Jarvis Ryan writes that there is a contradiction at the heart of the new Labor government's approach to managing the economy.

On the one hand, Kevin Rudd clearly struck a chord during the election campaign with his emphasis on the 'personal economy'. Where John Howard looked out of touch when he told workers they had never had it so good, Rudd's 'working families' mantra tapped into disquiet about everyday expenses like the cost of petrol, groceries and childcare, and the big issues of job security and housing affordability.

In his more populist moments, Rudd has attacked oil and retail monopolies and promised more corporate regulation, including greater penalties for cartels.

But he spent much more time trumpeting Labor's pro-business credentials. Rudd and shadow ministers such as Wayne Swan (treasury) and Lindsay Tanner (finance) promoted Labor as 'the real party of economic reform', pledging to accelerate productivity growth and set up a 'razor gang' to slash government spending.

Rudd's declaration that he is a proud economic conservative succeeded for the most part in placating employers, concerns about union influence within the ALP, but raised serious doubts about Labor's commitment to redressing inequality and rebuilding Australia's decaying infrastructure.

Labor's approach is extremely contradictory, combining social democratic rhetoric with an enthusiastic embrace of free market globalisation. On the one hand, Labor leaders argue there is no alternative to embracing the market. On the other, they pretend they can control the excesses of the system and that the market can be made to be fair.

But even the most cursory examination reveals that 'free' market capitalism has ushered in a new era of corporate dominance. Globally, just a few hundred corporations exercise enormous power over governments. Against this reality, Rudd's promise to set up petrol and grocery price watchdogs looks pitiful.

Rudd and his senior advisers accept that markets are the most desirable and efficient means of addressing social problems. So, for example, they remain committed to carbon trading as a means of regulating greenhouse emissions, when much more radical measures, such as nationalisation and higher corporate taxes, are needed.

Labor's adherence to the economic orthodoxy of neo-liberalism means it gives priority to implementing policies and arbitrary benchmarks decided by a small number of unelected figures, rather than identifying social priorities and developing policies and targets accordingly.

Thus Labor is committed to keeping inflation between 2 and 3 per cent, reducing the rate of tax paid by companies and individuals, and maintaining a budget surplus of least 1 per cent of gross national income.

Pledging to restrain expenditure sits well with big business and right-wing commentators, but the vast majority of people want more government spending on services and infrastructure. In fact there is a crying need for it.

Ah yes, reply the conservatives, but government spending is inefficient and will fuel inflation.

In fact, inflation is rampant in areas where the government has ceded ground to the private sector. The price of education, health and childcare have all increased at well above the general inflation rate in recent years.

More government spending and regulation is needed to promote social cohesion and reduce costs.

Some of Labor's policies are a step in the right direction. Investment in public education promotes equity and economic growth. But the proposed changes do not go even close to far enough. And there is a worry that in some areas Labor will be even more right-wing than the Liberals.

Rudd has boasted about taking an axe to the public service. "When I talk about a razor gang, I am dead serious," he told reporters.

Labor's finance spokesman Lindsay Tanner claims to have identified $10 billion in savings that would include cuts to the public service.

Although Rudd promises the emphasis would be on cutting bloated administration, the razor gang mentality sits uneasily alongside Labor's promise to improve service delivery, and signals that workers - including public servants - could have quite a fight on their hands to win even small pay rises and improvements in conditions.

The contradictions in Labor's approach will become increasingly apparent as Rudd's team settles into office, and especially if there is a downturn in the economy.

By Jarvis Ryan