Paul Keating - The Fearsome Reformer
Paul Keating spoke to journalist Peter Hartcher in 2005. Here is a that interview from the Sydney Morning Herald
Despairing of the Labor Party's ability ever to win another federal election, the left-leaning commentator Phillip Adams wrote a newspaper column last month calling for a comeback by a leader with "real, once-in-a-generation political talent".
He was talking about Paul Keating, Australia's 25th prime minister, who has been out of office and avoiding the limelight for nine years. It was not too late to bring him back. "He's still a whole lot younger than Howard, and a whole lot brighter than Costello," wrote Adams, "and as feisty as ever."
He was amazed at the response from readers. "I got a couple of hundred emails, which is a lot for a column. I got a couple that said 'fine, but what about Soeharto', but I got a barrel-load of quite heartbreaking emails about Paul. Mostly it was looking back at a golden age."
Adams forwarded a sampling of them to his friend, Keating. "I think Paul was quite touched." That seems to be an understatement.
In his elegant but gloomy office in the upper storey of a restored sandstone heritage house in Potts Point, Keating volunteers the information that he printed off an inch-high pile of the emails.
The former leader has kept a low profile for the past decade for a reason: "When the power is no longer there to be had and you lose, there is no point in pretending you've still got it." But the fan mail seems to have penetrated the gloom of an office whose walls Keating painted in a sober red in faithful imitation of an Egyptian tomb. He marvels at the emails: "The warmth of the stuff, the warmth, you know, the warmth." He says that in recent months he has also noticed a warming in the reception he receives on the streets.
He has two theories about this. One is that it is an awakening appreciation of the reforms he imposed on the Australian economy, the bedrock on which 15 years of economic prosperity has been built. And this is an appreciation that the Labor Party itself has been slow to acknowledge, a history it has been hesitant to embrace.
The economy
Paul Keating, first as Bob Hawke's treasurer then as prime minister, saw that Australia's economic structure was failing. The economy was highly protected and deeply uncompetitive. There was a pervasive sense of entitlement but only a feeble impulse to compete. Keating stripped away the comforting but ruinous protection of high tariffs, a tightly controlled financial system and a rigid, inflationary wages structure. He unceremoniously ended a century of protection, and forced Australia to compete in the world.
At the time, this historic transformation won him few friends. He insisted Australians abandon their failing economy before they understood the need. The wrenching retooling was absolutely essential and thoroughly unpopular.
"When one undertakes … such a broad set of fundamental changes, you know, you virtually upset at some stage or another every sector: the labour market, the manufacturers, the car makers, the textile makers, the footwear makers, you know, the states, the electricity companies. I mean, not that one has a check list, but you do get around to offending everybody.
"But somebody has to give the country a break."
Keating calls himself a professional nation-builder, though today he rejuvenates structures smaller than national economies. Since losing office to John Howard in 1996, he has been engaged in perpetual renovations: two houses, one in Woollahra and now one in Elizabeth Bay, and his office. "I'm not really happy unless the plaster dust is over my suits and there's paint splashed on my shoes, undercoat splashed on my shoes. But there is something creative about it and I enjoy that."
Keating has difficulty admitting that his was an unpopular government. "We weren't that unpopular," he protests. He attributes the 1996 loss to Labor's election campaign: "I think the public essentially get enfranchised in the last 10 days and I had a shocking last 10 days in '96." This is a simple case of denial. His approval rating rarely climbed out of the 30 per cent range; John Howard's, by contrast, rarely falls below the 50 per cent level.
As his former economic adviser, John Edwards, now an economist at HSBC, puts it with a laugh, Keating has come up with ways to reconcile "why he was popular yet lost in a landslide - I think that's part of his charm".
Keating was so unpopular that his successors in the Labor leadership sought to distance themselves. Amid the razzle-dazzle of the Labor campaign launch in Brisbane at the last election, former leaders were feted, and Mark Latham ostentatiously hugged Gough Whitlam. But Keating was treated like some disgraced relative you had to invite to the party but were ashamed to embrace, brought in through a side door and edited from Labor's broadcast TV footage. It was the nadir of his exile.
This repudiation, Labor realised after the devastating result at the polls, was a mistake. The party lost the last election in large part because voters decided Latham and Labor could not be trusted to run the economy. The party had done so much of the work of rebuilding the economy, yet had no credibility on economic policy.
Re-rating Keating's legacy
Since the election, Labor has decided it has to confront this problem. It has recognised the economy as the central battleground. It has acknowledged the country is in a rare period of extended prosperity. And it has claimed partial credit for it, based on the work of Hawke and Keating. "And claiming credit for it means claiming credit for Paul Keating," Edwards says.
After being airbrushed out of Labor family photos for almost a decade, uncle Paul is now back in the frame. Kim Beazley and his finance frontbenchers, Wayne Swan and Stephen Smith, three of the men who had earlier sought to hold Keating at arm's length, now publicly embrace his legacy.
"You know how companies are re-rated? History gets re-rated too," Keating says. Is he saying that public opinion will re-rate his time in power? "It already is. People walk up to me in the street saying these things now, every day. It probably started in earnest - it was always there but it restarted in earnest after the big 7 per cent [of GDP] current account deficit late last year. When the current account deficit came in at 7 per cent and interest rates went up, people knew things were not well."
Are ordinary Australians so closely attuned to economic statistics? Certainly there is powerful evidence that consumers noticed the March rise in interest rates, but the current account deficit? It may not be mere chance that the record $13.7 billion current account deficit for the September quarter was announced last November, the month after Labor's brutal repudiation at the polls and coinciding with Labor's new willingness openly to give Keating credit for his work as a nation-builder. Keating did not enjoy his exile, but he thinks Labor suffered more than he did.
Why was Keating so different?
"Fundamentally, the Labor Party never believed in the model," Keating says. That model was of an open, modern, market-based economy, the economy that John Howard and Peter Costello inherited from Labor, but a concept that Labor itself, post-Hawke and post-Keating, let slip.
"The whole Hawke-Keating model for Australia didn't have to happen. The unlikely thing is it came from a Labor government," Keating says. "Labor governments and Labor parties mostly believed in big budget deficits, they believed in higher tariffs and managed exchange rates and controlled financial markets. The Labor Party never believed in the model that Hawke and I gave the country, but it happened. The country got a very great break from it."
Why Labor failed to oust Howard
But Labor failed to get the break. Hawke and Keating had been concerned with how to create wealth. But Labor returned to its historical preoccupation, not with how to create wealth, but with how to redistribute it. By discarding the economic model, by rejecting the builders and their handiwork, Labor also threw away the voter base it brought with it, Keating says.
"It's a fundamentally flawed strategy. The Labor Party has given up the middle-class, middle-ground, sole-employer, self-employed, small-business voter that Bob Hawke and I generated for it. That's why Kim Beazley got a majority of votes in 1998 but not a majority of seats because he couldn't get the distribution [of votes in the seats where they were needed to win government] because the Labor Party had already run away from our record.
"They let the Howard Government claim the low interest rates, and so, while there was a great move to be rid of the Howard Government in 1998, it didn't happen because the parliamentary party and the federal organisation of the Labor Party went back to the old anvil … and it's been fatal for them.
"This is why the recent turnaround is so refreshing but, as Kim Beazley said [two weeks ago] in the Herald, there's a decade lost and the brand fades. People don't tie up the policies with the outcome. A decade of prosperity is a structural benefit for the Liberal Party even though the Liberal Party didn't create it in the first place. And of course every time the Labor Party tried to win in 1998, 2001 and the last election, 2004, the further it got away from the internationalising model of the Labor government, 1983-96, the less well it did."
Despite the prosperity, Australian's want something more
Keating has a second theory, another explanation for the warmth of the reception he now receives. He says it is a reaction against Howard, part of a yearning for something more. Australia's prosperity, the uninterrupted economic growth of the past 15 years, has made Australia "richer, stronger and more optimistic", he says, but many people hope for something more.
"I do believe the one thing that's missing out there - and this is in the quietness of the Australian political debate and the sallowness of it - is that there is now no guiding light. A lot of these guiding lights have been put out. The tricky-poo over the republic referendum - putting the wrong question to get the wrong result - and the sort of trying to, you know, hog the mourning, whether it's the First or Second World War, hog the mourning.
"John Howard always pops up at these occasions - he's at every national, international catastrophe, sort of representative of White Lady Funerals.
"He's made an art form out of sadness and sorrow, rather than painting the picture of optimism and enlargement. That's what I think national leadership is about."
Surely Keating is not suggesting that the Prime Minister stops making appearances at commemorations for war dead, or ceremonies for victims of contemporary disasters such as the Bali bombings or the south Asian tsunami?
"No, but the point is one would hope the cultural legacy is not one which is about some shared mourning or some foreboding about catastrophes. We all have those, whether it's Tasmania or the guns, or it's Bali or what have you. They come along in a nation's history. But where's the other side of that coin? Where is the hope out there? It's the absence of that which has made this community so quiet, because 48 per cent of the community doesn't wear it at all. Even if the Labor Party can't get a majority, those of that cast of mind represent 48 per cent of voters out there. That's, you can say half, half the people don't identify with all of this.
"They're sort of sullen about it. That's why there's no effervescence in the political debate. Everyone is now concentrating on their own thing. Pay your mortgage off, move up to a better car - the day will come when this will all change. I think the Prime Minister and the Government's job is to lift people up. I said in an article recently, looking for the threads of gold, the good things that run through a society, every good instinct nurtured … it's the putting out of these things which I think will ruefully come back to haunt the Howard legacy; that is, that this sullenness and quietness out there is really the quiet condemnation of these kind of policies."
Keating's point about Howard making an "art form out of sadness and sorrow" is telling. It is true that Howard does have a gift for reflecting the popular will, and acting on it, in great moments of grief and trauma. It is at moments of national crisis and grief that Howard has registered his greatest surges of popular approval, and popular approval is something Keating, as prime minister, was never able to command broadly in the electorate.
The managing director of the polling firm Newspoll, Sol Lebovic, says: "Howard has a knack around points of crisis to do what the electorate wanted - almost as soon as he was elected there was Tasmania [the Port Arthur massacre] and Howard responded with a gun control policy that took his approval rating to 67 per cent. After September 11, 2001, and his close support for the US, he got 61 per cent, and after the tsunami and the aid package he got 63 per cent."
There are three points here. First is that Keating is right that Howard does benefit politically from such crises. However, second is that he does it not by simply "hogging the mourning" or by turning up for the cameras but by actively responding to tragedy with popular policy initiatives. Third is that while Howard's approval rating peaks at these crisis points, they do not explain the longevity of his popularity.
Howard has the most durable popular approval of any Australian prime minister since the pollsters at ACNielsen first began measuring it 30 years ago.
Paul Keating, on the other hand, was never a popular prime minister. He was elected in 1993 principally because he confronted John Hewson and his GST. Newspoll's work confirmed that most voters were moved not by support for Labor but by dislike of the alternative.
The reason for the "recession we had to have"
Keating concedes his program of economic reform made him a lot of enemies, but he still cannot admit he was unpopular. He will not repudiate his famous declaration of the "recession we had to have". Even if it was true, that it was necessary to break the back inflation in Australia, was it politically wise to say so?
"Well, probably not, but I never lied to people, you see. I always talked up to the Australian community, never down to them. When I'd go on a John Laws radio program, I would try to teach people what the problems were." The boom was generating double-digit inflation and had to be curtailed, he says. The Reserve Bank held interest rates too high for too long, he argues, making the recession deeper and longer than necessary, but inflation needed to be smashed once and for all. "Of course it was the recession we had to have."
More work to do
Keating will not concede that he could have done more work on his popularity with voters. His only regret is that he didn't go harder - in legislating an increase in the superannuation guarantee levy from 9 per cent to 15 per cent when he had a chance, in doing more on the problems of the Murray-Darling River basin. He believes the nation is coming to a fuller appreciation of his work as time goes by. His popularity, perhaps, was just delayed.
History will not be so kind to Howard and Costello, according to Keating. Asked which of them would be the better prime minister for the next term, he replies: "I wouldn't endorse either of them because I don't like John Howard's black-hearted policies and I don't like Peter Costello's blandness."
On Iraq
Keating believes Howard was wrong to send Australian troops to Iraq in support of the US invasion. He recalls being acting deputy prime minister when George Bush snr called to ask Australia for help in the first Gulf War of 1991. "Bob Hawke and I were the first two people in the world to join the Americans in that coalition, ahead of the British and ahead of the Canadians, because Saddam Hussein invaded a sovereign country," he says.
"But in respect of George W. Bush, anyone in the political game worldwide knew Iraq was a decimated country after the sanctions and the war in 1991. There was no way that they were building weapons of mass destruction, much less having the ability to deliver them, and certainly not nuclear weapons. I would never have committed troops to Iraq in those circumstances - ever."
The Howard Government had done "what most US politicians expect - that is, they want like-minded countries to be client states. In regard to Australia, one should never be more mindful of the sovereign policies of another country than your own, so I would always make the Americans earn their keep with us as they made us earn our keep with them."
What of the effect on the Australian alliance with the US if Howard had refused to support the invasion of Iraq? "Not much," Keating says, "Not much. I mean, has it had much effect on the Canadians? Look at the Germans and the French, they're all getting over it." Australia might not have won its free trade agreement with the US, but, says Keating, "it wouldn't matter". A bilateral free trade deal such as the one Australia struck with the US is "only a back-lane agreement at best".
The whole episode, he claims, is a serious blunder. "Have a look at it. I mean, Iraq is a country in civil war. John Howard committed Australian troops to that conflagration and history will bring him to account for it."
On workchoices
And in the meantime, the Howard Government is making economic reforms it does not need to, while neglecting the ones that are truly necessary, he argues.
"The most important thing about the economy is what it's not doing. And that is, it's not transmitting through the wages system unaffordable increases in cost which go into inflation. Right. The 1992 industrial relations change, the movement to the enterprise bargaining stream broke that dismal legacy, coupled with the recession of 1991, '89-'90.
"The key point is the labour market fundamentally does not need reforming...
The move to enterprise bargaining was completely successful. We've had rising real wages and falling unit labour costs ever since and, of course, low inflation. The proof of the pudding is in the eating, you know, in the 14th year of the expansion with high levels of employment growth and real supply constraints we're still turning out moderate wage increases - 3.3 per cent last year - without industrial disputation.
"So what does it tell us? It tells us that barring a few little things at the margin, the wages system is running like a Swiss watch and the idea that [Workplace Relations Minister Kevin] Andrews and other people in the Liberal Party should try and hop in at minimum wages, you know, while [Macquarie Bank chief executive] Alan Moss is taking home $18 million and people at the top end of the system are getting you know, strong tax cuts, is ideology not productivity."
While the Government is putting its political energies into the industrial relations changes, it is neglecting the real tasks, Keating argues.
"The real issues I think are of education training. We will never beat the Indonesians or the Chinese or the Indians for that matter in the provision of labour per hour. You know, we could slash our minimum wages almost to nothing and we would still be uncompetitive in labour-intensive products. Therefore, one doesn't have to be a genius to know or to believe that the best way forward for us is to do clever things which require education and training."
On Costello's performance
And Peter Costello had failed to meet the challenges he had set himself: "[When] the Treasurer took office he said he was going to deal with two problems - our foreign debt and the top marginal rate of tax. The foreign debt has doubled, and the top marginal rate of tax is still at 47 per cent, where I took it in 1989 from John Howard's 60 per cent."
This was why Costello was not a leader, and would never become prime minister. "They've had a business-as-usual government in which the Treasurer has been a complacent, business-as-usual treasurer. But this doesn't breed change and the lack of change doesn't breed leadership.
"There were two leaders in the old Labor government, Bob Hawke and me. I finally said, well I know the party wants Bob Hawke and me as prime minister and treasurer respectively, and the party has had that for 8 years but they can't have it any longer, so I left. I sort of had 40 per cent of the caucus most of the time.
"I don't think Peter Costello has got anything like that support in his parliamentary party and the chances are, the most likely resolution of their conflict is that Howard will one day say after some altercation, say, well look, I just think the party ought to decide who the leader ought to be, I have no rancour about this, so I'm declaring all the positions vacant and there will be a ballot in which I should imagine Peter Costello would lose.
"Brendan Nelson or somebody will become the treasurer and that's the most likely way. Unless of course, the prime minister decides a decade in office is enough and he wants to see some kind of transition. But I don't think he thinks that he owes Peter Costello the prime ministership."
Keating remains combative. But as for the urgings of his fans, the people he might once have called the "true believers", that he return to Parliament and try for the prime ministership once more, the old warrior is touched but not moved. "I took that decision in 1996 [to leave Parliament] and I've been happy with it," he says.
These days he invests on his own behalf and does some business consulting, mainly, he says, for his three daughters. "I've had to build up some assets, you know, which will go to my children; that's what dads do, you know, and you've got a son and three daughters, three daughters, tough for girls, always tough for girls under the glass ceiling that's still out there. It's a lot better now than it was but every year dad's in work is one year closer to a bit of comfort.
"There are other things about your life that are not all about the business of parliamentary parties, you know, and political combat."
At a relatively young 61 years old, it is all about legacy for Keating now. The fearsome reformer who modernised the Australian economy but could never win the hearts of the Australian voting public has the consolation that his political legacy is now acknowledged openly by his own party. Now he is working on a more personal legacy.
This is a no-brainer ; we have known for ages that personal debt is increasing, and we still have Ministers pontificating about the level of saving not being adequate. It's simple: a buoyant economy does not equal wealth for citizens. Even if you rule out housing and education debt, many people have to borrow to pay for food, petrol, electricity, clothing, transport. When family electricity bills top $1,000 per annum, and phones are the same, when transport costs start at a couple of thousand dollars -- this is a lot of money for a low income earner to come up with, to try to get to low income work. They use the fantastic plastic and hope their pay might cover the repayment on the card next week.