In 1992, Paul Kelly wrote a brilliant book about Australia called The End of Certainty. Kelly’s analysis of the reform task facing Australia has never been bettered.

The trick is to be able to maintain the core values of the Australian culture while accommodating changing circumstances. Kelly says:

“Australia was founded on: faith in government authority; belief in egalitarianism; a method of judicial determination in centralised wage fixation; protection of its industry and jobs; dependence upon a great power…; and, above all, hostility to its geographical location, exhibited in fear of external domination and internal contamination from the peoples of the Asia/Pacific. Its bedrock ideology was protection … This framework – introspective, defensive, dependent – is undergoing an irresistible demolition…

“The real division is between the internationalist rationalists and the sentimental traditionalists; it is between those who know the Australian Settlement is unsustainable and those who fight to retain it.”

Kelly goes on to assert (pages13-14) that “the obsolescence of the old order is documented”, “the evidence against the Settlement is overwhelming”, and “the solution lies not in addressing the symptoms but in basic institutional change”.

But Kelly points out (pages 14-15) that significant progress has been made:

“The decade of the 1980s saw the advance towards a multiracial Australia, the demise of Protection, the start of the long-awaited assault on Arbitration, a loss of confidence in state power and a turning away from government paternalism, [and] a shift towards market power and deregulation to varying degrees … Australia’s economic orientation was more outward-looking and its aspiration was to become an efficient and confident nation in the Asia/Pacific.”

He concludes (page 686) that:

“The challenge for Australian leadership is to internationalise the economy within a framework of social justice and equity, thereby retaining the deepest and oldest Australian values. This is what the public expects and demands…

“The task of leadership now is to create a synthesis between the free market rationalism needed for a stronger economy and the social democracy which inspired the original Australian Settlement ideals of justice and egalitarianism.”

This is still the fundamental task of leadership today. We are not doing well on this score. Our politicians have lost faith in free market rationalism as a necessary part of moving our social democracy forward.

Europe, collectively, long ago lost this faith, with predictable consequences: high and rising unemployment and falling standards of living. Brexit offers an escape for Britain. The Trump United States presidential candidacy offers a similar rejection of free market rationalism.

In the period from the 1980s to the global financial crisis in 2008, we made great progress towards internationalising our economy and society.

One of the great strengths of Australia’s culture today is its comfortableness to so many people of diverse origins. We are easy-going and tolerant. In fact, Australia has proven – through its acceptance of large numbers of culturally-diverse people – to have one of the most tolerant and adaptable cultures on earth.

The stability and ease this brings shows increasing economic benefits in a globalising world economy. Asian visitors like Australia because they feel safe and respected here (as well as enjoying the exotic nature of our country).

What a remarkable adaptation this has been for Australia, starting from the fearful White Australia of the Australian Settlement. Australian culture has been able to capture a distinctive feeling of openness, freshness and vitality that is obvious to anyone who has travelled extensively internationally. Threats to this ease with racial and cultural diversity require serious political attention by our government. Australians will expect nothing less.

We have also become (until recently, at any rate) increasingly committed to meeting genuine international standards of productive performance. There can be no doubt that this is in part associated with the decline of protectionism as a cultural attitude – with the decline of White Australia, for example.

Job opportunities in the domestic, non-traded goods and services sector may not be sufficient in number and pay to meet Australians’ instincts of social justice and equity

Our economy has altered in structure as investment and people have shifted to activities where they produce more valuable goods and services more efficiently. As a result of this more competitive structure, Australians have become far richer since the 1980s.

The internationally-traded goods sector now increasingly employs the skilled, rather than the unskilled, in highly capital-intensive enterprises. Hence, as in Europe and America, a question mark hangs over the jobs and incomes of people without the education and skills that are increasingly sought in a more competitive and technologically-demanding economy. Many will find employment in sectors not exposed to international competition: Australian haircuts do not compete with haircuts in Bangladesh; meals served on Norwood Parade do not compete with meals served on the Champs-Elysees.

But job opportunities in the domestic, non-traded goods and services sector may not be sufficient in number and pay to meet Australians’ instincts of social justice and equity. While we have no open, free market alternative but to offer opportunities for employment at world-competitive unit labour costs, we also must maintain Australian incomes far above world-competitive levels for those of our fellow Australians who are neither skilled nor working with large amounts of invested capital. Reverting to protectionism as a solution (as advocated by Donald Trump, for example) would make all Australians poorer.

There are two answers to this problem: wage-subsidies for low-earning people may have to become widespread and permanent; and/or a negative income tax may have to be introduced to raise the incomes of people whose household incomes are too low to be acceptable in a decent, Australian, social democratic society. Neither of these would impose major efficiency losses (ie reduce average living standards by very much).

A wage subsidy scheme would offer Government cash to top up pay rates less than some declared amount by a tapered percentage increase to bring the bottom rate up to a minimum acceptable standard, with smaller percentage increases for unacceptably low-paid workers earning more than the bottom rate. This subsidy scheme would be paid for by taxes on the population at large.

A negative income tax would offer Government cash to top up low family and single-person incomes to a minimum acceptable standard (whatever the reason), whether employed or not. The negative income tax would also be paid for by taxes on the population at large.

A particular variant of a wage subsidy scheme that I have advocated before is what I have termed a “jobs levy” scheme, to heavily subsidise the employment of those who are currently unemployed. In this scheme, all employed people would pay a levy (say, 2 per cent) of their pay into a fund administered by their own employer to be spent on hiring additional workers at normal pay rates in their own enterprise or, by default, on employing extra people on public infrastructure projects.

The workers paying the levy would monitor its outcomes in their own business or government agency. Businesses would be willing to pay at least some of the levy for their employees insofar as the scheme results in increased profits.

When the chips go down in Australia, we are required, as Australians, to be economically rational, but not to abandon each other, either.

Richard Blandy is an Adjunct Professor of Economics in the Business School of the University of South Australia and a weekly contributor to InDaily.