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INTERVIEWS
WITH ECONOMISTS
PETER
KENYON
Professor
Peter Kenyon
is the Director of the Institute for Research into International
Competitiveness at Curtin University of Technology in Perth, Western
Australia. His research interests include labour economics, macroeconomics
and Australian and international economic policy, and he has published
widely in these areas. Peter has also conducted a large number
of consultancies and contract research projects for a wide variety
of government and private sector clients.
Do you
believe that economic reform towards free-market capitalism paves
the way to economic growth?
In general,
yes I do. Economic liberalisation frees up resources to move to
their most efficient uses. In particular, the opening of the economy
to international trade through the removal of tariff barriers
and other impediments to trade allows countries to develop their
comparative advantage, so that resources will flow into internationally
competitive industries rather than being bottled up in inefficient
industries sitting behind protected walls. In addition, openness
to trade and reliance on markets paves the way for new ideas and
the introduction of new and better technology.
However, I
would add a caveat. Countries must at the same time ensure that
their macroeconomic policies deliver something like full employment
and a fair distribution of the proceeds of increased growth. Sometimes,
the fashion is to pursue fiscal and monetary conservatism and,
at the same time, market liberalisation with little regard for
the distributional or adjustment consequences. If the economy
slips into unemployment or the benefits of growth are not widely
spread through the economy, it will be difficult to persuade ordinary
working people about the benefits of market capitalism. There
can be too little as well as too much state intervention in the
economy.
Today we
observe different economic conditions in China and Russia. Why
is it that China is in better shape when Russia has been more
vigorous in implementing reforms towards free-market capitalism?
Market capitalism
cannot be imported into non-market economies overnight. I think
this was the problem in Russia. To be successful, market capitalism
relies crucially upon a complex set of institutions and practices.
These include a stable and enforceable system of property rights,
including clear rules about corporate governance, an adequate
and enforceable system of taxation, good accounting practices
(including a system of regular reporting and auditing), a stable
monetary and banking system, and so on. When the former USSR broke
up and its countries embraced market capitalism, these pre-conditions
in many cases either did not exist or were in a very rudimentary
state. As a result, the introduction of free markets led to a
lot of abuse — the Russian Mafia, extortion, the non-payment
of wages and other accounts, asset stripping and all the rest.
It must not be forgotten that it took Western capitalism over
three hundred years to develop the necessary institutions and
rules to make capitalism work, and these rules are still evolving.
So the Chinese method of ‘hastening slowly’ might turn
out to be the better path to transition. The problem, of course,
is that state control may be too great, with the consequent appalling
abuse of human rights, which we hear about all too often.
Do you
think that China will end up in a similar economic state to Russia?
No I don’t.
I believe that the lessons from the former USSR states are being
absorbed. I am more worried about the political state of China
and whether it has the courage to liberalise its politics at the
same time as it is liberalising its economy.
At the
November 1998 APEC meeting there was a clash between the United
States delegation, which insisted on a continuation of the reform
measures, and the delegations from Asian countries, which wanted
to implement regulation in response to the economic crises in
their countries. Can you comment on this clash?
I am a firm
believer in the proposition that there is not a single model for
all countries. Economics is far too complicated for a single model
to apply to all countries irrespective of their stage of development
or the specific factors affecting their economies at any point
in time. The current crisis affecting many Asian economies is
very complex and each country has its own set of problems. It
is simply stupid to say that a single package to control government
spending, restructure the financial system, restructure debt problems
and proceed as quickly as possible with market liberalisation
applies to all situations, even if the result is mass unemployment
and close to zero investor and consumer confidence. More imagination
is required. This just may mean a little more regulation, a little
more government intervention, particularly in the macroeconomic
sphere, and even some control of capital flows.
Victoria
has been the most enthusiastic Australian State in terms of reform
and privatisation. Do you think this tendency has led or will
lead to better economic performance in Victoria, compared with
other States?
In a nutshell,
no. The performance of Victoria is inextricably bound up with
the economic performance of Australia as a whole over the long
haul. Australia is a single market with a single currency and
so it is impossible for any State to remain significantly better
or worse off than any other State. Having said this, in the short-run,
State policies do matter. In my opinion, although the Victorian
Government has enthusiastically privatised public natural monopolies
by replacing them with private monopolies, with no clear welfare
gains to anyone save the new asset owners, it has also reduced
public sector employment and services dramatically and has created
a lot of unemployment, with obvious welfare consequences. Also,
economic performance and welfare is more about the structure of
incentives than the structure of ownership. To repeat, there can
be too little as well as too much State intervention in the economy.
It is a fine balance.
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