Australian Economic and Social Reform: Where to Now

1
Australian Economic and Social Reform Where to
Now?

• Professor Richard Blandy
• Centre for Innovation and Development
• University of South Australia

2
The Australian Settlement 1901

• White Australia
• Industry Protection
• Wage Arbitration
• State Paternalism
• Imperial Benevolence
• Paul Kelly, The End of Certainty, Allen and
  Unwin, 1992

3
Outcomes of Fortress Australia

• Ninety years of relative national decline
  obscured by ninety years of absolute gains
  starting from a position of phenomenal wealth
• 1870 Australias income per head was 40 per
  cent higher than any other nation, 75 per cent
  higher than in America (Economist)
• 1929 Australia in fourth place
• 1980 Australia eleventh (Economist), fourteenth
  (World Bank)
• Labor Federal Treasurer Keating (1986) A banana
  republic

Source Paul Kelly, The End of Certainty, Allen
and Unwin, 1992
4
1950 - 1980

• 1950s and 1960s - miracle economy high growth,
  high immigration, low unemployment, low
  inflation, high protection and government
  intervention, stronger US alliance, white
  Australia
• 1970s - crisis years high inflation, rising
  unemployment, large government deficits, start of
  opening to Asia, start of multiculturalism, first
  weakening of high protection wall

5
Structural Weaknesses

• Small scale production
• Diversion of resources from activities with the
  best long-term potential to add value
• Inward rather than export orientation
• Poor investment decisions and excess manning in
  economic infrastructure
• Poor work practices, labour relations and
  management
• Outdated or inappropriate technologies, combined
  with low
• innovation and skill development
• A production culture that resisted change and
  showed weak commitment to performance improvement
• Source Dean Parham, Productivity Growth in
  Australia Are We Enjoying a Miracle?,
  Productivity Commission, Canberra

6
The Emerging Transformation

• Sharp experiences of failure in the 1970s led to
  widespread recognition in the 1980s that the
  Australian Settlement was fundamentally flawed
  and that basic institutional change was required
• Multiracial Australia, freer trade and capital
  markets, privatisation, deregulation, curtailing
  of Arbitration and union power, reappraisal of
  state intervention and welfare, more emphasis on
  individualism, more outward-looking and efficient
  economy, more confident and self-reliant country
  start to emerge

Source Paul Kelly, The End of Certainty, Allen
and Unwin, 1992
7
1980 - present

• 1980s - reform years float of dollar,
  deregulation of financial markets, independent
  Reserve Bank, falling protection, reduced
  government intervention, the Accord, start of
  greater workplace focus to IR, growing
  multicultural Australia, growing global,
  especially Asian, integration
• 1990s/2000s - miracle economy emerges high
  growth, low inflation, falling unemployment, low
  protection and government intervention, freer
  labour markets, GST, government surpluses, more
  US emphasis, multicultural Australia

8
The Australian Settlement 1901 100 Years On

• White Australia - Gone
• Industry Protection - Gone
• Wage Arbitration - Going
• State Paternalism - Going
• Imperial Benevolence - US Alliance instead of
  British Empire

9
Decade Average GDP Growth, 1900 - 2000
Source Australian Treasury Department
10
Decade Average Growth in GDP per capita, 1900 -
2000
Source Australian Treasury Department
11
Source Dean Parham, Productivity Growth in
Australia Are We Enjoying a Miracle?,
Productivity Commission, Canberra
12
Source Saul Eslake, The Australian economy a
decade of relative progress after four decades of
relative decline, Economics_at_ANZ, 31 May 2002
13
Source Dean Parham, Productivity Growth in
Australia Are We Enjoying a Miracle?,
Productivity Commission, Canberra
14
Imports and Exports as per cent of GDP,
Australia, 1900 - 2000
Source Australian Treasury Department
15
Decade Average Inflation, Australia, 1900 - 2000
Source Australian Treasury Department
16
Unemployment Rate, Australia, 1900 - 2000
Source Australian Treasury Department
17
The Remaining Agenda

• Industrial relations
• Education and skills
• Inequality and welfare
• Innovation
• Ageing and health
• Environment
• Federal/State relations

18
The Remaining Agenda - Industrial Relations

• Greater focus on the workplace and productivity -
  enterprise agreements and individual contracts,
  no unfair dismissal
• Awards restricted more in scope and influence
• Minimum wage becomes principal focus of AIRC
• Protected industrial action severely restricted
  (eg., secret ballots for strikes)

19
The Remaining Agenda - Effects of Industrial
Relations Reforms

• Faster productivity growth, increased investment,
  and higher profits and wages
• Greater wage dispersion, more self-employment and
  micro businesses
• Skill shortages combined with low-skill
  unemployment
• Downward pressure on minimum wage puts downward
  pressure on welfare payments
• Falling union membership in private sector

20
The Remaining Agenda - Education and Skills

• Greater focus on individual achievement in
  intellectual, vocational, life and social skills
• Development of more diversity in schools built on
  the introduction of voucher funding
• Goal of minimum 12 years schooling for all
  supported by means-tested activity scholarships
• More diversity in Universities, teaching-only
  private Colleges, research-only Institutes, etc.
• HECS charges reduced but more variable

21
The Remaining Agenda - Effects of Education and
Skills Reforms

• Increased productivity at work, home and
  community
• Greater student interest in education through
  abandoning one size fits all
• Reduction in class-associated drop out and
  resulting income inequality
• Increased quality of and responsiveness in
  education resulting from greater competition
• Faster labour market matching of opportunities
  and capabilities

22
The Remaining Agenda - Inequality and Welfare

• Shift to changing endowments rather than
  transferring income and expenditures
• e.g., Blandys Equal - 100,000 awarded to all
  250,000 Australian children at start of last 3
  years of secondary schooling and covering 4 years
  of University as well - would cost an extra 2.5
  of GDP in steady-state after deducting present
  Government educational spending in these years
• Children who do not go to University would have
  funding to start businesses, buy housing, etc.

23
The Remaining Agenda - Effects of Inequality and
Welfare Reforms

• Increased income from property ownership at lower
  income levels permits reduction in means-tested
  welfare support and reduction in high marginal
  tax rates at abatement points for persons on low
  incomes, improving work incentives and attacking
  poverty traps
• These savings further reduce the net cost of such
  ladder of opportunity welfare reforms

24
The Remaining Agenda - Innovation

• Double Business Expenditure on RD to reach US
  and Scandinavian shares of GDP
• Increase innovation rate by raising rate, quality
  and scope of businesses interactions with the
  outside world through freer trade, freer capital
  flows, more frameworks for business interactions
  with research units (clusters, etc.), more
  mobility of researchers among firms and between
  firms and Unis/Governments, funding more Uni
  research through business contracts/grants, etc.

25
The Remaining Agenda - Effects of Innovation
Reforms

• Raise the long run rate of productivity advance
  and real income growth in Australia
• Meet retirement income needs of ageing society
• Reduce resistance to adaptation and change by
  demonstrating widespread gains from adapting to
  change across the community, thereby facilitating
  faster advance

26
The Remaining Agenda Ageing and Health

• Pro-natalist, family-friendlypolicies
  supporting womens desires to have 2 children,
  better working careers and less home work
  (basically, strong incentives for men to do more
  home work)
• Significant increase in immigration of young
  adults and children (implicitly from Asia and
  Africa)
• Incentives to increase labour force participation
  and health status of older age groups
• Replacement of Medicare with (subsidised)
  insurance-based health care plus
  wholly-subsidised specific population groups

27
The Remaining Agenda - Effects of Ageing and
Health Reforms

• Fertility rate rises to near population
  replacement levels
• Increased multicultural aspects to Australia
• Women play a greater role in non-family
  dimensions of society (work, business, politics,
  etc.)
• Men play a greater role in family dimensions of
  society
• Ageing becomes less of an economic and health
  problem
• Health services are better provided and health
  costs are better contained, both private and
  public

28
The Remaining Agenda - Environment

• Management of broadacre farms shifts toward
  environmental management and away from
  productivity improvement as a result of new
  multifunctionality principles
• Emphasis on water conservation
• Emphasis on protection of favoured flora and
  fauna species (generally requiring habitat
  protection)

29
The Remaining Agenda - Effects of Environment
Reforms

• Production and export of broadacre farm products
  fall substantially
• Rural communities receive increased payments for
  environmental management and larger shares of
  Government spending on services
• Price of water rises significantly
• Return of many Australian native fauna and flora
  to conditions of abundance (the KI Koala problem?)

30
The Remaining Agenda Federal/State Relations

• Expanded inter-State standardisation and
  coordination of services and legislative
  provisions under COAG (eg., school curricula and
  term times, transport and utility networks,
  hospital and nursing home access, environmental
  standards, industry subsidies, etc.
• Productivity Commissions brief extended to
  States under COAG
• Senate replaced by Chamber of State Government
  representatives

31
The Remaining Agenda - Effects of Federal/State
Relations Reforms

• Efficiency gains and improved community services
  in key service industries
• Australias most significant rational reform body
  assists all Australias Governments to raise
  their collective efficiency for the benefit of
  the Australian people as a whole
• Senate reverts to its originally-foreseen role as
  a States House of Review thereby giving the
  States a real stake in thinking nationally as
  well as regionally