Economics and public policy: some thoughts from recent policy makers

Economic Papers (Economic Society of Australia), March, 2004 by Anne Daly

An important role of the Economic Society of Australia is to promote open debate on the major economic issues of the day, both among members of the economics profession and more widely in the community. The annual Conference of Economists, the regular meetings held by each State branch and the journals of the Economic Society of Australia, the Economic Record and Economic Papers, all present opportunities to promote this goal. It is not always possible for interested people to attend the various presentations so we have collected some of the significant papers from 2003 to publish for wider circulation. In this forum we present written versions of papers that have been given by some of Australia's leading economic policy makers at the Business Symposium of the Annual Conference of Economists held in Canberra in October 2003 and an Economic Society meeting held in Melbourne in July 2003. The authors, are or until recently were, senior advisors and implementers of macro and microeconomic policies.

Mr. Ted Evans retired as Secretary of the Treasury in 2001 after over 30 years in policy making. He takes a broad view of the topic of economic policy making and considers that the current success at the macro level in Australia has enabled policy makers to focus more clearly on micro issues. In his paper he considers the relationship between the economists offering advice and the government that must consider that advice in a wider context, including all the constraints both real and imagined. We live in a second best world where the implementation of policy may have unexpected outcomes.

The other three papers by Professor Allan Fels, Chairman of the Australian Competition and Consumer Commission (ACCC) until 2003; Mr Graham Samuel, the current Chairman of the ACCC; and Mr Gary Banks, the Chairman of the Productivity Commission (PC), focus more closely on regulation and competition policy. Both Professor Fels and Mr Samuel emphasise that on a day-to-day basis, the ACCC operates at arms length from politicians yet the Commission must acknowledge the wider political and international context in which all its decisions are made. Each paper considers particular examples of the work undertaken by the ACCC and argues the public benefit of these activities. While Professor Fels expresses views about last year's Review of the Trade Practices Act by the Dawson committee, the incoming chairman does not enter that debate in his paper. Professor Fels also provides a vigorous defence of the high media profile of the ACCC under his stewardship arguing that it promotes a culture of competition in the community. Both Professor Fels and Mr Samuel emphasise the need to administer the Trade Practices Act in the public interest and not in the interests of particular sections of the community.

The role of the PC is to review and advise on policy rather than to directly implement it and this difference compared with the views of the two preceding authors derived from experience in implementing policy at the ACCC, is reflected in Mr Banks' paper. As the title 'The Good the Bad and the Ugly: Economic Perspectives on Regulation in Australia' suggests he sees both positive and negative elements in regulation policy in Australia. Regulations can have high administrative costs and unanticipated negative effects on the way the economy operates. The regulators can be captured by those that they are supposed to be regulating and regulations can be expected to achieve impossible objectives. According to Banks, good regulation should have a solid rationale and work through the market using economic incentives to achieve the desired goals. Regulations should be reviewed and justification for their continuation provided. They should only be continued where the benefits outweigh the costs.

The microeconomic reforms of the past twenty years have contributed to the substantial improvement in the macroeconomic performance of the Australian economy but there still remain significant issues for regulation policy in the future. For example, the recent review of the Trade Practices Act highlighted a divergence in views about how this Act should operate to promote the public interest. In some industries, overseas governments are now stepping back from their reliance on the market and competition to promote the interests of consumers and taking a more interventionist approach. Are there lessons for Australian policy makers from these experiences? While some in Australia have argued that the reform process has gone far enough, others favour a continuing program of reform measures. These are all topics which are open for further debate. These papers provide a very useful survey of the issues surrounding economic policy making by people who are or have been at the heart of policy making. We hope they will contribute to a lively and continuing debate on these issues in Australia.

ANNE DALY, School of Business and Government, University of Canberra. Joint Editor, Economic Papers.