Howard’s Way, Out: March 05 issue

With John Howard facing plummeting poll ratings and a must-win election campaign, there’s growing speculation about who will replace him. Falling government debt, deregulated workplaces, and a reformed tax system are the hallmarks by which most Australians know Commonwealth Treasurer Peter Costello. But what does the man many believe will succeed John Howard think about faith, family, and the role government has to play in people’s lives? This interview between Investigate’s James Morrow and Peter Costello ran in our March 05 edition:

ART: Lionel Bradley
INVESTIGATE: Do you think that in general, government plays too big a role in Australian lives today?
Hon. Peter Costello, MP: I think there’s been a long tradition in Australia of looking to government, and you can argue this goes right back to the foundation of Australia. Australia, remember, was founded as a government settlement — and it’s quite an interesting thing: how many countries were actually founded as government settlements? This one was, by white settlers. And so you can go right back and see government has had quite a large role [in Australian life] ever since the First Fleet.
[But] if we believe that all answers come from government, we’re defeated. That belief in itself, that government can solve all of our social problems is part of the problem rather than part of the answer. And I think we have to look much more to individual responsibility, volunteerism, private initiatives for many of the social answers to the problems.
INVESTIGATE: So you think the state can stand in the way of a lot of institutions that would otherwise do some good?
COSTELLO: Does the state crowd out private initiatives? I think it can…
INVESTIGATE: Crowd it out, or even just make it too hard to get it going, just in the same way the government can get in the way in the private sector?
COSTELLO: Well if the state crowds it out, that is a problem. If the state gives rise to the belief that that it is capable and as a consequence individuals don’t see [social problems] as their responsibility, that is a problem. What I’ve argued, and I will argue very strongly for, is for a limited government. We ought to decide on the things government can do and ask government to do them, and limit it to those things, rather than have the expectation that the state can intervene in every area successfully.
There are some things a state can do: a state can tax, and a state can spend. There are some things a state can’t do. A state can’t make marriages happy. It can’t give you personal contentment or fulfillment. It can’t give you spiritual succor or nourishment. And when you start looking to the state to do things it can’t do, the state fails, and your expectations are defeated. You do better to figure out what a state can do and limit it to those areas.
INVESTIGATE: Can you talk a bit about your evolution as an economic thinker – I’m thinking particularly of your role in the Dollar Sweets case [which in the mid-1980s represented a turning point for Australian industrial relations]?
COSTELLO: When I first got involved in industrial relations, the labour market in Australia was probably the most heavily regulated labour market in the world outside Cuba. And the way in which it used to work was that we had a tribunal which would set all terms and conditions, working hours, rates of pay, holidays, classifications, duties, and union coverage, and this would be obligatory on employers and employees. And in addition to that, because they had this industrial tribunal with such extensive regulation, the ordinary laws of contract weren’t applied. And I was advising a company [Dollar Sweets] that was resisting a union wage claim, and it was subject to picketing. The picket I think went 170 days, and there were bashings, arson, vandalism, and bomb threats. The industrial tribunals failed to solve it, the police were unable to secure the site, and I advised the company to go and get court injunctions, basically to uphold the rule of law.
Now this was very unusual; it had never been done before. It’s funny to think about, but people thought this was a shocking affront to the industrial system at it was then applied in Australia, and we were successful. And it became a great cause celebre of a small company standing up against militant unions.
And from that day to this there’s been a long argument going on in Australia about how much flexibility you should allow in our labour market. Although things have improved light years, I think in Australia today the labor market is still over-regulated, there is still room for improvement, and for me it has been a cause now for twenty years. Some of the things that I would have liked to have done, that I feel we should have done, have been defeated in the Senate, legislatively. There’s still room to move here in Australia.
INVESTIGATE: So with regard to small businesses and medium-sized businesses, over-regulation is still hurting the economy, and the ability to create growth — and hurting the growth that Australia has been able to maintain for the last decade or so?
COSTELLO: Yeah, I think so. Look, I think one of the things we know not just in Australia but around the world is that employment outcomes are better when there’s flexibility, when there’s ease of entry and ease of exit. It’s a funny thing to say, and people often say to me, “well, how is it that unfair dismissal laws prohibit employment?” They say unfair dismissal laws should help keep people employed.
But the truth of the matter is that if there are barriers to exit they form barriers to entry, and people become employment-averse and employment outcomes are worse. And this is not just in Australia: this is well-known in Continental Europe, where unemployment is high. And one of the reasons is they have rigid labour market laws.
INVESTIGATE: You say that the government can tax, and the government can spend. A lot of people on the right say the government still spends too much, and still taxes too much. Do you think there’s room for more freedom there in terms of cutting taxes?
COSTELLO: Well, look, there are measures of these things. Australia’s tax-to-GDP ratio is higher than Japan’s or the US’s, lower than New Zealand’s, and lower than Europe’s. And that’s where we sit. Should we be working at keeping taxes as low as possible? Yes, we should be. And we should be working at keeping expenditures contained.
I’m not one of those people — I’m not a supply sider — I’m not one of those people that would say just cut your taxes and keep your spending where it is and run a big deficit and it will all fix itself. I don’t believe in that. I’m an old-fashioned conservative in the sense that I do believe in balanced budgets.
INVESTIGATE: So you don’t believe in George W. Bush economics?
COSTELLO: (laughs) Yes, unlike the current administration in the U.S.
So I would say, yes, we should try and keep our taxes as low as possible, consistent with balancing our budget and meeting our social obligations.
This idea, by the way, that if you gave a tax cut people would start working less, I think that’s thoroughly improbable. I think if you gave a tax cut people would probably keep working the same, and they’d be better off, but this idea that if you gave tax cuts we’d all return to some Rousseauian state of nature … well, in fact, the argument probably goes the other way: if you cut taxes, people might actually increase their efforts. This is the economic argument for lower taxes, they might actually increase their efforts and productivity would rise, not that they would reduce their efforts.
INVESTIGATE: Sure. But there would be more jobs and more money flowing through the economy…
COSTELLO: And even at the same rate or at a higher output the argument is that the economy would so grow as to create jobs.
INVESTIGATE: Let’s shift gears a bit: you’ve talked a lot about “social capital” lately, and I think people have an instinctual understanding of what you mean, but could you give more of a definition of what you mean when you use that phrase?
COSTELLO: I don’t really like the term “social capital” because it’s trying to dress up what I think is a non-economic concept into economic language. People feel comfortable with that language because it has the word “capital” in there, so it gives rise for some to believe that this is something that is measurable.
I’m not talking about something that is measurable. To me, society consists of concentric circles of relationships: it starts with the individual, then the individual to the family, then a family in an extended family, then the family in a social institution, which might be a school, or it might be a church, or it might be a sporting club, and then these voluntary associations in a community, in a community in a city, in a city in a state, in a state in a nation, and these people are all engaging in a whole range of relations with each other which are enriching each others’ lives and providing networks and support. And these networks and support don’t come from the government, they weren’t instituted by the government. They exist outside the government, and they enrich you, your society and your community. And if you don’t nourish and nurture these relationships, your community will be poorer for it, and ultimately your economy will be poorer for it.
[One way to look at is to ask,] what is the basis of contract? If you take the view that the contract is the basis of the free-market economy, what is the basis of the contract? Well, partly it’s enforceability, but if we had to enforce every contract that’s made in society, then society would break down.
Contracts evolve out of trust. You know, I will do for you in return for you doing for me, and there’s this concept of trust there. But where does this concept of trust come from in a society? Trust comes from the social relations and the social institutions that give society its shape and its form. And that’s what I’m arguing for: a rediscovery and a recognition of the importance of those social relations, of trust, of family, of volunteerism, of private capacity, because it gives the social dimension, and I think actually ultimately the economic dimension, to a society.
INVESTIGATE: What role do churches and other faith-based organizations have to play in this regard?
COSTELLO: I think they’re exceptionally important, because one of the great sources of moral teaching in the West is the church. It’s a very interesting question, I think: Could you have moral teaching without the church, without faith? If you disengage from the religious base, can you hold the moral order together? This is why I’m not an atheist.
INVESTIGATE: But aren’t a lot of church organizations — I’m thinking of the Catholic church, for example — very political, and have a very strong left-wing bent to them? And in fact wind up as much political organizations as institutions simply trying to do good on this Earth?
COSTELLO: Yeah, I think this is a very interesting question. Let’s take the Catholic church: if you listen to some leaders of the Catholic church, you would think the great moral issues of the day are the war in Iraq, saving the trees, and redistributing income. You could go to another Catholic church where you could be told that the great moral issues of the day are abortion, stem-cell research and homosexual priests.
It’s almost like there are two Catholic churches out there, and never do the twain meet. Now that second church, I think, is the historic Catholic church, and certainly the church of Pope John Paul II. This other Catholic church is the church of the modern Jesuits. And actually I think the churches themselves are confused about what the moral issues of the day are, and I think many of their parishioners can sense this.
That’s one of the reasons why you’ve got the rise of the modern Pentecostal-type movement, because at least the preachers in that movement appear to believe in what they’re saying. If you go to a lot of other churches, established churches, the preacher appears to thoroughly disbelieve everything he’s saying. And if I want to listen to someone preach a sermon, I’d like to feel at least he believes it! How can he expect me to believe it, if I can’t believe he believes it?
INVESTIGATE: How should Australia, a Christian-majority society, deal with other faiths, such as Islam, where there are elements that might want to assert themselves in an intolerant fashion while using our tolerance as cover to do so?
COSTELLO: Well, the way I put it is, I think that Australia is certainly founded in the Judeo-Christian tradition, and that is the basis of our society. Having said that, I think it’s a thoroughly secular society, and I suspect that religious belief and observance is quite low in Australia, certainly lower than the U.S…
INVESTIGATE: Something like ten, fifteen percent church attendance?
COSTELLO: I don’t know, but it’s certainly much lower than in the United States. I would say, however, that part of the social contract in our society is that whilst people are free to practice their religious beliefs, they are also obligated to accept the basic preconditions of our society, which is respect for other peoples’ belief, respect for the law, tolerance, respect for individual rights, avoidance of terrorism, and we would expect people of all religious faiths to observe these rights and responsibilities in Australian society, including Islam.
INVESTIGATE: You say we’ve become a very secularized society. Do you think we’ve become too individualized as a society here in Australia?
COSTELLO: I‘m worried by family breakdown. I’d be very worried if, particularly for kids growing up, if they didn’t have the support of parents and brothers and sisters and extended families. That would worry me. I’m not worried by individualism — it’s got many positives. But I would be worried if what I consider the most basic institution, the family, were to be so under attack that particularly.
I think that at two stages of life family is really important. One is when you’re a child growing up, the second is in your old age. And to be frank with you, I don’t think any society has the capacity to look after people in their old age through state provision. This is where you need families, to care for older relatives and to provide that kind of protective web.
INVESTIGATE: What do you think the big threats to the family are right now?
COSTELLO: Well, I think the problem is relationships in Australia are becoming much more transient. There does seem to be a view in the modern world that everything’s got a shorter and shorter shelf life, including relationships.
You know, we’re an impatient people, aren’t we? We get on the internet, we want information to come to us quickly. We stand in a queue at a coffee counter and we want our coffee to come quickly. We go to entertainment, we want the action to happen fast, and I worry that sometimes we bring this expectation to relationships: We want them to happen fast and successfully, and if they don’t, the view is discard them and form new ones. And I think that attitude can be a great threat to the family.
If people take the view that relationships are disposable, then I think that is a threat to the family, because the essence of family is that it’s a long-term relationship between these people. You would expect a family relationship to survive a whole lifetime, and to survive succeeding lifetimes…
INVESTIGATE: Because without that you can’t get that support in later life?
COSTELLO: Yes, the care of the young, and the care of the old. This is the idea of family as a compact: parents caring for the children, and the children caring for the parents when the parents are old, and we move this institution down through the generations.
INVESTIGATE: Moving overseas a bit, how do you see Australia’s relations with the other big Anglosphere nations progressing, especially with New Zealand, which is our close neighbor but is socially drifting down quite a different path?
COSTELLO: Well I think Australia’s relations with the Anglo countries are as close now as they have ever been. That closeness is with the U.S. and with Britain in particular, and a lot of that comes out of Iraq, defense cooperation, and intelligence sharing.
Concerning New Zealand, I think Australia feels very close with New Zealand. I feel that relations between the countries are good, but New Zealand has taken a bit of a different turn on the defence issue. But trade remains strong, [as do] the people-to-people relationships. The consequence of [the defence issue] is that it altered the nature of the ANZUS relationship because it altered the nature of the relationship between New Zealand and the U.S.
That has changed the nature of the defense relationship a little bit between Australia and New Zealand. Having said that, I think people-to-people relationships are close, and I think there’s a lot of good will between the Australians and the Kiwis.
INVESTIGATE: Again, shifting gears a bit, you’ve come out in support of a republic. Where do you stand on that now?
COSTELLO: Well, look, my view is that the role of the monarchy in our constitutional arrangements is largely symbolical. It’s a symbolism that served Australia well in decades past, but I’m not sure it will serve Australia well in decades to come, and therefore I think Australia will have to move to have stronger symbolic arrangements in place whilst preserving the best of our constitutional system, which is a Westminster parliamentary system. And I think this is an issue that is not a first-order issue, but one that Australia will have to deal with in years to come.
INVESTIGATE: Finally, your name is very often connected with the phrase, “Australia’s next prime minister”. Now I know your boss has said that he intends to be in office for quite some time, but were you to eventually ascend to the Prime Ministership, is there anything we should expect in a Costello government?
COSTELLO: (chuckles) Well, we’ll take the opportunities that arise as they arise, but we won’t speculate on them in the meantime!