Labor must choose between the Old Way or the Third Way

But “making things in Australia” could mean a return to 1970s winner-picking industry policy – an approach that failed the world over. A number of other Labor policies are similarly open to interpretation.

Improving sluggish wages growth could come from improving productivity improvements, or it could come from mandating higher wages for certain worker or sectors.

And tackling “insecure work” could mean providing basic benefits – like two weeks of taxpayer funded sick leave to workers in the gig economy – or it could mean an all-out attack on platform companies such as Uber.

In other words, Labor’s economic policy could be a reprise of the Third Way, or the Old Way. An updated version of the 1990s, or a return to the 1970s. I, for one, hope it will be the former. And there is good reason to believe that it will.

We’re all capitalists now

First, Labor’s greatest success in governing over the past three-quarters of a century occurred during the Hawke-Keating years. During this time, Labor not only enacted the reforms that set Australia up for three decades of uninterrupted economic expansion, it developed a reputation for responsible economic management that had been in serious doubt before that.

Second, one of Labor’s proudest achievements from this time was the establishment of compulsory superannuation. This turned the bulk of the Australian population into shareholders as well as workers. Most Australians now have a meaningful financial stake in the success of our biggest companies. Class warfare is a lot less attractive when it partly involves declaring war on oneself. In a very real sense, we’re all capitalists now.

With that comes new discipline on centre-left parties. Policies that hurt business now also hurt the retirement savings of workers. Obviously, that doesn’t mean that workers don’t care about their own pay and conditions, but there are real constraints on us-versus-them divisions that didn’t exist thirty years ago.

Third – and this was one of the few arguments from Scott Morrison that resonated during the campaign – it’s true that to have a strong social safety net we need a strong economy. Expenditure on the NDIS is forecast to grow from $30.8 billion this year to more than $70 billion a decade from now. Defence spending is growing rapidly. Aged care needs additional funding. The list goes on. Government debt is modest by international standards, but we need fiscal consolidation so we can spend aggressively in the next crisis.

Budget windfall

The Labor Party knows full well that to sustain this spending requires strong economic growth and low unemployment. Increasing income taxes, for instance, might seem tempting, but it would slow growth and increase unemployment.

It’s also worth remembering that conservative assumptions on commodity prices in the current budget mean Jim Chalmers will inherit a massive windfall for his first budget later this year. With coal at over $US400 ($565) a tonne and iron-ore above $US120 a tonne, Chalmers will find a kind of reverse black hole in the budget. That windfall will permit, at least in the short term, increased spending as well as improvements to the budget bottom line.

That said, there will be challenges. A number of the big reforms that happened in the Hawke-Keating era were about getting the government out of the way. Financial deregulation, floating the dollar, privatising state-owned enterprises all fall into this category. There isn’t much low-hanging fruit like this lying around these days.

Of course, other lasting legacies from this period involved building big things. Medicare, the Accord, and outlawing workplace gender discrimination are notable examples. But these were big, hard things to do. They required exceptional leadership.

The Australian economy is changing in the biggest way since 1980s globalisation. One of our largest export industries, coal, is in secular decline. Two others – iron ore and tertiary education – are under significant pressure.

Managing this transition involves enabling the private sector to adapt to changing circumstances. It also involves government helping to co-ordinate activities – such as targeted strategic manufacturing – that won’t happen by themselves. It’s a task for economic liberalism, even if the Liberal Party is no longer in that game.