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Journal ArticleDOI

Actually Existing Markets: The Case of Neoliberal Australia

01 Jun 2010-Journal of Economic Issues (Routledge)-Vol. 44, Iss: 2, pp 313-324

Abstract: Neoliberalism has transformed markets supplying public goods. Analysis of five real-world Australian markets reveals the eligibility rules for access and ongoing participation, interaction of participants, the role of intermediaries and government, the extent of competition, complex regulatory regimes shaping and controlling these markets, and key market outcomes. Contrary to neoliberalism's free market rhetoric and the view promulgated by mainstream economics, a spectrum of market configurations and governance regimes were found along with participation being highly dependent on technology access and skills, market outcomes inconsistent with policy rhetoric, market interrelationships posing adverse cumulative impacts, and government is strongly interventionist through multiple roles.
Topics: Free market (57%), Market structure (57%), Competition (economics) (54%), Public good (52%), Neoliberalism (52%)

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Society of Heterodox Economists, December 2009
127
Actually existing markets: The case of neoliberal Australia
Lynne Chester
The John Curtin Institute of Public Policy, Curtin University
Email: l.chester@curtin.edu.au
Abstract: The rhetoric and mechanisms of the market have become embedded in public
policies with the hegemony of neoliberalism. Markets traditionally supplying public goods have
been transformed, a strong exemplar of which is Australia. Using an analytical framework
which dissects the structure, operation, interactions and outcomes of real world markets, five
Australian markets are analysed to reveal the eligibility rules for access and ongoing
participation, interaction of participants, the role of intermediaries and government, the extent
of competition, the complex regulatory regimes shaping and controlling these markets, and key
market outcomes. Contrary to neoliberalism’s free market rhetoric and the view promulgated
by mainstream economics, it is found that there is a spectrum of market configurations and
governance regimes, participation is highly dependent on technology access and skills, market
outcomes are inconsistent with policy rhetoric, market interrelationships pose adverse
cumulative impacts, and government is strongly interventionist through a multiplicity of roles.
Keywords: Australia, institutions, market structure, mode of régulation, neoliberalism,
public goods, public policy
JEL classification codes: B52, D40, H44
1 Introduction
A vast range of public policies have been restructured around market-based mechanisms
based on economic concepts derived from the logic of perfect competitive markets.
‘Government by the market’, ‘market governance’, and ‘market-based policy’ are among the
labels applied to this phenomenon and Australia is a strong exemplar. The widespread
adoption of market-based policy instruments has meant substantial change to Australian
markets which have traditionally supplied public goods such as electricity, water, education,
health insurance, public housing, infrastructure, and services for the disabled, aged and
unemployed. Most noticeably, direct provision by government of these goods and services has
been supplanted and there have been significant pricing changes.
Contemporary Australian public policies are almost exclusively framed in abstract
terms of competition, economic efficiency, supply and demand, or the need to address market
failures. This is the lexicon of neoclassical economics which portrays the market as a normative
ideal framed around a set of abstract assumptions. These assumptions are incompatible with
reality and cannot explain the operation and outcomes of these transformed markets for
public goods (Chester 2009).

Society of Heterodox Economists, December 2009
128
Actually existing not abstract - Australian contemporary markets are the focus of this
paper. How are these markets organised? What ensures their ongoing functioning? What is
the nature of the goods and services provided by these markets? How does this differ from
previous provision? What issues or barriers do Australians encounter when engaging with
these markets? To what extent do these markets ensure adequate provision to those on lower
incomes? What outcomes are these markets delivering?
These are the questions which this paper seeks to answer through an analysis of five
contemporary real world markets that impact on the daily circumstances and standard of living
of the vast majority of Australians electricity, water, employment services for the
unemployed, housing for the low-income and carbon trading. The examples have been
deliberately chosen for their breadth of impact across the lives, well-being and social inclusion
of the population irrespective of geographical location or stage of the lifecycle. The analysis
elucidates the eligibility rules and barriers to market access and on-going participation, the
institutions that organise the functioning of these markets, price determination, the
interaction between participants and the role of intermediaries, the form of competition in
each market, the complexity created by market-based policies, the multiple roles played by
government, the key market outcomes, and the similarities and differences between markets.
The paper is structured as follows. Section 2 establishes the broader political economy
context in which markets for public goods have been restructured by public policies
embodying the rhetoric of neoliberalism and neoclassical economics. The changing
institutional architecture of the Australian mode of régulation since the 1980s is discussed
along with the form and nature of interventions by the state at both macro and micro levels.
The disjuncture between neoliberalism’s free market rhetoric and actual outcomes is also
explored. The focus of Section 3 is the five contemporary Australian markets for electricity,
water, services for the unemployed, housing for low-income Australians, and carbon trading.
The section presents the analytical framework utilised, an overview of the development and
operation of each market analysed and a detailed comparison of the five markets’ structural
features, interactions and outcomes. A final section canvasses the implications of the findings,
including the disjuncture with the abstraction and assumptions of mainstream neoclassical
economics which have imbued Australian public policy.
2 The case of neoliberal Australia
2.1 Rhetoric and reality
Within the observed typologies or varieties of capitalism, Australia is classified as a ‘liberal
market-based economy’, falling in a ‘highly homogenous Anglophone cluster’ of the US, UK,
Canada and New Zealand (Amable 2003; Crouch 2005; Hall and Soskice 2001) given a high
reliance on market mechanisms for coordination of the economy. This reliance is evidenced if
we consider Australia’s mode of régulation which governs, guides, supports and secures the
process of accumulation. Five institutional (or structural) forms comprise the mode of
régulation, the dimensions of which are defined by: wage-labour’s relationship with capital;
monetary and credit relationships; the competitive relations between firms; the nature of
international relationships and arrangements; and finally, the form of state intervention
including economic policy.

Society of Heterodox Economists, December 2009
129
Box 1 presents a generalised synthesis of the contemporary Australian mode of
régulation compared to that which prevailed during the previous Keynesian-Fordist golden
age. It is apparent from these generalised descriptions that the overall organising principle of
each institutional form has become, during the contemporary period, one of market logic
heavily directed and supported by strong regulatory interventions by the state. The nature and
extent of the Australian state’s interventions are far different from those during the period
immediately following the Second World War until the 1980s.
Box 1 : Australia’s mode of régulation
Institutional
form
Keynesian-Fordist
characterisation
Contemporary
characterisation
Wage-labour
nexus
Centralised wage fixation system, wage
growth tied to consumer prices, strong
collective organisation of labour and
prominent bargaining role, expansion of
welfare system and social wage.
Heavily regulated decentralised wage-
bargaining, increasing dominance of
individual employment contracts, labour
market segmentation into highly-paid
skilled jobs and casual/part-time
unskilled, lower-wage jobs, increasing
private provision of social wage elements,
welfare system pared back.
Money and
finance
New credit forms, housing interest rates
capped, central bank controls over the
banking system, foreign exchange
controls.
Policy and operational independence of
central bank, monetary policy used to
fight inflation and scrutiny by financial
market, companies run by financial logic,
systemic risk exposure of financial
markets.
Competition
Oligopoly and high levels of industry
concentration protected by tariffs,
legislative focus on anti-competitive
behaviour.
Legislative restriction of concentration,
predominance of oligopolistic
competition.
International
position
Multi-lateral agreements, growing
internationalisation of financial markets,
‘pegged’ exchange rate.
Adhesion to free trade principles,
increasing global integration through
trade, finance and investment promoted
by international alliances such as WTO,
OECD, APEC and FTAs.
Form of the
state
Keynesian welfare state, public
expenditure directed to full employment
objective, indirect intervention in
markets through wages and price
policies.
Pursuit of structural competitiveness by
proactive and market-enhancing state,
fiscal policy pro-cyclical until late 2008,
new forms of regulatory intervention
using a range of agencies.
Source: Chester (2008b)

Society of Heterodox Economists, December 2009
130
There has been a marked shift in all institutional forms, comprising Australia’s mode of
régulation, since the 1980s (Chester 2008b). A major influence has been increasing global
integration driven by an Australian state which has actively embraced the notions of free trade
and the removal of constraints on capital flows through bilateral trading agreements, other
international alliances and a raft of economic policy decisions. Competition has been
promoted strongly by the state through new national regulatory regimes (the nearly-decade
long National Competition Policy and its successor, the National Reform Agenda), new sector-
specific regulation (for example, energy), one of the world’s largest privatisation programs,
and contracting-out - via competitive tendering - of services previously provided direct by
government.
Other significant institutional changes to Australia’s mode of régulation, since the early
1980s, have been:
financial deregulation, the abandonment of monetary targeting, and central bank targeting
of inflation;
the introduction of a consumption tax, cuts in taxation rates favouring capital and taxation
concessions increasingly used to ‘encourage’ individual provision of services such as health
insurance and superannuation;
six Accords with the trade union movement, national wage increases abandoned,
centralised wage determination replaced by heavily regulated workplace bargaining, and
real expenditure on the social wage reallocated to other functions of government; and
eleven substantial Federal Budget surpluses in the 12 years ending 2008 with budgetary
expenditure following a pro-cyclical pattern, and public debt virtually eliminated until the
economic stimulus packages following the recent global financial crisis (ibid).
Although the ‘glorification’ of markets has been pushed to new extremes, the form of
competition remains characterised by monopoly or oligopoly with firms more intent on
controlling the market than participating in an ideal pure form. The monetary and financial
regime, and particularly the central bank’s interest rate policy, is closely scrutinised by
international financial markets. Monetary (interest rate) policy has become autonomous of
fiscal policy with the exchange rate determined by financial markets.
Moreover, the progressive and cumulative impact of these institutional changes, these
interventions by the state, has resulted in a particular configuration of the Australian mode of
régulation’s institutional architecture. Yet these interventions by the state at both macro and
micro levels - are paradoxical given the prevailing economic and political ideology of neo-
liberalism that promotes deregulation, much less intervention by the state, and the triumph of
‘free’ markets. This disjuncture between neoliberalism’s free market rhetoric and actual
outcomes is immediately apparent from the comparison shown in Box 2.
Neoliberalism’s free market rhetoric has pervaded the lexicon of Australian public
policy as a vast array of policies have been transformed by market-inspired mechanisms based
on economic concepts derived from the logic of perfect competitive markets. Examples include
the charging of fees for time spent in immigration detention centres, contracting out of
services delivered to the unemployed through competitive tendering, the charging of market
rents to public housing tenants, the removal of barriers to free trade such as tariffs and import
quotas, the provision of infrastructure through commercial contracts with the private sector,
the creation of regulatory agencies to monitor competition, the development of accounting
rules to measure greenhouse gas emissions, and student fees set at levels equivalent to the

Society of Heterodox Economists, December 2009
131
costs of providing higher education places. This progressive widespread adoption of market-
based policy instruments has meant substantial change to markets which have traditionally
supplied public goods such as electricity, water, education, health insurance, public housing,
infrastructure, and services for the disabled, aged and unemployed. Most noticeably direct
provision by government of these goods and services has been supplanted and there have
been significant pricing changes.
Box 2: Australian free market rhetoric compared to actual outcomes
Institutional form
Rhetoric
Outcome
Wage-labour nexus
Deregulation and flexible labour
markets will ensure full
employment
Highly-regulated decentralised
wage determination system;
persistent unemployment and
labour under-utilisation
Money and finance
Interest rates set by market;
price stability possible without
adverse impact on employment;
better service levels and reduced
charges with greater
competition
Price stability (inflation target of
2-3% p.a.) but persistent
unemployment and labour
under-utilisation; increased
range and level of charges;
escalating house prices and
housing stress
Competition
Deregulation will increase
competition by entry of new
firms; greater growth, efficiency
and welfare with more
competition
Increasing market concentration
in all sectors and oligopolies
dominant; increasing regulation
of economic activity to make it
‘competitive’; infrastructure and
utility monopolies continue
International position
Smooth currency adjustments;
autonomy of national economic
policies
Volatile exchange rate
movements; national economic
policies shaped by needs of TNCs
(espec resources sector) and key
trading partners (China, India,
US)
Form of the state
Minimal intervention will
enhance growth and
productivity
Little public investment in social
and economic infrastructure;
falling productivity; new forms
of social regulation (income
management; intervention in
indigenous communities); recent
stimulus packages reversing
budget surplus to deficit equal
to 4.5% GDP
The rationale for these market-based policies has been couched in terms of the need
for greater economic efficiency. Consequently contemporary Australian public policies are
almost exclusively framed in abstract terms of competition, efficiency, supply and demand, or

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