Economic Reform, changing demographics and future living standards in Australia
Teresa Dwight
The ageing population is an issue because there are concerns for labour force participation rates, and income distribution in a future economy. Guest and McDonald who measure wealth by consumption per capita, estimate (assuming that fertility rates remain at their current level) that consumption per capita is projected to grow 1.25% annually between 1999 and 2099. However, projected figures show that the fertility rate is dropping, and this will mean reduced growth in wealth. According to the Treasury’s intergenerational report, as workforce ages, is projected to drop to about 1.5%. Concerns about low participation rates are derived from international comparisons. In 2001, our population and participation rates were 94% of the US and productivity was about 83% of the US. However, it has been pointed out that an Australian/US comparison of economic figures can be misleading due to the vase population and labour market structure in the US economy. The participation rate of 55-64 years olds is the major concern for some reason 46% for males, and 22% for females is low by international standards.
Within the policy context, it is evident that intellectual and economic pressures from outside Australia, globalisation and economic openness, has had substantial influence over contemporary policy approaches. Increased competition and flexibility for increased production in order to be able to compete on the global market has made way for the rise of neo-liberalism and orientation of economic policy towards market orientated principles.
Policy processes appear to be passive receptors for these changes. However, these approaches are due to existing intellectual limits of policy in Australia. It is important to note Polanyi’s concept of the embedded economy which asserts that the economy is embedded in society. This means that things that affect society will also affect the market and vice versa. In regards to demographical changes, although policy may be able to have an affect on outcomes, there are a range of social as well as economic factors involved, which often produce and overall result that policy had no control over. As both Marx and Keynes agree, economic booms and slumps are inevitable.
However, policy is not as impotent as policy-makers prefer to project. The shift towards neo-liberalism was a deliberate and calculated policy decision. It achieved a number of deliberated outcomes such as increases in productivity, albeit at the expense of a shift of balance of power towards business, increases in competition, and increases and casualisation and reduction in job security.
However, many limits to government policy are derived from myths that exist in orthodox policy. This is a problem because it means that the correlation between the policy and the issue which it attempts to address is often a weak one. Firstly, the way in which income distribution is targeted by efforts increase productivity. Just because productivity increases, does not mean that society will necessarily be wealthier. Furthermore, in addressing labour force participation, it is argued that there is in fact no relation between unemployment and inflation, and it is therefore not necessary to prioritise one at the expense of the other. Finally, increasing labour market participation will only increase production if participation is focused on productive intensive areas. In conclusion, policy should have a stronger correlation with the issue it addresses.
Other major policy issues in economic reform are the lack of recognition that policy should be grievance based. That is, it should only be formulated with the view of certain deliberated outcomes in response to undesirable or, alternatively, desirable societal issues. An important argument is that policy should never be based on the merits of the policy itself, just the specific issue. The issue here is changes in demography with particular reference to the ageing population and declining fertility. It is therefore arguable that policy in economic reform in relation to the ageing population should not be addressing ‘the ageing population’, but the income distribution system, and labour force participation rates.
It is a particular issue, as evidenced by such policies as competition policy and labour market de-regulation, that particular policies are being implemented for the sake of the ideology. This is contrary to a grievance approach to policy, and counter productive.
As well as campaigning for policy makers to become aware of these myths and encouraging a grievance based approach, another way that policy can re-assert deliberated outcomes is by the construction of institutions, including extra-parliamentary institutions. First of all, it has been recommended by a number of policy makers that investing in innovation and education reform will strengthen the labour market by placing more skilled people in the growing market for skilled jobs. Fertility could be addressed not just in terms of labour market participation rates, but by building institutions and systems that address support for child care. Furthermore, there needs to be stronger support and arrangements for superannuation and support for an ageing population, rather than simply cutting out the pension. Finally, the argument that economic reform is a policy prerogative is supported by pro-employer nature of the labour market. A shift towards income equality rather than increased production would be more effective for income distribution. This does not necessarily mean encouraging union growth but a shift away from destroy ‘non-liberal’ institutions for the sake of neo-liberalism.
Conclusion
Economic reform is a policy prerogative, and not an economic prerogative because despite the way that economic reform is affected by the ‘policy context’, the government and policy can still reassert its interventionist policy in the market, or alternatively, chose to continue non-interventionist and de-regulatory practices. A shift in any of the intellectual, social, economic or political aspects within this domain can gear policy towards more productive and desirable deliberated outcomes. Policy is very capable of reasserting deliberated outcomes. The re-assertion of policy could be achieved by a shift in intellectual thought away from the neo-liberal mindset and more towards Keynesian kind of thinking, policies that are outcome-orientated and exposing myths behind economic policy and outcomes, a strong vision of deliberated outcomes, and a withdrawal from systematic breakdown of institutions without specific policy reasons. This would include developing extra-parliamentary institutions that are directed at the practical issues of the ageing population.
copyright, 2004