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Love and economic efficiency

By Mark Christensen - posted Friday, 2 February 2007


In the debate over globalisation and micro-economic reform it pays to recall that the free market is nothing more than a collection of individuals, interacting and negotiating in the hope of agreeing a win-win. To curb its excesses means constraining ourselves.

The deepest concerns about the market relate to its more ethereal side. A genuine smile at the shop counter can’t be manufactured like a car or computer. Nor is it possible to prescribe an infallible process for determining a fair price or ensuring the boss accommodates your priorities outside work. Like anything built around personal relationships, it is folly to believe the market can be either quantified or controlled.

This is exactly why Australia signed-up for the free market experience in the 1980s. Former Treasurer Paul Keating (and maybe Bob Hawke) accepted a very simple claim. Ministers and public servants eventually do more harm than good in the marketplace because they’re too slow and misinformed to appreciate the intimate goings-on.

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Kevin Rudd claims John Howard is putting the social fabric of the nation at risk by taking this principle too far. The opposition leader is at least right in suggesting Australia is on a slippery slope. What he fails to do is correctly identify why this is causing such heartache.

Free market theory has a religiously uncompromising outlook. Market failure allows selective exclusions from the continued retreat of government from the market. But even these qualifications are eventually threatened by ideological momentum. If one believes governments ineffective at understanding and manipulating buyers and sellers, then surely the end-game is an economy devoid of all third party control? It’s an all-or-nothing proposition.

The free market cause has lost momentum because its proponents won’t admit to such romantic goals. The positive forces of the market are directly contingent on our ability to choose who we relate to and on what terms. Controlling governments are akin to interfering parents who claim to know what is best. Great intentions, unhappy results.

Of course finding true love and economic efficiency is somewhat harder than simply rejecting paternalistic influences. It also requires an unconditional faith that transcends rational viewpoints. In the case of the market, this means acceptance of mystical beliefs such as the God-like benevolence of Smith’s invisible hand and the paradoxical notion of spontaneous order championed by Friedrich Hayek.

Economic rationalists are also pragmatists, however. Australia and elsewhere have shown the governments-can’t-make-it-happen theory delivers real results.

The WorkChoices reforms are an example of marrying practical with idealism. Apart from improving competitiveness, the Government rightly claims a centralised, bureaucratic approach will be unable to achieve the flexibility people value in the workplace.

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Unfortunately, John Howard spruiks the pecuniary at the expense of the romantic theory he supposedly supports. He fears being labelled an extremist, intent on employing naïve policy.

The higher truth is WorkChoices is - or at least should be - about trusting that Australian employees and employers are mature enough to work out what is best between themselves.

And here’s the rub. Implementing free market principles does not, per se, undermine communal bonds. Public disquiet arises because the prospect of laissez faire puts our lack of idealism and faith into sharp relief.

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First published in the Australian Financial Review on January 24, 2007 under the title ‘Love and economic efficiency’.



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About the Author

Mark is a social and political commentator, with a background in economics. He also has an abiding interest in philosophy and theology, and is trying to write a book on the nature of reality. He blogs here.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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