It's the end of another week of -- alternately -- financial fear, hope, and then despair. Everyone is asking: "How bad will it get?" and "When will it end?" These are questions about the stockmarket, but they also apply to government policy.
When Bob Brown and Barnaby Joyce start leading the debate about how to handle the economic crisis, we have a problem. And for this problem we can thank the Prime Minister. Kevin Rudd's easy rhetoric about the need to rein in "executive greed" has given legitimacy to the demands of everyone who has ever wanted the government to legislate to control food prices, fuel costs and bosses' salaries. Of course government can easily regulate all of these things, but the results would be disastrous.
Yes, executive salaries in the tens of millions of dollars appear excessive. In some cases "obscene" is not a bad description for executive pay packets, but that's the price we pay for economic and political freedom. This is not simply a debate about ideology. The system that has allowed executives to be paid these "obscene" amounts is also the system that has delivered unprecedented prosperity for Australians.
Sure, if executive salaries were regulated, everyone not earning a million dollars a year might get some fleeting satisfaction from knowing that really rich people will now only be very rich -- but there's a trade-off. We'd come close to doing away with one of our basic human rights, which is the right to gain as much profit as possible from our personal labour. The ALP is happy to defend this principle for union members but not, it appears, for managers and executives.
The Greens are demanding that executive pay packets should be limited to $5 million a year. The Prime Minister now has to say whether he agrees with this. Does he think the limit should be higher or lower? Does he think executives should be entitled to earn $4 million a year or $6 million a year? How much does he think they should be able to earn?
One of Rudd's justifications for controlling the salaries of bank executives is that the government's guarantee on bank deposits now places some sort of responsibility on the government to ensure that the banks behave responsibly. Leaving aside the question of whether there should be such a guarantee in the first place (there shouldn't), there's the issue of where such logic leads.
The Australian car industry survives only because of the federal government. Should the federal government now control the salaries of car company executives? The renewable energy industry is likewise a creature of government regulation. Should there be a minister in charge of the salaries of wind farm bosses? The list could go on to encompass every aspect of the national economy. Why stop at the banks?
In the search for an easy headline Rudd risks creating a firestorm that he can't control. Twenty years of economic reform is at risk of coming undone. The measure of the success of that reform is not only the material benefits it has delivered. Of even greater significance has been the gradual acceptance by the Australian community that free markets provide better outcomes than government control. If Rudd keeps on with his rhetoric about how free markets spawn greed and fat cats, this success is at risk of coming undone.
To say we live in difficult, interesting, or tumultuous times is an understatement. In the United States we've seen how John McCain's economic solutions are, if anything, more left-wing than those of Barack Obama. And the Bush administration, which has been castigated for its handling of the Iraq War, is now looked to as the one being able to fix the greatest financial crisis since the Great Depression. Apparently the US government can be relied upon to turn around a $US14 trillion ($20.2 trillion) economy, but not to win a war.
In the United Kingdom, the banking system has effectively been nationalised. The UK government will end up owning 60 per cent of Royal Bank of Scotland and more than 40 per cent of Lloyds TSB.
At the moment there aren't too many defenders of the free market. No one expects Rudd to come out and argue the advantages of laissez faire capitalism. Nor does he need to. But what the Prime Minister should not do is fan the flames of cheap populism. The test of leadership is being able to stand above the popular clamour. This week Kevin Rudd has failed that test.