3 - Economic Analysis versus Business Rent-seeking: The Eclipse of Analysis in Australia

Summary

INTRODUCTION

Economics had its origins in the search for guidance for policy in pursuit of some perception of the public interest. Our discipline is most interesting as well as most valuable when it is relevant to its original purpose. Standard economics today contains a rich body of analysis relevant to public policy. Without economic analysis, policy affecting the economy is prey to vested interests seeking to bend it to their own objectives. Leaders or citizens seeking to pursue public interest lack the coherent, consistent, and widely understood ideas with which to resist them.

Economic analysis played a large role in the remarkable period of Australian economic reform in the late twentieth century. The reform era began in 1983, reached its apogee in 1991, was set back by the deep recession of 1990–91, and continued with diminished intensity until and including the Howard Government's tax reform package of 2000. It then gave way to what I have described as the great Australian complacency of the early twenty-first century (Garnaut 2013a).

The reform era contributed a great deal to the exceptional performance of the Australian economy in the 1990s. Over the decade from the 1990–91 recession, total factor productivity grew more rapidly than in any other developed country, after nine decades on average languishing with New Zealand at the bottom of the league table. The reform era contributed a great deal to Australia being the only developed country that has not experienced recession since the beginning of the 1990s — nearly a quarter of a century that encompasses the Asian financial crisis, the Wall Street “tech wreck”, the global deceleration of productivity growth in the early twenty-first century, and the Great Crash of 2008 and its deeply problematic aftermath.

Rigorous quantitative analysis of the consequences of alternative policy choices helped to bring the reform era into existence and to nurture its most productive years. The role of Computable General Equilibrium (CGE) models in policy analysis on a global scale was enhanced by its applications in Australia at this time. In advance, I expected that a period of productivity-raising reform and the enhanced prosperity that emerged from it would entrench the policies and approaches to decisions that helped to create a new prosperity.