Academic journal article The Economic and Labour Relations Review : ELRR

Looking Back on Microeconomic Reform: A Sceptical Viewpoint

Academic journal article The Economic and Labour Relations Review : ELRR

Looking Back on Microeconomic Reform: A Sceptical Viewpoint

Article excerpt


The era of microeconomic reform in Australia began with a big bang--the floating of the dollar in 1983. It ended with another big bang--the package of tax reforms centred on the Goods and Services Tax (GST) which came into force in July 2000. The period between 1983 and 2000, roughly corresponding to the 1980s and 1990s, was one of systematic, though gradual, microeconomic reform affecting nearly all sectors of the economy.

There were isolated instances of microeconomic reform before the 1980s, notably including the Whitlam government's 25 per cent tariff cut (the primary motive here was macroeconomic, but the choice of instrument reflected microeconomic concerns). Similarly, the consequences of some microeconomic reforms initiated in the 1990s, such as National Competition Policy are still being worked through, and a few items on the microeconomic reform agenda, such as the full privatisation of Telstra, are still being debated. Moreover, movement in the direction of microeconomic reform was never uniform. The Prices and Incomes Accord constituted a major change in the way Australian labour markets operated, but was not generally considered as an instance of microeconomic reform.

Despite these qualifications, the 1980s and 1990s can reasonably be characterised as the era of microeconomic reform in Australia. Throughout this period, there was a steady movement in the direction of microeconomic reform, backed by a bipartisan, and almost monolithic, intellectual consensus, at least among policy elites. No such consensus existed before the 1980s.

Most economic evaluations of microeconomic reform in Australia and elsewhere, particularly those from official sources, have been favourable. Parham (2002a) is a good recent example. In the light of this favourable evaluation, there have been calls for a renewed commitment to microeconomic reform (Dawkins and Kelly 2003). On the other hand, it is widely recognised that the Australian public is suffering from 'reform fatigue' and evinces little support for further microeconomic reform. In view of the fact that the public has had two decades to evaluate the effects of microeconomic reform, these observations pose a problem. Either the official estimates of the benefits of microeconomic reform are overoptimistic or members of the public have consistently misperceived the effects of reform on their welfare.

The object of this paper is to present a sceptical evaluation of microeconomic reform in Australia, without an initial presumption that reform is either beneficial or harmful. The paper is organised as follows. Definitions of the concept of 'microeconomic reform' are discussed and the policy agenda associated with this term is described. Several phases of microeconomic reform are distinguished. The program of microeconomic reform is then evaluated on a number of criteria, including impacts on macroeconomic performance, allocative efficiency, productivity, work intensity and consumer choice. Finally, some concluding comments are offered.

Defining microeconomic reform

Although microeconomic reform is notoriously difficult to define, the central idea is that policy should be directed to achieve improvements in economic efficiency, either by removing distortions in individual sectors of the economy or by reforming economy-wide policies such as tax policy and competition policy with an emphasis on economic efficiency (rather than other goals such as equity or employment growth).

Considering the term 'microeconomic reform' in more detail, the 'microeconomic' element is significant in two ways. First, the shift to a focus on microeconomic reform represented an acknowledgement that macroeconomic policies, and particularly Keynesian demand management, were no longer as effective as they had appeared to be during the long postwar boom. Microeconomic reform was seen by some of its advocates as a way of removing structural barriers to the effectiveness of macroeconomic policy. …

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