Structural Adjustment Exploring the Policy Issues

282 Pages·1999·0.96 MB·English

P
Structural
Adjustment
Exploring the
Workshop
Policy Issues
Proceedings
ª Commonwealth of Australia 1999
ISBN 0 646 33594 4
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An appropriate citation for this paper is:
Productivity Commission 1999, Structural Adjustment — Exploring the Policy
Issues, Workshop Proceedings, AusInfo, Canberra.
The Productivity Commission
The Productivity Commission, an independent Commonwealth agency, is the
Government’s principal review and advisory body on microeconomic policy and
regulation. It conducts public inquiries and research into a broad range of economic and
social issues affecting the welfare of Australians.
The Commission’s independence is underpinned by an Act of Parliament. Its processes
and outputs are open to public scrutiny and are driven by concern for the wellbeing of
the community as a whole.
Information on the Productivity Commission, its publications and its current work
program can be found on the World Wide Web at www.pc.gov.au or by contacting
Media and Publications on [phone].
Foreword
Policy issues relating to structural adjustment are central to the debate on the future
direction of microeconomic policy in Australia. In recognition of the importance of
these issues, and as a way of further developing our own thinking, the Productivity
Commission commissioned five leading policy analysts to prepare papers for a
workshop held on 21 May 1999 in Canberra.
The workshop was organised around two main themes.
• The first, Evaluating policy changes (cid:190) the economic and social dimensions
explored issues such as: how adjustment and distributional issues should be dealt
with in the process of evaluating specific policy changes; the relevant decision
criteria for evaluating policies; and the extent to which governments should
trade off efficiency gains from reform against equity, regional development or
other considerations.
• Within the second theme, Delivering effective adjustment assistance, issues
examined included the case for selective adjustment and compensatory
assistance, the role of different transitional arrangements and the packaging of
reforms.
Around fifty participants attended the workshop, including academics, senior
government officials, consultants and representatives from social and business
groups and the union movement. We would like to thank all the participants for
their active involvement in an illuminating discussion. We are particularly grateful
to the authors of the commissioned papers and to the discussants, who produced
quality contributions that will greatly assist the development of our thinking.
The workshop was organised by Ian Monday, Rosalie McLachlan, Colin Clark,
Timothy Geer and Amelia Lindsay, who also compiled the proceedings, with
assistance from Roberta Wise.
Gary Banks
Chairman
August 1999
FOREWORD III

Contents
Foreword III
Abbreviations VIII
PART A INTRODUCTION AND OVERVIEW
1 Introduction 1
Gary Banks
2 Overview 7
PART B COMMISSIONED PAPERS
3 Distributional effects of structural change: some policy
implications 39
Fred Argy
4 Policy issues in structural adjustment 93
Malcolm Gray
5 Structural change, growth and ‘social justice’ — an essay 125
Wolfgang Kasper
6 Issues in structural reform 163
Elizabeth Savage
7 Structural adjustment: a mainly regional development perspective 201
Cliff Walsh
CONTENTS V
PART C DISCUSSANT PAPERS
8 Structural change: objectives, evaluation and incentives 233
Peter Forsyth
9 Evaluating policy changes: the economic and social dimensions 243
Glenn Withers
10 Delivering effective adjustment assistance 251
Peter Saunders
11 Issues in adjustment assistance 261
Andrew Stoeckel
PART D APPENDIXES
A Brief for commissioned papers 271
B Workshop program 275
C List of participants 276
D Speaker and discussant profiles 278
BOXES
4.1 Concern about the decline of regional Australia 112
6.1 Modifying reform to lessen adverse side effects 174
6.2 Addressing equity in tax design 176
6.3 Balancing efficiency and equity — some key considerations 189
FIGURES
4.1 Impact of distributional constraints 101
4.2 Interaction of reform and income redistribution 105
A5.1 Conditions of economic growth: an overview 156
VI CONTENTS
6.1 First and second best policy in a two person setting 169
6.2 The social gain of a policy reform in a two person setting 185
CONTENTS VII
Abbreviations
ACC Area Consultative Committee
ASIC Australian Standard Industrial Classification
BCA Business Council of Australia
COAG Council of Australian Governments
DEETYA Department of Employment, Education, Training and Youth
Affairs
EPAC Economic Planning Advisory Commission
GBE Government business enterprise
GDP Gross domestic product
GST Goods and services tax
IAC Industries Assistance Commission
IC Industry Commission
NAIRU Non-accelerating inflation rate of unemployment
NATSEM National Centre for Social and Economic Modelling
NCP National Competition Policy
OECD Organisation for Economic Co-operation and Development
PC Productivity Commission
PMV Passenger motor vehicles
RAC Rail Access Corporation
REDO Regional Economic Development Organisation
REDS Regional Economic Development Scheme
TCF Textiles, clothing and footwear
VIII ABBREVIATIONS
1 Introduction
Gary Banks
Adjustment and distributional issues are at the heart of the public debate on the
future direction of microeconomic reform. The increased attention to the adjustment
and social consequences of reform can be seen as a reflection of growing
community concern about the process and implications of microeconomic reform,
and of change more generally. These concerns are evident to anyone who discusses
reform issues with a cross section of the community — the Productivity
Commission’s current inquiry into the Impact of Competition Policy Reforms on
Rural and Regional Australia being a case in point.
As the Productivity Commission observed in its first Annual Report (PC 1998),
there is considerable disquiet in sections of the Australian community about the
effects of change and a heightened sense of uncertainty about the future. People are
questioning whether microeconomic reform has achieved its supposed gains. Some
see the gains as inherently small, or not justifying the adjustment costs. There is a
view that those adversely affected have not been compensated adequately. There is
also scepticism about whether ordinary Australians are sharing equally with the ‘big
end of town’ and dissatisfaction with how adjustment to change has been managed.
While such views contain a number of misconceptions about reform and its relative
contribution to the ongoing changes in the economy, this groundswell cannot
simply be dismissed as the product of ignorance. Key figures within the economics
profession itself have raised similar questions and some have been highly critical of
the policy reform approaches of the past.
Fred Argy elevated the debate in his 1998 book, Australia at the Crossroads:
Radical Free Market or a Progressive Liberalism?, putting forward a number of
challenging propositions for new directions in policy development. Wolfgang
Kasper, who in 1980 published a book with the same principal title — though
anticipating a different answer to Argy’s question — has strongly reaffirmed his
contrasting views in an exchange with that author in a recent edition of the journal
Policy (1998-99). The workshop afforded an opportunity to explore these and other
views about the merits of different policy approaches to handling the adjustment
and distribution challenges of microeconomic reform.
INTRODUCTION 1
It should be emphasised that while there is obvious disagreement about some policy
approaches, there is generally little disagreement (at least among economists) about
ends — namely, higher living standards for Australians — or about the fact that
these ultimately depend on the flexibility and productivity of our economy.
It is the political dilemma of microeconomic reform that, in raising the nation’s
productivity and average income levels, losses are inevitably incurred by some
members of the community. The asymmetries in the incidence of costs and benefits
of reform are, of course, well known as one of the major obstacles to reform itself.
Australia, remarkably, has surmounted those obstacles pretty successfully since the
early-1980s, but clearly they have never disappeared (cid:190) and are again in the
ascendant.
If resistance to change is not to prevent generally beneficial reforms from
proceeding, it is clearly important that we properly address the concerns about
reform.
An essential part of this task is to continue explaining to the community why reform
has been undertaken, what the benefits have been and why further reform is
necessary. The Productivity Commission has an important role to play in this
regard. It is specifically charged with helping governments explain the whys and
wherefores of reform.
The task should become easier as we move from projected to realised gains. While
it is hard to disentangle the separate contribution of reform to changes observed in
the economy, there is a growing body of evidence of substantial gains. It is broadly
consistent with initial expectations. At the aggregate level, the unprecedented jump
in multifactor productivity growth in the 1990s is difficult to explain other than as
in part a consequence of the microeconomic reforms of the past decade or so (IC
1997d; Parham 1999).
The way reforms are evaluated and implemented is vital to achieving good policy
outcomes. Policy choices need to be based on the best available information and
analysis of the costs as well as the benefits of specific reform proposals (cid:190) not just
for particular groups, but across the wider community and economy. Understanding
the social consequences of reform is part of this, and was a focus of the workshop.
The social dimensions of public policy have become more prominent in the work of
the Commission as our inquiries and research reports have been extended from
traditional industry assistance issues, to areas of social infrastructure like health or
education. In these areas, effectiveness of service delivery (including access and
quality) are just as central to performance as efficiency. Current inquiries into the
gambling industries and broadcasting also clearly have inherent social dimensions.
2 WORKSHOP ON
STRUCTURAL
ADJUSTMENT