Economic rationalism has little left to offer

This week marks exactly 20 years since Margaret Thatcher memorably claimed "there is no such thing as society". Fairly or not, this remark came to embody the essence of the neoliberal agenda, known in Australia as economic rationalism.

Economic rationalism dominated worldwide economic thought throughout the 1980s and 1990s. It was characterised by a faith in the power of markets and competition to deliver prosperity through the "trickle down" effect of economic growth. Implicit in this line of reasoning was that any form of cooperation, collaboration or government intervention is harmful as it inhibits competition.

With the passage of time, it is clear the basic premise of Thatcher and her adherents was wrong. Successful capitalist economies are built as much on effective cooperation as they are on competition.

In 2007, economic rationalism has very little to say on the policy challenges facing Australia.

Nowhere is this more apparent than in the policies that Kevin Rudd and John Howard are taking to the election, but economic rationalism has been becoming increasing irrelevant for some time.

Neoliberalism gained traction during the 1980s with conservative governments in the United States, Britain and New Zealand.

In Australia, under the banner of economic rationalism, the Hawke-Keating Labor government carried out reforms such as reducing tariffs and floating the dollar. The Kennett government in Victoria took on the agenda with enthusiasm, privatising almost anything it could.

The obvious criticism of economic rationalism is that it has exacerbated inequality in society, and across regions.

Disquiet with this outcome is probably behind the popular rejection of economic rationalism.

However, the core economic rationalist premise that competition alone will lead to prosperity has been subject to repeated challenge, often by analysts on the conservative side of politics.

Conservative philosopher Francis Fukuyama points out that capitalism is fundamentally built upon trust, because to take part in a market we must believe that others will adhere to the "rules" we play by.

Political theorist Robert Putnam has shown that "social capital" underpins the effective functioning of democracy, which in turn supports the effective functioning of markets.