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Microeconomic Reform

Microeconomic Reform. An introduction to the theory of microeconomic reform in Australia. Lecture Overview. What is microeconomic reform? Why do we bother? Who has been affected?. Before We Start…. MER is short for M icro E conomic R eform, and it will be used for the rest of the course.

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Microeconomic Reform

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  1. Microeconomic Reform An introduction to the theory of microeconomic reform in Australia.

  2. Lecture Overview • What is microeconomic reform? • Why do we bother? • Who has been affected?

  3. Before We Start…. • MER is short for MicroEconomic Reform, and it will be used for the rest of the course. • However, it is not an allowable abbreviation for examination purposes. • In other words, I can use it, you can’t.

  4. Definition • MER is a process whereby the government seeks to make alterations to the structure of an industry. • The goal is to use these structural reforms to increase the efficiency of that industry. • We aim to force sectors of the economy to cut costs and use the available resources as efficiently as they can.

  5. Types of MER • MER can take any of a number of forms, including: • Deregulation • Privatisation • Corporatisation • Tariff Reform • National Competition Policy • Labour Market Reform • Introducing supervising bodies (eg APRA)

  6. Goals of MER • Through the process of MER the government aims to increase the output of each industry. • By focusing on those industries which form “pivot points” for the Australian economy, the goal is to increase the overall efficiency of the country.

  7. Specific Goals of MER • MER has only become prevalent in the last 20 years or so. • At this time MER became important because of the long term deterioration of the Australian economy.

  8. Long Term Deterioration? • Material living standards fell – in 1950 we were 4th in world rankings, by 1998 we were 12th. • Annual inflation in the 1980’s was 30% higher than the OECD average. • Unemployment to that time was doubling every 10 years. • The float of the AUD resulted in a 50% deterioration of our currency, and hence a worsening CAD.

  9. How Can MER Help? • MER aims to: • Encourage efficient allocation of resources and hence efficient production • Improve the efficiency of the labour force • Lower costs of production • Create incentives for private operators to set up businesses • In the long term, we should improve our external stability

  10. Who Has Been Affected? • As noted earlier, the industries which have received particular attention are those which form part of our infrastructure. • That is, we are looking to improve the efficiency of those industries which are used by many sectors of the economy.

  11. And That Means…? • Transport • Telecommunications • Banking and Finance • Postal Services • Utilities • Employment Services

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