The former Greek finance minister has a laundry list of suggestions to fix Australia’s economy. Here for Sydney Writers’ festival, he doesn’t hold back
There are two seats to choose from: a deep, soft black-leather couch, or a red one that has the utilitarian look of a school chair. Yanis Varoufakis – a man who has described himself as an “erratic Marxist” – chooses the red, and somehow it is obvious that he, with his vibrant purple shirt and erect posture, would never have deigned to sit in that sprawling old couch.
The former Greek finance minister is in town for the Sydney Writers’ festival to promote his new book, And the Weak Suffer What They Must?, and he’s touched down at an excellent time for an interview: on the verge of an election, Australia is having the most fervent debate about fairness that it’s had in decades.
Varoufakis is quite possibly the man who made fairness fashionable again. His anti-austerity views may have been dismissed in Brussels, but they earned him a global audience. He contributes articles to news organisations from the BBC andthe Guardian to CNN, Le Monde and the Financial Times. He is also a star recruit on the speaker circuit, addressing parliaments, financial institutions (“the fact they want me to talk to them is a sign of how deep this crisis is,” he told the Australian) and universities. He recently appeared in conversation with Noam Chomsky to a sold-out audience at the New York Public Library, in what looked suspiciously like a passing of the mantle.
“The vast majority of the social net funding comes from the poorer people,” he says. “If you look at how the system works – and this is how it was designed from 1945 onwards, in Britain where it started, and in Australia afterwards – it’s the working class paying for the working class, primarily. The rich contribute a very small quantity of money to this. Don’t forget they have the best lawyers, and they have the best accountants, and they know how to work the system.
“In Australia we have a scandalous system called negative gearing, the purpose of which is to subsidise the rich.”
Varoufakis is no stranger to Australia. He lived in Sydney from 1988 to 2000, teaching economics at the University of Sydney. As a dual national, he returns regularly to spend time with his daughter – and he’s been following the current election campaign with an eagle’s eye.
“The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites.
“Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem.
“Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy. It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you.
“So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.”
Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods.
“Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”
Producers are the foundation of society
Varoufakis wouldn’t be the first to compare the Australian economy to a Ponzi scheme. Economist Lindsay David has made a similar criticism of the housing market, and has also heavily criticised Australia’s reliance on Chinese investment. David and fellow economist Philip Soos have predicted the economy is heading for a crash, and Varoufakis thinks they might be right. He is quick to point out that crashes can never be predicted, but he is in little doubt that it will happen if Australia doesn’t change direction soon.
“There is no doubt, if you look at the pace of house prices over the past 20 years in Australia and the pace of value creation; they’re so out of kilter that something has to give.”
But Australia seems to be doing the exact opposite of what Varoufakis is recommending, with successive governments moving away from supporting manufacturing. This became a policy flashpoint when the Abbott government was negotiating subsidies to the car industry shortly after being elected in 2013. The result was the exit of Holden and Toyota from car manufacturing in Australiawhich, according to some estimates, could result in the loss of up to 200,000 jobs. Varoufakis calls that decision a “major error”.
“Once you lose this capacity to manufacture you can’t get it back,” he says. “It took centuries to develop it.”
Regardless of short-term trends that reduced the significance of manufacturing in the developed world, he says, the kind of accumulated knowledge that car manufacturing represented should not have been jettisoned without something to replace it. There appears to be an expectation that the Chinese will replace that loss of value by investing their money in Australia. But if that happens, it could lead to boosting the existing bubble in the property market, warns Varoufakis.
“When this flow of capital from China to Australia severs, or comes to a natural end, the crash is going to be much much bigger and the foundations of the society – which are the sectors that produce stuff – are going to be much weaker. So it was such a short-sighted policy.”