CHARLES STURT UNIVERSITY

Faculty of Education

How Australias modern economy has been shaped

STUDENT: Nathan Carter STUDENT ID: 11208789 SUBJECT: EEP440 VET in the economy and society ASSIGNMENT: 1 COURSE: Graduate Diploma in Vocational Education and Training Spring Session 2006 NOTES:

Table of Contents
Introduction...........................................................................................................1 A globalised Australian economy...........................................................................1 What has influenced these changes?.................................................................4 How far can and should VET respond to the globalisation challenges?..............5 Economic change through Labour Market deregulation........................................6 What has influenced these changes?.................................................................8 How far can and should the VET system respond to the deregulated labour market?..............................................................................................................8 Conclusion.............................................................................................................8 Bibliography.........................................................................................................10

How Australias modern economy has been shaped

Introduction
Over the past 25 years, the economy in Australia has undergone massive transformations in order to make it open and less regulated. This paper will explore two of those changes the shift towards a globally centred economy and the deregulation of the labour market. Each change will be discussed and followed by a discussion of what drove the change and how the VET system should respond.

A globalised Australian economy

Mitchell & Bessanese (2003) argue that the Hawke-Keating governments, which held power in Australia from 1983 until 1996 changed the Australian economy forever when they opened it up to international competition. I would argue that this transformation heralded the beginning of globalisation in Australia. While the precise definition of globalisation remains disputed, I agree with Holm & Sorensen (in Snarr,2005:2)that globalisation is the intensification of economic, political, social and cultural relations across borders. In the realm of economics, this means that a globalised economy has the ability to trade labour, resources and capital relatively freely. Those supporting globalisation claim it will make the most efficient use of resources, spread wealth and foster peace through international co-operation and interdependence (World Bank, 2001; Moon, 2005). Those opposing globalisation claim the opposite is happening. They believe the only ones to benefit from the globalisation process are capitalists, who are getting richer while the poor are getting poorer (Snarr, 2005; Moon, 2005; WTO, 2006). This brings us to the question. If the Hawke-Keating governments began the transformation to globalisation in Australia just how did they do it? Australia had long been part of the international economy as an exporter of primary materials, whose prices were largely set by international markets (McEachern, 1991). Another large sector in the Australian economy Page 1 Nathan Carter (11208789)

How Australias modern economy has been shaped manufacturing had also long been built upon foreign investment (for example, the automotive industry) protected by high import tariffs. Following the oil crisis of the late 1970s, governments form both ends of the political spectrum began to realise that Australias economy had to be restructured in an effort to make it competitive internationally (McEachern, 1991). Unfortunately little was done in this regard until the election of the Hawke government in 1983. Despite typically being seen as socialist, the Labor party began to dismantle international barriers in much the same way as the conservative Thatcher government of the United Kingdom. Most of this dismantling came in the form of deregulation, privatisation and the introduction of competition. It could be said that the Hawke-Keating governments were the first to embark on the creation of a global economy in Australia. The first move towards a open economy in Australia came in late 1983 when the Australian dollar was floated on international currency markets, ending the system where it was centrally controlled by the federal government (Taylor, 1993). This was the first of a number of initiatives to dismantle Australias centrally planned economy, public ownership and financial regulation (Kitney, 2003) all characteristic of a globally centred economy. The reform that followed was that of financial deregulation. Prior to the change, Australias banking system was grossly inefficient and ignored international competition. Major bankers in Australia seemed to be interested only in gaining increased market share with little regard to anything else. Following deregulation, banks found themselves in a climate of renewed competition and had to only provide credit to profitable sectors of the economy at a lower overall cost (Mitchell & Bassanese, 2003). These two reforms, which had already subjected parts of the Australian economy to international forces were followed by a decrease in average trade tariffs, further opening the Australian economy to global competition (Willis, 2003). Page 2 Nathan Carter (11208789)

How Australias modern economy has been shaped

Industries within Australia which had primarily been competing domestically, found themselves in an environment where they were forced to compete on the global stage. Australian companies had to increase efficiency to compete with lower-priced imports. Australian companies began to learn the hard lessons of the market economy that how and where resources are used depends on consumer demand (Moon, 2005; Edwards, 2002). At the same time, deregulation proceeded to reduce government interference in most sectors of the economy in order to foster international trade and investment. These changes can best be seen within the airline industry, where long standing policies allowing only two airlines to operate in Australia and protection of QANTAS international routes were abolished (Davies, 2003). Increased competition within the Australian economy presented yet another interesting problem for the government how to achieve the same efficiencies within government owned enterprises? Australia followed the UKs lead by subjecting them to privatisation and increased competition. The government sold its international airline QANTAS and the Commonwealth Bank. The federally owned telecommunications company (then Telecom) as well as other public utilities were subjected to competition. It was thought that this process would reduce government interference in markets and create a more efficient public sector. Seeing competition as beneficial to the way the government operates, a National Competition Policy was introduced in 1995. The NCP subjected the public sector to the same market power and price fixing rules as the private sector. No longer were public monopolies protected. Private companies were given the opportunity to compete directly with their publically owned competitors and given equal access to infrastructure (NCC, 2006). With globalisation, Australian consumers have also seen a shift towards international standardisation. Companies now produce the same goods for many Page 3 Nathan Carter (11208789)

How Australias modern economy has been shaped different markets. The location goods are produced depends on the value the company gets from its resources. This trend is most evident when we walk into a fast-food restaurant such as McDonalds. The Big Mac we are getting in Australia is the same as the one someone is getting in the United States. We can also know that with other industries following suit, we can purchase a Ford Focus in Germany which is virtually the same as the one available in Australia. Reduced import tariffs have also caused a shift in corporate sourcing habits. Many industries now produce goods in a few countries, but source or produce components for these goods in another. The Australian car industry provides us with one such example. Companies often produce engines in a different country to where the cars body is built. This allows for economies of scale by having a dedicated engine plant servicing a number of body plants. We also see manufacturers sourcing components which are difficult or too expensive to produce themselves from other countries where they can be made for a fraction of the price (Uhlmann & Dawson, 2006). This aspect of globalisation presents problems for Australia. How can our workers compete when countries such as China have labour available for $30 per month? (Uhlmann & Dawson, 2006) What will happen if our industries can not compete internationally? Where should Australia be concentrating its resources? In order for Australia to be successful in the global economy, it needs to build upon its strengths and reduce its weaknesses (allowing our weaknesses to be serviced by someone else). What has influenced these changes? The economic changes surrounding the change to a global economy in Australia have been primarily influenced by the Australian government itself. While the oil crisis and subsequent recession of the 1980s showed that Australia needed to compete internationally, it was the government which drove the economy towards internationalisation. Australias richest economic sector has traditionally been the primary industries which had long been subject to international markets. The prices our producers received for their goods was largely set by markets outside of Australia itself. Page 4 Nathan Carter (11208789)

How Australias modern economy has been shaped

Following the 1970s oil crisis it was obvious that Australia had to change its economy radically in order to remain competitive (McEachern, 1991). I would argue that the government most likely saw the success of the primary resources sector as riding upon the variability of world markers and decided to open the entire economy up to these potential benefits. What followed were structures that set Australia up to compete in the global economy. Australia could not export goods internationally while retaining the protectionist regimes which restricted imports. At the same time, Australia had to encourage foreign investment in order to grow. To get this investment into the country, the economy had to be seen as a place of opportunity, be open and competitive. How far can and should VET respond to the globalisation challenges? The VET system in Australia is in a unique position at present. Despite being seen by many as a system which prepares the working-class for work (Anderson, Brown & Rushbrook, 2004), the VET system is in the position to respond to changes in the make up of Australias workforce due to its flexibility. As industries in which Australia competes in changes, so do the training and education needs of the general population. To do this, we need a system which can readily adapt to change. The VET system needs to identify potential opportunities and encourage training in these opportunity areas. This will help Australia exploit new opportunities and compete within them. Certain industries will decline, while others emerge. To be competitive, Australia needs to identify the emerging industries in which it can be competitive and invest in the human capital to them. To do this may require radical change, something only the VET system may be able to adapt to.

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How Australias modern economy has been shaped

Economic change through Labour Market deregulation

While the deregulation of the Australian labour market could be seen as part of the shift towards a globally-centred economy in Australia, I feel that the topic deserves its own consideration. Throughout Australian history industrial relations have played an important part in our economy and politics (Pickersgill, 2006; Wikipedia, 2006a). Australians were the first to successfully campaign for a eight hour working day and the first to elect a labour government. The influences of industrial relations can be seen in the regulatory structures which characterised the Australian industrial relations system until recently. In the years leading up to the recent industrial relations changes, Australia and New Zealand had a unique industrial relations system which centred on government provided arbitration (Pickersgill, 2006; MacIntyre in Campbell & Brosnan, 1999:2). Throughout the rest of the developed world, governments supported a system of bargaining centred around legislated minimum requirements, but did not provide any means for arbitration when these negotiations failed. The system seen in Australasia pivoted heavily on industrial awards legally binding contracts between employers and their employees. Awards specified the minimum standards for workers and were arbitrated or certified before industrial tribunals (Pickersgill, 2006; Campbell & Brosnan, 1999). As international dependence increases, it has been said that traditional industrial relations systems are failing (Macdonald, 1997). Campbell & Brosnan (1999) support this assessment and claim that in order to remain competitive, nations must foster a flexible workforce. While the Howard governments Workchoices legislation is seen as the most radical changes in Australian industrial relations history (Pickersgill, 2006), the Australian labour market has been changing progressively since the late 1980s.

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How Australias modern economy has been shaped According to Campbell & Brosnan (1999), the Hawke-Keating governments began modifying the industrial relations system in Australia by encouraging a shift from collective bargaining (affecting all companies in an industry) to enterprise bargaining (Wooden, 2000). This shift was mirrored throughout the developed world in the late 1980s, driven by the belief that economic environments were varied and affected individual enterprises in different ways (Erickson & Kuruvilla, 1998). This new era of industrial relations was accelerated with the election of the Howard government in 1996. The new government reduced the number of statutory award conditions and began encouraging individual bargaining through Australian Workplace Agreements (AWAs). These AWAs allowed for employers to negotiate employment terms and conditions directly with employees, reducing the need for collective agreements (Pickersgill, 2006). Critics claimed that the government was attempting to push employees out of the award system (Campbell & Brosnan, 1999). From 1996 until 2006, these AWAs were not allowed to undercut award conditions as they were subject to a no disadvantage test. The idea was that an employee under an AWA should not be worse off than an equivalent colleague under an award (Peetz, 2005). In 2006, the government implemented its Workchoices package, which centres on AWAs. The industrial relations system which has served Australia for many years has been effectively dismantled. Under the new system, the number of statutory award conditions have been reduced, unfair dismissal protection applies only to those working for organisations with more than 100 employees, union power is limited and industrial action is restricted (Peetz, 2005; Wikipedia, 2006b). All corporations will be subject to the new federal system, where the Australian Industrial Relations Commission will play a reduced role. Minimum standards will be set by a Fair Pay Commission and agreements certified by the Office of the Employment Advocate. The AIRC will essentially become a tribunal of last resort when negotiations fail.

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How Australias modern economy has been shaped The changes signify a shift to a deregulated labour market, where power is given to employers. The government will play a reduced role, subjecting the system to market forces in much the same way as the rest of the economy. What has influenced these changes? It is hard to identify exactly where the forces behind labour market deregulation in Australia have come from. One could argue that it was a natural progression from the Hawke-Keating governments opening of the Australian economy. On the other hand, one could argue that the changes have been driven by international market forces. What is certain is that in the face of cheap labour from developing countries such as India and China, Australia had to do something to make our labour market more competitive. With deregulation working elsewhere in the economy, it would appear logical to apply those same principles to the labour market. As capital moves in order to take advantage of cheaper labour resources, labour is relatively immobile, confined to a localised area (Macdonald, 1997). The Australian labour market had to become flexible in order to provide opportunities for its workers. How far can and should the VET system respond to the deregulated labour market? As Australia and the rest of the world move to a labour system centred on individual contracts between employers and employees (McGoldrick & Stewart, 2003), the VET system needs to ensure that its graduates have the skills needed to negotiate. Employees who can not negotiate fair terms with their employer are likely to be exploited. The VET system also needs to ensure that it continues to provide additional opportunities for workers through increased training so that they are best placed in the flexible labour market.

Conclusion
It must be noted that these changes have changed the Australian economy for the foreseeable future. No longer can we see our nation as an isolated island in

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How Australias modern economy has been shaped the South Pacific, reliant only upon our own economy but as a responsible and competitive player in the global market. The key to being flexible in the global marketplace is flexibility. The Australian economy needs to be able to adapt to the challenges that lie ahead. The HawkeKeating governments set Australia up for the challenge, we are now required to continue to take it. While market economics dictate that capitalists will move around to make best use of resources, it is clear that industries will rise and fall. These changes will effect both our goods and services markets as well as the labour market. In order to survive economically, we need to quickly adapt to these changes and ensure we have the right resources when new opportunities arise.

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How Australias modern economy has been shaped

Bibliography
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How Australias modern economy has been shaped Pickersgill, R 2006, VET in the economy and society, Module 1, Charles Sturt University, Wagga Wagga. Snarr, M 2005 Introducing Globalization and Global issues, in M Snarr & D Snartr (ed), Introducing Global Issues, 3rd ed, Lynne Reinner, Boulder, Colorado, pp. 1-12. Taylor, L 1993, Labor in Power (Television Program), Australian Broadcasting Corporation, Sydney. Uhlmann, C & Dawson, A 2006, Rocky Road, About the House: Issue 28, pp.3235. <http://www.aph.gov.au/house/house_news/magazine/ath28_road.pdf> Willis, E 2003, The economy: A perspective from the Inside, in S Ryan & T Bramston (ed), The Hawke Government: A critical retrospective, Pluto Press, Melbourne, pp. 139-156. Wikipedia 2006a, Australian labour movement. http://en.wikipedia.org/wiki/Australian_labour_movement. Accessed September 15, 2006. Wikipedia 2006b, WorkChoices. http://en.wikipedia.org/wiki/WorkChoices. Accessed September 15, 2006. Wooden, M 2000, Industrial relations reform: Do the critics have a case?, Institute of Public Affairs Review, vol. 52, no.3, pp. 14-15. World Bank Group, 2001, What is globalisation in J Healy (ed), Issues in society, Spinney Press, Sydney, pp. 1-3. World Trade Organisation (WTO), 2006, Trade liberalisation statistics. http://www.gatt.org/trastat_e.html. Accessed September 14, 2006.

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