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Ungoverning the Economy: The Political Economy of Australian Economic Policy.

by Stephen Bell (Melbourne: Oxford University Press, 1997), xi + 324 pp., ISBN 0 19 553634 7.

Stephen Bell calls his book "Ungoverning the Economy", but the subtitle "The Political Economy of Australian Economic Policy" provides a better indication of its subject matter.

In the first sentence of the Preface the author tells us "This is a textbook with strong opinions". I am perhaps old-fashioned in believing that "textbooks" in such contentious areas are probably better if they do not have strong opinions -- or at least they should provide the major arguments (including the conflicting evidence) which divide the opposing sides.

Bell's main argument is that "neo-liberal policies have failed Australia" (p. 248). When market forces become the dominant decision-maker, elected governments are said to have abdicated their role in governing the economy. This "market dominance" represents a significant departure from earlier, relatively statist political economy traditions in Australia.

Bell suggests there is virtually no debate in Australia about forms of capitalist organisation other than the neo-liberal forms of organisation typically favoured in Anglo-Saxon countries -- countries where competition and liberal individualism dominate. These are contrasted with Japan and Germany, countries bracketed with South Korea, Taiwan, Sweden, Norway, Austria and Switzerland as "more cooperative and coordinated forms of capitalist organisation". "These political economies ... display distinctive cultural and institutional arrangements in key areas and deliver passable to above average economic performance" (p. 249). However, even beyond questions of straight economic performance, Bell argues there are good social reasons for looking at alternative systems.

There is a good deal one can query about this basic thesis. First, this is a very strange collection of countries with more cooperative and coordinated forms of organisation. It is probably sensible to restrict the analysis to the richer OECD countries which are more comparable with each other. For instance, Henderson (1995) groups OECD countries according to the degree to which they have liberalised their economic systems. This sort of classification could be used if one wanted to include more OECD countries in a larger or more conclusive comparison. Or, if one wants to include South Korea and Taiwan, why not include "individualistic" Hong Kong (and possibly Singapore) on the other side and attempt to make comparisons including a wider range of countries.

Second, and more importantly, if one wants to argue that such cooperative institutional arrangements have inherent economic and social advantages, one ought to make some systematic comparisons of countries where competition and liberal individualism predominate and others where cooperative and coordinated forms of organisations are more important. The comparisons which are made are casual in the extreme. A few studies are cited (p. 251) of unemployment and export growth in the 1980s, followed by a table citing 1994 unemployment, inflation, current account deficits, gross national saving and budget deficits as economic criteria which show OECD coordinated market economies having, on average, better economic performances than five Anglo-Saxon OECD economies.

Bell never deals in any systematic or detailed way with the question of what he regards as economic, not to mention social, success and why he chooses these, rather than a number of alternative criteria.

If one were to choose one single criterion of economic success, growth in real GDP per head would probably be the single most widely used measure, simply because it estimates how (market) output per head of population, and hence average living standards, are likely to have changed over time or in one country as compared to another. There are, of course, good reasons for making various adjustments to such an estimate, including making allowances for different levels of investment and/or labour inputs and for different real per capita income starting points, given that there is abundant evidence that OECD countries with high initial incomes tend on average to grow relatively more slowly than countries with lower initial incomes.

One comparison of 1973-1992 per capita economic growth rates of 22 OECD economies suggests that, of the six cooperative OECD economies Bell lists, two (i.e., Sweden and Switzerland) performed below expectation given their real per capita income starting points, while, of the five Anglo Saxon economies, three (i.e., New Zealand, UK and Australia) performed below expectation (see Dowrick, 1996, Figure 2). This would conform with Bell's thesis, though it is doubtful whether any statistical significance could be attached to such comparisons.

In addition, in assessing the economic success of one country compared with another, one would want to take notice of a good many other features, such as levels of unemployment, differences in inequality and changes in such inequality, inflation, especially above a certain level, possibly current account deficits,(2) and no doubt there are a number of other economic variables one would want to add from time to time. Given the large number of possible economic criteria, essentially arbitrary weighting problems arise when one attempts to combine these various criteria. If we were interested in a country's social performance, there are, in addition, a myriad of social indicators to add to such an assessment.

For what it is worth, an assessment I attempted a couple of years ago suggested that the economic performance of Australia over recent years was distinctly poor (15th out of 17 OECD countries) even though Sweden (and Finland) performed even more poorly (Gruen, 1996). On the other hand, our quality of life or social performance was a good deal better, ranking 7th out of 17, with such cooperative countries as Japan, Germany and Austria ranking below Australia.

There is also the important question whether economic liberalisation produces poor economic results or whether such policies are the effect of poor economic performance in the first place. This would certainly seem a plausible explanation of the economic liberalisations which have taken place in New Zealand, Britain, and, to some extent, in Australia.

Another question Bell does not discuss is how stable differences in economic performance are. Over the last few years we have seen both the US and the UK economies performing much better than such cooperative economies as Japan and Germany; it may be that a decade from now these various comparisons will look quite different.

Finally, is it really true that there is virtually no debate in Australia about alternative forms of capitalist organisation? One would have thought that the previous Hawke-Keating Labor Government did a good deal to attempt a more "co-operative and co-ordinated" system of economic organisation.

Indeed, around 1986 to 1989 Australia, and its then successful Accord incomes policy, was widely regarded as a model for other social democratic governments, though Bell has a point that, in its later years, attempts were made to reduce the centralised nature of the Accord and it became more "market-like". However, more widely, consultation with a great variety of pressure groups and attempts at reaching consensus must surely be regarded as one of the hallmarks of the previous Labor Government.

What are the effects of attempting such greater collaboration and coordination? As pointed out in Gruen and Grattan (1993, p. 73):

while the Hawke Government was committed in general to

consensus style politics sometimes the consensus shattered ... this

(occasionally) showed the limits to the pursuit of objectives through

consensus ... (but) the government's preference for a consensual,

consultative style clearly delivered it, and the community, certain

advantages. It led to fewer confrontations; it enabled changes to be

made that would otherwise have been difficult or impossible ... (but)

when interests diverged too greatly on particular issues either the

government or the groups had to break the consensus. The

consensus approach also had its costs. The most serious were ...

(that) ... negotiating changes can string out the process of reform ...

and consensus becomes the end rather than the means: that to keep

the peace, the government settles for less change than it should or

pays too high a price for the little it manages to get agreement to.

The point about this quote is that it attempts to provide some idea of both the pros and cons of achieving greater collaboration and coordination in a federal multi-party economic system where a government's power is inevitably limited. It seems to me difficult to show conclusively that the pros outweigh the cons or vice versa.

(2) Current account deficits are regarded by some economists as likely to constrain economic growth and they may be a possible indication of a country "living beyond its means".


Dowrick, S. (1996), "Swedish economic performance and Swedish economic debate: a view from outside", Economic Journal, 106, 1772-1779.

Gruen, F. (1996), "The quality of life and economic performance" in P. Sheehan, B. Grewal and M. Kumnick (eds), Dialogues on Australia's Future, Melbourne: Centre for Strategic Economic Studies, Victoria University.

Gruen, F. and Grattan, M. (1993), Managing Government: Labor's Achievements and Failures, Melbourne: Longman Cheshire.

Henderson, D. (1995),"The revival of economic liberalism: Australia in an international perspective", Australian Economic Review, 1, 59-85.
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Author:Gruen, Fred
Publication:New Zealand Economic Papers
Article Type:Book Review
Date:Dec 1, 1997
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