Here is a ranking of the "Global Competitiveness Index" ranking for each country for 2006-2007 issued by the "World Economic Forum".

http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2007/gcr2007_rankings.pdf

At the top was the US who I think marks one extreme in economic rationalism. The next 5 are Switzerland, Denmark, Sweden, Germany, and Finland who lie at the other end of the spectrum.

We sit at a so/so level ranking of 19. Not bad, but we could do better. It would be nice if we improved by increasing our social cohesiveness rather than promoting a dog eat dog mentality.

Unconscionable economic's marks the practice underlying the so called "rationalism".

America's government national War budget, (it is said), is under-written by China and India. Some 60% or more of it's national budget {?)

With this you can see how the citizens are carrying the pressure and debt.

In Australia we have some cleaning-up to do. Our house-work is becoming increasingly "grimmy" while we refuse to acknowledge the need for Service Administrative Reform (as a whole approach) through the Public Services (especially Health, Manufacturing and Marketing Agriculture and Banking issues) or continue to cling to the ingrained dysfunctions occurring below the national surface.

Have a Go Australia will become the DREAM that ONCE WAS, unless we each STAND UP and deal as a WHOLE NATION to problem solve the issues.

Labor Skills shortages, Poor health and costly servicing, (structural under-employment and other) Wage distribution equity issues, an over-heated economy (inflation looms), a declining export commodities market, the ethic's of military spending over constructive communication and essential servicing infrastructure, an engagement aimed at citizens.

This is all before we talk of the Water crisis and the reasons it has evloved.

The drought and forced to leave our lands, the dis-care of the Youth and Elderly.

The problems and causal elements found in the nations growing private household debt, the causal elements of domestic crime and it's relationship to Drug abuse and indices in Mental Health.

History revisiting itself.

As residents I believe we need to be mindful of the future.

Know that our vote counts and that what we decide will impact the children in the next generations.

Why should our children carry our burden?

I am already resentments towards servicing the population of baby-boomers over the next decades. I see the unnecessary pressure it will create without the support of ground level infrastructure in cities and rural-remote areas.

Civic Health and Wellbeing now, has to be a ECONOMIC National Concern.

http://www.miacat.com
.

I wish I was as upbeat in my assessment of economic rationalism's 'decline' as the author. In Victoria we're on the verge of building a private desalination plant - that will drive up the cost of water beyond what is acceptable for low income households and pensioners. This is aside from the private toll roads and the proposed privatisation of education infrastructure. It angers me - as a Labor Party member - that it is left to the conservatives to criticise some Public Private Partnerships. (PPPs)

Those of us on the Left with a social conscience should be speaking out.

Then there's the federal ALP proposing a 'flattening out' of the PAYG income tax scales, including a reduction in the number of tax thresholds. The commitment to a surplus of at least 1% of GDP also means putting aside more than $10 billion every year - some of which would be better placed in infrastructure.

And Labor's IR policy - while a step forward from 'Workchoices', still does not provide anywhere near enough in the way of standards and protections for the vulnerable and the low paid.

With the cost of living spiralling out of control (petrol/transport - feeding into the cost of food; higher energy prices with the introduction of a emissions trading scheme; higher water prices with the development of expensive new water infrastructue), we need stronger labour market regulation at the low end, public ownership of infrastructure and cross-subsidisation for the disadvantaged, and massive reform of welfare.

The “economic rationalism” this article attacks is a straw man bearing no relationship to what actual economists and policymakers think.

I challenge the author to identify any influential Australian economist who talks approvingly of “trickle down” effects, argues that “any form of cooperation, collaboration or government intervention is harmful as it inhibits competition”, or believes “competition alone will lead to prosperity.”

Of course co-operation is necessary to a successful economy. The opposite of competition is not co-operation but monopoly and regulation – usually due to the intervention of government, and to benefit business at the expense of households.

Economic rationalists don’t think all regulations, or government interventions, or forms of co-operation are bad, only those against the interest of consumers.

When I first arrived in WA in 1989, most fuel stations closed on weekends. To buy petrol on a Sunday we had to buy a newspaper to find which were rostered open, drive several kilometres across metropolitan Perth to the nearest open vendor, then queue for the privilege of paying 20% more than the weekday price.

Supermarkets removed packets containing more than 500g of meat from the shelves at 1pm on Saturdays, because butchers were not allowed to open on Saturday afternoons, and it was deemed unfair that their competitors could sell meat when they could not.

It was almost impossible to buy a small car, because Australian manufacturers did not make them, and the tariff and quota systems in place made it uneconomic to import them.

Australian wages were failing to keep pace with inflation thanks to the deliberate efforts of the government and unions to drive real earnings down under the Accord.

If economic rationalism seems less relevant today it’s because it has largely done its job – the worst of these destructive economic regulations and interventions of the past have been removed, and the economy is far healthier as a result.

Yes, our challenges now are different, and will require different policy approaches. But we can only move into this new paradigm because of the success of the economic reforms in the last one.

I would agree that the major parties have (largely) abandoned economic rationalism, but the justifications for "free trade, privatisation, deregulation, union busting, an insistence on individual responsibility and cutting welfare" still exist. Not to mention the need for further reforms to IR, health, education and taxation.

Moreover, I find it deeply offensive that Rudd and Howard describe themselves as 'economic conservatives' while simultaneously planning to throw taxpayers money around like confetti.

No, 'ed_on line'

There is no such thing as free trade and it will never be justified until there are enforcable minimum standards regarding labour rights, environmental & safety principles and currency manipulation that apply equally to all competitors.

When I studied economics we were taught that international trade brought benefits through ‘comparative advantage’ – nations would develop an export trade in industries where they had an advantage and import where they had a disadvantage.

We were never taught that virtual slavery, zero quality standards, a carte-blanche license to pollute and a shameless policy of constantly devaluing your currency constituted a “comparative advantage” in the real sense of the term.

The current scandals regarding China’s currency and its toxic exports illustrate this point. There are numerous other examples.

From a consumer point of view privatisation has brought zero benefits. Not one privatised entity offers a better or cheaper service than it did under state ownership. Flogging profitable enterprises like Qantas, the Commonwealth Bank and Telstra merely raises revenue in the short-term while further enriching the corporate sector. Privatising a public monopoly is futile.

Deregulation? We are society of laws. “Deregulation” per se signifies nothing unless it specifically refers to the particular regulations concerned and provides a worthy and objective case for removing them.

‘Union-busting’ cannot be justified unless that includes the A.M.A. (the doctor’s union) the association’s that represent lawyers, architects and other professional’s, the Farmer’s Federation and the Business Council.

We are all entitled to freedom of association & the right to collective representation. To deny that to one sector of the community and allow it for others is a base hypocrisy. It is an open declaration that there should be laws that only apply to a certain class of citizens. It is an assault on the democratic assumption of equality and in this case implies an intention to weaken the rights of individual employees for the purpose of exploitation.

More than anything this issue will cost John Howard the election. Which just goes to show that every cloud does have a silver lining.

-Mr Smith

Mr Smith

You say that “Not one privatised entity offers a better or cheaper service than it did under state ownership”. Do you remember how expensive, inefficient and customer-unfriendly phone services used to be under the government-run Telecom Australia? You practically needed a mortgage to phone overseas, and waited weeks for a new line.

I also recall the incompetent and expensive service that used to be provided by our state-run bank, and the utter indifference to consumer convenience of the government-run Water Corporation. This was the last utility I use to accept credit card payments and telephone or Internet payments. Why? Because it didn’t suit them, and customers had no choice but to pay in whatever manner suited the Corporation.

What you were taught at school about comparative advantage still holds true. You many not like China’s poverty or labour standards, and nor do I, but compare them to where they were 30 years ago and the improvement is breathtaking. And China hasn’t devalued its currency, it has actually lifted its exchange rate slightly in recent years, though not by as much as the USA and some others would like.

I agree that “deregulation” per se is neither good not bad, and that regulations should be examined to see if there is worthy and objective case for removing them. That is exactly what happened under National Competition Policy, and may damaging and costly regulations were removed as a result.

Rhian - it is simply a coincidence that the privatisation of Telstra occurred at the same time as the telecommunications revolution surrounding the internet and mobile phone technology. In this, there has been some gain from competition between providers of mobile phone technology... At the same time, though, the cost structures of the industry have been driven up by duplication of infrastructure. Public ownership of infrastructure, at least, would have seemed more sensible.

re: water - I think with essentials such as water and energy - privatisation has seen prices rise rather than fall... And the ideal of the 'sovereign consumer' is far from the reality. There are some things consumers - and citizens - like to be able to take for granted. Here, and elsewhere, including privatisation of roads, there are some areas where competition is not the answer to everything.

In particular, see my article on the Privatisation of Public Space:

http://www.onlineopinion.com.au/view.asp?article=6600

Privatisation is a wonderful thing when there is competition. The justification when there in no or little competition is dubious. The two airlines policy gave an excellent illustration of this.

One was government owned. The other privately owned. While there was a 2 airlines policy both kept themselves happy gouging the poor Australian air traveller silly. The 2 airlines policy was ditched, and after what I thought was a remarkably long time competition finally took effect. The price drops were remarkable.

The price drops caused one worst run airline to go belly up. And - it wasn't the government owned one. In fact the government owned one is still the strongest airline in Australia today.

I see little evidence that in general a government owned organisations are in general any better or worse efficiency wise that a privately owned one. Medibank is another example of this. It is a government run entity in a highly competitive marketplace that has consistently managed to have the lowest premiums.

There is of course strong evidence that competition is better than a monopoly. But some times you can't avoid a monopoly. And when there is a monopoly there is a real difference between government owned and privately owned. A government organisation is ultimately answerable to the voters. A privately owned organisation is beholden only to its shareholders - they care for their customers like ranchers care for their cattle. To put it another way, imagine HIH or Erron running amok without competition to reign them in.

Tristan

My point about higher prices and poorer services pre Telstra was made primarily in response to Mr Smith’s claim that “Not one privatised entity offers a better or cheaper service than it did under state ownership”, which is demonstrably wrong.

I agree that the technological and structural changes in telecommunications are at least partly behind the lower prices and better service we now enjoy. I believe that these changes were themselves driven worldwide by moves to deregulate, and in may case privatise, telecommunication services, so the causal links can’t be easily separated.

I also agree with you and rstuart that public ownership (or tight regulation) of “natural monopolies” such as phone networks and water supply and sewerage networks is a good idea, and did not support privatising Telstra’s monopoly elements.

I agree, too, with a lot of what you say about public space, which has echoes of the standard economic case for government provision of public goods (defined by economists as non-rivalrous and non-excludable goods and services, not just nice things supplied by government! - http://en.wikipedia.org/wiki/Public_good).

The key question in water pricing is the relationship between price and cost. Government-owned water utilities have failed to price water in line with its cost of supply, mainly overlooking environmental cost, and sometimes adequate depreciation. As a result, consumers have been subsidised, with the consequence that demand has been artificially boosted, and there has been insufficient investment in supply – hence the water restrictions in most capital cities. Furthermore, new additions to the water supply through measures such as desalination cost considerably more on average than the cheaper and more accessible sources tapped in the past, so average costs are starting to rise. Where this is the case, rising prices may be a good thing, and for this reason I believe you’ll see water prices starting to rise even in cities where supply is still government controlled.

The 'get big or get out' catchcry that came out with economic rationalism had ignorant bank Johnnies in our district scaring hell out of very efficient small farmers to sell out cheap to many wasteful big farmers, to this day getting so far in debt the banks are forced to keep them on.

And because it is too much ready money whether borrowed or not that helps to cause inflation it is the bankers that are causing it, as well as the competitive greed that is the humanistic cause of it.

It is thus that our districts have lost their family companionships as well as their sporting clubs, lost their medicos who will not work on credit as bush doctors used to do.

As Adam Smith did say, though it is human greed that is necessary to fuel competition, do not let the greed become more important than mankind's natural gift of grace and kindness.

Cheers - BB, WA

Rhian

I do remember Telecom Australia and I also recall that all of improvements that occurred under Telstra coincided with majority government ownership - which only reinforces rstuart 's point that it is competition that matters.

Merely changing the ownership of an enterprise doesn't necessarily improve anything. The idea that private ownership is a virtue in itself is probably the most irrational aspect of "rationalism"

It has also become one of the most unpopular. If it weren't for the presence of certain regulations people in rural areas would wait several years for a new line or never get one. And they were wise enough to know that full privatisation wouldn’t help their cause.

My original point regarding universal labour, quality and environmental standards in international trade remains. There is no justice in exposing our producers to competition from low-grade exploiters that we wouldn’t dream of tolerating in our own country. It's a double standard and China to be fair, is not the only culprit.

Rather than just ‘importing deflation’ as some economists refer to it, we are as customers participating in the exploitation of foreign workers (children included) and the destruction of their environment.

On the other side of the coin it is easy to understand the anger of Australian, Third World and other producers regarding those that subsidise their exporters (eg. Chinese manufacturers and US farmers). Exchange rate manipulation no matter who does it is in effect, just another form of subsidy / protection.

I suppose the rationalists might agree with that last point but the real point I’m making (aside from the matter of minimum standards) is that ‘free trade’ cannot be unilateral. Free trade concessions need to be reciprocated or they will remain infinitely problematic.

- Mr Smith

In my view, Australia has no right to impose minimum wage laws, environmental standards or any other standards that apply in other countries. That is their business, not ours.

I understand the Chinese have artificially kept their currency low. This means we can buy their goods at a cheaper price than otherwise, thus we benefit from higher purchasing power and higher standard of living. If prices are kept low, Chinese firms can keep selling their goods to us, making more profits, employing more people, and reducing poverty. Looks like a win-win situation.

It is true there have been some shoddy goods, but so what? If consumers are unsatisfied with the quality of imported goods, they will stop buying them. Chinese companies will soon get the message, and if they want to stay in business, will change their practices. Anyway, China doesn't have a monopoly on 'shonky businesses', just watch ACA or TT most nights.

Maybe I have it wrong, but it seems to me that increased competition in the airlines, banking and telecommunication sectors has been a good thing for consumers.

I agree that "we are all entitled to freedom of association & the right to collective representation" but it is one thing to be free to associate, another thing to compel to associate. For example, unions should not be given powers to enter businesses without permission of the business owner; nor the power to force employers to pay wages and conditions beyond what they can afford; nor the power to tell employers who they can hire or fire.

The same applies to all other special interest group. They should use the market place, not the law, to further their objectives.

Mr Smith

I agree entirely that competition is more important than ownership, and that merely changing the ownership of an enterprise doesn't necessarily improve anything. Indeed, private monopolies may well be even worse than public ones, and for that reason – as I said above - I did not support the full privatisation of Telstra.

The idea that private ownership is a virtue in itself is not, in my view, an element of "economic rationalism", but support for competition certainly is. This reinforces the point that what opponents and proponents of “economic rationalism” understand by the term is very different, and opponents’ pictures of it (such as the one in this article) often seem a “straw man”, making it hard to debate.

Like ed_online, I disagree that we should deny other countries the benefits of trade unless they match our labour etc standards – an unrealistic and unreasonable demand to impose on developing nations. Re-read your Econ 101 textbook on comparative advantage. Both Australia and China (for example) will gain from trade, even if China’s comparative advantage is (for now) based on cheap labour.

Look at the data on poverty reduction in China since it adopted its “open door” policy. The percentage of the population in absolute poverty - living on US$1 a day - fell from 64% in 1981 to 10% in 2004, the largest and fastest large-scale drop in poverty in history. Trade and economic reform, not foreigners’ pious good intentions, brought about this transformation:

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/04/16/000016406_20070416104010/Rendered/PDF/wps4211.pdf [PDF, 0.3Mb)

Do you really think those exploited children producing goods for export markets would be better off if they lost their jobs?

This article by economist Paul Krugman is one of the most readable explanations I’ve seen of the reasons why rich countries shouldn’t impose their standards on developing countries:

http://hei.unige.ch/~baldwin/ComparativeAdvantageMyths/PraiseCheapLabour_PK.ht

Ed_online & Rhian

You will probably be aware that the WTO already has certain minimum standards even though they are totally inadequate. For example it is against WTO rules to use prison labour for export goods (and please don’t ask me if I really think those exploited prisoners would be better off if they lost their jobs).

The WTO’s concern is not with the exploitation of prisoners but that other producers in the global marketplace should not be expected to compete with those that would gain advantage through such abuses.

My assertions are merely a logical extension of an already well-accepted principle. Labour isn't the only issue here and China isn’t the only case in the basket.

Interestingly, the United States is already miles ahead of us on this one and even some of the Republicans have joined in on plans for drafting laws to deal with this issue. They have several concerns one of them being that free trade concessions should be reciprocated and another being that their balance of trade isn’t looking like ‘a win-win situation’, its almost as bad as ours.

I am not suggesting that western nations impose their standards on other nations per se - merely that importers be required to observe the same standards as local producers or something comparable at least.

Believing that one good cliché deserves another I must say that I really do think those exploited children would be better off if they lost their “jobs” just as the children of pre Industrial Revolution England were better off than those that were dragged into the dark satanic mills after the Enclosure Acts.

The abundant fallacy of the “poverty-reduction” argument is (unwittingly) illustrated by Rhian’s point about China:
“The percentage of the population in absolute poverty - living on US$1 a day - fell from 64% in 1981 to 10% in 2004.”
That’s great except for the fact that $1US bought a hell of a lot less in 2004 than it did in 1981.

As for China’s “open door policy”, protectionism by any other name would smell as sweet.

-Mr Smith

If the US is considering imposing restrictions on cheap imports, then ask yourself this question: who benefits? Here's a clue, its not the low-paid in developing countries.

Back in the early days of the Industrial Revolution the choice was stark: work or starve to death. Apparently you think people should starve to death.

In reality, the 'dark satanic mills' represented a significant opportunity for people to improve their lives. The standard of living improved massively in England as a consequence of the Industrial Revolution.

Grinding poverty was the norm in 17th century Europe, just as it is today in sub-saharan Africa and other parts of the world. Capitalism lifted Europe and the US out of poverty, and it is doing the same in China, India and Eastern Europe today.

Do you doubt that poverty has fallen in China? This is not only confirmed by their rise in income but also demonstrated by a fall in unemployment. Recently, there have even been reports of labour shortages!

Mr Smith

The dollar-a-day benchmark is in “real” terms, i.e. adjusted for inflation (actually its $1.08 a day in 1993 prices, but dollar-a-day is a recognised shorthand). It’s the world’s most widely recognised measure of absolute poverty in developing countries, and is one of the benchmarks for the UN’s Millennium Goals. So the reduction in poverty in China is real:
http://mdgs.un.org/unsd/mdg/Metadata.aspx?IndicatorId=0&SeriesId=580

Other welfare indicators for China, such as life expectancy, literacy, infant mortality etc have also improved dramatically.

My guess is that the prohibition on trading the products of prison labour is not so much intended to protect prisoners from exploitation – most countries require their prisoners to work, including Australia – but rather because market labour costs are not costed into their prices, so they are in effect subsidised.

ed_online’s point about living standard improving in the industrial revolution is spot on, and very similar to what’s happening today in China, except it’s happening much faster in China. By our standards, working conditions and wages in the early and mid nineteenth century Britain were atrocious, environmental protections nonexistent, public services such as water and sewerage rudimentary at best, and decent education and health services accessible only to those who could pay. But this represented a massive improvement on pre-industrial life, and also a necessary stepping stone to the much higher living standards enjoyed in the 20th and 21st centuries.

If you deny the Chinese the right to do the same, you not only condemn them to poverty now, you also kick out the rungs on the ladder to prosperity taken by the West and more recently by Hong Kong, Singapore, Taiwan and Japan, all of which reached western living standards through economic policies including openness to trade and, initially, comparative advantage based on cheap labour.

As Krugman’s article says, “as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress”.

Coming in late ... Rhian correctly identifies that the author is attacking something which never existed. "Eeconomic rationalists" was a term of abuse by those who lost influence to more effective policymakers in the 1980s and were unable to refute them with reason, facts and logic.

The common approach of the ERs was: clearly identify the problem; ascertain the facts; develop policy options in the light of the best empirical evidence, sound principles and theory and the best understanding of the issues; and detail the costs and benefits of alternative options to the decision-makers such as the Hawke Government. Sounds good to me, it's underpinned my work as an economist but is sadly lacking in the approach of all parties at this election.

I was always under the impression that the real targets were economists. The term 'economic rationalist' was a cover. One can only speculate as to why critics chose to hide behind this veil.

Faustino, I think you have a significant point. During the 1980's and early 90's much of the reasoning and evidence behind "economic rationalism" made sense. But the problem is that it went from being "rationalism" to "fundamentalism" or just plain dogma - that freer markets, less government regulation, less government spending, less government involvement in infrastructure management etc. were always better, no matter what. Which completely ignores the reason why the regulation and government involvement was introduced in the first place: i.e., markets need solid regulatory frameworks for them to function properly at all. Now it seems we have the worst of both worlds: governments simultaneously believing that minimal government spending, intervention and regulation is best for the economy, but still spending madly largely for the purpose of gaining votes (all the while claiming that they are the better "economic managers"). Far preferable would be a government that at once accepted it had a vital role to play in supporting the economy, and making its regulatory and spending decisions based on that understanding. I'd like to think a Rudd government will do a better job of this than Howard's, but I'm not holding my breath for any dramatic improvements.

Apart from anarcho-capitalists, most free market economists agree that there is a role for govt in the economy, but a very limited one. I believe that our economy is still too heavily regulated and many of the problems that we see today are a result of that.

For example, the current water shortages in Australia. While clearly the drought is a major contributor, govts have made matters worse by imposing price controls. If these controls were abolished, prices would rise and water restrictions would no longer be necessary. And if private enterprises were permitted to enter the market we would see an increase in the supply of water. Moreover, govts seem to be captive to the green vote and so are reluctant to construct dams.

Wherever and whenever govts interfere in the market to make things better, distortions inevitably arise to make things worse.

Rhian,

I must confess that without knowing the details of it I suspected that the ‘dollar-a-day benchmark’ would be adjusted for inflation otherwise it would seem too silly to be true. Its just that the “shorthand” as you put it does leave itself open to some amusing misinterpretation.

As regards the WTO rule about prison labour if you read my last post you would see that your point is the same as mine: That the rule exists to exclude unfairly subsidised producers. So you, I & the WTO are in agreement except that I would (logically) extend the principle.

While recognising that there is some level of truth to your statements about poverty reduction in China, this has been achieved under the patronage of a strong, paternal state.

If anything, I find it amusing that (given all of the issues raised) the rationalists in this blog have concentrated their efforts on defending the record of an openly protectionist and nominally communist state that (like Taiwan Singapore & Japan) does not & never will share your ‘rationalist’ point of view.

Regarding Ed_online’s question. The U.S. is not considering “restrictions” (ie, quotas) but basic universal standards. “Who wins?” – everyone, pirates and tyrants not included. If it means that China lets up a bit on its manic export drive allowing for growth in their domestic market all the better.

The very idea that the ‘dark satanic mills’ improved worker’s lives is naïve at best. Rural poverty in 18th century Britain was driven by an acceleration of Enclosure Acts that dispossessed people of their land.

Pre-industrial (& for that matter pre-colonial) life was far from ideal but do not expect anyone to believe humanity has spent its entire history in an abject near-death state waiting for the golden opportunity of a killer job in a sweat-shop slum.

In the West, greater rights and conditions were secured by those that fought for them. In developing nations, opposing the right to organise “means that you are willing to deny desperately poor people the best chance they have of progress”.

- Mr Smith

Mr Smith, re your "do not expect anyone to believe humanity has spent its entire history in an abject near-death state" claim - well...I suspect much of our evolutionary history was spent in a a relatively "near-death" state, in the sense that the we were generally far more vulnerable to diseases and incidents out of our control.
Indeed, in the natural world, arguably for most species, the bulk of their representatives live in "near-death" state.
Modern medicine and technology have given us an extraordinary layer of protection against this, although of course, the rise of agriculture and massive population growth, specially in urban environment has also led to many more infectious and deadly diseases (which, for the most part, our natural auto-immune systems have dealt extraordinarily well with).
"Abject" is of course a value judgement. There's no denying the cultural and technological paucity of hunter-gatherer societies - and I am not about to give up Beethoven or the Internet just so I can live in a nomadic tribe where poverty is non-existent and ecological damage is never likely to overwhelm the Earth's capacity to repair itself. Indeed, if humanity cannot work out how to preserve its cultural and technological developments whilst simultaneously solving the poverty and environment unsustainability problems, then we deserve our own inevitable extinction.

Good post wizofaus,

For the most part I couldn’t agree more. Despite taking on some entertainingly wild tangents you have anticipated some of the larger issues involved.

That said, I don’t think that I was suggesting that we should revert back to a hunter-gatherer lifestyle in order to secure environmental balance. In the context of this debate I’d rather not try to replace one form of lunar fundamentalism with another.

Your point regarding the “near–death state” is a valid but largely semantic one. It reminds me of Catch-22 where Yossarian observed that the young members of his bomber-crew were actually very old because (in probability terms) they were much closer to death than the average person. It is true to say that for much of our evolutionary history we more “vulnerable to diseases and incidents out of our control” but that doesn't mean that our ancestors spent most of their time in a state of half-starved misery.

Given a choice most of us would rather not be subject to the ravages of nature but there are many and varied forms of civilisation that existed prior to industrialization and many of them from the highly advanced Inca to the Australian hunter-gatherer were in the broader sense, better off before they received our contribution.

My original point was to reject the suggestion that even the worst form of Third World exploitation in the manufacturing or cash crop-for-export industries is somehow superior to the traditional lifestyles that existed in those regions for centuries.

It is true to say that capitalism and industrialization have (when balanced with the introduction of rights & protections) improved our standard of living and brought great progress, just as the Roman Empire had advanced our civilisation long before then. It’s just that the Romans didn’t have the nerve to tell their slaves that they were doing them a favour.

- Mr Smith

Mr Smith

I never argued that China is a model of economic rationalism. We have discussed it in the context of the comparative advantage, a mainstream economic idea that I have argued is amply demonstrated in China’s trade-driven economic growth. And I agree that China could do with balancing its growth profile a bit better. I strong disagree, however, that US-imposed trade restrictions are a desirable or effective way of getting there.

Who in this thread has suggested that Chinese workers not be allowed to organise? (If you think workers get a raw deal in capitalist countries, take a look at their rights and conditions in socialist ones).

Wizofaus

I think you too are setting up a straw man. Can you name an influential economist who has argued deregulation, for example, is “always better, no matter what”? I believe economic rationalism has always been pragmatic, analytical and outcomes focussed, as Faustino has described. The rigid dogma you describe exists in the imagination of rationalism’s opponents, not its practitioners.

OK Rhian

We seem to be getting our wires crossed a bit here. So in order to correct any misunderstanding I refer you to my original post where I only mentioned China once - by way of an example with regard to exchange rate abuses and dangerously sub-standard products.

Not once have I specifically referred to their labour standards in the course of this thread. My reference concerning the right to organise would probably be better directed at those nations where that right is denied at gunpoint and where the likes of Nike choose to outsource their manufacturing operations.

The U.S. legislation I was referring to is still in draft form and it is not a ‘trade restriction’ nor does it involve western-style minimum wage levels as someone else suggested in this thread. It is based on the idea that importers should observe human rights-based labour standards in sourcing their products and that they should not bring chronically faulty, toxic or dangerously defective goods onto the market.

For the life of me I cannot see why that should disadvantage any worthy and efficient producer anywhere in the world. As regards exchange rates I don’t blame any nation with a floating rate for going after others that are openly taking advantage of them. A true free-market theorist would require that everyone eventually float their currency so that equilibrium can occur as profits, wages and foreign reserves increase in nations with a trade surplus.

If you really believe that economic rationalists are not the rigid fundamentalists that the wizofaus and others have referred to then I would invite you to consider the output of the Chicago School, Milton Friedman, Margaret Thatcher and their relationship with General Pinochet. As well as Peter Costello, Senator Minchin, the H.R. Nicholls society, Australia’s “Institute of Public Affairs”, the “Centre for Independent Studies” and the numerous, American right-wing think tanks that have influenced policy over the past two decades. And if you consider that they do not fairly represent true rationalism then the rationalists would have done well to consider the company they keep.

-Mr Smith

Rhian, I would argue a lot of the reason we ended up with WorkChoices was because of this mantra that less regulation was always better. It largely originated from the HR Nicholls society, which has a number of "influential economists" under its wing.
The economists and others who have influenced the Howard Government's decisions to cut funding to education, to sell off all of Telstra, etc. etc. are arguably guilty of the same thinking (I've yet to see a rational argument why it makes sense to sell off the portion of Telstra that looks after what is a natural monopoly - i.e. the bulk of the natural telecommunications network).

Wizofaus, in the late 80s economists in the field were generally advocating the retention of a government-owned telecoms infrastructure provider with competition among service providers. Privatisation of a near-monopoly infrastructure and service provider such as Telstra was of course likely to attract higher bids - the decision was made on revenue grounds, not the kind of public interest economic grounds which "economic rationalists" argued for. Telecoms and media policy hasn't advanced much since. To quote my 2006 submission to a federal inquiry: "I suggest the following principles:

1. Media policy should be directed to the benefit of end-users and the community at large, rather to any particular vested interests.

2. Policy should not discriminate between modes of delivery in terms of content, geographical reach or other factors. All modes of delivery should be able to provide whatever content is technically feasible for that mode – no content should be reserved to a particular mode of delivery.

While these principles would appear self-evident, they are far from the basis of existing and proposed policy." I'd call that an ER approach.

Faustino, it sounds like we're largely arguing about terminology then. Clearly, lots of things have been done in the name of "economic rationalism" that weren't the least bit economic, or rational. If it hasn't been called that, it's been called "free-market reform", or "economic liberalisation" or some such name.

Another example I just came across, in NZ:

"New Zealand began the 1980s with per capita income about 90 per cent of that in Australia.

[It] took the path of radical free-market reform cutting its top marginal rate of tax to 33 per cent in 1988. The following decade saw one of the most miserable economic performances experienced anywhere in the developed world, with virtually no growth in income per person. When the Clark Labour government was elected in 1999, New Zealand's income per person was less than 75 per cent of that in Australia.

The first action of the new government was to raise the top marginal rate to 39 per cent. Despite predictions of doom, and continuous sniping from architects of failure like the NZ Business Roundtable, the economy has performed strongly ever since. There are other factors at work, but if the increase in tax rates had any adverse effect, it has been imperceptibly small."

(From http://www.uq.edu.au/economics/johnquiggin/news/2004-05-20-AFR.htm)

Mr Smith

China: there is no doubt that it is ruled by a totalitarian regime. But the point is that countries that liberalise their economies experience an increase in prosperity and a reduction in poverty. China is an example of this, there are others.

Industrial Revolution: Certainly living standards in the 18C and 19C were quite bad compared to today, but they were an improvement on the pre-industrial era. And over time, conditions got better, as you have noted. But what would have happened if today's standards were applied to the factories then? They would have closed down, people would have lost their jobs, many would have returned to poor houses and prisons, and economic progress would have been retarded.

You say that "rural poverty in 18th century Britain was driven by an acceleration of Enclosure Acts that dispossessed people of their land." And what if capitalists had not offered these people jobs?

Standards: As I have already stated, the US has no right to impose 'basic universal standards' or any other standards on developing countries. You are wrong to suggest everyone benefits from these. If applied they would hurt Chinese unskilled workers and American consumers. I suspect US companies are sponsoring these proposals to restrict foreign competition.

Former high court judge Jim 'Diamond' McLennan once said to a community group opposing a sewage outfall proposal in NSW that their belief that environmental harm would occur did not mean that such harm would actually take place. So it is with Andrew Wear's article. His belief that "economic rationalism ....has exacerbated inequality in society, and across regions" is simply untrue. In fact, economic rationalism is one of the primary factors that has led to the world having the smallest number of its people living in poverty (in absolute and percentage terms) for many decades, meaning that more people than ever before (in China, Thailand, Korea, etc) have lifted themselves out of poverty by improving their economic well-being.

Similarly, his claim that "other pillars of economic rationalism such as free trade, privatisation, deregulation, union busting, an insistence on individual responsibility and cutting welfare have been put on hold, abandoned or reversed" is not supported by the facts. In Australia, a Kevin Rudd Labor government is likely to be as financially conservative as the one it is replacing, with free trade for example being one of the pillars in our foreign policy. And union busting will go on, not due to any action of government but by the voluntary refusal by workers to take up union membership.

Andrew is talking about a dream world that he may want to see created but the truth is that his world died several decades ago, never to be brought back to life.

Apologies for coming to this conversation late.

Firstly, I'd like to clarify the intent of my article.

It was not intended as an attack on economic rationalism or neoliberalism. That has been done extensively elsewhere, by numerous people more qualified than I, such as John Quiggin (eg http://www.uq.edu.au/economics/johnquiggin/JournalArticles97/Econrat97.html).

My article was attempting to make the simple point that the days of economic rationalism (or neoliberalism) as a grand metanarrative appear to be over.

This is not to say that governments everywhere aren't adopting a range of policies that could be characterised as 'economic rationalist'(Work Choices, toll roads etc etc) - they are.

But they are not positioning these policies in a grand economic rationalist narrative. Rather they are picking and choosing.

They are certainly adopting a range of policies that are not 'economic rationalist' (eg at the federal level, single desk wheat marketing, extensive welfare payments for the middle class).

In a policy sense, too, it is good to be picking and choosing - choosing the right instruments for the right problem, consulting the right experts for the right issue. As Rhian said, 'our challenges now are different, and will require different policy approaches'.

Sometimes governments will adopt market approaches, at other times the state itself will deliver services. Still, at other times, newer instruments such as partnerships will be most appropriate (and this encompasses a much broader range of options than PPPs).

As I mentioned in my article, todays challenges are about human capital, innovation, liveability and sustainability. Economic rationalists are simply not the right people to go to for advice on these issues. What, for example, would a an 'economic rationalist' innovation policy looks like? Or, perhaps, a neoliberal liveability policy?

Economic rationalism, will leave a legacy, sure, but its days as a coherent meta-narrative are over.

For those on the left, this represents an opportunity; one that I suspect will be best realised not through postulating an alternative metanarrative, but by working enthusiastically in the spaces that are opening up.

Thanks Andrew.
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Ed-online.

One signifcant thing that has emerged from this thread (including Faustino’s insightful contribution) is that the value-laden term ‘liberalise’ in itself signifies nothing. Industrialisation has definitely brought wealth to Asian economies where market reforms have been selectively introduced according to nationalist (and protectionist) strategies orchestrated by central governments.

The strategies vary and tend to be successful when they‘re tailored to the needs of the nation. Which reinforces Faustino’s point in that an objective, outcomes-based approach beats a polemic, one size-fits-all ideology every time. If by ‘liberalise’ you are also referring to the economic policies introduced in Chile in the ‘80’s or Mexico later on, they were a disaster.

Colonialism, the Enclosure Acts, factory system, Georgian penal code and transportation were part of a systematic process perpetrated by an authoritarian elite in a nation where voting was restricted to the propertied classes & outcomes reflected that. Historic sources indicate that the early industrial revolution brought an horrific decline in the quality of life of the poorer classes. That is not to say that feudal peasant life was ideal (far from it) but that imperial laissez –faire capitalism was appalling. For the majority, improved living standards were just as reliant on universal suffrage, trade union gains and conscientious activism as they were on economic advances.

Furthermore the freedoms won and gains made by those people in no way undermined the viability or profitability of British industry and never would have.

In the context of the draft trade laws that I was referring to, the idea that the U.S. is “imposing” anything on anyone anywhere else is an entirely false premise. If they want to bring importers more into line with the standards required of producers in their domestic market they have every right to. Most of their competitors are far more protective in any case.

Equally false is the idea that its all about cheap labour in developing economies. The exchange-rate is usually the determining factor in export competitiveness. And labour is often a relatively minor cost component in capital-intensive industries like manufacturing.

- Mr Smith

If 'liberalise' means nothing, then how is it possible to distinguish between North Korea and South Korea?

I don't know the specifics of what happened in Chile or Mexico in the 80s, but the Index of Economic Freedom (2007) shows that Chile is ranked 11 and Mexico 49 (Hong Kong 1, Australia 3). Over the five years to 2005, per capita GDP has grown by 49% in Chile and by 26% in Mexico. (Source: IMF).

You argue that the Industrial Revolution led to a reduction in the standard of living of 18C Britons in large part due to the authoritarian elite. I have conceded that conditions were certainly bad by today's standards, and I would agree that feudalistic attitudes continued for some time. Eventually conditions improved and by the early 19C were substantially better than the pre-industrial period. This was largely due to the transformation from a feudal to a more capitalist society.

But what would have happened if England had not experienced industrialisation? Surely the situation would have been much worse.

You state that the US has every right to "bring importers more into line with the standards required of producers in their domestic market." Does the US constitution authorise the imposition of its laws and regulations on other countries?

You may be correct that labour costs are a fraction of the total production costs of goods made in developing countries. But that does not justify artificially raising labour costs to the point where people lose their jobs. Many of these countries already have very high unemployment rates.

Andrew,

I think that some of us are aware that your article 'was not intended as an attack on economic rationalism or neo-liberalism'.

Its just that your reference to the 'other pillars of economic rationalism' prompted an exchange that was bound to take a certain direction.

For me the most interesting (or at least novel) thing to come out of the comment thread was the appearance of self-identifying 'rationalists' insisting that they should in no way be confused with neo-liberal ideology or market fundamentalism.

Meanwhile fundamentalists chimed-in in defence of rationalism with both of them suggesting that rationalism as you’ve described never existed that its just a caricature that you've invented etc.

It would appear on one level at least that this identity would prefer to blame its critics for the fact that it has become increasingly uncomfortable with itself.

Mr Smith

Mr Smith

Which of the statements by posters here would you identify as “fundamentalist”?

I repeat my unanswered questions – Can you name an influential Australian economist who has argued that deregulation is “always better, no matter what”, or who talks approvingly of “trickle down” effects, argues that “any form of cooperation, collaboration or government intervention is harmful as it inhibits competition”, or believes “competition alone will lead to prosperity.”?

Rhian
Today's economists aren't necessarily pushing a hardline neoliberal line - that's the whole point of my argument.

But the political dynamic in the 80s and 90s lacked the nuances of the economists. So while you had the NCC pushing competition policy when in was 'in the public interest', you politicians framing the debate in the terms that I have mentioned in the article.

For example, Paul Keating:

'productivity can only come from a competitive structure... where you see healthy competition, you also see lower prices and higher productivity'.

And Jeff Kennett:

'There is no such thing as equality. We live in a competitive world. If you try to make the fat man [sic] thin then the thin man ultimately dies. We have got to encourage the fat man to become fatter so that the thin man becomes fatter'

Perhaps Kennett was taught by Rumsfeld.
__________________________________________________

ed_online

Re. “how is it possible to distinguish between North Korea and South Korea?” - with a compass or a map first of all. After that it becomes apparent that one of them is a basket case quite unlike anywhere else.

Re. Mexico and Chile - the regimes I was referring to pre-date the 2002-2005 period & in Chile’s case it is little wonder that they’ve improved as much since then.
Putting that aside, “per capita GDP does not factor equality or measure living standards generally speaking. Per capita GDP can be huge in places where 5% of the population own 90% of everything.

Re. " Does the US constitution authorise the imposition of its laws and regulations on other countries? - No, I hope not & nor does this question remotely have anything to do with what I’ve said about importers.

An importer is not another country. An importer in this case, is an American.

Re: “justify(ing) artificially raising labour costs to the point where people lose their jobs” I am not exactly sure what that relates to.

It may be based upon some mythical relationship between labour rights and unemployment. It has no particular relevance to anything that I have raised in this thread.
__________________________________________________

Rhian,

With regard to which comment, post or posters I would identify as ‘fundamentalist’ you are not (not) one of them by and large. Beyond that I will leave it to interpretation. Others may accept or reject my perception of fundamentalism as they please. It may be better not to encourage a repeat (or minor variation) on the same argument.

Re. Influential fundamentalists in Australian economic policy. The IPA & HR Nichols Society definitely. As well as some among the commentariat in The Australian & to a lesser extent, the Fin. Review. They are not in the RBA or other banks generally but there are still some (more discreet) ideologues within Treasury.

That said, Andrew is right. The hardliners are now fewer & less influential.

-Mr Smith

Why is North Korea a basket case? Because it is run by an anti-capitalist regime.

Despite what happened in the 80s and 90s, Chile and Mexico are not "disasters." They have continued to pursue free market policies (more or less) and as a consequence, living standards have improved. Other indicators, apart from per capita GDP, show this to be the case (e.g. falls in infant mortality and increased life expectancy).

Re: "An importer is not another country. An importer in this case, is an American." Fair point, I obviously misread this.

You seem to be suggesting that American companies will be restricted from importing goods made in countries with lower labour standards than apply in the USA. This is just a form of protectionism disguised as 'helping poor workers in developing countries'. In reality, it is nothing of the sort. If allowed it would result in poor workers becoming poorer.

North Korea is a basket case because it is an isolated nation run by an authoritarian family dynasty & is quite unique in that respect. It would be better off if it had some aspect of democracy & a mixed economy like the rest of us but what any of that has to do with this debate is entirely beyond me.

This discussion is (was) about economic rationalism if you want to broaden it to include all possible forms of capitalism I am not going to join you as I am not entirely opposed to capitalism per se. Never was.

The North Korea’s regime is the last remaining relic of a conflict that occurred in the mid-twentieth century and is no longer relevant. The point of Andrew Wear’s article is to say that economic rationalism is a 1980’s construct that fast losing relevance in the context of a post peak-oil, carbon-conscious future where sustainability is an order of priority. ‘Rationalism’ doesn’t address those issues. Regardless of whether you’re for or against it, it has become dated.

Progressive arguments aside, a new school of conservative leaders like Schwarzenegger, Merkel and Cameron that have clearly come to terms with this. They’ve moved on.

Moving on, No I don’t “seem to be suggesting that American companies will be restricted from importing goods made in countries with lower labour standards than..the USA” and (once again) its not all about “helping poor workers in developing countries” That is the idea that you anticipated & that’s how you are determined to interpret it .

The proposals I referred to involve very basic human rights – eg. the prohibition of slavery, workplace safety (make that workplace survival) the right to organise as well as environmental considerations eg. permanent & fatal damage, major deforestation etc. If protecting local producers from heavily subsidised imports or protecting consumers from toxic and dangerously defective goods is ”protectionism” (which it isn’t) then you will find that the electorate is largely in favour of it.

- Mr Smith

I mentioned Korea in response to your assertion that "‘liberalise’ in itself signifies nothing." Obviously, liberalise does mean something.

I have not disputed the author's assertion that free market economics is 'in retreat' in Australia (though not elsewhere, thankfully). My point is that it should not be.

After several exchanges, I confess to being still unclear about the US proposal to implement "very basic human rights" in third world countries. I don't understand how they can achieve this without imposing trade restrictions.

In my view, the best way to improve living standards for all is to promote free trade. If the US is really concerned about living standards in 3rd world countries, it would open up its agricultural market and abolish farm subsidies. The EU ought to do the same.

Ed-online,

The only obvious thing as far as I can tell is that you have a rhetorical preference for referring to things that you approve of as 'liberalised' and 'free' and those you don't approve of as a "restriction" or "protectionism” etc.

So I take it you don't approve of export subsidies. Then there is some consolation in knowing that there is at least one thing that we agree on & I would extend that idea to all parts of the globe.

I have deliberately refrained from naming the two draft pieces of U.S. legislation because I thought that might identify a separate controversy that would divert this thread even further from its original premise.
I mentioned the Americans merely to acknowledge that there was a precedent for an idea that I was referring to (as well as a tie-in with the exchange rate issue). Beyond that I have already covered that subject (to the point of excess) in previous posts.

I refer you to a quote from the original article “conservative philosopher Francis Fukuyama points out that capitalism is fundamentally built upon trust, because to take part in a market we must believe that others will adhere to the "rules" we play by”.

There is no “free” trade. They all have rules, the WTO & the regional agreements. Its just a matter of what the rules are and where interests lie. Referring to one set of rules as “liberal” & another as “restrictive” means nothing without full & specific context.

On one level I am simply suggesting that the rules need to be consistent or as I said in a previous post (page2) “free trade cannot be unilateral. Free trade concessions need to be reciprocated or they will remain infinitely problematic”.
The failure to provide consistency has seen the free-trade fantasy collapse into permanently stalled negotiations, regional blocs, bilateral deals, and a critcal imbalance of foreign reserves.

- Mr Smith

- Mr Smith

You say that "free trade cannot be unilateral" and that "free trade concessions need to be reciprocated."

Yes it can, no they don't.

"When tariff reduction has occurred, it has been by negotiation. We will reduce our tariffs if you will reduce yours. From the economist's point of view, it is rather like my offering to stop hitting myself on the head with a hammer if you agree to stop hitting yourself on the head with a hammer."
- David Friedman.

Well, you can keep hitting yourself on the head with that hammer as long as you like. I'm over it.

I think this Doha round has collapsed, bilateral negotions have been exhausted & so has the topic. Some of the delegates agree that progress has been made & the talks have been worthwhile but that a general agreement is out of the question for the forseeable future.

- Mr Smith