Theoretical Questions - Assignment Example

Short-Answer Questions Name Institution 1. Usefulness of the ‘path dependency’ concept and use in describing Australia’s history of institutional continuity and change Path dependence implies how the decisions a person makes in a certain situation can be restricted past made decisions, although the previous situation might not be relevant any more (Djelic & Quack, 2007, p.163). In other words, path dependency works on the concept that, for one to comprehend present systems and framework it is vital to comprehend past systems and how such systems have transformed eventually. Path dependency concept is helpful for describing history of institutional change and continuity in Australia, since it depicts how the practice of ideas and concepts which have been fostered can sometimes be difficult to deviate from. Boas (2007, p.35) argued that economic policy and behavior are greatly impacted by this traditionally-derivative and existing framework of the institutions and decision they permit. A practical case of this situation is the Australia’s industrial relations framework. Grube (2014, p. 78) stated that the Conciliation and Arbitration Act of 1904 became the first key framework for the development of the industrial relations establishment in Australia, setting structure which that would stay reasonably unchanged for more than 50 years. The act helped the government in regulating and calculating of staff wages and by means of setting of a minimum wage and the award system (Quiggin, 2001). This concept stayed unaffected until the Work-Choices legislation of 2005 was enacted by the Howard’s government (Grube, 2014, p.97). Using the path dependency concept, it is arguable that Work-Choices legislation could have been ineffective and inefficient change on industrial relations framework since the strongly centralized wage standard which had been incorporated in the country was a very old and efficient institution at making sure staffs got fair minimum wage (Gittins, 2005). However, when Work Choices legislation came into play, it changed this system and substituted it with the decentralized wage system (Sappey et al., 2009, p.34). In this context, government of Howard did not realize that path dependency in reference to the past industrial system was effective and popular with working population of Australia and did not support the change of this culture. The situation is attributed to the argument that if organizations are effective in delivering social results, then it requires no change. Sappey et al. (2009, p. 53) argued that Work Choices can be considered not to have delivered popular social results; hence changing back to the past system was highly required. Another case of path dependency depicts itself among big economic institutions. In the past, Commonwealth government owned Commonwealth Bank of Australia. In addition, the Commonwealth Bank operated as the central bank of Australia, and had the responsibility of creating interest rates until 1960 (Martin, 1999, p.17). With economy of Australia rising after World War II, some scholars argued that for market to be highly competitive; it would have been viable for the government to privatize Commonwealth Bank. Lewis, et al., (2010, p.98) contended that even though the tradition was that Commonwealth Bank was owned by the government, but the rapid international expansion of the markets and business made the situation more viable and privatization turned out to be suitable option to inspire competition, then set a platform for better social results for consumers by means of increasing choices and reducing of banking fees and rates. Horizontal fiscal and vertical fiscal imbalances are some cases demonstrating institutional history of Australia, focusing on the Constitution of Australia. According to Berg (2015, p.195), Vertical fiscal imbalance takes place when central Government creates high tax revenue more than that of state governments. Traditionally, this situation was different since state governments had considerable authority over development of infrastructure and taxation. Scherini (2006, p.3) argued that the “imbalance among States’ spending demands and revenue control has most emerged from the takeover of the income taxes by the Commonwealth after the World War II and striking down of the several taxes at the state level by the High Court with an argument that they are “excises” (taxes that are reserved by the constitution to be under Commonwealth). This change in authority implemented by the Constitution had brought mixed reactions, though; revenue provision to the states by central government was received as a way to improve social lives of Australians. The state grants to the state governments are often regarded as an efficient way of rectifying the vertical imbalance (Berg, 2015, p.197). Such grants are usually employed in building and for maintaining infrastructure which are used to better social lives of Australians. On the other hand, Lewis et al, (2010, p.48) stated that horizontal form of fiscal imbalance emerges due to disparities between the states in terms of costs per person of offering public services. This is normally resolved by the provision of federal government on required grants and the urgency for such funds. The Australian high court decision to do away with several state taxes based on “excises” argument led to increase of federal funding (Beaton-wells & Tomasic, 2012, p.656). The policy resulted into a major change in financial institutions of Australia which had been adopted in the past, and the path dependency concept has permitted for such decisions to be evaluated against the past mode of revenue rising which was existing. 6. The changes in and structure of the Australian financial system that led to the deregulation of the financial system in the 1980s Financial system of Australia has faced considerable change in the past two decades. The past financial system commissions of inquiries like Campbell Report of 1981 has been cited as some of the triggers for key economic changes in Australia (Nevile, 1997 p.275). This Report resulted to deregulation of the Australia financial sector and Australian dollar floating. Such reforms underlined economic growth and stability of Australia in the previous thirty years. Lloyd and Ramsay (2009) opined that the financial sector’s deregulation has led to improvement of quality and volume of financial services in the country. The changes have not only been marked in the relative significance of various institutions serving in Australian financial system, but also in financial intermediation as well as the extension of the financial markets (Reserve Bank of Australia, 2012). It is important to note that up to 1970s; Australian financial system was greatly monitored and regulated. The process of deregulation started in 70 and ended in 1986 (Nevile, 1997 p.275). During regulation, the rate of interest was controlled by the authorities. In addition bank lending was restricted, transfer of capital into and out Australia was strictly monitored and the financial agencies were ordered to purchase government securities at some prices. The situation has since changed giving banks the freedom to move from just credit distribution to management of liabilities in awake of market-driven credit demands. Ballantyne et al., (2014) stated that the international institutional structure to some extend negatively impacted the efficiency of Australian financial sector. When the international institutional structure signaled change, even the Australian one intensified pressure for the change to be carried out. Nevile (1997, p.276) claimed that the government imposed regulation on the financial industry at the time of Second World War leading to a two-tiered form of systems of NBFIs and banks. The situation resulted to restriction as the banks were unable to allocate more funds for housing and investment to their customers (Nevile, 1997, p.277). Nevertheless, as more non-banking companies increased, banks started to lose their share of the market. A research claimed that as the pressure grew on the banks, they set up non-banking branches leading to rise of transaction being conducted outsides the banking standards. Battellino (2007) claimed that the whole process led to inflation in 1970s which led to increase in nominal rates of interest particular in the unregulated sector. On the other hand, regulated sector lagged behind in terms of competition it making not attractive to the depositors. The increase of the alternative financial products or services influenced by the improvement of technology, data processing and communication also happened in foreign markets (Nevile, 1997, p.279). The growing integration of global financial markets implied that wherever domestic regulations increased the relative costs of business transactions, there was a high probability that such transactions would be conducted in off-shore. Therefore, Battellino (2000) argued that as a regulated banking sector kept on shrinking in relation to unregulated sector like non-bank, the existing regulatory and money policy, the institutions that were created to support turned out to be ineffective. RBA officials also became concerned that that regulatory financial system was not efficient as it used to be in 1960s and 70s and the situation to acknowledgement from the bank that there was a need to change to a deregulated system (Nevile, 1997, p.279). Another reason which led to deregulation was the fact that Australian Reserve Bank recognized that control of Treasury note prices was creating distortions in the rates of interests within its financial system. Nevile (1997, p.280) pointed out that the change was first introduced in 1979 when the Bank launched a tender system platform which was meant for sale of notes. Although, at first, the change process was opposed by The Treasury based on the reasoning that the government ought to attain its money cheaply and the monetary authorities should be in the forefront to determine the price for funds, and not the forces within the market. Brouwer (1999, p.55) held that the creation of the tender system platform for selling of the Treasury bonds was yet another critical reform in freeing monetary policy owing to fact that since Reserve Bank was not obligated to purchase government bonds, the shortage was going to be financed by the marketplace but not the government. Therefore, monetary policy was not going to be affected. In addition, Ballantyne (2014) held that the status of interest rates and its effect on the financial system stability also led to deregulation of Australian financial system structure. The government regulated interest rates in the 1960s and 1970s claiming the control was meant to help in management of macro-economic situations with an aim of attaining certain social objectives (Lloyd & Ramsay, 2009). However, the situation changed and by the mid 1970s the authority realized the regulation of interest rates where was hampering management of macro-economic factors as opposed to helping making the process less cost effective in achieving set goals. When the controls of interest rates were removed, Bank managers were excited since it reduced the competitive advantage that non-bank institutions enjoyed over the past (Martin, 1999). 7. The significance of national competition policy since 1995 and the role of the Australian Competition and Consumer Commission According to research conducted by Beaton-wells & Tomasic (2012, p.648), before 1995, Australia competition policy and laws were enforced in a different way compared to present days. Earlier than 1995, the competition policies were enforced by the Prices Surveillance Authority and Trade Practices Commission (Australian Competition Law.Org, 2015). The two forms of legislation implementing the rights of such regulatory agencies include Prices Surveillance Act of 1983 and Trade Practices Act of 1974. However, it is practice merger of the two bodies that happened in 1995 and has influenced the present Australian competition policy regulation. The Commonwealth Government then created a committee in 1992 to inquire about the competition policy. Lewis et al, (2010, p.74) claimed that the committee’s recommendations published in the Hilmer Report were acknowledged by Council of Australian Governments (COAG) in February of 1994. Lewis et al, (2010, p.74) went ahead to contend that the Report head that there was a need for an extensive strategy to the regulation. According Beaton-Wells andPlatania-Phung (2011, p.737), the report also acknowledged that Australia market is single and integrated one with the territory and state border lines diminishing in significance, and that several trade regulations had been diminished or removed enabling a platform where traded product sector became more competitive. Founded on Hilmer Report, Competition Policy Reform Act of 1995 was ratified the national parliament. Beaton-Wells and Platania-Phung (2011, p.751) also claimed that The Competition Policy Reform Act of 1995 was an amendment to the Trade Practices Act of 1974 and incorporated the Prices Surveillance Act within it. This amendment was vital since Trade Practices Act was one of the major clauses of the legislation concerning competition policy in Australia. The Trade Practices Act deals with the firms’ behavior as opposed to prohibiting particular market structures. Therefore, Lewis et al, (2010, p.71) opined that monopoly has not been prohibited; to a certain extent, it is the employees of the power of monopoly to fix higher prices which is actually prohibited. Australian Competition & Consumer Commission (2015) stated that The Trade Practices Act role was to control issues like the abuse of the market power, unconscionable behavior, mergers and acquisitions, anti-competitive contracts and several other issues. The combination of Prices Surveillance Act and Trade Practices Act, under Competition Policy Reform Act, entailed the capability to inspect rises in price, to check the profits, costs of companies and prices, and to conduct inquiries concerning supply of products or services based on the roles Act was intended for (Australian Competition Law.Org, 2015). The government of Australia agreed that with the unification of the Prices Surveillance Act and Trade Practices Act, the regulatory institutions assigned with distributing setting policies ought to also be merged, so as to set a platform for having one major competition regulator overseeing businesses all over Australia. Therefore, Schienstock (2011, p.65) argued that the growth of the Australian market and business, and changes in business sector led to setting up of the Australian Competition and Consumer Commission in 1995. According to the commissions’ website, Australian Competition and Consumer Commission were set up to encourage competition as well fair play in trade in the market in order to benefit the companies, consumers and community in general (Australian Competition & Consumer Commission, 2015). The commission also controls national infrastructure sectors. Therefore, in a nutshell, the commission’s key task is to make sure that businesses and individuals observe the competition, consumer protection and fair trading laws of Commonwealth. According to Australian Competition and Consumer Commission website, ACCC is a self-governing statutory institution established in 1995 to oversee Trade Practices Act of 1974 and related acts. Lewis et al. (2010, p.71) also posited that the Australian Competition and Consumer Commission was established also to spearhead the adoption of National Competition Policy plan. Another legislative reform took place in January of 2011 which touches on competition policy. Australian Competition Law.Org (2015) posited that during this time, Trade Practices Act of 1974 was changed to Competition and Consumer Act of 2010. Even though, the Trade Practices Act content did not change or undergo the rigorous legislative reform, the renaming in the Trade Practices Act’s name ought to be considered when handling the national competition plan. This change reflects the regulatory roles of the Australian Competition and Consumer Commission, by exclusively emphasizing on the attributes of governance of consumer policy and welfare (Australian Competition Law.Org, 2015). Generally, Competition and Consumer Act of 2010 gives the Australian Competition and Consumer Commission the authority to monitor and controls unfair practices, prices, sector codes of ethics, product safety, mergers and acquisitions, product labeling, and general regulation of the market (Beaton-Wells & Platania-Phung, 2011, p.743). Taking on such responsibility is usually critical because failing to act is likely to affect the consumers’ welfare and performance on other market player. For instance, collusive conduct between industry largest companies, like price-fixing and monopoly not just affect clients, but they also hinders the market competence. Beaton-Wells and Platania-Phung (2011, p.745) asserted that it is the function of Australian Competition and Consumer Commission to control such behavior and ensure Australian competition policy is equitable and transparent as possible. References Australian Competition Law.Org. (2015). Competition Policy Reform Act 1995(Commonwealth). Retrieved 19th December 2015 from http://www.australiancompetitionlaw.org/legislation/1995cpra.html Australian Competition & Consumer Commission. (2015). Reinvigorating Australia’s Competition Policy: Australian Competition & Consumer Commission Submission to the Competition Policy Review. Retrieved 19th December 2015 from http://www.accc.gov.au/system/files/Harper%20Review%20-%20Issues%20Paper%20-%20ACCC%20Submission%20-%20FINAL%20 (for%20website)%20-%2025%20June%202014%20(2).pdf Ballantyne, A., Hambur, J., Roberts, I., & Wright, M. (2014). Financial Reform in Australia and China. Reserve Bank of Australia Battellino, R. (2000). Australian Financial Markets: Looking Back and Looking Ahead. Australian Financial Markets: Looking Back. Reserve Bank of Australia Battellino, R. (2007). Australia’s Experience with Financial Deregulation. Address to China Australia Governance Program, Melbourne Beaton-wells, C., & Tomasic, K. (2012). Private enforcement of competition law: time for an Australian debate. UNSW Law Journal Volume 35(3), 648-682 Beaton-Wells, C., & Platania-Phung, C. (2011). Anti-Cartel Advocacy — How Has the ACCC Fared? Sydney Law Review, 33, 735-769 Berg, C. (2015).Classical Liberalism in Australian Economics. Econ Journal Watch 12(2), 192– 220 Boas, T.C. (2007). Conceptualizing Continuity and Change: The Composite-Standard Model of Path Dependence. Journal of Theoretical Politics 19 (1), 33–54. Brouwer, D.G. (1999). Deregulation and Open Capital Markets: The Australian Experience Before Wallis. Agenda, 6 (1), 51-68. Djelic, M., & Quack, S. (2007). Overcoming path dependency: path generation in open systems. Theor Soc, 36, 161–186. Gittins, R. (2005). The end of the wage-setting world as we know it. The Sydney Morning. Grube, D. (2014). The gilded cage: Rhetorical path dependency in Australian politics. Studies in Australian Political Rhetoric, ANU Press. Lewis, P., Garnett, A., Treadgold, M., & Hawtrey, K. (2010). The Australian Economy: Your Guide 5th Ed., Pearson. Lloyd, C., & Ramsay, T. (2009). The Transformations of Australia’s Labor Market Since1983: From Social Democracy to Regulatory Capitalism? University of New England. Nevile, A. (1997). Financial Deregulation in Australia in the 1980s. The Economic and Labour Relations Review, 8(2), 273-292. Martin, S. (1999). Labor and financial deregulation: the Hawke/Keating governments, banking and new labor. University of Wollongong. Quiggin, J. (2001). Economic governance and microeconomic reform. University of Queensland. Researve Bank of Australia. (2012). The Structure of the Australian Financial System. Viewed 19th December 2015 from http://www.rba.gov.au/publications/fsr/2006/mar/pdf/0306-1.pdf Sappey, R., Burgess, J., Lyons, M., & Buultjens, J. (2009). Industrial Relations in Australia: Work and Workplaces, 2nd Ed. Pearson Australia Scherini, A. (2006). Reforming Specific Purpose Payments to achieve the best outcomes for the community: A practitioner’s perspective. Retrieved 19th December 2015 from http://www.business.curtin.edu.au/files/scherini.pdf Schienstock, G.(2011). Path Dependency and Path Creation: Continuity vs. Fundamental Change in National Economies. Journal of Futures Studies, 15(4), 63 –76 Read More