i

Friend or Foe?

The Impact of the Hawke/Keating Neoliberal

Reforms on Australian Workers and the

Australian Public Sector

Paul Dibley-Maher

Bachelor of Arts (ANU)

Master of Legal Studies (ANU)

Research Students Centre

Division of Research and Commercialisation

Queensland University of Technology

Thesis submitted to fulfil the requirements for the degree of

Master of Arts (Research)

2012

ii

Key Words

Prices and Income Accord, capital, capitalism, class, deregulation, economy, Global

Financial Crisis (GFC), Keynesianism, labour, Marxism, Marxist, neoliberal,

neoliberalism, privatisation, public sector, reform, unions.

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Abstract

Over the last three decades neoliberalism has transitioned from occupying the

margins of economic policy debate to becoming the dominant approach by

governments and their economic advisers, a process that has accelerated with the

collapse of the former Stalinist states in Eastern Europe and the Soviet Union. This

thesis adopts a Marxist framework for understanding this process, beginning as it did

in the realm of relatively abstract philosophical and ideological debate to the

permeation of neoliberal values throughout all capitalist institutions, including the

state bureaucracy. This necessarily means a focus on the dialectical relationship

between the rise of neoliberalism and the shifting balance of class forces that

accompanied the success of the neoliberal project in transforming the dominant

economic policy paradigm. The extent to which neoliberal reforms impacted on

workers and public sector institutions, along with the success or otherwise of

traditional working class institutions in defending the material interests of workers

will therefore be a recurring theme throughout this body of work. The evidence

borne from this research and analysis suggests a major shift in the dialectic of class

struggle in favour of the power of capital over labour during the period covered, with

the neoliberal age being one of defeat for a labour movement that largely failed to

adopt successful strategies for defending itself.

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Table of Contents

Key Words ......................................................................................................................... ii

Abstract ............................................................................................................................. iii

List of Tables and Figures................................................................................................. vi

Glossary of Terms ............................................................................................................ vii

Statement of Original Authorship ................................................................................... viii

Acknowledgements ........................................................................................................... ix

Introduction ........................................................................................................................ 1

Chapter 1: The Battle of Ideas ......................................................................................... 11

The Historical and Philosophical Context .................................................... 15

The Cold War and Rational Theory .............................................................. 17

Hayek and the Mont Pelerin Society ............................................................ 19

A Marxist Response ...................................................................................... 24

Friedman’s Intervention ................................................................................ 27

Keynesianism’s ‘Grand Failure’ ................................................................... 29

Neoliberalism Arrives ................................................................................... 32

Chapter 2: Neoliberalism on the World Stage ................................................................ 35

Third World Origins ..................................................................................... 36

The Thatcher Revolution .............................................................................. 39

Taking on the Unions .................................................................................... 40

The Miners’ Strike ........................................................................................ 42

Murdoch and the Print Workers .................................................................... 43

Privatisation .................................................................................................. 45

Welfare Meets the Market ............................................................................ 46

Reaganomics ................................................................................................. 49

Reagan and Organised Labour ...................................................................... 52

Neoliberalism and the Third World .............................................................. 55

Latin America ............................................................................................... 56

Victory to Neoliberalsim? ............................................................................. 58

Chapter 3: Neoliberalism Comes to Australia ............................................................... 60

The Keynesian Consensus in Australia......................................................... 63

The Collapse of the Keynesian Consensus ................................................... 64

The Industrial Relations Landscape .............................................................. 67

Disciplining the Unions ................................................................................ 69

The Uneasy Truce ......................................................................................... 71

Economic Reform ......................................................................................... 73

The Impact on Wages ................................................................................... 79

Wage Fixing Mechanisms ............................................................................. 83

Chapter 4: Neoliberalism and the Australian Public Sector .......................................... 87

The Traditional Public Service ..................................................................... 88

The APS and the end of Keynesianism......................................................... 89

Labor Takes Power ....................................................................................... 91

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New Public Management .......................................................................................... 93

Working Conditions Under the NPM ....................................................................... 96

NPM and the Public Sector Unions ........................................................................ 101

Wages ...................................................................................................................... 102

Agency Bargaining.................................................................................................. 104

Privatisation ............................................................................................................ 109

Impact of Reforms on Union Density ..................................................................... 111

Conclusion ..................................................................................................................... 113

Bibliography ................................................................................................................... 119

Primary Sources ...................................................................................................... 119

Secondary Sources .................................................................................................. 126

vi

List of Tables and Figures

Tables

Table 1: Trade Union Membership in Britain 1979-1990 .............................................. 41

Table 2: Trade Union Membership in the US 1981-1989 .............................................. 53

Table 3: Percentage of Men & Women in the Labour Force ......................................... 82

Table 4: Gini Coefficient & Theil Index for Private Sector 1983-1993 ......................... 82

Table 5: Gini Coefficient & Theil Index for Public Sector 1983 - 1993 ...................... 108

Table 6: Union Density in the Commonwealth Public Sector ...................................... 111

Figures

Figure 1: Gini Coefficient for Great Britain 1979 – 2005/2006 ..................................... 48

Figure 2: Gini Coefficient for the United States 1947 - 1998......................................... 54

Figure 3: Unemployment Rate 1966 - 2008 ................................................................... 65

Figure 4: Inflation Over the Long Run 1966-1991 ......................................................... 66

Figure 5: Manufacturing & Agricultural Tariffs 1970 -71 to 2006-07 ........................... 75

Figure 6: Profits Share of National Income .................................................................... 79

Figure 7: Wages Share of National Income .................................................................... 80

Figure 8: Men Aged 18-64 in Gross Personal Income Quintiles .................................... 81

Figure 9: Women Aged 18-64 in Gross Personal Income Quintiles ............................... 81

Figure 10: APS Pay Increases 1996 -2009 .................................................................... 108

vii

Glossary of Terms

ABS Australian Bureau of Statistics

ACOA Administrative and Clerical Officers Association

ACTU Australian Council of Trade Unions

ALP Australian Labor Party

APEC Asia-Pacific Economic Cooperation

APS Australian Public Service

APSA Australian Public Service Association

APSC Australian Public Service Commission

BLF Builders Labourers Federation

BT British Telecom

CAPSC Campaign Against Public Sector Cuts

CPA Communist Party of Australia

CPI Consumer Price Index

CPSU Community & Public Sector Union

EEO Equal Employment Opportunity

FCU (TOB) Federated Clerks Union (Tax Office Branch)

GATT General Agreement on Tariffs & Trade

GBE Government Business Enterprise

GFC Global Financial Crisis

IMF International Monetary Fund

NE National Executive

NPM New Public Management

NHS Nation Health Service

POA Professional Officers Association

RAND Research and Development Corporation

RBA Reserve Bank of Australia

SES Senior Executive Service

TCF Textiles Clothing & Footwear

TNC Transnational Corporation

WEF World Economic Forum

viii

Statement of Original Authorship

The work contained in this thesis has not been previously submitted to meet

requirements for an award at this or any other higher education institution. To the

best of my knowledge and belief, the thesis contains no material previously

published or written by another person except where due reference is made.

Paul Dibley-Maher

September 2012

ix

Acknowledgements

There are several people I need to thank, beginning with my supervisors past and

present. Firstly Associate Professor Howard Guille, who in the initial stages assisted

me with scoping out the topic for this thesis. Secondly, Dr Paul Harrison, who met

regularly with me to discuss my ideas as I developed an understanding of the

sources I would use and how I would apply them to my research. Finally, I would

like to thank Professor Clive Bean who provided valuable feedback once I began

submitting written work for review. I would also like to thank support staff at QUT,

particularly Melody McIntosh, who assisted with a range of administrative matters.

I would like to acknowledge the tremendous support and understanding I received

from colleagues at work, who allowed me the time I needed to devote to my

research. I would further like to thank the staff in the Queensland Department of

Communities library, who were able to quickly source original pieces of old

legislation whenever I had trouble finding them. I would particularly like to

acknowledge the assistance of staff at the Noel Butlin Archives in Canberra, where I

was able to source a large amount of primary material on Commonwealth public

sector unions, without which I would have been unable to complete the final chapter

of this thesis. Finally I would like acknowledge and thank the family and friends

who have been a part of this journey with me.

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1

Introduction

Neoliberalism, neo-classicalism, neo-classical economics, economic rationalism,

globalisation……. There are many words to describe what essentially amounts to

the same revolution in economic policy that has increasingly dominated the globe

over the last three decades since the collapse of the Keynesian consensus in the early

1970s. Whatever the terms used to describe this process the reality of neoliberal

economics is essentially the same. Modern economies dominated by neoliberal

policy makers have deregulated and liberalised their economies, removing

government intervention as much as possible from economic activity within their

domestic economies and relaxing barriers to foreign investment and trade at the

global level. Utilities traditionally owned and operated by the state sectors have

increasingly been sold off to private interests and those that have remained in

government hands have increasingly been corporatised and expected to operate in a

commercial manner. Labour markets have likewise been liberalised in order to

increase the flexibility of the domestic workforce and workers have been placed

under increasing pressure to continually improve productivity. Many of the safety

nets that developed nations offered to varying degrees to assist workers and their

families in times of sickness or unemployment have likewise been removed or

handed over to private sector interests. The neoliberal epoch has therefore had a

profound effect on the way modern economies are managed, with the flow on effects

of these reforms likewise having a profound effect on those living within these

economies.

This thesis attempts to make a contribution to contemporary scholarship on the

neoliberal experience by structuring existing evidence, analysis and interpretations

towards a specific consideration of the experience of the Australian public service,

public servants and their unions. It further attempts to do so from a Marxist

perspective than focuses on class struggle and the dialectical relationship between

the relative power of labour and capital to provide a context to the consideration of

the subject matter. I believe that doing so adds to the level of maturity in relation to

applying such an approach to the subject matter, particularly in relation to the

Australian public sector and in doing so makes a substantial and original

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contribution to existing scholarship in this field. There is a plethora of material

available critically analysing global political economy from an explicitly Marxist

perspective. So too is there a great deal of Marxist material available looking at

Australian political economy. But while much has been written about the experience

of public sector reform in Australia, some of which is highly critical of the reform

process, the selling off of government assets and the associated erosion of public

servants’ jobs and conditions and so forth, the latter tends to be written from a

traditional left social democratic position and while useful, leaves a space for a

Marxist analysis that I have attempted to fill. An important exception is a recent

PhD thesis that looks at the Jobs, Education and Training (JET) program within the

Department of Social Security (Banks, 2011) from an explicitly Marxist perspective

and will be considered in Chapter 4, which focusses on the Australian Public

Service.

My central focus in applying a Marxist analysis will be to examine the role of the

state in creating the policy and infrastructure environment for the neoliberal

revolution, how the state dealt with working class institutions in implementing this

agenda, how the latter responded, and finally what the net result of the reform

process amounted to in terms of its impact on the balance of class forces and the

distribution of both wealth and power. I will consider the state as a vital institution

in acting in the class interests of capital and within this context will examine the

means by which the state acted to eradicate impediments to the deregulating of the

economy, in relation to existing economic policy that ‘protected’ domestic capital,

such as trade barriers, or tariffs, and the removal of regulation that acted as fetters on

domestic capital and its institutions, for example the floating of the Australian dollar

and the deregulation of the financial industry.

Most importantly, however, a Marxist analysis must place all such developments in

the context of class struggle and the relationship between the class struggle and

these developments. This thesis will therefore concentrate heavily on the organic

relationship between the trajectory of the capitalist system and the rise of

neoliberalism and the relationship between this dynamic and the balance of class

forces, the nature of the class struggle throughout this process and the net effect of

the interplay between all of these factors on class power and class interests. I will

3

not seek to develop such an understanding using a vulgar deterministic approach

that sees each development in the trajectory of the historical development of

capitalism as leading inevitably and necessarily to a particular outcome vis-à-vis

contending class interests. Rather I shall seek to understand the way in which all

contending interests reacted to the challenges presented and how, in particular, the

working class and their institutions responded to these challenges and how any

shortcomings in the way they responded translated into success for capital and the

state.

This is not an economics thesis and does not pretend to be so. I will not attempt an

in depth analysis of the capitalist system, its historical development and its internal

contradictions. I will not consider or critique mainstream economics at an academic

level or attempt to mount in depth economic arguments about capitalism and the

way it should be managed, particularly in light of the current crisis and its impact on

workers. What I will do however is to examine key economic developments that are

relevant to the thesis topic and the analysis applied by both mainstream and Marxist

economists in order to develop my own arguments and conclusions within the

framework of a class based Marxist analysis. I will also consider important

economic indicators, both anecdotal and statistical, to underpin the analysis and

conclusions I come to, both in relation to developments in the economy under both

the Keynesian consensus and its neoliberal usurper and the impact that these

developments have had on respective class interests.

Despite the above I will of course need to consider, at a level sufficient to develop a

working understanding of the subject matter, the observations of mainstream

economists, especially those who devoted themselves to developing a theoretical

approach to the workings of capitalism that underpinned neoliberal orthodoxy. This

will include the ‘giants’ of the neoliberal revolution such as Hayek and Friedman,

and the policy makers, academics and columnists that remain overwhelmingly

proponents of the neoliberal revolution, even in the face of the ongoing Global

Financial Crisis, which to date shows no signs of disappearing. These figures, and

the historical trajectory of capitalism with which they have intertwined themselves,

will be an important reference point for both critiquing and understanding the way

neoliberalism rose to prominence among both conservative and traditional social

democratic administrations and the success its proponents had in arguing that the

4

shift in class power that neoliberalism would engender was indispensable in

rescuing economies from the return of crisis to the capitalist system following the

long boom years after the Second World War.

In developing a Marxist framework I will rely heavily on key contemporary

Marxists, most notably those associated with the International Socialism, a quarterly

journal of theoretical Marxism published by the Socialist Workers Party in Britain.

In particular I will cite the work of the late Chris Harman, who edited this journal

until his untimely death in November 2009, somewhat ironically on the anniversary

of the Russian Revolution. I shall also draw upon contributions from Marxists

associated with this tradition in both Australia and the United States, predominantly

those around Socialist Alternative/Marxist Left Review in Australia and Socialist

Worker/ International Socialist Review in the United States. My rationale for bias

towards this tendency is twofold. Firstly, unlike much of the nominally Marxist left

during and following the cold war years their analysis of the development of the

global capitalist system was equally critical of the Stalinist camp in whom they saw

no basis for a legitimate alternative to the Western camp. This, I believe, left these

groups in a much more credible position when attempting to analyse the rise of

neoliberalism as an alternative to the ‘socialism’ of both traditional social

democracy and the ‘actually existing socialism’ of the former Eastern bloc.1

My second reason, and flowing directly from the first, is that in rejecting the notion

that the Stalinist current had anything to do with the genuine Marxist tradition, the

International Socialist tendency has been able to apply a Marxist analysis to global

political economy unfettered by the need to conform to an ‘official’ Marxist political

economy that takes as its starting point the need to justify the dynamics of existing

Stalinist economies. This means that despite any flaws, errors or disagreements

among members of the tendency, their overall contribution is, I believe, a useful

starting point in analysing the neoliberal revolution from a Marxist perspective that

is not overly dogmatic or deterministic. Having said that, however, in the interest of

a balanced assessment of the subject matter I will not draw exclusively from the

above but will also reference other important contemporary Marxists, for example

1 Or for that matter China, Vietnam, Cuba etc.

5

the American David Harvey, whose A brief history of neoliberalism I found to be

indispensable in gaining an understanding of the roots of neoliberalism from an

explicitly Marxist perspective.

The specific research methods I adopted began with collecting articles from key

publications and thinkers relevant to my topic using internet search engines. Firstly,

I searched Marxist publications such as International Socialism Journal,

International Socialist Review, Monthly Review, Historical Materialism and

Socialist Worker (both UK and US versions) for articles that might prove useful in

developing a Marxist understanding of the subject matter. From there I searched

against the names of key Marxists such as Harman and Harvey as well as the

important names associated with the resurgence of liberalism, namely von Hayek

and Milton Friedman. I also examined the web sites of key institutions of both

capital (IMF, World Bank etc.) and labour (ACTU, key Australian unions, Public

Sector International etc.). From there I searched more broadly using key words to

locate articles that might be relevant. From this I was able to sort through a range of

local and international sources that I believed would be of use and began working

through the material gathered to begin developing a framework for the thesis along

with an understanding of the way I would structure the thesis, including the focus of

individual chapters.

I then began looking for data and key economic indicators that would demonstrate

patterns resulting from the rise of neoliberalism. I was not concerned so much with

demonstrating at any length the dynamics of either the domestic or global economy

but rather the position of labour and capital within this dynamic as impacted upon

by the neoliberal paradigm. I chose, therefore, to concentrate largely on data that

would demonstrate any shifts in the share of national wealth going to labour and

capital respectively and the impact on the labour movement, with the latter

focussing on any shifts in trade union density during the period examined. My

preference was for using primary sources wherever possible and I therefore used as

my starting point government bodies responsible for the collection of economic

data, such as the Australian Bureau of Statistics in Australia and similar bodies in

the UK and the US that collected data on economic trends and/or the labour force.

Where I came across such data in secondary materials I would trace the data back to

6

these bodies in order to ensure the authenticity of the data.

The methods described thus far were sufficient for producing the first three chapters

of this thesis. However, for the final chapter, which focusses on the impact of

neoliberalism on the Australian public sector I wanted to rely as much as possible on

primary materials. I began therefore by sourcing the key legislation that regulates

the Australian public sector both in the present day and historically since federation

in 1901. These documents were located partly through my own searching and partly

with the assistance of library staff, with the aid of the greater resources available to

them, As a result I was able to quite quickly source for example a copy of the first

Commonwealth Public Service Act, which was invaluable in giving me an insight

into the original workings and culture of the Australian public sector, providing a

reference point to compare this culture against the Public Service Reform Act 1984,

under which the Commonwealth public service was reformed to provide a new form

of bureaucracy aligned to the deregulating of the domestic economy under the

neoliberal reform agenda of the new Hawke Labor government.

Finally, I wanted to gather primary materials from Commonwealth public sector

unions in their various guises to understand and demonstrate a thorough perspective

of the way in which they responded to the challenges presented by the new order.

To do so I undertook a research trip to the Noel Butlin Archives in Canberra, which

houses an extensive collection of primary documents submitted by sections of the

Australian labour movement. This gave me access to a large number of documents

donated to the Archives by the Community and Public Sector Union and its various

predecessors. This collection included newsletters and other communications to

members outlining the union’s position and explaining, for example, the reason it

supported the Prices and Incomes Accord with the Hawke government. There were

also documents outlining debates that were occurring ‘behind the scenes’ between

officials and with other unions or the ACTU, providing some context for the

positions the union took vis-à-vis the Labor Party agenda.

Most importantly, from the perspective I was interested in, the collection contained

many documents related to the struggles engaged in by the union, including

campaign newsletters from rank and file groups formed to defend the public sector

and the jobs and conditions of public servants. This included battles with the Fraser

7

government of the late 1970s and early 1980s, which provided some context for the

position the union took once Labor came to power. It also, however, provided

evidence of campaigns against the incumbent Labor government, where the logic of

Labor policy saw tensions arise over the pace of reform and the impact of reform on

the union’s members or at times even the logic of the reform agenda itself. I

collected around 100 documents during my research trip, many of which are cited in

this thesis. Even where such sources are not directly cited, the collection in general

provided an indispensable insight into the union most affected by attacks on the

public sector implicit in the neoliberal agenda and of the way in which the union and

its members responded.

In applying the methods described above, this thesis will be a journey starting from

the point in history where those who espoused the ideas that would become known

as neoliberalism were in the minority. At that time these ideas were largely abstract,

theoretical concerns debated among those at the margins of policy debate within the

context of a paradigm dominated by Keynesian principles, which championed

government intervention and demand management as the means to prevent

economic crises and the unemployment that came with them. The return of

economic crisis to the system in the early 1970s and the inability of traditional

Keynesian methods to resolve the crisis marked the point at which neoliberalism

could begin to make the seismic shift from margins of policy debate into the

mainstream and increasingly gain the ear of key policy makers. For many it marks

not only a victory of a policy approach rooted deeply in individual liberty over

Keynes but over that other grand experiment in an alternative to a market driven

economy, namely the communist nemesis of the cold war era.

Chapter 1 will therefore consider this shifting paradigm and examine the way

neoliberals were able to gain a hearing after years in the policy wilderness. In doing

so I will consider the dialectical relationship between developments and strategies in

the global economy and the ideas that interacted with these developments, with

particular reference to the dynamics of the cold war. I will examine key figures

behind the development of a tangible theoretical opposition to unnecessary state

intervention into the economy, most notably those that coalesced around the Mont

8

Pelerin Society in the post war years, in particular the ‘giants’ already mentioned:

Friedrick von Hayek, the founder of the Society, and Milton Friedman. I will

further consider the triumphalism of the neoliberals following the collapse of first

the Keynesian consensus and of the Eastern Bloc as epitomised in the work of

Francis Fukuyama. I shall attempt to provide a Marxist response to the neoliberals’

development of their theoretical position and the centrality of critiquing Marxism in

doing so. I shall conclude by examining the shift of neoliberal thought from the

margins of economic policy to the mainstream in preparation of considering the

practicalities of this shift in the ensuing chapters.

Chapter 2 will consider the next stage of this journey with an examination of the

way in which the neoliberal revolution was implemented in key first world

economies, specifically in the UK under Margaret Thatcher and under Ronald

Reagan in the US during the 1980s. It will begin with a brief look at Chile

following the US sponsored Pinochet coup that allowed key neoliberals at the

School of Economics at Chicago University a ‘playground’ to test out their ideas

before turning to the reform agenda of both Thatcher and Reagan. Consistent with

the approach outlined above it will consider the way economic crisis returned to

both countries and the way both administrations sought to resolve the crisis with the

trademark neoliberal solutions of deregulating and liberalising their respective

economies. It will also concentrate on the impact of the reform agenda on workers

in both countries and the way both Thatcher and Reagan took on and largely

defeated the labour movements in their countries as a necessary precursor to

implementing their agendas. That is, it will consider what neoliberalism has meant

for the balance of class forces in each country, the respective power of labour versus

capital and the impact on wealth distribution that flowed from this changing

dynamic. Finally Chapter 2 will return to Latin America to briefly examine

examples of the impact of neoliberalism on the Third World.

Chapter 3 of this thesis will then narrow its scope further by concentrating

specifically on the introduction of neoliberal reforms to the Australian economy,

once again with consideration of what this meant for workers and their institutions.

As with the UK and the US, the focus will be on the initial years of the reform

agenda, which occurred under Hawke and then Keating in the 1980s and early

9

1990s, at roughly the same time neoliberalism was being embedded in the

economies of two Australia’s key post-war allies under Thatcher and Reagan.

However, there will be a further dynamic to consider in examining the

Hawke/Keating years in that by contrast to both the UK and the US, where the

reforms were delivered under conservative governments hostile to the unions, in

Australia the reforms were introduced by the parliamentary wing of the domestic

labour movement. This dictated an approach that largely amounted to co-opting

Australian workers into accepting the new economic policy approach, primarily in

terms of their being no alternative given the economic quagmire in which the ALP

found itself on being elected. Where unions refused to toe the line, however, the

ALP could also rely on direct confrontation to keep their policy agenda on track,

even to the extent of deregistering unions. Chapter 3 will consider how this

dynamic played out, once again with reference to the impact on the balance of class

forces and the distribution of wealth created under the new industrial, political and

economic landscape.

Chapter 4 will complete the journey from the macro level that begins with

theoretical and ideological debate by concentrating at a micro level on the impact of

neoliberalism on a Commonwealth public sector that was reformed into an

institution that could best serve the new economic policy paradigm. This will

include an analysis of the public sector as it was constituted historically and the way

in which it was transformed during the Hawke/Keating years, giving consideration

to both changes in the culture of the public service and the impact on public servants

themselves. As with the previous chapters this will mean considering the way that

the jobs, wages and conditions of public servants were affected and how their unions

responded. It will do so to a large extent in the context of the landscape described in

Chapter 3 but also in ways specific to the public service itself. Given the more

narrow focus there will be an attempt to concentrate more closely on the industrial

relations dynamic between public servants, their unions and the ALP government as

both their employer and the manager of the economy and the reform process more

generally.

What will connect all four chapters will be the approach, already outlined, that will

attempt to examine the dynamics of the neoliberal revolution as representing a shift

10

in the dialectic of the class struggle in favour of the power of capital over labour. In

doing so this thesis will draw upon both primary and secondary sources to support

this central theme, with secondary sources used to enhance and reinforce

conclusions drawn from reference to primary sources wherever possible. Such

conclusions will also be reinforced wherever possible using original data and

statistics to demonstrate trends, particularly in relation to the economic

circumstances that spawned neoliberalism and the impact of neoliberalism on

workers and the trade union movement during the years examined. Where

secondary sources are relied upon their purpose is to draw upon existing literature to

assist in producing an original contribution to the field of study, most importantly in

relation to the Australian public sector, which will mark the crescendo of this thesis

and the point to which the preceding chapters all work towards. It is hoped that the

end result of the journey from the abstract to the specific represented in these four

chapters makes an original and worthy contribution to scholarship and debate in a

field where, particularly given the present circumstances in which economic crisis

has challenged the neoliberal agenda in a similar fashion to that which confronted

Keynesians in the early 1970s, there is much debate still to be had.

11

Chapter 1: The Battle of Ideas

All that is solid melts into air, all that is holy is profaned….... (Marx & Engels, 1989)

Following the collapse of the Soviet bloc Francis Fukuyama pronounced that

humanity had arrived at the “end of history” with the final victory of the liberal ideal

and of individual liberty over repressive collectivist models of organising societies

(Fukuyama, 1989). In a similar vein the following year US President George Bush

Sr. declared that the collapse of Stalinism in Eastern Europe was heralding a “new

world order” based on the ideals of universal freedom and liberty for all (Bush,

1990). There is a major intellectual and analytical gulf between the two

declarations. The former attempts to understand the events described above as part

of a historical process that goes back at least to the liberal values of the French

revolution and the attempt of France's revolutionary armies to spread these values

throughout Europe and ultimately the globe. The latter forms part of a speech that

uses relatively abstract references to ideals of liberty and justice and a commitment

to preserve and spread these values as justification for going to war against Iraq in

defence of Kuwait.

What these declarations do have in common, however, is their reference point in

what Fukuyama refers to as “Western liberalism” or the “Western idea” (Fukuyama,

1989). That is, the individual liberty and the open, deregulated market system that

has become synonymous with the neoliberal project. Given the confidence with

which Fukuyama, Bush and proponents of political and economic liberalism

proclaimed its ultimate victory there is more than a little irony in the crisis that beset

the neoliberal model as it began to go into free fall in late 2007. The sub-prime

crisis that followed the US housing bubble spread throughout the financial system

caused a “financial tsunami”, leading to the collapse in September 2008 of Lehman

Brothers, one of the US's largest investment banks (Harman, 2009: pp.277-304).

The only thing that prevented more victims was the trillions of dollars pumped into

bailing out financially insolvent banks. In other words when crisis struck, those

who had screamed the loudest for governments to withdraw from the economy were

now among those screaming for its intervention in order to stave off the complete

collapse of the system. Even this failed to prevent the crisis flowing into the 'real'

12

economy with companies in the US, Europe and elsewhere shedding thousands of

jobs and further bail outs required to prevent the collapse of major players such as

the US auto industry.

Proponents of the free market system were now challenged by what became known

as the Global Financial Crisis, or GFC. Alan Greenspan, the former chairman of the

US Federal Reserve lamented that the crises had “exposed flaws in his thinking and

in the workings of the free-market system” (Sydney Morning Herald, 24/10/08). He

further added that he had been mistaken in believing that the financial system was

capable of regulating itself. In France president Sarkozy went a step further,

proclaiming that “the ideology of the dictatorship of the market” was dead (Herald

Sun, 24/10/08) and went on to describe events as an “intellectual and moral

revolution”. Here in Australia, newly elected Prime Minister Kevin Rudd took the

opportunity to distance his government from the previous government’s

commitment to neoliberal ideals in a 7,000 word essay in the February 2009 issue of

The Monthly (Rudd, 2009). In this article he refers to the “demise of neoliberalism”

instigated by the Global Financial Crisis and the vital role of the state in the post

GFC world. He referred to the “international challenge for social democrats”2 to

“save capitalism from itself” to avoid the complete collapse of the existing system.

While Australia survived the worst of the crisis, the same cannot be said for North

America and in particular Europe. According to the Sydney Morning Herald, by

early 2010 the German economy had “ground to a halt” amid the massive debt crisis

in Greece (Sydney Morning Herald, 13/02/10). Alarm among key policy makers

even led one commentator among the political and business leaders gathered at the

World Economic Forum (WEF) in 2010 to refer to “post-capitalism”(Ignatius,

2010). According to Ignatius, where the WEF had in the past been at the forefront

of calling for greater liberalisation of markets and the free movement of capital

across borders, even the likes of leading financier George Soros were now calling

for further government intervention. Governments world-wide spent trillions pump

priming economies and bailing out the banking sector for fear of the total economic

collapse of the finance sector. Similar bail outs have been the only thing that

2 That is, left of centre parties that have historically acted as the parliamentary wing of the labour

movement.

13

prevented the US automobile industry collapsing completely. All this has been paid

for by the kind of deficit spending associated with traditional Keynesian methods of

maintaining equilibrium in national economies, methods supposedly anathema to

neoliberalism.

A change of tune among business leaders and policy makers is not the same as a

retreat from neoliberal ideals among the intellectuals that brought neoliberal

economics to the former in the first instance. Nor does it necessarily mean a

sustained retreat from neoliberalism by the very policy makers that turned to

massive levels of pump priming to stave off economic disaster during the height of

the financial crisis. For example, under pressure from the European Union, who

fear the flow on effect of a Greek default on sovereign debt, the Greek government

announced a series of austerity programs aimed at slicing $US billions from the

deficit under the terms of a bail-out package negotiated with the IMF and their

fellow EU member states (Ryan, 2010). To address the crisis Greek Prime Minister

Papandreou began implementing measures that can be instantly recognised as tried

and tested neoliberal tools favoured by policy makers over the last 30 years. The

spending cuts, a freeze on public sector wages and state pensions and a lifting of the

retirement age are entirely consistent with the approach of neoliberal states

concerned more with curbing inflation and public debt than the economic pain such

measures may inflict upon its citizenry. This is a clear shift from the Keynesian

solutions implemented at the onset of the GFC and ironically this shift back toward

neoliberal orthodoxy is accelerated by the cost of implementing those methods.

Here in Australia, there has been a similar, albeit much less severe trajectory in

responding to the GFC and to recovering the cost of that response. There were also

important differences however. When the GFC hit the then Prime Minister Kevin

Rudd saw fit to inject massive amounts of money into the economy to stave off the

risk of recession (Sydney Morning Herald, 05/02/09). Spending patterns were quite

different, however, to that of other nations in that Rudd was not faced with a

collapsing banking sector that needed to be bailed out. He could therefore afford to

spend money in ways that would stimulate aggregate demand in the economy, with

some $42 billion spent on cash handouts and a major infrastructure program, most

notably on schools. Rudd stood firm against Opposition criticisms of the debt being

14

accumulated to fund the spending, consistent with his nominal rejection of

neoliberalism in the Monthly article noted above. Once recession had been averted,

however, the ALP government, now under Julia Gillard, would once again begin to

embrace the free market as the key to taking the Australian economy forward

(Franklin, 2010).

Prime Minister Julia Gillard outlined her vision for the future of the Australian

economy, in a speech that invoked the reforms of the Hawke-Keating years and

championed the virtues of a “stable macroeconomy, creating certainty for economic

decision making.” (Gillard, 2011). Labor also committed to quickly recovering the

debt accumulated form the GFC spending with a budget surplus to be delivered

within three fiscal years (alp.org.au, 2011). The ALP government has cut the public

sector in order to achieve the projected surplus, with around $1 billion to be cut

from the APS over four years announced in the 2011-2012 budget amid calls for belt

tightening that has caused some commentators to refer to the Gillard government’s

“razor gang”, a reference to the Liberal government’s attack on the public service in

the late 1970s and early 1980s (Harvey, 2011). Meanwhile the opposition promised

even greater cuts, with Shadow Treasurer Joe Hockey vowing to lead his own razor

gang to cut ‘big government’ to the tune of some $70 billion to service government

debt (Franklin, 2011). Renewed fiscal pressures due to a deteriorating global

economic outlook may put further pressure on the government to either defer

achieving a surplus or make further cuts to achieve one in their given timeline

(Stutchbury, 2011).

The point of the above is not simply to consider in the abstract the plight of the

neoliberal project at present. Nor is to speculate on whether Neoliberal, Keynesian,

or for that matter Marxist economists will come out of the present crisis with the

greatest credibility. It is to begin to lay the groundwork for an understanding of the

rise of neoliberalism and what neoliberal reforms have meant to different sectional,

or in particular class interests. In other words, what has neoliberalism delivered and

to whom, particularly given the claim that the free trade, deregulation and

privatisation associated with neoliberal reform would act to solve economic crisis

and ultimately alleviate poverty and associated insecurity, thereby leading to

prosperity and social stability (Lamy, 2007). These questions take on particular

15

significance when posed in the context of economic uncertainty that neoliberalism

appears unable to resolve without inflicting further pain on those whom the

proponents of neoliberalism claimed their reforms would benefit the most. Such

claims can appear more than a little hollow in a climate where the economic future

is so uncertain.

The Historical and Philosophical Context

For the purposes of this thesis, therefore, the Global Financial Crisis marks an

important reference point from which to look back to the birth of neoliberalism, its

nature, and the ideological underpinnings that accompanied its ascendency. This

being the case then so too is there a starting point from which we can begin to

observe its ascendency. Both proponents and critics of the neoliberal project, or the

“Washington Consensus” as it also came to be known (Tabb, 2003) agree that

another economic crisis, the so called 'stagflation' of the early to mid 1970s,

provided what we would now call neoliberal economists with an opportunity to

move from the periphery of policy debate into the mainstream (Harvey, 2007;

Harman, 1996; Auty, 2009; Millmow, 2009). Traditional Keynesian methods were

failing to address unemployment and inflation, which according to Keynesian

orthodoxy could not occur simultaneously, and were therefore increasingly

discredited in the eyes of policy makers.

This provided the context for a new era, in which the 'socialist' methods of state

intervention into the economy were increasingly abandoned in favour of

deregulation, privatisation and, as Chenail argues “industrial capital has been forced

to subordinate itself to money capital” (Harman, 2007: p.88). In other words, there

has been a rise in the importance of financial capital in relation to the 'real economy'

in today's capitalism. According to Harvey, neoliberalism “is in the first instance a

theory of political economic practices that proposes that human well-being can best

be advanced by liberating entrepreneurial freedoms and skills within an institutional

framework appropriate to such practices” (Harvey, 2007: p.2). The role of the state

in such an analysis is to provide the corporate world with the infrastructure within

which it can operate, free from stifling regulation and government intervention.

According to Harman, (Harman, 2007: p.90), neoliberalism literally means “new

16

liberalism” and looks back to the days of laissez faire liberalism that dominated

economic policy from the days of Adam Smith until the Great Depression of the

1930s, when there was a shift from free markets toward greater state intervention

into the economy.

In other words there is a wealth of philosophical inquiry that modern, or “neo”

liberals can draw upon. In fact the ascendency of neoliberalism allows its

proponents to celebrate not just the return of laissez faire economics, but its victory

on a global scale (Higgins, 2006: p.5). So in considering the historical trajectory of

economic liberalism, it is worth returning to Fukuyama and his assertion that this

history has come to an end and the enlightenment project has no alternatives with

which to compete. Fukuyama attempts to rescue Hegel's dialectic method from its

usurpation and perversion at the hands of Marx and his followers (Fukuyama, 1989).

According to Fukuyama, Hegel's idealism saw “all human behaviour in the material

world, and hence all human history, is rooted in a prior state of consciousness” and

that “this realm of consciousness in the long run necessarily becomes manifest in the

material world, indeed creates the material world in its own image. Consciousness

is cause and not effect and can develop autonomously from the material world.”

In this sense we need to consider the historical development of the consciousness of

those who pioneered the development of the liberal ideal up to the present day. By

contrast, Fukuyama rejects Marx's dialectical materialism, which he describes as

“relegating the entire realm of consciousness – religion, art, culture, philosophy

itself – to “superstructure'” that was determined entirely by the prevailing material

mode of production” (Fukuyama, 1989: p.3). Here Fukuyama ascribes to Marx a

highly mechanical materialism and dialectical determinism that sees the

development of human consciousness as being entirely predictable and within which

individual humans, subject to an iron law of history have no power to develop

consciousness independently of their material circumstances. Such an observation

may be consistent with Marx's assertion, taken in isolation from the rest of his

scholarship, that the internal contradictions of capitalism, centred on the struggle

between contending classes for control of the productive forces, “necessarily leads

to the dictatorship of the proletariat” (Marx in Padover, 1979: p.80). It is certainly

consistent with the economic determinism of the Second International, which

reached its logical conclusion in the revisionism of Bernstein, who essentially

17

removed the question of agency and saw the task of Marxists as simply building a

parliamentary presence and waiting for the inevitable implosion of capitalism when

socialists would peacefully take the helm (Luxemburg, 1989).

However, Fukuyama's critique of Marx is at odds with the importance the latter

placed on the development of human consciousness and subsequent activity based

not purely on abstract theory but observations of the dialectic at play in the real

world. For example, shortly after Napoleon III’s coup d’etat of 1851 Marx

remarked in The Eighteenth Brumaire of Louis Bonaparte, that “Men make their

own history, but they do not make it under circumstances chosen by themselves, but

under circumstances directly encountered, given and transformed from the past (

Marx & Engels, 1989). Less than a decade later, in his Contribution to the Critique

of Political Economy, Marx further declared that “In the social production of their

existence, men inevitably enter into definite relations, which are independent of

their will, namely relations of production appropriate to a given stage in the

development of their material forces of production…The mode of production of

material life conditions the general process of social, political and intellectual life.

It is not the consciousness of men that determines their existence, but their social

existence that determines their consciousness” (Marx & Engels, 1989). When these

two references are considered together we see that for Marx, the material conditions

of our existence shape the human condition but do not preclude us from attempting

to change those conditions to our benefit.

The Cold War and Rational Theory

It is worth remembering the above when considering the development of both

neoliberal economic policies and the theoretical foundations which underpin it. The

tension between the Hegelian idealism invoked by Fukuyama and the historical

materialism of Marx will therefore inform the analytical approach to this thesis, with

particular sympathy for the latter. Or, perhaps more to the point, this thesis will

consider the philosophical liberalism of the neoclassical liberals in the context of

their critique of Marxism, or socialism in general, as part of the cold war battle of

ideas. So, for example, when Amadae, by no means a Marxist, examines the

theoretical underpinning of the modern Western state she asserts that it can only be

18

fully understood in the context of cold war rivalry between the individualist based

Western camp and the collectivist Soviet camp (Amadae, 2003). Amadae goes to

great lengths to stress the gulf between the mood in the Western camp immediately

following the collapse of the Soviet Union and that during and following World War

Two when totalitarian regimes, both fascist and communist, challenged the liberal

model of democracy.

In this climate, defenders of western capitalism found it necessary to develop a

sound theoretical basis upon which liberal democracies, based on the rights of the

individual, could challenge the collectivist model that was gaining flavour across the

globe at an alarming rate. Defenders of liberalism in the US state machinery did not

rely on theoretical superiority alone, however, but determined to ensure military

dominance over cold war rivals. This is demonstrated by the fact that by the height

of the cold war in the 1960s, defence spending accounted for half the US budget

(Zinn, 2005). The cold war also led to the creation of a number of think tanks

among western liberal intellectuals, some of which would become central to the

adoption of neoliberal economics by key policy makers (Goodman, 2005). For

example, immediately following the conclusion of the Second World War, Project

RAND (Research and Development) was established by the US Air Force to

facilitate research and analysis aimed at ensuring military superiority (Amade,

2003). Although initially formed as a division within the Douglas Aircraft

Company by 1948 it was reconstituted as an independent think tank in its own right

as the RAND Corporation. From the outset the RAND Corporation concerned itself

with adopting a ‘rational’ approach to policy matters, firstly in the US Defence

Department and then to public policy generally.

Beginning with game theory, which attempted to predict the behaviour of players

within a given scenario on the assumption that they would make rational decisions

based on individual self interest, RAND Corporation continued to develop rational

choice theories to inform public policy decision making and were soon a leading

think-tank on public policy matters. RAND’s theoretical approach centred on the

primacy of the individual over the collective and the assumption that free markets

were a necessary prerequisite for a healthy democracy. Rational choice analysis

spread from the confines of RAND’s initially narrow focus on strategic defence

19

policy to be adopted by other disciplines, in particular the fields of economics and

political science (Amadae, 2003: p.75). Rational choice analysis informed a range

of theories including social choice theory, public choice theory and positive political

theory that all aimed to rationalise the workings of, and more importantly the

superiority of the liberal democratic state over collectivist models of the former

Soviet bloc. It did so by taking as its starting point the belief that the rational self

interest of individuals in a society make it impossible for a state to effectively

operate in terms of a public good.

For example, Buchanan comments on public choice theory that “Public choice

theory, broadly defined, came along in the 1960s, 1970s, and 1980s to offer

intellectual foundations that allowed citizens to understand the political failures they

were able to observe at first hand….Once this elementary shift in vision is

made…the critical flaw in the idealised model of politics and politicians is exposed.

No longer could the romanticised model of the workings of the state be tolerated”

(Amadae, 2003). In other words, it is sheer folly to expect the state to deliver

services to the public given the flawed nature of the state in that it comprises itself

of rational, self-interested players unable to conceive of a public good. This being

the case, it only makes sense that the most efficient means of delivering services, or

put another way of distributing resources, is by means of free markets made up of

the very self-interested players that make up the populous (the notion of community

or society fits poorly with this model). As Margaret Thatcher once famously

quoted: “There is no such thing as society, only individual men and women and

their families” (Clarke, 2004)

Hayek and the Mont Pelerin Society

Amadae therefore provides a useful overview of the importance of rational choice

analysis in public policy that underpinned the push to massive liberalisation by the

likes of Reagan, Thatcher and for that matter Hawke and Keating in the 1980s.

However it does not in itself explain why it was in the 1980s that this gathered

steam, when the theoretical foundations itself were available from at least the end of

the Second World War. In short, while the dynamics of the Cold War were in no

doubt important in shaping public policy developments, they cannot in themselves

20

explain why a fully matured concept of liberalism was able to rise to the ascendency

at the precise moment in history that it did. To do so requires further examination of

the key players, who alongside the rational choice theorists cited above, continued to

develop liberal theory until such time as they were able to convince mainstream

policy makers to adopt the methods their theoretical approach demanded. It would

seem that despite their initial obscurity there were indeed a number of think tanks

developed during the Cold War devoted to furthering the neoliberal agenda,

although unlike the Rand Corporation many of these were independent of

government sponsorship (Muir, 2003). These included the Institute of Public Affairs

founded in the UK. In 1955 and the Mont Pelerin Society founded in Switzerland in

1947.

In terms of prestige and influence, the best starting point is the work of Friedrick

von Hayek, the Austrian political philosopher and founder of the founders of the

Mont Pelerin Society. The Mont Pelerin Society also included notables such as

Ludwig von Mises and Milton Freidman (Harvey, 2007). Like the rational choice

theorists that Amadae examined, the Mont Pelerin Society's starting point was a cold

war in which totalitarian regimes seemed everywhere to be gaining ground and even

potentially threatening individual liberty in the very heart of the liberal beast itself,

namely the United States. The Society's original Statement of Aims, developed at its

first session from 1-10 April, 1947 states,

The central values of civilisation are in danger. Over large stretches of

the Earth's surface the essential conditions of human dignity and

freedom have already disappeared. In others they are under constant

menace...The position of the individual and the voluntary group are

progressively undermined by extensions of arbitrary power...The group

holds that these developments have been fostered by the growth of a

view of history which denies all absolute moral standards and by the

growth of theories which question the desirability of the rule of law. It

holds further that they have been fostered by a decline in belief of

private property and the competitive market; for without the diffused

power and initiative associated with these institutions it is difficult to

imagine a society in which freedom may be effectively preserved. (Mont

Pelerin Society, 1947).

21

According to Harman Hayek and his contemporaries considered themselves liberals

in the continental European rather than North American sense (Harman, 2007).

They looked back to a golden age of free market capitalism and sought the

“resurrection of the orthodox “laissez faire” economic ideology that prevailed until

the great slump of the 1930s”. In doing so they looked not just back to the 'classical'

economists of the late 18th

and early 19th

century but to the neo-classical or

'marginalist' economists of the 1870s and 1880s (Harman, 1996). Hayek himself

acknowledges the difference between the use of the term “liberal” in the traditional

European, or more specifically British sense, with its reference to individual liberty

and by extension of free markets and the North American expression more

commonly used to describe a left of centre politics, or what Hayek describes as

“socialism” in the European use of the word (Hayek, 1982: pp. 119-121). Although

a marginal force for the following decades, the stated aims of the Mont Pelerin

became increasingly associated with the so called “Chicago School”, the economics

faculty of the University of Chicago (Harvey, 2007). The most notable member of

the faculty Milton Friedman, who joined the faculty in 1947, was elected President

of the American Economics Association in 1967 and awarded the Nobel Prize for

Economics in 1976, just two years after his mentor, Hayek had also received this

award. Clearly the Mont Pelerin Society and the Chicago School, or at least it's

most famous dignitaries, were well and truly moving into the mainstream.

As we shall see, this current was eventually to not only gain the respect of their

peers in the academic world but were to get the ear of economic policy makers and

guide them in the dismantling of the Keynesian orthodoxy that had been the mantra

of western policy makers since the Great Depression irrespective of the formal

politics to which they ascribed (Labour/Tory; Democrat/Republican etc). To

understand such a seismic shift, as already alluded to, requires investigation into

both the battle of ideas the neoclassical camp aimed to win and the historical

circumstances within which they conducted this debate. As described by Amadae,

the context for those whose aim was to develop a sound theoretical basis for the

concepts of individual liberty, personified ultimately in economic liberty and the

omnipotence of the market, was the 'cold' war that developed out of the ashes of the

'hot' war that was World War Two. However even before the war had begun in

22

Europe (September 1939 as opposed to December 1941 when the US entered the

war) Hayek was arguing against the economic planning that western governments

had seen as essential for rescuing national economies from the woes of the Great

Depression (Hayek, 1938). In doing so he essentially argues that “the similarity

between many of the most characteristic features of the “fascist” and the

“communist” regimes becomes steadily more obvious”. He goes on to argue that

planning necessarily implies that the planners are “freed from the fetters of

democratic procedure” and that “only capitalism makes democracy possible”.

Before the war had ended, Hayek had railed against government control over the

economy, which he maintained could only lead to the totalitarianism of fascism or

communism. Given the general consensus that massive levels of government

intervention were justified, if not completely essential for the war effort, Hayek was

swimming against the stream of economic policy. The momentous disruption to all

spheres of social, political and economic life that occurred in the years between the

onset of the Great Depression and the allied victory in World War Two cannot be

understated. Nor can the rejection of laissez faire capitalism in the first decades of

the cold war. The challenges that Hayek and his colleague's faced in shifting their

perspectives from relative obscurity into the mainstream must have at times have

seemed insurmountable. Hayek's gradual journey from not just isolation but

complete derision to being awarded the Nobel Prize for Economics in 1974, two

years before Freidman received the same recognition, marks a lifetime of

commitment to the philosophical and economic theories he espoused. This

challenge may well be compared with the isolation of Keynesian economists from

the 1970s as policy makers spurned their ideas for the new neoliberal mantra.

Following the victory of the allied powers in World War Two, and the defeat of

fascism in Germany and Italy, the prime enemy became 'socialism', or what Hayek

and his colleagues meant by socialism (Hayek 1960, 1982). As with the seemingly

ascendant Right in the USA (Dionne Jr., 2010), socialism could cover everything

from what is termed 'liberal' in the USA to the totalitarian regimes of the former

Soviet bloc. In this sense the Right and the Left tended to agree that the former

'communist' states had marked a distinct shift from the capitalist mode of

production, although both camps would argue over whether this represented a

23

positive or negative development. There was, of course, debate not just between but

within the Left and the Right, particularly within the Left, over the exact nature of

these regimes. Large sections of the Left identified with these regimes, some

unreservedly, others more critically. Only a small minority rejected outright the

notion that these regimes in any way represented a genuine break with capitalism as

opposed to a different and far more extreme form of capitalist and imperialist

exploitation (Cliff, 1988). The fact that the Stalinist regimes had support among the

left in the Western camp made it easier for the Right, including the neoclassical

economists, to argue that any trajectory away from individual liberty and freedom of

commerce led to the dangers of the gulag and the monolithic totalitarian regimes

that suppressed personal freedom.

The neoliberals felt compelled to mount an ideological assault on 'socialism'

whatever its guise (Hayek, 1960). In The Intellectuals and Socialism Hayek uses an

idealism akin to the approach of Fukuyama and ascribes to an elitist view of history

whereby the masses are shaped by intellectuals alone and are incapable of

independently developing their own consciousness. He argues that “Socialism has

never and nowhere been at first a working class movement...It is a construction of

theorists, deriving from certain tendencies of abstract thought with which for a long

time only the intellectuals were familiar” (Hayek, 1960: p.371). This is made all the

more interesting in that Hayek himself sympathised with a “mild Fabian socialism”

in his younger days (Hayek, 1978). Hayek goes on to argue that there “is little that

the ordinary man of today learns about events or ideas except through the medium

of this (intellectuals) class” (Hayek, 1960: p.372). In relation to the intellectuals and

power brokers attracted to socialism he asserts that this may be due to “genuine

error which leads the well-meaning and intelligent people who occupy those key

positions in our society to spread views which to us appear a threat to our

civilisation” (Hayek, 1960: pp.375-376). In effect Hayek is arguing that workers

attracted to socialism only develop a socialist consciousness by accepting ideas

generated completely outside of themselves as a class. Furthermore, those that

inject this consciousness into the “ordinary man” do so independent of any real

historical and material roots but completely in “abstract thought”.

24

A Marxist Response

Marxism can respond to this in (at least) two interrelated ways. Firstly, the life of

the “ordinary man” does not occur in abstraction, completely isolated from the real

material world. Working life and the material realities this exposes working men

and women to generate ideas and responses which belong entirely to the realm of

the real, as opposed to the abstract world. Working long hours in lowly paid

sweatshops or conversely in well unionised workplaces with vastly superior pay and

conditions are hardly abstractions that are irrelevant in considering the extent to

which workers adopt socialist, or for that matter, right wing or conservative

explanations of their world. In other words, while material conditions do not

automatically guarantee this or that consciousness in a deterministic manner, they

play an important role in determining responses to developments in the social,

political and economic realms that impact upon their lives. Consciousness, whether

socialist or otherwise, is a synthesis between the subjective and the objective, with

conclusions based on objective conditions and a variety of subjective realities. It

might be an abstraction for socialists to call for revolution among well paid workers

during an economic boom who feel secure, well paid and in control of their lives.

So too might it be considered an abstraction for neoclassical economists to call for a

180 degree turn in economic policy during an economic boom when traditional

Keynesian methods appeared to be delivering continued prosperity and an end to the

boom/bust cycle of the past. But where material conditions are conducive to such

arguments the prospects of them succeeding may be much better.

The other response Marxism may give to Hayek's assertion that socialist

consciousness among workers is simply imported from either well intentioned or

manipulative intellectuals is the reality of Marxist scholarship itself. Key historical

events of importance to Marxists often occurred independently of or even in spite of

intervention by socialists. Perhaps the easiest way to express this is with reference

to the class societies examined and analysed by Marx in the Communist Manifesto

(Marx & Engels, 1989: pp.102-143). Marx did not create the Roman Empire, for

example, nor the history of Europe that followed its downfall. What he did do was

subject real societies and real historical events to scrutiny, irrespective of what one

makes of his analytical methods or conclusions. More important are key historical

25

events with which socialists either attempted to intervene, draw conclusions from, or

both. For example Marx saw the Chartist movement among British workers as a

key point in the development of a working class movement conscious of its

sectional interests (Marx & Engels, 1989). This was particularly important to Marx

as the struggle occurred in a country where the bourgeoisie had already successfully

established themselves as the ruling class. While socialists took part in the Chartist

movement and some of its leading members considered themselves as being

socialists, this was not a revolutionary movement in the Marxist sense. Nonetheless,

the strategy, tactics and ultimate defeat of Chartism allowed Marx to draw

conclusions about the nature of the capitalist state and of the working class fighting

as a class to further its own interests. In other words, Chartism was not simply a

product of 'intellectuals' but a movement built by workers and their representatives,

from which Marx was able to draw important lessons and conclusions.

The Paris Commune of 1871 offered Marx a similar opportunity to develop his ideas

(Marx, 1977). The examples of workers democracy that Marx saw in the Commune

provided him with concrete examples of how a future socialist society might

function. So too did the defeat of the Commune allow him to develop his theory of

the bourgeois state and the need for revolutionaries to smash and replace, rather than

simply co-opt this state. In other words, Marx the 'intellectual' was not simply the

teacher but was also the student. The synthesis of the subjective and the objective

already referred to found expression in the dialectic as those who advocated a

socialist society drew important lessons from the very real theatre of struggle they

looked to in achieving such a society. A final and most striking example that refutes

Hayek's assertion that intellectuals alone are responsible for shaping the

consciousness of workers occurred in Russia during the revolutionary period of

1905 (M. Thomas, 2005). In January of that year workers in Petrograd had marched

to present a petition to the Tsar calling for a number of reforms. The march was

attacked by Tsarist troops, resulting in a massacre that became known as 'Bloody

Sunday'. What followed was “immense and repeated strike waves., to be followed

by mutinies in the army and navy (Russia was at war with Japan at the time), revolts

by oppressed national minorities...and growing peasant unrest.” The revolution also

led to the creation of the St Petersburg Soviet of Workers' Deputies in 1905.

This is worth considering to fully appreciate the relationship between Russian

26

Marxist 'intellectuals' and Russian workers during the revolutionary process in light

of Hayek's thesis. Russians did not rise up against the Tsar because they were

instructed to by the intelligentsia. They did not build Soviets under the tutelage of

existing Marxist organisations either in Russia or elsewhere. In fact the exact

opposite is true. Workers in St Petersburg were generally far ahead of the Marxist

groups in a number of ways. Both of the leading Marxist groups in St Petersburg,

the Bolsheviks and the Mensheviks, struggled to keep pace with developments.

They had generally agreed that any revolution in Russia would be a democratic

bourgeois revolution with socialist revolution impossible until Russia had developed

into an advanced capitalist economy. Leading Bolsheviks had even demonstrated a

sectarian hostility to the creation of the Soviets (Thomas, 2005). As Marx had

learned from the Paris Commune of 1871 so too did Russian Marxists 'learn' from

the experience of 1905. Trotsky and eventually Lenin came to believe that, based on

the actions of Russian workers a democratic bourgeois revolution could become a

‘permanent’ revolution if workers continued to act as a revolutionary class in their

own right following the establishment of a democratic state. Furthermore, they saw

in the Soviets the very institutions that could replace bourgeois rule and lay the basis

for socialism. The role of Marxists was not simply to inject by rote the ABC of

Marxism into the consciousness of workers acting as a revolutionary class. Their

role was to win arguments as part of that process based on the extent to which

objective conditions would allow a revolutionary working class to take power.

The point of the above is not merely to examine history or to engage in a study of

Marxist scholarship for its own sake. The point is to understand Hayek's perspective

and the historical context within which this took place. For Hayek, this meant

defending liberal values of individual liberty and free markets not just as an abstract

project. His work was to defend these values against what he saw as a totalitarian

threat which had a theoretical basis that was both well developed and increasingly

appealed to the academic elite of that he saw himself a part of. Even among this

elite that rejected Marxism, most also rejected his application of neoclassical ideals

to modern capitalist economies. So long as policy makers accepted the Bretton

Woods consensus, including, among other things, fixed exchange rates and where

necessary deficit spending to curb unemployment, Hayek remained isolated.

27

Friedman’s Intervention

Hayek's approach, therefore, was to continue not just defending neoclassical ideals

but to try and win the argument, first among the intellectual elite that he saw as

shaping the material and conscious world and ultimately among policy makers that

clung to 'socialist' principles that undermined individual and commercial freedoms.

In this he was assisted by his contemporaries in the Mont Pelerin Society and the

Chicago school. The most notable of these was Milton Friedman, based at the

University of Chicago and of increasing importance in the dissemination of

neoclassical ideals among economists and eventually key policy makers. Originally

a Keynesian, Friedman rejected the former following the Second World War and

moved quickly to embrace neoclassical ideals. He saw peril in the same 'socialism'

that Hayek rejected and eschewed government intervention into the economy in

favour of a system of international free trade. Consistent with the basic tenets of

Hayek, Friedman and the Chicago school Friedman argued for an international

system of free trade.

Friedman went so far as to argue that while economists frequently disagreed, this

was not the case when it came to free trade. According to Friedman, “Ever since

Adam Smith there has been virtual unanimity among economists, whatever their

ideological position on other issues, that international free trade is in the best interest

of trading countries and of the world” (Friedman, 1997: para.1). Smith certainly

extolled the virtues of international trade and in his seminal work, The Wealth of

Nations, described the process by which the free flow of imports and exports would

create equilibrium between the production and consumption of each country party to

the trade of goods (Smith, 1986: p.472). Friedman might also have mentioned

another of the classical British economists David Ricardo, whose theory of

comparative advantage in his 1821 Principles of Political Economy and Taxation

would provide another important reference point for classical and neoclassical

proponents of free trade among nations (Hart-Landsberg, 2006).

Friedman would argue that only unfettered markets are capable of ensuring

maximum efficiency in national economies and the opportunity for maximum trade

opportunities between countries (Friedman, 1997). He would further argue that

28

barriers to free trade in the form of tariffs did not protect local industries or

consumers. Rather this 'protection' propped up inefficient domestic ventures that

denied opportunity to potential rivals who possessed the comparative advantage

over domestic and international competitors that the former did not. Furthermore

they created artificially high prices that hurt consumers who would be best served

by allowing market corrections rather than tariff barriers determine which

businesses survived and what costs were passed on to consumers in the process.

Like Hayek and other advocates of a retreat of the state from the economic sphere,

Friedman found himself isolated, even ostracised by policy makers in the first two

decades following the end of the Second World War. The battle of ideas that the

liberal think tanks engaged in allowed them to hone their philosophical liberalism in

order to best defeat the proponents of big government but remained relatively

obscure outside of the circle of like minded economists and philosophers within

which they discussed and debated their ideas.

In an address delivered at Hillsdale College as part of the Mises Lecture Series,

Hayek would lament the ignorance of the masses in understanding the “aim of the

market order” and “therefore the object of explanation of the theory of it is to

everybody of most of the particular facts which determine this order. By process

which men do not understand, their activities have produced an order much more

extensive and comprehensive than anything they could have comprehended, but on

the functioning of which we have become utterly dependant” (Hayek, 1978). This

appears to reinforce the elitism already referred to on the part of the neoliberals.

Their role was to generate ideas to be adopted by policy makers, and accepted, or at

least unchallenged by a civil society generally incapable of understanding the logic

of a market driven economy. It is an approach also described by Goodman, who

relates the way in which the key architects (as opposed to theorists) of neoliberal

policy turned to neoliberal think tanks for policy advice (Goodman, 2005).

However, it was not merely the superiority of neoliberal ideas that would provide

policy makers with the impetus to turn to them for advice. It was developments in

the global economy, particularly in the economic powerhouses of Britain and the

USA that provided the neoliberals with that opportunity.

29

Keynesianism’s ‘Grand Failure’3

It is important to remember that the neoclassical economists were just that, neo

classical economists. They did not simply aim to pursue an entirely new approach

to managing an economy but a return to the classical laissez faire orthodoxy that

dominated economic policy until the Great Depression of the 1930s and had “fallen

into disrepute as an ideology by the end of the Second World War” (Harman, 2007).

This classical orthodoxy failed to prevent the global economic collapse of the inter-

war years which was seen by many as a major factor in the path to the second period

of global conflict in little more than a generation. Thoroughly discredited as a

means of preventing such crises, governments turned instead to the interventionist

approach of British economist John Maynard Keynes. Consistent with the

Keynesian ideals, governments now favoured the use of state power in pursuing

economic development (Cohen & Centeno, 2006). This included a highly regulated

framework within which markets had to operate, a greater emphasis on the state as a

provider of social welfare to its citizens, particularly in the areas of health and

education (this would vary from country to country) and high levels of state

ownership of key industries (again, this would vary from country to country). The

latter in particular was not in many ways a huge step for governments to take.

Massive levels of government intervention were required by nation states in

mobilising for the war effort. Key industries were often, therefore, already heavily

regulated or even taken into government hands.

Keynesianism also “advocated controlled public investment and carefully-timed

government expenditure on public works like roads, housing and schools in order to

cure unemployment” and had done so since the Great Depression (Hill, 1985:

p.265). Governments would use budgets to finance capital works where it was

deemed necessary to both provide important infrastructure and keep levels of

unemployment in check. A new approach to exchange rates was also implemented

following the failure of the gold based system during the First World War and again

during the Great Depression (Harman, 1996). Following the Second World War a

new international system of fixed exchange rates, the so called “Bretton Woods”

3 This is a reference to Brzezinski’s “The Grand Failure”, which examines the collapse of the Soviet

Union. See Brzezinski, 1990.

30

system, pegged currencies to gold and the US dollar in an attempt to maintain global

stability within the international currency market with deference to what was now

clearly the global economic superpower in the new world order.

It should be remembered that there was a context to capital works and the deficit

budgeting required to fund them. Massive reconstruction was required following

the devastation of the Second World War. There was some $12 billion dollars

pumped into Europe alone under the US Marshall Aid plan to help fund

reconstruction (Hill, 1985). Europe in particular, therefore, was a major centre of

investment into rebuilding cities, towns and infrastructure such as bridges, railways

and the like that had been destroyed during the war. Such huge ventures required

not just funding but major planning. In France, for example, a series of national

plans oversaw the nationalisation of key industries and a state led modernisation of

the economy (Cipolla, 1980: pp.91-100). In the decades following the end of the

Second World War, Keynesianism appeared to be working. International trade grew

by just under 10% from the 1950s and into the early 1970s, at a much greater rate

than in the 'golden age' of classical liberalism where world trade grew “with an

average growth rate of about 3.4 per cent a year between 1870 and 1913” (Harman,

1996). World production grew at an average rate of 5 per cent between 1950 and

1970, even higher in Western Europe, which grew at 5.5 per cent (Cipolla, 1980:

p.343). Massive levels of investment in reconstruction and the army of workers

required to perform the actual work meant that unemployment remained at historic

lows in the decades following the end of the war.

As a result, living conditions for western workers tended to rise given that the

profitability of the system and low unemployment allowed workers to win

concessions fairly easily from bosses who could afford to buy off their acquiescence

(Harman, 2007). At the same time, private capital interests were often relatively

happy to see governments provide the funding and direction for the reconstruction

of post-war economies. Keynesians took credit for the long boom that followed the

Second World War, arguing that the positive economic climate was due to

governments implementing their recommended economic strategies, some even

went so far as to say that they had ended the boom/slump cycle altogether (Harman,

1996). However, just as the laissez faire liberals that had preceded them failed to

31

provide answers, let alone remedies to the economic stagnation of the 1930s, so too

would Keynesianism be subjected to a challenge it appeared incapable of meeting.

It was this that gave neoliberals the opportunity to leave their relative obscurity and

join the mainstream as policy advisers to the heads of the world's most powerful

economies.

Even during the boom years of 1945 to 1970, some argued that toward the end of the

boom there were signs the international economy was again heading for uncertainty

if only one were prepared to look for them (Cipolla, 1980). According to the

monetarists who looked to the supply of money into the economy as key to

understanding the crisis, the rot had started setting into the global economy from the

mid 1960s due to massive US deficits flooding the world with money (Cipolla,

1980). The result was massive pressure on the Bretton Woods system of fixed

exchange rates underpinned by gold reserves that had been the mainstay since the

end of the Second World War. By contrast, Paul Samuelson, former economic

advisor to President Kennedy would state as late as 1970 that “The National Bureau

of Economic Research has worked itself out of one of its first jobs, namely business

cycles” (Harman, 2009: p.191).

From a Marxist perspective, Harman also argues that that the roots of the economic

crisis of the 1970s could be traced back to the late 1960s (Harman, 2010: pp.106-

107). Consistent with Marx's law of the tendency of profits to fall, Harman's

emphasis, however, is on the “downward pressure on profitability” that marked the

beginning of a shift in the dialectic of the class struggle in favour of capital.

Downward pressure on profits meant capitalists could no longer afford the

consensus of the initial post-war years where high profit levels allowed them to

settle wage claims quickly to ensure industrial peace. This, argues Harman, resulted

in an increase in the rate of exploitation of workers in the form of attacks on wages

and conditions and an increase of the share of capital vis-a-vis wages. It also marks

a distinct break with Keynesianism, whose demand side approach to keeping

unemployment in check opposed wage cuts as this would see a decrease in the

aggregate demand in an economy due to a reduction in the ability of workers to

purchase the goods an economy produced.

32

Neoliberalism Arrives

In 1969 the International Monetary Fund (IMF) began providing loans to member

countries with insufficient reserves to service their deficit under the Special Drawing

Rights (SDR) program (Cipolla, 1980). This was often insufficient, however, to

avoid liquidity crises and as a result some economies, most notably in what was then

Western Europe began to adjust their exchange rates. In 1971 the US dollar itself

was devalued against other currencies in an attempt to maintain some degree of

parity consistent with the Bretton Woods regime. This failed to stem the tide and

that very year the Bretton Woods system was abandoned as the fixed exchange rate

system, having failed to maintain parity in the face of growing debt crisis, was

replaced by floating exchange rates. It should be noted, however, that floating

exchanges rates are not purely market driven give the power of central banks to buy

and sell currencies in order to exert influence of their respective currency vis-a-vis

international rivals (Harman, 1996). In any case things would go from bad to worse

for the international economy and with it the legitimacy of demand side Keynesian

economic policy.

Already struggling oil importing nations were increasingly at the mercy of the

Organisation of Petroleum Exporting Countries (OPEC) and their relative

stranglehold on the world's supply of crude oil (Cipolla, 1980). When OPEC

nations colluded to increase the price of oil four fold in 1973 (they would double the

price again in 1979-1980) this exacerbated economies already struggling to keep

industrial output in the positive (Hill, 1985). The result was the return of full blown

recession among the world's leading economies on a scale not seen in the post-war

era. By 1975, for example, there were 1 million unemployed in Britain (Hill, 1985)

At the same time the US had an official unemployment rate of 8.3 per cent, up from

5.6 per cent the year before, while “the number of people who exhausted their

unemployment benefits increased from 2 million in 1974 to 4.3 million in 1975”

(Zinn, 2005: pp.557-558). Governments initially tried to remedy rising unemployed

using traditional Keynesian methods of using aggregate demand to stimulate

growth, and therefore employment (Harman, 2009). As a result budget deficits

began to soar but with little impact on rising unemployment figures. What it did do

was contribute to levels of inflation that were already out of control. In the UK

33

retail prices rose 25 per cent from mid 1974 to mid 1975 (Hill, 1985). While not as

dramatic as in the UK., inflation in the US had nonetheless climbed to just under 10

per cent by the mid 1970s (Harvey, 2007).

Simultaneous inflation and unemployment, the so called 'stagflation' of the

economic crisis of the 1970s marked the final ‘death’ of Keynesianism. Keynesian

orthodoxy had maintained that these two phenomena were counterposed, i.e. that

high unemployment would mean low inflation and vice versa. This, coupled with

their insistence that their methods had actually eradicated unemployment and the

downturns that caused it, exposed the hitherto infallibility of their methods. Most

importantly, it was the failure of Keynesian methods to combat the return of crisis

that saw policy makers begin to desperately look elsewhere for alternatives. The

neoliberals wasted no time in acting upon their opportunity to join the mainstream at

the expense of the now discredited Keynesians. The think tanks referred to above

were given a new lease on life as governments desperate to salvage their respective

economies turned to them for advice (Muir, 2003: p.57). For example, Margaret

Thatcher turned to the Institute of Public Affairs for guidance when reinventing the

Conservative Party upon replacing Edward Heath as leader following their

disastrous defeat in the 1974 election.

The neoliberals were helped not only by the apparent failures of Keynesianism but

by the fact that their own failings in preventing and remedying the Great Depression

of the 1930s were a fading memory. In addition, those that had grown up during the

post-war boom had never known crisis of the sort now shaking the system and had

tended to assume that their future was secure. So when crisis returned they had no

reference point other than the system they had grown up under to which they could

lay blame. Furthermore, many had taken place in the struggles of the 1960s where

demands associated with greater personal freedoms were common (Harvey, 2007:

p.5). Neoliberalism’s talk of liberty and freedom of choice could resonate with a

generation rejecting the seemingly overbearing state apparatuses that the former

aimed to restrain. This factor should not be exaggerated given that many of the so

called new left rejected the power of capital in one way or another. However, it can

nonetheless be seen as a factor in making the neoliberal agenda a little less abstract

given the synthesis between the reality of a system in crisis and critiques that saw

34

the state as being part of the problem and not the solution. Given this factor, along

with the uncertainties that had once again returned to the system, there was an

opening that had not existed prior to these events occurring. The neoliberals' time

had finally come. They were making their own history, not under circumstances of

their own making, but in circumstances that finally allowed them to return from

isolation and back into the mainstream.

35

Chapter 2: Neoliberalism on the World Stage

In considering the rise of the Neoliberal project I intend to concentrate on the

ascendency of neoliberalism in the context of what Harvey refers to as a restoration

of class power, that is, a shift in the balance of class forces in favour of capital over

labour (Harvey, 2007: p.82). In particular this will mean considering the extent to

which neoliberal reforms constitute an attack on the living conditions of workers,

and on the institutions, such as trade unions that workers look to in order to defend

these conditions. In other words, I am interested in looking at the relationship

between neoliberalism and class struggle and the dynamic of this relationship over

the course of neoliberal reforms. This is particularly true given that a key argument

of neoliberals is that workers, when creating monopolies in the economy through the

collective strength of trade unions place a restraint on job and wealth creation. The

removal, they argue, of such monopolies in favour of a more flexible regulatory

labour environment is paramount to creating jobs by removing impediments for

employers to take on workers. Such a perspective has laid the basis for

confrontation with the trade union movement as an intrinsic part of the neoliberal

revolution.

In this context, reference to class will accord to the Marxist concept which sees

social classes as based on the relationship of individual members of a given society

to this society’s means of production, that is the factories, machinery and so on that

produce society wealth. Under capitalism today, particularly in the developed

nations, this predominantly consists of the owners of capital, the bourgeoisie or

capitalist class, and the proletariat, or working class, who own little or no capital and

are forced to sell their labour power to the capitalist class to survive. Or as Marx &

Engels described in the Communist Manifesto, (by) “bourgeoisie is meant the class

of modern Capitalists, owners of the means of social production and employers of

wage labour. By proletariat, the class of modern wage-labourers who, having no

means of production of their own, are reduced to selling their labour power in order

to live” (Marx & Engels, 1989: p. 113). Class struggle in this context can be seen as

a set of social relations centred on conflict between workers and the capitalist class

over the price of workers’ labour power, or ultimately as a challenge by workers for

36

control of the means of production and the smashing of the capitalist state.4

The notion of the ‘capitalist’ state in this sense is again used with reference to

Marxist orthodoxy, with Marx observing the rise of the capitalist class as coinciding

with it having “conquered for itself, in the modern representative State, exclusive

political sway” and that the “executive of the modern State is but a committee for

managing the common affairs of the whole bourgeoisie” (Marx & Engels, 1989: p.

115). In The State and Revolution Lenin takes this analysis further and describes

the state as “the product and the manifestation of the irreconcilability5 of class

antagonisms. The state arises when, where and to the extent that class antagonisms

objectively cannot be reconciled (Lenin, 1973: p. 7). For Marxists, therefore, the

state is essentially an expression of capitalist rule and an administrative tool for

creating the conditions within which the rule of capital can prevail. Such conditions

can vary depending on developments in the economy or the balance of class forces,

meaning the state can act in different ways to uphold the rule of capital. This helps

to explain the manner in which the capitalist state can take various forms, in most

first world scenarios that of a liberal democracy, but can also exist under a military

dictatorship, as in the case of Chile, examined below. Similarly, the state can look

to differing approaches to managing the capitalist economy, for example as with

highly interventionist and regulated economies as opposed to the more liberalised

economies of recent years.

Third World Origins

According to Harvey (Harvey, 2007: p.7) the first example of a neoliberal state

occurred in Chile following the overthrow of the democratically elected

administration of Salvador Allende in a US sponsored military coup in 1973. Such

events do not occur in a vacuum but within a specific historical and political context

and the events in Chile are no different. Allende considered himself a Marxist and

was elected in 1970 in the context of a growing level of class struggle by Chilean

workers and peasants who looked to his government to bring socialism to Chile

4 For a more modern interpretation of Marx’s method see Callinicos, 1987, especially pp.105-39 on

the dynamics of capitalism and pp. 140-177 for class struggle under capitalism. 5 Italics reproduced from the original.

37

(Sepúlveda, 2007). This heightened level of class struggle did not abate with the

election of Allende, as those who had elected him did not simply sit back and wait

for him to bring socialism from on high but saw his election as a signal to escalate

the battle. The years that followed Allende’s election saw workers and peasants

increasingly flex their muscle, beginning with strikes and demonstrations and

followed by workers seizing control of factories and the peasants taking over the

land of the rural bourgeoisie. Allende’s government also legislated important

reforms, most notably the nationalisation of CODELCO, the world’s largest copper

mining operation (Klein, 2010).

Allende’s government didn’t last long, however and was ultimately defeated in a

military coup in September 1973. Under US influence the dictatorship under

General Augusto Pinochet that followed ushered in a revolution in the way the

Chilean economy was managed. In 1975 Pinochet met with Milton Friedman to

discuss the latter’s economic theories and ways in which they could be applied to

the Chilean economy ((Sepúlveda, 2007). Following this Pinochet appointed Jorge

Cauas to head up a team of Chilean economists who had studied under Friedman at

the University of Chicago School of economics to oversee restructuring of the

Chilean economy. These so-called “Chicago Boys” quickly turned to remodelling

the economy along neoliberal lines, negotiating loans from the International

Monetary Fund in return for an opening up of the Chilean economy. This process

was consistent with what we would now identify as neoliberalism, including the

privatisation of public assets and welfare provisions and the encouragement of

foreign direct investment through the deregulation and liberalisation of domestic

trade laws and reducing workers’ rights to promote labour ‘flexibility’.

Importantly, as the notion of dictatorship referred to above implies, this process did

not coincide with or facilitate the maintenance or expansion of key democratic

institutions within the Chilean state apparatus. On the contrary, while the economy

was 'freed' so as to enable business interests to profit, the social and political spheres

of life were subject to increasing levels of repression. Industries that had been

nationalised were now opened up for private ownership whereas trade unions were

suppressed and its leaders subject to torture and execution, often with loved ones or

colleagues having no idea of what had happened to them, with the concept of habeas

38

corpus having no validity under the new regime. In other words, the regime change,

along with the economic reforms that followed, resulted in a shift from the power of

working class Chileans and their institutions in favour of both domestic and foreign

capital. The example of Chile is particularly poignant when considered in Hayek's

assertion, alluded to in the previous chapter, of the link between free market

capitalism and democracy. It is worth quoting Hayek in full to grasp the tension

between his thesis and the reality of neoliberalism under Pinochet:

It is often said that democracy will not tolerate capitalism. But if here

“capitalism” means a competitive society based on free disposal over

private property, the much more important fact is that only capitalism

makes democracy possible. And if a democratic people comes under the

sway of an anti-capitalistic creed, this means democracy will inevitable

destroy itself (Hayek, 1938).

The reality would appear, rather, not the withdrawal of the state as such but rather a

shift in focus of the role of the state. It is still the nation state, for example that

legislates the reforms that facilitate deregulation, privatisation etc. and the nation

state that enforces those laws, either through the judiciary, or through state

sanctioned violence, or the threat of violence. This is true in a state such as Chile in

which the military reinforced neoliberal rule with brutality and no regard to the rule

of law. It is also true of liberal democracies, which, as we shall see, are prepared to

use institutions such as the police and the military, the “special bodies of armed

men” to use Lenin's phrase to suppress resistance to the neoliberal agenda. In this

sense the state continues to play a seemingly indispensable role in enforcing the

neoliberal agenda, suggesting, to quote Lenin yet again, the role of the state as “the

manifestation of the irreconcilability of class antagonisms” (Lenin, 1973). The role

of the state and the extent to which the neoliberal process either undermines or shifts

the focus of the nation state and its sovereign approach to the democratic ideal will

be considered in looking at neoliberalism’s rise to ascendency beginning with the

Thatcher and Reagan administrations of the late 1970s and early 1980s.

39

The Thatcher Revolution

When the Thatcher government that came to power in 1979 it inherited an economy

not only in crisis, but one in which its predecessors were already drawing

conclusions about the failure of existing economic policy. The economy under

Callaghan had become so fragile that his administration was forced in 1976 to turn

to the IMF for loans to bail out the economy (Rees, 2004: p.19). The conditions for

the bail out were austerity measures typically associated with neoliberalism.

Callaghan's government was forced to reduce the deficit, raise interest rates and cut

government spending. It was further expected to make cuts to wages and welfare

provisions. Callaghan's conversion from Keynesian was such that he would justify

his government's measures by stating in September, 1976 that “We used to think you

could just spend your way out of recession by cutting taxes and boosting

government borrowing. I tell you in all candour that that option no longer exists;

and insofar as it ever did exist, it worked by injecting inflation into the economy.

And each time that has happened, the average level of unemployment has risen”

(Harman, 1996: p.33).

Callaghan, therefore, had already begun putting in place measures that Thatcher

would apply when the Tories took power. Furthermore, as the above quote suggests,

her famous declaration that there was no alternative had already been enunciated by

her predecessors. Thatcher's approach was first and foremost to check inflation,

even at the cost of persistent high levels of unemployment (Hill, 1985: pp.295-96).

This was achieved by a combination of measures including cuts to public spending

and the lowering of tax rates to encourage business investment. Taxation in

particular was subject to nothing short of a revolution with “a shift in the burden of

taxation on income...to taxes on consumption...VAT (Value Added Tax) rose from 8

to 15 per cent” and further to this there was “an end to subsidies for heavy industry

and the process of privatisation began” (Heffer, 2008). The Thatcher revolution was

above all intended to create a market driven economy favourable to capital

investment and the pursuit of profits, a policy approach that was argued would lead

to job creation and tackle persistent unemployment. The business environment

created by the Thatcher revolution was particularly favourable to the rise of finance

capital, which has grown in importance within the British economy at the expense of

40

the traditional productive sector.

However, it's not just the City of London, the heart of the UK financial system that

has grown in importance alongside the rise of neoliberalism. Harman argues that

the “stock market valuation of US financial companies was 29 per cent of the value

of non-financials in 2004, a fourfold increase over the previous 25 years” and that

“global financial assets were equal to 316 per cent of annual world output in 2005,

as against only 109 per cent in 1980” (Harman, 2009: p.278). To give life to her

economic revolution Thatcher created a regulatory framework with “limited

regulation of business practices and even more limited enforcement of those

regulations” (Lent, 2008: p.14). Capital was invited, even implored, to take

advantage of the low tax, low regulation economy that Thatcher insisted was the

only alternative to the failure of the Keynesian approach. This certainly suited

multinational, or transnational corporation (TNC) interests who viewed the new

economic environment as an opportunity to buy former state owned utilities (PSI,

1997).

Taking on the Unions

Thatcher's pro-business environment was therefore accompanied by a regulatory

framework within which the position of workers was increasingly precarious. This

applied not only in terms of recourse to protection from the state against employers

who increasingly held the balance of power in relation to their employees due to the

disciplining effect of high levels of unemployment. It applied also in terms of the

state itself seeming to openly take the side of capital and in the process undermine

the ability of trade unions to defend the interests of their members. This is

important given that workers and their unions were blamed by Thatcher for

persistent high levels of both unemployment and particularly of inflation. The

1970s in Britain had seen a massive level of class struggle (Heffer, 2008). Striking

miners in state owned coal mines had enjoyed victories against Heath's Conservative

government in both 1972 and 1974. The 1974 strike had prompted Heath to call an

election seeking a mandate to smash the miner's union, the National Union of

Miners. His defeat in this election was a legacy that the Tories, and in particular

Thatcher would never forget. The Callaghan Labour government that replaced

41

Heath proved equally incapable of containing the unions, culminating in the bitter

“Winter of Discontent” of 1978-79 that ultimately saw a backlash against Labour

and a victory to the Tories under Thatcher.

For Thatcher, economic reform and undermining the power of the unions were part

of the same process. When Thatcher came to power 58 per cent of the British labour

force was members of trade unions (Hill, 1985: p.296). Thatcher immediately set

herself the goal of reversing the upward trend of union density that leads to the kind

of 'monopoly' that neoliberals see as threatening the productivity of the national

economy. So for Thatcher, opening up the public sector of the economy to

privatisation was an end in itself but also a means of destroying an important base of

union power in Britain. For example, between 1979 and 1994 some 2 million public

sector jobs, accounting for almost one third of the public sector workforce

disappeared in the UK, with the bulk of them being unionised jobs (George, 1999:

para.19). With jobs in sectors with a high union density disappearing this naturally

had an impact on union density across the workforce more generally. The decline of

trade union membership during Thatcher’s administration can be seen in Table 1

below.

Table 1: Trade Union Membership in Britain 1979 – 19906

Year Members

1979 13,212,000

1980 12,636,000

1981 12,311,000

1982 11,744,000

1983 11,300,000

1984 10,744,000

1985 10,819,000

1986 10,598,000

1987 10,480,000

1988 10,387,000

1989 10,044,000

1990 9,810,000

6 UK Department for Business Innovation and Skills, 2009. Figures are for Great Britain only and do

not include Northern Ireland or other parts of the United Kingdom.

42

Thatcher's approach was not to launch an all out assault on the trade union

movement but rather to engage in “set piece battles” with individual unions or

industries (Kimber, 2009: p.41). For example, one of Thatcher's first acts upon

taking government was to start slashing jobs in the civil service, a sector

traditionally associated with high union density (Bowers, 2009). She even went to

the extent of abolishing a number of key departments, including the Civil Service

Department itself (House of Lords, 1998: para.71). Over the following years

Thatcher continued to anger civil servants and their unions as traditional means of

pay settlement were abolished, following a strike settlement in 1981. She further

alienated public sector union members as unions affiliated to the Trade Union

Congress, Britain’s peak trade union body, were banned from employment in certain

public sector agencies, most notably the Government Communications Headquarters

(GCHQ).

The Miners' Strike

When Thatcher was satisfied with her reforms of the civil service she turned to other

sectors, where bitter disputes, most notably with the miners in 1984-85 and with

print workers in 1986-87 ended in defeat for the unions (Kimber, 2009: p.41). The

miners' strike in particular was a bitter and drawn out affair, with the stakes high for

both sides. Commentators on both the left and right have argued that this dispute

was a conscious part of Thatcher's resolve to break the back of the British unions

(Jenkins, 2009) (Adeney & Lloyd, 1988: p.70). In any case, Thatcher would have

been fully aware that her announcement of pit closures would likely be met with

stiff resistance. Arguing that the nationalised industry was a drain on public coffers

and it was cheaper to import coal (Harvey, 2007: p.59) Thatcher announced the

closure of twenty pits during 1984-85 on top of another twenty pits that had been

closed during the previous twelve months (Adeney & Lloyd, 1988: p.70). This had

a major impact on the livelihoods of workers at the core of the British labour

movement and precipitated a battle that would have far reaching consequences. For

Thatcher, victory meant breaking the back of resistance to her neoliberal agenda

with the added bonus of expunging memories of the Tories' defeat at the hands of

British miners in 1974. For the miners, defeat could mean not just the loss of

individual jobs but the decimation of entire communities that had for generations

43

relied on the pits for their livelihoods. In such towns an entire generation could

potentially be lost to unemployment with jobless figures in some communities

already up to 15 per cent even before the pits were closed (Adeney & Lloyd, 1988:

p.25).

Given the high stakes involved, it is no surprise therefore of the bitterness of the

struggle nor the intensity of the methods used to win. Both sides relied above all on

the brute strength of numbers, on the miners’ part to maintain picket lines and on the

government side with the use of police to physically attack picketing workers to

allow scab labour to reach the pits (Adeney & Lloyd, 1988: p.92). In the end it was

the forces of the state, the “bodies of armed men”, that were to prove victorious. It

was a battle that would reinforce Thatcher's moniker as the 'Iron Lady' and

demonstrate clearly that describing neoliberal reform in terms of a retreat of the

state was too simplistic a description. Given her willingness to use the full force of

the state to secure victory it was clear that the state was as important as ever in

disciplining workers who acted to protect their interests when those interests

diverged from those of capital. In fact Thatcher herself rejected the laissez faire

label generally associated with neoliberalism by declaring “Never accuse me of that

ghastly French word. I believe government should be strong in what it does”

(Jenkins, 2009). Thatcher's anti-union agenda certainly emboldened capitalists to

use both the threat of unemployment and the new industrial relations climate to push

through attacks on their workforce.

Murdoch and the Print Workers

An example of this is another bitter dispute, commencing not long after the defeat of

the miners, this time at Rupert Murdoch's News International facility at Wapping in

London. Murdoch had been buying up rivals in the print and electronic media,

including acquiring News International in Britain, publishers of The Sun, The News

of the World, The Times and The Sunday Times, making him the biggest player in the

global media market (Oatridge, 2003: para.2). Murdoch's intention was to move

production of two of these newspapers, The Sun and The News of the World to

Wapping while other publications were to remain in Fleet Street (Nash, 2000:

p.212). In the process he hoped to reduce the workforce at the new Wapping facility

44

by as much as two thirds, provoking a dispute with the unions representing print

workers with whom he had been negotiating with as early as 1981. Murdoch sought

a fresh start at the new facility to ensure that any 'privileges' hitherto enjoyed by his

workforce at his Fleet Street facilities would not apply at the Wapping plant (Nash,

2000: p.214-15).

In September 1985 he declared certain prerequisites must be met in order for the

unions to be included in any collective agreement to cover the new facility. These

included an end to the closed shop and the inclusion of a no strike clause, conditions

which the unions described as a 'serf's charter'. When the arbitrary Christmas

deadline Murdoch had imposed for an agreement to his conditions had expired, he

declared that he would subject the terms of the 'serf's charter' on both his Wapping

and Fleet Street publications, adding that he would also reduce his existing

workforce across both plants from 5,500 to 1,500 (Nash, 2000: p.216). Despite

offers to continue negotiations from the unions, Murdoch kept to his position. In

response to stalled negotiations and Murdoch's insistence that job shedding would

proceed, some 6,000 staff across both facilities walked of the job on 24 January

1986 (Oatridge, 2003: para.9). Murdoch responded by announcing the dismissal of

all striking workers and threatened journalists with dismissal unless they agreed to

move to the Wapping site, resulting in 1,000 journalists joining their colleagues in

strike action. Murdoch further offered financial incentives to journalists aimed at

undermining the industrial action.

What ensued was industrial action where print workers attempted to prevent the

printing and distribution of Murdoch's titles, with mixed results (Nash, 2000: p.219).

Despite negotiations between Murdoch and the unions, striking workers voted in

two separate ballots to continue industrial action and picket lines grew in number, at

times numbering in the thousands (Nash, 2000: pp.221-22). This culminated in

police action against a march to mark the one year anniversary of the initial walkout

with mass arrests and injuries on both sides (Nash, 2000: pp.224-25). Murdoch used

the violence to further demonise striking workers in his press and to gain further

sympathy from the courts that had already granted injunctions against picketing.

Under threat of contempt of court proceedings which could have potentially cost the

unions millions, the unions capitulated, effectively 'abandoning' their members

45

(Taylor, 2009: para.6). A strike fought with the bitterness of the miners’ strike, with

similar threats to workers and fought for a similar length of time, had once more

resulted in defeat for the working class and it’s institutions.

Privatisation

While victory over the unions allowed Thatcher to accelerate the pace of

privatisation and deregulation, steps were already underway well before this. In

1981 Thatcher embarked upon the process of privatising the state owned

telecommunications industry (British Telecom, 2006). Under the guise of

eliminating “waste and inefficiency” the British Telecommunications Act 1981

separated the telecommunications sector from the Post Office with the creation of

British Telecom (BT) as a public corporation, thereby ending a state owned

monopoly that had existed since its nationalisation in 1928. The new corporation

was expected to operate as a commercial player in the new economic environment,

with competitors granted licences to use the existing British Telecom network to

create competition for customers (British Telecom, 2006: p.1). Determined to push

on with not just the corporatisation of British Telecom but its full privatisation, the

Conservatives made the public versus private debate part of the 1983 general

election (British Telecom, 2006: p.2). After winning the election with an increased

majority, Thatcher pushed ahead with the sale of 51 per cent of the corporation, the

first major privatisation of the Thatcher years. The sale was accompanied by a

“massive advertising campaign” arguing that the British people could “share in

British Telecom's future” (Larner & Walters, 2000: p.366). This was part of a

general campaign arguing that privatisation would allow the ‘mums and dads’ of

Britain to become shareholders and enjoy the benefits of a “popular capitalism”

(Larner & Walters, 2000: p.366). Following the partial sale in 1984 there were

further shares sold in 1991 and again in 1993, by which time the government had

relinquished all of its shares save for a “Special Share”, which it retained to block

potential takeovers (British Telecom, 2006: p.5).

In the years that followed the initial float of British Telecom there were a number of

further privatisations of key state owned industries (Larner & Walters, 2000: p.366).

British Gas, British Airways, British Steel, British Rail and the water and electricity

46

boards were all floated. In each case the same campaign around creating a

shareholder society and notions of popular capitalism were invoked. So much so

that in its 1987 election manifesto the Conservatives stated that

We are determined to make share ownership available to the whole

nation. Just as with cars, television sets, washing machines and foreign

holidays, it would no longer be the privilege of the few; it would become

the expectation of the many (Larner & Walters, 2000: p.367).

Thatcher was essentially arguing then, that the key to a truly egalitarian society

came not through the nationalisation or socialisation of the means of production but

rather through market forces and the opening up of the economy to the public. This

raises of course the question of which members of the public actually did benefit

from privatisation and what it did for the British economy. Thatcher's supporters

will argue that she was a “radical visionary who rescued Britain” (Heffer, 2008)

from the economic mess created by irresponsible unions with far too much power.

Others counter, however, that Thatcher's 'reforms' have led to a far more unequal

society with those living below the poverty line increasing from one in ten when

Thatcher took power to one in four in 1999 as first Major and then New Labour

continued along the neoliberal path (George, 1999: para.16).

Welfare Meets the Market

If the chief aim of Thatcher's first two administrations from 1979-87 was “crushing

working class organisation”, by its third term the Thatcher government was

beginning to look at the potential for bringing the market into the welfare sector

(Ferguson & Lavalette, 2009: p.115). This was given the full support of the non-

government commercial sector, which saw potential profit in the commercialisation

or sale of welfare provision (Aldred, 2008: p.34). Concepts such as 'managerialism'

and 'marketisation' were brought into the sector, essentially meaning the sector was

now meant to incorporate private sector norms into its operations. This is perhaps

best typified by a series of reforms introduced by the Thatcher government aimed at

introducing market mechanisms into the National Health Service (NHS). The

rationale behind these reforms was the same that had been used to justify reform of

47

the civil service and the communications sector. That is, the NHS was a bloated,

inefficient bureaucracy that needed to be subjected to a competitive environment in

order to ensure best value for money and thereby a better product for consumers.

These reforms were outlined in a 1989 Government White Paper entitled Working

for Patients (Munsey, 2000). The most important reforms introduced by the White

Paper were the creation of Trust Hospitals, Fund-Holding General Practices and the

Purchaser/Provider split. Individual hospitals were permitted to establish

themselves as autonomous units able to determine what 'services' they would offer

and at what costs, thereby enabling them to generate their own income. In a similar

vein General Practitioners were now given a budget and able to act independently as

purchasers of health care whereas previously they had been obliged to refer patients

to local hospitals, as well as a budget for the provision of prescription drugs from

their practice. General Practitioners were now players in the market and could buy

and sell services, including via private hospitals, with the added incentive that any

residual budget remaining at the end of the year could be directed towards the

“benefits of patients” within their own practice (Munsey, 2000). Finally, the

Purchaser/Provider split essentially distinguished between those who “purchase”

health care, such as hospitals and those who “provide” it, such as the District Health

Authorities (Munsey, 2000). Rather than receive a working budget providers were

expected to compete with other providers to offer their services in a competitive

market. Once more, the rationale behind the split was the superiority of the market

over the state run model and the mantra that providing ‘clients’, i.e. patients, with

the option to choose their preferred provider will result in better services and an

economically viable sector that would no longer be a drain on the state coffers.

Thatcher's adoption of Working for Patients coincided with her rejection of The

Black Report, released in 1980, that drew a link between social inequality and poor

health (Haynes, 2009: p.138). It is perhaps no surprise that she would reject such

conclusions if her economic reforms, tended to concentrate the bulk of this increase

into fewer and fewer hands (George, 1999: para.15). Thatcher could hardly

acknowledge she might be creating a society more prone to ill health, a fact that

would undermine any argument that her prime interest was in improving the lot of

users of the NHS. Given the experience of civil servants and miners under her

government, it should also come as no surprise that Thatcher's reforms tended to

48

alienate workers in the health sector through the same process of commercialisation,

privatisation and associated job cuts that their predecessors had endured. So much

so, that by 1995, the Tory government, now under Thatcher's successor John Major,

had antagonised health care workers so much that professional bodies whose

members had never struck now refused to rule out doing so (Munsey, 2000).

While the above examples are not the entire story of the neoliberal project under

Thatcher, they help to demonstrate a pattern that can provide something of an insight

into the net effect of these reforms. Under Thatcher,“Britain, as a public-sector

culture that tolerated unionism was replaced by a private-sector culture that viewed

it as a block to higher profits” and where even “the threat of outsourcing often

secured concessions from labour” (Aldred, 2008: p.34). The central dynamic of

Thatcher's restructuring of the British economy is the restoration of class power in

favour of the power of capital. This was achieved to a large extent through the use

of commercialisation and privatisation of the public sector as a means of

disciplining the workforce and accommodating the transfer of wealth from labour to

capital. This shift in wealth is demonstrated by Figure 1 below, which uses the Gini

Coefficient, a calculation that measures the level of inequality based on income

distribution. The higher the number, the greater the level of inequality.

Figure 1: Gini Coefficient for Great Britain 1979 – 2005/20067

7 Brewer, Goodman, Muriel, Sibieta, 2007: p.19.

49

Reaganomics

Across the Atlantic, President Reagan's embrace of neoliberalism can in a sense be

seen as the other side of the same coin. Both leaders faced severe economic crisis

and both agreed that a radical approach was required to set their respective

economies on the road to recovery. Specifically, both agreed that the Keynesian

consensus had failed and needed to be replaced by an approach that saw the power

of the market enhanced and the power of organised labour diminished. There were

also, however, important differences between the two administrations. Reagan was

elected at a time when the status quo had only recently begun to stabilise following

massive levels of civil unrest, with one commentator observing that by “the early

seventies, the system seemed out of control” (Zinn, 2005: p.541). The 1960s had

seen the crystallisation of popular struggles for civil rights with the birth and/or

consolidation of 'liberation' movements around race, gender and sexuality. The US

was fighting an increasingly unpopular war in Vietnam which was toward the end of

US intervention was bringing millions onto the streets calling for the withdrawal of

US troops.

Despite these differences, there were, as noted already, important similarities that

cause history to see both Thatcher and Reagan as something of a dynamic duo both

as cold war warriors and as economic reformers. Firstly, both inherited economies

in crisis, with the United States at the time of the 1979 presidential election having

seen manufacturing net profit rates, despite periodic recoveries, on a general

downward spiral since the late 1960s (Harman, 2009: p.196). As early as 1971,

President Nixon had seen fit to combat rising inflation with a cut to arms

expenditure and the devaluation of the US dollar (Harman, 2009: p.199). The latter

move effectively marked the death knell of the Bretton Woods agreement that had

seen a global system of fixed exchange rates pegged to the US dollar. So Reagan,

like Thatcher, inherited an economic malaise that had engulfed much of the world,

including the most “wealthy and powerful” nations (Cohen & Centeno, 2006: p.34)

and embarked upon the project of stabilising their respective countries both

economically and socially. Furthermore, they also inherited economies in which

their predecessors appeared to be already accepting the economic reality that a

major change in policy was required to counter economies that appeared out of

50

control. Just as the Callaghan administration in the UK. had begun to reject the

Keynesian consensus, in the latter stages of the Carter administration, Federal

Reserve chairman Paul Volcker embarked upon a radical change to monetary policy

that allowed the market to determine the rate (Harvey, 2007: p.23).

The “Volcker Shock”, as it became known allowed interest rates to rise dramatically

as a means of combatting the stagflation that had crippled the domestic economy.

Like his British counterpart, Paul Volcker, as Chair of the US Federal Reserve also

defended the policy change by effectively arguing there was simply no alternative.

The pain of the recession that ensued was pain that simply had to be endured in

order to rescue the economy from disaster. Upon defeating Carter in the 1980

election Reagan endorsed Volcker's approach with gusto, adopting fiscal and

budgetary policies that complimented the market approach to interest rates (Albo,

2001: para.6). The Budget and Reconciliation Act 1981 legislated for tax cuts that

favoured the rich and for cuts to government spending. Reagan's mantra, has had

been Thatcher's was that with regard to the economy “the most important cause of

our economic problems has been the government itself” (Albo, 2001: para.6). The

answer, therefore, lay in the retreat of the state from economic activity and the

creation of a regulatory framework conducive to private interests. The notable

exemption from spending cuts was the military, which under Reagan increased to

coincide with his zeal for US triumph over the Soviet bloc, which he presented as

embodying all that was evil and a genuine military threat to the US and the free

world in general (Zinn, 2005: pp.577-84).

The Reagan years to a large extent mirrored and expanded upon the economic

revolution already underway in Britain. For just as in Britain, Reagan's revolution

also reversed the dominant consensus that had existed for decades. While not a

welfare state by any means in the UK sense, the role of the state in managing the

economy in the United States prior to Reagan had been based on the New Deal of

President Franklin D. Roosevelt. The New Deal was a response to the failure of

laissez faire liberalism to prevent the collapse of western financial markets and the

devastating economic depression that ensued. It was based on the principle that

government needed to play a role in ensuring the well being of its citizens and

regulating an economy to prevent recurrence of the meltdown that led to the

Depression. In other words the government had to act to save capitalism from itself

51

(Harman, 2009: p.154).

It's not hard to see how such principles contrast with Reagan's insistence that

governments by contrast should not, and in fact could not play such a role without

making matters worse. And it was by attacking the principles of the New Deal that

Reagan hoped to rein in budget deficits, using a combination of budget cuts,

particularly to the welfare sector, and attacks on the wages and conditions of

working Americans. So in 1984, for example, just as military spending was being

ramped up by a further $181 billion and wealthy Americans were enjoying tax cuts

of $190 billion, there was in that same year a cut of $140 billion to social welfare

programs (Zinn, 2005: p.577). Reagan specifically targeted Social Security in order

to balance his 1981 budget, which, due to the record levels of defence spending

referred to above would have seen a massive budget deficit and therefore failed to

pass through the Congress (Monthly Review, 2000: para.9). Although a “frontal

assault” on Social Security was blocked by the Democrats, Reagan was able to

target Social Security in a piecemeal process that rolled back entitlements to

recipients. Arguing that Social Security was unsustainable and heading for both

short term and long term crisis, Reagan began chipping away at the system,

reducing benefits available to recipients. His administration introduced a number of

measures, including raising payroll taxes, deferring increases to recipients designed

to keep up with the cost of living, and raising the retirement age from 65 to 67.

As with the Thatcher administration, Reagan espoused privatisation as a panacea for

curing the nation's economic ills (Brinkley, 1987). There were some notable

differences, however, in that many of the functions privatised under Thatcher's

administration were already in private hands in the United States, most notably

utilities such as power, water and telecommunications. There was nonetheless a

privatisation program, with the outsourcing of government functions to private

contractors and upwards of 40,000 government positions being lost to the private

sector in the first six years of his presidency. There was also the sale of the national

freight railway system, which occurred during Reagan’s second term (Brinkley,

1987). In 1987 created a President's Commission on Privatisation, mandated by

Reagan to “end unfair Government competition and return Government programs

and assets to the American people” (Reagan, 1987).

52

Reagan and Organised Labour

What Reagan had in common Thatcher was a determination to undermine wherever

possible the power of organised labour with an “anti-union stance...expressed in

public policy and political appointments” (Farber & Western, 2002: p.385). Having

already lost the ear of government following the Republicans wresting control of

Congress in the Congressional elections of 1980, labour unions now faced an

increasingly hostile environment not just in terms of the political elite but in terms

of the bureaucracy that the latter appointed. For example, early in Regan's first term

he appointed two members to the five member National Labor Relations Board

(NLRB) and followed this with further appointments that made the Board a “solid

pro-management” body (Farber & Wester, 2002: para.2). Reagan was also as keen

as Thatcher to cut his industrial teeth on a dispute with a key union and was

presented with the opportunity to do so much earlier in his administration than was

Thatcher. This occurred when simmering tensions between members of the

Professional Air Traffic Controllers (PATCO) union and the Federal Aviation

Authority (FAA) came to a head in 1981, as negotiations over a new collective

agreement came to an impasse (Nash, 2000: p.164). As federal employees, Air Craft

Controllers were prohibited under the Federal Service Labor-Management Relations

Statute from taking strike action (Meeks, 2009: para.21) and PATCO members were

warned that strike action would result in striking workers being dismissed and the

union being decertified (Nash, 2000: p.164).

Despite this warning, PATCO members resolved to take strike action in support of a

new agreement and walked off the job on 3 August, 1981, apparently dismissing the

threat as an empty one (Meeks, 2009: para.26). Not least of all, as a “middle class”

craft union (Harvey, 2007: 25) that had supported the Republicans in the 1980

presidential campaign (Nash, 2000: p.165) they believed they had a friend in the

president. They miscalculated badly, however, with the response from Reagan being

swift and severe. Reagan declared unequivocally that any striking worker who failed

to return to work within 48 hours would not only be dismissed from their current

position but would never again be eligible for employment with any federal agency

(Nash, 2000: p.165). When the vast majority of striking workers refused to return

to work Reagan made good this threat, effectively ending the careers of those who

53

ignored his demands (Meeks, 2009: para.31). Furthermore Reagan, acting as strike-

breaker, replaced the striking workers with non-union labour, ensuring that business

as usual would continue as best as possible.

In doing so, Reagan set in motion a process that set the stage for using non-union

staff and/or strike breakers to replace existing staff and effectively restructure

workplaces into more 'flexible' units. Or as former Federal Reserve Chairman Alan

Greenspan put it, Reagan's breaking of the PATCO strike amounted to “the most

important...domestic initiative of his presidency because of its considerable

implications for business...with greater freedom to fire, the risks of hiring declined.

This increased flexibility contributed to the ability of the economy to operate with

both low unemployment and low inflation” (Meeks, 2009: para.34). The result for

capital was therefore considered as a measured success. The result for labour was

much different, with the defeat of the PATCO workers marking an important point

from which the minimum wage began to descend dramatically (Harvey, 2007: p.25).

In the US, as in Britain, the defeat of the PATCO workers marked the beginning of a

decline in trade union density, from just under 24 per cent when Reagan took office

down to 18.6 per cent by the end of his presidency, as per Table 2 below. As with

the UK, this is explained in part by the defeat of sections of the workforce with

relatively high levels of union density.

Table 2: Trade Union Membership in the USA 1981 – 19898

Year Members

1981 19,123,400

1982 -

1983 17,717,400

1984 17,339,800

1985 16,996,100

1986 16,975,200

1987 16,913,100

1988 17,001,700

1989 16,960,500

In other words the Reagan agenda with regards to American workers echoed that of

8 US Census Bureau, 2010. Data for 1982 not available.

54

Thatcher in Britain. That is, Reagan was sending a clear message to both labour and

capital with regards to the way the dynamic between the two would play out under

his presidency. Above all Reagan aimed to discipline the workforce by subduing its

organised wing into accepting the 'greater flexibility' required by capital to extract

profits from its labour supply. And just as under Thatcher, income distribution in the

US saw a dramatic rise in the level of inequality under the Reagan administration as

demonstrated by the Gini Coefficient in Figure 2.

Figure 2: Gini Coefficient for the United States 1947 - 19989

Reagan also worked to project US power beyond its borders, both economically, and

where necessary, militarily. It is the latter in particular that set the stage for the rise

of what we now refer to as 'globalisation', or more specifically, the globalisation of

the power of capital, in particular finance capital, and the adoption of neoliberal

policies by countries beyond Thatcher's Britain and Reagan's United States. Such

reform took places in different nations under different circumstances and with

varying results. The final section of this chapter will provide a brief overview of the

9 US Census Bureau, 2000

55

neoliberal process in the 'Third World', with a particular focus on the experience of

Latin America.

Neoliberalism and the Third World

To begin to understand the neoliberal process beyond the first world one must begin

by understanding the transformation of the global financial institutions set up

following World War Two to oversee the global financial system. Specifically, one

must understand that “Internationally, the core neoliberal states gave the IMF and

the World Bank full authority in 1982 to negotiate debt relief, which meant in effect

to protect the world's main financial institutions from the threat of default” (Harvey,

2007: p.73). This process can be seen as the development of a two tier process in

relation to the adoption of neoliberal policies. In the “core areas of the world

economy” the liberalisation of the economy occurs on a voluntary basis while in

“peripheral areas, the discipline of the market is often externally imposed”, a

process that gained momentum with the advent of a debt crisis in the third world in

the early 1980s (Overbeek, 2002, p.80). The latter is often presented as indicating

the demise of the nation state, particularly outside the third world, where

sovereignty is undermined as nation states appear to have little choice but to

acquiesce to the dictates of externally imposed policy programs.

The above tells us several things right from the very outset. Firstly, that capital

operates on an increasingly global scale. Secondly, it tells us that the power of

capital is not omnipotent but subject to internal contradictions on a global scale that

lead to such potential crises. Thirdly, it suggests that the central role of nation states

remain as important as ever. For while the role of a neoliberal state may change

given the sale of hitherto state owned assets or questions of sovereignty given

apparent acquiescence to external factors, the nation state remains the central actor

in providing the industrial and legislative environment in which capital can operate.

With regards to the question of sovereignty, usually discussed in terms of First

World actors or their institutions (i.e. the IMF etc.) overriding the sovereign rights of

their Third World counterparts, it must be remembered that the former too declare

their impotence against the dictates of the market. The world's economic

powerhouses, along with those considered as basket cases and in need of economic

56

shock therapy to revive them, are seemingly both subject to the same “there is no

alternative” mantra.

The reality, of course, is that there are always alternatives, and the determining

factor in nation's adopting or rejecting neoliberal is the way in which the power of

capital is either ascendant or descendant in relation to the power of labour. This is

not to suggest in any way that Third World economies on the verge of defaulting on

debt are in the same position as a major economy during an economic boom. What

it does suggest, however, is that there is a relationship between the material reality

of economic policy based on the needs of capital and the way the organised working

class and poorer sections of society respond to these needs. This is evidenced when

a nation state, apparently undermined by the dictates of foreign capital is

simultaneously undermined in its ability to accept terms imposed upon it due to

internal struggles against accepting such terms. These factors must be considered

when considering neoliberalism in the context of the global economy's 'periphery'.

Latin America

There can be no doubt that debt to foreign creditors has been a major determinant in

shaping developing countries and their adoption of neoliberal practices, with some

$US300 billion per year transferring from poorer countries to the developed world

by the beginning of this century (Harman, 2009: p.223). The Third World, including

Latin American nations, had borrowed heavily to spend their way out of the

economic crisis of the 1970s and by the 1980s there was an endless cycle of

borrowing just to service existing debt (Harman, 2009: p.279). In responding to the

debt crisis both domestic capital and key global financial institutions expected the

kind of reform that had typified the neoliberal revolution under Thatcher and

Reagan. For example, as already alluded to, when Mexico defaulted on loan

repayments in 1982-84, a rescue package put together by the IMF imposed welfare

cuts, liberalisation of labour laws and privatisation (Harvey, 2007: p.29).

Privatisation in particular would become a central plank of the reform process in

Latin America, given high levels of state ownership of key industries, formed into

State Owned Enterprises (SOEs) designed to administer and promote domestic

57

industrial development (de Medeiros, 2009: pp.111-13). The SOEs had their origins

in a wave of nationalisations across Latin America dating back as far as the 1930s in

Mexico under Cardenas, where oil, electricity and freight were nationalised. In the

following decades such nationalisations were common across the region in

particular with “public utilities, telecommunications, oil and mineral production”

(de Medeiros, 2009: p.112). The neoliberal project aimed to reverse this trend, both

ideologically, by winning the battle of ideas at the policy level and practically, with

such policies introduced as measures to remedy economic ills blamed on bloated

and inefficient public sectors and the massive budgets required to maintain them.

As with the imposition of neoliberal policies in Britain and the U.S, however, the

implementation of such policies across Latin America coincided with, in fact it was

premised upon, the “defeat and disarming of the left and organised labour” in these

countries (Sader, 2008: p.6). The left had a long history of struggle across Latin

America that inspired many abroad, ranging from the rebellious youth of the 1960s

who looked to Cuba's revolution and its nationalisation of US interests (Harman,

1988: pp.35-36) to those who stood against Reagan's intervention in a popular

revolution against a US backed dictator in Nicaragua (Zinn, 2005: p.608). This

remains just as true today with many on the left inspired by the “socialism in the 21st

century” of Venezuelan president Hugo Chavez (Stobart, 2010: p.19).

We have already seen the example that Chile provided as a precursor to the adoption

of neoliberal reform in South America. By the 1990s, however, neoliberalism had

become a constant throughout the region among governing parties from all political

traditions from the hard right through to social democrats (Sader, 2008: p.7). Mass

privatisation took place during the 1990s, with “banks, telecommunications, oil, gas,

petrochemicals... water, transport and electricity” sold in “Argentina, Brazil,

Mexico, Peru, Bolivia, Venezuela and Paraguay” (De Medeiros, 2009: p.110).

However, the roots of neoliberalism on a mass scale in Latin America can be traced

back, as noted above, to the debt crisis of the early 1980s, particularly in Mexico

during the 1983-88 presidency of de la Madrid where some of the smaller state

enterprises were sold off (Sader, 2008: p.119). Furthermore, the push by capital,

both foreign and domestic, to open up Latin American markets, must be seen in the

context of cold war rivalry and the language of that rivalry as articulated by the likes

58

of Reagan. Starting with Chile a number of US friendly military dictatorships had

taken power across the region (Sader, 2008: p.9).

The 1979 leftist Sandinista revolution in Nicaragua against a US backed dictatorship

was in particular perceived by Reagan as evidence of a 'communist threat' and a

challenge to US influence (Zinn, 2005: p.585). The Sandinista program of wealth

distribution and welfare provision was anathema to Reagan's commitment to

liberalisation and along with the existence of 'communist' Cuba and the revolution in

Grenada appeared to set the scene for a sea change across Latin America intolerable

to the U.S commitment to free trade based on the mantra of individual liberty and

the removal of impediments to business. As with Cuba, unsuccessfully and Chile,

with better results, Reagan's approach was for the backing of a military solution to

the crisis, with secret funding provided to 'Contras', anti-communist guerrillas that

terrorised the countryside until the ultimate collapse of the Sandinista regime in

1990. This marked the start of a general trend across the region with a decisive shift

against the power of labour and the left generally. Where the 1980s had offered

hope to the South American left, the 1990s saw the left in retreat and the proponents

of neoliberal reform gain the ascendency (Sader, 2008: p.9).

Victory to Neoliberalism?

This took place against the backdrop of the struggle to defeat 'communism', both

physically and ideologically, a la the 'end of history' following the Soviet collapse,

when the US would claim the end of an alternative to both US hegemony and to

liberalism. Following these events the pace of neoliberal reform accelerated, with

the same arguments in support of reform being put forward as had been by Thatcher

and Reagan. The crux of the argument was that privatisation and trade liberalisation

were necessary as the SOEs were highly inefficient and a drain on government

coffers (De Medeiros, 2009: p.133). South American economies were increasingly

deregulated, privatised and opened up to foreign capital. So for example, the

percentage of foreign capital investing in the Brazilian stock exchange went from

6.5 per cent in 1991 to 29.4 per cent in 1995 (Harman, 2009: p.223).

59

The results of these reforms were contradictory. Few would seriously dispute the

capacity that capitalism has to create wealth. However, capitalism has an equally

tremendous capacity to sow inequality. This is certainly reflected in the way wealth

has been created and distributed by the neoliberal revolution and exaggerated by

levels of poverty and inequality already much greater than the developed world. So

while Mexico saw a reduction in poverty at the national level in the late 1980s and

into the 1990s, there was no such inroads in the poverty stricken south, a

phenomenon common throughout the developing world both in Latin America and

beyond (Kanbur, 2009: p.34). Such countries were expected, under the tutelage of

global institutions such as IMF and the World Bank to reject safety nets such as

minimum wages or decent health and safety protection as part of the same process

that presented capital, particularly finance capital, with the opportunity to extract an

ever increasing percentage of national wealth (Cammack, 2002: p.125).

Despite differences between nations and regions there has been a move toward the

dismantling of regulatory regimes that protect working people from unbridled

exploitation by capital. Back in Australia, albeit with various idiosyncrasies

peculiar to any nation, a similar path took place to that under First World

contemporaries in Britain and the US. There was one important difference,

however. Whereas the types of reforms introduced were similar, the neoliberal

revolutions in those countries began under the guidance of conservative parties,

before being continued under social democratic or liberal (in the US sense)

governments. In Australia it was the other way around. It was a traditional social

democratic party that would begin the 'reform' process with a commitment to

implementing its own economic revolution

60

Chapter 3: Neoliberalism Comes to Australia

Former Australian Prime Minister John Howard demonstrated what neoliberal

economic policy meant in practical terms when he stated in 1980 that the Australian

economy needed “five great reforms” to lift itself from the economic quagmire to

which it had sunk due to the inefficiencies associated with over-regulation of the

economy (Wall Street Journal, 27/02/2009). Howard, then Treasurer under former

Liberal Prime Minister Malcolm Fraser called for “financial market deregulation, tax

reform, freer labour markets, tariff reductions and privatisation of state-owned

enterprises”. He would argue 30 years later that the implementation of these reforms

had “eliminated government debt”, allowed Australia to enjoy “unemployment at

three-decade lows” and to avoid the worst of the Global Financial Crisis. He further

added that globally “In the past 30 years, the freer functioning of markets inherently

involved in the globalisation process has lifted hundreds of millions of people out of

poverty”.

The reforms Howard argued for, particularly reforms in the financial sector, were

consistent with the findings of the Australian Financial System Inquiry (Campbell

Committee), or Campbell Report, commissioned by Fraser in 1979 and delivering its

final report in 1981 (Australian Bankers Association, 2004). The Campbell Report

made some 260 recommendations, generally aimed at “increasing the scope for

market forces to determine financial market outcomes” (Treasury, 1997: p.586).

Among these recommendations was the removal of the Australian dollar from fixed

exchange rates, the removal of regulatory barriers to the entry of foreign banks, the

privatisation of government owned financial institutions, and a general shift towards

deregulation of the Australian financial system. Such reform, together with

application of the general pro market focus of the Campbell Report to the Australian

economy generally, particularly in the labour market, were precisely what Howard

had called for in 1980, as noted above. They were also entirely consistent with the

reforms implemented in the UK. and the USA at roughly the same time and easily

recognisable as neoliberal economic policy as portrayed in the previous chapter.

61

However, despite his commitment to economic reform and with his position being

reinforced by the recommendations of the Campbell Report, Howard, while

Treasurer was unable to implement these reforms. In fact his push for reform was

stymied by the very man who had commissioned the Report, the Prime Minister,

Malcolm Fraser. Fraser, who had begun his Prime Ministership espousing the

virtues of free trade, was inconsistent in responding to the Campbell Report while

actually in office, cutting tariffs in some industries but ignoring recommendations for

other sectors, for example in the banking sector where Fraser feared alienating

important constituents (Kuhn & Bramble, 2010: pp.101-2). It wasn't until he became

Prime Minister in 1996 that Howard was able to introduce legislation consistent with

his commitment to neoliberal reforms, although by this stage he wasn't so much

introducing a reform agenda as continuing and in some cases accelerating a reform

process that was already well underway.

It was in fact under the Hawke Labor government, elected in 1983, that Treasurer

Paul Keating began implementing the recommendations of the Campbell Report. In

his first year as Treasurer, Keating announced the floating of the Australian Dollar,

which since 1971 had been pegged to the $US after shifting from its ties to the

Sterling. He further abandoned the majority of exchange controls and limits to the

entry of foreign banks into the Australian financial system (Treasury, 1997: p.572).

Following this the pace of reform gathered steam as the Martin Report,

commissioned by the new Labor government and tabled in 1984, endorsed the

findings of the Campbell Report (Australian Bankers Association, 2004). The

financial system was further deregulated and among other things the '30/20' rule

requiring minimum investments in government securities for life companies and

superannuation funds was abolished, controls on bank deposits were lifted and the

Australian Stock Exchange was deregulated.

The fact that it was a traditional social democratic government with strong ties to the

labour movement that introduced neoliberalism to the Australian political and

economic landscape raises a number of questions, particularly in comparison to the

experience of Britain and the USA as discussed in the previous chapter. Not least of

all it raises the question of how a Labor government was able to introduce economic

reforms that might be perceived, at least by sections of their constituents as contrary

62

to their material interests as well as the extent to which the trade union movement

opposed or was complicit in the implementation of these reforms. It also raises the

question of how neoliberalism came to Australia and why the Labor party was

converted to neoliberalism, in the process abandoning traditional Keynesian

measures to curb unemployment in favour of putting faith in market forces to

provide economic growth and the jobs and prosperity they argued would come with

this shift in policy. Finally, and related to the question of why Labor introduced

economic reform is the question of whether, as argued by Thatcher, Reagan and

other champions of neoliberal reform, there was simply no alternative and that the

Australian economy needed restructuring to resolve the existing and prevent future

economic crisis, particularly in the context of what was at that time the deepest

global economic downturn since the 1930s Depression.

In answering these questions it is necessary, as with the previous chapter, to consider

the industrial, political and economic context within which the Hawke Labor

government came to power. In doing so this chapter will seek to understand the class

dynamic in both the pre and post neoliberal eras as well as developments in the

material and ideological landscape that led to any shift in the dialectic of both class

power and the class composition of Australian society. This means looking at the

way in which governments managed the Australian economy prior to the advent of

the neoliberal era, why a shift in economic policy occurred, who and what was

behind this shift, and finally what impact neoliberalism has had on sectional,

particularly class interests. In looking at the actual implementation of neoliberal

economic policy my approach will be to concentrate most heavily on the

Hawke/Keating era, given the dynamic of a social democratic party introducing such

reforms comparative to the Thatcher and Reagan revolutions.10

This chapter will

largely limit its focus, therefore, to the reform agenda of the Hawke/Keating era

rather than attempt to include an assessment of the way in which the Howard

government, elected in 1996, took up the torch so to speak and continued the reform

agenda started under Hawke and Keating.

10

Of course the introduction of neoliberal reforms by a traditional social democratic or Labor style

party is not totally unique. Most notable, perhaps, from an Australian perspective is the New Zealand

experience, where a similar reform process occurred at roughly the same time. See for example, PSI,

1998 or for a comparison with the Australian experience see Diplock, 2004.

63

The Keynesian Consensus in Australia

The formative years of the new federation saw debate, largely driven by sectional

interests, over the extent to which the federal government would act to protect

domestic production and the nature of the regulatory framework within which

producers would have to conduct their business (Smith & Watson, 1989: pp.110-

115). This was largely resolved in favour of a protectionist approach, as the new

nation state set about constructing a national economy out of disparate colonial

economies. Inter-colonial tariffs were abolished but there was a steady increase in

tariff protection at the national level as well as a high level of intervention into the

economy generally. (Attard, 2010: para.12-14). However, as noted above, the

regulatory environment and tariff protection were not enough to protect the new

national economy from protracted crisis when global production collapsed in the

Great Depression of the 1930s. The export led growth that had been Australia's

strength was suddenly its Achilles heel as demand for its exports slumped, leading to

a collapse in domestic output and a sharp increase in unemployment. It was in this

context that Keynes and his General Theory arrived in Australia with its emphasis on

“a programme of public works for the reduction of unemployment” and the use of

fiscal stimulus to counter the worst excesses of the decline in national output

(Markwell, 2009: para.4).

What is striking in the adoption of Keynesian methods by successive Australian

governments is in comparing it to the economic history of similar nations in the

years leading up to and during the Great Depression. As noted above, the newly

formed Australian state adopted a highly regulatory economic policy along with

significant tariff protection for both established and developing industries. By

contrast, as already outlined in previous chapters, the same period in the rest of the

developed world, particularly in Europe and even more so in Britain, is looked back

on as something of a golden age of laissez faire liberalism, although by the 1920s

protectionism was also growing among these nations (Cipolla, 1980: pp.323-329).

So the adoption of Keynesian methods in Australia was less of a policy shift than in

other nations faced with the same economic woes and there was far more of a

continuum between the inter war years and the beginnings of the post-war Keynesian

consensus than is evident in other nations in terms of the economic policy

64

environment (Lloyd, 2002: pp.246-247).

There was little controversy, therefore, in Australia supporting the Bretton Woods

system, created out of the ashes of the Second World War by the war's victors with

the assistance of Keynes himself ( Markwell, 2009: para.5). Nor was there a

decisive shift in economic policy as the era of post war reconstruction began in

earnest follow the conclusion of hostilities given that Australian macro-economic

policy following the war tended to align with preferred policy approached that

preceded the war. Following the war, successive governments, both Labor and

Coalition adopted Keynesian demand side strategies built around fiscal policy aimed

at averting the boom-bust cycle of previous years even at the expense of inflationary

pressures (Western et.al., 2007: p.402). In the context of the Cold War this included

a commitment, particularly in the Menzies years, to relatively high levels of military

spending and support for US led resistance to the 'red menace', with a focus on South

East Asia.

The Collapse of the Keynesian Consensus

The conditions described above meant that Australian governments, in economic

policy terms at least, had something of a free run during the long boom. Both

inflation and unemployment were kept in check and the economy requiring little

attention other than the accepted Keynesian orthodoxy built around using fiscal

policy to maintaining aggregate demand. Along with other major economies,

however, this all began to break down in the mid 1970s as the Australian economy

entered into its most severe recession since the Great Depression (Perkins, 1987:

p.22). From 1974 industrial output began to decline and unemployment returned to

the Australian economy, reaching 5 per cent, perhaps relatively unalarming today,

but at the time a level not seen since before the war. Furthermore, increasing

unemployment was accompanied for the first time with rising inflation, which

according to Keynesian economic orthodoxy was a phenomenon that simply

shouldn't happen. As such Australia entered into not just a period of economic crisis

but a crisis of ideology as the dominant economic discourse was not only unable to

solve the crisis, it was unable to satisfactorily explain to policy makers why it was

even occurring in the first place.

65

Figure 3 below shows unemployment levels, seasonally adjusted, from 1966 when

the boom was still keeping unemployment low, through to 2000, demonstrating the

effect of the post boom recessions on unemployment levels. In November 1964, at

the height of the long boom, aggregate unemployment in Australia stood at just 1.3

per cent and never climbed above 2 per cent until November 1971 when it reached

2.1 per cent (Chapman, Isaac & Niland (eds), 1984: p.673). From that point the

unemployment rate increased to 2.8 per cent in November 1972 and after a fall back

to 2.1 per cent in November 1973 grew to 5.1 per cent by November 1975 under the

Whitlam Labor government, as recession hit the Australian economy (Chapman,

Isaac & Niland (eds), 1984: p.673). From there unemployment hovered at around 6

per cent for the rest of the decade, despite the 'resources boom' at the end of the

decade, which failed to create sufficient jobs to restore unemployment to its pre-

recession levels (Perkins, 1987: pp.40-43). Then in 1981 a much deeper recession,

part of a global slump, drove the unemployment rate up to 10 per cent by 1983

(ABS, 2001), with some 200,000 jobs disappearing in the manufacturing industry

alone (Frankel, 1997: p.17).

Figure 3: Unemployment Rate 1966 - 200011

Australia was not spared the curse of 'stagflation' that was ravaging other developed

economies at the same time. As demonstrated by Figure 4, the inflation rate rose

11

ABS, 2001.

66

dramatically throughout the 1970s, reaching over 15 per cent toward the end of the

Whitlam government and still at around 10 per cent when Fraser lost power in 1983.

This meant that while inflation had fallen, the Fraser Liberal government, with a

young John Howard as treasurer, were still presiding over simultaneous double digit

unemployment and double digit inflation, much worse than the levels under their

Labor predecessor. Government and employers alike pointed to excessive wage

claims that failed to consider productivity improvements as a large contributor to

runaway inflation levels, arguing that workers winning wage claims failed to

consider the impact on employment creation (Quiggin, 1994: p. 5) (Frankel, 1997:

p.17). It was under these conditions, with much of the workforce having no living

memory of the Depression years, and only recently experiencing capitalism in crisis

in the 1970s, that the Hawke Labor government was elected in March, 1983.

Figure 4 – Inflation Over the Long Run 1961 - 201112

12

RBA, 2011.

67

The Industrial Relations Landscape

It's important to understand the historical context in industrial relations terms when

considering the implementation of neoliberal reforms in the Australian economy.

Not least of all because as with the British and American examples, the labour

movement in Australia needed to be confronted before any such reform could begin.

Or for the fact that, as with their British counterparts, the Australian Labor Party

actually grew out of the struggles of the Australian labour movement. In doing so it

firmly entrenched itself as the political wing of the labour movement, with the trade

unions similarly entrenching themselves as the movement's official industrial wing.

The organic and dialectical historic relationship between these two wings of the

labour movement must be firmly understood to fully grasp the significance of the

relative acquiescence of the industrial wing to the political wing in implementing

policies long viewed with suspicion by both. Class struggle arrived in Australia with

the coming of the First Fleet in 1788, which brought with it a new form of social

organisation based on the subordination of consumption to the accumulation of

capital and the exploitation of a subordinate class, or classes, by a ruling elite that

owned and/or controlled the means of production (Armstrong in Kuhn & O'Lincoln,

1996: pp.60-61).

From the very beginnings of the new colony, the traits of capitalist society and the

social classes it created were present. Furthermore, the weapon of choice of the

labouring class was by and large that of the working class of all lands under

capitalist social relations, namely collective action, ultimately taking the form of a

withdrawal of labour to force the latter into making concessions. The success of

such actions were not predetermined but shaped by a number of factors, including

the relative strength of workers vis-a-vis their employer and the ability of the latter to

concede to demands, itself shaped heavily by developments in the economy and the

impact of these developments on the health of their enterprise. The first century of

what was at the time separate colonies, and before the creation of an electorally

focussed federal labour party, saw some intense, often violent periods of class

struggle. Labour won important victories, most notably the eight hour day, won by

Melbourne building workers in 1856 and claimed by the Australian labour

movement as a world first (ACTU, 2009). By contrast other struggles ended in

68

crushing defeats, most importantly the Maritime Strike of 1890 and the strike among

shearers in Queensland the following year (Armstrong, 1998: pp.33-40). The

trajectory and outcomes of these struggles went a long way to shaping the attitudes

of workers involved in these struggles towards the development of an electorally

focussed political wing and the role the labour movement's industrial wing should

play.

In the wake of defeat many workers drew the conclusion that struggle on the

industrial level was insufficient and that workers needed to control the parliament in

order to prevent employers from using the strength of the state against them. This is

not a particularly contentious assertion but one shared by Marxists (Armstrong and

Bramble, 2007: p.28) and more mainstream labour historians (McDonald, 1991:

p.viii). There developed a general acceptance among workers that their task was not

to overthrow the existing state apparatus but to capture it through legal means and

use it to their own ends. Despite the development of the Communist Party of

Australia (CPA) in 1920 among a minority of socialists inspired by the Russian

Revolution (O'Lincoln, 1985: p.31), who even at times held positions of power

within the trade union movement, the reformist perspective has remained, until this

day, the majority view among trade union members and workers more generally.

The industrial relations landscape prior to the introduction of neoliberal principles

into the Australian economy was therefore already one in which labour had made it's

peace, if not at all times with the agenda of capital, then at least with the rule of

capital. From its very foundations then, the existence of the Australian Labor Party

(ALP) represented something of an “historic compromise between the classes and

the leaders of capital and labour, mediated via the state and the institutions created to

implement it” (Lloyd, 2002: p.239). The class struggle as it has ebbed and flowed

throughout the course of Australian history, while at times having an impact on the

relationship between labour and capital, has by and large not challenged the concept

of or existence of this relationship. As such, even before the arrival of neoliberalism,

capital had already enjoyed over a century of unchallenged rule.

69

Disciplining the Unions

Despite being essentially two sides of the same coin, there has also been a growing

divide between the industrial and parliamentary wings of the labour movement as the

parliamentary wing has become more and more disciplined by the parliamentary

process (Armstrong & Bramble, 2007: p.65). This has been especially acute when

the ALP has been in a position of power and therefore directly responsible for the

smooth running of Australian capitalism. As the ALP experienced more and more

periods in power, so has the accumulative effect of such discipline grown. As such,

the party which began as the political expression of the labour movement has been

progressively dragged in two often contradictory directions. On the one hand the

party is subjected to the discipline of the labour movement which spawned it and on

the other hand by the parliamentary process to which it is committed. Given that the

raison d'être of the Labor party was above all else the capture of political power

within the existing constitutional framework, the immediate sectional interests of its

industrial base must necessarily be subordinate to the party's electoral success.

Importantly, as this trajectory has progressed, and the ALP began to increasingly

project itself as a legitimate alternative government, it became “more able to insulate

itself from pressure from the party's base” (Armstrong & Bramble, 2007: p.65). It

was inevitable then that tensions would exist between industrial and parliamentary

labour and that these tensions would at times lead to hostilities between either the

labour movement, or at least sections of the labour movement, and the ALP in power.

A perfect example of how bitter such disputes could be is the miners' strike of 1949,

when miners took on a Chifley Labor government willing to use troops as scab

labour to break the miners’ strike (Sheridan, 1989: pp.291-316). This occurred

during a period of high strike levels and with the CPA having real influence in

sections of the trade unions (O'Lincoln, 1985: pp.53-72). Arguably the

determination with which the ALP crushed the strike was aimed at sending a clear

message that it would not tolerate attempts to outflank it by a rival political

expression of the labour movement, that it could discipline the labour movement

when it stepped out of line and above all could be trusted to be a responsible

government and a friend of capital while in power.

70

The process of distancing itself from its radical roots continued throughout the long

years in opposition following the conservative victory in the 1949 federal election.

In the 1960s future Prime Minister Gough Whitlam began to water down references

to the ALP as a 'workers' party by insisting on the term 'employee' rather than worker

and by the 1970s the ALP was shedding even rhetorical commitments to

nationalisation, let alone the socialisation of key industries (Frankel, 1997: p.6).

Having said that there were still nonetheless important differences between the two

major parties in the eyes of working class Australia, as typified in the fact that

despite the parties rightward trend under Whitlam, he nonetheless implemented

important reforms that benefitted workers, such as the creation of Medibank, later

abolished by the Fraser Liberal government (Kuhn, 1986: p.2). Despite this, while in

opposition from 1975 the ALP continued to move rightwards and embrace the

market. It was even turning its back on the traditional protectionist model for

domestic industries and accepted the needs for tariff reductions, in direct contrast to

the interventionist approach maintained by key manufacturing unions (Lucarelli,

2003: p.79). Furthermore, by 1977 Bob Hawke, as leader of the ACTU and who

would take the Labor leadership just before the ALP victory in the 1983 election,

was proposing the consensus model that he would aspire to in government when he

called for government, union and business leaders to work together in order to

address the nation's key economic challenges (Singleton, 1990: p.87). This was

during a period of heightened industrial militancy that kept labour's share of national

income in the form of wages at record high levels (Fieldes in Kuhn & O'Lincoln,

1996: p.33).

In fact Hawke worked tirelessly in opposition to reach an 'accord' with the labour

movement that would reverse this upward trend on wages (Singleton, 1990: pp.120-

154). One of the first acts of the Hawke Labor government that was elected in

March 1983 was to hold a summit between the Australian Council of Trade Unions

(ACTU), business leaders and government that brought the Prices and Incomes

Accord (The Accord) into life (Carew, 1992: p.77). The historical and industrial

context within which the Accord was given life must be understood to fully grasp the

significance of the way in which Hawke was to achieve such a consensus. Whereas

the previous Labor government, under Whitlam had been elected amid a rise in class

struggle, with unions “on the offensive” (Armstrong & Bramble, 2007: p.77), the

71

Hawke government was elected with the labour movement on the defensive, fearful

of rising unemployment and with a corresponding fall in confidence to fight (Kuhn,

1986: p.16).

Unemployment was being pushed up by the Fraser government's commitment to

curbing inflation, à la Thatcher and Reagan, which accepted high levels of

unemployment as a means of disciplining the unions into accepting wage restraint,

Unemployment rose from around 5 per cent under Whitlam to just under 10 per cent

by the time of the 1983 federal election, as already demonstrated in Figure 3 (page

70). The Hawke government confronted a trade union movement that was now

beginning to accept that wage restraint was necessary to allow the government to

tackle unemployment. Even the traditionally most militant of the union movement,

with its base inside the ALP left and the CPA conceded ground on the question of

wage restraint. So much so that in fact that by 1982 the CPA had denounced workers

fighting to keep wages from falling in real terms due to inflation by declaring that

such claims “foster disunity and competition” among the labour movement (Kuhn,

1986: p.17).

The Uneasy Truce

The push for wage restraint by the Hawke government went hand in hand with a

desire to 'modernise' the Australian economy, in particular to open it up to

international trade as a means to remedy economic stagnation, an “historic change of

direction for the Labor Party” (Fairbrother, Svenson & Teicher,1997: p.2). In

implementing such reform, the Labor government called upon the ACTU to commit

to more than just wage restraint under the auspices of the Accord. The labour

movement was expected to accept a gradual end to tariff protection for domestic

industry and the deregulation of the Australian economy. In return, Hawke promised

a social wage based on the provision of key social services such as Medicare along

with tax reform that would benefit workers (Fairbrother, Svenson & Teicher, 1997:

p.3).

Within the ALP itself the Accord was supported by all factions for differing reasons

(Frankel, 1997: p.9). The Right supported the Accord believing that disciplining the

72

unions would create an investment friendly economy that would generate the growth

necessary to rebuild the economy and fund reforms to Australian workers. From the

Left it was supported as a means of creating, inter alia, “a national industry policy, a

coordinated interventionist role for workers to transform workplace practices...(and

to) ...boost the social wage” (Frankel, 1997: p.9). To the left of the ALP, as already

noted, the Communist Party was by the time of the election of the Hawke

government among the firmest supporters of the Accord. This position to a large

extent reflected the reality of a CPA that had steadily been drifting rightwards and

was embracing the politics of conciliation between employers and workers as

opposed to traditional antagonism between the two classes (O'Lincoln, 1985: pp.170-

188). The Accord was not entirely without its critics in the union movement, most

notably from the militant Builders Labourers Federation (BLF) and some within

union officialdom (Bramble in Kuhn & O'Lincoln, 1996; p.53). This largely put the

BLF at odds with the ACTU leadership however, with for example, the ACTU

refusing to back them when the Hawke government moved to deregister the union’s

Victorian and NSW branches in 1986 (Singleton, 1990; p.71).

The logic of the Accord from its inception was premised upon an acceptance by the

unions that Australian workers had to “restrain wages, refrain from strikes and work

harder to improve business success” (Bramble, 1994: p.8). Both economic and

industrial policy flowed from this fact and these factors were intertwined throughout

the life of the ALP government. So when the centralised approach to wage fixing

under the Accord began to be seen as having outlived its ability to deliver

increasingly higher productivity, a shift towards a decentralised approach while

constituting a different approach did not constitute a different logic to the reasons

behind the Accord. A push to a ‘Second Tier’ wage system and then to enterprise

bargaining from 1991 offered above award pay increases and job security on the

condition that workers increase productivity, usually through giving up existing

conditions or working more flexibly, particularly in relation to hours worked

(Bramble, 1994: pp.8-12). In a Marxist sense, therefore, Australian workers were

being asked to increase the surplus value being extracted from their labour power as

increased profits.13

13

For an explanation of the concept of surplus value see Marx, 1990: pp. 320-29. This concept will

73

Economic Reform

The importance of building a 'consensus' as a precursor to economic reform cannot

be understated given that the unions would have been more likely to resist neoliberal

reforms had the Fraser government been re-elected and such reforms were being

implemented by a conservative government (Frankel, 1997: p.17). But having

successfully implemented an Accord that curbed the industrial militancy that had

typified the Fraser years, the Hawke government could now concentrate on the

economic reforms it saw as necessary to rescue the battered Australian economy. In

doing so the Labor government was able to implement restructuring that at times led

to the destruction of thousands of jobs among sections of their traditional support

base with from the union movement with little more than the“passage of resolutions

at ACTU and Labor Party Congress” (Fairbrother, Svenson & Teicher, 1997: p.5).

The neoliberal mantra that there was no alternative and that any job losses associated

with restructuring were the result of excessive wage claims in the pre

Hawke/Keating era helped contain a trade union movement that lacked the

confidence to fight the job losses.

If Hawke was the key figure in negotiating the Accord with the unions it was

Keating who as Treasurer was responsible for implementing the key planks of ALP

economic policy. He was assisted by the fact that the senior Treasury officials he

needed to work with were already influenced by “a neoclassical ascendency in

economic thinking” before the Hawke government was elected (Lucarelli, 2003:

p.79). Fairbrother, Svenson & Teicher have gone so far as to argue that during the

1980s “Labor Governments were effectively hijacked by a cabal of Ministers,

focussed around Keating, supported by senior policy officials in the Treasury and the

increasingly independent Reserve Bank” (Fairbrother, Svenson & Teicher 1997: p.2).

Such was the gusto with which Keating took to the reform process that he later

remarked that the Hawke government took office with an even greater belief in

market forces than their conservative counterparts (Lavelle, 2005: p.53). It must be

stated that Keating didn't always get his own way, for example when his proposal for

a Value Added Tax (VAT) was defeated by the unions at the 1985 tax summit

be expanded upon in the following chapter in relation to the Australian public sector.

74

(Frankel, 1997: p.20). Nonetheless the major planks of the Labor government's

reform agenda were by and large delivered.

As already stated, Keating as Treasurer acted quickly to abandon the system of fixed

currency exchange in favour of floating the Australian dollar and liberalising the

financial system. His resolve to accelerate trade liberalisation was strengthened after

disastrous terms of trade results in 1985-86, following which the Labor government's

commitment to tariff reduction intensified, consistent with the “scorched earth”

policy of the Garnaut Report, which had recommended zero tariffs by the year 2000

(Lucarelli, 2003: pp.80-81). Tariffs in the manufacturing industry had already been

reduced from 36 to 27 per cent under the Whitlam government (Fairbrother, Svenson

& Teicher 1997: p.3). In fact Whitlam had legislated an across the board twenty-five

per cent tariff cut in July of 1973, which took almost everyone save for a few of his

closest confidants by surprise (Leigh, 2002: pp.491-492). The process of tariff

reform had been abandoned, however, during the industrially tumultuous years of the

Fraser government that followed Whitlam. Hawke’s government looked back not on

the defeated conservative government, therefore, but on the previous Labour

government for inspiration in the process of ending tariff protection for domestic

industry.

Tariffs were therefore still at 26 per cent when Hawke took office in 1983 but his

government’s commitment to trade liberalisation meant that, despite union unease,

tariffs were reduced to just 9 per cent by 1994/95, not long before the Keating

government lost office to Howard in 1996 (Fairbrother Svenson & Teicher, 1997:

p.3). Tariff reform began on an industry by industry basis, based on a number of

industry restructuring plans, examples being the Steel Plan (1984-88), the

Shipbuilding Plan (1984-89), the Passenger Motor Vehicles Plan (1985-92), the

Heavy Engineering Adjustment and Development Program (1986-89) and the

Textile, Clothing and Footwear Industries Plan (1986-96) (Leigh, 2002: p.495).

Figure 5 below shows protection levels for both manufacturing and agricultural

producers from the pre-Whitlam era until the end of the Howard administration. It

demonstrates that although protection for agriculture seems to have risen during

recessionary years the overall trend is nonetheless downward. For manufacturing the

picture is far more stark, with a downward trend uninterrupted save for a minor

75

reprieve during the recessionary years of the early 1980s.

Figure 5 – Manufacturing & Agricultural Tariffs 1970-71 to 2006-0714

An example of the impact tariff reduction had on industries with traditionally high

levels of tariff protection can be seen in the Textiles, Clothing and Footwear (TCF)

industry. Both Governments and unions agreed there was no alternative to the

industry 'modernising', that is, opening up to international competition and in the

process using the liberalisation process as an opportunity to seek foreign markets to

exploit (Greig, 1991: p.7). The 'rationalisation' of the TCF industry facilitated an

increase in the use of unregulated and poorly paid, predominantly female sweatshop

labour, at the expense of regulated full-time jobs (Frankel, 1997: pp.19-20). The

ability of the major players in the industry to increase the rate of exploitation of their

workers, whether domestic or foreign, whether 'onshore' or offshore', could only

mean an increase in the rate of capital accumulation, at the expense of smaller

players forced out of the industry by the loss of tariff protection.

Labor continued with a reform agenda aimed at liberalising the domestic economy to

make it friendly to foreign investment while simultaneously pushing for the opening

14

Productivity Commission, 2011: p.42.

76

of foreign markets to Australian markets through the ending of subsidies and tariff

protection, with the former aimed at helping to achieve the latter. The push for the

liberalisation of foreign economies seen as potential export markets was achieved

through bilateral and/or multilateral agreements negotiated through international

institutions developed to facilitate the opening up of markets, most notably the

General Agreement on Tariffs and Trade (GATT) from September 1986 and

following this through the Asia-Pacific Economic Cooperation (APEC) forum

(Lucarelli, 2003: p.80). Despite those critical of the 'economic rationalism’ of the

Labor government there were also those that saw in the reform process opportunities

to increase market share at both a domestic and in particular a global level. For

example, despite the fact that “thousands of small farmers were forced out of

business” due largely to “market rationalisation” under the Labor government, major

players in the agriculture industry saw the potential benefits of opening up EU and

US markets that had traditionally been heavily protected (Frankel, 1997: p.15).

This tends to suggest a certain class dynamic, therefore, to be seen in who supported

and who benefitted from the reform process under Labor. Capital generally, together

with mainstream economists and the publications through which they voiced their

approval of the reform process, argued that not only was there no alternative to

neoliberal reform but that the reform process would radically restructure the

domestic economy in a way that would benefit all through the creation of wealth and

jobs that would 'trickle' down to all. In fact they tended to argue collectively that the

reform process under Hawke and Keating was just the beginning and that major

reform was necessary to create jobs and prosperity for Australian workers. Looking

back at the Hawke/Keating years, some argued that the Labor government was still

too close to the unions to deliver the complete deregulation of the labour market

required to deliver jobs (Shann, 1996: p.46). Mainstream commentators further

maintained that wage increases came at the expense of the competitiveness and

business profitability required to maintain employment growth (Stammer, 1997:

p.15).

There is a certain contradiction in the logic that argues those responsible for

unemployment are those whose job security is becoming increasingly precarious as

part of a reform process which promises to deliver jobs, if not now, then at some

77

undefined future date so long as those being promised such rewards continue to

accept a remedy that in the short term at least delivers the very opposite. Despite the

promises of jobs that flowed from the logic of the Accord, and initial employment

growth that seemed to vindicate the Accord, the reality was that Labor in power

presided over unemployment levels that at best stood at 6.1 per cent and at worst

peaked at 11 per cent in 1992, which as Figure 3 (page 70) demonstrates surpassed

the highest level recorded under the previous coalition government. Furthermore, as

the neoliberal project gathered steam, so too did an acceptance that unemployment,

along with underemployment, was a permanent part of the industrial landscape as

'restructuring' replaced full-time jobs with “part-time, seasonal, sessional, on-call,

homework, outsourced or false-contracting” took root in industries being

restructured (Lipsig-Mummé & McBride, 2007: pp.6-7). Such a process tended to

have a disciplining effect on the work-force as the precarious nature of employment

dampened the willingness of employees to expect, let alone push for improvements

to existing conditions for fear of ending up with no work at all.

At the other end of the spectrum, such conditions gave employers the confidence to

squeeze more out of their workforce, confident that the fear of losing one's job was

sufficient to keep resistance at bay. This is particularly true given that the changing

nature of employment tended to have a corresponding effect on trade union density

and therefore the ability of workers to engage in collective resistance. In some cases

it even gave employers the confidence to go on the offensive against unions by using

the logic of restructuring, now accepted as part of the microeconomic landscape, as a

tool for union busting. A n example is the telecommunications industry, where major

players sacked tens of thousands of blue collar workers only to rehire a smaller

number of them as individual self-employed contractors with no right to organise in

unions (Lipsig-Mummé & McBride, 2007: pp.6-7). This represented a significant

shift in the dynamic of class power from the years preceding the election of the

Labor government, which, as we have seen, saw a confident and combative working

class fight successfully for wage rises in an attempt to keep wages in parity with

inflation.

This shift in both perceived and real power from labour to capital was a central

aspect of the Accord years and had a significant flow on effect on the Australian

78

working class and their institutions. There were several reasons for this. Firstly,

restructuring, as described above in the telecommunications industry, had a direct

impact on trade union density in sectors with a traditionally strong presence by

literally replacing union with non-union labour wherever possible. Secondly, the

Accord itself cultivated a certain degree of passivity in the way rank and file union

members approached industrial relations. Strikes fell to record lows as a working

class now increasingly atomised and lacking confidence was unprepared to challenge

the official trade union leadership and act outside the Accord (Armstrong &

Bramble, 2007: pp.79-80). Given this process, whereby workers played virtually no

role in the process of either defending jobs or fighting for wage increases, it’s

unsurprising that a culture developed where workers saw little reason to join unions.

This would be true of younger workers who joined the workforce for the first time

during the Accord years and had no memory of fighting collectively to either defend

or improve wages and conditions.

Whatever the reason, the changing industrial landscape and the shift in relative class

power that it fostered, had an important impact on trade union density among

Australian workers. When Labor came to power in 1983, some 50 per cent of the

workforce belonged to trade unions. Obviously in some industries the figure was

much higher and in others much lower, but nonetheless around half the workforce

were union members. By the time Labor lost power to Howard in 1996, the overall

figure was down to just 28 per cent, a drop of almost half in just over thirteen years

(Lipsig-Mummé & McBride, 2007: pp.7). The irony is that it was the policies of the

trade union movement, or more precisely of the trade union bureaucracy that opened

the way for employers to go on the offensive. In accepting the argument that it was

workers themselves that were the cause of the economic woes of the nation they also

accepted that a shift in the way they approached serving their members was not only

necessary but inevitable and without alternative. In doing so they handed power to

employers in respect to determining the nature of the reform process and the

industrial relations landscape generally.

79

The Impact on Wages

If the Accord failed overall to deliver on the jobs front, it did little better in keeping

wages in line with the cost of living for most workers, or in keeping wages as a share

of national income on parity with that enjoyed prior to the Accord. Under Whitlam,

for example, the relative industrial strength of organised labour was demonstrated by

the fall of the share of profits in national income from the historic norm of around 13

to 15 per cent to below 10 per cent (Armstrong & Bramble, 2007: p.75). It was this

fact, within the context of the return to recession following the long boom that saw

capital launch an ideological offensive that would become what we now know as

neoliberalism (Armstrong & Bramble, 2007: pp.75-76). Once again, however, it was

not the open party of capital, with future Prime Minister Howard as Treasurer that

began to shift profitability back in favour of employers. The Accord, as we have

seen with employment and industrial power generally, helped to restore the balance

in favour of capital. So after falling dramatically during the recession of the early

1970s, profits began to recover later that decade and then accelerated during the

Accord years, as per Figure 6. Despite a sharp fall during the recession at the

beginning of the 1990s, from which it quickly recovered, the upward trend generally

continued. Meanwhile, Labour's share of domestic income saw a corresponding

decline, as demonstrated in Figure 7.

Figure 6: Profits Share of National Income15

15

ABS, 2005.

80

Figure 7: Wages Share of National Income16

The restoration of capital’s share of national income at the expense of the share of

labour, in the form of wages, can be seen as part of a steady increase in inequality

since the breakdown of the Keynesian consensus in the mid 1970s. This was not,

however, a uniform development in relation to labour’s share of the national pie. In

other words, there were winners and losers. For example, in the period 1975 to

1995, while the top 25 per cent of income earners saw their income rise steadily as

compared to the median wage, the opposite is true of the bottom 25 per cent

(Quiggin, 1999: para.48). The data requires a degree of analysis however. Figure 8

shows the movement between income quintiles for male workers between 1982, just

before the Hawke government took power and 2005-06, just prior to Rudd’s ALP

government. It clearly shows an increase in men in the bottom quintile, with a

decrease in the uppermost and second highest quintiles. Figure 9, however, shows

that for women during the same period, the reverse is true with a downward shift

from the bottom most quintile as an increase in women whose earnings put them in

the highest and second highest quintiles.

16

ABS, 2005.

81

Figure 8: Men Aged 18-64 Years in Gross Personal Income Quintiles17

Figure 9: Women Aged 18-64 Years in Gross Personal Income Quintiles18

The above needs to be considered in context and as also compared with other data.

Most notably, much of the movement in women between quintiles is associated with

women entering the workforce for the first time, particularly during the

Hawke/Keating years, while the percentage of men in paid employment remained

fairly static. Table 3 below gives an overview of labour force participation rates for

each sex. An increase in the proportion of women drawing salaries, many for the

first time, resulted in an increase in their share of national wages income as opposed

to necessarily reflecting an increase in levels of income throughout the period in

question. Furthermore, other sources suggest that the trend for women continues to

be both one of inequality relative to their male counterparts in terms of equal pay

(House of Representatives Standing Committee, 2009) and that wage inequality

17

ABS, 2008. 18

ABS, 2008.

82

generally impacted on women as well as men during the 1980s and into the 1990s

(ABS, 1994). The trend for lower paid women tended to mirror that of their male

counterparts, with downward pressure on wages in real terms during times when

such downward pressure is affecting wages more generally. When considered

holistically in terms of inequality across genders, the combined effect of downward

pressure on wages is also evident in the Gini Coefficient and Theil Index for

Australia, shown at Table 4, which again demonstrates a rise in inequality that

coincides with the first decade of Labor administration. Like the Gini Coefficient,

the Theil Index is a measure “which can be used to monitor the distribution of

earnings (or earnings inequality) within a particular sector” (ABS, 1994).

Table 3: Percentage of Men & Women in the Labour Force19

Women Men

1982 1995 2005 1982 1995 2005

% % % % % %

Employed 48.3 61.4 67.0 82.0 80.2 82.0

Full-time 31.1 36.8 38.2 78.4 73.6 72.4

Part-time 17.2 24.6 28.8 3.6 6.6 9.6

Not employed(b) 51.7 38.6 33.0 18.0 19.8 18.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

(a) At December.

(b) Includes persons who are unemployed or not in the labour force.

Table 4: Gini Coefficient & Theil Index for Private Sector 1983-199320

Year Gini Coefficient Theil Index

1983 0.189 0.030

1985 0.195 0.029

1986 0.205 0.032

1987 0.208 0.033

1988 0.218 0.036

1989 0.218 0.036

1990 0.221 0.037

1991 0.224 0.039

1992 0.224 0.040

1993 0.228 0.042

19

ABS, 2008. 20

ABS, 1994. Survey not conducted in 1984. Public Sector wages will be considered in the next

chapter.

83

Wage Fixing Mechanisms

While the distribution of income to and within labour throughout the Hawke/Keating

years can tell us something about the impact of the reform agenda, the mechanism

for administering wage increases also underwent major changes during these years.

When elected in 1983 the Hawke government inherited a long standing culture of

wage fixing based on the 1907 Harvester Industrial Court judgement that linked

wage increases to trends in the cost of living. The Harvester decision was handed

down by Justice Higgins in a dispute between The Sunshine Harvester Agricultural

Implement Company and unions representing employees at the company (Harris &

Robbins, 2007: para.1). Prior to the Harvester decision, wages were effectively

determined as part of the common law approach that saw employment as a private

rather than social phenomenon which as such was determined using the positivist

approach of contract law (Harris & Robbins, 2007: para.4). This approach

considered labour as simply another factor of production, the cost of which was

determined by the law of supply and demand in the same way that the costs of raw

materials or rents were determined. Social factors, including the ability of the

employee to support themselves or their family on the wages they received were

simply not a factor in determining their income.

With the return of economic crisis during the Whitlam administration, however,

Whitlam successfully negotiated with the unions to fix wage increases to the rate of

inflation (Armstrong & Bramble, 2007: p.76). This process fell apart during the

Fraser years that followed the Whitlam dismissal (Armstrong & Bramble, 2007:

p.77), as we have already seen, with an explosion of successful wage claims that

convinced Australian capital that Fraser could not be relied up to discipline the

unions and rein in wage increases. Under the Accord, there was “a return to a

centralized system of wage fixation based on a comprehensive set of principles to

deal with claims for pay and conditions” (Australian Conciliation and Arbitration

Commission, 1984: para.1). National Wage Claims would determine wage

increases twice yearly based on movements in the Consumer Price Index (CPI),

unless the Commission was “persuaded to the contrary by those seeking to oppose

the adjustment” (Australian Conciliation and Arbitration Commission, 1984:

para.2). It was this framework that administered wage increases for Australian

84

workers during the first decade of the Hawke/Keating governments, though ‘full

indexation’ quickly gave way to ‘partial indexation’, followed by flat rate or

percentage increases that failed to keep pace with inflation (Armstrong & Bramble,

2007: p.78).

Furthermore, with the introduction of the Industrial Relations Act 1988 (Cth), the

Accord was revised so that pay increases could no longer be automatically linked to

inflation without a corresponding sacrifice in working conditions (Armstrong &

Bramble, 2007: p.8). This was part of a process that would eventually lead to the

abandoning on centralised wage fixing altogether. From 1991, workers could

‘choose’ to rely on safety net wage increases handed down by the Industrial

Relations Commission, which often failed to keep pace with inflation, or they could

opt for an Enterprise Agreement which would secure higher wages, but only insofar

as workers were prepared to ‘bargain’ away working conditions (Bramble, 1994:

p.1). The shift away from automatic centralised wage fixing in favour of linking pay

increases to working conditions was aimed at increasing the productivity of

Australian workers, a move which was largely successful. From 1987-88, when the

Accord was amended to exclude automatic pay rises, to 1991-92 when Enterprise

Bargaining was first introduced, productivity in state owned enterprises increased on

average by 40 per cent (Bramble, 1994: p.13). A large part of this drive was not just

centred on making workers more productive but to achieve results with fewer

workers, so that in the corresponding period these same enterprises 59,000 jobs were

lost (Bramble, 1994: p.13).

The push away from centralised wage fixing toward a more decentralised approach

didn’t end there. In 1993 Keating introduced the Industrial Relations Reform Act

1993 (Cth) which paved the way for localised bargaining that could circumvent

award provisions by entering into localised certified agreements, including non-

union certified agreements ( van Gellecum, Baxter, Western, 2008: pp.46-47). The

latter in particular presented a challenge to wage parity, as despite the existence of a

‘No Disadvantage Test’ aimed ostensibly at protecting the most vulnerable workers

from exploitation at the hands of unscrupulous employers, the reality was that

workers, particularly women workers, with traditionally lower trade union density

than their male counterparts, were at a distinct disadvantage when negotiating

85

certified agreements without the assistance of experienced union negotiators (van

Gellecum, Baxter, Western, 2008: pp.46-47). The net effect of this was the

continuation of the growing wage disparity already referred to above, with inequality

between workers in different industries or in particular in industries dominated by

women and/or migrant workers either falling behind or being forced to trade

conditions to win decent pay rises.

Despite this, Keating himself would continue to take credit for what he referred to as

the second of “two seminal events in wage fixing in Australia” in an article for the

Sydney Morning Herald in November 2007 where he attacked the then Howard

government (Keating, 2007: para.1). The first of these events was of course the

Harvester Judgement and the second being the dismantling of the centralised wage

fixing system borne of the Harvester Judgement with the 1993 legislation that

“created a decentralised wages system built around enterprise bargaining, with an

arbitrated safety net for the low paid” (Keating, 2007: para.3). Keating describes this

shift as a necessary response to the changing needs of a modern economy following

the dismantling of tariff barriers and the opening up of the economy to international

competition (Keating, 2007: para.5). Keating further stressed the importance of the

union movement in facilitating the move from the centralised model and rejected

Howard’s attacks on the union movement which the former referred to as “the one

group in the community that successfully took on the fight against inflation and that

co-operated in the dismantling of the centralised wage system to keep that victory in

place” (Keating, 2007: para.19).

There is perhaps no better way to sum up the dialectical synthesis between the

political and industrial wings of the labour movement that gave birth to the

Australian brand of neoliberalism than with the words quoted above. The impact of

the reform agenda on the Australian economy and on the jobs, wages and conditions

of Australian workers all flow from this partnership. They are consistent with the

mantra of Thatcher and Reagan already observed that the prime focus needed to be

shifted to fighting inflation, deregulating the economy and opening the latter up to

international competition and more importantly that there was no alternative but to

do so. They also give a powerful insight, however, into the key difference with the

reform process in Australia as compared to both the UK and the US in that the

86

structural changes pushed through were achieved with the acquiescence of the labour

movement rather than by attempting to smash the unions to remove obstacles to

reform. The net effect, as we have seen, however, had much in common.

As with the reform process under Thatcher and Reagan, an important part of the

agenda was the commercialisation or full privatisation of state owned enterprises and

services traditionally delivered by the state sector. In the final chapter we shall look

at this process in Australia, once again concentrating on the Hawke/Keating years

and by considering the push toward commercialisation/privatisation as intrinsically

linked to the implementation of the neoliberal project in Australia. In doing so I

hope to consider the service delivery models traditionally adopted by state owned

providers and the way in which these models changed with the adoption of

commercial methods to these models. I also hope consider the impact of this process

on both the workers employed by the public sector and the recipients of the services

provided. Finally I plan to consider the reform process in the public sector as

inseparable from the general process of ‘modernising’ the Australian economy along

neoliberal lines.

87

Chapter 4: Neoliberalism and the Australian Public Sector

This chapter will adopt roughly the same approach as previous chapters in charting

the trajectory of the public sector in Australia. That is, I will consider changes to the

way government traditionally provided services in the context of developments in

both the economy and more importantly the ideological shift from traditionally

Keynesian to neoliberal approaches among government and key policy makers. I

aim to demonstrate that the changes, or ‘reforms’ that the public sector has

undergone in recent decades, flow from the same logic that saw increasing

deregulation and removal of trade barriers within the Australian economy.

Furthermore, it will be argued that the cultural shift that took place within the public

sector was inevitable, indeed essential, for the economic reforms of the

Hawke/Keating governments to continue. The institutions that comprise, or in some

cases used to comprise the public sector in Australia, are not benign bodies that

operate in a vacuum independently of the economy but are intertwined with the

workings of the economy and cannot but change when there are major shifts in the

managing of said economy, such as has occurred in the era since the neoliberal

revolution sounded the death knell of the post war Keynesian consensus.

As with the previous chapter, I shall concentrate on the Hawke/Keating

administrations between 1983 and 1996 with some minor reference to the

government of John Howard that followed. While the latter is relevant in that during

the Howard years the commercialisation and/or privatisation of the public sector

continued to gather pace, with reforms such as the Workplace Relations Act 1996 and

the introduction of individual contracts (Verspaandonk, 2003; p.11) it was during the

Hawke/Keating years that a major shift in approach to the traditional public sector

occurred. Public sector reform was an important platform of the Hawke/Keating

years and much of the commercial practices common with public sector agencies

were given life during these years. It was during these administrations that

commercial values were fully introduced to the public sector, with the Howard

reforms merely the logical conclusion of this process. Furthermore, to be consistent

with the previous chapter, it is necessary to focus on the Hawke/Keating years in

order to explore the dialectic between the industrial and political wings of the

Australian labour movement during such reforms and the way in which the reform

88

process fostered tensions between the two. This will be an important focus of my

final chapter.

The Traditional Public Service

To fully understand the impact of the reform process on the Australian Public

Service (APS) it is necessary to first take a cursory look at the history, traditions and

culture of the public service prior to the modern era. The Australian Public Service

(APS) was born of the federation of the separate colonies into a single nation, and

the new Constitution, which came into effect on 1 January, 1901 created the position

of Governor-General in Council with the power to appoint and remove “civil

servants” or to delegate that power to others (Commonwealth of Australia, 1991:

s.67). The Constitution further provided for a number of key State departments to be

transferred to the newly created federal public service (Commonwealth of Australia,

1991: s.69). These included departments responsible for telecommunications,

defence, maritime affairs and quarantine, with departments responsible for customs

and excise to be “transferred to the Commonwealth on its establishment”

(Commonwealth of Australia, 1991: s.69). By the time the first Commonwealth

Public Service Act was enacted two years following federation there were some

11,374 officers working for the newly created departments (APSC, 2004: p.1)

Appointments to the new federal public service continued to be made under s. 67 of

the Constitution until passage of the Public Service Act 1902 (Cth), which received

Royal Assent on 5 May, 1902 and came into effect on 1 January, 1903. The

inaugural Act was a somewhat rudimentary document, particularly as compared with

later Public Service Acts. It comprised a mere 30 pages, roughly three quarters of

the size of the Public Service Act 1922 that would replace it two decades later, which

by the time it was replaced by the Public Service Act 1999 included amendments that

ran some 386 pages. In legislative terms, therefore, the Australian Public Sector had

somewhat humble beginnings, with the focus of the original Act seemingly on

consolidating the remnants of the existing colonial public services into a single

Commonwealth sector. The Act was divided into five parts, dealing with

Administration, Divisions of the Public Service and Appointments, Internal

89

Administration, Life Assurance and a final part dealing with Miscellaneous matters.

Although the original Act survived the war years, by the end of the war there was a

mood for change. To facilitate this there were two separate Royal Commissions

appointed to review and recommend amendments to the existing Act. The Act that

flowed from the Royal Commissions was only a slightly larger piece of legislation

by comparison with its predecessor, with 45 pages compared to the 30 pages of the

1902 Act. The new Act looked similar in structure and content to the previous Act,

as well as in its intent to regulate and maximise the efficiency of the institutions that

formed the Commonwealth Public Service. In many ways it acted merely to flesh

out or improve upon existing provisions and practices. Most importantly it did not

seek to improve efficiency by introducing private sector principles or by

outsourcing/privatising services as is the modern practice. This in itself provides a

powerful insight into the culture of the public sector at the time, particularly given

the 1922 Act was drafted at a time when commitment to the free market was yet to

be challenged by the turmoil of the Depression and war years that led to the rise of

the Keynesian consensus. The Public Service and its institutions were still entities

that, while providing the regulatory framework within which the market economy

operated, in a sense, as compared to the modern era at least, stood above the

workings of the contemporary market economy. This culture largely dominated the

Public Service until the Keynesian consensus began to be challenged by the return of

economic crisis during the Whitlam years.

The APS and the end of Keynesianism

The Whitlam administration of 1972 to 1975 had the dual fortune/ misfortune of

being elected at the height of the post-war boom yet also being in power as this

boom began to implode. The period leading up to the election of the ALP

government in 1972, the first Labor administration since 1949, had been a period of

rising social and industrial tensions. On top of what was to become a massive anti-

war movement, there were movements around gender and Indigenous issues and a

major increase in industrial unrest, with strike days increasing from 705,000 in 1967

to 6,292,000 in 1974 (O’Lincoln, 1985: p.139). Elected on the back of these

90

movements for change, the Whitlam government implemented a number of reforms,

including wage increases, equal pay legislation, paid maternity leave for

Commonwealth public servants, sole parent pensions, free tertiary education and the

introduction of Medibank, the forerunner of the current Medicare system (Armstrong

& Bramble, 2007: p.73).

The dynamics of Whitlam’s government, along with the dialectic between his

government and the existing balance of class forces needs to be considered to fully

appreciate the nature of his reform agenda. Whitlam’s reform agenda was driven

both by the struggles referred to above and by the fact that while the boom was still

in play the system could afford his reforms (Armstrong & Bramble, 2007: p.74).

Furthermore, his government funded reforms not just to workers and the poor but

was at pains to demonstrate his government was there for Australian capital as well,

with a “host of schemes which channelled government support to business”

(Armstrong & Bramble, 2007: p.74). With the return of economic crisis, however,

Whitlam felt compelled to review his approach. The public sector was now the

subject of cuts and a general ideological shift toward blaming a bloated government

sector for the country’s economic woes. Business now turned on Whitlam, helping

to bring to an end the short and turbulent administration of a government that failed

to keep either labour or capital satisfied when faced with economic crisis. The result

was the election of a Fraser coalition government that sought to further reduce the

public sector.

Upon being elected Fraser set about trying to reduce the public sector that had

expanded under Whitlam. Once in power Fraser abolished dozens of public sector

agencies, axing public sector jobs in the process (O’Lincoln, 1993: Ch 4, para.7).

Following the 1980 election he set up a committee, led by Sir Philip Lynch to

conduct a Review of Commonwealth Functions (RCF) to determine what functions

could be cut back, completely abolished or transferred to the private sector (Wanna,

Kelly & Forster, 2000: pp.128-132). Tabled in Parliament in April, 1981, the RCF

report soon became known as the ‘Razor Gang Report’ due to its focus on

dramatically cutting back the public sector in favour of the private sector providing

many services traditionally delivered by the state, or in the words of the author,

“streamlining and fining down Commonwealth operations by withdrawing from

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areas more appropriately handled by the States and private enterprise, and

rationalising a number of Commonwealth activities” (Lynch, 1982). It was against

this backdrop that Labor was re-elected in 1983, promising to breathe life back into a

depleted and demoralised public sector.

Labor Takes Power

Upon ascending to power the Hawke government wasted little time in prioritising

public sector reform to align the public service with its direction more generally in

terms of managing the economy. In the lead up to the 1983 federal election, then

opposition leader Hawke and shadow Attorney-General Gareth Evans had released a

policy paper entitled Labor and Quality of Government (Hawke & Evans, 1983).

This paper savaged the Fraser government’s record in public administration and

somewhat ironically, given the direction the ALP would eventually take once in

government, attacked Fraser’s “ideological obsession with building up the private

sector at the expense of the public” (Hawke & Evans, 1983: p. 1). The policy

promised to "restore confidence in the quality of public administration both at the

ministerial and public service level" (Hawke & Evans, 1983: p.4). It would do so by,

among other measures, “a system of strategy and effectiveness reviews” and “reform

of the budgetary system”. It was also a reflection of the fact that economic

rationalism was starting to hold sway with key figures in the ALP, who were “no

longer prepared to adopt blind ideological commitment to the virtues of public sector

growth and government interventionism” (Wanna, Kelly & Forster, 2000: p.149).

In December, 1983 John Dawkins, then Finance Minister in the Labor government

elected earlier that year, introduced Reforming the Australian Public Service - A

Statement of the Government’s Intent, outlining Labor’s vision for the public service.

A large part of the reforms outlined in Dawkins’ document was devoted to the

creation and administration of a Senior Executive Service (SES) (Dawkins, 1983:

pp.12-21). The new SES replaced the previous ‘Second Division’ and was drawn

from the “critical group of senior advisers and managers” that had formed the

Second Division of public servants under the Public Service Act 1922 (Cth)

(Dawkins, 1983: p.12). The creation of the SES was intended to develop a highly

specialised group of leaders within the public service and the document specifically

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refers to a requirement for “more emphasis on the development of managerial skills”

within the new SES (Dawkins, 1983: p.12). Pursuant to this goal the SES was to be

highly mobile, with officers to be moved between roles or even between departments

as a means of both responding to agency needs and expanding upon the skills and

experience of the SES (Dawkins, 1983: pp. 14-15). Furthermore there was increased

scope for dealing with underperformance and a requirement for regular staff

appraisals (Dawkins, 1983: pp.18-19).

Reforming the Australian Public Service was explicit in its intention to inject the

private sector into the APS, both physically and culturally. SES vacancies would be

open to applicants from outside the APS with scope to advertise vacancies in the

press, “both in Australia and overseas” or with the use of “private sector ‘executive

search’ services to bring in people of “top quality” into the SES where internal

applicant pools proved to be unsatisfactory (Dawkins, 1983: p.13). Fixed term

engagements would also be utilised to “facilitate the entry of talented outsiders”

(Dawkins, 1983: p.13). There had in fact always been scope to advertise Second

Division vacancies outside the traditional method of listing vacancies in the

Commonwealth Government Gazette, but the reality was that this seldom occurred.

Opening up what had previously been something of a closed shop addressed

government concerns that the elite levels of the service had become stagnant and

needed an influx of private sector operatives to modernise itself, necessary to meet

the needs of a government that was embarking on a major reform of the country’s

entire economic and industrial relations landscape.

The Public Service Reform Act 1984 enshrined these principles in legislation with

the creation of the new SES to “undertake higher level policy advice, managerial and

professional responsibilities in Departments”, and to “promote the efficiency of the

Australian Public Service” (Commonwealth, 1984; s.19). The creation of the SES

was an important step for the Hawke government in achieving the “technocratic,

‘managerialist’ state” that was vital “for enhancing and sustaining an

internationalised economy” (Fairbrother, Svenson & Teicher, 1997: p.4). The Act

also introduced concepts of Equal Employment Opportunity (EEO) (s.11), Industrial

Democracy (s.12) as well as legislating for permanent part-time work (s.19) as a

means of modernising the public service.

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Concepts such as Industrial Democracy no doubt reflected Hawke’s ‘consensus’

approach to industrial relations and managing the economy, as with the Accord and

the various consensus building summits that typified the early years of the Hawke

government. The Hawke Labor government certainly had some success in

consensus building with the trade union movement and concepts of Industrial

Democracy could be seen, rather than simply empowering public servants in relation

to the decision making process, as a means of replicating this successes. Despite

early commitments to Industrial Democracy and inclusion of unions to some degree

in consultative processes, this was increasingly subordinate to the government’s

commitment to managerialist principles and practices as the driving force behind the

new SES (Fairbrother, Svenson & Teicher, 1997: p.4).

It might also be argued that as the union movement’s commitment to keeping Labor

in power influenced the former’s willingness to publicly challenge the ALP, the

government felt increasingly less compelled to garner their support, thereby having

something of a free run in implementing its managerialist agenda. This did not mean

that the government abandoned its policy of leveraging off its relationship with the

unions, many of whom were of course affiliated with the ALP. But it did mean that

the unions, and the public sector unions in particular, having thrown their lot in with

the Labor government’s corporatist approach, and accepting that there was no

alternative to the ALP’s increasingly pro market policies, had effectively cornered

themselves. In other words, the union strategy contributed to the reform process

under Hawke and the ability of the Hawke government to install market principles in

the public sector, irrespective of any reservations the unions may have had.

New Public Management

The introduction of New Public Management principles into the Australian public

sector began a journey that would ultimately lead to the major commitment to

privatisation of the Howard government alongside the push to individual contracts

for those remaining in public sector employment. In essence, NPM brings the

principles of market-based economics into public sector management in place of the

traditional bureaucratic culture (Hughes, 2000: p.3). Or put more broadly:

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This approach focuses on the introduction of private sector management

practices into the public sector, strengthening the prerogatives of

managers, measuring performance, increasing competitive pressures and

cost-cutting. In terms of labour management, the increased focus on

private sector management practices in the Australian public sector has

seen the introduction of initiatives such as decentralised wage bargaining,

individual employment contracts, total quality management,

performance-based pay and downsizing into those sections of the public

sector not already privatised or contracted out (O’Donnell, Allan &

Peetz, 1999: p.1).

In practice this has meant a great degree of devolution of decision making powers to

a departmental level and a major streamlining of processes and structures within the

public service that facilitate greater control of managers over their staff and a

simplification of job classifications (Anderson, Griffin & Teicher 2002: p.3). There

is a greater focus on individual performance at all levels of the public service and

more ‘efficient’ means of hiring, firing and managing the performance of staff,

including punitive measures where necessary. The shift towards NPM principles has

also seen an erosion of the ‘job for life’ culture that permeated the traditional public

service with job security now linked to both an ability to perform and government

decisions on whether the duties or services provided by individual public servants

could be more efficiently provided by other, particularly private sector, means.

Above all then, New Public Management principles have meant that the public

service must produce results as ‘efficiently’ as possible, that is, it must continue to

deliver services with minimal resources and a potentially tightening budgetary

environment.

To illustrate this point further, in a document released by the Australian Public

Service Commission (APSC) in 2009 to commemorate the 25th anniversary of the

creation of the SES, the author’s celebrate the role that the ‘leadership’ within the

APS in implementing the macroeconomic policies of the government of the day

(APSC, 2009). Furthermore, this leadership, they demonstrate, has driven

government policy agendas under administrations with vastly different economic

policy platforms. As examples, firstly, as the former Second Division of the public

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service, the leadership of the APS “implemented the Chifley Government’s social

welfare reforms” in the early 1940s which legislated for various pensions and

protection against sickness and unemployment (APSC, 2009: p.7). In other words,

the leadership of the APS at the time were called upon to implement policies

consistent with the Keynesian consensus that favoured government intervention

rather than market forces as the preferred means of delivering services and protecting

the more vulnerable members of the public. This would appear to be consistent with

a public service model that favoured a bureaucratic, administrative approach to the

delivery of services by the state sector and sat comfortably with the structures, roles

and responsibilities of public servants under the existing Act.

By contrast, in the 1980s, the SES was created to assist in “developing and

implementing wide ranging economic reforms that progressively enabled Australia

to compete successfully in the global economy – reforms like reducing barriers to

trade and foreign investment, commercialisation and some privatisation of

government-owned business and increasing labour market flexibility” (APSC, 2009:

p.7). That is, the leadership of the APS was restructured along managerial lines in

order to allow the APS to facilitate the government’s move to deregulate and open

the economy to foreign trade as per the latter’s new found rejection of Keynesianism

in favour of the neoliberal agenda that was finding favour among senior legislators

and policy makers. A decisive shift from an administrative to a managerial style of

leadership ensured the APS was now led along similar lines to the private sector with

the SES in many ways having responsibilities similar to the senior staff of private,

commercial enterprises. If not exactly required to turn a profit, as with their private

sector counterparts, although this would in some instances become the case as

certain agencies were commercialised or fully privatised, at the very least the SES

were responsible for ensuring that their workforce was ‘exploited’ in much the same

way, that is, with efficiency/productivity increases that improved a bottom line in

terms of the budgetary investment required to run the agency.

In other words, the role of the SES under the NPM includes a responsibility for

ensuring market based principles of efficiency and economy are realised within their

respective agencies. The government of the day, via their Ministers and Department

Heads requires of the SES that they “ make government work as efficiently as

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possible for Australia” by “doing more for less, focussing on outcomes and results

and managing change better” (Yeatman, 1987: p.341). The SES therefore have an

internalised or micro perspective that focusses on the resources available to them and

must consider how best to utilise these resources to deliver on their external or macro

perspective, the actual legislative and policy deliverables of the government of the

day. In implementing these changes to the way the public service was to be led and

to how it would conduct its business, the Hawke government created a vastly

different employment experience for public servants. Industrial relations policy, as it

impacted upon public servants at both a micro and macro level, was to take on a

specific flavour under the ALP, with contradictions and outcomes similar in many

ways to those in the economy more generally.

Working Conditions Under the NPM

Hughes provides a useful overview of the changes to the working conditions of

public servants under the New Public Management paradigm (Hughes, 2000: p.5).

In quoting the report of the Coombs Commission, set up to review the APS under the

Whitlam government in 1974 and tabled in 1976, he describes conditions under the

“career service model” that had typified the APS prior to the NPM era. Among

these were recruitment by merit and independent control of recruitment that

protected public servants against outsiders, with vacancies above the base grade

rarely open to those outside the APS. There was a unified APS, with the Public

Service Board overseeing personnel management at a whole of APS level. There

was protection against arbitrary dismissal, position classification of salaries that

allowed for annual increments and promotion, an appeal mechanism for public

servants unsuccessful in recruitment processes and a distinctive retirement and

pension system. By contrast, under the NPM regime there is no longer a unified

APS, with the Public Service Board abolished in 1987. Outside recruitment for

above base grade positions is much more common, position classifications have been

replaced with ‘broad band’ levels’ mechanisms for appeals and grievances are far

less robust and the superannuation schemes, once the envy of the private sector are

far less generous than they were.

There was a push in much of the public sector toward the “multi-skilling” of staff,

presented as an opportunity for staff to learn new skills and therefore enhance their

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career prospects and personal job satisfaction (O’Donnell, Allan & Peetz, 1999: p.8).

This occurred in the context of the rationalisation of the classification structure into

the broad band levels noted above, which allowed for more generic duty statements,

enabling workers to perform duties across a range of areas that would previously be

performed as separate roles. It was also at a time when Information &

Communications Technology (ICT), was revolutionising the way tasks were

performed, both in the private and public spheres. It is certainly true that new

technologies and broad-banding of the classification scheme allowed many to pursue

career paths hitherto unavailable to them. But in the context of the NPM, where

such changes were driven by the pursuit of increased efficiency and productivity in

pure economic terms, it also meant a conscious move to continually extract more and

more from your labour source. As an example O’Donnell et.al. describe the impact

of multi-skilling on service workers in a public hospital setting, where workers were

performing additional tasks to those they had traditionally performed, not in terms of

promotion to better paid positions, but as increased output under the same

remuneration packages (O’Donnell, Allan & Peetz 1999: p.8).

Consistent with the new NPM even the language used to describe public sector

agencies began to change to reflect the new market driven ethos that was now

shaping the state sector. According to Fairbrother et.al. the “changes in

nomenclature that accompanied these shifts in policy were imbued with the

discourse of economic rationalism and the market. What were previously ‘utilities’

and ‘public services’ became ‘government business enterprises’ or ‘GBEs’”

(Fairbrother, Svenson, Teicher, 1997: p.6). The word ‘business’ is now commonly

used to describe the inner workings of modern state owned agencies and a search of

the APS Gazette will see positions advertised as ‘Business Managers’, ‘Business

Analysts’, ‘Business Support Officers’ and so on

(http://www.apsjobs.gov.au/searchresults.aspx?mn=JobSearch). Work units are now

often referred to as ‘business units’ rather than branches or sections and at a strategic

level ‘business plans’ are developed to implement and measure strategic and

operational objectives in much the same way as a private sector entity needs to

ensure its business activities are conducted in the most efficient and profitable way

possible.

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Further to this, agencies, especially those that would eventually be commercialised

or fully privatised, were subjected to private sector methods of rationalising the

workforce, the most direct impact on public servants in these agencies being cuts to

staff numbers (Frankel, 1997: p.19). A case in point is the former public

communications utility Telecom, where management adopted a “lean and mean”

approach to its workforce and government legislated to repeal protection of workers’

conditions that had been enshrined in the Telecommunications Act of 1975 (POA,

1988: p.2). The former Commonwealth Employment Service (CES) was ultimately

abolished by the Howard government in favour of a network of private providers. At

the height of the 1991-1992 recession, while still in public hands and at time where

unions were calling for more staff to cope with increased demand for the services

offered by the CES, public sector unions found themselves in dispute with an ALP

government proposing to cut staff numbers (Backhouse, 1992). This had a direct

impact on workers in these agencies, who had to work more ‘efficiently’ and deliver

the same levels of service to the public albeit with less resources. It also had a direct

impact on the public that utilised these services, with the reality being that despite

computerisation and technological advances, frontline services were compromised.

The citations referred to above help to build an understanding of the impact of the

NPM on public sector workers in the context of the drive for increased labour

productivity, consistent with the overall direction of economic reform under Labor.

For a Marxist analysis, however, they provide insufficient insight into the dynamics

of the reform process in the context of the rate of exploitation of the labour power of

workers within Australian capital. Doing so means considering the organic

composition of capital (see Marx, 1990: p. 762), albeit with the caveat that even

though Marx was examining the dynamics of private enterprise, the essence of his

approach is nonetheless useful in considering the reform process on public sector

employees. This is particularly true as traditional public sector models gave way to

commercial models that sought to maximise efficiency through the use of private

sector methods or even began operating on a fully commercial basis where capital

was invested into a public sector body expected to operate at a profit by selling its

services to the public.

Marx approached the labour/capital dichotomy by insisting that labour was the

source of all value and that the profits realised by capital in the production process

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were due to an extraction of ‘surplus value’ from the labour they employed (Marx,

1990: pp.320-29).

That is, the employee is compensated for their labour power with wages that are less

than the value they create, a surplus value. Labour power is therefore the source of

surplus value due to the relationship between what Marx termed ‘constant’ and

variable’ capital (Marx, 1990: pp.307-19). By constant capital he referred to the

machinery necessary for a given enterprise to produce its goods. In the public sector

this might refer to the offices, furniture and increasingly the ICT hardware and

software necessary for staff to perform their duties. By variable capital Marx meant

the wages the employer was required to spend to secure the necessary labour power.

By the organic composition of capital Marx was simply referring to the ratio of

constant to variable capital in the total expenditure an employer spent on the goods

or services that their business, or in the case of the state, an agency produced.

In the context of the NPM reforms described above, the citations point to a shift in

the organic composition of capital whereby increasing amounts of surplus value

were extracted from employees as part of the increased efficiency, or the rate of

exploitation inherent in making workers produce more for the same pay. This is

magnified as new technology allows public servants, along with their private sector

counterparts, to produce more with less. This is not in itself problematic and few

would argue that labour saving technology should be eschewed, certainly not users

of public services who can now, for example, perform tasks on-line that would have

previously taken much longer to complete. Increased efficiency in purely objective

terms is, however, something of an abstraction in the context of a labour force

directly impacted upon by such developments, particularly where they increase the

precariousness of job security for those previously performing now automated

functions. In terms of the ALP reform process, increased productivity, viewed as an

increase in the extraction of surplus value, based on the examples above, tended to

be to the detriment of the job security, wages and conditions of many public

servants.

To illustrate this further, a recent PhD thesis considers from an explicitly Marxist

perspective the impact of the reform process on workers in the Jobs, Education and

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Training (JET) program within the Department of Social Security (DSS) (Banks:

2011). The JET program was designed to encourage sole parents, particularly

women, to re-enter the paid workforce. In his thesis Banks argues that nation states

“intervene to increase the relative surplus value through policies which either raise

the average level of skills, capacities and capabilities in the workforce (health,

welfare, education, immigration) or by supporting employers increasing the rate of

exploitation. Absolute surplus value may be expanded through state interventions

which aim to increase the quantum of labour power available” (Banks, 2011: p.

48).21

The description here of the state’s intervention to increase the rate of relative

surplus value fits well with the drive to increase productivity in the APS under the

Hawke/Keating governments by increasing the “rate of exploitation” through a

combination of downward pressure on wages and public sector workers getting the

job done with fewer resources.

Banks go on to describe working conditions for the JET Advisers (JAs) who were

employed to assist clients with finding employment, with a focus on disputes

between DSS case workers and the employer over caseloads (Banks, 2011: pp. 124-

29). Although industrial action had seen some success in resisting increased client to

staff ratio numbers in DSS, within the JET program itself high caseload levels led to

a diffusion of the attention JAs could offer clients. In some cases individual JAs

were forced to forego one-on-one sessions with clients in favour of larger group

interviews (Banks, 2011: p. 129). Banks further reveals the shift towards NPM style

leadership within the program where commercial imperatives were increasingly used

to measure the performance of staff (Banks, 2011: pp. 137-142). Specifically, this

meant an increased emphasis on a purely economic measure of ‘outcomes’, i.e. work

placements and an associated reduction of government outlay in payments to sole

parents. Other activities associated with the program, such as assistance with child

care or directing clients on to training courses were consigned to being mere

‘outputs’, and as such could not be used in determining the program’s success.

21

For further examination of the concept of relative vs absolute surplus value see Marx, 1990: pp.

429-39.

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NPM and the Public Sector Unions

The common thread remained the relationship between the ALP government and the

public sector unions, irrespective of disagreements over the specifics of policy.

Hawke and then Keating continued to foster a relationship with the unions as a

means of delivering their NPM reforms, including the latter on a number of

consultative committees as part of the reform process (Anderson, Griffin & Teicher,

2002: p.3). Furthermore, as with their approach to the Accord in general, the unions,

however uncomfortable with aspects of the reform process, tended to accept the need

for reform per se. For example, in calling for a mobilisation to fight cuts by the

Labor government on staff levels and the working conditions of public servants, the

unions would still assert their commitment to “genuine reform and improvement of

Public Sector services and operations (ACTU, 1986: p.4). Furthermore, the

Professional Officers Association (POA), while in dispute with Telecom

management over the way reforms were being managed, could still proclaim that

they were “one of the first staff associations to recognise that Telecom had to change

to meet the rapid changes in the economic and social demands of modern Australia

(POA, 1988: p.1). There is certainly a contradiction in their approach. Clearly the

unions accepted the reform process, which by its very nature could not proceed

without threatening the jobs and conditions of its members. Yet they maintained that

they needed to be a partner in this process, which they viewed as their only means of

softening the impact the reforms may have on their members.

Indeed public sector unions took exception to the ALP government making policy

decisions in isolation of a consultative process, particularly when such policy

decisions had adverse consequences for their members. When, for example, the

government announced the creation of an “Efficiency Scrutiny Unit” to help it

implement widespread “arbitrary staffing cuts and other reductions in resources”, the

Administrative and Clerical Officers’ Association (ACOA) lamented the fact that

these moves had not been “the subject of any discussion with unions” (ACOA, 1986:

p.4). Once again, however, the union took a contradictory position. While on the

one hand they criticised what they perceived as an “attack” on public service

conditions under the Government’s approach, it simultaneously declared that the

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“Prime Minister’s statement on Public Service reforms has some merit” and declared

themselves as fighting strongly for “positive reforms” (ACOA, 1986: p.1).

It would appear from such statements that the unions were keen to appear not as an

obstructionist force but as one that in cooperation with the government could assist

in implementing reforms aimed at increasing efficiency within the public service.

This certainly demonstrates a commitment to the Hawke government’s ‘consensus’

approach to governance. Such an approach could also be perceived as being shaped

by the dynamics described in the previous chapter, with the labour movement being

largely reconciled with the ALP policy agenda, within which their best position was

in being part of the reform process as opposed to sitting on the sidelines having no

input whatsoever. In other words, no matter what reservations the unions, including

the public sector unions, might have had about this or that policy, ensuring that they

had a seat at the negotiating table took precedence over mobilising members to fight.

Not that the latter did not occur, for it certainly did on occasions, particularly over

wages, as we shall see below. The point is that such mobilisations tended to take

place within the broader context of the ALP’s reform agenda, not as a specific fight

against the entirety of the reform agenda itself.

Wages

This is certainly the position public sector unions took in relation to wages, with the

Accord sold to members as a means of securing decent wage increases through a

centralised approach to wage fixing. The National Executive Committee of the

ACOA, for example, would report that the Accord “provides a framework and

program for realisation of a social and economic objectives beneficial to ACOA

members and to wage and salary earners generally” (ACOA, 1983: p.1). In June of

1983 the ACOA published a Bulletin for its members selling the virtues of the

Accord. It declared that the “maintenance of real wages is a real objective” and that

it was agreed (between the unions and the ALP government) that a “centralised

system of wage fixing is desirable” (ACOA, 1983: p.2). As a further example of

union support for the Accord, in September, 1983 the South Australian Branch

Conference of the ACOA would also endorse the Accord, stating that the Conference

“is of the opinion that the ACTU/ALP Accord was an important initiative” and that

the union supported “the concept of centralised wage fixing” (ACOA: 1983). Clearly

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public sector unions by and large welcomed the Accord as a step forward from the

tumultuous Fraser years and saw in it a means of advancing the interests of their

members through cooperation and industrial harmony.

The honeymoon period didn’t last for long, however. In early 1984 the Hawke

government proposed a wage freeze or at the most a minimal increase to help profits

recover from the recent recession, a throwback to the Fraser years and the very thing

unions had hoped the Accord would remove (Malone, 1984). From this point on

there would be a tension between the pay increases proposed by the public sector

unions and those handed down by the Arbitration Commission under the centralised

wage fixing model of the Accord. So, for example, by January 1985 the unions were

considering industrial action in favour of an 8.3 per cent pay increase designed to

make up for wages lost in real terms due to inflation under Fraser and to put public

servants’ wages on par with their state public sector counterparts, the so called

‘anomalies’ claims (ACOA, APSA, FCU (TOB) 1985). Such disputes over the level

of pay increases would continue as long as the centralised wage fixing model

remained in place (ACOA, 1986, 1987 & PSU, 1989, 1990). Tensions were

magnified with the introduction of the “Second Tier” system of wage increases in

1987 which allowed public servants to trade away conditions to gain wage increases

beyond that offered by the Arbitration Commission or for pay rises to be linked to

productivity increases or job cuts (Rank and File Action, 1990).

Not that this frustration or anger automatically led to outright rejection of the Accord

itself. There was certainly rejection of the Accord from some sections of the public

sector unions, who argued that the Accord had led to a cut in real wages and called

upon the union leadership to mount a fight back (Rank and File Alternative, 1990).

However, by and large the leadership of the public sector unions did not see the

battles over wage increases as flowing from the Accord itself but rather as a result of

the government not meeting its obligations under the Accord. In calling its members

to mass meetings over the 8.3 per cent pay claim in 1985 the unions recommended

members support a motion that “deplores the actions of the Government and

employers in their minimal and conditional support for the unions’ claims and

requires the Government to fulfil its responsibilities under the Prices and Income

Accord to ensure fair comparability in wages for Australian Government employees”

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(ACOA, APSA, FCU (TOB) 1985). Clearly union leaders saw the Accord as a

vehicle for increasing, or at least maintaining wages in real terms as opposed to a

means of keeping wages in check. Any disputes, therefore, were largely over

differing interpretations of the Accord rather than a challenge to its existence. The

role of the unions would be to hold the employer accountable to what it saw as the

latter’s commitments under the existing industrial relations paradigm rather than act

to seek to act outside of it.

Furthermore, when the original Accord expired in 1985, public sector unions were

willing partners in the ACTU’s negotiations for further agreements. In a pamphlet

selling the virtues of the new Accord to its members, the ACOA, speaking on behalf

of the ACTU “acknowledged the benefits that have flowed through to workers and

the community generally through the development and implementation of the Prices

and Incomes Accord through, among other things, “substantially reduced

unemployment and inflation”, linked notably, to “improved international

competitiveness” and supported through the “ACOA’s own academic study of

movements in the social wage” (ACOA, 1985). So here the ACOA is not just

asserting the benefits of the Accord, but the virtues of the neoliberal reform process

itself by linking improvements in the standard of living of Australian workers to

their ability to compete against the productivity of workers in other countries. In

accepting this logic, the unions accepted the limits of what they could achieve for

their members, effectively arguing the “there is no alternative” neoliberal mantra. It

further meant that as the Accord began to outlive its usefulness as a tool for the

government to continue raising the level of productivity, or surplus value of the

labour force, the unions were in a weakened position by virtue of their own

acceptance of the logic behind the reform process when Hawke began to dismantle

the centralised system in favour of one linked purely to productivity increases.

Agency Bargaining

To a large extent enterprise bargaining, or agency bargaining as it would be known

in the public service, had its genesis in the Second Tier wage system that began in

1987, where pay increases were “increasingly dependent on enterprise or industry

productivity (Bramble, 1994: p.8). Here the context of enterprise bargaining in

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terms of the prevailing economic conditions and the parallel between the birth of

agency bargaining and the conditions that gave rise to the Accord is important. After

recovering from the recession of the early 1980s, with high employment growth and

growing profits throughout that decade (Russell, 2005), by 1990 crisis had once

again returned to the system. According to Bramble, manufacturing fell by 8 per

cent and in 1990-1991 there were 940,000 redundancies, with unemployment rising

from 6 per cent to 11 per cent, “the worst performance of any western economy”

(Bramble, 1994: p. 10). It was in this context that the Hawke government saw the

need for raising the productivity levels of Australian workers higher than had been

achieved under the Second Tier system. To do so his government would need a

strategy for delivering higher productivity levels than were being achieved under the

Accord. It must also convince a workforce that had largely accepted the

government’s industrial relations agenda, only to be rewarded once again with

economic crisis and massive job losses, à la the Fraser years, that they must accept

an intensification of the reform process in order to beat the recession.

Under the Enterprise Bargaining Principle introduced in 1992, linking wage

increases to cost of living increases was abandoned in favour of a two-tiered

approach whereby public servants could negotiate a service wide agreement as well

as agency specific agreements, both linked to productivity increases (MacDermott,

2008: pp.94-95). Public sector unions tended to take the same approach to agency

bargaining that they had to the Accord. That is, they largely saw little alternative but

to work with the government in order to make the new system as beneficial as

possible to members. During wage negotiations in 1992 the National Executive

Committee (NEC) of the Public Sector Union (PSU)22

called meetings of members

to which they put a number of motions on how to proceed, specifically in the context

of the government’s push towards agency bargaining. Although there were several

motions, including one rejecting negotiations entirely due to the “employers

insistence that agency bargaining must be a component of any APS pay agreement”,

the NEC itself pushed for a motion that allowed it to consider the option of agency

bargaining “as the course of action which is overall likely to achieve the best result

for PSU members” (PSU, 1992).

22

By this time the public sector unions previously referred to had coalesced into the PSU.

106

There were several caveats included in the NEC’s preferred motion that aimed to

soften the likely impact of agency bargaining on its members. However, their

approach would seem to suggest that the NEC believed they could operate within the

new environment if required to do so. Having already presided over job losses and

the trading away of conditions under the Second Tier system, it was not a

particularly difficult next step for the NEC to take. The PSU leadership didn’t have

it all their own way however, with a fair degree of resistance from rank and file

members, many of whom had already been critical of the leadership strategy under

the Accord (Taylor: 1992). Many members were open to arguments against a regime

further linking pay increases to productivity increases in an environment where such

increases could generally only be achieved through job cuts or trading away

conditions. Nonetheless, agency bargaining soon became a reality and by 1994 some

73 per cent of public servants were covered by agency level agreements

(MacDermott, 2008: p.95).

To win pay rises, or in some cases benefits as well as or in lieu of pay rises, public

servants negotiated away a raft of conditions under the agency bargaining process.

This included increased commercialisation, thousands of job losses, increases to

weekly hours and the loss of traineeships. In essence, the agency bargaining process

isolated public servants and especially union members from each other, putting them

in a weakened position when it came to the bargaining process. In this respect it was

a logical next step for a government looking to raise workforce productivity levels

and one hard to resist for a trade union bureaucracy wedded to government strategy

since its inception in 1983. It certainly meant that much of the ground work had

already been done when Howard took the helm and further decentralised public

sector industrial relations (MacDermott, 2008: pp.95-98).

The enterprise wide agreement was not renewed, meaning any pay increases could

only come through agency level negotiations or increasingly through individual

contracts. Even collective agreements at the agency level were conducted under a

new paradigm, when from 1996 the Workplace Relations Act (Cth) allowed for

Department Heads to negotiate agreements directly with staff, bypassing the unions

altogether. The industrial relations reforms that began with the Public Service

Reform Act 1984 had come to its logical conclusion with the new employer now

107

seeking an even more mobile, flexible and atomised public service. A combination

of a different approach to dealing with the unions, together with a perception that the

unions had in effect outlived their usefulness in terms of the extent to which they

could continue to facilitate workplace reform, meant the latter were pushed

completely to the margins of the industrial relations landscape.

The impact of the reform process on public sector wages needs to be considered in

the context of the trends already described in the previous chapter. Public servants

were subject to the same downward pressure on wages as the rest of Australian

workers under the Accord. However there is also a certain dynamic to the public

sector that needs to be considered to fully understand wages in context. To begin

with, Table 5 shows that wages inequality was less pronounced in the public sector

as compared with the private sector in the decade from 1983-1993, as can be seen

with a comparison to Table 4 (page 104). This can be explained to a large extent in

terms of the public sector’s relative autonomy from the market as the driving force

for wage setting as opposed to principles of equity that tend to be more pronounced

in public sector institutions. As a result of such pressures, however, the relative

wage equality in the APS relative to the private sector did begin to break down in the

latter years of the ALP administration as is evident with data for years following the

introduction of agency bargaining. This began with the introduction of performance

based pay for SES and senior officers in 1992 an extension of the trajectory already

set in motion under the agency bargaining process which saw a shift towards smaller

and smaller bargaining units (O’Donnell & O’Brien, 2000, p.5).

This trajectory continued under the Howard government, elected in 1996, which

promoted individual arrangements, including Australian Workplace Agreements

(AWAs), statute based contracts between an employer and an employee, with the

bulk of the SES being covered under individual arrangements by 2009 (APSC,

2011). By this time, as evidenced in Figure 10, wage inequality within the APS had

increased dramatically, suggesting that the negotiating power of individual senior

officers was sufficient to have an impact on their remuneration vis-à-vis lower level

staff. Furthermore, the salaries of the most senior public servants, such as the Chief

of the Defence force or the Reserve Bank Governor, are subject in the modern era to

pay increases of several hundreds of thousands dollars in an attempt to match

108

salaries in the corporate sector, much to the chagrin of public sector unions and their

members who are being told to make do with increases pegged to current inflation

levels (Australian, 27/09/11; Australian, 28/09/11).

Table 5 – Gini Coefficient & Theil Index for the Public Sector 1983 – 199323

Year Gini Coefficient Theil Index 1983 0.176 0.023 1985 0.186 0.025 1986 0.186 0.025 1987 0.178 0.023 1988 0.178 0.023 1989 0.181 0.024 1990 0.179 0.023 1991 0.180 0.024 1992 0.183 0.025 1993 0.186 0.026

Figure 10 - APS Pay Increases 1996 - 200924

23

ABS, 1994. Survey not conducted in 1984. 24 APSC, 2011: p. 73. http://www.apsc.gov.au/publications11/reviewofses.htm#chc.3.

109

Privatisation

While the Hawke and Keating governments did not approach privatisation with quite

the same ideological zeal as the Howard government would, they certainly

incorporated it into their agenda, particularly towards the latter part of their

administration. So much so, that towards the end of their rule the ALP had reduced

employment in the public sector by one third (Frankel, 1997: p.19). The

privatisation, or ‘outsourcing’ of government assets went hand in hand with a reform

process that introduced managerialism, Second Tier wage agreements and agency

bargaining. So too did the rationale behind outsourcing, with the same reference to

improving the efficiency of the public sector by allowing more efficient, and

therefore less costly private sector interests perform the function. Or as proponents

of outsourcing would put it, outsourcing was simply another “tool used to improve

public sector efficiency and effectiveness” (APSC, 2003: p.123). Alternatively,

those seeking to explain the process in terms of the class dynamics at play under the

neoliberal paradigm may describe the process as encompassing “a deepening of the

process of commodification, a transfer of power from labour to capital, and a transfer

of resources from public to private” (Cahill & Beder, 2005: p.9). In such an analysis

privatisation can be seen as a defeat for the working class and of the post-war

welfare state that had hitherto provided many social services beyond the means of

the ability of workers to pay. In this sense it can be seen as entirely consistent with

the neoliberal agenda more generally in terms of the struggle of capital against

labour.

Full scale privatisation did not initially form a major plank of the ALP platform,

although it is arguable that this might have been the case had they not been defeated

in the 1996 election, which was followed by an acceleration of the process under

Howard. In fact, both parties presented similar privatisation policies to the electorate

in the lead up to the 1996 election, with the ALP only distancing itself from the

Coalition’s approach by promising to keep Telstra in government hands whereas

Howard favoured partial privatisation (Fairbrother, Svenson & Teicher, 1997: p.6).

Both Labor and the Coalition were driven by a logic that argued smaller government

was better government, achievable by firstly cutting back existing public sector jobs,

which as we have seen occurred under Labor, and then by the passing off of

110

remaining functions to the private sector wherever possible (Van Gramberg &

Bassett, 2005). Furthermore, the ALP did engage in the privatisation process, albeit

slowly at first, with relatively small scale sell offs that provoked minimal outcry and

no serious fight back from the unions (Fairbrother, Svenson & Teicher, 1997: p.5).

The process accelerated, however, with several examples worth considering, in terms

of their own merits and as evidence that Hawke/Keating began the process of

privatisation accelerated under Howard.

Firstly, beginning in 1991, the government began the process, in stages or ‘tranches’

of selling off the Commonwealth Bank, which had already been commercialised in

anticipation of being sold off and by which time some $2 Billion worth of

government owned assets had already been sold (RBA, 1997: p.8). This represented

a major commitment by the government to the privatisation of large government

owned assets that in the public psyche were seen as a natural part of the state owned

sector. Three further tranches were released over the next several years with the full

privatisation of the bank completed under the Howard government in the 97/98

financial year. The sale was partly justified in terms of the revenue it raised as well

as the argument that the private sector was the natural home for such an institution

but the fact it was sold off by public float also allowed the government to argue that

it was on offer to the ‘mums and dads’ of Australia, allowing ‘ordinary’ Australians

an opportunity to invest in the wealth that would be generated by the sale. In any

case, it provides a good example of the Labor government’s commitment to

privatisation, a position that meant Howard merely inherited the privatisation

process, meaning any ideological commitment to furthering the process had already

overcome the first hurdle in terms of convincing, or at least resigning the public to

the process.

There are other examples to consider. Part of Qantas, the state owned airline, was

privatised in the 92/93 financial year, with the remainder being sold by public float

in 95/96 (RBA, 1997: p.10). In 1994 then minister for Transport, Laurie Brereton

began arguing for the privatisation of the national airport network, a move resisted

by the public sector unions (Davies, 1994). While this was not achieved under

Labor, the groundwork had been done so that the Howard government could waste

little time continuing the process and the airports were sold off shortly into its first

111

term in 1997 (RBA, 1997: p.9). Further sales of public assets under Labor include

Australian Airlines in 92/93, Commonwealth Serum Laboratories in 93/94, the

Moomba-Sydney pipeline in 93/94 and Aerospace Technologies of Australia in

94/95 (RBA, 1997: p.14). Each sale represented a withdrawal by the state from its

hitherto commitment to a given function or service and a shift towards a minimalist

approach in terms of any perceived responsibility to its citizens to provide said

function or service. Such a withdrawal, facilitated by the passing off of its assets and

responsibilities to private sector interests, only possible where the latter could see a

material benefit, i.e. profit, in taking on these services give ultimate testament to the

commitment of the Hawke-Keating administrations to the neoliberal project.

Impact of Reforms on Union Density

Table 6 shows the trajectory of union membership in the public sector once agency

bargaining and privatisation had begun to take hold within the sector and gives an

insight into the impact of the Hawke/Keating years on membership levels. Union

density in the public sector had historically been comparatively high, with

membership rising from 165,172 in 1949 to 435,600 in 1971 and then increasing

rapidly in the industrially turbulent years of the 1970s (Anderson, Griffin & Teicher

2002: pp.5-6). In contrast to other parts of the labour movement, membership

remained relatively stable throughout the early years of the Labor administration,

with the ACOA’s total membership increasing from around 48,000 in 1983 to

53,000 in 1986 although other public sector unions did experience a small decline

(Fairbrother, Svenson & Teicher, 1997: p.8).

Table 6 – Union Density in the Commonwealth Public Sector25

Year Union Members (‘000) Union Density (%)

1990 1,184.2 66.8

1992 1,151.5 67.1

1994 1,006.1 62.3

1996 883.6 55.4

25

ABS, 1997.

112

However by the end of the 1980s things began to change. Membership density

would inevitably be affected by job cuts and privatisation as union members who

lost their jobs were lost to the public sector unions. However, declining membership

can also be considered in the context of the impact of the Accord years in general, as

the militancy of the 1970s was replaced with a largely non-confrontational approach

to industrial relations. This process was true of the union movement in general, and

as has been demonstrated in this chapter, despite any reservations they may have

had, the public sector unions also largely adopted the same approach. Any approach

that replaces an emphasis on workplace combativeness with a relatively passive and

centralised approach to industrial relations is arguably destined to shed members,

given the possibility of this changing dynamic to alienate members. Moving from

there to a new dynamic again in which your union presides over cuts to jobs, pay and

conditions would again seem a recipe for shedding rather than attracting members.

The net effect of public sector union strategy during the Hawke/Keating years was

therefore a fall in membership and a reduced ability to successfully fight for its

members. As a result, public sector unions, while keen to be part of the wider labour

movement’s fight against the Howard agenda, were in a far weaker position to do so

than they had been the last time they faced a conservative government.

113

Conclusion

The focus of this thesis has been on the experience of workers and their institutions

under the neoliberal paradigm and the way working class institutions, specifically

trade unions, have responded to the challenges thrown up by the new policy agenda.

I have adopted a Marxist approach which considers these questions in terms of the

balance of class forces and what the neoliberal agenda has meant for this balance and

the general power dichotomy between labour and capital. My approach, in this

context, has been to examine the extent to which the material conditions of workers

have suffered due to the implementation of neoliberal reforms. An initial

examination revealed that neoliberal theory had its roots in global political economy

prior to the Great Depression of the 1930s and that its historical trajectory following

this period was based in the material reality of economic and geopolitical

developments following the end of the Depression, namely the long boom and cold

war that followed the end of the Second World War. It was the return of crisis to the

global economy in the early 1970s that saw governments and key policy makers turn

to neoliberalism at the expense of the Keynesian approach that had dominated the

post war era.

The net effect of the neoliberal agenda was a restoration of class power in favour of

capital at the expense of labour, both in terms of relative class power and the share of

national wealth. In the international context both Thatcher and Reagan epitomised

this policy shift. In both cases there was a withdrawal of the state from the

economic sphere alongside an increased use of the state to discipline the workforce

as where necessary to ensure the new economic paradigm could progress. Thatcher

was relatively successful in her agenda with union membership down from just over

13 million when she took power in 1979 to under 10 million a decade later. The

same period saw a shift in wealth from the bottom of society upwards with the Gini

Coefficient rising from 0.25 to 0.35. The US under Reagan saw a similar pattern

played out. Reagan too saw the need to discipline labour as an essential part of

delivering his program, attacking labour unions, most notably the pilots union in the

early days of his administration. Similar methods saw similar results, with attacks

on the unions resulting in a drop in union density from just over 19 million when he

114

took office in 1981 to less than 17 million at the end of his administration in 1989.

Reagan was even more successful at redistributing wealth as part of his program

with the Gini Coefficient rising from 2.5 to a staggering 11 when he left office.

In Australia there were similarities with the experience in Britain and the US but

there were also important differences. Economic crisis had returned to Australia in

the 1970s marking an end to the Keynesian consensus and bringing with it double

digit unemployment and inflation. However unlike Britain and the US, it was a

traditional social democratic party that was to begin implementing neoliberal reforms

in the Australian economy as a means to fight the crisis. Upon taking power in 1983

the Hawke government acted quickly to deregulate the economy, float the Australia

dollar and begin dismantling tariff barriers. However it did so not in the context of

an all out assault on labour but by using its organic links to the labour movement to

make the latter part of the process, most notably through the Prices and Income

Accord that centralised wage fixing and limited pay increases. This approach saw a

major reduction in industrial unrest and strikes as the trade union bureaucracy were

able, with notable exceptions, to dampen down struggle and reduce strike activity in

the name of consensus and a common cause with government in salvaging the ailing

economy in the hope of creating desperately needed jobs.

The net effect on labour of this process was less than favourable, however. Despite

accepting wage restraint in the ‘national interest’ and the process of jobs and a social

wage, Labor’s success in moving forward from the economic mess it had inherited

was relatively short lived. Although unemployment fell throughout the initial years

of the Hawke government the “recession we had to have” at the beginning of the

1990s saw a return to high unemployment due to a new period of economic crisis

and stagnation. Other measurements also bear testimony to the negative impact of

the logic of the Accord on Australian workers, with the latter’s share of national

income steadily eroded under the Labor administration, down from 60 per cent in

1983 to 53 per cent in 1989. Likewise there was a steady rise in inequality with the

Gini Coefficient in the private sector rising from 0.189 in 1983 to 0.228 in 1993. In

order to try to keep up workers were forced into productivity based Second Tier

wage agreements that often saw them trade off conditions for extra pay increases.

The process of productivity trade offs was further entrenched with the introduction

of enterprise bargaining towards the end of the Labor administration as the logical

115

conclusion of a process that began with accepting wage restraint for the national

interest and the hope of jobs and a social wage.

More importantly, the logic of the Accord, with its emphasis on cooperation rather

than struggle undermined the ability of the Australian labour movement to reverse

this process. The union movement suffered as a result. Through a combination of

job losses in key industries traditionally associated with high union density and an

undermining of the perceived value of joining unions by the logic of an Accord

which told workers their interests would be managed on their behalf, union density

in Australia fell from 50 per cent at the beginning of the first Labor administration to

just 28 per cent by the time they lost power in 1996. This meant that Australian

workers were in many ways worse off by the time Howard took power than during

the ‘best’ years of the Hawke/Keating period and were simultaneously in a far worse

position to resist any attacks that would follow. Thirteen years under ‘their’

government took its toll on both the material conditions of Australian workers and

the ‘soul’ of the traditional collective means by which they had historically acted to

defend their collective interests.

In many ways the experience of the public sector in Australia under neoliberalism

was a microcosm of the experience elsewhere. However there are also important

dynamics that make examining the public sector independently worthwhile, not least

of all because the public sector was reformed to accommodate and facilitate the

legislative and policy framework within which the new economic paradigm could

exist. The creation of the Senior Executive Service is an important example of the

shift in the modus operandi of the public service and an illustration of the way in

which the Labor government understood the importance of the machinery of the state

in pushing their reform agenda. So too is the injection of commercial values into a

sector that had traditionally been largely protected from the ravages of market forces.

In other ways, however, public servants were impacted upon in a similar way to the

rest of the Australian workforce. Public sector unions, although at times with

reservations, by and large signed on to the Accord and declared it a positive

development for their members. Public servants therefore saw their wages fall in

real terms as with the trend for workers generally under the Accord and were

116

likewise forced to bargain for Second Tier wage increases to keep ahead. For public

servants enterprise bargaining translated into agency bargaining with individual

agencies forced to win pay increases based on productivity increases, usually in the

shape of a trade off in conditions. Public servants were further impacted when the

pace of commercialisation and then privatisation gathered steam, with thousands

ultimately losing their jobs or ending up working for private ventures with reduced

entitlements. The impact of all this on public servants and their unions also mirrored

their counterparts in the private sector. While not as severe as the private sector,

there was an increase in the Gini Coefficient, which rose from 0.176 in 1983 up to

0.186 in 1993. Union density fell from 66.8 per cent in 1990 to 55.4 per cent in

1996, reflecting a similar downwards trend in the private sector and eroding the

forces able to collectively defend the jobs and conditions of public servants.

Based on the evidence presented in this thesis and paraphrased above, the scorecard

suggests a definitive shift in the dialectic of the power dichotomy in the favour of

capital and its institutions, both private and those of the machinery of the state,

including the state bureaucracy. This necessarily suggests a weakening of the power

of labour in the same context. More importantly, it suggests that the historical

challenges presented to labour in this period have proven too great for not one but

two, separate but intertwined reasons. Firstly, organised labour has by and large

been unable to withstand the attacks on jobs, wages and conditions that have formed

the core of the industrial relations landscape under neoliberalism. Secondly, the

forces driving the neoliberal project were able to do so in the context of either

relative cooperation, however begrudging, on the part of the labour movement, as

was the case in Australia, or by direct confrontation, as was the case in the UK and

the US.

This throws up an additional two factors to consider. Firstly, in the Australian case,

the labour movement was hamstrung by a general acceptance of, and in effect

agreement with, the arguments put forth by Thatcher and Reagan abroad and by the

ALP here that there was simply no alternative to deregulating and liberalising the

economy to combat the return of economic crisis to the system. Secondly, even

where there were murmurings of opposition here in Australia, or open and

sometimes violent class struggle in the UK and the US, the forces opposing the

117

neoliberal agenda were nonetheless effectively hamstrung by their own acceptance

of the capitalist system that had generated both the economic crises that gave rise to

neoliberalism and the neoliberal measures intended to overcome these crises. In

other words, when the neoliberals cried “there is no alternative” the forces

attempting to resist the neoliberal agenda were unable to match the neoliberal

mantra with just such an alternative in a coherent way that could underpin a fight

back against modern capitalist methods.

The end result, therefore, was that at the end of the periods studied in this thesis, the

labour movements in each respective country were in a weakened position both

numerically as well as in terms of ideological capital and strategies for defending

their interests. The economic crisis that saw the spectacular collapse of the

Keynesian consensus also presented a major challenge to the labour movement to

adapt to the new climate in order to successfully engage with a resurgent capital.

Just as traditional Keynesian methods proved wanting when faced with such a

challenge so too were trade unions unable to adapt ideologically, structurally and

strategically when presented with a new era of crisis. In a sense the labour

movement appeared shell shocked when presented with conditions within which the

industrial muscle sufficient to win concessions during the post war boom no longer

sufficed. Failure to recognise and successfully adapt to the new terrain goes a long

way to explaining the ability of the neoliberals to implement their reform agenda and

in the process, or as a precursor, to undermine the power of the unions to resist.

The above is of particular interest when considered in the context of developments at

a global level since the onset of the Global Financial Crisis. The neoliberal

experiment is on far shakier grounds given that it has been since rising from the

ashes of the implosion of the Keynesian consensus, with even the latter returning for

a brief cameo at the height of the GFC. So too have the neoliberal austerity

measures introduced to deal with a global debt crisis fuelled largely by attempts to

resolve the GFC sparked resistance and even calls for a completely new paradigm.

Such conditions can lend themselves to a potential resurgence of the labour

movement in the same way the death of Keynesianism allowed the neoliberals to

enter the world stage. While it remains to be seen whether a sustained recovery of

the labour movement will eventuate, there are certainly some encouraging signs. As

118

already alluded to, there have been major mobilisations by workers against austerity

measures across Europe and North America.

The hottest flashpoint has been Greece which has witnessed several general strikes,

at times accompanied by bitter street battles with police, most recently with a 48

hour general strike which also saw hundreds of thousands take to the streets

(Garganas, 2011). In Britain, many on the left are arguing that the general strike

against austerity on 30 November, 2011, the first in a generation, can mark the

rebirth of a united, fighting union movement that can resist and even defeat the Tory

government’s agenda (Vernell, 2011). In the US, the Occupy Wall Street movement

quickly spread to cities across the US and then throughout the world, with the US

movement in particular having some success in making links with organised labour

(Sustar, 2011). Perhaps most spectacularly, the Arab Spring has unleashed a wave of

workers’ struggles in Egypt, with the Arab world’s largest working class, which

despite ongoing repression has managed to build independent unions and a workers’

party within which revolutionary socialists are playing an important role (Gaber,

2011).

Here in Australia the industrial relations landscape has been far less volatile,

although there have been some important struggles, most notably perhaps the

Victorian nurses fight against the premier Baillieu’s cuts to the public health system

(Le Roy, 2011). Furthermore the ACTU campaign against the Howard

government’s Work Choices legislation in the lead up to the 2007 federal election

does demonstrate that the union movement still has the ability to mobilise large

numbers of workers when they provide a lead (Wilson & Spies-Butcher, 2011).

Although the focus of the campaign was on electing a Labor government and was

abandoned once that goal was achieved, it does show the willingness of large

numbers of workers to mobilise when given a lead. In any case, the labour

movement, both here and abroad will undoubtedly face further challenges given the

current economic climate. It remains to be seen whether it is up to the challenge and

can learn from the defeats it suffered under the neoliberal agenda.

119

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