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The strange irrationality of neo-liberal economics

By John Tomlinson - posted Wednesday, 2 September 2015

Neo-liberal economics has travelled under many names since the late 1970s. Throughout most of the 1980s in Australia its supporters proudly called it economic rationalism implying that neo-liberal economics was not only sound but rational. Their promotion of economic rationalism often went so far as to suggest it was the font of all wisdom.

Many strange bedfellows were swept up in the rise of neo-liberalism at the expense of Keynesian economics that had prevailed between the late 1930s to the mid-1970s. People began talking about the Natural Rate of Unemployment (which was invariably claimed to be about, or slightly above, the existing rate of unemployment). As a result the government of the day was absolved from having to do anything about lowering the high rate of unemployment because it was the natural rate - almost God given.

The essence of neo-liberal economics was the belief that governments should not interfere in anyway with the invisible hands of the market. Few questioned the mental health of those who spoke of the invisible hands and those who had not seen them dared not question what mechanisms or actors controlled such unseen hands. People everywhere spoke glibly about the importance of level playing fields.


Keynesian economics had, like most previous economic thought, come imbued with a series of ethical and moral precepts. But the late 1970s until well into the first decade of the 21st century was a time when post-modernism held sway. Morality, if raised at all, was considered relative, never absolute. Almost anything could be justified from one perspective or another.

Neo-liberal economists wanted to weaken or dismantle the welfare state because, to them, it was an impediment to the unfettered enterprise of the entrepreneurs who somehow were going to prosper and their wealth would consequently trickle down to the poor. Clichés abounded about rising tides lifting all boats. When a small amount of liquid falls from a great height most of it evaporates before it reaches the bottom.

Some neo-liberals intensified their attack on the welfare system by returning to 14th century beliefs about the propensity of less affluent people to malinger or shirk from employment. They simultaneously argued that whilst industrial and commercial arrangements needed to be unregulated but in order to avoid the slothfulness of the poor, any welfare provided to them had to be more highly regulated than in the past.

The Howard government, tightened eligibility first on the unemployed and single parents before moving on to cancel payments to about a third of disability support pensioners and shifting them to Newstart benefits or other lower paid benefits. It suspended the Racial Discrimination Act in order to force Aboriginal people living in remote Northern Territory communities to receive half their social security by way of a credit card which could only be used to purchase approved goods. The Rudd, Gillard, Rudd, Abbott governments all followed in Howard's mean-minded footsteps. In the run up to the 2014 Budget the Treasurer couldn't find sufficient opportunities to tell Australians that the age of entitlement was over.

The ascent of Keynesian economics had coincided with the expansion of unions and increased egalitarianism. Not surprisingly neo-liberal economists sought to have the power of unions curbed because it interfered with the perquisites of the bosses. First Fraser attacked the union movement generally but the Royal Commission into the Painters and Dockers turned round to bite the bosses on the bum. Hawke followed with his attacks upon the Builder's Labourers and commercial pilots.

Howard's ferocious assault on unions was at first very successful but when he got control of both the House of Representatives and the Senate the extent of his hatred of working people's organisations was revealed. His Work Choices legislation was so unfair that the Australian Council of Trade Unions was able to mount such an effective campaign that the Coalition was removed from office and Howard lost his seat.


It was John Dawkins, Minister for Education in the Hawke Labor government, who had received a free university education at the University of Western Australia who adopted one of the "user pays" arguments of the neo-liberals. He reimposed university fees under a scheme that allowed students to defer payment until they graduated and were earning a decent wage. It was obvious then, as it is now, that the imposition of fees discourages some from proceeding to higher education.

The neo-liberal argument in favour of imposing educational fees was that because students personally gain from such education it is unfair to expect the State to pick up the tab. So now students leaving university have substantial student tuition debt. Changes the Abbott government is attempting to introduce could see some students leaving university with debts of $100,000. This means many can't afford to put a deposit on a house, set up a family or engage in more education.

The failure to maximise every person's capacity to engage with education to their fullest capacity limits his or her individual life chances, but more importantly, it cripples the productivity of the nation. Australia can't remain a coal and iron quarry forever its only chance to compete with Asia is to become a clever value-adding country. We can't dig our way to the future we have to think our way there.

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About the Author

Dr John Tomlison is a visiting scholar at QUT.

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