Listener 23 April, 1994.
Keywords: Growth & Innovation;
Australian Michael Pusey triggered a national debate with his book Economic Rationalism in Canberra: A Nation-Building State Changes Its Mind. In it the sociology professor at the University of New South Wales argues that senior federal public servants now favour the New Right approach called economic rationalism (Australian for Rogernomics) and have abandoned the values and objectives that traditionally dominated the public service. Although economic rationalism has been around for some time, the book caused a storm.
The debate has not always been enlightening. As in New Zealand, there have been difficulties of definition, misunderstandings and cheap shots. But Australian economic rationalism differs from its New Zealand form in that there is a more open debate, with university academics seriously participating. The quality of economic rationalism is higher than here. Moreover, although, as Pusey shows, this approach dominates the upper echelons of the Australian public service (as it does here), the politicians have to some extent held them in check.
This probably reflects the more complex constitutional arrangements in Australia. In the mid-1980s, the Hawke-Keating government was as mesmerised by the economic rationalists as was the Lange-Palmer one, but the Australians had less power to carry out their preferred policies unilaterally. Perhaps because their policies were less extreme, or more competent, the Australian economy performed much better between 1985 and 1992 (the latest available date for comparisons) than did New Zealand. (See table.) It had greater GDP and job growth, while the higher balance of payments deficit was covered by the superior growth and greater investment.
Admittedly the Australian economy stagnated in the early 1990s. But recall that National precipitated the sharpest economic contraction in our postwar history in 1991. Australia’s seems to have been more the result of stagnation of the world economy compounded by a terms-of-trade decline. The Australian economy was slower to recover. It seems to be expanding faster than ours at the moment, although it is unwise to put too great an emphasis on a single year’s figures.
(Incidentally. the New Zealand data are being subject to downward revision. so the more hysterical commentators may have to tone down. But the changes will not markedly alter the sober assessments that the economy has been in a long but slow upswing. See my column of March 12, 1994.)
The Australian stagnation put extremist economic rationalism squarely on the political agenda. with the leader of the opposition, John Hewson. advocating that policy during the 1993 election. With all the political conditions in his favour, he lost, surprisingly. The apparent reason was his proposal to introduce a GST, but that was a mere focus for a distrust of the full range of economic rationalist policies he advocated. The opposition has now backed away from its extreme positions, and it is widely expected that Hewson will be toppled from the leadership sometime this year.
Yet there remains Pusey’s concern about a senior public service with an ideology that is markedly out of line with both the country’s historical traditions and the populace. As Nugget Coombs, the doyen of the older tradition said, ‘The intellectual and moral basis of Australian society is being corrupted. The driving force behind this [is a] view of the economy as a machine independent of social purposes.’
Pusey describes economic rationalism as a ‘doctrine that says that markets and prices are the only reliable means of setting a [public] value on anything, and that markets and money can always, at least in principle, deliver better outcomes than states and bureaucracies’. He argues for a balanced approach between the market and the state, describing himself as a ‘middle-of-the-road Western European social democrat’. The geographical identifier suggests that he is not solely dependent on English speaking countries, overwhelmed by Thatchernomics and Reaganomics, but recognises Europe’s other intellectual directions. (Pusey has written a notable study of German critical theorist Jurgen Habemas,)
The task for Pusey and his ilk in Australia, and for the more sober critics of Rogernomics here, is not merely rescuing the traditions that they uphold, but reinterpreting them in the light of evolving economic conditions, When Hawke and Keating (or Lange and Palmer) went on their ideological walk-about, they were responding to social changes in their countries that they barely understood. The economic rationalists seized the opportunity to grab power, with their new ideological preferences disguised as (faulty) economics. Australia’ s institutions resisted better than New Zealand’s. But there is not yet a coherent alternative.
Economic Performance: 1985-1992
Inflation (private consumption deflator) % p.a.
Unemployment (% of Labour Force)
Employment growth (%)
Current account deficit (% GDP)
GDP per head (OECD = 100)
GDP growth (%)
Labour productivity growth (% p.a.)
Data sourced from OECD Economic Outlook, June 1993.