Labor crosses Rubicon

Julia Gillard calls it an agreement; Tony Abbott a coalition. For others, the Gillard-Brown-Wilkie line-up looks like a “popular front”. Either way, Labor and the Greens have realigned power relations in Australia. 

For obvious reasons, new power blocs are loath to be tagged as such. They prefer to pose as high-minded people, drawn together for the public good. None of this is new. But when most of the intellectual class, whose function is to circulate ideas and information, themselves belong to the bloc, expect even more obfuscation.    

Australians will get little help deciphering the Labor-Green alliance from their academics and media. The deal will be depicted as a sensible arrangement, thrown up by difficult circumstances. The public will be reassured, in consoling terms, that it will be good for them. The respective leaders have been mature and sensible. They have worked hard to reach “consensus”. There will now be an era of “good governance” and quality policy-making. Or so we’ll be told. 

In fact, Labor has simply capitulated to the power and influence of inner-city professionals. To appreciate how this came about, we need to recall some aspects of the country’s recent history. The implosion of Kevin Rudd’s prime ministership, and its impact on Labor’s campaign, can certainly be traced to a dysfunctional party culture. But in a broader sense, the ALP fell foul of Australia’s social and regional divisions. 

The reform program of the 1980s saved Australia from genteel decline, and had profound effects on the contours of the economy. Activities such as business and property services rose from 10 to almost 15 per cent of GDP over the decade to 2006, while manufacturing declined from 15 to 12 per cent. The new economy is dominated by services, now accounting for 68 per cent of GDP. Rather than drag down the economy, however, mining enjoyed parallel growth, from 4.5 to 8 per cent in the same period. China’s explosive arrival on the world scene shifted commodity exports into the fast lane. 

These developments set Australia on a growth path that few could have foreseen in the 1970s. A small economy in relative terms, it has evolved into a series of distinct geographic regions. 

The booming commodities export sector, dominated by mining, is concentrated in Queensland and Western Australia, which account for 74 per cent of onshore mining production. Commodities are the true driver of the economy. Today mineral resources make up just under 80 per cent of Australia’s commodity trade and around half of all exports (including services). Australia is the world’s leading exporter of coal and iron ore and ranks high other minerals like zinc and aluminium. 

Business and property services are concentrated in New South Wales and Victoria, specifically the inner suburbs of Sydney and Melbourne, our emerging global cities. Together, for instance, they host around 50 per cent of Australia’s finance industry jobs. The swelling ranks of the tertiary educated gravitate to this advanced services or professional sector. Over the last 40 years, those holding bachelor degrees have grown from around 5 to more than 30 per cent of the population. Adept at converting their interests into progressive causes, they control the channels of communication. 

Public sector services, mostly in health and education, figure prominently in the populous south-east and the smaller states, again skewed towards dense, long-established inner-city locations, where the most prestigious institutions are found. This sector is entwined with the broader advanced services sector. 

Construction, housing, consumer services (like retail and wholesale), and light manufacturing fuelled by demand for household goods and building supplies, thrive in the larger metropolitan regions with high rates of population growth, such outer Sydney and Melbourne, and increasingly south-east Queensland. Forced to compete for investment in the open economy, south-eastern state governments, mostly controlled by Labor in recent times, have faced pressure to keep taxes low. An ever larger proportion of their budgets has been funnelled into recurrent expenditure and health and education services, partly to appease powerful public sector unions. There has been little left to pay for urban infrastructure on the booming fringes. 

Infrastructure costs were shifted onto developers and local government, and urban consolidation, a green obsession, was enforced as planning policy, ostensibly to reduce the call on resources. These measures dealt a blow to the housing, property and construction industries, even before the financial crisis. When interest rates began to creep up in 2007, the problem became acute. The property market slowed down, depriving the south-eastern states of even more funds. Property taxes are a significant share of their revenues. This contrasted with conditions in the mining states, prompting Ken Henry to declare Australia a “two speed economy”. 

By this time there was a widespread feeling that the resources bonanza wasn’t being distributed fairly. South-eastern service professionals, especially in the public sector, who dominate the national media, always thought they deserved a larger slice of the cake. After all, they are virtuous progressives. More recently, climate change and “sustainability” became their preferred cause for mobilizing public opinion. The green hew of today’s inner-cities is no accident. 

The various regions had been, to an extent, in competition with each other. And their distinct economic bases foster different values. The country and suburbs incline to independence and self-sufficiency, while many professionals feed off the persistence of dependence and social dysfunction. Stuck in traffic jams and struggling to afford their homes, however, now even suburban workers yearned for change. 

Essentially, Ruddism was about confiscating more of the mining boom proceeds for infrastructure and services. Rudd found a ready-made pretext in climate change, his “great moral challenge”. Amongst other things, the CPRS was a revenue-raising machine, a mechanism for transferring wealth from fossil-fuel mining states to the vote-rich, services based, south-east. Using green parlance, there would be a switch from “brown jobs” to “green jobs”. 

Although suburban workers were promised some of the bounty for urban infrastructure, green-tinged boffins would decide how to spend it. More would go on green hobby-horses like trains and units, and less on roads and free-standing houses. 

The Copenhagen crash and Tony Abbott put paid to the CPRS. But Rudd couldn’t give up his lurch to redistribution. The Resource Super Profits Tax was Plan B. By this point, regional Australians had seen through the game. The tax went down like poison in Queensland and Western Australia. It was Rudd’s undoing. Gillard modified the proposal after negotiations with the large miners, but smaller operators remained opposed, along with most voters. 

Australia’s regional divisions were clearly evident in the election result. Stung by the mining tax, Queensland and Western Australia swung to the Coalition, as did New South Wales, where western Sydney found it hard to distinguish federal Labor’s performance on infrastructure from that of the discredited state government. The inner-cities, tired of hearing Labor extol their precious demands while failing to meet them, bolted to the Greens. 

When the smoke cleared, a desperate looking Gillard abandoned decades of Labor hedging and surrendered to inner-city interests, planting the ALP on one side of the socio-regional divide. This earned her rounds of applause in the media, but suburban and regional voters will understand. They too will look after their own regions. Having shackled itself to the Greens, Labor will be of little use to them. The rural “independents” have secured themselves a berth on the Titanic.