Economic rationalism has been a powerful driver of government policy in many developed nations since, arguably, the mid-1980s (Buch-Hanson & Wigger). What began as a paradigm shift away from the embedded-liberalism ‘’Keynesian welfare states’’ (Buch-Hanson & Wigger) which allowed for state distortions of competition, has become a pervasive economic philosophy based on the principles of supply and demand with little to no state intervention. The word ‘“rational” in economic rationalism originated from philosophy with the meaning “guided by reason as opposed to emotions” (Strachan) (Gates & Steane). In Australia, the new Labor government, elected to power in 1983 with a reform agenda which seemed “based on social democratic ideals — economic rationalism and the managerialist push were to come somewhat later” (Smith) — initiated economic rationalist policies.
Publicly listed companies must balance the needs of all their stakeholders, including shareholders, so it is rational that they would adopt practices to achieve those ends, such as cost-cutting, performance management, maintaining competitiveness in a global market and increasing profitability.
In terms of government policy, regardless of whether it is Labor or Liberal, economic rationalism over the past 30 years has been characterised by a belief that private is somehow better than public, with an emphasis on consumerism and individualism and the designation of people in need of public support as “customers”. This has led to a corporatisation of public provision characterised by cost-cutting, decentralisation, market ideology, a breakaway from the bureaucracy of government organisations into smaller agencies, casualisation of the workforce, quasi-contracts with private service providers and the shift of responsibility to the individual rather than the state (Smith).
Driven by the economic rationalist neoliberal idea that private is better than public as well as the need to raise funds to prop up the economy and stay in government by producing quick results while enhancing privileges offered to big business, successive governments since the 1980s at the state and federal levels have embarked on selling public assets. The Commonwealth Bank, Telstra, electricity and the mess that is the new Qantas are some examples. The government was able to justify the sales by exploiting public perceptions that public entities are less efficient, then promoting the idea that they would be better managed by private enterprise which is driven by profit and is, therefore, more motivated to produce better results for stakeholders.
Another way of justifying rationalist policies was to use accountability as a positive way of ensuring that public funds are being spent appropriately. This was linked to a greater emphasis on being more customer-oriented due to competition for services from private providers. In school education the principle of “choice” has been used to justify funding private, independent and Catholic schools with 70 per cent of the federal education budget allocation while public schools receive the remaining 30 per cent.
Economic rationalist policies have arguably contributed to a less cohesive society due to their emphasis on the individual. This has led to the vilification of those who need government services such as welfare.
The promised rewards of better service through accountability have not materialised; “the obsession over efficiency is highly ideological and not in any way self-evident” (Dixon & Kouzmin).
“Recent trends in the distribution of incomes in Australia … indicate that there is a wide disparity of incomes between the top and the bottom quintiles. It is argued that economic rationalistic policies and practices have influenced policy developments that have contributed to these disparities” which have been evident between 1933 and 1979 (Gates et al.). These gaps in income have since widened.
The proponents of economic rationalism have dominated the debate on its efficacy despite evidence to the contrary. The most salient example is the recent global financial crisis of 2007 which forced government intervention to prevent the collapse of entire economies, notably the largest economy in the world, the United States. From a private enterprise perspective, financial prosperity must always be tempered with social responsibility which is a relatively new development in this era of economic rationalism.
“(S)tripped of a framework of morality, the market economy will call forth perversions of justice and humanity in the name of material progress” (Jones and Harper, as quoted in Piterman). This is due to the fact that market principles of pure competition are at odds with public service ideals of providing a needed service that could help alleviate inequity and promote social cohesion.
An academically referenced version of this article can be found on the Federation website at http://www.nswtf.org.au/pages/no-heart-no-point-dollar-driven-policies.html.