pandemic exposes the damage that neoliberalism has caused

Australia is now locked into a new phase of the pandemic where NSW is in danger of allowing the virus to run free throughout the population due to the incompetence of the conservative state government. For the duration of the pandemic up until now, the NSW government has been lecturing the other states (mostly run by Labor governments) about how they had a superior health system (health is organised along state/territory lines in Australia) and how they valued freedom more than the dictatorial Labor states that go into lockdown very quickly if a case threatens. It turns out NSW has just been lucky to now and the latest outbreak has revealed their ‘freedom first’ approach is a false freedom. Sydney has been locked down for weeks now and cases are still rising and it seems the contact tracers have lost control. But the hubris from the NSW government has really exposed a much deeper malaise that has been evident for years now as a result of the way neoliberalism has reconfigured the public sector and the role of government. The pandemic is just exposes the erosion of government capacity to provide public services and infrastructure and deal with public emergencies. That is one of the important revelations to come out of the pandemic.

As an aside, but germane, the chairman of Australia’s competition regulator – the Australian Competition and Consumer Commission – who in the past was a major proponent of privatisation, has in recent years began to demand governments stop the process.

In 2016, he accused the governments of incompetence in the sale of electricity, port and airport infrastructure.

In recent days (July 30, 2021), he gave a speech – Privatise for efficiency, or not at all – where he admitted that the way Australian governments had privatised key assets had reduced efficiency and harmed the economy.

Then you have a former conservative Australian prime minister, who in 2015, accelerated the signing of a free trade agreement with China (Source) and claimed all sorts of benefits would follow for Australian citizens.

Now with China essentially declining to import a range of Australian exports, the same politician (now defeated) admitted there “is no way he would sign a trade deal with China today” (Source).

He admitted he thought these deals would mean “the Chinese would become ‘more like us'”, whatever that means.

He now says he has had a “hell of a wake-up call”.

There are many examples of these doctrinaire characters, who in positions of power, pushed our nations into the neoliberal marasma, who when confronted with the evidence – the outcomes of their zealotry – now deny responsibility but sing a different song.

It is part of the process of paradigm change – where one pastime is counting the number of rats deserting the ship.

The reality is clear.

Capitalism is now on life support systems provided by the state.

This is the state that we were told was powerless against global capital, that could not create work, that had no money, that would create accelerating inflation if it tried to reduce unemployment, would drive up interest rates if it borrowed, would eventually run out of money if it ran deficits for too long, and all the rest of the bunk.

Now, the capitalist interests line up every day with their begging bowls demanding further and more generous support.

The spectacle is public now.

But, of course, while there is a public aspect ot it now, which means we are all seeing it more clearly, the fact remains that capital has always relied on the state for profits.

State procurement contracts, special deals, subsidies, protection, anti-worker industrial relations legislation, and more have always allowed the centrality of the state to deliver benefits to capital.

In the past, we didn’t see that sort of support very well and so we couldn’t glean the hypocrisy and contradiction of representatives of capital calling for government spending cuts to welfare and assistance to the poor, while at the same time having their hands firmly out for government support.

As I have written before, if the state was now no longer relevant, why do corporations spend billions a year lobbying the legislators?

But the reconfiguration process under neoliberalism, where the state has become an agent for capital rather than a mediator in the conflict between labour and capital has damaged the state’s capacity to respond to crises.

One of the essential implications of an Modern Monetary Theory (MMT) understanding for a person who values the maintenance of full employment, is the primary role that fiscal policy should play in smoothing the output consequences of fluctuations in non-government spending.

When the non-government spending growth collapses, then the only way a nation can avoid recession and mass unemployment is if net spending by the government sector increases.

But that net spending has to manifest in specific ways – employment creation, income support, infrastructure projects and the like.

This means that the government has to have the capacity to respond quickly and effectively.

In the Post World War 2 period, as governments committed to full employment and accepted that it was the responsibility of fiscal policy to make that commitment operations, they also built the capacity to not only deliver public services on an on-going basis and ensure there was first-class public infrastructure built and maintained, but also that could be ramped up and down quickly to meet cyclical fluctuations in non-government spending.

That capacity included forecasting, planning, design, and execution capability.

The neoliberal attack on the capacity of government targetted these capabilities and governments began to abandon the idea that they were responsible for these things, and, rather, were only responsible for managing outsourced contracts with non-government sector providers.

That shift (reconfiguration) meant that governments had diminished capacity to respond to emergencies.

We saw during Global Financial Crisis in Australia that the Federal government introduced a couple of major infrastructure projects to ensure the nation did not enter recession.

While the objective to avoid recession was met, the programs were far from satisfactory in implementation and resulted in waste and other problems (rorting by the private sector).

These large-scale stimulus interventions of the type taken by the Australian Government during the GFC – which in international terms was early and large relative to GDP – are very complicated and you can expect some administrative inefficiencies.

Imagine if the private sector had to ramp up investment spending within a quarter or so – what do you think would be the outcome of those projects?

But the neo-liberal era has been marked by a major reduction in Departmental capacity to design and implement fiscal policy – given the obsession with monetary policy and the major outsourcing of “fiscal-type” government services to the private sector.

Many of the major Australian government policy departments are now just contract managers for outsourced service delivery.

So with the voluntary reduction in ‘fiscal space’ within the federal government over the last 20 years or more it is no surprise that the overall capacity of the government machine to implement efficiently and speedily complicated nation-wide infrastructure programs has been diminished.

At the time we were debating these issues during the GFC I noted that this was a lesson for the future.

I wrote that we can no longer deny that fiscal policy is required to address serious swings in private spending. Monetary policy has been proven – categorically – to be ineffective in dealing with aggregate demand failures of the sort we have witnessed in the current crisis.

In that context, I wrote that governments must develop forward-looking capacity to ensure that it has project implementation skills when they are required.

And then came the pandemic.

There was an excellent article in the Meanjin Magazine (July 29, 2021) – A Pandemic To Die For – by Australian academic and journalist – Ben Eltham, that bears on these issues.

Meanjin – has a long history in our literature, being a literary magazine that publishes stories about art, and “the broader issues of the times”.

His article is about how Australia went from being held out as the pandemic model – essentially suppressing the virus to being in danger of an uncontrolled outbreak, in an environment where only a small proportion of the population is currently vaccinated.

The two things that the conservative federal government were responsible for under our constitution in relation to this pandemic was: (1) the maintenance of the quarantine system as our external borders closed but we allowed a limited number of residents to return from overseas, and (2) the procurement of vaccine supplies.

They botched both.

The various outbreaks that have led to damaging lockdowns via the state government internal border powers have come from the defective quarantine system and despite pleas from the states for the federal government to build dedicated facilities (rather than use tourist hotels), the feds refused to allocate the funding.

The vaccine scandal has arisen because the federal government tried to ‘penny pinch’ with Pfizer last year and we now have a vaccine scarcity and will not get adequate supplies until later this year.

Ben Eltham wrote that:

Australia was offered a huge potential supply deal from Pfizer early on in negotiations. But a penny-pinching federal Health department tried to haggle on the price. Pfizer went elsewhere, and Hunt was able to secure only 10 million doses of the Pfizer product in November 2020, well after big orders had been placed by the US, UK, Japan, Canada and the EU. Not surprisingly, this meant Australia was back in the queue for Pfizer supply.

So, the neoliberal obsession with fiscal austerity (the ‘penny-pinching’) has left the nation badly exposed to the Delta variant of COVID and on-going lockdowns enforced by the state governments which are resulting in millions of dollars of lost output and incomes every day.

All for the sake of a few pennies.

The federal government also refused to fund last year local manufacture of the new vaccines and relied on the privatised CSL to manufacture the AZ vaccine, which the public has resisted due to the blood clotting issue and the poor messaging from the federal government around that.

Ben Eltham’s article thus reinforced the theme I have been pushing for years now about the way in which neoliberalism has fundamentally altered the capacities of our government – diminishing its capacity to marshall resources to solve complex problems – while at the same time increasing the dependency of the system on government’s fiscal capacity.

He didn’t express it like that – that is the way I construct the developments.

He wrote:

At its heart, though, the bungled vaccination roll-out is a story of poor decision-making abetting deep-seated policy failure. It is a story of Australia’s increasingly atrophied government capability, driven by 40 years of neoliberal ideology which has demonised the public sector and championed free enterprise. For instance, the federal government privatised the vaccination roll-out in aged care facilities to private providers like Aspec and Healthcare Australia. Health Minister Greg Hunt and the hapless Aged Care spokesman Richard Colbeck promised all aged care residents would be vaccinated by April. But profit-seeking firms prioritised income over diligence. The government was still putting out vaccination tenders in mid-June, when Senate Estimates revealed that thousands of residents remained unvaccinated. Even now, the majority of aged care workers haven’t received their jabs.

His article documents in fine detail the failures of the federal government in this regard.

This problem is often characterised as the ‘shrinking state’, which was the motivation for the title of this academic paper – The shrinking state? Understanding the assault on the public sector – which was published in November 2018 in the Cambridge Journal of Regions, Economy and Society (Volume 11, Issue 3, pp. 389-408).

The authors talk about the:

The erosion of the state as an institution can be seen in cuts to social programmes and public sector jobs, underfunded infrastructure, the sale of public assets and other forms of privatisation, along with the more general weakening of regulatory authority and diversion of resources to the private sector.

They also cite the early literature:

A narrative of wholesale state decline was ushered in by the globalisation literature of the 1980s. In its early and extreme form, the globalisation thesis held that states were withering away or reduced to impotence through the emergence of global governance structures and the rising power of transnational corporations …

This became the standard Left narrative.

Apparently, globalisation “raised the power of power of capital relative to that of the state and labour, so that national governments embraced the private sector’s preferences for lower taxes, wages, regulation and public spending.”

No, it was neoliberalism that did that.

Globalisation didn’t privatise or cut wages and government spending.

Nations have been trading forever.

But at any rate, we should be clear that it is better to talk about the reconfiguration of the state rather than the state withering.

In our 2017 book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) – we argued that the conjectures by progressive intellectuals that the state had withered away or been ‘eroded’ leads to the incorrect conclusion that global capital is dominant and dominates the state, which has lost its capacity to implement national economic policies

The Cambridge Journal authors, however, extend their notion of a ‘shrinking state’ in this way:

… we refer to the potential retreat of the state from its customary intervention in regulating economic growth and promoting redistribution and the overall weakening of the state as an institution in local/regional affairs.

This is more about what I am writing about today – the shift from a service delivery and infrastructure providing institution to a contract brokerage agency of functions that have been outsourced to the non-government sector, but remain in the eyes of the public – public responsibilities.

This is a quite different situation to the more rabid demands that we should only have private activities like private police, armies etc.

Neoliberalism has not been able to negate our perception that there are ‘public’ functions and public responsibilities that extend beyond national defence.

And the pandemic has brought that home in spades

Which is why we have seen the mess in Australia.

Conclusion

When trouble strikes we don’t turn to the likes of Amazon, Apple, Facebook etc to bail us out.

We know it is a public responsibility.

Which means we should also stop believing the myths about government capacity.

The currency monopoly gives the state immense capacity to overcome crises.

But it needs public machinery intact to ensure that currency capacity can manifest in specific ways.

That has been missing under neoliberalism and needs to be restored.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.