The Money Men Chris Bowen (the red fox clan .txt) 📖

it was China and the mining boom that protected Australia throughout the GFC. This view does not stand up to scrutiny. Of course, Australia was better off because of its links to China. The Chinese Government announced its own massive stimulus of $600 billion in November 2008. As Gruen says of the Chinese stimulus: ‘Thank goodness the Chinese bought the Keynesian story.’15 But it is a gross misinterpretation to argue that Chinese demand for Australian minerals was enough to keep Australian unemployment low. As Barrett points out, ‘In fact, it is incorrect that commodity exports to China held up through this period: Australia’s merchandise exports to China fell by almost one third from October to November 2008. They did not recover to this level until February 2009.’16

Then Treasury secretary Ken Henry powerfully batted this fallacy away in evidence he gave to the Senate Economics Legislation Committee:

In the first six months of 2009, in the immediate aftermath of the shockwaves occasioned by the collapse of Lehman Brothers, the Australian mining industry shed 15.2% of its employees. Had every industry in Australia behaved in the same way, our unemployment rate would have increased from 4.6% to 19% in six months.17

The argument that the main reason Australia got through the GFC without a recession is that our banks were regulated and prudently run is equally fallacious. If a bank or financial institution had collapsed, the impact on business and consumer confidence would have been very difficult to recover from. The combination of sound regulation and prudent management was of great benefit to the Australian economy. However, the theory that this would somehow have been enough to avoid recession does not hold water. Comparable countries such as New Zealand and Canada also avoided any financial collapses, yet both countries suffered significant recessions: Canada contracted by 3.3 per cent and New Zealand by 3.8 per cent. Of course, every country entered the GFC with its own advantages and disadvantages. Canada was much more closely linked to the deeply troubled US economy, for example. Nevertheless, the point is that these two economies, which are similar to Australia’s, also did not suffer financial collapses, a powerful reminder that this phenomenon would not have been enough to avoid a debilitating recession.

Another criticism that has been levelled at Swan and the Rudd government concerns the ‘quality’ of the stimulus spend: that the home insulation and Building the Education Revolution (BER) programs in particular were badly designed and resulted in poor value for money. The Home Insulation Program (HIP) comes in for extra criticism for endangering the lives of installers, with four young men killed in workplace accidents. The criticism of the HIP is valid. The attacks on the BER are not.

It is ironic that the attacks on the HIP have primarily come from those who generally advocate less regulation of the workplace. But fundamentally, the government erred in pumping $2.7 billion into an industry that was dramatically under-regulated. Fly-by-night operators with little regard for workplace safety were attracted to the fast money on offer, due to the massive increase in demand for insulation that resulted from the government subsidy. Eight separate inquiries have been held into the program, and there are lessons for future governments to learn about the distortion that results from a government subsidy applied to an underregulated industry. The deaths of those four young installers were a tragedy, just as every one of the 374 workplace deaths in Australia in 2010 was a tragedy. It’s worth noting that the HIP was not a Swan initiative, but rather a suggestion from the prime minister’s office. Swan was not called as a witness before the royal commission into the HIP that was established by the Abbott government.

The criticism of the BER carries altogether much less weight. It was an imperfect government program, but a successful one. Derided as the ‘school hall’ program, it was much more than that. Where school principals felt that the best contribution to improving educational outcomes was a new school hall, this was the likely result. But often the projects entailed new libraries and modern classrooms as well. An independent review commissioned by the government received 332 complaints from school communities out of 10 500 projects. This represents just over 3 per cent of the projects, which is a respectably low figure. The review also found that the projects in total were completed at a cost premium of 5–6 per cent more than the pre-BER prices, which is regrettable but hardly disastrous. Some states provided better value for money than others, with the Western Australian bureaucracy coming in for particular praise from the review for delivering good-value projects. The NSW and Victorian governments did less well, with the review noting that ‘their poorer performance on both cost and observed quality has been influenced by the hollowing out of public works capacity over the last twenty years, which has limited the ability to effectively manage an outsourced delivery model’.18 It would have been better if NSW and Victoria had given their schools more autonomy in managing their projects. However, the support given to the construction sector at a critical time for the economy, as well as the long-term educational benefit of modernised school facilities, make the BER program justified.

The Nobel prize–winning progressive economist Joseph Stiglitz describes the Rudd–Swan stimulus packages as ‘the most effective economic policy I have seen, ever’.19 Overall, there is little doubt that these packages, combined with the Rudd government’s intervention to ensure the financial health of the deposit-taking institutions, were the key factors in avoiding a recession that, to many of us involved in the decision-making at the time, looked to be inevitable.

Swan was tested like no other treasurer since Theodore, and it is unlikely that any of his successors in the foreseeable future will face similar trials. The response Swan engineered was imperfect, but a perfect package in such difficult circumstances is an impossible request. It is possible to conclude, however, that during the GFC, Swan got all of the