In mid-1983, Michael Foot led the British Labour Party to a disastrous general election loss. The party, already in opposition, lost 60 seats in a 9.3% swing against it. Labour barely scraped into second place ahead of the SDP-Liberal alliance, with just 27.6% of the vote. Foot’s economically interventionist manifesto and socialist rhetoric were blamed for the scale of the loss.

The election brought a new generation of MPs to Parliament, including Tony Blair, who resolved to reform Labour to make it electable again. Squarely in the sights of this new crop of reformers was the infamous Clause IV of the party’s constitution, the clause that committed Labour to the “common ownership of the means of production, distribution and exchange”. They finally re-wrote the objective in 1995 after a bitter tussle.

By that time, Australian Labor had already made its choice about the need for a greater reliance on markets to achieve social democratic ends. The federal parliamentary party, under the leadership first of Bill Hayden and then Bob Hawke, tried to distance itself from the (real and/or perceived) chaos of the Whitlam government, particularly its latter period. The Hawke Government was motivated by a desire to prove to the public that Labor could be economically responsible.

For Blair and his antipodean antecedents, the internal fight over the direction of Labo(u)r was one of the defining events of their political lives. The next generation of politicians, like Mark Latham, came of age in a period apparently defined by this binary choice: you can pine for the old socialist ways of nationalised industry and high tariff walls, or you can have a new, modern, market economy and success at the ballot box. Take your pick. One or the other. All or nothing. That choice defined the group of politicians I think of as the Clause IV generation.

Latham’s new Quarterly Essay, Not Dead Yet, is shot through with the binary distinctions of the Clause IV generation. You’re for the new ways, the Keating legacy, openness and markets, or you’re a smokestack troglodyte. You’re a moderate reformer, or you’re an extremist. Voters are ‘aspirational’ (and therefore to be courted) or they’re inner-city elites (and to be ignored). The problem for Latham and the Clause IV generation is that these battles and these dichotomies are tired, decreasingly relevant, and don’t really square with reality.

Latham thinks that the ALP has drifted away from “the Keating model” and that this drift accounts for its poor political standing. According to Latham, “given a choice between traditional left thinking – reflected in the paternalism of welfare-state programs – and the aspirational demand for individual entitlements and flexibility, Labor still sides with the former”.

How does he reconcile this argument with Labor’s creation of the (as yet embryonic) National Disability Insurance Scheme? The NDIS is based on a system of individual entitlements – under the scheme, people with disability will make choices about which services they’d like to use, rather than being dictated to by a bureaucracy. How does that represent the “paternalism of welfare-state programs” rather than “individual entitlements and flexibility”? Similarly, what of MySchool and NAPLAN, initiatives Latham praises, that are designed to arm parents with sufficient information to make informed choices about their children’s schooling? These policies are hardly evidence that modern Labor is in thrall to the dead hand of pre-1983 bureaucratic centralisation. Like it or not, the ALP has not shied away from pushing further in the direction of individual entitlements and quasi-vouchers in the delivery of public services.

In his desire to squish the past thirty years of Labor history into binary categories, I believe Latham oversimplifies and misrepresents both the Hawke-Keating period and the recent period. It seems to be Latham’s view that the modern ALP has pandered to old-fashioned welfarism at the expense of middle-class ‘aspirationals’, while the Hawke and Keating governments had their priorities right. How does this fit with the facts? Between 1983 and 1996, the real value of the unemployment benefit rose by 27.4%, a $52 a week increase in today’s money. Under the Rudd and Gillard governments, there has been no real increase. Modern Labor is hardly emblematic of “traditional left thinking,” as Latham puts it, and nor was the “Keating model” the rigid, purist neoliberal regime of Latham’s imagination.

Latham’s narrative also ignores the records of the respective governments on taxes. Keating left office with a top marginal tax rate of 47% that kicked in at 1.4 times average full-time earnings. In 2012-13, the top rate (45%) doesn’t apply until around 2.5 times average full-time earnings. At the other end of the scale, the effective tax-free threshold has risen from 17.4% of average earnings ($6150) at the end of Keating’s reign to 28.2% of the average this year ($20542). This boost at the bottom end should surely square with Latham’s call for public policy that supports those who work, those who aspire to improve their lot through labour, yet it goes unremarked upon. Latham’s story rests on his view of the ‘Keating model’ as a paradise lost, a policy panacea spurned by a crop of politicians determined to turn back the clock. Policies that inconveniently don’t fit Latham’s frame, whether they be the refurbished safety net of the Keating era or the tax cuts of the past five years, are ignored.

Another dichotomy that rings false in Latham’s essay is that between the ‘aspirationals’ and everyone else. The aspirationals, to revive a phrase I thought we’d left behind in 2004 along with ‘dial-up’ and ‘schools hit list’, are those mainstream suburban families who have a good material standard of living and are concerned, above all else, with keeping it that way. I have always struggled with this term. Who doesn’t aspire to better for themselves or their children?

Latham’s vision of a party that meets “the economic aspirations of the new middle class while also addressing underclass poverty” calls to mind Mike Konzcal’s memorable description of this sort of welfare-state residualism as “pity-charity liberal capitalism”. That’s the view that we should have essentially a laissez-faire minimalist state in nearly all respects, but with a welfare safety net on the side that protects people against the ravages of absolute poverty, ‘real’ poverty. Even then, though, Latham’s concession to egalitarianism is minimal at best. He takes the view that more money won’t help poor people, saying quite clearly that the problem “is not the adequacy of income support… [the] system is generous enough for recipients to cover basic living costs”. He doesn’t produce evidence to support this proposition, beyond noting that real income support allowances have risen in the past three decades (though he elides the fact that they’ve barely risen in the past two).

Just as he turns his nose up at the idea that low-income people might benefit from higher incomes, Latham also rejects the paternalist interventions of Noel Pearson; instead he casts his policy of dispersing the poor from their home neighbourhoods as the reasonable third way between “the welfare statism of the 1970s” and Pearson’s program. Latham’s prescriptions spring from the Clause IV generation orthodoxy: the most important thing we can do for poor people is to get out of their way, rather than getting sucked into the misguided belief that we can help them. His agenda is more or less indistinguishable from that of Iain Duncan Smith, Nick Clegg, or Joe Hockey.

Of course, as Don Arthur put it, “the only serious problem with Latham’s plan to end poverty is that it won’t do much to end poverty.” This identifies another key weakness of Latham’s essay: the conflation of good politics with good policy. Latham’s prescription for “the underclass” is rooted in the electoral advantage he sees for Labor in playing up to the electorate’s alleged anti-welfare prejudices. “If taxpayers see evidence of welfare recipients taking advantage of the system, they want governments to take a tougher approach,” observes Latham, truthfully enough. But what if taxpayers don’t really see much evidence of that sort, and they want a tougher approach anyway? Latham’s argument seems to be that policymakers should succumb to the popular perception regardless.

In his pining for the ‘Keating model’, I think Latham misses some key ways in which the world has changed since the 1990s. First of all, Keynesianism (by which I mean counter-cyclical fiscal policy) has been revived in theory and in practice. Our own Treasury was stuffed to the brim with senior officials who had lived through the 1990s recession and regretted the relative inaction of the time. This begat Ken Henry’s famous advice to Kevin Rudd to “go hard, go early, go households” in 2008. This advice was borne of the errors of the 1990s.

The second shift I believe Latham misses is the widespread repudiation of laissez-faire financial regulation in the wake of the financial crisis. Ian Harper, a conservative economist who was a member of the Howard Government’s Wallis Inquiry into the financial system, recently conceded that the Inquiry, upon which much of our current regulatory architecture is founded, placed too much faith in a strong form of the efficient markets hypothesis. The willingness of Harper and others (like Adair Turner in the UK) to revise their view of the role of financial regulation in the wake of the criss stands at odds with Latham’s view that the policy agenda of 1995 can be effortlessly ported into 2012.

Latham also fails to mention one of the key developments of the post-Keating period: the increase in house prices relative to median incomes. It’s possible that Latham’s aspirationals were all born before the mid-70s or so, and were able to get in before the boom.

The essay isn’t all bad. I applaud Latham’s goal, announced in the first chapter, of producing a work that is more focused on policy proposals than on blood-letting and carping from the sidelines. I do, strange as it might seem, agree with him about many aspects of policy. Labor has always been a pragmatic party, a party that seeks to govern. It’s not a dogmatic party, driven by purist ideology. Latham has that right. I think that Labor was right to float the dollar and to pursue some of the more market-oriented reforms it has implemented over the past three decades.But I think that Latham is wrong to miss the other half of the picture, Keating’s view that if people “fall off the pace you will reach back and pull them up.” Some members of the Clause IV generation are too keen to leave behind central elements of the centre-left agenda.

This post is a temporary dip into the waters of more ‘political’ discussion. I’ll be back to my usual chart-blogging soon.