Treasurer Jim Chalmers answers critics of his 'values-based capitalism'

Treasurer Jim Chalmers has rejected as “laughable” criticism he has turned his back on the Hawke-Keating reform era in his blueprint for “values-based capitalism”.

In this podcast Chalmers also reveals he spoke with Paul Keating while writing the essay, published in The Monthly.

“Capitalism after the crises” looks at Australia’s future following three international crises: the GFC, the pandemic, and the current energy and inflation shock. Chalmers advocates government-private co-investment, the renovation of the Reserve Bank and the Productivity Commission, and improving the functioning of markets.

Critics have labelled his values-based capitalism highly intervention, and counter to the direction of the reforms Bob Hawke and Keating implemented.

“I think that’s laughable […] particularly for me personally,” Chalmers says. “I’m someone who is here because of the Hawke-Keating period.”

“I wouldn’t be here were it not for Paul Keating. And he’s someone who is a friend. He’s someone whose advice and counsel I value and cherish a great deal.”

But, Chalmers says, “our heroes of the 1980s would say that our job isn’t to kind of double back and retrace their steps. Our job is to walk further and forward in the same direction.”

“The reforming spirit of the Hawke-Keating period was about looking forwards to the future. It was about looking upwards to aspiration and social and economic mobility and looking outwards to the world. And that is a pretty neat summary of how I approach these challenges.

"What for Hawke and Keating was financial deregulation and liberalisation of trade is for us the energy market. It’s technology, it’s getting capital flowing to the right places. And that’s something that Paul and I discuss frequently.”

Chalmers says some of the essay’s themes are the fruits of conversations with Keating during and before its writing.

He says Keating thinks “the energy transition is the big thing for us. And he thinks the intersection of critical minerals and advanced manufacturing is the big chance for us, as I do. And so a lot of the themes in the essay are familiar to the conversations that we’ve been having for some time, but including over Christmas. From memory, I think we had a long conversation on Christmas Eve about some of these sorts of things.”

Read more: Jim Chalmers lays out agenda for pursuit of 'values-based capitalism'^[1]

Chalmers stresses that in promoting values-based capitalism “I’m not talking about a kind of 1950s-style approach to industry policy. I think the world’s moved on. But nor am I talking about this kind of approach, which has served us incredibly poorly for the best part of a decade, which says that we have to make this false choice between our social objectives for our community and our economic objectives.

"I think the pandemic and in other ways have taught us that a healthy, robust economy relies on healthy, robust people and communities.

"And that’s why I do talk about ‘wellbeing’, unapologetically so. I do talk about progress. I do talk about how we line up our values with our budgets and the economy, because I think that there’s an appetite for that. For a decade, we’ve been pretending these two things are at conflict. As a consequence of that, we’ve not really satisfied our economic objectives or our social objectives.

"I think we can neatly line them up. I think there’s an appetite in the investor community for a bit of that, so long as there are decent returns and we’re not messing with that – and we’re not proposing to.

"And so that’s the approach that I’ve taken. It’s wrongly caricatured – I think deliberately so – as some kind of old style industry policy. It is nothing of the sort.”

E&OE TRANSCRIPT PODCAST

THE CONVERSATION

TUESDAY, 31 JANUARY 2023

SUBJECTS: The Monthly essay: Capitalism after the crises, Economic Inclusion Advisory Committee.

MICHELLE GRATTAN, HOST: Treasurer Jim Chalmers has just produced a major essay. He examines capitalism after three recent crises - the GFC, the pandemic and now the energy and inflation shock. The essay’s attracting a good deal of attention, both favourable and unfavourable. Chalmers sets out his philosophy for where he thinks policy needs to go to reimagine capitalism into a more progressive and inclusive model. The plan includes government-business co-investment and closer economic cooperation, the reform of institutions like the Reserve Bank and the Productivity Commission and also the overhaul of markets. It also includes giving investors more information so that they’re encouraged to pursue impact investment such as the transition to a clean economy. Jim Chalmers joins us today to discuss his value based capitalism and some of the reactions to it. Jim Chalmers, I’m always interested in the way the sausage is made. So tell us briefly what spurred this essay which you wrote over the summer. And in particular, what have been the intellectual influences on your thinking?

JIM CHALMERS, TREASURER: Thanks, Michelle. We got an offer out of the blue in the middle of December from The Monthly magazine to write a considered piece on a relatively short deadline. And we thought about it and to be honest with you after the year that we had last year, we ummed and ahhed about it a bit but we decided it was too good an opportunity to miss. There have been big, prominent essays written by some of my predecessors.

GRATTAN: Like Kevin Rudd.

CHALMERS: Kevin Rudd, Wayne Swan, Penny Wong was the last politician to write an essay in 2016. And so I thought it was too good an opportunity to miss and so I spent a big chunk of my Christmas break after the kids had gone to bed penning these thoughts.

GRATTAN: And what were the intellectual influences on this essay?

CHALMERS: Well, for some time Michelle I’ve been really interested in this idea that we can more neatly line up and more nicely line up the things that we want to see in our society and the things we want to see in our economy. And so the global economist Mazzucatto was obviously a big influence on my thinking, but others as well - Michael Traill here in Australia, Mark Carney the former central bank governor in two countries. And for a long time now, I’ve been grappling with this idea - how do we match up our social goals and our economic goals? How do we create the type of economy which is creating lots of profit for the private sector at the same time as it’s generating lots of opportunities for our people?

GRATTAN: Did you discuss the essay with your colleagues? And did you discuss it with the Prime Minister?

CHALMERS: I did. Yes, I showed a number of colleagues a draft including the Prime Minister. He was very kind with his feedback when I showed him a draft towards the end of December I think from memory, and he was encouraging.

GRATTAN: He gave you feedback on substance or just encouragement?

CHALMERS: He said he enjoyed it and encouraged it and said it was a good piece. And, my other colleagues - Katy Gallagher and others had the opportunity to have a look at it as well.

GRATTAN: Now, let’s just run through your main themes including how co-investment would work and on what scale you would see that co-investment between the public and private sectors, and how you see the Reserve Bank, the Productivity Commission, which you mentioned, and markets, needing renovation - needing change.

CHALMERS: Yeah, and I think all of these things are closely related. I strongly believe that by strengthening our economic institutions and strengthening our economy, we strengthen our democracy. I think there’s a straight line between all of those things and so if you take a step back for a moment which the essay allowed me to do and encouraged me to do, some of our big goals in the economy are how do we get cleaner and cheaper, more reliable, increasingly renewable energy into the system? How do we make sure technology works for people, not against them? How do we get capital flowing to these areas where we’ve got big national advantages where we can create lots of jobs and wealth and opportunities? And so once you work that out, then you realise that you need to go about things a little bit differently than what we’ve seen in Australia over the course of the last decade, which has not been meeting our economic objectives when it comes to business investment, productivity, stagnant wages and the like. And so a key part of renovating our approach to the economy is how do we have better designed and better informed markets? How do we have an element of collaboration and co-investment and cooperation between the public sector and the private sector? And how do better designed and more modern economic institutions - whether it’s the Reserve Bank or the Productivity Commission, or in other ways - how do they help feed these kinds of decisions that we want to make about the economy. And so all of that together, our goals, the ways that we determine how we go about public policy and the economic outcomes, we want to try and line those up. And really all I’m arguing for in this piece is a way of lining up our values with our economy and with our Budget in a way that sees the public sector and the private sector, their roles recognised - very different roles, but working together to deliver on some of these objectives that we all share.

GRATTAN: If we can just drill down into these - you mentioned in terms of co-investment the clean energy finance body, but can you give another example of how you would see co-investment working?

CHALMERS: Yeah, I’ll give you three quick ones. Obviously the Rewiring the Nation fund which is all about how we transmit more reliable, cheaper, cleaner energy. Obviously, the National Reconstruction Fund in Minister Husic’s portfolio is all about broadening our industrial base and in addition to that, the Housing Australia Future Fund in Julie Collins’ portfolio - those three examples in addition to the Clean Energy Finance Corporation and in other ways, that’s about how we recognise this opportunity to get public and private sectors working together, investing in areas where we haven’t seen enough investment, but where investment now will deliver big economic gains and opportunities into the future. And so when you read the kind of ill-informed commentary from the LNP Opposition and others and they say well where was this before the election - we took all of those three things to the election, they are absolutely central to this approach that I’m describing.

GRATTAN: Now, you have an inquiry running into the Reserve Bank but just in general terms, you talk about renovating the Reserve Bank and also looking at the Productivity Commission. What does renovate mean in conceptual terms? What are you thinking about here?

CHALMERS: Well, I start from the foundation that over a long period of time the Reserve Bank has served us relatively well but no institution should be beyond the kind of thinking that says, what’s international best practice? How do we get the structures right and the personnel right so that we’re most likely to get good decisions in the national economic interest? And so I’ve been pretty upfront when it comes to the Reserve Bank, I think, with this public review and I’ll get the fruits of that work in March and I’ll respond to it hopefully soon after that. The Productivity Commission is another area of interest for me. I think the Productivity Commission has the capacity to be a real ideas factory, a real engine of economic policy ideas. Even at its best, I think people would concede that there are ways that we can get it working more effectively. I don’t want to mess with its independence, I don’t want to substantially diminish the Productivity Commission, I want to turbocharge it. I want it to be the sort of provider of ideas about - not just how do we make our economy more productive, though that will remain central - but how do we make our economy more prosperous, how do we create these opportunities? And so now I think with the new government, having flagged our intentions to strengthen our economic institutions on the way to strengthening our democracy, I think it’s a good time to be thinking about the Reserve Bank, the Productivity Commission and the institutions that feed our economic policies.

GRATTAN: On the Reserve Bank which runs monetary policy, are you thinking of diluting the emphasis it puts on running monetary policy by having it take into account other objectives?

CHALMERS: Well, already it takes into account full employment and financial stability so already there’s an element of weighing up these different considerations, but obviously its primary responsibility is to try and maintain inflation within that target band of two to three per cent. That has been incredibly difficult for central banks around the world in recent times. I’m not proposing to diminish its focus on inflation or on monetary policy but what I’ve asked the review team to work out is what is the appropriate balance between those different objectives - financial stability, full employment are obviously big priorities, rightfully so, of the Reserve Bank already, but how we weigh them up, how we get fiscal policy which is what I’m responsible for and monetary policy which they’re responsible for, how do we make sure that they’re working together and not at cross purposes as well? These are all crucial considerations of the RBA review and I’m looking forward to seeing the report when I get it in March.

GRATTAN: You say that markets need to be attended to, again, can you give us an example here?

CHALMERS: I am a believer in markets, not markets for their own sake but markets, which are well designed and well informed. I still think that in lots of ways they are the best mechanism for making sure we achieve our economic objectives. But that, again, doesn’t mean that they are beyond reproach. In some cases, for example, when it comes to how investors decide between different opportunities in the clean economy, one of the things that I’ll be doing this year is I’ll be introducing a climate reporting standard for business. So if you are investing in one business or another business A or business B, I’m going to create a way where you can compare the climate risks and the decarbonisation plans of those two businesses to help you make an informed decision. And that’s one of the ways that a better informed, better designed market for capital, if government has a role in designing that market. And the better it is, the better informed it is, the better designed it is, the more likely we are to see capital flow where we want it to.

GRATTAN: How much of this change, in general, do you see as being in the short or medium term? How much is a long term aspiration?

CHALMERS: What I tried to do, and the reason I’m grateful to The Monthly for publishing a longish piece by political standards - not by the standards of some of the books that you’ve written, Michelle, of course - but what I’ve tried to do is to flag a direction, and to say where our existing policies fit into this framework that I’m describing, and where it might head into the future. I think that there is an appetite out there after this wasted decade of sort of over-politicised economic policy, and a lot of fits and starts and poor outcomes, there’s an appetite from government for us to be upfront with the sorts of issues we’re grappling with, and the framework through which we will try and respond to these challenges. So that’s what I’ve tried to do, so people know where I’m coming from, they know that I see a legitimate, powerful, influential role for the private sector. They know that I see a role for government leadership, I’m not actually arguing for some kind of heavy-handed government intervention here. On the contrary, I’m arguing for a role for the private sector, a role for the public sector, where we work together to try and satisfy our national economic objectives. Some of the commentary has kind of missed that point. But I am a believer in the job-creating, wealth-creating role of business and the private sector. I just think that collectively on my side of the fence, and on their side of the fence, we can get better at designing our policies and our markets and our institutions to satisfy those economic goals, rather than work in in conflict with each other.

GRATTAN: We’ll come to the commentary in a sec, but you mentioned in the essay, the next intergenerational report, which is coming later this year. How important will this be in what you want to do?

CHALMERS: One of my real obsessions is how do we lengthen the timeframes through which we think about policy. And to give one of my predecessors credit from the other side of the political fence, I think this was a good innovation from Treasurer Peter Costello, when he introduced the intergenerational report. My fear is in the last few terms, the IGR has become unnecessarily politicised and I want to fix that. And one of the ways we fix it, is I’m going to say okay we’re going to hand this thing down in the middle year of each parliamentary term, we’re going to simplify it and depoliticise it in the hope that it provides the foundation for longer-term thinking when it comes to the economy and when it comes to public policy. One of the things that worries me as I look around the world in this kind of post-fact political environment, is we’re not always operating from a set of agreed, foundational understandings about how things are likely to play out, so I want to fix that. I know I have to depoliticise the IGR in order to do that, and I’m hoping by doing that, that both sides of politics, all sides of politics and in the commentariat and in the country more broadly, we have a foundation that we can work from which recognises we’ve got some big pressures in our economies, some big opportunities as well. And we’ve got to get out of this day-to-day, week-to-week approach to managing the economy because we’ve got these big opportunities. They require a bit of foresight, they require collaboration, cooperation, sometimes co-investment, and that’s what the essay is about.

GRATTAN: Mind you, of course, the point should be made that the further you go out, the more blurry the facts become.

CHALMERS: Inevitably, when you’re forecasting 40 years down the track, it becomes harder and harder to do the further you are away. Forecasting at the best of times is difficult, I’m not pretending otherwise. There hasn’t been an easy, calm period in the economy for the best part of 15 years, which is where the essay begins, with this sense of rolling crisis of capitalism over the last 15 years - a GFC, a pandemic, an inflation crisis. And so it is volatile, it’s hard to forecast in volatile times, but that doesn’t mean it’s not worth the effort.

GRATTAN: Let’s turn to the reaction, the essay has received a mix of praise and criticism. It’s predictable, of course, the Opposition members wouldn’t be fans. But how do you reply to, for example, the Financial Review’s editorial, which says and I quote, ‘that your basic purpose is to discredit the modern relevance of the previous Hawke-Keating reform era that liberalised Australia’s protected, and over regulated economy’?

CHALMERS: I think that’s laughable, particularly for me personally, I’m someone who is here because of the Hawke-Keating period. I wouldn’t - as you and I have spoken about before, on and off air - I wouldn’t be here were it not for Paul Keating. And he’s someone who is a friend, he’s someone whose advice and counsel I value and cherish a great deal. But our heroes of the 1980s would say that our job isn’t to double back and retrace their steps, our job is to walk further and forward in the same direction. And so what I talk about is that the reforming spirit of the Hawke-Keating period was about looking forwards to the future, it was about looking upwards to aspiration and social and economic mobility, and looking outwards to the world - and that is a pretty neat summary of how I approach these challenges. What for Hawke and Keating was financial deregulation and liberalisation of trade is for us the energy market, it’s technology, it’s getting capital flowing to the right places. And that’s something that Paul and I discuss frequently. And so I do genuinely welcome the debate about the essay that I wrote, but some of it - to be blunt about it - this idea that somehow it is compromising the gains made by Bob and Paul, it just doesn’t stand up to scrutiny.

GRATTAN: Did you talk when you were writing to that hero of the 1980s, Paul Keating, and have you heard from him since?

CHALMERS: We talk frequently-

GRATTAN: So you spoke during the essay process?

CHALMERS: Some of the themes that I pick up and run with in the essay are the fruits of conversations we’ve been having about the essay, and before that as well. He recognises as I do, and I’m conscious of not kind of speaking for him here, but he thinks the energy transition is the big thing for us. And he thinks the intersection of critical minerals and advanced manufacturing is the big chance for us, as I do. And so a lot of the themes in the essay are familiar to the conversations that we’ve been having for some time, but including over Christmas. From memory, I think we had a long conversation on Christmas Eve about some of these sorts of things. And so, again, the idea that it’s somehow in conflict with the traditions of the Hawke-Keating period, I think, is not right.

GRATTAN: He’s a great one for the telephone. Have you heard from him over the weekend?

CHALMERS: I don’t think I spoke to him this weekend but I typically speak with him pretty frequently, and I’m comfortable that he knows and appreciates my approach to these things, which is - it’s possible to have your heroes and it’s possible at the same time to recognise that you’ve got to do your own thing. And I suspect - again, not speaking for him, he’s capable of speaking for himself - if he was sitting in my office as Treasurer right now, he’d be grappling with a lot of the same things that I am.

GRATTAN: You write that values based capitalism is not about picking winners and you’ve reiterated that, but it is pushing economic decisions in particular directions. Couldn’t this be said as a broader version of picking winners, or if one wanted to really stretch the point, as economic engineering?

GRATTAN: No, I don’t see it that way because the kinds of economic objectives that we’re talking about in energy and technology and human capital and the care economy and all of these sorts of things. I’m saying that they rely on well designed, well informed markets as we were talking about a moment ago. I’m not talking about a kind of 1950s style approach to industry policy, I think the world’s moved on. But nor am I talking about this kind of approach, which has served us incredibly poorly for the best part of a decade, which says that we have to make this false choice between our social objectives for our community and our economic objectives. I think the pandemic and in other ways have taught us that a healthy, robust economy relies on healthy robust people and communities. And that’s why I do talk about well-being, unapologetically so, I do talk about progress. I do talk about how we line up our values with our budgets and the economy because I think that there’s an appetite for that. For a decade we’ve been pretending these two things are at conflict. As a consequence of that we’ve not really satisfied our economic objectives or our social objectives, for the best part of a decade. I think we can neatly line them up. I think there’s an appetite in the investor community for a bit of that, so long as there are decent returns - and we’re not messing with that, and we’re not proposing to. And so that’s the approach that I’ve taken, it’s wrongly caricatured, I think, deliberately so, as some kind of old-style industry policy, it is nothing of the sort.

GRATTAN: What sort of reactions have you had from the business community and are you planning to follow up the essay with any other writing or talking, I guess, to promote these ideas?

CHALMERS: Well, as the year gets galloping again, I think it’ll be difficult in the lead up to the Budget to find room for another big writing project but certainly already even in the course of today I’ve had a number of conversations with the business community about the essay. I’ve even had a meeting with the Business Council of Australia today where it was part of our conversation.

GRATTAN: What was the reaction?

CHALMERS: Again, I don’t want to talk for Jennifer Westacott but I think that business has been - in welcome ways - a leader in this conversation about energy, for example, about technology, about the care economy, and we’ve all got different ways that we describe our objectives. But I think we’ve actually got a neat opportunity here for some common ground and a common cause when it comes to modernising our economy and lifting living standards in that economy. And so we describe it in different ways but I think our objectives are pretty nicely lined up as I keep saying and so I like engaging with business on some of these sorts of things. One of the reasons why I’m optimistic about the future of our country and the future of our economy is because I think people share this recognition that investment can flow into areas which satisfy our economic objectives but also our objectives as a community. And that in lots of ways is one of the reasons why I’m here in the first place.

GRATTAN: Let me just finish on a Budget issue. You will soon be considering a report from the Economic Inclusion Advisory Committee that’s been looking at the adequacy of welfare and they’ll obviously recommend that more should be done. Is there any way that a Treasurer who advocates values based capitalism could say no to that?

CHALMERS: Well, let’s see what they recommend but I think there’s a recognition even amongst some of those wonderful advocates that we’ve appointed to this committee, I think they understand that my job is to weigh up all of the various considerations in the Budget. You think about the May Budget - we’ll be funding the reorientation most likely of some of our defence spending, we’ll be funding a big increase in aged care wages, we’ll be funding electricity bill relief in a responsible way. And so there’s a lot of pressures on the Budget, I think people know that. Obviously people have different views about the relative priority we place on these different things.

GRATTAN: You’ll also have a lot of revenue from commodity prices, right?

CHALMERS: In the near term. But what we know about the way the Budget works is even when we get that decent lift in commodity prices, we get a near term lift in the Budget this year, and sometimes the following year. But over the medium term, the pressures on the Budget are actually intensifying, rather than easing. And so in areas like defence, borrowing costs, the NDIS, aged care and health, those pressures are intensifying.

As we speak, Standard and Poor’s have put out an assessment of our Budget where they’ve reaffirmed our AAA credit rating. And one of the reasons why I find that so satisfying is because they specifically mention the restraint that we showed in banking the big upward surge in revenue that we got in the last budget - 99 per cent of that over this year and next year, we let that flow through to the bottom line, and that’s good for debt, it’s good for borrowing costs, it’s good to take pressure off inflation and Standard and Poor’s have recognised that today. And I really welcome their endorsement, their vote of confidence in our Budget in October and in our economic plan.

GRATTAN: So is this a negative signal on social security?

CHALMERS: I wouldn’t read it that way. I think people know that I and our Cabinet, our government under Anthony will always do what we responsibly can. But our job is to look right across the Budget and to weigh up all of the various pressures and opportunities and bids and asks on the Budget. We will take incredibly seriously what this committee recommends to us, but we will consider it in the usual way via the Expenditure Review Committee and the Cabinet and we’ll weigh it up against all these other things.

GRATTAN: So maybe a little not a lot.

CHALMERS: Well, let’s see what they report. I genuinely don’t know that they’ve reached a conclusion yet. I mean, I went to the first meeting and had a good chat with them, but they’ve met subsequent to that. I think we receive a report either in February or March from memory. We’ll take it seriously when we get it. We’ll weigh it up against all of the other priorities that we have, and we’ll always try and do the right thing by people where we can afford to.

GRATTAN: Jim Chalmers, thanks very much for talking with us today about the essay - an impressive piece of work and worth the loss of some Christmas time.

CHALMERS: I hope so. Thanks, Michelle.

GRATTAN: That’s all for today’s podcast. Thank you to my producer, Mikey Burnett. We’ll be back with another interview soon, but goodbye for now.

ENDS

References

1. ^{^} Jim Chalmers lays out agenda for pursuit of 'values-based capitalism' (theconversation.com)