The Rudd Government's defence of large carbon polluting industries is unforgivable

In 'After Capitalism' Geoff Mulgan argues that '.. the great depression was both a disaster and an accelerator of reform. It helped to usher in new economic and welfare policies in countries like New Zealand and Sweden that later became the mainstream across the developed world. In the US it led to banking reform, the New Deal and the GI Bill of Rights. In Britain depression, as much as war, led to the creation of the welfare state and the NHS.'

Although Mulgan does not say it - nor do many other politicians, least of all G20 leaders - the environmental crisis with climate change adapatation at the forefront, but by no means the only issue, ought to be recognised as THE primary accelerator of reform throughout the 21st century. Instead we have in Australia - and probably other areas of the world - a government committed to supporting and sustaining what are effectively 'sunset industries'. In his excellent, systemic analysis, Guy Pearce in the latest Quarterly Essay (No. 33) Quarry Vision: Coal, Climate Change and the End of the Resources Boom (Black Ink 2009) explains why this is so (see this review). For any one in need of convincing Pearce's essay reveals the extent of the systemic failure of our current governance arrangements. As I have blogged earlier, our governance arrangements can be understood as a 'structure determined system' which does what it is capable of doing - hence the 'capture of government' by the big carbon lobby. Unfortunately what we need at this historical moment is more than current governance arrangements seem capable of delivering.

Mulgan in his essay promotes the historical analysis of innovation cycles by Carlota Perez, a Venezuelan economist. He says: 'One implication of Perez’s work, and of Joseph Schumpeter’s before her, is that some of the old has to be swept away before the new can find its most successful forms. Propping up failing industries is in this light a risky policy.' Australian Labor seems well disposed to taking policies and practices (both good and bad) from UK Labour so let's hope that Senator Wong and PM Rudd take on board this advice from Geff Mulgan in respect to creating the conditions for transformation of our own economy and society.

Mulgan argues, following Perez, ' that we may be on the verge of another great period of institutional innovation and experiment that will lead to new compromises between the claims of capital and the claims of society and of nature. In retrospect these periodic accommodations are as integral to capitalism as financial crises—indeed it’s only through crisis and institutional reform that capitalism adapts to a changing environment and rediscovers the moral compass that is so vital for markets to work well. ' Thus, the key to transformation, it appears, is in the creation of new institutional forms. I would also argue it involves understanding existing institutional complexity and how institutional innovation exacerbates, or not, systemic complexity including increased transaction costs. Unfortunately Australia is not well endowed with institutional economists nor does government appear to have well developed policies or research in place to address the institutional reform that is warranted!