Neoliberal Ideology

This article represents Neoliberal Ideology.

Student need to read this and anyalize and answer the questions given in the Assessment 1.

Reference: Hockey.,( 2012) The end of the age of entitlement. Edited Speech delivered to Institute of Economic Affairs in London on April 17, 2012. Accessed https://www.smh.com.au/national/the-end-of-the-age-of-entitlement-20120419- 1x8vj.html

The end of the age of entitlement

This is the text of Shadow Treasurer Joe Hockey’s

speech to the Institute of economic affairs in London on

April 17, 2012.

By Joe Hockey

April 19, 2012 — 12.04pm

Introduction
I wish to thank my friends at the Institute of Economic Affairs for the opportunity to discuss an issue that has been the source of much debate in this forum for sometime….that is, the end of an era of popular universal entitlement.

There is nothing much new in the debate other than the fact that action has now been forced on governments as a result of the recent financial crisis. Years of warnings have been ignored but the reality can no longer be avoided. Despite an ageing population and a higher standard of living than that enjoyed by our children, western democracies in particular have been reluctant to wind back universal access to payments and entitlements from the state.

As we have already witnessed, it is not popular to take entitlements away from millions of voters in countries with frequent elections.
It is ironic that the entitlement system seems to be most obvious and prevalent in some of the most democratic societies. Most undemocratic nations are simply unable to afford the largesse of universal entitlement systems.

So, ultimately the fiscal impact of popular programs must be brought to account no matter what the political values of the government are or how popular a spending program may be.
Let me put it to you this way: The Age of Entitlement is over.

We should not take this as cause for despair. It is our market based economies which have forced this change on unwilling participants.
What we have seen is that the market is mandating policy changes that common sense and years of lectures from small government advocates have failed to achieve.

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And we have subsequently witnessed over the last twelve months a raging battle. This has been a battle between the fiscal reality of paying for what you spend, set against the expectation of majority public opinion that each generation will receive the same or increased support from the state than their forebears.

The entitlements bestowed on tens of millions of people by successive governments, fuelled by short-term electoral cycles and the politics of outbidding your opponents is, in essence, undermining our ability to ensure democracy, fair representation and economic sustainability for future generations.

Perhaps we could re-apply noted British philosopher, AC Grayling’s words on liberty to our debate by declaring that we may record that the age of entitlement might have passed its best point, “after so brief a period of flourishing…”[1]

And flourish it did.
Government spending on a range of social programs including education, health, housing, subsidised transport, social safety nets and retirement benefits has reached extraordinary levels as a percentage of GDP.
However an inadequate level of revenue has forced nations into levels of indebtedness that, in an age of slowing growth and ageing population, are simply unsustainable.
The social contract between government and its citizens needs to be urgently and significantly redefined. The reality is that we cannot have greater government services and more government involvement in our lives coupled with significantly lower taxation.
As a community we need to redefine the responsibility of government and its citizens to provide for themselves, both during their working lives and into retirement.
As part of this process, we must emphasise that government spending should be funded from revenue rather than by borrowing from future generations in whatever form that may take.
The Problem
Entitlement is a concept that corrodes the very heart of the process of free enterprise that drives our economies.
All of us would agree that there are some basic community entitlements. For generations we have all sought to define those basic rights.
For example, in the United States constitution the founding fathers determined that citizens are entitled to life, liberty and the pursuit of happiness.
You will remember it was Margaret Thatcher who interpreted community entitlements as the right for our children to “grow tall and some taller than others if they have the ability in them to do so”.[2]
This broader and timeless conservative definition of our end game lays down some foundations for the role of government.

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Equality of opportunity rather than equality of outcome is my preferred model for contemporary society.
Thankfully the modern capitalist economy is centred around the satisfaction of personal wants and needs. Commercial transactions are at the core of the system. And it is a simple and proven formula for willing buyers to engage with willing sellers. If we want a product or service we go and buy it with the dividend from the fruits of our own labour. The producer is happy and the customer is satisfied.

The problem arises however when there is a belief that one person has a right to a good or service that someone else will pay for. It is this sense of entitlement that afflicts not only individuals but also entire societies. And governments are to blame for portraying taxpayer’s money as something removed from the labour of another person.

In our collective effort to win votes, political leaders deliberately portray a new spending commitment as if it is coming out of their own personal bank account. Political leaders rarely thank taxpayers for their funding of the policy. To pay for all these good policy initiatives, governments have taken the easy option and borrowed money from that mysterious and amorphous group defined as “bondholders”.
We all know this is simply a case of borrowing money from the taxpayers of tomorrow for spending initiatives of today. Of course I say with irony, it gets even better when some governments borrow more money to pay the interest on current debt so existing taxpayers and voters will never notice the pain. This is the public sector equivalent of those much maligned ponzi schemes. The sovereign debt problems we are seeing in Europe and the US today are the outcome of countries wanting a lifestyle they cannot afford but are quite happy to borrow from others to pay for.
…
As a parent I want to give my children everything they wish for.
As a democratically elected legislator I want to give my constituents everything they wish for.
The hardest task in life is to say NO to someone you care about.
So perhaps what we are witnessing is a chronic failure of the democratic process.
A weak government tends to give its citizens everything they wish for. A strong government has the will to say NO!
Being profligate is easy and politically popular in the short term, particularly when the political cost of raising sufficient revenue is avoided by resorting to debt.
But painless revenue makes for reckless spending.
Whether it is defence, law and order, income support, social programs and so on, the outcome is the same. Eventually the piper has to be paid.
Since World War 2 western communities have enjoyed prosperity that has exceeded all expectations. This has been fuelled by innovation, materialism,

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globalisation, free trade and debt.
Of course these are not malevolent developments. Rather they are the lauded natural outcomes of a free and successful society.
Moreover these initiatives, which have fuelled a massive improvement in global economic productivity, have driven the age of prosperity. Arguably this has delivered the most dramatic improvement in the material quality of life since the beginning of humanity.
In effect the rapid rise in private prosperity has been matched with demands for an equal improvement in state provided prosperity.
This is understandable. We all want the best available health care, the best education, the best pharmaceuticals and so on.
The difference is that the handbrake on private demand is income.
Unless a consumer can borrow money, it is their income and wealth which determines whether they can buy a new television or renovate the family home.
But for governments with seemingly unlimited capacity to borrow money, that handbrake on expenditure is not real.
While the Keynesian model of Government-led stimulus during the inevitable downturns in the economic cycle is well documented, governments who have turned on the fiscal tap seem completely incapable of turning it off when the cycle turns upwards.
So we have witnessed a continual over-commitment in many countries, funded by the lure of cheap and easily obtainable debt.
It is a problem which is not new. We might think by now we would have learnt the lessons. But clearly that is not the case.
A Tale of Two Systems
In September last year I travelled to Hong Kong – a city of 7 million[3] – which sits at the edge of the Pearl River Delta – home to over 100 million additional residents. As a Special Administrative Region, Hong Kong is now serving as a conduit between China and its global trading partners, particularly those with business directly to the north.
So even though its destiny has changed, Hong Kong continues to maintain its own currency, laws and Parliament but is now totally wed at the hip to Beijing.
Without a social safety net, Hong Kong offers its citizens a top personal income tax rate of 17% and corporate tax rates of 16.5%. Unemployment is a low 3.4%[4], inflation 4.7%[5] and the growth rate still respectable at over 4%[6]. Government debt is moderate[7] and although there is still poverty, the family unit is very much intact and social welfare is largely unknown.
The system there is that you work hard, your parents look after the kids, you look after your grandkids and you save as you work for 40 years to fund your retirement. The society is focussed on making sure people can look after themselves well into old age.
The concept of filial piety, from the Confucian classic Xiao Jing, is thriving

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today right across Asia. It is also the very best and most enduring guide for community and social infrastructure.
The Hong Kong experience is not unusual in Asia. Characteristics such as low inflation, low unemployment, modest government debt, minimal unfunded benefits and entitlements, and significant growth are powering a whole range of emerging markets and developing an Asian middle class that will grow to some two and a half billion people by 2030[8].

The sense of government entitlement in these countries is low. You get what you work for. Your tax payments are not excessive and there is an enormous incentive to work harder and earn more if you want to.
By western standards this highly constrained public safety net may, at times, seem brutal. But it works and it is financially sustainable.

Contrast this with what we find in Europe, the UK and the USA.
All of them have enormous entitlement systems spanning education, health, income support, retirement benefits, unemployment benefits and so on. Some countries are more generous than others and in many instances the recipients of the largest amount of unfunded entitlements are former employees of the Government.
In all these areas people are enjoying benefits which are not paid for by them, but paid for by someone else – either the taxes of those who are working and producing income, or future generations who are going to be left to pay the debt used to pay for these services.
Despite tax rates much higher than in Hong Kong, government revenue in these economies still falls well short of meeting current government spending initiatives.
The difference is made up by the public sector borrowing money. And more often than not we are borrowing money from people such as the citizens of Hong Kong.
You would have to say that this is a flawed formula. For western democracies the party is over.
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The Western world is at the most important economic cross road in its history – Governments must accept their responsibilities to fiscal discipline and the prudent use of their citizens hard earned monies, or they need to accept that the demise of western economies will be forced upon them in a dramatic, unpredictable and possibly violent way.
Adam Smith’s free hand is perfectly capable of forming a fist to punish nations who ignore the fundamental rules. Unfortunately I think Adam’s down at the gym right now and in training for one almighty whack.
Restoring fiscal credibility will be hard. But it is essential we learn to live within our means.
The Age of Entitlement should never have been allowed to become a fiscal nightmare. But now that it has, Governments around the world must reign in their excesses and learn to live within their means. All of our futures depend

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on it.

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[2] Speech to the Institute of Socio Economic Studies “Let Our Children Grow Tall” September 15, 1975

[3] World Bank

[4] February 2012

[5] ibid

[6] GDP year to Q3 2011

[7] Gross debt of 33.8% GDP in 2011, IMF World Economic Outlook Database, September 2011

[8] Can the Asian Middle Class Come of Age?, Homi Kharas, The Brookings Institution, 12 June 2011

[9] IMF, World Economic Outlook, September 2011
[10] OECD Social Expenditure Database, estimates for 2012

[11] Pension obligations of government employer pension schemes and social security pension schemes established in EU countries, Final Report, European Central Bank, January 2009

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