A Green New Deal for Australia? - Australian Fabians

A Green New Deal for Australia?


26 April 2020
Economy and Tax
Environment and Climate Change
Strong Democracy and Government

In January, amidst the backdrop of one of Australia’s worst fire seasons on record, Sarah Howe of the Victorian Fabians attended the sold-out 'Sustainable Prosperity’ Conference   at the University of Adelaide, looking at the prospect of a Green New Deal for Australia. Sarah Howe is the Deputy Chair of Victorian Fabians and holds a PHD from the Global Urban Social Studies department at RMIT University. She has worked to achieve social justice objectives through the ALP, trade union movement, local government and the community sector over a twenty year period, and provides her reflections on the conference in this article.

Australians were still reeling from the environmental impact of devastating bushfires when suddenly the Coronavirus pandemic emerged, representing a global health crisis on an enormous scale. A furious debate has emerged regarding economic orthodoxies on how to respond economically to both the challenges presented by the pandemic and climate change. Federally, the LNP government have recently introduced a Coronavirus Stimulus Package that has cost about $200 billion to date. The ALP Opposition have cautiously supported the spending, but Anthony Albanese has (worryingly) bemoaned the implications of a budget in debt for future generations of Australians, throwing into doubt future support for the maintenance of a role for big government spending post the crisis. These events highlight a debate in economic circles, between the Modern Monetary Theory (MMT) school, who argue that there is a role for the Reserve Bank in printing money to support government policies of full employment – and those who believe that approach will result in an unsustainable government deficit.

Over the hot summer month of January, a group of progressive economists gathered at the University of Adelaide to discuss an alternative economic program. The smoke from the Kangaroo Island bushfires was in the wind as conference speakers, led by Professor Bill Mitchell, debated the need for a more radical political program to enable a more expedient green economic transition. The 'Sustainable Prosperity' conference was a sold-out event, and hundreds of academics debated policy ideas alongside environmental and labour activists.

The main policy idea was that Australian political parties should adopt a radical program based on the American Green New Deal, championed by US Democrats  such as Bernie Sanders and Alexandria Ocasio-Cortez.

It was argued that the challenge of climate change is on the same scale as the economic recovery from the Great Depression when Franklin D. Roosevelt enacted his strong interventionist plan during the pre-WWII period (between 1933 and 1939) involving labour leaders, industry leaders and economists. The New Deal was a series of programs, public work projects, financial reforms and regulations. The Green New Deal policy represents a program on the same scale and advocates a mass transformation to move away from a fossil fuel economy. It proposes significant investment into new technology, infrastructure, social and public services and the creation of millions of new jobs.

Keynote speaker Stephanie Kelton, a senior economic adviser to Bernie Sanders, explained that the US Green New Deal is ambitious about the role of the public sector, both in terms of the need for planning and the need for Governments to be spending a lot of money. Sanders committed to spending 16.3 trillion dollars to transform the economy away from fossil fuels and towards renewables and a progressive economic platform.

Bill Mitchell outlined his vision for an ambitious Australian Green New Deal project, based on the US model. A Jobs Guarantee is at the core of the proposal, where a million new jobs would be created as the public sector steps in for a period. The program involves re-evaluating the meaning of productivity and allowing a host of activities that do not support capital profit to be considered worthwhile and productive.

A new ‘Lucky Country’ industry policy would be developed that would include new growth industry development in renewable energy sources, electric vehicles, high speed rail, building and smarter green technologies. Again, the idea is that these would mainly be developed and funded by major public investments and eventually carried over to the private sector.

Radical ideas, such as the nationalisation of banks, were discussed. Public banks could be owned by cities, for instance, and would be accountable to the people who live there. Unlike private banks, which often tend to focus exclusively on financial activities such as securities trading, the obligation of public banks will be to support the real economy. It was maintained that loans to government and the private sector alike could have the potential to finance decarbonisation efforts, including (for example) carbon-neutral manufacturing and clean energy initiatives.

Other ideas presented included solar farms and hydro projects to replace coal mines. According to Peter Ong from the ETU, Solar farms are currently being built by backpackers on $17 an hour. This would need to change.

Indeed, the US model of a Green New Deal is taking hold across the world, with British Labour Party adviser John McTernan noting that the policy is becoming the one thing on which progressive parties can agree with most struggling to find successful electoral strategies to face the challenge of the populist right:

“the attractions are clear…it is a big idea that mobilises actions and resources on a scale that matches the challenges we face. That pleases the voters. It marshals, indeed justifies, the powers and abilities of big government, which is a relief to centre-left politicians who have spent the last few decades in a rear-guard action to defend the legitimacy of state action. And it draws on the most powerful political rhetoric of the 20th century — Franklin D Roosevelt’s New Deal”

However, the politics of achieving such an ambitious program will be difficult. Even in the US, respected economist Paul Krugman has argued 'in terms of actual policy, it probably doesn't matter much who is the Democratic nominee - as long as he or she wins, and the Democrats take the Senate too':

“Sanders has a hugely ambitious agenda; Medicare for All is just part of it. Paying for that agenda would be difficult — no, Modern Monetary Theory wouldn’t actually do away with the fiscal constraint. So, turning Sanders’ vision into reality would require large tax increases, not just on the wealthy, but on the middle class; without those tax increases it would be highly inflationary.

But not to worry: it won’t happen. Even if he made it to the White House, Sanders would have to deal with a Congress (and a public) considerably less radical than he is, and would be obliged to settle for a more modest progressive agenda.”

Likewise, in the Australian context, such an ambitious program may be politically difficult to achieve.

In terms of progressive political parties, we have the ALP and the Greens party wedded to more reformist programs to tackle climate change, with the ALP recently reiterating support for the ongoing maintenance of the coal industry. There is no immediate sign of any other left leader emerging in the Labor party who might win the economic argument for an alternative along the lines of an MMT style spending program. Adding to the woes on this front, is that the role of the Socialist Left faction has diminished to bargaining on seats rather than the big ideological issues of the day. This is very different from the 1980s, where the left mobilised on issues such as nuclear power and the Franklin Dam project.

Boris Frankel pointed out at a recent Fabians event that the ALP is wedded to a market driven approach to climate policy, arguing that “Garnaut is their playbook”. Ross Garnaut, in his recent book, Superpower: Australia’s Low-Carbon Opportunity, argues that “carbon pricing is the centrepiece of any environmentally and economically efficient program to reduce emissions”, and while the politics of achieving such a scheme over the past decade have been difficult, he maintains that such an approach should remain the ultimate strategic goal. This could be described as a ‘market model’ where pricing carbon and Cap and Trade schemes are seen as the main mechanism to curb emissions. This is still the policy of the ALP.

While the Greens have committed to a Green New Deal, Bill Mitchell argued that they are 'neoliberals on bikes', as they still believe that a price mechanism is the main economic lever to achieve a transformation to a green economy. Within the Liberal-National party ranks, former PM Malcolm Turnbull published an Op Ed in the Guardian advocating a Green New Deal, but his call for 'common purpose and leadership' on the issue does not seem to have gained traction within his party.

Bill Mitchell argued that a new political party must be formed, that will challenge the current economic orthodoxy around the need for a budget surplus, and that the public must accept that fiscal deficits are required to fund more ambitious policy. In order to win the economic argument, he maintained that there needs to be sustained education of the public in alternative economic ideas that would ‘challenge the lies associated with governments saying that they have no money and that fiscal surpluses destroy national wealth’.

At the core of his proposed new political party agenda, would be a Green New Deal paid for by application of the principles of MMT.

Many well-known economists associated with Modern Monetary Theory spoke at the conference, including Dr Steven Hail, a protege of Bill Mitchell’s, who explained that the theory proposes that governments who control their own currency can spend freely, as they can always create money to fund their own programmes. In addition, he argued, it suggests government spending can grow the economy to its full capacity, eliminate unemployment, and finance major programs such as universal healthcare, free university attendance, and green energy.

Finally, MMT suggests that increased government spending will not generate inflation as long as there is unused economic capacity or unemployed labour, It is only when an economy hits physical or natural constraints on its productivity – such as full employment – that inflation happens, because that is when supply fails to meet demand, which increases prices.

However, the big challenge for MMT pointed out by critics is the possible inflationary impacts of these policies.

To combat this, MMT proponents argue that governments can control inflation by spending less or withdrawing money from the economy through taxation.

Stephanie Kelton argued that the Green New Deal is also about recognising that savings can be made by governments emphasising the importance of public sector planning and managing existing resources more effectively to avoid inflation. She suggested that governments need to identify and use up existing stock, identify additional capacity, and use freed capacity in real reforms. For instance, introducing Medicare in the US, she argues, will release (US) 200 billion dollars in freed up space.

Cambridge Keynesian economist, Geoff Harcourt, commented that perhaps a mechanism like centralised wage fixing could be introduced again (as it was under the Accord) to control inflation and help with the inflationary impacts of MMT, given the focus upon increasing investment in public enterprise.

In summary, a major focus of the conference was the question of ‘how we pay for a Green New Deal’, with MMT as an alternative economic approach to orthodox economics. Bill Mitchell strongly advocated the need for a new political party in the Australian context to promote an ambitious new environmental and social program. However, it is worth remembering that many in the progressive left of the ALP have advocated for progressive alternatives to challenge economic orthodoxies over many years. The Keynesian MP John Langmore was one such advocate in the Hawke-Keating government. The ALP has many members who now also believe we need a more radical economic program. The issue is for us to reform the ALP party structures to enable this debate to occur, which may require overturning factional strongholds on policy committees. The party needs a mass infusion of new members to start momentum for political reform. In addition to this (and perhaps not feasible in the current political climate) we may need to revisit the notion of a European style social democratic alliance between the ALP and the Greens to create a shared platform on the need for a Green New Deal underpinned by an alternative economic program.

Sarah Howe

April 2020

The Fabian society was founded in 1884 by Edward Pease, Frank Podmore, and Hubert Bland, joined later by Bernard Shaw and Sydney Webb. In Australia, the first Fabian group was formed in 1891; the now Australian Fabian society is a national organisation.

The Fabian tradition is one of achieving social progress through research, education and debate. The Society has no policy beyond that implied in a general commitment to social democracy, and issues its publications as the opinions of their authors not of the organisation. The publishing program is designed to promote informed discussion on issues to further the goals of social democracy.

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