Looking back on microeconomic reform
That’s the title of the talk I’m giving to the Economists’ conference tomorrow. Here’s a sneak preview of my conclusion.
The set of policy programs advocated under the banner of ‘microeconomic reform’ is too complex, and the associated set of outcomes too varied, to admit any simple characterization. Microeconomic reform has been neither the success claimed by advocates such as the Productivity Commission, nor the disaster implied by many popular critiques of ‘economic rationalism’.
Taking the two decades of microeconomic reform as a whole, the aggregate impact of the reform program on the welfare of the Australian community has been close to zero. Periods of strong growth in productivity and output, such as the mid-1990s, did little more than recover the ground lost as a result of the impact of the 1980s ‘entrepreneurs’ and the associated ‘recession we had to have’. Much of the apparent productivity growth of the 1990s is likely to dissipate as workers find ways of winding back the increase in the hours and intensity of work extracted through the unilateral repudiation of implicit labour contracts in this period.
Some of the policy initiatives introduced as part of microeconomic reform, such as the removal of tariffs, appear irreversible. Whatever the costs of adjustment during the process of tariff reform, its seems clear that the reintroduction of tariffs would reduce welfare. In other cases, such as those of privatisation and financial deregulation, the process of reassessment has already commenced. Various forms of renationalisation are being considered, most notably in the United Kingdom and New Zealand. Similarly, it seems certain that the next decade will see an increase in financial regulation, rather than the removal of remaining regulations.
As with the curate’s egg, the only verdict on microeconomic reform that is both brief and accurate is ‘good in parts’.