Australian Citizens' Parliament

Economic rationalism, also known as neoliberalism or market liberal reform, is based on the premise that markets are generally more efficient than governments in organising society and providing for prosperity and freedom.

Economic rationalists aim to achieve this by reforming government to make it (a) smaller - so it intervenes less in markets, and (b) make government more like a market itself.

Why do governments work poorly from an economic rationalist perspective?

The basic assumption of economic rationalists is that everyone is motivated by self-interest, not pubic interest. In government, this means that everyone tries to get as much as they can for themselves, while imposing costs on others - especially ordinary taxpayers.

Economic rationalists believe, for example, that:

• public servants maximise the budgets of their departments and work to increase their job security;
• elected politicians do whatever they can to be re-elected;
• labour unions use laws and regulations to maximise the income of their members at the expense of business;
• businesses arrange subsidies and protection from competition from other businesses, especially businesses in other countries;
• various lobby groups compete for government spending that will favour their members; and
• professional associations (doctors, lawyers, etc) push for regulations that will eliminate the competition for their services.

What type of government do economic rationalists favour?

Economic rationalists argue that governments should introduce policies that:

• cut taxes and government spending;
• balance government budgets; and
• promote free-trade (no tariffs on imports, or subsidies for businesses of any kind).

Economic rationalism would also reduce environmental and health and safety regulations - indeed, all kinds of regulations that restrict what businesses can do; and contract-out government services as far as possible to the private sector. This would include services such as the provision of education, health care, policing, road and rail construction and operation.

Criticisms of economic rationalism

The problem is that it is very hard for governments to carry out these sorts of policies, precisely because they are often against the self-interest of powerful political actors.

Some economic rationalists believe that we need to put these policies into the Constitution. The Constitution would then, for example, mandate for:

• a balanced Budget;
• free-trade;
• no regulation or licensing of occupations/professions by government;
• the contracting out of government services; and
• no controls on wages.

Although associated with the governments of Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s, and Jeff Kennett in Victoria in the 1990s, and to some extent adopted by Labor governments in New Zealand and Australia, economic rationalism ignores social justice, and allows the gap between rich and poor to grow.

Critics of economic rationalism say that its advocates do not strongly favour democracy because they do not trust democracy ever to produce what is truly in the public interest.

The critics believe, that if adopted, economic rationalism would undermine the ideals of the public service by telling politicians, business and the community that public servants are working against the public interest and are, therefore, not to be trusted.

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