The Ideology of Economic Rationalism - Coursework Example

Economic Rationalism and Section # of EXECUTIVE SUMMARY This paper reflects on the ideology ofEconomic Rationalism, and highlights the dilemma of this paradoxical term which has been the topic of heated debates since its creation. The main features of economic rationalism focus on the new-classical economic theories and thus it relies on market liberal policies for its implementation. Therefore, it negates the concept of state intervention in resource allocation decisions, and emphasizes on sheer authority of the market mechanism for this rudimentary economic decision. Despite the rejection and dismissal of this concept by senior academics and social philosophers, it remains to be a popular ideology amongst modern politicians who aim for liberalism, and thus they seek evidences to justify their shaky stance. Strong criticism has been levied against the theory of economic rationalism because it creates market failure, income and wealth gaps, regional disparities, and furthermore, the important institutions such as education have been submitted to the authority of capitalists for profit generation, converting these intrinsic valuables into revenue creating business identities. However, economic rationalism, with its theory and practicality, has now been embedded into the economic structure, and is difficult to extricate from the complex and intricate structure of the economies today. INTRODUCTION The term ‘economic rationalism’ was coined by the sociologist Michael Pusey in his work Economic Rationalism in Canberra, in the year 1991. The purpose behind this creation was the desire to give an apt name to the Government and economic management of Australia which prevailed at that time. It pertains to the idea of increasing efficiency by the maximum involvement of the free market system. The concept behind the term refers to the thought of the rationalists that the Government should limit its intervention in the market as much as possible. This is highly debatable since it entails that the State should not provide for public goods and facilities, but on the contrary it should ignore the market failure that would become inherent in the system, and renounce their duty to remove or reduce the income disparity which exists in the economy. The main aim behind this concept is the creation of wealth in the long-run (Wright, 2003, Preface). The alternate term for this political ideology ‘economic rationalism’ is ‘market liberalism’ (Nevile, 1997, 7). This ideology however only ruled till the time of Great Depression, for then it became obvious that it worsened rather than rectify the economic debacle (Gosden, 1996, 1). ECONOMIC RATIONALISM POLICIES Key Features Since the entire concept of economic rationalism is based on the belief that markets are a better method of resource allocation than planners of the State Government, therefore the main characteristics of this ideology revolve around maximum freedom for the market mechanism and minimum interruption by the public sector. The rationalists of this stance accept policies such as floating currency, financial deregulations, reforms in taxation system and on the contrary, they strictly reject policies which would restrict the free movement of the market forces, and therefore oppose subsidies to encourage development and growth, regulation in the market (currency) and protectionism tools which provide a leeway to the domestic inefficient industries to escape from foreign competition. This house openly accepts the demerits of their belief, such as market failure wherein the provision of public goods is ignored due to free rider problem, externalities are not paid attention to and hence it leads to overconsumption of under consumption of respective products, and in cases where Government intervention is absolutely necessary, it is kept to the least under this system (Meyenn, 1991). Apart from these obvious features of Economic Rationalism, the other minor characteristics are (Meyenn, 1991): It promotes commitment to individualism with regards to taking initiative and responsibility It rests on the idea of minimum provision by the state It promotes the concept of economic efficiency rather than philosophical concepts of ethics, justice and fairness It makes room for business ideologies to reign over public policies Tool: Corporate Managerialism In order to implement the policies of economic rationalism, the tool used by the economists is referred to as ‘corporate Managerialism’, which is a business ideology that would overpower state control under this system. There are certain characteristics attributed to this tool (Meyenn, 1991): It focuses on strategically attaining the maximum and the best outcome from the minimum resources possible, therefore it manages with ‘efficiency’ as a goal Its main aim is the fulfillment of economic objectives as compared to social goals If public policy targets are to be met, then they must present an economic incentive, therefore they are couched in the form of economic objectives It succumbs to centralization with regards to focal areas It agrees to deregulate the workforce of the nation Since the main stress is on efficiency, thus performance is a prerequisite. Therefore under the system of Corporate Managerialism, accountability and responsibility is considered as an essential point, and hence subsidiary tools such as incentives and performance indicators are used This tool focuses on short term returns rather than long term benefits State’s justification for Economic Rationalist Policies The dilemma with regards to economic rationalism starts at the root of the subject, from the very definition of the term, since academic writers in this field agree that this term does not have any defined meaning, therefore whatever debate exists, it is due to the ‘definitional gap’ (Burton et al., 2002). According to Brian Head (Head, 1988, 466) the concept of economic rationalism is justified by the Government with the claim that it is for the welfare of the nation and the economy, because it is believed that this ideology rests on the assumptions of ‘new-classical’ economic theories, and therefore state that market mechanism triggers productivity and efficiency, it stimulates innovation in the economy while on the other hand the intervention from the Government would only bring about obstacles in growth and thus hamper the progress towards increased productivity and suppress entrepreneurship, and eventually lead to the creation of inefficiency in both the public and private sector. Under this system the regulatory policies of powerful labor unions backed by the Government policies, high taxation rates which stifle growth and excessive governmental control would impede growth, and are thus enemies of the market liberalism or economic rationalism ideology. Economic rationalist policies for the nation, as claimed by the Labor Government in 1983, is a move towards attaining budget surplus and downsizing of the ‘big government’, this claim and new economic rationalist policies were in stark contrast to the traditional Labor claim of working class welfare policies. When the term was coined, the economic conditions prevalent in Australia were of recession, unemployment and inflation, the state was in need to simulate demand in the economy and bring down prices and uplift employment simultaneously in order to rectify the devastating conditions, this led to the tilt towards free market system, since it would trigger competition, increase efficiency, lower prices, increase demand, which would lead to more production and a higher derived demand for labor and thus reduce unemployment, generating more income for further expenditure and more demand, thus it would create wealth in the economy of Australia which would eventually bring the country out of recession crisis (Head, 1988, 468). Criticism of Economic Rationalist Policies Economic rationalism has become a pejorative term since long, and has thus been abused and philosophically challenged, many literary articles, radio shows and interviews and books/publications have identified the paradox of this ideology which have essentially ensnared the policy makers of Australia, especially Canberra. Since it has been associated with wrong-doings ever since creation, thus it used by critics or opposition parties as a tool to relegate existing governments with market liberal policies, thereby portraying any policies linked to economic rationalism, such as privatization, tariff and tax reductions, subsidy removals, or market reforms providing more autonomy to the market force, as a move in the wrong direction. On philosophical terms, many consider economic rationalism to be unethical, since it promotes income inequality as efficiency would be sought after, leading to cut down of work forces and mechanization of production methods, resulting in unemployment increase and reduced national income, this would further give opportunity to capitalists to exploit the unemployed workers. Furthermore, when the government would no longer provide for public goods, and externalities would not be taken into account, then market failure would exist, this would result in overconsumption of harmful commodities and under consumption and production of beneficial goods, in addition, the removal of protective policies would leave the domestic market open to foreign tyranny, and high foreign competition would make survival of less efficient domestic industry difficult, resulting in shutdown of these businesses, and furthermore reducing income in the economy and hampering the Gross Domestic Product flow in the economy . The most serious claim by the challengers is that economic rationalism does not have roots embedded in objectivity but are a set of mere hollow beliefs which the house-followers blindly follow, just for the sake of holding onto this liberal principle, and hence it rests on the foundations of prejudice rather than facts (Harper and Leslie, 1993, 85). ECONOMIC RATIONALISM IN PUBLIC AND PRIVATE SECTOR UNIVERSITIES With increased globalization, the reliance on economic rationalist policies has increased, and as competition increased, it has led to higher education converting into a business for institutions, public and private alike, since even public universities now seek help from private universities to attract students from abroad who could be charged differential high prices and generate profits, thus education has undergone a transition from a basic social need to a competitive business object functioned by the market mechanism. Incentives are formulated to increase foreign student enrollment, by offering resident status and special visas to international students, this leads to further brain drain and creation of regional disparity, this practice is undertaken by Australian universities. While countries like UK, USA and other most English speaking nations focus on charging higher fees to international students, whereas India and Canada have yet not adapted this practice, they stay aloof from economic rationalist policies with regards to education, on the contrary they regard education as sacred, basic and just for all, regardless of nationality (Gamage, 2007). Mass higher education is not an old concept in numerous developed nations; it is a relatively new phenomenon, and despite many state governments accept their duty to provide education, they limit their extent to cover for only primary and secondary education, while university/tertiary education is left at the disposal of economic rationalist policies, which have converted this basic need into a competitive industry, and despite this phenomenon being unacceptable for many senior academics, it is a social reality that higher education has become a business, for both private and public sector, as they seek students who can pay for their services, regardless of caliber and merit, but on the basis of the amount of ‘dollars’ they have, thus relegating education to the level of mere exchange rather than a pursuit for knowledge. The implementation of this system has been successful, and higher university education has now been submitted to rampant capitalists for profits (Taylor, 1999, 3-4). CONCLUSION The fundamental underlying feature of economic rationalism is that it is both theoretical and practical, because the private sector, as claimed by the rationalists, is more efficient and productive than the state apparatus, while theoretical with regards to the belief that freedom for individuals should not be restricted, and if it is then it must be minimum, while this is not practically possible, because the freedom of one individual curtails the freedom of another, hence making its implementation almost impossible. While the efficiency argument holds, it is not indubitable that economic rationalist policies lead to lead to market failure, income disparities, regional dissensions, wealth gaps, exploitation and most importantly it relegates the intrinsic valuables such as university education to a lower level of mere business industry for capitalists. Hence this dogmatic ideology has since inception been a topic of debate and argument. References Burton. T; Dollery. B and Wallis. J (2002) “A note on the debate over economic rationalism in Australia: an application of Albert Hirschmans Rhetoric of Reaction”. History of Economics Review Gamage. S (2007) “Globalization, Economic Rationalism and Civil Society: What are the Negative Consequences?”. Asian Tribune- World Institute for Asian Studies, 10, 89 Gosden. R (1996) “Economic Rationalism as a Mental Disease”. Ecopolitics X Conference Proceedings, Australian National University. Accessed July 20, 2010 from http://sites.google.com/site/richardgosden/economic-rationalism Harper. I R and Leslie. P (1993) “The case of financial deregulation: Economic Rationalism on trial” in King. S and Lloyd. P ‘Economic Rationalism: Dead End or Way Forward’. Allen and Unwin Head. B (1988) “The Labor Government and ‘Economic Rationalism’”. The Australian Quarterly, 60, 4, 466-477 Meyenn. B (1991) “Education is not a Hamburger”. Australian Association for Research in Education Annual Conference Nevile. J W (1997) “Economic Rationalism: Social Philosophy masquerading as Economic Science”. The Australia Institute, 7, 1-18 Taylor. J (1999) “The Death of Distance: The Birth of the Global Higher Education Economy”. E-Journal of Instructional Science & Technology (e-JIST), 3, 1 Wright. J (2003) The Ethics of Economic Rationalism- 1st Edition. UNSW Press Read More