There’s been a lot of talk about the microeconomic reform undertaken by the Hawke-Keating government and its claimed beneficial outcomes. It’s useful to compare the 20 years since the election of the Labor government with the 20 years that preceded it.

The period before 1983 encompassed the breakdown of the Bretton Woods system of fixed exchange rates, two major oil shocks, and two global recessions. In Australia, it includes the economic chaos that engulfed the Whitlam government and the failure of the Fraser government to cope with the wage push of the early 1980s. Despite this, average performance was as good as or better than the period since 1983.

One on measure, inflation, the period since 1983 comes out clearly ahead. Not only is the average rate lower, but inflation accelerated through the 1960s and 1970s. The inflation rate fell gradually during the Accord period, then rapidly during the ‘recession we had to have’ and has shown no sign of resurgence since then.

The rate of producitivity growth has been the focus of much recent attention. According to ABS estimates the annual rate of multifactor productivity growth over the last twenty years has been almost exactly equal to that the previous twenty years at around 1 per cent. Similarly the average rate of growth in GDP was about 3.6 per cent per year in both periods.
In two areas, performance since 1983 has been significantly worse than . The current account deficit rose rapidly to 5 per cent of GDP after the floating of the dollar, and has fluctuated around that level ever since. A comparison with the pre-float period (when deficits averaged around 2 per cent of GDP) is not really meaningful since, in a fixed-rate system, current account deficits are constrained by the availability of foreign exchange reserves, but deficits of this magnitude are widely regarded as being associated with the risk of a currency crisis.

Performance on unemployment has been even worse. The average unemployment rate for the period since 1983 has been 8 per cent, compared to about 4 per cent in the 1970s and less than 2 per cent in the 1960s In fact, the lowest unemployment rate realised since 1983 is higher than the highest rate reached at any time between World War II and the last few months of 1982.

A sad irony in the poor outcomes on unemployment and the current account is that the case for radical microeconomic reform put forward in the early 1980s depended largely on these two variables. Policies of Keynesian stimulus, aimed at reduced unemployment had been abandoned as a result of blowouts in current account deficits. It was claimed that structural reform would eliminate barriers to growth in exports and thereby permit sustained expansion without growth in current account deficits.

Of course, these comparisons are primarily of historical interest. What matters is the outlook for the future.
The unemployment rate, at 6 per cent, is as low as it has been at any time in the past twenty years. But this is largely a cyclical outcome. Most estimates of the structural rate of unemployment (often called the non-accelerating inflation rate or NAIRU) have remained stationary or even risen over the past two decades.

The productivity statistics give similarly little ground for optimism. According to the ABS estimates, there was a surge in multifactor productivity growth between 1994 and 1998, but the annual rate of productivity growth has since fallen back to the long-run average of around 1 per cent. The fact that rapid productivity growth has not been sustained suggests that the surge of the mid-90s was due to once-off factors like the increase in the pace and intensity of work and not to a fundamental transformation.