Australian Economy and Society - Assignment Example

Name Professor Course Date Question1. Path dependency This is a concept in Economics that explains how decisions made in the past affect other decisions to be made in the future. It describes a complexity theory that explains that where an organization is heading to is determined by where it has been in the past. This means that the past decisions of an organization shape the future of decisions in the organization (Douglas, 2010).This theory applies to almost all economic institutions in Australia. This part of the paper seeks to explain the effect of this theory on some two economic institutions in Australia. Path dependence applies the concept of history matters in making decisions. This is because they are made on the basis of such decisions in the history of the business. Path dependency shows that an economic institution follows the path it has made in the past. It also indicates that the outcomes of the past decisions in an organization determine the decisions to be made in the present. The path dependency theory was developed by economists with the aim of explaining the technological adoption of the decision making process. This theory has a great influence on many economic institutions in Australia and more so about the evolutionary economics (McLean 2012). For instance, an organization can make decisions on the economic status on the basis of similar decisions in the previous times. If the economy of a country follows adaptive expectations, then their decisions like on inflation are determined by the past experience of the economy on the same matter. This means that organizations in such an economy will make such decisions based on their past experience and past experience on the same. However, some economists argue that this theory is not very effective in all the decisions of an organization. This is because there is need for change in this dynamic world that calls for innovation and change from the old trend of doing things in an organization. They argue that decision makers should be careful to explore the future possibilities with guidance from the history of an organization and the economy. Effects of path dependency on Australian economic institutions Many economic institutions in Australia apply the theory of path dependency in their decision making process. This paper analyzes two institutions that apply this theory in details and how it affects such organizations. One of the organizations is the Water Market Efficiency in Victoria. Water governance in this country has gone through several changes all in a bid to improve on the service delivery (Lubjuhn 2010). In the past, this organization relied so much on the help of the government in providing such services and clean water for residents in Victoria. The pricing and allocation of irrigation water in the country depended on the markets and the government of Australia. Changes in such organizations impact on path dependency from frameworks in the history of the organization. This institution has had several changes for the last thirty years, which have made it a better organization than it was some three decades ago. The path dependency theory has both negative and positive effects on this particular economic institution in Australia. This theory affects the organization in a positive way because it attributes the change to the path dependency theory. Previous frameworks of the organization set the path that it uses in making decisions and making certain changes. The path dependency provides a basis and path that an organization can use in the future. This means that the organization makes future decisions with guidance from such frame works in the past. The Water Market Efficiency in Victoria institution used the path dependency theory to make effective decisions that contributed to the change (Lubjuhn 2010). Experts explain that decision makers in the institution based the theory to help them correct mistakes made in the past. The theory also assists decision makers in the organization to predict future events on the basis of such events in the past. The organization uses this theory because decision makers are afraid of results from the decisions they make. However, the path dependency theory has negative effects on this organization. This is because it creates rigidity especially in the case where this organization introduced new arrangements in the institution. This effect is clear in the present trading restrictions on the Victorian water markets in Australia. These restrictions are permanent in the water market, but have brought limitations on the gains from water trading in the country. Path dependency in this case limits such gains in water trading in Victoria in the short-run. The second organization that has had effects of the path dependency is the Australian institution in port industry. This institution uses the path dependency theory since the World War II period. Port institutions in this country make decisions using the path dependency since the World War period. The post World War II period for these port institutions in Australia clearly show the impact of using path dependency in decision making. Just like the Water institution in Victoria, this theory has both positive and negative effect on the port institutions in Australia. Path dependency in this case has more of negative effects than the positive effects on the port institutions in the country. Economic actors in these institutions were afraid of the kind of decisions they made without guidance from the past decisions. The use of path dependency pushed the development of this institution down (McLean 2012). It created lock-ins which impended strategic flexibility in the ports in Australia. This implies that the efficiency of ports in Australia was brought down because economic actors solely relied on the theory. This did not give room to any changes especially changes brought about by the technological change. Ports in the country continued with the use of old technology, which meant low productivity in the institution. The use of path dependency in this paper explains stability in the port institution and changes in the port systems. Using this theory in the Australian economy causes inefficiency in the macro and micro level institutional arrangement. This in turn reduces the efficiency of the organization that deals with ports in Australia. This theory has brought positive effects in the institution because it opened up the eyes of economic actors to see its negative effects. Decisions made in the organization in the past were not effective, therefore, decision makers made better decisions without depending on the past of the institution. This creates reforms in the port institution. It is because of these reforms that the port systems in the country are much faster than before. Though it was difficult for the institution to adapt to the new changes like shifts in the wide market, the institution finally absorbed these reforms. Question2. Statutory Authorities (SA) They are authorities with the obligation of enforcing legislation on behalf of the country in which they operate. These bodies are set according to the law of a particular country and they act according to rules set by the government or state. The commonwealth Authorities and Companies Act of 1997 has the mandate to establish statutory authorities in Australia. Bodies in the statutory level are established under territory laws. These bodies in Australia have different obligations depending on their areas of interest (Evans & Kelley 2002). They make regulations which must be published in the Government Gazette to make them laws of the state. Each of the statutory authorities in Australia has their individual enabling legislation. For instance, the Commonwealth Scientific and Industrial research Organization which was established in the year 1949. This regulation is established under a specific act of the Scientific and Industrial Research. Examples of statutory authorities in Australia include the Consumers affairs, Workplace health and safety and the Road traffic safety among many other authorities. Regulatory agencies in Australia Regulatory agencies have the responsibility of regulating the economy of Australia. It is a political activity by the government to set frameworks of organizations and the market in the country. They define boundaries of the private sector and government actions. These agencies define certain boundaries in their areas between the powers of the government and private action on certain areas in the market. However, these boundaries are not fixed. Bodies of regulation in this country are growing with the aim of regulating both private and government action in the economy. Regulation by these agencies in Australia has effects on the economy because experts argue that they are contradicting. The agencies have political implications because they contribute to the increase of political power and influence. Examples of such agencies in Australia include the Air services Australia, Australian Research Council and the Australian Secret Intelligence Service. Government business enterprises in Australia (GBE) This is a legal entity created by the government of Australia to carry out commercial activities on behalf of the government. This is a term that refers to the Commonwealth government-owned companies in Australia. States in this country have GBEs especially those that handle matters to do with sewage and sanitation and water. However, there has been privatization of these GBE’s in most of the states in Australia (Evans & Kelley 2002). Examples of GBE’s in this country include Australian Broadcasting Corporation and the Australian post which are fully owned by the government. This means that the government funds operations in these GBE’s. The above GBE’s report to the senator of the country and it relates with them just like a holding company and its subsidiaries. GBE’s owned by the government have certain requirements like preparing a statement of corporate intent. Formation of GBE’s is done under certain departments in the country and they are required to report to the mother departments. Deregulation and privatization Deregulation refers to the process of reducing state powers on an institution or the act of reducing state regulations. This means that the government seizes to regulate activities of the organization, which makes the organization free of state regulations. Privatization describes the process of transferring ownership of institutions from the government to the private sector (Walker & Walker 2008). It also describes the act of outsourcing services to the private sector by the government. Effects of deregulation and privatization on the above institutions The Australian government has deregulated many of the policies in the institutions recently for some reasons. In the late 1980’s, the country experience deregulation of many institutions and this trend continued in the year 2005. Recently, the prime minister in the labour department made an announcement of the deregulation of yet another policy. The policy was the minimum effective regulation in the year 1986. There are several effects both positive and negative of deregulation and privatization of institutions in Australia. This part of the paper seeks to explore the effects of deregulation and privatization of government institutions in Australia. An example of such an institution is the former Commonwealth Corporation. This government-owned corporation is currently known as Telstra established in the 1970s and is currently the leading telecommunication company in Australia. Its privatization was done in the year 1997 by the then prime minister of the country. This company has made major developments in the country since its privatization. There was deregulation of many GBEs in Victoria with the aim of reducing debts by the government. An example of such a GBE is the state electricity commission of Victoria. The gas and fuel corporation is also another example of deregulation of government institutions. Deregulation and privatization of government institutions in Australia has led to development of the institutions (Walker & Walker 2008). This is because they face a lot of competition from other private companies in the same sector. Therefore, the privatized and deregulated institutions face the challenge of stiff competition in the market. This makes them innovations with the aim of beating other companies in the market so that they are top. They come up with more creative and innovative ideas to beat the competition. This is not the case for government institutions because they do not face competition in the market. In most of the cases, they are the market leaders or monopolies. Another implication of deregulation and privatization is that it improves quality of work in their operations. These companies improve on the service delivery and quality of their products. Privatization and deregulation also leads to increase in productivity of such companies. For instance, the Telstra Company that has become the largest owner of copper wires after its privatization in 1997. Growth in such companies increases because of good management in the institutions. This is because most government-owned institutions do not pay proper attention to the management of the institutions. Some of these companies fall as a result of embezzlement of funds because after all the funds belong to the government and not to an individual. Most government-owned institutions mismanage funds; hence companies end up falling. However, there are negative effects or implications of privatization and deregulation of government-owned institution sin Australia. Most of these institutions focus mostly on the commercial value and ignore ethical morals (Walker & Walker 2008). It also leads to increase in the unemployment cases because of retrenchment of workers formerly in the government-owned institutions. There is also the problem of lack or limited funds in such companies. This is because mostly the private sector lacks funds for investment and expansion of companies, unlike the government that has a pool of funds. The effect of lack of funds might lead to winding up of a company. Question 5 The industrial policy is the strategic plan formulated by a country’s government to try and harness economic development as well ensure that the milestones attained are maintained. The industrial policy takes a keen focus on the manufacturing sector hence the name industrial. The government's main aim or objective is to ensure that, competitiveness and the domestic capabilities are well enhanced thus promoting structural transformation. Mainly, the infrastructure sector which includes transportation, energy sector and the telecommunications sector are upgraded through industrial policies. It is also notable that the industrial policies are basically sector specific unlike other tenets in the macroeconomic discipline. This is because, the macroeconomic policies focus on the general performance of the economy as a whole for instance the tightening of the credit terms or the tax policy being streamlined. On the other hand, the industrial policy focuses on specific aspects of the economy for instance, protecting the domestic textile industry or subsidizing the export sector. It is also apparent that many of the industrial policies contain similar policies to the other interventionist practices that have been adopted in the business world. For instance, the trade policy and the fiscal policy where a typical example of an industrial policy would be the import substitution industrialization. This particular industrial policy implies that there will be trade barriers being imposed in certain specific sectors of the economy for instance the manufacturing sector. The objective of the trade barrier for instance is to provide a chance to the domestic industries where they can grow and develop. This is attained by limiting the competition from another source and hence ensuring that sustainable growth is achieved in the local industries. Once the domestic companies have acquired a considerable market share, the ban is lifted and the companies can henceforth compete on a level platform such as the international front. This paper seeks to critically evaluate the industrial policy enacted in Australia and how the changes in the government policies have changed the balance between the primary, secondary and the quaternary sectors of the economy. In addition, the paper will analyze the horizontal and fiscal imbalances, their main causes in Australia and how the government has tried to negate the impact of the fiscal imbalances. Industrial policy in Australia In Australia, there is a conventional wisdom that asserts that the country has been entrenched in the pursuit of an inward approach to attain economic development. It implies that the country has been closed to the global or international economy. This has been a strategy that had been adopted by the country to ensure that economic evolution is attained. The industrial policies in Australia include the arbitrated wages and the tariff protection for the country manufactures. In the past, while the industrial policy was being inculcated in the manufacturing sector, efficiency or the aspect of industrial dynamism was not an issue of concern. This transition that has taken 70 years has been viewed as a milestone in the country's economic achievements (Industrial policy in Australia and Europe, 1992). It is worth noting that when such economic policies are being enacted, they call for compromise from various players in the economic front. This is due to the fact that, the industrial policy for instance does not favor all players in the concern sector and hence there is a critical evaluation required as for some scholars, it is an evaluation of good versus evil. The protection policy in Australia Just like many other developing nations, Australia formulated a protection policy. The main objective behind the protection policy is usually to allow development of the infant countries (Parry, 1982). This is usually harnessed by restricting the international market and as such Australia for many years has been viewed as a closed economy. However, over the past 20 years there has been a fastened commitment to lift the protection policy with the main aim of opening up the country’s economy to the global front. The inculcation of the industrial policy is a gradual process and not an event. This is the reason as to why Australia is still facing repercussions of the industrial policy enacted years ago. One industrial policy implemented is the reduction of tariffs. This policy is meant to lure investors or importers and thus increase the level of competition in the country. The industrial policy was adopted as a result of pressures emanating from the business fraternity as they wanted lower production costs and alternative modes of assistance that would ensure they had increased competition abilities. In addition, efficiency was also emphasized as well as flexibility in the workplaces. This called for broad reforms that would ensure there is greater competition and eradicate other regulatory impediments in the Australian economy. This implies that it has taken Australia to move away from the narrow neoclassic economic approach of protection and a defensive industrial policy. This is due to the fact that, it has become apparent that the economic pressures can longer be evaded through the [protection of the local infant industries. His is because, unlike the earliest proponent of the industrial policy of protection, the results are quite undeserving to the nation's economy (Nester, 1997). This was evident in Australia that after the protection policy was inculcated in the country; the desired growth was not achievable. This was due to the reason that, without sufficient competition, inefficiency in the manufacturing sector could not be eradicated. However, though the milestones achieved as a result of lifting the protection policy, a lot still needs to be done and hence there is cause for another expected third wave. The third major industrial policy that needs to be formulated in Australia is the policy that will clearly cater for the extending cost impediments and the issue revolving around human resource management. For the industrial policy to take policy to take place, the government's assistance is crucial. For instance, with the lowered tariffs and the Australian government had to inject 15 billion dollars to encourage the economic growth and development. In the implementation of the industrial policy, the Australian state has faced various challenges have been encountered that have threatened the well being of the economic developments. The current threat facing the Australian economic policies is the fact that, though the manufacturing sector has survived the protectionism policy there is imminent threat that could lead to protectionism. This is due to the fact that, ever since the trade ban was lifted, there is a majority of manufacturers being sourced from overseas. This has been encouraged by the fact that there is availability of cheap labor and skills more so from the Chinese nation. The fact that the level of industrializing in China has hastened the threat. In addition, due to the lift of the protection industrial policy, the automobile industry is at the centre of the threat with a number of firms facing closure while others are relocating to China (Dobbin, 1994). This industrial policy has to be formulated in a way that the loss will be negated since the impact is felt in the entire economy as 2200 jobs have been lost so far. Question 7 Horizontal and vertical fiscal imbalances Fiscal policy is the use of government revenue and expenditure to control the economy. The duty to regulate the economic interaction of a country is bestowed on the government of the day. T enact the economic regulation, the government mainly utilizes the fiscal and the monetary policy interchangeably (Bird & Mandilaras, 2006). Through the government revenue which is mainly collected through tax and the government spending, the economic aspects are regulated. For instance, the aggregate demand that depicts the economic activity in a country, the distribution of income in a country and the pattern of resource allocation is enabled through the use of the fiscal policy. On the other hand, fiscal imbalance is the disparity or a mismatch in the spending and revenue power responsibilities of a government. There are two main forms of fiscal imbalance which include the vertical fiscal imbalance and the horizontal fiscal imbalance. In the scenario where fiscal imbalance is measured between two levels of government of more it is called vertical fiscal imbalance (Malpass, 2007).On the other hand. Horizontal fiscal imbalance arises when the measurement is between two governments of the same level. This fiscal imbalance is also called regional disparity. Vertical fiscal imbalance Vertical imbalance is a structural issue that requires to be corrected through the re-assigning of revenue and government spending responsibilities between the two orders of government. This form of imbalance is used to depict government spending asymmetry. Vertical fiscal asymmetry is hence defined as any form of deviation in government spending between any two levels of government (Pillai, 1982). There are different levels of the vertical fiscal asymmetry. The first type of the fiscal asymmetry is known as the fiscal asymmetry with presence of fiscal imbalance. This kind of vertical fiscal imbalance implies that there exists inappropriate allocation of either income, expenditure of power (Gang, 2008). This kind of fiscal imbalance is remedied through reassignment of the powers governing the raising of revenue. The second type of vertical fiscal imbalance is the fiscal imbalance that lacks the element of fiscal imbalance but has a fiscal gap. It is commonly known as the vertical fiscal gap and implies that there exists a desirable expenditure asymmetry but contains a gap that needs to be closed. The remedy of the vertical fiscal gap is the fact that the state can indulge in the recalibration of federal transfers. The third type of the vertical fiscal imbalance is the vertical fiscal difference (Bouton, Gassner & Verardi, 2008). This vertical fiscal difference is characterized by the fact that it lacks both the fiscal imbalance and the fiscal gap. This means that the revenue collection and expenditure is desirable and has a closed fiscal gap. This implies, that the fiscal asymmetry lacks a fiscal imbalance and a fiscal gap hence there is no need of remedy. Horizontal fiscal imbalance This is defined by the fact that there exists an imbalance between the governments revenue power and expenditure, where the governments are considered to be of similar levels. The horizontal fiscal imbalance is also known as the regional disparity. The well-known cure for the horizontal fiscal policy is usually equalization transfers (Ali Abbas, Bouhga-Hagbe, Fatás, Mauro, & Velloso, 2011). The horizontal fiscal policy mainly emanates from the sub national governments where their different abilities to raise funds from the current tax bases and to be able to provide the services required. Through this, there is a difference in the net fiscal benefits which is as a result in the combination of the tax levels and the public services. The net fiscal benefits are hence the greatest causes of the horizontal fiscal imbalances that end up generating the cause for the equalization grants. This is due to the fact, the equalization of grants is the main resolution adopted to mitigate any impact that may arise from the horizontal fiscal policy. Through the transfer system, efficiency in the public system is also enhanced which is also used to level the field for Intergovernmental competition. The equalization and the horizontal fiscal imbalance has been an issue of concern in the drafting of the Iraqi constitution. The oil rich regions had to ensure that revenue reallocation is enhanced where in the other regions maximization of the equalization payments was undertaken (Vetrivel, Balanarayanan & Ragunath, 2012). In Australia, there is a state of fiscal imbalance due to the fact that there is the flow of funds between the various forms of governments. There is the federal, the state and the territorial governments. Currently, the commonwealth government in Australia rises relatively more funds compared to the statutory and the territorial governments. This depicts existence of the vertical fiscal imbalance which is mainly remedied through grants from commonwealth to the states and the territories of Australia (Bird,& Tarasov, 2004). In Australia, there also exists a vertical fiscal imbalance which is mainly addressed through the horizontal fiscal equalization policy which is also overseen by the commonwealth grants commission. When the commo0n wealth is distributing the funds, it does not use the population ratio neither does the commonwealth issue a fixed amount to all the states. However, the commonwealth distributes the funds based on two critical issues. One factor that is put in critical evaluation is the state that needs the funds more. In addition, the ability to rise own revenue as a state is also put under consideration. Since World War 2 when the commonwealth took over the income tax system in Australia the fiscal imbalance came into being. However, the commonwealth through the issuance of grants which are divided into two has been trying to alleviate the fiscal imbalance. The grants are issued in two main types which include the general purpose payments which are not restricted as to the kind of purpose they will be used for (Gray, 2011). There are also the special purpose grants also known as the tied grants. This kind of grants has specific projects that are decided by commonwealth for instance the construction of schools or hospitals. Conclusion It is apparent that there are a number of industrial policies that can be enacted by a government. The main objective of the industrial policy is to ensure that gradual economic growth is enhanced and maintained. However, due to the dynamics of the global economy, the industrial policies may have a detrimental impact in the economy if they are not well checked. On the other hand, the government uses fiscal policies to contain the economic volatility of a country. 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