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8 September 2000 Symposium: Economics and Public Policy Economic Utopia and its handmaidensIn the last fifteen years, Australia has experienced a dramatic transformation of its economic policy infrastructure. The changes have been delivered under the banner of ‘microeconomic reform’, fostered by the revolutionary ardour of its advocates. The striking aspect of this process is the other-worldly character of the axioms which have provided a rallying call for the changes and the utopian vision to which all of this is supposed to lead. Certainly there have been specific interests pushing self-consciously and strategically for changes that serves to enhance their advantage. The banks were pushing for changes to the post-war financial regulatory structure that seemingly gave unfair advantage to non-bank financial institutions. The Business Council of Australia was pushing for a regime of enterprise bargaining that would enhance the leverage of its members with their workforce. These things are part of the normal cut and thrust of economic conflict. Yet surrounding the specific interests has been a layered army of armchair theorists, wordsmiths and ideologues. The transparent connection between self-interest and strategic action has been distorted by a substantial propaganda machine with erroneous interpretations of the past, simplistic nostrums for the present, and promises of universal benefit in the future. The whole apparatus has been adopted and reproduced by journalists, public servants and teachers for whom conformity is a more significant career touchstone than critical engagement. Economic utopian agendas received a significant fillip with the replacement of the Tariff Board by the Industries Assistance Commission in 1973. The transformation was spear-headed, against fierce opposition, by Alf Rattigan, a senior bureaucrat in the Department of Trade and Industry, and legitimised by the incoming Whitlam Government. Rattigan was self-taught but with long bureaucratic experience, yet became enamoured with the seeming elegance of economists’ scribblings on the tariff.
Armed with a new formula, the ‘effective rate of protection’, and disdainful of criticisms of the concept, Rattigan acted as if the economy could be run by numbers: arrange industries by their effective rates of protection and eliminate the protection from the top down, as quickly as possible. This was regardless of the strategic significance of particular industries, and of the practical considerations of how one changed unsatisfactory existing structures without major economic and social disruption. The IAC (and its latter day incarnations, the Industry Commission and the present Productivity Commission), became increasingly staffed by young inexperienced economists straight out of university, with no knowledge of the sectors which were placed under their critical scrutiny. Outsiders brought in as Assistant Commissioners with specific expertise were considered tainted by the very experience that gave them specialised knowledge in the area under investigation. Federal Governments on a bipartisan basis have delivered key policy issues to the (now) Productivity Commission for over twenty-five years, to be rewarded with reports cut from the same ‘correct line’ cloth. No Party in office has had the courage to wind up this institution; indeed its brief has been enhanced over the years. The only formal concession to real world relevance came with the Labor Government’s shifting of the (then) Industry Commission’s head office to Melbourne from Canberra, but the move has made little difference to the institution’s mentality. The 1981 Campbell Report was the second milestone in the institutionalisation of the grand abstractions. The Report heralded the merits of competition without comprehending its character. It promised more banks; we got less. It promised an era of the rational allocation of financial resources. We got an orgy of irrational lending practices, $28bn. in bad debts on bank balance sheets, and an asset-inflation boom in turn badly managed with adverse consequences in an ensuing recession. It promised a better servicing of all client needs. Instead, there has been a major differentiation - the ‘flight to quality’. Some client groups have been the beneficiaries of better products and on better terms (home mortgagees; wealthy individuals, large companies). Other client groups have been abandoned (low income individuals, low income locations, family farmers). Nobody thought officially about the gap between promises and outcomes before a Labor Government unleashed the 1993 Hilmer Report on the public. Areas previously shielded from the Trade Practices Act (Crown corporations, the professions) were now to be exposed to ‘competition’ as in the profit-oriented private sector. The Hilmer Report is even less forthcoming than the Campbell Report on what it understands by ‘competition’, yet its reach is comprehensive.
A small window into the bizarre consequences of this Holy War against anti-competitive practices is being opened in the aftermath of the dairy industry deregulation. A battle between large dairy processors and giant retailers will leave all dairy farmers (and not merely the least ‘efficient’) prostrate in the face of returns beneath production costs. The institutional details of the supply chain in agricultural products ought to have been the raw material in any deliberation of the competitive process in the agricultural sector, but institutional detail is anathema to the Grand Inquisitors. Some insight into this social experiment with involuntary subjects can be gleaned from the British conservative philosopher, Michael Oakeshott. Oakeshott’s 1947 ‘Rationalism in Politics’ [1] is a premonition of the age of ‘microeconomic reform’. The sphere of politics (‘so deeply veined with both the traditional, the circumstantial and the transitory’) has been invaded by an alien creature. The ambition of rationalist politics is to wipe clean the slate from the corrupted past, and to introduce techniques appropriate for an ideal world which are universally applicable. The rationalist has been at best well-trained but not well-educated. “To patch up, to repair (that is, to do anything which requires a patient knowledge of the material), he regards as a waste of time.” “How deeply the rationalist disposition of mind has invaded our political thought and practice is illustrated by the extent to which traditions of behaviour have given place to ideologies, the extent to which the politics of destruction and creation have been substituted for the politics of repair.” In short, “political activity is recognised as the imposition of a uniform condition of perfection upon human conduct”. National Competition Policy might be seen as a humorous parody on Oakeshott’s essay, but its strictures have been dutifully constructed as a real-life scenario. After World War II, right-wingers applied the term ‘social engineering’ as a term of abuse against left-wingers or social liberals wanting some measure of ‘planning’ or systematic regulation to offset the anarchy of capitalist production. The shoe is now on the other foot - ‘free market’ libertarians have a monopoly on contemporary social engineering, to which they may be justifiably exposed to critique from both Conservatism (valuing continuity over social rupture) and an honest liberalism (valuing substantive individual liberty). The libertarian right’s hero, Friedrich von Hayek, is implicated in the philosophical mess. Hayek’s 1944 The Road to Serfdom [2] has been brandished as a biblical authority against would-be planners. Yet Hayek was an incoherent blend of part Conservative and part libertarian, and his concept of ‘spontaneous order’ (much lauded by libertarians) is a product of the rationalist mentality par excellence. Oakeshott explicitly noted the ambiguity of Hayek’s book - that in being doctrinal, it emanated from the same rationalist camp as his enemies.
Oakeshott was actually too kind to the rationalist mind-set. He sees its practitioners as being driven by instrumental problem-solving, constructing that problem as detached from its broader environment, of being preoccupied with technique per se (the ‘sovereignty of technique’) to the neglect of substance. He even claims that “it is an error to attribute to [them] an excessive concern with a priori argument”. This is simply wrong. The dependence on fixed axioms regarding human nature and appropriate social structures is an integral ingredient of rationalism in social philosophy. The neoclassical economic tradition is an iconic product of the rationalist tradition. Involving a top-down imposition of an axiomatic declamation regarding human nature, accompanied by an equally axiomatic imposition of environmental conditions, the edifice has produced a mechanistic and deterministic rendition of economic behaviour, of necessity impervious to real-world economic processes. Neoclassical economics is not singularly responsible for the policy changes described above. There is also the ideological camp of libertarianism, a purist version of philosophical liberalism. If neoclassical economics resides in academia, libertarianism resides in more general social and political discourse. Its vision of a robust individualism is regularly replenished by the glossy outpourings of corporate funded think tanks (ironic, given the anti-individualist character of their sponsors). There is also, on the margin of both academia and ideological discourse, the ‘Austrian’ economic school, with its emphasis on the individualistic entrepreneur as the motive force of economic change. These separate but related traditions combine to create a hydra-headed discourse in which autonomous and detached agents go about their wealth-producing business in no social context whatsoever. This blithe indifference to the most rudimentary intelligence of the social character of economic life nevertheless necessitates some concessions to an intrusive real world. But as methodological and ideological individualism must remain intact, institutional bits get tacked on to the story on a pragmatic and incoherent basis. For example, governments appear on the scene to compensate for ‘market failure’. At worst, the intruding institutional fabric is seen as an alien growth on the natural economic world, hampering its effective operation. Any excursion into the real world or into the historical record confronts the rationalist economist or libertarian as a cacophony of impurities, a world steeped in original sin. Public enterprise? A contradiction in terms. Minimum wage laws? An infringement on the ‘natural’ operation of the labour market. Labour unions? Alliances of capital? They present a succession of picturesque incidents and romantic transformations, which arrest public attention and seem to indicate a coming change of our social arrangements now in one direction and now in another; [but] many of them are little more than eddies, such as have always fluttered over the surface of progress. And though they are on a larger and more imposing scale in this modern age than before; yet now, as ever, the main body of movement depends on the deep silent strong stream of the tendencies of normal distribution and exchange; which ‘are not seen’ but which control the course of those episodes which ‘are seen’. In other words, the institutional fabric merely clothes ‘the market’ and has no influence on its character. And this from Alfred Marshall [3], a man of the world compared to the present generation of labour economists.
Products of the Scottish Enlightenment like Adam Smith or of European Conservatism like Joseph Schumpeter were deeply conscious of the political and cultural infrastructure necessary for the success of the profit motive. In spite of their credentials, their complex stories are not part of the new tertiary-trained technocrat’s toolkit. It is with this truncated cultural inheritance that the authors of endless IAC reports, the Campbell Report, the Hilmer Report, et. seq., have put pen to paper. A transparent indication that something is amiss is when the gurus discuss ‘competition’ itself. When competition is discussed in terms of grand abstractions, common processes and universal benefits, one is being short-changed. Mr Hilmer, sometime management consultant, and Mr Samuel, sometime merchant banker and now czar of the National Competition Council, ought to know something about real world competition, but they give us only sound bites. There is manifestly something wrong with our system of education that produces a managerial class and a supportive intelligentsia content to lend their names to simplistic schemas involving the dramatic upheaval of socio-economic activity. Regarding formal training, the motivation that led Sydney University to make the study of medicine or law possible only in combination with other subjects might also be applied to the study of commerce and economics. Those not so trained should never be appointed to committees of inquiry on matters of broad social import. Regarding informal training, the ivory tower tendencies might be curbed if everybody was forced through the school of hard knocks. Perhaps as a customer of the Waterloo / Surry Hills / Erskineville / Camperdown branches of the Commonwealth Bank (sorry, closed). Perhaps a farmer client of the Commonwealth Development Bank (sorry; closed down in 1996). Perhaps a stint on the assembly line at Arnott’s Huntingwood biscuit factory. Or a time growing tomatoes on terms dictated by Heinz for its Dandenong processing plant (sorry, the plant has just been moved to New Zealand; no more tomatoes on any terms thank you). Or down a Rio Tinto mine on 12 hour shifts. These are the reflections of competition in practice. With personal experience like this, perhaps the intellectual exchange would become more intelligent, and the policy changes more productive and humane. ENDNOTES1. Oakeshott, Michael (1962) Rationalism in Politics and other Essays, London: Methuen. [Back] 2. von Hayek, Friedrich (1962) The Road to Serfdom, London: Routledge & Kegan Paul. [Back] 3. Marshall, Alfred (1920/1949) Principles of Economics, London: Macmillan, p.521. [Back] Evan Jones is Senior Lecturer in Political Economy in the School of Economics and Political Science, University of Sydney. View other articles in this symposium:
View other articles by Evan Jones:
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