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Economic Rationalism In Australia

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With Keynesian economic theory not addressing significant inflation and unemployment post-World War II, Economic rationalism or neoliberalism as it’s commonly referred to today, came about in the early to mid-1970s to describe the sensible implementation of economic policy by the Whitlam Government at the time. Economic rationalism can be interpreted in numerous ways, yet its central claim is “the philosophy of government action which gives greater priority to encouraging market forces”, according to Stokes (1994, pp. 242). It follows microeconomic reform “which aims at improving the performance and efficiency of industries in the economy” (Forsyth 1992).
The elements that characterise economic rationalism include-
• Deregulation of the economy …show more content…
Quiggin (1997, pp.4) highlighted that during this period “market failure wasn’t accepted”, hence leaving market outcomes to just mechanisms. Rationalists assumed that interest groups would interfere with government, hence raising costs, in comparison with the self-correcting nature of market failure. With further arguments being focused on the merits of competition and private enterprise, the corporatisation of public enterprises began to be put in place. These policies were pursued in the hope that government owned entities could produce private market outcomes, yet corporatisation and cutting of subsidies increased short-run unemployment rose from 6% in 1980 to 7.5% in 1989 (FRED 2014). Deregulation, which formed the nucleus of economic rationalism was active throughout this decade. In 1983, the Australian dollar was floated and exchange rate controls were abolished, making it susceptible to exchange rate movements overseas. The dollar stayed reasonably high at 91 to 89 cents per US dollar (RBA 2013) meaning we could access markets we couldn’t before through trade. Policy success in regards to deregulation was conflicting, with a high exchange rate it meant our export industries had to compete with cheaper imported options, and this led to high unemployment in manufacturing areas such as the motor vehicle and textile industries. Withers (1986, pp. 23) criticised deregulation advocates by stating rationalists assume “market forces typically unleash growth, whereas government regulations and expenditures impede growth”. With microeconomic reform in the 1980s, income inequality began to emerge, with the Gini coefficient variable rising from 0.26 in 1982 to 0.30 in 1988 (Treasury 2013), this would become a major issue in succeeding decades. Political parties also changed ideologies to converge, with

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