The Prime Minister's message is a simple one. The world has just witnessed the overthrow of what he terms neo-liberalism, which he defines as "that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time". Rudd maintains that neo-liberalism triumphed about 30 years ago, when the governments led by Margaret Thatcher in Britain and Ronald Reagan in the United States gave political voice to the "neo-liberal movement of anti-tax, anti-regulation, anti-government conservatives".

Towards the end of his essay, he writes "the political home of neo-liberalism in Australia is, of course, the Liberal Party itself" and criticises John Howard for the Coalition's performance. Rudd specifically castigates his predecessor for failing to do enough to regulate the financial system.

The Prime Minister was scheduled to address the World Economic Forum in Davos, Switzerland, last week. In view of the impact of the global financial crisis in Australia, he withdrew and sent Julia Gillard in his place.

The Deputy Prime Minister addressed a reception there last Thursday and said Australia came to the current financial challenge with many remarkable strengths: "Australia has strong financial institutions. Of the 11 banks around the world that are rated AA and above, four of them are Australian. Australia has an AAA foreign currency rating. We have open and competitive markets backed up by a world-class financial and prudential regulatory system." Gillard pointed out that Australia has an independent Reserve Bank and, at the end of the last financial year, had a significant budget surplus.

Who do you believe? According to the view from Kirribilli, Howard and the Coalition were heavily into neo-liberalism and were opposed to taxation and regulation. But according to the view from Davos, Australia has the best financial regulation system in the world, along with a strong budget outcome which was obviously contributed to by taxation. Since Labor has been in office for just over a year, this cannot be solely the work of Rudd.

The essential problem with Rudd's essay is that it is ahistorical. The fact is that what he terms neo-liberalism has not prevailed in Britain, the US or Australia. Moreover, if it did, then the likes of Tony Blair and Gordon Brown in Britain, Bill Clinton in the US, and Bob Hawke and Paul Keating in Australia did nothing to turn it back. The conservatives in these three nations did not substantially cut regulation or taxation or spending (along with the welfare state that it underpins). Indeed, in Australia, it was Hawke and Keating who started the economic reform process in the early 1980s. Rudd mentions this briefly in his essay but does not seem to appreciate that this reality undermines his thesis.

The Prime Minister's dalliance with theory has been inconsistent. Writing in The Monthly in November 2006, shortly before he became Labor leader, Rudd used the term "brutopia" - which he linked to Howard - to refer to what he variously termed free-market fundamentalism, neo-liberalism and unrestrained market capitalism. Yet it was never clear what he had in mind.

Rudd is rightly proud of his wife's achievements in business. Yet Therese Rein's business success essentially resulted from the privatisation of formerly government-run employment services. And Rudd chose to sound off against capitalism in The Monthly , which is run by the wealthy property developer Morry Schwartz.

So, clearly, Rudd is not opposed to business, or even capitalism. The Prime Minister made this clear in the lead-up to the 2007 election when he described himself as an economic conservative. But now he has written again, bagging what he now terms "extreme capitalism and unrestrained greed" and criticising conservatives.

The Prime Minister makes some valuable points in his very detailed essay. Certainly there is reason to attack greed, incompetence and inadequate regulation in the financial markets. The errors that occurred have been acknowledged by Alan Greenspan (the former chairman of the US Federal Reserve) and Sir John Gieve (the deputy governor of the Bank of England).

However, what mistakes were made occurred when both social democrats and conservatives were in office. Also, the essential cause of the subprime housing crisis in the US was not harsh neo-liberalism, but rather the misguided attempt to make it possible for low-income earners and welfare recipients to purchase their own homes. This policy was introduced when the social democrat Jimmy Carter was in the White House.

Australia will suffer from the global financial crisis. But our financial institutions are stronger now than they were during the recession of the early 1990s. And the fact that Rudd Labor can readily put the budget into deficit stands testimony to the fact that John Howard and Peter Costello produced strong surpluses during the boom years. This was not achieved by George Bush and the conservatives in the US, nor by the Blair/Brown social democrats in Britain.

Obviously, Rudd and his colleagues are constrained about what they can do to ward off or limit a recession in Australia. But they can do something to junk or delay two pieces of coming legislation that will act as a disincentive to employment. Namely, the re-introduction of unfair dismissal laws covering small businesses and the start in 2010 of what will be a tax on carbon. This would not be a concession to conservatives or neo-liberalism. Just common sense.

Gerard Henderson is executive director of The Sydney Institute.