Question

How important have economists been in shaping Australia’s economic and/or social development? Consider any single period of approximately 10 -15 years between 1946 and 2020.

Answer 1

Introduction
Australia has undergone sweeping structural reforms over the past two decades that
have helped transform its economic performance.
To most economists, especially in international economic agencies, the reforms
themselves would no doubt appear unexceptionable. In the broad, they typically
apply conventional prescriptions for improving growth by removing policy-related
distortions and impediments to a well-functioning market economy. However, given
the magnitude of the reform requirements in Australia, and the entrenched political
obstacles to reform, the manner in which the reforms were introduced and sustained
may be of wider interest and relevance.
My purpose in this paper therefore is not to focus on the why of reform, which I
shall take to be understood in this company. Rather, I will briefly outline what
reforms were undertaken in Australia and provide some indication of their
outcomes, before focussing on aspects of how we went about it.
I will look in particular at some institutional innovations that appear distinctive to
Australia and which have attracted the attention of a number of other countries —
both developed and developing — as well as within international organisations
concerned with promoting economic development.

Paradise lost – and (partly) regained
Economic reformers in Australia often observe that our country had the highest per
capita income in the world at the dawn of the twentieth century. This was partly
luck: the result of having a small population blessed with abundant natural resources
fetching very high world prices. But it was also attributable to a set of laws and
institutions inherited from Britain that favoured productive endeavour (and an influx
of adventurous spirits to benefit from them).
Like some others in that privileged position (Argentina, New Zealand), Australia’s
position on the global income ladder steadily declined in succeeding decades,
beyond what might be justified by the fortuitous nature of its starting point.

A head start forfeited
In retrospect, the causes of our relative decline seem fairly clear. Just as Australians
have been blessed with special resource advantages, we managed to devise some
special institutions that, whatever their merits in the short-term, ended up
significantly handicapping our economic performance.
As the respected Australian journalist Paul Kelly has chronicled, Australia’s
structural policies following Federation in 1901 were shaped by a social compact
that came to be known as the ‘Australian settlement’ (Kelly, 1992).
• Trade barriers were erected to foster domestic manufacturing activity and
employ the (white) immigrant labour at the relatively generous wages and
conditions that were determined Australia-wide by the Industrial Relations
Commission.
• Those states of the Federation most disadvantaged by this were compensated
over time through fiscal redistribution from the Federal Government.
Meanwhile, in all jurisdictions, statutory government monopolies were created to
provide public utility and other services at ‘fair’ prices to the expanding populations.
The regime was highly regulated, anti-competitive and redistributive: captured
nicely by the expression ‘protection all round’ — a policy that for much of the last
century had bi-partisan support and wide community acceptance.
For many years the economic costs of this regime were masked by the performance
of our broad-acre agricultural and mining industries. Until the early 1970s, Australia
was still managing to ‘ride on the sheep’s back’.

Conclusion

The early 1980s had also seen the floating of the Australian dollar (facilitating

subsequent adjustment to tariff liberalisation) followed by significant liberalisation

of the finance sector, including the removal of exchange and interest rate controls.