Preface

It may be useful to begin by saying what this book is not. First, it is not a comprehensive survey of all the areas of policy that have been affected by microeconomic reform. The most notable omission is that there is no analysis of changes in labour market institutions such as the move to enterprise bargaining and the attempts at state level to introduce a system of individual contracts. This topic would require an entire book (and a different author). Changes in the taxation and welfare systems, included by some analysts in the scope of microeconomic reform, have also not been considered. The book deals mainly with reforms undertaken by the Hawke-Keating Labor government which held office from 1983 to March 1996. There has been insufficient time to assess the changes of direction under the Howard Coalition government.

The book is also not meant to be a summary of the consensus of views held by the policy elite, consisting of leading politicians and bureaucrats, the economists who advise them, economic journalists and the private sector think-tanks. The policy elite displays a clear consensus that microeconomic reform is both urgently needed and beneficial. The main disagreements concern the pace and sequencing of microeconomic reform. In seeking the sources of this consensus, it is necessary to look to the psychology and sociology of herd behaviour, rather than to the findings of economic analysis. A respectable economic case can be made for most of the policies implemented under the banner of microeconomic reform. However, the issues are rarely as clear cut as they would appear from the policy debate, and even generous estimates of the potential benefits of reform are smaller than one might suppose from the political rhetoric surrounding the issue.

The academic economics profession displays no clear consensus regarding microeconomic reform. Individual economists have studied a wide variety of topics, but contributions have been scattered and episodic -- a conference or policy symposium here, a commissioned paper there. Most books relevant to the microeconomic reform debate have therefore been either tightly focused studies of particular problems, or collections of papers by different authors working independently, of which the most valuable are those collected in Forsyth (1992).

The object of this book is to offer something different - an overview of the key issues in the debate, sufficiently developed to permit a detailed, and largely self-contained, treatment of many issues in microeconomic reform, and an approach to an overall evaluation of the costs and benefits of reform. The approach to analysis of policy in specific sectors of the economy has been selective. An adequate treatment of all the issues raised by microeconomic reform would require a volume far larger than this one. For example, reform in the telecommunications industries has been discussed in some detail, whereas the electricity industry has been treated only briefly. Another important omission is that the only part of the transport sector given detailed attention is the airline industry. On the other hand the book covers tariff reform and financial deregulation, sometimes regarded as issues separate from those of microeconomic reform.

The central message is that economic analysis can be usefully applied to the task of assessing existing policies and suggesting improvements on those policies. The problem with the current Australian policy debate is not an excessive reliance on economics but the substitution of dogmatic precommitment for objective analysis. Many readers will find much to disagree with in the analysis. I hope, however, that this book will help supporters and critics of microeconomic reform alike to clarify their arguments and perhaps, ultimately, find some common ground.

The book begins with a brief overview of some of the key contributions to the microeconomic reform debate. Chapters 2 and 3 give a more detailed summary of the development of the move towards microeconomic reform, internationally and in Australia. Chapter 4 is a self-contained presentation of the key analytical tools of welfare economics that will be used in the book. This chapter may be omitted by readers who are willing to take on trust subsequent claims about such issues as price changes in the airline industry. Chapters 5 and 6 present competing theories of the economic policy process: Chapter 5 illustrates the 'public interest' approach and Chapter 6 the 'private interest' approach. The next four chapters deal with specific topics in microeconomic reform primarily affecting the private sector: financial deregulation, airline deregulation, telecommunications and tariffs. Chapters 11 to 14 deal with aspects of microeconomic reform primarily affecting the public sector , including privatisation, private provision of infrastructure, competitive tendering and contracting, and the Hilmer reforms. The last two chapters deal with the microeconomic reform process as a whole: Chapter 15 is a critical re-examination of estimates of the benefits and costs of microeconomic reform. Chapter 16 contains some final thoughts about the reform process.

The work of writing a book is largely solitary, consisting of long hours sitting at a keyboard or poring through reports and articles. Yet when the work is done and the time comes for writing a preface, the task of acknowledging the help of others turns out to be a mountainous one. So many people have contributed, in one way or another, that it is impossible to thank them all by name.

This book began with an invitation from Percy Harris, then Professor of Economics at James Cook University to visit the University for a semester in 1994 and teach a course on microeconomic reform. Although I had worked on issues such as privatisation and contracting out, I soon became aware of the magnitude of the task I had taken on. The microeconomic reform agenda is vast, diverse and ever-changing. Although the literature on the topic is voluminous, it is widely scattered and consists largely of advocacy rather than analysis. Nevertheless, I found teaching the course very enjoyable and came back for more in 1995. After Percy's retirement at the beginning of 1996, I succeeded him as Professor of Economics, and have just taught the course for a third time. I thank Percy, and all my students over the three years in which this project has evolved, for giving me the encouragement I needed to pursue it.

I would also like to thank all my colleagues at James Cook University and Australian National University who, despite the pressures that are part of the microeconomic reform era, found time for lengthy, and occasionally heated, discussions of the issues. I would particularly like to thank Fred Gruen and Steven King who read the entire manuscript, making many helpful suggestions and stimulating criticisms. Robert Albon made a number of important critical comments on my analysis of telecommunications policy.

Colleagues at many other universities have also helped me in my work, with discussion, critical comments, new ideas and invaluable information. We may not always have resolved our differences, but these interchanges with fellow economists certainly helped to clarify my thinking about the issues. I must express particular thanks to Simon Domberger, Joshua Gans, Peter Forsyth, Belinda Probert, Marc Robinson and Bob Walker.

Many people in government, the union movement, community groups, the business sector and the media have helped me by providing valuable information, discussion and encouragement to pursue my work in this area. A limited selection includes Fred Argy, Ros Eason, Peter Freeman, Gerald Goggin, Clive Hamilton, John Langmore, Roy Martin, Alan Mitchell, Pat Ranald and Glenn Withers.

From Allen & Unwin I would like to thank John Iremonger, who first suggested a book on this topic, Joshua Dowse, the publisher in charge of the project, Lynne Frolich, who was a supportive and helpful editor, and all the editorial, design, printing and marketing workers whose efforts are needed to make a book like this possible.

Most of all, I must thank my wife and colleague, Nancy Wallace. Without her this book would not have been possible. When I have been tempted to linger amid the beautiful abstractions of economic theory, she has always reminded me that economics is about people, their work and their lives. She has read the manuscript of the book many times, with a critical eye for bad English, sloppy economics and confused expression. She has helped me in my research and brought order to the chaos of my filing system. Most of all, she has given me the love and support that has made a massive task seem easy.

This book was produced as camera ready copy on Apple Macintosh computers using Nisus Writer, Aldus Freehand and Microsoft Excel software.