Microeconomic Reform in Australia: Education Industry - Example

Microeconomic Reform in Australia – Education Industry Name Institution Lecturer Date Introduction Australia’s economic governance has gone through radical transformations since the 1970s. Most of these transformations are linked to the market-oriented policies, which are jointly called the ‘microeconomic reform’ (Borland 2001). Endres (2002) defines microeconomic reform as a set of government policies intended to improve an economic sector or industry’s performance. Historically, the desire for efficiency in some industries like education was not considered to be crucial for policy focus during a greater part of the 20th century in Australia. However, since the 1970s, growing pressure on the economy, together with evidence of widespread inefficiency, saw microeconomic reform become a key aspect of economic policy in Australia (Parham 2002). The compulsion for policy reforms in Australia is not a recent phenomenon. The microeconomic reforms introduced in 1973 leading to the creation of the Industries Assistance Commission a year later. It was considered to be particularly concerned with increasing efficiency in the public sector between 1975 and 1983, during the Fraser government. As a result, economic productivity growth increased during the 1990s (Pyne 2014). It was largely credited to the microeconomic reforms, a better educated and skilled workforce, and rapid adoption of information and communications technologies. However, Australia has not had major microeconomic reforms in the education sector. This was until 2014 during Abbot’s government (Gallager 2014). Still, current scholarly and government evidence shows that the focus of ‘microeconomic reform’ has shifted to the education sector to support for innovativeness (Pyne 2014). Basing on the New Growth theory, this essay argues that by transforming the higher education sector, the Australian government is making a conscious shift to a knowledge-based economy from a resource-based economy to increase productivity. Additionally, the reforms in Australia’s education sector are consistent with the current market demands, where more adults and young people are seeking higher education, to attain higher qualifications needed in the job market. Review of reforms In 13 May 2014, the first Budget, read by the Abbott Government, revealed a broad and sweeping development in the country’s higher education in more than 3 decades. The Budget, which was revealed by Christopher Pyne, the Education Minister, introduced a number of conditions intended to encourage micro-economic reform in the industry (Gallager 2014). This led to the “Higher Education and Research Reform Amendment Bill 2014.” The reforms, which are famously called the Pyne Agenda, are targeted at increasing economic productivity. At this juncture, it is critical to reflect on the path of higher education sectoral reforms in Australia to promoted economic productivity. A review of the history of higher education in Australia indicates that succeeding Commonwealth governments have attempted to make policy and investments shifts to enable the growth of the higher education system to promote a productive economy. In 1939 during Prime Minister Robert Menzies’s reign, Australia had six universities and around 14,240 higher education students (Pyne 2014). During Menzies’s retirement in 1966, the country had 16 universities and more than 91,270 higher education students. During his regime, he introduced the first inquiry into university funding and came up with the block grants for universities that were funded by the State. He also introduced Commonwealth Scholarships for university students and taxation allowances for education expenses. What this shows is that he increased the number of students studying in universities, and promoted the autonomy of universities (Gallager 2014). However, there is unreliable evidence on the effects on productivity. The Commonwealth Grants Scheme (CGS) has traditionally funded student places. Before 2008, the number of places that received funding had been capped, which the Howard Government reduced a little in 2008. Later in 2009, the Labour Government started eliminating the caps on public university places (Pyne 2014). Instead, it offered places for admission of each domestic bachelor student into the university from 2012. In the proposed Pyne Agenda, the Government seeks to reduce expenditure on CGS to $6.6 billion in 2016–2017. Increased number of places will be attained by once savings of $1.1 billion is attained when the government cuts contribution per place by nearly 20 percent (Dow 2014). Among the motivations for reforming the education industry is the low of productivity realised, despite huge government expenditure in some sectors such as education, health, and social security, relative to the mining, agriculture, and the service industry. The government has focused on cutting Commonwealth Grant on the less economically productive sectors and providing initiatives for private investment in these sectors. A report by the National Commission of Audit (2013) shows an increasing trend of grants and cost of administration for both the Commonwealth and grant recipients, to some $22.4 billion in 2012-13 from nearly $11.1 billion in 2002-03 (See Figure 1). Despite this, there is declining confidence on its capacity to attain Government’s strategic objectives for better efficiency and productivity (Pyne 2014). Figure 1: Actual grants and spending between 2002-03 and 2016-17 (National Commission of Audit 2013) In 2012-2013 for instance, the Education, Health, and Social Security sectors consisted of 80 percent of the total grants (See Figure below). Figure 2: Share of grants by sectors in 2012-13 (National Commission of Audit 2013) The report concluded that the grants failed to improve efficiency and innovation as well as to encourage the development of programme providers, such as private universities (National Commission of Audit 2013). In particular, the government also seeks to increase university autonomy by removing the cap on student tuition costs and allowing the universities and other higher education institutions to set their own fees to encourage competition, which will promote innovation and quality, as well as increase opportunities and alternatives for students. Regarding the Higher Education Loan Programme, the Pyne Agenda proposes that starting 1 July 2016, the income structure for repaying the HECS-HELP debt should be reduced to nearly $50,640 (Dow 2014). Analytic review of the reforms The key objective of microeconomic reform in Australia’s educations sector is to promote efficiency of operation of the country’s economy. As Parham (2002) explains, the key motivation of microeconomic reform is to increase economy’s efficiency. Endres (2002) interprets efficiency in terms of productivity. In Australia, current proposals for microeconomic reforms in the education sector exemplify its shift to a knowledge-based economy. By transforming the higher education sector, it is clear that Australia is making conscious shift to a knowledge-based economy from a resource-based economy. In fact, the New Growth theory makes it easy to understand Australian government’s efforts to transform from a resource-based economy to a knowledge-based one. Further, it calls attention to the idea that the economic processes encourage knowledge development and diffusion, which are essential for shaping the economic growth of nations, people, and firms. The New Growth theory models seek to relax the idea that technology is exogenously determined. The fundamental assumption is that the knowledge production is identifiable by the increased returns to scale. The theory hypothesises that knowledge is not contingent on diminishing returns like land and capital. It also assumes knowledge development to be a major driver of economic development (Cortright 2001). The outcome of this is that developing economies should shift their efforts from exclusive reliance on physical resources to expanding their knowledge base, as well as to support the institutions that are important, as they facilitate the development and sharing of knowledge. Indeed, there are valid reasons for the microeconomic reforms in the educations sector in Australia. For instance, the education industry is rising to become a major industry in Australia, after the non-mining and services export industry. Next, the growth potential of the industry is strong, due to the increased demand for higher education in Australia by students from developing economies (Pyne 2014). For instance, the OECD estimates that the number of students seeking higher education will increase by nearly 100 million by 2025 to reach 263 million, from the 2009 figure of 165 million. At the same time, the number of international students will double during the period to reach 8 million (Dow 2014). As can further be reasoned, the Pyne Agenda also seeks to address the importance of the higher education sector in the country’s services exports, which is the fourth largest export industry in the country (Pyne 2014). Investment in knowledge, according to the New Growth theory, reflects the future market potential, the rise in the capacity of foreign rivals, as well as the capacity of the information and communications technology to transform the economy. Parham (2002) also argues that microeconomic reforms are concerned with the provision of incentives to inspire innovation and positive transformation. Within the education sector, the government gets to influences the incentives facing teaching institutions and students directly or indirectly. Quiggin (n.d) adds that these incentives become functional once individuals encounter the costs and benefits associated with education, while being simultaneously constrained by avoidable rules and regulations. Indeed, through the Pyne Agenda, the Australian government supports the right incentives while at the same time eliminating regulations that are beneficial to a few but detrimental to many. The New Growth theory slips in two significant points to the Pyne Agenda educations sector reforms. First, it perceives technological progress to be an outcome of economic activity. This is different from some exogenous growth theories like the neoclassical microeconomic theory, which views technology as an outcome of non-market forces (Endres 2002). As an “endogenous” growth theory, the New Growth theory turns technology into a model that determines how a nation’s markets should operate. It also hypothesises that unlike physical objects, technology and knowledge are factors for increasing returns, which steer the processes of economic growth (Cortright 2001). Accordingly, when the theory is incorporated into Australia’s microeconomic reforms in the education sector, it seeks to address the important issues regarding how knowledge development and acquisition will make the Australian economy grow. At any rate, the most important item of New Growth Theory is that it argues that knowledge development and acquisition motivates economic growth (Cortright 2001). Since ideas will infinitely be shared and recycled through microeconomic reforms of the higher education sector in Australia, knowledge and technology can be limitlessly accumulated since they are not open to “diminishing returns.” Rather, the increasing returns to knowledge motivate the growth of the economy. Basing on the theoretical review, it is clear that e reforms, which are famously referred to as the Pyne Agenda, are intended to promote innovation, encourage structural diversification, as well as offer differentiation on grounds of encouraging quality in education, relevance of content, as well as convenience to students. Indeed, a review of the Pyne Agenda shows that the reforms are targeted to increase diversification of higher education provision. As a result, broadening the alternatives for students and ensuring improved responsiveness of supply to divergent needs of students from diverse background (Pyne 2014). Indeed, through the reforms, the government seeks to promote incentives to education providers, to encourage them leverage their resources to provide varied educational experiences to the students. Additionally, it encourages cost-effective utility of public resources in order to accommodate the increase participation in higher education. Lastly, it also aims to encourage greater private investment in higher education in Australia and to promote innovation in designing, and delivering of programs (Pyne 2014). In doing these, the government is opening up the supply options to a diverse base of students and educational institutions, both private and public, as well as local and foreign provider. Hence, the reforms are intended to address the necessity for greater cost-effectiveness in addressing domestic student demand that is continuously increasing and becoming diverse. Conclusion A review of the microeconomic reforms of Australia’s higher education sector shows that Australia is making conscious shift to achieve a knowledge-based economy from a resource-based economy. This is consistent with the rise of the education industry to become a major revenue earner in Australia, after the non-mining and services export industry and the increased demand for higher education in Australia. The New Growth theory calls attention to the idea that the reforms will encourage knowledge development and diffusion, which are essential for shaping the economic growth of nations, people, and firms. The theory slips in two significant points to the Pyne Agenda educations sector reforms. It also turns technology into a model that determines how a nation’s markets should operate. Indeed, the Pyne Agenda are intended to address the necessity for greater cost-effectiveness in addressing domestic student demand that is continuously increasing and becoming diverse. The objective is to promote innovation, and increase diversification of higher education provision, and promote quality of knowledge developed, acquired, and used to trigger economic progress. For this reasons, the Australian government needs to invest in human capital, and most importantly, develop education to enable people to acquire knowledge. Better knowledge will generate increased returns, as well as lead to economic growth. Reference List Borland, J 2001, Microeconomic reform in Australia – An introduction, viewed 26 Sept 2015, http://cf.fbe.unimelb.edu.au/staff/jib/documents/micref.pdf> Cortright, J 2001, New Growth Theory, Technology and Learning: A Practitioner’s Guide, viewed 26 Sept 2015, Dow, C 2014, Reform of the higher education demand driven system (revised), Parliament of Australia, viewed 25 Sept 2015, Endres, A 2002, Neoclassical Microeconomic Theory: The Founding Austrian Vision, Routledge, New York Gallager, M 2014, Address to the EduTECH Higher Education Leaders Congress, Brisbane, 4 June 2014, Group of Eight, viewed 25 Sept 2015, National Commission of Audit 2013, 10.17 Grants programmes, viewed 26 Sept 2015, Parham, D 2002, "Microeconomic reforms and the revival in Australia’s growth in productivity and living standards," Paper presented to the Conference of Economists, Adelaide, 1 October 2002 Session on Microeconomic Reform Revisited Pyne C 2014, Higher Education Reform Summit: Next Steps in the Evolution of Australian Higher Education, viewed 25 Sept 2015, Quiggin, J n.d., Economic Governance and Microeconomic Reform, viewed 26 Sept 2015, Read More