Actually Existing Markets: The Case of Neoliberal Australia
Summary (3 min read)
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.
- 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.
- 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 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.
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.
- 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.
- 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 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 sectorspecific 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.
3 Actually existing markets
- Five markets were analysed, four of which are longstanding markets previously providing goods and services directly and solely by government (electricity, water, housing for lowincome Australians, and services for the unemployed) and the other is a market currently being established (carbon trading).
- The analytical framework used was that developed by Chester (2009).
- The descriptions and comparison seek to answer each of the above questions with respect to each market analysed.
3.1 Electricity
- The Australian electricity sector of the early 1990s is unrecognisable today.
- A wholesale National Electricity Market (NEM) has been created through which the vast majority of electricity generated and consumed in Australia is traded.
- The dispatch process is driven by generators’ bids to produce a volume at particular prices.
- The level of wholesale prices - particularly, its volatility or spikes - is claimed to signal the need for investment in additional generation capacity (COAG Energy Market Review 2002; NSW Government 2004).
- Three private companies hold ownership interests for around 80 per cent of Victorian capacity and two of these owners dominate South Australian generation capacity.
3.2 Water
- Traditionally water and wastewater services have been provided by government-owned monopoly providers managing all aspects of the water supply chain from dams to taps, and from sewers to treatment plants and disposal.
- This range of industry arrangements is marked by four aspects.
- A market for Australian water trading was initiated with the 1994 Council of Australian Governments (COAG) decision to implement a system of water allocations or entitlements supported by the separation of water property rights from land title, and specification of entitlements in terms of ownership, volume, reliability, transferability and quality (COAG 1994).
- These decisions, taken in the context of COAG’s agreement to the National Competition Policy from the mid 1990s, also saw commitments to separate water resource management policy responsibility, standard setting, regulatory enforcement and service provision from those agencies which actually delivered and sold water.
- In urban water markets, supply shortages have led to significant, long-term restrictions on use, subsidies for ‘water-efficient’ appliances and installation of rainwater tanks, extensive government information campaigns, and the increased application of ‘scarcity’ pricing.
3.3 Employment services for the unemployed
- The genesis of a competitive market for employment services to the unemployed was the Federal Labor Government’s 1994 Working Nation, a package of policies to promote economic growth and employment (Australian Government 1994).
- Now the Federal Government purchases, by contract, the specified employment services from multiple non-government suppliers – one buyer, multiple sellers.
- Those receiving unemployment benefits are eligible to access employment services.
3.4 Housing for low-income Australians
- Housing for 19 per cent of Australian households is provided by the private rental market and a further five per cent rely on public and community housing (Productivity Commission 2009: 16A.72).
- Yates (2008) estimates that the incidence of housing stress had risen to 65 per cent for lower income private renters in 2002-03.5.
- The private and public markets for low-cost rental housing, since the mid 1990s, have been significantly impacted by demand-side and supply-side measures provided by government.
3.5 Carbon trading
- The Federal Government’s Carbon Pollution Reduction Scheme (CPRS) is an exemplar with few parallels or precedents of a market-based policy solution which impacts on each and every Australian.
- It is a cap-and-trade scheme whereby the Government will set an annual limit (cap) on the total amount of carbon emissions permitted.
- Monthly auctions of permits, for the current year and up to three years in advance, will be held.
- Free permits will be provided to generators for ten years subject to capacity being maintained and a ‘windfall gain’ review; and Compensation to households for higher energy prices will be provided through an increase in payments for those receiving income support payments and Family Tax Benefit.
- These sort of prospective outcomes reinforce the “messy, highly politicised material reality of such markets” (MacKenzie 2007: 17).
4 Implications of market-based public policies
- Markets are not purely about relationships between inanimate objects, between goods and services, which is the strong impression evoked by any mainstream economics text or government publication.
- Markets involve people, their preferences (which cannot be isolated from opinions, values and the influence of advertising) and relationships with others.
- NEM market operator: forecasts capacity and demand, NEM prices Retailers: consumer obligations, price, billing, payment terms Regulators: performance reports of regulated monopolies, outage investigations, price determinations Retailers: Consumer obligations and rights, price, billing, payment terms.
- Price Society of Heterodox Economists, December 2009 Box 3: Comparison of the structural features, interactions and outcomes of five Australian markets Electricity Water Employment services for the unemployed 10 Housing for the lowincome Carbon trading government regulator.
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Frequently Asked Questions (14)
Q2. What is the percentage of private ownership in the NEM?
Across the NEM, private ownership accounts for around 30 per cent of generation and transmission capacities respectively, 52 per cent of services to distribution customers and more than 60 per cent of services to retail customers (Chester, 2007).
Q3. What are the main trends driving a more concentrated market structure?
Two strong trends driving a more concentrated market structure have been consolidation within the retail sub-sector and re-integration of generation with retail activities (Chester 2007).
Q4. What are some examples of EITE activities expected to receive assistance?
9 Examples of EITE activities expected to receive assistance are aluminium smelting, integrated iron and steel manufacturing, petroleum refining and LNG production.
Q5. What was the genesis of a competitive market for employment services to the unemployed?
The genesis of a competitive market for employment services to the unemployed was the Federal Labor Government’s 1994 Working Nation, a package of policies to promote economic growth and employment (Australian Government 1994).
Q6. What is the significant use of the temporary market in Australia?
The use of the temporary (allocation) market has been the most significant in Australia to date facilitated by the emergence of water exchanges particularly in Victoria and NSW (Bjornlund 2004).
Q7. What was the first step in the development of a market for water in Australia?
A market for Australian water trading was initiated with the 1994 Council of Australian Governments (COAG) decision to implement a system of water allocations or entitlements supported by the separation of water property rights from land title, and specification of entitlements in terms of ownership, volume, reliability, transferability and quality (COAG 1994).
Q8. What is the definition of a ‘quasi market’?
This reconfiguration of employment services provision, under the guise of competition, efficiency, rewards for outcomes and ‘some’ consumer choice (Productivity Commission 2002), has been described as a ‘managed’ or ‘quasi’ market, akin to that defined by Le Grand and Bartlett (1993).
Q9. How many households would have spent more than 50 per cent of their gross income on rent in 2008?
Without rent assistance, it has been estimated that nearly 27 per cent of recipients in 2008 would have spent more than 50 per cent of their gross income on rent (Productivity Commission 2009: 16.82).
Q10. What is the common reason for the decline in housing stock?
The total stock of public and community housing has declined since the mid 1990s coinciding with tighter targeting to those in greatest need, a real terms decline in Federal funding of 24 per cent from 1998-99 to 2007-08, and greater reliance being placed on the private rental market (Productivity Commission 2009).
Q11. What is the main reason for the shift away from supply-side to demand-side measures?
This significant shift away from supply-side to demand-side measures is predicated on three notions: that low income is the primary reason for housing (un)affordability; that increased income will mean greater private rental choices for low-income households; and the private rental market will supply affordable and appropriate housing at the price demanded by low-income households.
Q12. What are the main factors that affect the housing market?
The private and public markets for low-cost rental housing, since the mid 1990s, have been significantly impacted by demand-side and supply-side measures provided by government.
Q13. What makes the cost of transmission interconnection prohibitive?
The geographic remoteness of the population centres of WA and the NT make the cost of transmission interconnection to a national grid prohibitive.
Q14. What is the effect of re-bidding by generators?
The National Electricity Rules permit re-bidding by generators which has resulted in the generators wielding considerable market power (Chester 2006, 2007, 2008a).