Economic growthis refers to the increase in real GDP per capita in one year. Economic growthis a key economic objective of any Australian government. However sustainedeconomic growth is concerned with continuing this economic growth for a longerper...

In effecting the supply of the industry, they are able to raise the actual productivity level to be reached. This creates the avenue of long-term productivity, thus long-term growth in this sector hopefully with a flow-on to other sectors. The end objective of implementing micro policies is to create a more efficient allocation of resources; with industries focusing on producing and supplying where they have a comparative advantage. This then serves to promote long-term economic growth throughout the entire economy, as resources are not wasted in inefficient resources.

This is the basis of the primary difference between most macro policies and micro policies. Macro policies aim to simply control any extreme effects of an economy in the short-term whereas micro policies actually raise the production capability of the economy through change, thus at any given point in the long-term greater economic growth is possible and evident. This is shown in figures 1.1 and 1.2.

The prime difficulty in micro management and implementation of micro policies is that it is a long-term action and thus it takes many years to see the effects and benefits on the Australian Economy. Mass microeconomic reform occurred in the ninety-eighties, and we are just recently seeing their impact on our Economy. However, even though micro policies take years in action - they are policy options that must be enacted to actually improve the Australian Economy for the long-term through an efficient allocation of the country's resources.

Most micro policies involve reducing government intervention in the specified market. The exceptions are labour market programs (which can include extensive training programs etc) and competition policies (policies that create a need for Australian government to control business behaviour). Deregulation of financial markets and foreign investment regulations, Corporatisation and Privatisation along with Enterprise Bargaining have been three of the biggest micro reforms in Australia that highlight that it's through micro policies sustained economic growth can be achieved.

Increased competition in a market is vital in promoting sustained economic growth as increased competition in a market spurs pressure on individual firms to increase productivity and generally lower their prices (basic law of demand - increased supply; decreased price Figure 2.1).

With this decrease in price and improved allocation of resources only efficient businesses in the market survive - ensuring that there is a higher aggregate supply and thus sustained economic growth (refer back to figure 1.2). Deregulation of both the financial markets and foreign investment regulations have proven this to be the case.

In deregulating both markets there has been an increase in competition - largely from overseas firms. This deregulation opened up the opportunity to borrow from overseas and to fund long-term projects that would generate employment etc in the future. Though we increase overseas debt levels through this deregulation, and more of our money (income and savings) goes overseas, we still benefit in the long-term through this micro policy through the essential increase in competition leading to an allocation of efficient resources. We gain a long-term increase in efficiency and productivity of banks and sources of funds, which assist in promoting sustained economic growth in the Australian Economy.

The micro policies of Privatisation ("Assets Sales" in budgetary policy - shifts controls from public sector to private sector then becomes part of micro management) and Corporatisation in Australia result in Australian businesses becoming much more efficient. The biggest impact is resources being allocated to more efficient individuals as opposed to inefficient government practices. Privatisation also allows for increased competition in the market, with the benefits being outlined previously. Australia's micro policy of privatisation included several industries, the most significant being the telecommunications industry. With Telstra partially being privatised, it was depicted that companies had to be more efficient to stay in the market which would thus promote sustained economic growth in the long-term as only efficient firms would survive providing employment, increased production etc.

Corporatisation (GBE's become more commercially orientated and function as private businesses) function in a similar manner, this policy promotes sustained economic growth, as the GBE must function as a business for the long-term. They must keep growth up, over the long-term as opposed to being government run where they aren't concerned about being efficient. Both micro policies of privatisation and corporatisation promote an emphasis on greater long-term efficiency of previous inefficient (sometimes-debated) government run departments.

The Workplace Relations Act 1996 was the last labour market reform, which introduced the micro policy of Enterprise Bargaining (EB). EB established the decentralisation of wages with employees negotiating their own wages and working conditions for a specified workplace. EB is a more indirect form of micro management then the ones previously explored in the allocation of efficient resources and EB is also another example of overlapping macro/micro policies. Labour is a highly important and expensive costs for most industries thus through EB the government strives to get more people shifting from inefficient industries to efficient industries, which should benefit the whole economy. Unions are important when looking at EB's effect on sustained economic growth in Australia with Unions being predominantly evident in inefficient industries (eg. PMV and TCF). Unions have traditionally battled against protection reductions that have been suggested, with the false economic argument of job losses; this has retained employees in these inefficient industries.

In the short-term EB does not seem to assist in promoting sustained economic growth, with the high social and economic costs of prospective job losses of employees in inefficient industries, as EB promotes the stepping away from union membership. EB however promotes sustained economic growth in the long term as in most cases employees shift from inefficient industries to efficient industries. By adding one of the most valued resources to efficient industries in Australia the Australian government can hope that the expected shift of a large percentage of labour would result in the productivity levels of the industries rising. EB also adds to sustained economic growth as wage increases are only guaranteed on a promise of productivity increase, this is an incentive to be a more efficient employee. EB in the long-term strives to allocate the resource of labour efficiently, raising the productivity of the Australian Economy for the long-term, which is the fundamental objective of all micro policies.

As noted an increase rate of productivity is the desired outcome of micro policies - ensuring sustainable economic growth. Evidence of the success of Australia introducing micro policies in the eighties is emerging now, nearly a decade after implementation. Measurement of the productivity levels of Australia pre micro policy and post micro policy can be compared to show that micro management though slow does ensure sustained economic growth. The rate of productivity grew at an average rate of 0.8% in the 1980s whereas the average rate of productivity increased to 1.6% in the early 1990s (post recession). The Industry Commission suggests that the most important factor to contribute to this improvement is the reform of public utilities - testament to the fact that micro policies promote sustained economic growth.

The Howard Coalition of 1996 to present has been criticised for not implementing a sufficient amount of micro policies but rather choosing to focus largely on macro policies. This criticism is made because it's been noted that micro policies and micro management are truly the catalyst for sustained economic growth with the greater part of macro policies being used to stabilise the aggregate level of economic activity in the short-term. If the Howard government, or any government of Australia wishes to promote sustained economic growth in the Australian Economy they must implement forms of both macro and micro policies but with an enhanced focus on microeconomic management.

Preston Patrick

Year 12 Economics (McQ)