Economic rationalism or rational economics

Paper given at State Youth Housing Conference, Sydney 4.12.1992

I have heard it suggested that economic rationalism is simply a form of economics based on the work of Adam Smith. The more extreme exponents of economic rationalism have suggested it is a comprehensive rational explanation which if we were to adopt it totally would ensure economic prosperity for all. It is after all the major intellectual underpining of the Liberal’s Fightback program. It was the basic analysis which gave rise to Reganomics, Rodgernomics and Thatcherism.

Economic rationalism is far more than an economic theory: it is the political agenda of the wealthy in this country and in Britain, New Zealand and the United States of America. It is the vehicle by which the powerful are intent upon transferring wealth from poor and middle classes to the rich.

The essential elements of economic rationalism are profit, micro economic reform, deregulation, removal of state control, free play of market forces, creation of allegedly level playing fields, competition, productivity/efficiency, privatisation, user pays principles, trickle down wealth, and personal provision.

What is missing from the dogma of the monetarists, supply-siders and others who gather under the rubric of economic rationalism is any conception of solidarity, mutual support, common ownership, altruism, social justice, and sharing the common wealth in the common good.

The inherent flaw in economic rationalism is that its enthusiasts deal with only half of the economic equation they concentrate upon what Karl Marx called the mode of production but, leave to one side the mode of distribution.”(1) That is, they deal with the processes of creating profits but leave to one side how those profits might be, distributed. With the exception of Milton Friedman” (2) who did some early work on guaranteed minimum incomes, they are content to suggest that wealth will be distributed throughout the economy by means of a trickle down effect. Well, any incontinent person can tell you your thighs are always wetter than your boots.

Just ask yourself, how can any country hope to maximise productivity or be efficient when it excludes from the workforce 25 percent of its citizens of working age.

Privatisation is the taking of that which we all own and selling it to one or a lesser number of individuals. The rationalisation usually given for doing it is that private firms are necessarily more efficient than governments. Those of you who believe that private firms are necessarily more efficient should read Julian Le Grand (3) but if he’s a bit heavy then have a look at Bob Hudson’s paper which examines at who pays and who profits when government community services are privatised.(4) Those of you who can’t be bothered doing that might just like to think of Pyramid, Elliot, Bond, Skase, Herscu and crew.

Like the family jewels, our common assets can only be sold once. A poet in England at the time of the enclosures realised this :

The law locks up the men and women
Who steal the goose from off the common
but leaves the larger villain loose
who steals the common from the goose.

Deregulation simply means the removal of government control. In the banking industry it led to Westpac losing one and a half billion dollars this year: the loss of the Victorian State Bank, a three billion dollar loss by the State Bank of South Australia. It did, however, make it easier for major drug dealers to ship their profits offshore for laundering. In industrial terms deregulation makes it easier for employers to exploit you.

The free play of market forces economic rationalists tell us is essential for wealth creation, productivity, competition and liberty. There is just one problem at this point in time: there are inequalities in power, wealth, capacity, etc. between firms and between countries; and, despite the Bible, no two people are equal and so there cannot be a level playing field, in the absence of regulation, which will not always advantage those with wealth and power.


Question:  What is the difference between competition and duplication?

Answer:  Competition is an essential ingredient of the capitalist system, it is the very foundation of commercial practise. It is to be found in every free enterprise system. It ensures consumers have a choice, and is the market’s way of making sure that inefficient enterprises either lift their game or go out of business. It is to be highly applauded.
Duplication occurs in the health and welfare systems. It is totally unnecessary, costly and inefficient. It is to be abhorred wherever it occurs.

In Australia when economic rationalists talk about personal provision they mean increasing the accumulation of most of the wealth in the hands of the top one percent of the population. When the working class talk about private provision they are talking about buying a home or superannuation. The increasing spread of superannuation down the income scale will impoverish the least well off and ensure the extinction of the aged pension at a rate which could sustain older people in modest comfort. Superannuation is a fraud perpetuated on the entire working class. It would not have been possible without the rise of an economic rationalist mentality.

Economic rationalism has brought us an economic miracle. We’re seeing the loss of full-time jobs replaced by low paid part-time jobs in the service industries – like tourism. We have 11 percent unemployment and a further 10 percent either under-employed or discouraged unemployed, the bulk of this unemployment circulating amongst the bottom 30 percent of the income scale. We have one of the lowest federal government international debt levels in the world, but maintain private foreign debt at dangerous levels. One in eight of our children live at or below the poverty line. Many people without any income are no longer guaranteed basic income support. The user pays principle has brought us tertiary fees. At ACTCOSS we call it the loser pays principle. The youth income support is paid at as low as 44 percent of the poverty line and just to make sure the young get a good dose of poverty, Hewson and the Liberals are promising those young Australians who do get a job a youth wage of $3 an hour. Yes,’ this is an economic miracle. It’s a bloody miracle we’ve let the economic rationalists do it to us.

Economic rationalism omits any commitment to social justice.

It’s the armless and the harmless
the senseless and the lame
who always pay the social cost
who always get the blame.

It’s the snivellers and the chisellers
the swindlers and the vain
ripping off the profits,
and it’s always been the same.

When I speak of social justice
you ask, ‘What will it cost us?’
Advance Australia fairly,
Advance Australia squarely,
and let us reach the further shore in the best way that we can.



(1) Tomlinson, J. ‘In Praise of Dry Economics’ in The Hunger of the Many fills the Bellies of the Few, ACTCOSS, Canberra, 1990.
(2) Friedman, M. with assistance of Friedman, R. Capitalism and Freedom, Uni of Chicago, Chicago, 1962.
(3) Le Grand, J., & Robinson, R. ‘Introduction’ in Privatisation and the Welfare State. George Allen & Unwin, London, 1984, pp.5~14.
(4) Hudson, R., Privatisation: Who Pays? Who Profits?, VCOSS Monograph 1992.
(5) Gregory, B. ‘The Future of Work, Paper given at ACOSS Congress, 1.10.92, Canberra.

See also
Manning, I. Maximising Employment: Report of an employment Task Force. Monograph John Langmore, Canberra, 1992.


Further reading

Vintila, P., Phillimore, J. & Newman, P. (eds.) Markets Morals & Manifestos, Institute for Science & Technology Policy, Murdoch Uni, Perth, 1992.