The Benefits and Disadvantages of Economic Rationalism for Australian Consumers - Essay Example

Name Class Unit Introduction Economic rationalism is an approach to the economic policy where the primacy of markets is accepted. In this case, the market is the determiner of what the economy will produce and how they will produce it. Market forces are used in determining wages and there is no interference of laws such as minimum wages or by Industrial Relations Commission (Gates & Steane, 2007). Social security is put in place to ensure that those who live in poverty are catered for. When Australia adopted the economic rationalism policy, it was expected that there would be a rise in production (Stilwell, 2000). Government intervention in the economy was to be minimized and the role of market forces increased. Australia consumers have been able to benefit from market rationalism. Despite this, rationalism had uneven and unanticipated outcomes in Australia which affected consumers. This summative essay will analyse whether Australian consumers are better off as a result of economic rationalism. There have been a lot of debates looking on the best way for the government to promote economic development (Gates & Steane, 2007). Poor economic growth, unemployment and taxation led to alternative ideas and economic reforms in Australia (Fenna, 2013). Australian Labour Government implemented economic rationalism to improve economic efficiency. Through the policy, it was expected that resources would be allocated more rationally. The policy was based on money and markets in delivering its outcomes rather than states and bureaucracies. Through economic rationalism, the consumer was supposed to be the principal beneficiary. The market forces were supposed to enhance efficiency to help consumers save costs. This was through the creation of a free market (Fenna, 2013). It’s important to note that the free market is ideal and leads to maximum economic efficiency. With the help of the government, it is possible to come up with a market that is almost ideal. Economic rationalists beliefs that the primary aim of market is to maximize efficiency (Wright, 2003). Based on the first theorem, the society through economic rationalism comes up with the best way to utilize resources that lead to maximization of their welfare. The Australian government contributed to making the market infinitely adaptable. This implied that companies had to look for the most efficient mode of production. To achieve this, the government reduced regulations (Gates & Steane, 2007). This made industries come up with the most efficient ways of producing goods and services. This made Australian society come closer to infinite adaptability. Reduced inefficiencies in production translate to low costs that benefit the consumers (McLean, 2012). All inefficiencies that lead to high costs are eliminated. Based on the first theorem, when a society is near to an ideal market, they benefit from enhanced welfare. One of the actions by economic rationalism towards the ideal market is the removal of public goods. This is through ensuring that there are no institutions funded by taxpayers’ money offering services (Wright, 2003). This led to privatisation of some public companies in Australia. Privatisation was carried out to ensure the institutions competed in the free market. Competition in the free market makes organisations reduce operating costs to attain a competitive advantage. Since the public institutions were forced to compete, they had to come up with ways of being more efficient (King, 2012). The Australian consumers were able to benefit from access to high-quality goods and services. Consumers were able to benefit from enhanced efficiency brought up by privatisation. In the ideal market, there are no monopolies. The Australian government established the Australian Competition and Consumer Commission (ACCC) (Wright, 2003). The main aim of the body was to ensure that monopolies were eliminated. To reduce competition, monopolies often create barriers for new entrants in the market (Whish & Bailey, 2012). Monopolies charge higher for their products in the long term and discourage competition. Elimination of monopolies in Australia protected consumers from being charged higher for goods and services. Monopolies in some cases offer low-quality goods and services to consumers. The absence of competition makes it hard for monopolies to enhance their efficiency (Wright, 2003). Elimination of monopolies was a major step towards consumers’ protection. Economic rationalism promotes consumer sovereignty. The consumer is provided with what they want to the market (Pancer & Handelman, 2012). All companies work towards providing the consumers preferences and tastes. The consumer is not persuaded to buy things that they are not interested in. Thus, Australian consumers were exposed to a market where they could make demands on what they want. The sovereignty of the consumers leads to the best value for money in the market (Fenna, 2013). Despite this, there are instances where big companies persuade buyers on their products. This is through creating demand for their products which is a departure from the ideal market. When resource allocation in a society is Pareto-optimal, society welfare is at maximum. Using Pareto optimal allocation, the society benefits more from resources than when there s no Pareto optimal allocation (King, 2012). Pareto optimal can only be maximized through ideal markets. The Australian government enabled Pareto optimal allocation in their resources (Wright, 2003). This is through working towards the creation of an ideal market. The beneficiaries of efficient resource allocation were the consumers. Through rationalisation, the market is based on decentralized decision-making. There is promotion of voluntary cooperation. The communities are the consumers and benefits from the best that the market has to offer (McLean, 2012). Consumers in such markets depend on virtues such as honesty, reliability, honesty and truth. This ensures that the consumers can get a fair deal in the market. Australian consumers were able to benefit from this type of market (Wright, 2003). There is no discrimination or favouritism that is evidenced in monopolies. Despite the advantages of economic rationalism to the consumers, there has been criticism. Economists have criticized the implementation of the competition policy (Whish & Bailey, 2012). They claim that prices of goods and services have not been lower as expected by the consumers. Some of the critics assert that high economic growth have not been achieved as expected through rationalism. The policies also had a promise of an increase in jobs that have not been the case. Economic rationalism in Australia led to an increase in the gap between the rich and poor. This to most people is morally unacceptable (Wright, 2003). Through rationalism, consumers are the agents and creators of their own destinies. Consumers are highly motivated from self-interests that enhance greed and seeking for financial rewards (Edwards, 2002). This makes possessive individualism be upheld by the consumers. The society becomes more defined by their possessions. The outcome is damage to the society ethics (DiRita, Parmenter & Stancliffe, 2008). The weak and venerable consumers are not protected in such cases. For the weak consumers in the Australian market, this was a major drawback. Economic rationalism has been implicated in rising unemployment. This is through microeconomic reforms. Emphasis on low inflation has led to a trade-off between unemployment and inflation (Edwards, 2002). The main beneficiaries of rationalism according to some critics are the big business. After privatisation, most of the organisations start taking job cuts. The small business does not get adequate support from the government that further makes the situation worse. Small business has to compete with big companies (Edwards, 2002). With rising unemployment, consumer purchasing power is lowered. The fact that economic rationalism leads to an increase in wealth does not imply that it leads to a balanced life. According to Wright (2003), consumers are exposed to a life that puts a lot of emphasis on material possessions and work. Economic rationalism does not make sure that all consumers access to the resources. This further widens the gap between the rich and poor. There are cases where companies try to move away from ideal markets through differentiation. An example is the toothpaste companies. Despite the fact that all toothpaste companies are in the same market, they differentiate their products and sell at different prices (Wright, 2003). This is a move from ideal market to some form of monopoly that gives them control of pricing. Conclusion Based on the essay, it is evident that Australian consumers are better off as a result of economic rationalism. This is due to the fact that the benefits of economic rationalism outweigh the disadvantages. The move towards an ideal market enhanced market efficiency. Consumers were able to benefit from increased economic efficiency through reduction of prices for goods and services. Removal of public goods through privatisation enhanced competition leading to better quality of goods and services. Elimination of monopolies led to a market where the market forces determine prices. Monopolies set prices high and may offer low-quality goods and services. Monopolies also reduce consumer choices. Infinitely adaptable market led to the maximization of society welfare. Consumer sovereignty has benefited consumers through being provided with what they want from the market. There is a Pareto-optimal resource allocation and a market based on decentralized decision-making. The main drawbacks are claims of rising unemployment, rising gap between rich and poor and the society becoming more self-centred. References DiRita, P. A., Parmenter, T. R., & Stancliffe, R. J. 2008, “Utility, economic rationalism and the circumscription of agency,” Journal of Intellectual Disability Research, Vol.52, no.7, p.618-625. Edwards, L. 2002, How to argue with an economist: Reopening political debate in Australia, Port Melbourne: Cambridge University Press. Fenna, A. 2013, “The Economic Policy Agenda in Australia, 1962–2012,” Australian Journal of Public Administration, Vol.72, no.2, p. 89-102. Gates, D. K., & Steane, P. 2007, “Historical origins and development of economic rationalism,” Journal of Management History, Vol.13, no.4, p.330-358. King, J. E. 2012, The Elgar Companion to Post Keynesian Economics. Förlag: Edward Elgar Publishing. McLean, I. 2012, Why Australia prospered: The shifting sources of economic growth. Princeton: Princeton University Press. Pancer, E., & Handelman, J. 2012, “The evolution of consumer well-being,” Journal of Historical Research in Marketing, Vol.4, no.1, p.177-189. Stilwell, F. J. 2000, Changing track: A new political economic direction for Australia. Sydney: Pluto Press. Whish, R., & Bailey, D. 2012, Competition law. Oxford: Oxford University Press. Wright, J. 2003, The ethics of economic rationalism. Sydney: UNSW Press. Read More