Economic rationalism, 20 years on

Eating yourself
Michael Pusey

The troubling experience of economic reform

Anyone who turned forty with the new millennium will have spent all their adulthood living through what we so blithely call 'economic reform'.

Everyone knows what it is. Deregulation, privatisation, labour market reform, user pays, tax reform, cutting government spending, more competition, privatisation, tax reform (the GST), and-the latest instalment-welfare reform. Watch this space; we are assured there will be more!

Some things are agreed on all sides. One of them is that economic reform came as a take-no-prisoners top down re-engineering of a whole nation and society.

We had to rid ourselves of a whole history of 'protection' and 'institutional inertia' and make ourselves ready for competition in the new ruthless global economy. Do it, or wither as a banana republic!

No-one was left in any doubt about the mighty challenge facing us. But almost no one remembers that the economic reform bundle (or, if you prefer, 'structural adjustment', 'liassez faire', 'freeing up the markets', or 'economic rationalism' - all these terms mean the same thing) came to us out of the Cold War as a 'one best way' of fighting our way out of a long postwar boom that had given more peace and plenty to ordinary people than it should have done.

In the early 1970s international business organizations were forming to bring the drifting free world capitalist nations to their senses. Something had to be done first about the so-called 'British disease', about creeping stagflation, and about the long term fall in the profit share of large corporations.

In 1974 the Brookings Institution declared that the after-tax profit rate for United States corporations had fallen since 1948, from just under eight percent to just under five percent.

The long postwar boom was not working so well for the big corporations. A report to the Trilateral Commission, one of the first global peak business associations, turned free market economic theory into a political program that would shift the burden of co-ordination from 'overloaded' governments paralysed with too many 'irresponsible demands', to the markets.

Thatcher and Reagan would crash through and make it happen.

The markets would reduce expectations and administer the needed disciplines to the people, the unions, the professions, the media and the 'value intellectuals'. These would 'give capital a chance', beat the socks off the old Soviet empire, get rid of big government, and pull the European social democracies into line.

Malcolm Fraser softened Australia up with the Campbell Report (that would later recommend financial deregulation) and some restructuring of the federal bureaucracy - and the young dry economists were brought up into position.

The hard men of Labor were waiting to show they could deliver better economic management and better outcomes for business than the old guard in the Liberal Party.

In 1982 they won government and got their chance. From there on, the people would have nowhere to go, with the two main parties competing with each other to deliver always more economic reform.

After twenty years of reform the results have been dramatic.

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