Australia Economy in its International Context - Essay Example

Running Header: Four Topics of an Essay Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Q1 Path Dependency Path dependency is based on the concept that a few minor shocks or a small initial advantage can alter the course of history. Page (2006) defines path dependency as the casual relevance of preceding events in some type of temporal sequence. It is founded on the view that the events that occur at a prior period of time and the sequence at which those events happen have an influence on how the subsequent events occur in a society’s history. Therefore, this means that what happens today is influenced or depends on what happened in the past. According to Meyer (2010), path dependency means that occurrences and events that happened in the past determine what will happen in the future. It is based on the opinion that happenings that occurred at an earlier point in time would affect the sequence of events that will occur afterwards. Therefore, in path dependency, history plays an important role in determining what will happen in future. Pierson (2009) affirms that what happened in previous times will affect the potential outcomes and the sequence of occurrences at a later period in time. In simple terms, path dependency means that future and current decisions, actions and states depend on the path undertaken by the previous states, decisions and actions. Path dependency is concerned with the process in which dynamic events which are characterized by positive feedbacks create various possible outcomes by relying on the specific cycle in which proceedings happen. Pierson (2009) emphasizes that critical occurrences in the historical progressions lead to creation of path dependency and this causes events to occur in a predetermined order. This makes the concept of path dependency to be dynamic due to the fact that historical events cannot be reversed. Page (2006) observes that path dependence plays an important role in assisting individuals to identify conditions that are essential and sufficient for past outcomes and choices to affect the present occurrences. Path dependency is commonly observed in investment returns, positive feedbacks and in self-reinforcement as well as in making choices. Effect of Path Dependency in Australian Public Transport According to Newton (2011) Australian cities have experienced continued growth hence increase in population. This has in turn made the transport policies in Australia to be heavily dominated by expenditure on roads infrastructure at the expense of other forms of transport. This situation can thus be described as path dependence. Odgers and Low (2010) affirm that the transport infrastructure policies in Australia can best be described as path dependent. This is because the policies relating to public transport have continuously been biased towards expanding roads thereby making the other transport sectors to lag behind. Thus, the high investment in public transport in Australia cannot be justified by the fact that it provides economic benefit but rather due to path dependency. Newton (2011) notes that the theory of path dependence hypothesizes that the production of commodities does not follow the normal logic that operates in the market whereby supply is dependent on demand. In this theory, chance events play a critical role in determining the kind of products that are produced and offered in the market. Furthermore, once the products produced gain establishment in the market, they are continuously supplied leading to path dependence. Thus, the transport policies should normally be geared towards responding to consumer demand. However, the Australian public transport policies are formulated without following democratic logic in relation to responding to public demand. According to Odgers and Low (2010), chance events determine which policies are formulated in regard to public transport in Australia. Moreover, political systems in Australia provide incentives which promote these policies and at the same time to maintain established policy settings. Equilibrium is not achieved by increasing investment in one sector of the economy. This is because the law of diminishing returns states that increasing investment in one sector will lead to over decreasing returns in profits. Therefore, increasing investment on roads does not lead to increased efficiency. This means that the expenditure on transport sector in Australia is path dependence because it cannot be justified economically. Major cities in Australia have thus become path dependent on car transport. Odgers and Low (2010) assert that the high investment in road infrastructure in Australia cannot be defended on the ground that it provides economic benefit. The public transport infrastructure projects in Australia have little rational calculation because they are politically driven hence making them to become path dependent. Path Dependency in Australian Wine Industry According to Turpin and Krishna (2007), Australian wine firms are effective system integrators in adapting and using new technologies and at the same time they are strongly path dependent in relation to their technological specialization. Throughout history, Australian wine makers have focused on research so as to improve the quality of their products. This has in turn made them to become path dependent on research. Marsh and Shaw (2010) affirm that the wine industries in Australia have been able to experience growth and expansion due to their efforts in research. Historically, wine manufacturers in Australia relied on research so as to produce high quality and competitive wine products hence this path has been adapted by current manufacturers. According to Marsh and Shaw (2010), wine manufacturers in Australia have relied on historical decisions in relation to research in order to achieve their goals. Past practices have influenced current manufacturers to make their product decisions based on research findings. Turpin and Krishna (2007)) note that path dependence has made wine industries to adapt more easily in the domestic and global markets. In addition, Australian wine manufacturers have been able to gain considerable recognition and competitive advantage around the world due to their high quality products. This can highly be attributed to path dependence which has made the firms to be highly reliant on research. Moreover, path dependency on research has made the firms to become extremely innovative in producing wine. Q 4 Farm Problem Smith (2006) defines farm problem as the effects related to general economic processes on the agricultural sector. This problem is characterized by accelerating inverse relationship between increasing agricultural production and decreasing demand for food by consumers. This in turn makes the farmers to experience persistent and continued low and variable incomes. According to Harrop (1992), many economies in Europe develop under slow growth in population. This means that customers devote less of their increasing income on food hence making the growth in demand for agricultural products to be less as compared to demand by customers. In contrast, farmers use more technology in order to increase their output thereby making the supply of food to increase at a faster rate as compared to consumer demand. This in turn leads to a reduction in price of agricultural products and consequently the farmer’s income. The low farm income creates a problem to the rural society who hinge on farmers for employment and income. Therefore, farm problem can be referred to as a situation whereby farmers obtain low prices and incomes for their products while other sectors of economy experience increased earnings. Why Farm Problem Occurs According to Awood (1992), changes in technology forces farmers to increase their capital in order to purchase the new equipment’s and machineries. This in turn causes them to increase the prices of their outputs with an aim of recouping their capital. The increase in prices makes agricultural products to be less attractive to buyers and this leads to a reduction in the income earned by farmers. Alson & Pardy (1996) affirm that the increase in prices of farm products attributed to the high cost of acquiring new farming technologies leads to a reduction in demand of agricultural products. A study conducted by Harrop (1992) indicated that some customers perceive that new farming technologies can lead to the production of unsafe products. This can in turn influence them to reduce their demand for agricultural outputs hence reducing the income received by farmers. On the other hand, the use of new technology by farmers has led to increased efficiency and thus improved productivity. New technology provides farmers with a better means of combining their factors of production leading to higher output (Awood, 1992). Nevertheless, the high output creates instability in the market and this in turn leads to a reduction in the prices of the farm produce hence creating low incomes for the farmers. Moreover, the decline in population in many countries has made the farmers to obtain low market for their products given the high output thereby making their incomes to be substantially low hence the farm problem. According to Alson and Pardey (1996), the increased output that results because of adopting new technology creates a market imbalance between demand and supply. This forces farmers to reduce their prices in order to attract customers to their products. Bekkum (2010) argues that the farm problem centers mainly on the high rate at which technology is employed by farmers. This is because it leads to the production of surplus products which lead to suppressed prices. According to Attwood (1992), the farm problem occurs due to changes in volumes of inputs and outputs used in agricultural sector. The changes in inputs employed by farmers may force farmers to hire excessive numbers of laborers. This in turn causes the laborers to earn low incomes as compared to other sectors of the economy. Alston and Pardy (1996) assert that individuals employed in the agricultural sector may receive low incomes as compared to the amount that they would earn if they were employed in other sectors of the economy due to changes in factor inputs. This makes the farm problem to arise due to the fact that the incomes received in the agricultural sector are low as compared to earnings received in other sectors of the economy. On the other hand, the employment of excessive labor in the agricultural sector leads to expansion of outputs. Nevertheless, the high output makes the prices of the products to decline sharply thereby reducing the income received by farmers hence the farm problem According to Gray and Baker (2007), the farm problem occurs due to changes in consumption. The increased health awareness by customers has caused them to change their eating habits. This has in turn caused them to avoid certain agricultural products thereby making the farmers to earn low incomes. Moreover, the emergence of manufactured food has greatly affected naturally produced food. The change in consumption habits has caused buyers to prefer manufactured food as compared to that one produced by farmers. Attwood (1992, p. 224) supports this by stating that increased industrialization has forced many customers to change the way they feed. The changes in consumption have created a negative impact on farmers by the demand of their products. Alston and Pardy (1996) assert that change in consumption habits forces farmers to reduce the price of their products in order to encourage higher levels of demand. This makes them to obtain low profits hence the farm problem. The Impact of Deregulating Rural sector on the Farm Problem According to smith (2006) deregulating the rural sector has assisted farmers to become more competitive. This has helped them them to gain higher profits because they have been able to come up with strategies for improving their operating efficiencies. Vanclay (2003) affirms that deregulating the rural sector has assisted farmers to identify innovative farming techniques. This has assisted them to reduce their operating costs thereby making the farmers to become more competitive because they have been able to offer their outputs at low prices. Thus, deregulating the rural sector has played an important role in helping farmers to become more competitive hence increasing their incomes. According to Bekkum (2010), the deregulation has enabled the farmers to become more efficient in responding to the changes in the international market and in reducing the high input in agricultural sector. According to Marsden (2003), delegation of rural sector has led to increased financial insecurity to farmers and this is due to a decline in prices of their outputs. The deregulation has led to increased competition and this has made the prices of agricultural products to deepen. Smith (2006) affirms that the rural sector deregulation has caused the income received by farmers to decline. The deregulation has increased the costs and responsibilities undertaken by farmers and this has reduced their profits significantly. Moreover, the deregulation has enabled retailers and processors to increase their profits at the expense of the farmers. Therefore, the deregulation of the private sector has increased the farm problem. Q 5 Industrial Policy Industrial policies play a vital role in a country industrial development. They provide means through which governments can interfere in industrial activities in order to promote technological and economic development. According to White (2009), industrial policy refers to the set of measures adopted by a government so as to influence a country performance towards a desired objective in relation to its industrial sectors. They are actions assumed by the government in order to promote and protect certain firms, industries or sectors in the economy. Bianchi and Labory (2006) define industrial policy as the guidelines implemented by the government so as to influence and encourage decisions involving industrial investments. The policies are aimed at manipulating the allocation of resources within and between various sectors in an economy. Additionally, the policies indicate the relationship that exists between the government and businesses on a microeconomic level. Moreover, they enable governments to initiate and coordinate activities so as to enhance growth, competitiveness and productivity in the whole economy or in particular industries. Industrial policies are mainly focused at promoting efficiency and industrial growth in a country (Turpin & Krishina, 2007). Industrial policies assist governments to prevent market failures and to correct market imperfections that may arise as a result of information asymmetries. Moreover, they offer the government with a means of boosting businesses by offering incentives. Peck and Federico (2009) affirm that industrial policies assist governments to distribute resources among firms and industries thereby stimulating their growth. Productivity is crucial in determining economic growth in a country as well and its ability to compete in international market. Therefore, to achieve high economic growth, governments must steer economic and technological transformation by establishing industrial policies. According to United Nations (2007), policies are important because competition alone cannot motivate businesses to become innovative and undertake investments that enhance productivity. Industrial policies are advantageous because they enable governments to provide education and support in research and development. In addition, they facilitate rapid industrialization and economic growth. Bianchi and Labory (2006) emphasize that industrial policies help in preventing unemployment and ensuring equitable distribution of resources. However, they may create a barrier to multinationals and interfere with the notion of free trade. Furthermore, industrial policies can make governments to spend a lot of tax payers’ funds in providing incentives and support to certain sectors in the economy. Governments can implement industrial policies by charging high tariffs in certain industries (United Nations, 2007). Moreover, policies can be in the form of quotas and subsidiaries given to certain industries. In addition, governments can offer low interest and also use tax incentives so as to boost specific sectors in the economy. Therefore, industrial policy helps the government in ensuring that the country achieves its long term economic development objectives. Nevertheless, industrial policies may create hindrances in relation to globalization. This may in turn require governments to change their policies in order to promote international investments. How Government policies and changes in the Regulation of Secondary Industries has affected the Balance between Primary, Secondary and Tertiary Sectors According to Anderson (2009), many economies do not have an even balance between primary, Secondary and tertiary industries. This is because primary industries are characterized by high levels of income unlike secondary industries which face high competition and this leads to a reduction in their profits. Primary industries extract raw materials from the source while secondary industries convert the raw materials into finished products. On the other hand, tertiary industries provide both personal and business services hence they generate significant revenues because they act as wealth consumers. Therefore, the secondary sector is left at a disadvantage as compared to other sectors of the economy hence creating an imbalance. Hart (2007) affirms that secondary industries are at a competitive disadvantage when they compete directly with tertiary and primary industries because they are typically composed of small firms which are financially weak. Changes in regulations and government policies assist secondary industries to increase their efficiencies hence lower their costs. Pecotich and Shultz (2006) insist that government policies and changes in regulations have assisted secondary industries to develop efficient operating practices. Moreover, the policies have encouraged secondary firms to become innovative. Therefore, changes in regulations and government policies have helped secondary industries to become more competitive and this has led to an increase in the balance between primary, secondary and tertiary industries. According to Hart (2007), through government policies, secondary industries have benefited from incentives provided by the government. The incentives have enabled firms in the secondary sector to minimize their operating costs and at the same time to improve the quality of goods that they process. Additionally, the removal of barriers as a result of changes in legislation has assisted secondary industries to improve the way they allocate their resources. This has in turn made them to experience significant growth and performance thereby reducing the imbalance. According to Anderson (2009), primary industry is composed of large firms which are able to wield their control over the businesses in the secondary sector because they are mostly small. Therefore, secondary industries have been able to overcome the control imposed to them by the primary industries due to the fact that they have expanded and grown as a result of government incentives. Thus, government policies and changes in legislation have improved the balance between the primary, secondary and tertiary industries through incentives. Government policies and changes in legislation have helped secondary industries to obtain funds in order to finance their expansion projects. Moreover, the funds have enabled secondary industries to improve their infrastructures. According to European Commission (2010), the imbalance that exists between secondary industries and other firms in tertiary and in primary sector can mainly be attributed to lack of finances for investment and expansion. Therefore, government policies have provided secondary industries with the necessary conditions required in order access finances. Additionally, changes in regulations have led to a reduction in the requirements needed so as to access the funds. This has in turn assisted secondary firms to grow and become more competitive hence reducing the imbalance. Q 6 Competition Policy Competition policy refers to a set of rules and regulations which are aimed at maintaining a fair amount of competition (Organization for Economic Co-operation and Development, 2010). The policy assists in eliminating restrictive business practices that may be adopted by private firms. These practices may include; predatory pricing behavior, acquisitions that reduce competition, collusion and capacity expansion which can create a barrier to entry of new firms. Competition policies can be in form of anti-monopolies, anticompetitive business practices and regulation of state aid. Therefore, competition policy is aimed at limiting monopoly powers in order to encourage fair competition. Drexl and Backhoum (2012) affirm that competition policy assists in enhancing global competitiveness, Improvement of consumer welfare, market integration and efficient allocation of resources. Thus, competition policy involves all measures adopted by a government so as to influence competition. Purpose of National Competition Policy According to Australian Government (2009), the purpose of National Competition Policy is to enhance efficiency in the Australian economy. Developments in other countries caused Australian economy to experience poor performance. Moreover, the country faced regulatory restrictions and high trade barriers in its domestic market thereby leading to inefficiency across its economy. Therefore, the policy was implemented in order to ensure that the Australian economy operated efficiently. Organization for Economic Co-operation and Development (2010) affirms that the National Competition Policy was mainly focused at ensuring that the Australian economy operated efficiently. Most companies in Australia pursued economic development projects and this made them to operate under protective competition practices hence this prevented the country’s economy from achieving efficiency in relation to technological advancement. National Competition Policy represents a commitment by the Australian Government to a dependable approach of ensuring greater economic efficiency (Drexl and Backhoum, 2012) National Competition Policy was implemented in order to improve competition in the Australian economy (Queensland Government, 2009). The policy establishes principles and guidelines that ensure fair competition. According to Australian Government (2009), the policy ensures that a balance is maintained between different firms thereby promoting fair competition practices. Moreover, the policy prevents practices that may threaten competition. This practices may include; anti-competitive practices and high market power. In addition, National Competition Policy assists in detecting actions that may hinder competition. Organization for Economic Development (2010) affirms that the policy has assisted companies to compete fairly by preventing firms to join together so as to control prices or to divide markets. Firms can fail to provide new products and to offer quality services at competitive prices when they agree to share the market (Drexl and Backhoum, 2012). Therefore, National Competition policy is aimed at improving competition in the Australian economy. According to Australian Government (2009), the purpose of National Competition Policy is to protect the interests of consumers. The policy promotes competitive markets instead of the interest of particular competitors. This in turn makes the policy favorable to individual consumers. Australian Government (2009) notes that National Competition Policy has forced firms to increase the quality of their products and to reduce the prices of their goods as well as to increase the choices they offer to their customers. In addition, the policy helps in preventing actions that may injure customers. This is because the firms have the ability to pass the costs of restrictions to customers. Therefore, the purpose of National Competition policy is to protect customer’s interests. Impact of Hilmar Report on the Regulation of Competition in Australia According to Smith (2006), Hilmar report made the Trade Practices Act to be amended thereby making anti-competitive prohibitions to be applied to all businesses in Australia. Australian Government (2009) affirms that the constitutional limitations had previously prevented the application of competitive conduct provisions to unincorporated businesses which were operating solely in intra-state trade. The reforms by Hilmar assisted in improving competition by ensuring neutrality of all firms that were operating in Australia. Moreover, Hilmar report influenced parliament to pass the Competition Policy Act 1995. The reforms to this act led to the establishment of procedures necessary to access relevant services. Therefore, the Hilmar report assisted the country to make significant progress towards increasing competition in gas and national electricity market (King, 2010). The Hilmar report also provided considerations relating to the introduction of competition instead of ownership (Smith, 2006). The report presented the issues to be reviewed by the government in order to introduce competition to markets that were traditionally served by public monopolies. Hilmar preferred structural reforms like horizontal and vertical divestiture rather than regulatory intervention in order to enhance competition in Australian market. Furthermore, the Hilmar report refined price vetting procedure. According to King (2010), this protected customers from unjustified price increments. The Role of Australian Competition and Consumer Commission (ACCC) According to Australian Government (2009), ACCC administers the Trade Practices Act. The body has a responsibility of enhancing the welfare of Australians by ensuring that the Act is implemented so as to promote fair trading, competition and consumer protection. Viney (2000) affirms that ACCC is required to protect customers in regard to financial services. Moreover, the act empowers ACC to prevent firms from engaging in certain anti-competitive and unfair trading practices. ACC has a role of ensuring compliance with the Trade Practices Act by reacting to enquiries and complaints as well as implementing action and observing how firms conduct themselves in the market (Smith, 2006). Furthermore, ACC is required to improve competition in Australia’s regulatory activities. Moreover, the statutory body has a role of educating the public on issues and implications related to the Trade Practices Act. References Anderson, K.(2009). Australia Economy in its International Context. Adelaide:. University Of Adelaide Press. Attwood, E. (1992). The Nature and Causes of Farm Income Problem.. Australian Journal of Social Issues, 38(1), 81-94. Australian Government .(2009). National Competition Policy. 1-39. Bekkum, O.(2010). Cooperative Models and Farm Policy. London: Edward Elgar Publishing. Drexl, J., & Bakhoum, M.(2011). Competition Policy and Regional Intergration. London: Edward Elgar Publishing. European Commission (2010). Industrial Policy in Europe. Competitiveness and Sustainability, 1-34. Hart, J.(2007). Industrial Policy. Indiana: Indiana University Press. Harrop, M. (1992). Power and Policy in Liberal Democracies. New York, Cambridge University Press. King, S.(2010). National Competition Policy. Journal of Economic, 10(3), 1-34. Marsden, T.(2003). 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Turpin, T., & Krishina, V.(2007). Science and Technology Policy. London: Edward Elgar Publishing United Nations.(2007). Industrial Policy. Trade and Development, 1-40. Vanclay, F.(2003). The Impacts of Deregulation and Agricultural Restructuring for Rural Australia. Australian Journal of Social Issues, 38(1), 81-94. Viney, M.(2000). Role of the ACCC. Review of Code of Practice, 1-3. White, L.(2009). Anti-trust Policy and Industrial Policy. Journal of Competition, Law & Economics, 5(1), 10-29. Read More