Rebuilding a strong economy
Government is the process of intervention in society and the economy.
All government interventions fall within one of the following categories:
- Redistributive policies - taxing one sector to subsidise another, taxing one sector less than another or making direct payments (includes taxes; tariffs; bounties; tax concessions; rebates; grants and social security payments, subsidies and pensions).
- Regulatory and legislative policies - imposing, restrictions, quotas or sanctions on certain types of economic activity and social behaviour, legislating special qualifications for some activities, restricting competition of certain kinds; associated enforcement.
- Direct Government business activities: provision of selected services; competition in selected markets; GTEs and public ownership of natural monopolies - like roads; drainage and so on; other public infrastructure like National Parks; and some utilities.
- Encouragement, advice and leadership; a special class of subsidised services.
The difference between good government and bad, successful societies and unsuccessful, is the quality of those interventions.
At the political heart of any intervention in Australia is the historical underlying economic debate between free trade and individualism and industry protection and socialism. This debate is older than Australian Federation and now finds its main expression in adherence to rationalist (dry) and interventionist (wet) economic theories. Today both strands can be identified in both major political parties. Minor parties tent to hold more strictly to one or the other.
Attitudes to economic intervention vary between the dry view, held by elements within NSW Treasury and the right wing of both major political parties, that government has no active role in economic development. The marketplace will result in the optimum level of resource allocation and hence wealth creation. Any intervention by the Government (regulations or transfer payments) is likely to result in disrupted economic equilibrium and inefficient distribution of resources. As it is not possible to set social and political goals without implicitly or accidentally making economic redistributions; and often the actual outcome of intervention differs unfavourably from the expected outcome, the best method of achieving economic efficiency is to minimise essential interventions such as regulations or transfer payments. Under this view the main role of the Government in economic development should be to identify those areas of Government community service and regulatory activity impacting negatively on economic growth and develop and offer alternatives to minimise these impacts, while retaining the politically desired outcome.
Opposed to this view is one that says that the Government should be actively interventionist and proactive. This view has strong supporters in rural areas and the National Party as well as among the left, unions consumer organisations and the Greens. Under this view it is the responsibility of government to establish and agree a vision; to set social and economic goals. It doubts the capacity of markets or business to do this unaided and holds that true market-place equilibrium is a myth, as markets are persistently and systematically manipulated by large buyers and sellers (like grocery oligopolies) and/or by the collusion of large and small participants. Even if markets were free, as a result of the activities of the competition watchdog, John Maynard Keynes famously demonstrated that full employment is not necessarily consistent with free market economic equilibrium. So there is no guarantee that market based economic equilibrium is consistent with optimum growth or social equity. A subset holds that just as individuals and companies become wealthier than others by monopolising markets or controlling suppliers, so countries gain wealth by the same means; for example by consolidating our trade in wheat, wool or coal; or by manipulating currency values or imposing restrictions on trade; for example restrictions on importing bananas or various other potentially competitive rural products.
A discussion on markets can be found elsewhere on this site - follow this link.