New Economy Journal

An interview with Andrew Leigh, Shadow Assistant Treasurer

Volume 1, Issue 1

April 14, 2019

By - Jacob Debets - Duncan Wallace

Piece length: 5,681 words

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Andrew Leigh’s book 'Disconnected'

Andrew Leigh’s book, 'Disconnected'. Photo credit: Duncan Wallace

Tony Benn, the UK Labour Party MP and a key proponent of democratic socialism within the party, once said that in politics there are signposts and weathercocks. There are those who change their positions according to the winds of opinion, and those who stick to their principles.

Andrew Leigh, Federal Labor MP for Fenner in the ACT and Shadow Assistant Treasurer, doesn’t quite fit Benn’s dichotomy. He’s a behavioural economist, which means that, uncharacteristically for economists, he’s interested in evidence. As he discussed in our interview with him, he’s willing to change his mind if there are convincing reasons to – so not quite signpost, but not weathercock either. He’s no radical, but he is very much interested in improving social capital and revitalising local communities through mechanisms such as government procurement policies, which is encouraging for the New Economy movement.

It was a pleasure to get the chance to have a chat with him – we hope you enjoy the interview as much as we did.

 

Contents


[1] Duncan & Jacob: NENA advocates for an economic system where ecological health and social justice are the foundational principles and primary objectives. Our current system is failing on both fronts - it is ecologically destructive and, as you’ve documented in your books Battlers and Billionaires and Disconnected, has resulted in increasing inequality and disconnectedness.

Do you see (1) climate change, (2) economic inequality and (3) social disconnection as linked? If so, how? Do you think there are common solutions to the three problems?

Andrew Leigh:

On Problems-

I haven’t seen as strong a link between the first as between the second two. Certainly I see economic inequality and social disconnection as being intertwined. They’re what Robert Putnam refers to as “We versus I” problems, and the notion that in many western societies there seems to be increasing priority given to individuals and individualism, and less to the values of the collective and the notion that the benefits of economic growth should be broadly shared.

Climate change, I see as fundamentally a matter of decoupling our carbon emissions from our economic growth. I don’t think this ought to be beyond our wits. The shining example that you can observe is in air pollution. For decades after the industrial revolution our city air became more and more polluted. And then some time in the post-war decades, we turned that around. We continued to have economies growing substantially, but with the air being far more breathable. You don’t have people in London dying of smog poisoning like they did in decades past. The air in Sydney is better to breathe than when I was a kid, and frankly Sydney Harbour is nicer to swim in than when I was a kid. So that shows to me that it’s possible to have economic growth and an improved environment coexisting.

On Solutions-

On the Isaiah Berlin spectrum I’m much more of a fox than a hedgehog. [I’m] much more inclined to believe that there isn’t a single solution to most problems, or if there is then it’s gloriously wrong. Instead I tend to be focused on individual changes, which together are able to help us tackle big solutions of this kind. In the area of inequality you’ve got things like tax, transfer and industrial relations policies; in the area of social disconnection it’s around sharing the learnings from community organisations, getting smarter using our smart phones; in the area of climate change it’s about encouraging the decarbonisation, which the market is naturally pushing towards […]

Do you think there’s a link between inequality, climate change and the accumulation of ‘bad’ social capital?

You guys have thought about this harder than me, but it doesn’t seem to me that they’re intrinsically linked. I could imagine a world in which we are effectively dealing with climate change, but are struggling to deal with the rise of white nationalism. You look at parts of Europe which seem to be de-carbonising their economies quite rapidly, but are at the same time struggling with the challenge of multiculturalism. So yes, their only commonality in my mind is that they’re issues that I deeply care about.

[2] Do you think the amplification of the culture wars by media (a recent example would be enormous amount of attention Gillette’s “New Masculinity” Ad captured) is an obstacle/distraction to much more pressing economic and ecological issues? Is it plausible to imagine a media landscape where these less sexy/emotive issues get proper treatment?

These things are fun to talk about at BBQs with friends so you don’t want to dismiss people’s fascination with them. Certainly the notion of Scott Morison’s extra white shoe has occupied more discussion than it should among my friends and co-workers, and that has no public policy importance whatsoever.

The challenge for those of us who care about equality today is to make it more interesting. One of the things I’ve been focusing on over the last year is a series of short, explainer videos around inequality called “Inequality Bites” […]

Part of that is trying to say, look, inequality is a pressing and interesting issue. It’s not just… talking about the Gini Coefficient and what’s happening to the Lorenz Curve of wealth inequality, it actually has to do with how our lives play out and trying to make that interesting and fun when we can.

On accommodating how media operates-

TV is better than ever. There’s some fabulous sports codes around. People’s lives are increasingly fast-paced. If you want to have a conversation about the environment, you’ve got to make it as interesting as possible.

[3] Consumer culture is increasingly geared towards personalization. Paul Roberts, in his book The Impulse Society, writes for example:

‘The more we retreat into self-made experience and lifestyles, the harder it becomes to engage in what is not familiar or personalized. And the brute fact is that some of the most important challenges in life, and certainly most of the biggest challenges we face as a society, are anything but personal or personalizable. Rather, they are generic, collective, and often unpleasant, requiring patience, a tolerance for the unfamiliar, and a willingness to compromise and even sacrifice. In short, the challenges we face require us to confront the very irritations and efficiencies that our desire-driven, efficiency-obsessed Impulse Society has persuaded us we shouldn’t have to deal with.’

As someone who has championed initiatives to build social capital and increase community engagement, what in your view are some of the most promising ways of overcoming the ‘crisis of hyper-personalization’?

I would distinguish between personalization of the consumer and personalization of the media or political landscape. As someone with an unusual body shape, I quite appreciate being able to find clothes that fit; as someone with fairly fanatical healthy eating tastes, I quite like the ability to have a say over what I eat. It’s a whole lot easier to find a good salad on the go in Australia these days as well as being easier to find a delicious hamburger, so that degree of personalization doesn’t trouble me.

But when we’re doing it in the media realm, and when we’re moving away from the discussion in the centre of the town square to a whole lot of little balkanized conversations in cafes around the outskirts of the town square, that’s a problem. The decline in the single, common conversation, in which people would sit down and listen to Robert Menzies or John Curtin talk about the problems that the nation faced, even if they had never voted for that Prime Minster in their lives, they were willing to give them many minutes of their undivided attention. The lack of that these days I think does cause challenges for our ability to have those important, common conversations. To their credit, some of the social media outlets are thinking about this. [Mark] Zuckerberg’s letter indicated that Facebook was having these kind of conversations. There’s [also] an increasing awareness at YouTube around how their algorithm which seems to automatically point you towards more and more extreme political videos, needs to be changed. Not to mention the balkanisation of the media landscape, which has fractured the sort of centrist outlets and [given rise] to more extreme ones.

[4] In Battlers and Billionaires you suggest that the best way of tackling inequality is tax and transfer, though you later said you’d changed your mind - that market concentration was a bigger factor than you’d realised. You suggest the best way of increasing competition is by increasing penalties for anti-competitive conduct. Is there good evidence for that?

Certainly in economics we tend to think that if you want less of something you raise the price of it. Frequently when we want to discourage some form of corporate crime then we’ll look at whether the penalties are appropriate, or whether [the penalties] are looked at as the cost of doing business. The ACCC has flagged the possibility that our current penalties are too low, [and] have pointed out that in an international context they don’t seem to be particularly high, and in a market like Australia where you don’t just have banks and supermarkets that are concentrated but industries like beer and baby food where we’ve got too few startups and a whole lot of mergers. We might want to think about whether the penalties for engaging in cartel behaviour are high enough. Particularly as I think most people believe that the majority of cartel conduct goes undiscovered.

[5] You’ve also started to do research into concentrated ownership of firms, most notably cross-ownership - that the largest firms in various industries share the same owners. You suggest one potential solution is to give the ACCC a market studies power. What does that mean?

This is an idea that comes out of the British environment, where the British counterpart to our Competition watchdog has the ability to identify markets that it thinks may be problematic and use compulsory information gathering powers in order to work out what’s going on in those markets and whether there are structural features which are reducing the level of competition. In Australia, the Competition watchdog has to wait for the government to invite it to look at particular industries, which means it’s more slow-moving. It [a market studies power] is just another way of giving the Competition watchdog more teeth. It would also ramp up the litigation budget that the Competition watchdog has to make sure that it’s able to take on more wrongdoing and provide for an access to justice policy which means that if a small business wants to take on a big one for anticompetitive conduct, it can seek a ‘no adverse costs’ order at the outset, and, if it loses, it’ll have to pay its own costs but [it won’t] be bankrupted by the cost of the QCs [Queens Counsels] on the other side […] The principle is that you don’t want to deter people from bringing a [legal] action that may be in the public interest.

[6] Have you read the Alternative Models of Ownership report for the UK Labour Party? What did you think of it?

I’m certainly aware of it. I’d fail if you gave me a test on what’s on every page. But I’ve admired the way in which Britain, on both sides of the political spectrum, has been looking at alternative ownership models as a way of engendering more competition. The support for cooperatives and mutuals from everyone from Theresa May to Jeremy Corbyn does point to a way in which we can tackle things here. We’ve got a thriving Coops & Mutuals sector that’s really run under the radar, but its success in the banking sector, in areas like healthcare and other consumer markets suggests that we might be able to do more with alternative models of ownership.

[7] The core premise of the report is that concentration of ownership should also be considered in terms of enterprise diversity. It is detrimental if an industry has an enterprise monoculture - just as nature needs biodiversity to flourish, so the economy needs enterprise diversity.

The report suggests the government pursue an increase in Co-operatives, Municipal and locally-led ownership, and National ownership so that interests beyond mere financial interest can be effectively represented in industry (J.S Mill suggested something similar). British Labour has responded by promising a scheme to make employees part owners of their companies (evidence in favour of employee ownership appears strong), and committing to a “21st century public ownership”, where vital public services are nationalised and run democratically by the workforce responsible for their delivery.

What do you think about the report and UK Labour’s proposed policies?

We [the ALP] don’t have any plans for nationalisation. I don’t think there’s any great call for the re-regulation of the economy. But being more open to employee share ownership could be interesting. You want to make sure there that you’re not causing an ‘all the eggs in one basket’ kind of problem. My read of the literature -- and there’s a good series of papers that Richard Freeman did a while back -- is that employee share ownership boosts productivity but it may create excessive risk for employees because you now have your life savings in the same risk basket as your job. So you face the problem that Enron employees had: when Enron went bankrupt and they lost not only their jobs, but also their life savings.

[8] Do you think these kinds of policies, where workers are encouraged to participate in decision-making in their workplace, would help with the crisis of social disconnection?

I think that a lot of these models [oriented] around having greater employee engagement in the workplace are really interesting and important. People’s sense that there’s a massive divide between the managers and the workers isn’t good for morale. I think smart firms recognize that they can make productivity gains from asking the workers who operate on the factory floor what they can do in order to produce more efficiently and effectively. I’m interested in the German model of employee representatives on boards. Obviously that comes from quite a different culture, but it’s interesting to see how that’s operated in Germany in order to see the gains more fairly shared than in many other Anglo Saxon countries.

[9] As modes of employment become more commoditised and transient (the Australian Institute of Business recently reported Australians now change jobs 12 times on average), is it feasible for the union movement to regenerate itself? Do you believe we need more coalitions between traditional institutions of the labor movement and new ones (e.g. guilds/associations/community groups) to address inequality and insulate those in more precarious pockets of the labour market? Is that feasible?

Personally, on job-switching, I’m not sure we should always regard this as bad. Certainly I’ve switched jobs a number of times in my career, and benefited from learning different things from different workplaces. I suspect that may well be true of each of you. I also know as a labour economist that the biggest increases in wages for workers come when they shift jobs.

So actually what many labour economists are concerned about -- both in Australia and the US at the moment -- is actually that job-switching is lower than it should be, rather than higher. We worry that maybe that’s to do with the monopoly hiring power, so called ‘monopsony’ power that employers have. Things like non-compete agreements, potentially impeding workers from getting a better pay-packet by moving to a firm in which they’re better matched.

The union movement’s doing some interest things. One of the ideas that’s pretty appealing to me is looking at single-union membership, where you might be able to have the portability of union membership, across industries. So your representation is handed off to a union in your industry, rather than you having to go through the whole sign up process all over again. Having some union involvement in how to make good job switches is important as well. But creation and destruction is part of economic growth, and it’s a part of workers’ wage gains. And I wouldn’t want to dampen that.

21st century labour movement-

I think the “Your Rights At Work” campaign of 2007, the current “Australia Needs a Pay Rise” campaign that the Australian Union Movement is running reflect a desire to bring together a lot of the campaigns across different industries, to talk about common challenges that workers are facing: the decline in the share of national income going to workers, the increase in wage inequality that we’ve seen over the last generation where wages have risen three times as fast for the top 10% versus the bottom 10%. All of these things demand that we tackle the problems holistically, and I think the union movement is moving strongly on that. But it’s tough, and union membership rates are now at 13%. The US is 11% -- we’re not that far off American levels of union membership and that makes it very hard for organised labour, which has traditionally been the strongest force for egalitarianism in Australia.

Union movement has an image problem / John Setka-

I don’t want to get into particular individuals, but the union movement is strongly aware of the importance of generational change. I think it’s doing that certainly as well as the corporate sector or the political sector.

[10] What are your views on Universal Basic Income?

I’ve critiqued Universal Basic Income in the past based on the economics. I think that’s probably the wrong way to start – but let me give you it anyway.

In order to give some payment which takes people above the poverty line, you’d need to be looking at a payment that’s along the lines of the single age pension which is in the low twenty-thousand dollars [mark]. To get that to everyone would require one of two things, either you would need levels of taxation which exceeded those in the Scandanavian countries or else you would need to fully dismantle the social safety net -- family support, disability support, indigenous programs -- and redirect all that to UBI, which would leave the most vulnerable worse off. The consequence of that would be potentially you increase inequality, given that our social safety net is the most targeted in the world.

The other concern, which is probably the better one, is that work has an inherent value beyond simply bringing in a pay cheque. Many of us describe ourselves based on what we do. It’s a common topic of conversation at cocktail parties: where the work we do gives us a sense of purpose and meaning in life. There is a pride that many of us feel having made a difference. Whether it’s a builder who has just completed a house, or a public servant who has managed to shepherd through an important policy reform, there is a sense of pride that comes from work. And when you look at the happiness of people that have just lost their job, the drop is far more than you would expect based just on the change of income. It looks like you would need, beyond a change on income, you would need to compensate someone, something in the order fifty or a hundred thousand dollars a year for the hit in happiness that they incur becoming unemployed.

None of that convinces me that [Australia] would be a happier society if people didn’t have jobs but were simply given an income instead. I don’t look to countries with low [labour market] participation rates and say ‘well, they look like some of the happiest countries in the world’. The Petro states [middle eastern states of Kuwait, Saudi Arabia, Bahrain, Oman, Qatar, and the United Arab Emirates] seem to have an awful lot of pretty unhappy people, among those who are pulling cheques and not doing a real job.

What about Basic Income for people that are unemployed / evidence suggests it doesn’t affect employment rates that much, people still try and get jobs etc-

I think our policies for the unemployed have often not treated those without jobs with the level of dignity which they’re due. Most job loss doesn’t reflect a personal moral failing, it reflects a shift in the economy. I look at high unemployment areas in Australia like Northern Tasmania, I don’t see a bunch of people who have suddenly gotten lazy. I see industrial change which has made it much more difficult for people to use their skills and find gainful employment. So we believe we ought to raise Newstart, which is why we’ll have a Newstart review if a Shorten Labor government is elected. But that would be a targeted plan, quite different from UBI, which would say we need to cut a cheque to James Packer as well. If you’re talking about improving our targeted social safety net and providing a greater sense of dignity, I’m all for it. If you’re talking about cutting a check to Frank Lowe, I’m less inclined to support your idea.

[11] You are Shadow Minister for Charities and Not-For-Profits so enterprise diversity is something you have some expertise in. How did your interest in alternative enterprise models begin? Was it through your work with Robert Putnam?

Yes that’s right. I was fortunate to take a class from Bob Putnam in 2000, just after his book Bowling Alone had come out, and then work for him as a researcher over the next couple of years. I started collecting data at the time to test the ‘Bowling Alone’ hypothesis in Australia and it took me ten years before I’d written the book Disconnected, which tracks similar problems in Australia – a decline in the propensity of Australians to join a union, go to church, join a community group, cast a valid vote, slipping rates of sporting group participation, cultural activities and the like.

That then got me interested, when I got the portfolio of Charities and Not-For-Profits, when Bill Shorten created [it] in 2016, in thinking about what we could do to revitalise a sense of civic community. We’ve held more than a dozen “Reconnected” forums now around Australia, everywhere from Darwin to Adelaide, talking with community sector leaders about ideas that they’re putting in place to grow their organisations that might be replicated elsewhere. That’s been, for me, an exciting project alongside the policy reforms you’d expect in that space: making sure we’ve fixed the fundraising laws that were written before the internet era, encouraging the charities commission to engage the states and territories, we’re holding at bay the Liberals’ war on charities which has sadly characterised much of the last few years.

[12] Can you tell us what the Parliamentary Friends of Mutuals and Co-Ops has been up to?

The Coops & Mutuals sector has been very active in parliament in encouraging both sides of politics to consider reforms that allow coops and mutuals to grow. One is around access to finance where we were quickly out of the blocks at the end of 2016, and we’re very pleased that a year later the Liberals came out with some very similar policies. Access to government grants is another area, things like indigenous advancement grants ought to be equally available to coops and mutuals. The coops and mutuals industry isn’t asking for special treatment. They’re asking to be treated on the same playing field as incorporated businesses.

[13] Within the Democratic Party in the US there is a renewed push for a Green New Deal policy, with Bernie Sanders and the newly-elected Alexandria Ocasio-Cortez (AOC) two of its better-known advocates. The idea behind the Green New Deal is to facilitate a “Just Transition” - to accelerate the economic transformation necessary if civilisation is to survive climate change, and to do so through a job guarantee and by strengthening unions. The idea is to tackle the ecological and inequality crises simultaneously.

What do you think of this idea? Do you think we could see a Green New Deal in Australia?

I know what I’ve read, and AOC is certainly a force to be reckoned with on twitter. The notion that we need to look after the employees that are affected by these sorts of transition is a crucial one for Australia. Our “Just Transition” plan focuses on the importance of looking ahead to the closure of coal-fire power stations, most of which were built in Australia in the 1960s and are now nearing the end of their useful life. Indeed, we’re facing real risk of instability in the system if power stations, which are now more than half a century old, if they’re forced to operate beyond their useful life, with their attendant dangers of harm to workers. Systems blow up…

We need to make sure that the affected communities are looked after, that the workers are able to find jobs in similar industries locally. I think that’s a huge priority for Labor and Australia, and sits quite comfortably with the notions that are being propagated in the United States.

Concrete policies? Job Guarantee / localising procurement by anchor institutions-

We’re very keen to see more local procurement. Bill Shorten’s in Queensland today announcing Labor’s plans for more local procurement. In the context of coal-fired power station power closures, we’d be calling on other firms in the local area when they need to make new hires, to be looking first to those newly made redundant, who often have very much the same set of skills. You want to make sure that people spend as little time as possible unemployed, because we know the atrophying effect of being unemployed for too long on people’s skills.

Significant investment in green technologies by a Labor government?-

Absolutely. We just need to get the climate wars under control. As Mark Butler and Pat Conroy have been saying, it’s absolutely vital to get the Clean Energy Finance Corporation doing more investment in new technologies. Whether that’s in energy efficiency, whether it’s in some of the new alternatives, not just solar and wind but also looking at other green technologies, and making sure that we’ve got the policy settings that are not vulnerable to changes in government. Because as ambitious as we may be as a Shorten Labor government, you don’t want policies which are fragile to a transition of government sometime in future decades.

Recession & backpedalling-

Certainly history can teach us that this can happen. We had a Labor government elected just before the 1929 stock market crash, we came to office in 2007 just before the next major crisis of the last hundred years. So you want to make sure that your policies are ready to deal with the downturn. Part of that is taking some of the risk out of the system. What we’re doing in negative gearing and capital gains tax is partly about trying to ensure that we don’t encourage Australian households to put all their eggs in the property basket and take out massive loans. We’re one of the most indebted countries in the world as a result of these policies which have not only blown up house prices but also create financial risk.

And then we want to pay down debt because ultimately you need fiscal wiggle room in order to be able to deal with an economic downturn. We know that a significant downturn will come, it’s just a matter of when. What we’re looking at is narrowing gaps between short and long term. Long term interest rates, the so called ‘yield curve’, is pretty concerning out of the US at the moment.

[14] The final chapter of disconnected lists 10 ways that individuals can increase social capital. What are some structural changes that governments should implement to do the same?

Governments aren’t ideal at finding people friends, so you want to be appropriately modest about the ability of the Federal government to solve the disconnection problem. But you do also want to ensure that we have a strong charities commission, that donors are able to effectively choose between charities based on how well they do their job. I’m pretty interested in the Effective Altruism movement, and how that can be encouraged by the government.

You also want to ensure that governments aren’t putting too much of an administrative burden on charities. We did a lot of work trying to make sure that the ban on foreign political donations didn’t hamstring charities as a consequence. We’ve been working with charities in making sure that they’re not subject to gag clauses. The legal sector, the environmental sector, the social services sector -- a charitable right to advocate is something that is broadly accepted by the community. But within the Liberal and Nationals parties, too often they see charities as critics rather than as a vital part of the social fabric.

[15] Platform cooperativism is geared towards curing the excesses of the exploitative sharing/gig economy and creative democratic ownership structures for the internet. As articulated by Trebor Scholz in his 2017 book Uberworked and Underpaid, the movement aims to (1) clone and creatively alter the technological heart of the sharing economy (i.e. the platforms that connect workers and users); (2) put control/ownership of the platform in the hands of inventive unions, cities, workers and other stakeholders (including users) and (3) reframe concepts like innovation and efficiency with an eye to benefiting all, not just the few.

I’m interested in the gig economy, both in terms of how it impacts workers and consumers. The great promise of the technology like Uber is that you allow people who otherwise wouldn’t have been able to afford a taxi, to get home with their shopping a week before Christmas, rather than have to struggle with it all the way down the street.

The promise of Airbnb too is that people are able to take a holiday who couldn’t afford to stay in a hotel or motel. The challenge comes when these jobs in the gig economy are fragile and don’t provide the sense of deep job satisfaction, and end up providing incomes that aren’t sufficient to buy a house or raise a family. I’m interested in work that’s been done by the Hamilton Project for example, some quite thoughtful work being done by Alan Krueger and colleagues there – Alan being one of the Obama administration’s senior economic advisers, as well as the work between Unions NSW and AirTasker, in making sure there’s appropriate adherence to workplace laws.

In some sense these firms ought to be able to have a higher degree of compliance, since everything is monitored by electronic payments. We need to make sure that these platforms are doing well because they’re offering a better service and a better deal for workers, not because they’re ripping off workers and failing to pay their taxes. I don’t see any reason why the gig economy ought to be able to shelter profits in tax havens any more than I would see a firm in the regular economy do the same thing.

Parliamentary inquiry as a good starting point?-

The inquiry into the Future of Work by Senator Murray Watts and others was an important step in that direction. That was a very thoughtful inquiry which delved right into the challenges that we face as the economic structures change. There’s a lot of good thinking going on across the parliament. Chris Bowen, Ed Husic, Claire O’Neil, Jim Chalmers are among those who I’ve had good conversations about the future structure of the economy, and how we deal with the rise of the gig economy. Brendan O’Connor, our Shadow Minister for Employment and Workplace Relations is thinking about the implications of these changes. It’s still a relatively small share of the economy, but there’s no reason to think it can’t be a much bigger share in a generation’s time. So we want to make sure we have the settings right now.

[16] Academics can work on what they want / Politicians & bureaucrats don’t have that luxury / mainstream left parties in US and the UK have embraced more radicalism

I don’t feel much in the way of restrictions as part of the Labor Party. One of the real joys for me in having Bill Shorten as leader is that he’s taken a really policy rich approach to lead. The notion that Labor governments can’t hope to sneak into power based on broad [?] and then say after the election what they plan to do, we actually need a clear plan for government, and then government becomes principally an implementation challenge. That’s meant that I’ve had the opportunity to work with Chris Bowen on a whole range of policies including closing tax loopholes and making the tax system fairer, cracking down on multinational tax avoidance, making sure we’ve got more competition in the economy, more start-ups and fewer huge firms stultifying the competition. All of that has been great fun, so as a professor-turned-politician, I’ve been a pig in mud the last few years.

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