Policy reform proposals are unlikely to be implemented, and even less likely to prove resilient, unless accompanied by a compelling narrative. But compelling narratives can also be dangerous.
So it is with the core narrative that has been used to support economic policy reform efforts in Australia for the past 30 years. The narrative goes like this: reforms that enhance productivity and cut costs, including labour costs, build international competitiveness; international competitiveness drives exports; exports drive growth; growth drives jobs; and jobs support living standards.
This narrative is neither uniquely Australian nor modern. With its focus on exports as the foundation of living standards, it is strongly redolent of the mercantilism that Adam Smith set out to discredit in The Wealth of Nations published in 1776.
All economists reject mercantilist nostrums. But most of those engaged in Australia’s economic reform program since 1983 demonstrated little aversion to harnessing mercantilist rhetoric in the pursuit of loftier goals.
We were delighted by the emergent public support for tariff reform in the late 1980s and early 1990s, even though the case that was being argued was classically mercantilist; tariffs on imported equipment had to be removed because they undermined the international competitiveness of exports, especially agricultural exports. And there were many other structural reforms in the two decades from 1983 for which the mercantilist narrative proved equally expedient, including labour market deregulation and indirect tax reform.
But we are paying a price for past expedience. The mercantilist narrative is so deeply entrenched that it is crippling sensible attempts to deal with some of our biggest challenges.
For example, in the past decade, as the international competitiveness of all trade-exposed businesses has been damaged by a real currency appreciation caused by spectacular increases in world prices for minerals and energy commodities, we have found it impossible to have a sensible conversation about public policy requirements. Reform proposals have been presented tentatively, they have been poorly understood, and they have not proved resilient.
Similar difficulty is evident in the past decade’s experience of climate change policy. The fact that major policy initiatives in these areas have proven fragile has been cause for some questioning of our policy reform capacity. But really, given our national fixation with a simplistic reform narrative constructed on concepts of “international competitiveness”, “exports”, “growth”, and “jobs”, we should not have had high expectations of policy success in these areas.
And things could get worse.
Read more in Advance, the quarterly magazine of ANU Crawford School of Public Policy.
Dr Ken Henry AC served as the Secretary of the Treasury from 2001 to 2011. He chaired the Australia’s Future Tax System Review that was published in 2010.
Henry, Ken, ''International competitiveness'', Evatt Journal, Vol. 13, No. 7, October 2014.<https://evatt.org.au/international-competitiveness>