Are Australian Consumers Better off as a Result of Economic Rationalism - Coursework Example

Name Class Unit Title: Are Australian consumers better off as a result of economic rationalism? Discuss, drawing upon the concepts taught in this unit. Introduction Economic rationalism is defined as an economic policy where the primacy of market is accepted. Market indicators are used as the benchmarks for all government activities. Rationalism asserted that the best way to organise economic activities was through the creation of a competitive market system (Moore, 2001). This is a market where there are minimal interventions by the government. The market is supposed to give signals on what the consumers’ desire. Through rationalism in Australia, the approach used was to ensure that the resources would only be used if the consumers were willing to pay for them (Sumsion, 2006). This was a mean to ensure that there was no wastage of resources. This essay will determine whether Australian consumers are better off as a result of economic rationalism. Economic rationalism is a term used in Australia to define different economic policies that reduce the government intervention in the economy. The trade policy moved towards market liberalisation through reduction and removal of tariffs (Gates & Steane, 2007). The consumers were also given more powers. This is through the creation of a market that provides what the customer wants. Companies are made to work towards providing the consumers with what they require. In a free market model brought by market rationalism, there is no customer persuasion. Consumers are empowered and can make demands to the companies (Lloyd & King, 1993). Though the goal has not worked as expected, the consumers are more empowered than they were before market rationalisation. Through economic rationalism, Australian consumers were exposed to a competitive market with high efficiency and low wastage of resources (Sumsion, 2006). This implied that only the businesses that were able to produce at the lowest costs survived. Consumers were able to access products at a lower cost due to high level of efficiency and low cost of production. When the level of efficiency is high, companies can reduce their prices. An inefficient business that produces at high costs is eliminated from the market. Through a competitive system, the level of innovation and creativity is high (Callender, 2008). There is development of new products and services that could not have been possible without competition. Australian consumers were able to benefit from new products and services. There was also rise in entrepreneurship through market rationalism. Privatisation was a major benefit to the Australian consumers. Australian government sold the government-owned business through privatisation (Gates & Steane, 2007). This led to better organisation management and increased efficiency. The organisations were able to engage in a competitive market where they could enhance efficiency for better service delivery to consumers. Through the role of the government in the economy was reduced through privatisation, consumers were able to benefit from high innovation and creativity brought about by privatisation. Privatisation ensured that there were fewer companies that were supported by Australian taxpayers’ money (Sumsion, 2006). Through economic rationalisation, monopolies were eliminated. Monopolies are a major barrier to free market and make it hard for new entrants to the market. Previously, consumers are subjected to high prices through monopolies and often low-quality products and services. The Australian government established a body to eliminate monopolies in the market through economic rationalism (Gates & Steane, 2007). After eliminating of the monopolies, the market became competitive. Companies had to look for efficient production methods and improve their quality for them to survive (Callender, 2008). This is a step that helped the consumers from being exploited by the monopolies. The Australian government worked hard towards creating an ideal market. Despite being unfeasible to create an ideal market, it is possible to create a market that is near to ideal as possible. The Pareto optimal is only capable to be maximised through an ideal market (Walsh, 1996). This enabled them to use Pareto optimal principle to maximise the society welfare. The resources in the market were allocated based on Pareto optimal. Consumers became the major beneficiaries of efficient allocation of resources (Catley, 1997). Despite the positive effects of economic rationalism, it leads to negative aspects. Consumers become undersupplied in some goods and services. This includes legal and defence systems that cannot be placed on the user pay basis. When the market competition is unrestricted, there are chances of the rise of a single producer (Sumsion, 2006). This occurs in situations where large companies can produce goods at lower costs than small firms. Small firms do not benefit from government subsidies that can help in reducing production costs. This leads to occurrence of natural monopolies despite the system being against monopolies. Without government intervention, these monopolies are a threat to consumers. For Australian consumers, economic rationalism did not lead to the success of the high-quality products. When there is intense and uncontrolled competition, the low-quality products have the capability to eliminate high-quality products from the market. The producers of the low-quality products can sell them at lower costs than high-quality products (Pusey, 1991). Firms producing high-quality products cannot lower their prices beyond a certain limit. This makes the producers of the high-quality products being driven out of the market and out of business (Moore, 2001). Australian consumers were exposed to low-quality products that are sold at lower prices. Economic rationalism brings about the debate on ethics. This is due to values and the disadvantages of economic rationalism based on the human nature. People are motivated by self-interests where greed and need for financial rewards takes the centre stage (Wright, 2003). This has negative effects on consumers where the weak and venerable are oppressed. Consumers were thus exposed to a system where individuals would exploit them without the protection of government. The weak in the society are sacrificed for the sake of those who are strong. Through economic rationalism, the poor consumers are oppressed. Economic rationalism is centred on individualism (Wright, 2003). The market system expects individuals to be participants in one market where unions and any form of a social institution are undermined. In case of a market failure, economically weak consumers suffer most. Consumers are exposed to poverty in such instances (Argy, 2001). This is seen especially in the labour market where involuntary employment occurs as a result of a failure. Market failure is a major issue in unregulated economy despite the fact that rational economists ignore it. Consumers are thus prone to negative effects of failed market that puts them in a bad situation (Wright, 2003). The government is not allowed to intervene in the economy even in times when it’s beneficial. The high cost of not intervening when it would be beneficial to the economy is left to the consumers. Economic rationalism does not consider whether the consumers have the capacity to pay for entitlements provided. There lacks a rigorous cost-benefit analysis in the system. Consumers are given the right to various entitlements such as better health, free medical care and education but the society may not be capable to pay for them (Pusey, 2003). Economic rationalism also led to an increase in unemployment that implies that there is a reduction in consumer purchasing powers. This is through the microeconomic reforms. The reform led to high unemployment as it worked to reduce inflation. Unemployment is highly relied on by rationalism as a tool to control inflation. Low inflation is taken as the main policy goal. Economic rationalism did not acknowledge the market failure (Argy, 2001). The country financial sector was more concerned with controlling inflation than reducing inflation. This made the Australian consumers worse off. Despite the argument that economic rationalism would raise the total production in a country, it never happened. This goal was aimed at raising production rapidly so that those earning less would achieve a raise in their real incomes (Argy, 2001). Poverty would thus have been eliminated in Australia if production increased. It takes a long time for production to rise to the levels of raising real income (Pusey, 2003). At the moment, consumers are yet to benefit. The focus on the market to determine what to be produced and way of production have not worked as expected. Conclusion From the discussion in the essay, it is evident that despite the positive impacts of economic rationalism, there are negative aspects. Consumers in Australia have not fully benefited from economic rationalism as expected due to the flaws that exist. Monopolies that were eliminated through the use of market rationalism have risen through the competitive market. High-quality goods are driven out of the market by low-quality products through prices. Economic rationalism also leads to ethical issues and leads to high levels of unemployment. The claim that economic rationalism will raise the country production leading to the rise in incomes is yet to be achieved. The positive impacts include an increase in efficiency, high-quality goods and services, elimination of monopolies and privatisation. Consumers are still not better off leading to a troubled experience with the country economic reforms. References Argy, F. 2001, “Economic Rationalism In Australia—Survey Of Members Of The Economic Society Of Australia, Act Branch,” Economic Papers: A journal of applied economics and policy, Vol.20, no.1, p.1-14. Callender, G. 2008, Efficiency and management, Routledge. Catley, B. 1997, Globalising Australian Capitalism, Cambridge Books. Gates, D. K., & Steane, P. 2007, “Historical origins and development of economic rationalism,” Journal of Management History, Vol.13, no.4, p.330-358. Lloyd, P. J., & King, S. 1993, Economic Rationalism: Dead End Or Way Forward?, Allen & Unwin. Moore, D. 2001, “The case for economic rationalism,” Economic Papers: A journal of applied economics and policy, Vol.20, no.4, p.82-89. Pusey, M. 2003, The experience of middle Australia: The dark side of economic reform, Cambridge University Press. Pusey, M. 1991, Economic rationalism in Canberra: A nation-building state changes its mind, Cambridge University Press. Sumsion, J. 2006, “From Whitlam to economic rationalism and beyond: A conceptual framework for political activism in children's services,” Australian Journal of Early Childhood, Vol.31, no.1, p.1. Walsh, V. 1996, Rationality, allocation, and reproduction, OUP Catalogue. Wright, J. 2003, The ethics of economic rationalism, UNSW Press. Read More