Commentators complained that the Albanon government was being too cautious. That burden cannot be easily leveled now.
Take two very different issues on which the government has defined itself in recent days by its strong stance.
One is the conflict between Israel and Hamas. The other is the tilt towards a very interventionist industrial policy, which Prime Minister Antony Albanese outlined in his main speech on Thursday. Let's take a look at each.
With civilian casualties in the tens of thousands, international opinion calling for balance, and the Labor Party feeling pressure from pro-Palestinian public opinion in some key seats, the government has decided to take action against Israel's actions in the Gaza Strip. Criticism has been steadily increasing in recent months.
But the killing of Australian Zomi Francom and other aid workers in an Israeli attack on April 1 triggered reactions to a new level.
This week the government appointed former Australian Defense Force chief Mark Binskin as an adviser to examine the adequacy of the investigation into the Israeli attack.
Whether it was good or bad, it was unusual behavior. It sent a clear message – Australia was not satisfied that Israeli accounts could be trusted without being verified.
It remains to be seen whether Binskin will have full access to all the data he needs. He is investigating the Israeli investigation rather than conducting his own investigation, but he will likely have to look at fairly sensitive military information for his proper scrutiny. It is hard to believe that Israelis would be willing to hand over such supplies during a war.
However, given the tragic circumstances in which Francome and her colleagues died, the government's measures are likely to be well received domestically.
Meanwhile, this week Foreign Minister Penny Wong cautiously strengthened Australia's policy. She hinted at the possibility of recognizing a Palestinian state before agreeing to a two-state solution.
The policy is being considered internationally and could soon coincide with a vote on Palestinian membership in the United Nations. However, Mr Wong's comments were condemned by some in Australia's Jewish community and by opponents. Opposition Leader Peter Dutton accused Mr Wong of “irreparably” damaging the Australia-Israel relationship “in the name of domestic political victories”.
Wong justified the increase in recognition of Palestine by pointing to the fact that other countries, including the UK, are discussing recognition of Palestine. Mr Albanese also called out the wider world, saying Australia needed to “break out of old habits” and adopt a more interventionist approach to industrial policy.
Mr Albanese argued that the changing international situation requires “sharper elbows” to protect national interests. “We need to understand what governments can and must do to grow the economy, increase productivity, improve competition and work with the private sector to secure future prosperity. We need to think differently about it.”
He highlighted that countries ranging from the United States to South Korea are pursuing activist government intervention. Most notably, the Biden administration is focusing on green energy and providing large subsidies under the Inflation Control Act to attract investment for reindustrialization.
Albanese argues that the resurgent interventionism is “not old-fashioned protectionism.” We needed to recognize “a new and widespread willingness to intervene in the economy on the basis of national interest and national sovereignty.” In some ways, this is a response to the pandemic, which has raised concerns about supply chain disruptions.
Albanese is very comfortable with the interventionist axis. After all, it brings him back to his political roots. At the time, as a young left-winger, he was critical of Labour's embrace of free markets. He also taps into a broad base in the Labor Party that supports manufacturing, although he is not only based partly on the union movement. Remember when Kevin Rudd said, “I don't want to be prime minister of a country that doesn't make things anymore''?
In some ways, Albanese's interventionism is driven by the urgent need for an energy transition. This will require a large capital injection and will only be possible with concrete government incentives (such as underwriting schemes and other incentives down the road). Australia cannot compete with US incentives, but will try a mini-me approach.
Albanese's interventionism will be reflected in May 14's Budget, which will be extended until just before the election to bring together a wide range of current and future initiatives under the Future Made in Australia Act.
The obvious question is what Jim Chalmers, the Chancellor of the Exchequer, thinks about this. The Treasury Department has traditionally manufactured free-market Kool-Aid and sold it to political bosses whenever possible. So one would expect Chalmers to be skeptical.
But while this treasurer may not be an interventionist fanatic like the Albanons, he is walking a different path toward a similar destination.
More than a year ago, Chalmers laid out his views in a major essay on “values-based capitalism.” This revolved around public-private co-investment and cooperation, and the renewal of economic institutions and markets. He is very busy with the latter work. Reforms to aspects of competition policy are underway, including changes to the Reserve Bank and the announcement this week of a new merger regime.
Chalmers also positively noted a speech last year by Jake Sullivan, the Biden administration's national security adviser, in which Sullivan laid out the U.S. approach.
“Modern American industrial strategy is fundamental to economic growth, strategic from a national security perspective, and identifies areas where private industry alone is not prepared to make the investments necessary to secure national ambitions.” Sullivan said.
“We will deploy targeted public investment in these areas to unleash the power and ingenuity of private markets, capitalism, competition, and lay the foundations for long-term growth.”
It is unclear what Australian Treasury officials (who are central to the work) personally think about Albanian interventionism, but some officials working on free trade agreements at the Department of Foreign Affairs and Trade find this approach difficult. Some people may feel that way.
Many economists will welcome this plan. But there may be harsh critics, such as independent economist Saul Eslake.
Eslake has said that words like “national sovereignty” and “national security” are “a cover for bad policy” and a means of suppressing questions and criticism. We cannot let anything get in the way of our security.'') He recalled stories like this when the Morrison government failed to do enough to obtain coronavirus vaccines from overseas, causing delays as it turned to domestic production.
Eslake also ridicules the “manufacturing fetish” that is one of the driving forces behind interventionism. In Australia (unlike some other countries), manufacturing is an area with below-average labor productivity, so moving resources there would reduce productivity rather than increase it, he says.
As for following the example of other countries, “As my mother used to say, just because your sister dropped her head in the toilet doesn't mean you should too.”
Wherever the economic wisdom lies, focus groups are telling Labor that new interventionism is likely to be the winner. Along with the extra work mantra, people feel warm when they hear the sound. There are many people who have a manufacturing fetish.
