Tag Archives: Economic Rationalism

Short Essay: Costs, Benefits and the unequal distributions of Economic Rationalism

When first used, the idea of ‘Economic Rationalism’ implied governments maximising efficiency through rational economic decision making (Quiggins, 1997).  It would be difficult to claim the majority of Australians do not want efficient and rational government policies, especially in fiscal matters.  So why has ‘Economic Rationalism’ become a pejorative term?  Over several decades since its first use, the etymology has changed, becoming synonymous with neoliberalism, and the unfettered free market.  To some, this has not just altered our economy, but has fundamentally changed our society.

To clarify, economic rationalism is the policy where ‘the primary role of government should be to maximise economic efficiency’ (Wright, 2002).  Utilising basic economic theory, this means that the economy must move as close as possible towards the ‘free market’, through the removal of most, if not all regulation, and the removal of ‘public goods’.  This was a key policy feature of the 1980s, with policies to privatise and deregulate sectors of the economy.  Over successive governments, both Labor and Liberal, this ‘neo-liberal’ trend has continued.  It is also noted that economic theory has become a pervasive ideology dominating nearly every sphere of public life (Richardson, 1997).

This ‘Economic rationalism’ has had some benefits, which are predominantly based around efficiency and access.  These benefits have mainly been realised by those in the higher income brackets.  Consumers now have increased access to a wide range of imports, and this subsequent competition drove prices down (Kenyon, 2000, Moore, 2001).  The banks also began to provide ‘largely non-discriminatory access to cheaper credit’ (Kenyon, 2000).  Moore (2001) posits that this rationalisation promoted efficiency that resulted in productivity gains, and ultimately to increases in incomes since the early 1990s; he also claims that the unemployment rate fell.  Supporters of economic rationalism also claim that the increases in these incomes were ‘equally’ shared, since the ‘progressive income tax’ system allowed ‘generous social welfare benefits’ to be provided, which means there was no increase in the inequality of total incomes (Moore, 2001).

However, there are those that disagree with the neo-liberal view, including other economists.  These disagreements usually fall into either an economic argument, in that there is scepticism over the possibility for coming close to the ideal market, or a normative argument, in that they disagree that the maximisation of efficiency is not the primary role of government (Wright, 2002).

The economic objections to the ‘ideal’ market are based around the requirements for the perfect market; no ‘monopolies or oligopolies’, an ‘infinitely adaptable market’, total price awareness, production is consumer focussed, no ‘inefficiencies’, no ‘public goods’, and no ‘externalities’ (Wright, 2002).  There are many economists who, whilst agreeing with economic theory, consider that the reality is that none of these conditions are met anywhere near this level of perfection, nor will they.

For those who criticise with a normative or moral argument, they have other concerns, usually in consideration of society at large.  The ‘economic irrationalists’ claim that this perfect market scenario cannot exist, and claim that instead of overall positive gains, society, in particular those ‘less well off’, have faced negative outcomes.  These outcomes are not all financial; they claim not only are people becoming poorer, but that social capacity is being eroded.  Wright (2002) informs that ‘[a] balanced life becomes harder’.  This is because the critics of economic liberalisation claim that these policies bring with them job losses and a reduction in job creation, showing the economic uncertainty faced by all workers and jobseekers.  These factors all affect the lower income bracket more harshly than other sectors.  This leads to lower income workers having to work longer, reducing their ability to fulfil their social needs, and earning relatively less pay, leaving them financially worse off (Pusey, 2003, see also Argy, 2009, Argy, 2007a, b, 2006).

Another loss appearing to be caused by economic rationalism is that of ‘inefficient’ industry, further taking away from the job market, and removing future opportunities for nation-building; ‘greater inequality both in terms of income and opportunity’; and the loss of ‘free’ cultural and social facilities (for these points and more, see Kenyon, 2000, Argy, 2006).

The ‘irrationalists’ emphasise that the only concern of business and the market is efficiency and profit margins, and claim that this is socially negative.  Sue Rigney eloquently highlights the sentiments of many in opposition to economic rationalisation:

‘Economic rationalisation essentially contradicts an inherent role of government which includes equity and access issues. It is sound “business” practice to centralise and rationalise services but the provision of information does not fall neatly within the numbers game.’ (1999)

Replacing the ‘provision of information’ with the provision of any other social good can result in similar sentiments across a wide section of society.

There are indeed benefits of economic rationalisation; however these benefits are not equally distributed, and effectively do not outweigh the costs.

 

Bibliography

Argy, F. (2006) ‘Australia a land of opportunity: but not for all’, Dissent,  (21), 57-60.

Argy, F. (2007a) ‘Distribution effects of labour deregulation’, Agenda (Canberra, ACT), 14 (2), 141-155.

Argy, F. (2007b) ‘Economic freedom: the good and the ugly’, AQ, Journal of Contemporary Analysis, 79 (5), 33-39.

Argy, F. (2009) ‘Choosing between classical liberalism and social liberalism’, Policy (St Leonards, NSW), 25 (2), 14-20.

Kenyon, P. (2000) ‘The Good Society: A Guide to Economic Policy’, Agenda, 7 (4), 303-320.

Moore, D. (2001) ‘The case for economic rationalism’, Economic Papers (Sydney), 20 (4), 82-89.

Pusey, M. (2003) Experience of Middle Australia, The: Dark Side of Economic Reform, Cambridge University Press.

Quiggins, J. (1997) ‘Economic Rationalism’, Crossings, 2 (1), 3-12.

Richardson, J. L. (1997) ‘Economic Rationalism And The Scholarly Culture’, in Scholars, Libraries Collecting Policies and Archives Policy, Canberra, Canberra: Independent Scholars Association of Australia Inc.

Rigney, S. (1999) ‘Economic rationalisation and its effect on government services’, in 8th Asia-Pacific Specials, Health and Law Librarians Conference, Australian Library and Information Association.

Wright, J. (2002) The ethics of economic rationalism, Sydney:University of New South Wales Press.

 

 

 

Advertisements