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What is “reform”?

February 18, 2010

Apparently, “reform” is a good thing. Commentators tell us that Australia went through some important economic reforms in the 1980s & 90s which helped Australia achieve stable and high economic growth. And sometimes we are told that we need another “round of reform”. The government insists that they want to give us more reform. And lots of lobby groups insist that they want to see a “third wave of reform“.

So it looks like we all agree.

Not quite.

The problem is that the word “reform” is neither good nor bad, and really tells us nothing about a policy change. Just because Mugabe’s policies were called “land reform” that doesn’t make them good. What matters is the direction of the reform.

The successful reforms of the 80s & 90s were “liberal reforms” that improved market flexibility and reduced government distortions. Unfortunately, the main elements of those reforms (tariff cuts, privatisation, greater bank freedom, relaxed labour markets, inflation targeting, more foreign investment) have never been politically popular. Politicians don’t get elected if they say they will reduce bank regulations and allow more imports… but they know it needs to be done (or at least they did 20 years ago).

So the chatterati use a new word for this agenda — “reform” — which is meaningless and so it is harmless. And the good outcomes caused by “those-policies-that-dare-not-speak-their-names” are attributed to this magical and abstract word. The consequence is that punters are able to say something like

“oh, I support reform because it has worked so well… but I don’t want any of that nasty privatisation, labour market flexibility, reduced subsidies, or lower bank regulations.”

In other words, people don’t give credit to the policies that work, and instead they give credit to a generic buzz-word. That buzz-word can then be attached to any old government policy to make it look like it will produce a good outcome. Or better yet… saying the word “reform” can be used as a substitute for actually having a policy.

For example, the current government has said they want to pursue another round of reforms. This has included “biggest reform to business innovation in over a decade“, which turns out to be changing the R&D tax deduction into an R&D tax credit. Wow. There is reform to improve productivity, which amounts to spend, spend, centralise & spend. They are keen for some health reform. Over two years later and still no details yet… just the word “reform”. And their much-hyped education reform was basically just another bucket of money.

There has been precious little suggestion of any more of the “liberal reform” that actually produced the good outcomes that we seek… and indeed the Rudd government has wound back some of the labour market reforms, given mixed signals on foreign investment and loudly decried the evils of “neo-liberalism” (which presumably means “liberal reform”).

Australia does need more liberal reform. Our tax and spending rates are too high, the federal government has centralised too much power, businesses are still over-regulated, we need competition for basic health services and universities, the labour market needs to be more flexible, there’s too much middle-class welfare, and barriers remain on foreign trade & investment.

Instead, we are being offered ever-bigger government and a buzz-word.

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