Glory Daze: How a world-beating nation got so down on itself

Contents

Acknowledgements

1 The Quandary

2 The Cast

3 The Crisis

4 The Shadow

5 The Culprits

6 The Costs

7 The Consequences

8 The Choice

Notes

Index

For Laura

Acknowledgements

Anyone who has done the work that I have; had privileged access to the people I have; kept the confidences I have; seen the classified information I have; and trusted and been trusted by the most senior people in a national government like I have, thinks carefully before penning their thoughts in a book. Well-motivated people told me not to; others urged me on. I hope the former group understand the lengths I’ve gone to in order to protect confidential conversations and to tell a story to be proud of. As for the latter group, I hope I have justified their support and encouragement. The way I see it, if any part of this book serves to improve and advance the conversation about the relationship between our economic success and our national identity, then it will be worth the long nights and early mornings I have invested in it.

It’s an imperfect account of the imperfect miracle Australians achieved together in beating a global recession and reforming our economy despite determined opposition. It gives credit where it is due—to the people and their national government—and apportions blame where it must. It also tries to give some perspective on political life, not just from the point of view of the most senior politicians in the country, but also from the viewpoint of those who serve and work alongside them.

I will never forget what it was like to work with my colleagues from the Treasurer’s office, or what I learned from their camaraderie and commitment. So this is also a tribute to their contribution to Australia and its economy. We were fortunate to work for an extraordinary Treasurer, Wayne Swan, someone whom history will treat more kindly than the contemporary commentary would suggest. Nobody I have come across in politics has a fiercer belief in the fair go in Australia and the ordinary people whose hard work makes our economy strong. It’s a belief shared by his friend and our Prime Minister, Julia Gillard, who Swan describes as the most determined warrior for Labor values in the party’s history. What an honour it was to serve them both, and Prime Minister Kevin Rudd too, during the direst economic times in eighty years.

Like Australia’s response to the Global Financial Crisis itself, this book is a team effort. To appropriately capture and describe my appreciation for the people who helped me write it would take more than the total number of pages that follow. But as a start, I need to single out Claudia Crawford for her very substantial help with the economic story and facts; Oliver Browne for assistance with the chronology of events in Europe and the United States; Chris Barrett, Amanda Sayegh and Ian Davidoff for supporting the project from day one and following through with ideas and recollections as well as comments on every twice-drafted word; Fergus Maguire and Michael Cooney who provided expert feedback on every chapter as well; Geoff Walsh, Leigh Sales and Dennis Glover who lent their experience and wisdom to the writing process; plus my family and friends who encouraged me in this endeavour. Also, a shout-out to Norbert Greulich, a high school teacher who, almost two decades ago, instilled in me a love of modern history and the enduring desire to help shape it one day.

Special thanks to my publishers at Melbourne University Publishing, for believing in the project from the first time I pitched it to them, then for coaxing and cajoling an anxious first-time author through the various hoops and deadlines. I appreciate Louise Adler’s enthusiasm from her first email from Germany; especially value the dedicated, patient advice of Sally Heath, who read multiple drafts and offered intelligent feedback at each stage; and I thank Helen Koehne for her invaluable suggestions as well. The whole team at Melbourne University Publishing was helpful and professional throughout. The usual disclaimer applies: any errors or missteps in the text are the fault of the author alone.

The book is dedicated to my wife, Laura Chalmers, who planned our wedding while it was being written, and read my drafts during our Byron Bay honeymoon and at other times when sleep beckoned after fifteen-hour days in the Prime Minister’s Office. Her support, encouragement and love throughout the course of this book are just one part of her support, encouragement and love in our broader lives. Without her and the encouragement of those close to me I wouldn’t have the confidence or drive to begin this book, let alone finish it.

I wrote most of it over January and February 2013 from a breezy book-lined home office in Logan City, to the South of Brisbane, in a Queenslander on the elevated fringes of Daisy Hill forest. In my unique line of sight is thick bushland that stretches for miles. On the horizon is a uniform canopy of eucalypts punctuated by one that is half as tall again, standing proudly and conspicuously above the fray. That feels to me a bit like Australia, standing tall in the world but largely unnoticed by the locals. I hope this book helps to explain why that is the case. And why it matters.

Jim Chalmers

Logan City, Queensland

April 2013

1

The Quandary

The five years between the end of 2007 and the end of 2012 saw around thirty million people shunted into unemployment around the world, pushing the jobless rate to a peak of 10 per cent in the United States, over 8 per cent in the United Kingdom, close to 12 per cent in the euro area, and 26 per cent in countries such as Spain and Greece. Personal wealth fell by trillions of dollars worldwide. Millions of American homes were foreclosed. More than thirty developed economies including the US, UK, Germany, Italy, France, Japan and Canada fell into deep recession, where many remain, while many others are yet to claw back lost ground. Advanced economies lost around $1 trillion of economic output. The economies of UK, Spain, Italy and the euro area as a whole shrank by 3, 6, 7.6 and 2.6 per cent respectively, having grown by 16, 19, 6 and 12 per cent in the five years prior.

Share markets fell by 54 per cent in New York, 49 per cent in London and 62 per cent in Tokyo. Over $35 trillion was wiped off global share markets. In the United States, 477 banks failed. Lehman Brothers imploded. AIG and Citigroup were bailed out by taxpayers in the spiritual home of capitalism, along with corporate behemoths including Chrysler and General Motors. In the United Kingdom, financial giants RBS, Lloyds and Northern Rock got a £37 billion government cash infusion. Guarantees were put in place so that the risk once borne by private companies was now worn by national balance sheets. Policy interest rates reached zero-bounds in the US, Canada, Japan, UK and the euro area, and central banks in the US, Europe and Japan engaged in ‘quantitative easing’; a fancy name for printing more money.

Longer and longer lines formed outside banks, and cash savings went under beds. Hundreds of thousands took to the streets and many took their own lives, some from Wall Street window ledges. Cities burned and shopfronts were smashed in London, Athens, Paris and Rome, and popular movements set up camp in places such as Zuccotti Park, New York City. Once-popular prime ministers and presidents resigned or their governments were destroyed. Communities bent, then snapped, under the weight of joblessness and crime. The gap between the top and bottom of society widened further. A new generation of poor and dispossessed have yet to learn what it is to be full, secure or to have parents who work.

Gross government debt ballooned, from 74 per cent of Gross Domestic Product (GDP) across advanced economies in 2007 to 110 per cent in 2012, with gross debt in Greece, Italy and Portugal reaching 171 per cent, 126 per cent and 119 per cent respectively. Countries tallied up trillions in bailouts and stimulus, and skyrocketing unemployment payments and other benefits. A combination of this and years of lazy budgeting meant that on the heels of the first crisis came another; this time it was not created on Wall Street in the United States but in the treasuries of Europe, and especially Greece, Ireland, Portugal and Spain, jeopardising the future of the European Union. This ‘sovereign debt crisis’ meant entire countries risked defaulting on loans. In response, radical ‘austerity’ measures were imposed on confused, and then furiously resistant, citizens.

All this made the five-year period between late 2007 and late 2012 the most horrific for the global economy since the Great Depression tore it apart eight decades ago. Yet despite all this carnage, there is a country that avoided the economic and social devastation inflicted on so many other nations by the Global Financial Crisis. Almost alone in the developed world, it maintained an unemployment rate between 5 and 6 per cent, and added almost one million jobs. Its economy was more than 13 per cent bigger at the time of writing than at the beginning of the crisis, partly due to the most successful and best deployed stimulus spending in the world. That country, of course, is Australia.

Here, GDP growth by the end of 2012 was at the long-run average of about 3 per cent or slightly more, and there was record business investment, yet at the same time there were historically low inflation and interest rates on mortgages. Net debt was one-tenth of the expected peak across major advanced economies, and by early 2013 Australia was one of only eight countries in the world with a triple-A credit rating and stable outlook from each of the major ratings agencies, despite bold new multi-billion-dollar social investments in school education and disability insurance. As the journalist Bernard Keane wrote in October 2012: ‘Treasury, the RBA and the Labor leadership have turned the high-taxing, high interest rate, inflationary economy Labor inherited into a low interest-rate, low-inflation economy with significantly lower level of taxes to GDP than in the Howard years while maintaining employment growth’.¹ There was also a nascent tax on mining profits and one of the world’s best designed carbon prices that encouraged businesses to increase their use of renewable energy sources and reduce pollution.

Our proud egalitarian tradition encapsulated in the concept of the ‘fair go’ had been maintained and advanced through a dramatic reorganisation of priorities, which saw budget savings re-directed to higher pensions and other purposes. Hundreds of thousands of Australians were spared the unemployment queues, and families and communities escaped the listlessness and hopelessness of mass unemployment and social breakdown. In doing so, Australia dodged the devastating carnage that was wrought on the suburbs and towns of its last recession in the early 1990s.

Extraordinarily, neither a GFC nor a meltdown in Europe could prevent Australia from tallying a record-breaking twenty-one consecutive years of economic growth since that last recession. Australia’s performance, policy successes and resilience during the last five years is more impressive than just about any other developed nation on Earth. It saw the Australian Treasurer Wayne Swan named international finance minister of the year for the best-run economy in the world. Meetings of the twenty biggest economies became seminars on the success of the Australian policy model. Our middle-sized nation at the bottom of Asia was the toast of the global economy.

But here’s the thing: despite all this, a Boston Consulting Group (BCG) survey from mid-2012 found Australians to be less confident in their economy and its prospects than the hardest-hit citizens of Europe were of theirs.² When it came to a BCG question on financial security, almost half of the Australian sample felt insecure—a similar level as in the United States but less secure than France, Germany, Spain and Europe as a whole. These were economies with unemployment rates many times higher than our own, debt up to ten times larger, and a tiny fraction of the growth. That the Spaniards—the Spaniards!—felt more financially secure in 2012 than Australians sounds a blaring, ear-splitting siren that something is wrong with our national self-esteem.

This leads us to ask the most important questions of all arising from Australia’s success during the financial crisis. Namely, what is it about our people and our politics that creates such a long shadow between our perception of our country and its economy, and the reality of our success in withstanding a global crisis that proved too daunting for our peers? Why does an economy with the world’s best combination of indicators have a dimmer view of its performance than the Spaniards have of theirs? How can a country that’s grown for twenty-one consecutive years be so pessimistic? How can a nation that escaped recession and mass unemployment, despite the biggest global downturn since the Great Depression, consider itself weak, whingey and incapable? How can a country with a demonstrated capacity for resilience experience such prolonged lows in consumer and business confidence? In other words, how did such a world-beating nation get so down on itself?

My own view is that the blame for our lack of national swagger lies at the feet of a political system in which the incentives are badly misaligned, which allows the hyper-partisans in the media and business community to dominate the national policy debate in a way that pushes it to the extremes. This complex and costly combination of hyper-partisanship, short-termism, lobbying, rent-seeking, sloganeering, oppositionalism and circular self-criticism mixed with a curious blend of complacency and anxiety has poisoned Australia’s confidence in itself. If Australians don’t consciously choose a future less consumed by this poison that has been injected into our politics we will squander our tremendous national advantages and momentum, and compromise our ability to tackle the socioeconomic challenges of the coming decades as successfully as we have navigated those just past.

This book’s catalyst was the fallout to some comments made by the Deputy Prime Minister and Treasurer Wayne Swan when detailing the June quarter National Accounts in 2012. As always, he put lots of thought into these presentations, often gathering staff for discussions a week in advance. We pored over each word and nuance in his draft press-conference notes, while he scribbled on them in his tight, dark-blue longhand, updating his thoughts with each partial indicator of the future outcomes. On this occasion, as on most occasions, he wanted to say something about more than the numbers. He wanted to reflect on Australia itself. So in parliament’s ‘Blue Room’, the stuffy little press-conference venue around the corner from our office, kitted out in its flags and with wall-to-wall university-style lecture-hall chairs, having run through all of the facts and figures that showed another quarter of solid growth despite a dire international outlook, he turned—fired up now—to the nature of the domestic economic debate itself.

He started by presenting his credentials as someone who had ‘been in this job at a time when we’ve faced the most difficult global economic conditions in over 80 years’, someone with ‘some appreciation of the challenges’. Then he gave some context; that ‘it is fair to say that the world is an uncertain place and, of course, we do from time to time see evidence of softness in our own economy’. Then some perspective; that ‘in 21 years of continuous growth in this country there have been ups and downs’, and, ‘of course there’ll be ups and downs in the quarters ahead’. Then he went on:

Sometimes when I listen to the debate, it seems to be conducted in some bizarro world where every challenge is magnified and every strength is ignored. Now I think it’s about time that we paid more attention to the strengths and the pluses in our economy and less to some of the commentary which magnifies the challenges and the downside of every figure. We’ve had 21 years of continuous growth, and of course our growth in the last four years has outperformed every other major advanced economy. That’s a bit like winning 21 premierships in a row, and winning the last four very, very comfortably. I think we should bring that appreciation of our economic strengths to our public debate. We should be proud of that outcome because it speaks to our resilience, to our strength—and to our national character.

While journalists scribbled madly into their little spiral-bound notebooks he went on:

The fact is that there are too frequently in our public debate those that are willing to go out there and try and scare the pants off investors, off workers, off pensioners, just to prove a partisan political point or to settle an old score. There’s simply too much taking the views of the loudest critics, or the most extreme or the most disgruntled vested interest in the community, and taking that as the sole authority on our economic progress.

He finished by imploring people to be more positive:

Through 21 years of continuous growth, and particularly through our performance over the past four years, there’s a hell of a lot to be very positive about. And of course as we go through this public debate we should think about who it’s really about. And who it’s really about is the millions of people out there who go to work every day, work hard and provide for their families. It’s not about the handful of people who dominate … our national debate. So what we’ve got here is a very impressive economic record, owned by the Australian people, the product of their hard work. It’s a fantastic platform to face the future from, and it is the platform from which we should have a proper and balanced discussion about our economic prospects.³

The days of fevered commentary that followed these comments piqued my interest in investigating this all further. That investigation, and hours of subsequent planes and airports, weary night-thoughts, conversations over late dinners, suggestions and assistance from friends inside and outside the office and the broader political world, and scribbling notes in meetings and teleconferences, became the basis of the personal recollections that form this book. The perceptions that I form and the conclusions I reach are my own; they are personal reflections and not strategised or agreed with Wayne Swan, the Gillard government or those I worked closely with, many of whom may have alternative impressions to voice in time. It’s an account that represents faithfully the deep thinking that was fuelled by my five years as the Deputy Prime Minister and Treasurer’s Chief of Staff or deputy chief and principal adviser. I am proud to have worked with some of Australia’s most intelligent and committed people at a time when the country was facing some of its most daunting challenges.

There are no cheap shots and no broken confidences, and I have no axe to grind. On the contrary, I hope it’s a story that Labor people all around the country can be proud of. It’s a story I’m proud of and one I’m proud to tell, despite the reservations that inevitably flow from coming onto the stage from behind the adviser’s curtain. I do so because, despite all the difficulties and the fifteen-hour days and seven-day weeks, the five years I describe in these