The gendered Austrian economic agent goes to market

Below is an extended copy of a presentation I delivered to the 2008 Centre for Independent Studies Advanced Liberty and Society rountable on an Austrian economic perspective of feminist economics.

Introduction

Feminist insights have been applied to a growing number of social sciences since the 1960s, such as anthropology, history, law, literature, philosophy, political science and sociology. By contrast, an explicit feminist scholarship, in the form of ‘feminist economics,’ has made a relatively late entry into the economics discipline.

In general terms, feminist economics aims to assess economics through a feminist lens ‘for the purpose of improving women’s economic condition’ (Strober 1994: 143). A major objective of this school is to illuminate the biases that ‘have privileged either men as subjects or ways of knowing that are valued because they are associated with social conceptions of masculinity’ (Horwitz 1995: 259) in economic theory and policy.

Feminist economics, neoclassical economic agency and market competition

Neoclassical economic thought is based on the model of a rational, autonomous, self interested agent that makes optimising choices subject to exogenously imposed constraints. This agent is commonly referred to as the ‘rational economic man’ or ‘homo economicus’.

Many critics suggest that this neoclassical construct departs from the economic behaviours observed in real people. Feminist economists have gone a step further to suggest that homo economicus represents a privileged, masculine view of the economic order, to the exclusion of feminine characteristics such as connectivity, altruism and emotion (Table 1) (Strassmann 1993; Barker 1995; Grapard 1995; Nelson 1995; Barker 1999; Hewitson 1999; Jennings 1999; Nelson 1999; Nelson 2001; Nelson 2005). According to these theorists, the implied masculine meanings associated with rational economic man are accorded higher status in economic theorising.

Table 1: Selected conceptual dualities identified by feminist economists Masculine – Feminine Man – Woman Individual – Society Public – Private Market – Family Production – Reproduction Money – Love Competition – Cooperation Exchange – Charity Autonomy – Dependence Self-interested – Other-interested Preferences – Needs Separation – Connection Rationality – Emotion Source: Nelson 1996, Jennings 1999.

Other aspects of neoclassical theory have come under scrutiny. For mainstream economists, market competition is desirable as it yields an efficient configuration of scarce resources throughout an economy. For some feminist economists, however, competition conjures up negative images of fighting and conflict, aggressiveness and manipulation. Competition is also seen to be propelled by a drive to win and the possession of killer instincts by market participants (England 1993; Horwitz 1995; Walker et al. 2004).

In her analysis of US economic history, Julie Matthaei describes the emergence of a ‘capitalist patriarchy’ where:

‘… competition pervades the masculine economic sphere. Capitalists compete with other capitalists for greater market shares and profits, and compete with their workers over the wages to be paid. Workers compete with other workers for jobs, and for promotions. The new ideal for men becomes struggling to advance oneself in the “dog eat dog” economic world, in which everyone is out to get you’ (2000: 5 6).

Not only does competition reflect certain kinds of behaviour attributable to men, but it also tends to harm women’s economic interests. According to Strober (1994: 145), ‘since women are disproportionately represented among the “have nots,” women stand to benefit from a world view that is less centrally focussed on scarcity, selfishness and competition.’

While feminists differ on the details, many share a general view that economists should promote studies of agency and behaviour ‘with an eye to their social and institutional character’ (Nelson 1996: 33). Deirdre McCloskey, for example, proposed the development of a ‘conjective’ economic approach that is ‘neither masculine or feminine but would be a human science in the pursuit of human ends’ (McCloskey 1993: 76). As part of these endeavours, economists ‘should stop treating cooperation and competition as dichotomous and start asking intelligent questions about how much of each works best under which conditions’ (Strober 2005: 269 270).

An Austrian economic perspective on feminist concerns

The Austrian school of economics – associated with Carl Menger, Ludwig von Mises and Friedrich Hayek – share with feminist economics a number of criticisms of neoclassical theory: ‘many aspects of the feminist critique of neoclassicism and the attempt to rehabilitate a real, acting subject have strong parallels with modern Austrian economics’ (Horwitz 1995: 265).

As part of this, Austrians reject some fundamental tenets underpinning the homo economicus concept. In particular, they emphasise the existence of agents with imperfect, idiosyncratic knowledge and subjective tastes, which need to be discovered and communicated to promote economic functioning. The favouring of these attributes of economic agency by Austrians represents a move away from rational economic man, not unlike that pursued by feminist economists.

An acceptance of the Austrian position has significant implications for the way one thinks about economic problems:

‘… The economic problem of society is … not merely a problem of how to allocate “given” resources – if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how best to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality’ (Hayek 1945: 520).

For Austrians, the competitive market system – underpinned by freely chosen prices and institutions such as property rights – most effectively directs economic resources to their most highly valued uses. Far from seeing it as a fearsome (masculine) struggle for economic supremacy, Austrians see competition as a procedure by which social cooperation is achieved:

‘… The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody’s actions aim at the satisfaction of other people’s needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens. Everybody, on the other hand, is served by his fellow citizens. Everybody is both a means and an end in himself; an ultimate end for himself and a means to other people in their endeavors to attain their own ends. This system is steered by the market. The market directs the individual’s activities into those channels in which he best serves the wants of his fellow men’ (Mises 1949 [2007]: 257).

In a similar vein, Hayek famously described ‘the order brought about by the mutual adjustment of many individual economies in a market’ (1976: 108 09) as a process ‘not only ‘to exchange’, but also ‘to admit into the community’ and ‘to change from enemy into friend’’ (1976: 108).

To be sure, the economic prosperity derived from the ‘complex interactions of many, many separate individuals (male and female, married or single, parents or childless, selfish or emotionally connected)’ (Vaughn 1994: 311) is the unintended product of human action but not of design. Nonetheless, the discovery procedure of the market effectively breaks down the competition cooperation distinction expressed by feminists.

The female entrepreneur as a gendered Austrian economic agent

In their efforts to describe an acting economic subject, Austrian economists also stress the importance of entrepreneurial behaviour in shaping market processes. One account describes the essence of entrepreneurship as alertness to previously unnoticed profit opportunities (Kirzner 1973). Another interpretation sees entrepreneurial actions involving ‘creative destruction,’ where established ways of ordering the economic environment are displaced in favour of new configurations (Schumpeter 1943).

While the Kirznerian model seems more benign than Schumpeterian creative destruction, Austrians would tend to see both types of entrepreneurial behaviour as complements to each other – the former responds to change whilst the latter creates change (McNulty 1987; Walker and Joyner 1999).

In a similar way to their criticisms of market competition, some feminists associate entrepreneurship with aggressive, masculine behaviour to accumulate profits at the expense of other economic agents (Stevenson 1990; Jonson Ahl 2002; Lewis 2006). Austrians would respond by suggesting that entrepreneurs are pivotal in delivering the broader social cooperation that competition generates. Indeed, the identification, and elimination, of economic inefficiencies, waste and error by entrepreneurs is a service of great benefit to all market participants.

The feminists’ admonition of the entrepreneur also seems increasingly irrelevant as more women themselves become entrepreneurs. In June 2004, there were about 529,000 women operating their own small business in Australia (or about one third of total small business operators). The growth in the number of new businesses established by women exceeds that commenced by men.

Female entrepreneurs are also becoming more prevalent across more sectors of the Australian economy. While past employment has an effect on the choice of industry in which the entrepreneur establishes a venture, about 25 per cent of women surveyed in a 2000 study established businesses in traditionally male dominated mining, manufacturing, construction, wholesale trade and transport activities, even though about 9 per cent of surveyed women had direct experience in these sectors (Bennett and Dann 2000).

Finally, surveys indicate that there is a spectrum of motivations expressed by female entrepreneurs that may confound stereotypes. Bennett and Dann (2000) found that women’s motivations for starting a business were motivated by internal needs – such as self fulfilment, independence and the need to achieve – as well as financial gain. A 2004 survey of businesswomen in rural and regional areas found a variety of objectives for starting and operating a small business. These included an ‘opportunity to start a unique business,’ having ‘more control’ over one’s life, to ‘learn new things’ or ‘to fulfil a dream’ (RIRDC 2004).

Some studies suggest that men tend to share similar underlying aspirations reported by female entrepreneurs. An analysis by Walker found ‘there are more similarities than differences between women and men and their motivation to become self employed’ (2004: 11). Despite some gendered differences, for example on work family balance, Bowman (2006) also concluded that the women and men surveyed in her study had similar motivations for doing business. While not all studies share these views, there appears to be sufficient evidence to question some of the feminist economists’ negative portrayal of entrepreneurship.

Conclusion

A cursory analysis of alternative politico economic systems, or of economic history, illustrates that market capitalism – with freer markets and more limited governments – provides the best environment for improving the economic status of women (and men). Even in the face of such evidence, however, a number of feminist economists retain strong anti capitalist sentiments.

While Austrian economic perspectives are not predicated on gender lines per se, it seems capable of accommodating the economic implications of a gendered world: ‘the Austrian approach accepts cultural phenomena, such as gender identities, as important in the construction of individuals’ plans of action’ (Waller 1995: 20). If feminism is about choice, as described recently by Brown (2008), then Austrian economics could be a most useful tool when exploring issues concerning women.

The Austrians’ emphasis on institutional comparisons could also help feminist economists develop a better appreciation of how competitive market capitalism emancipates women. Ludwig von Mises provided an early example of such analysis when he stated that:

‘… So far as Feminism seeks to adjust the legal position of woman to that of man, so far as it seeks to offer her legal and economic freedom to develop and act in accordance with her inclinations, desires, and economic circumstances – so far it is nothing more than a branch of the great liberal movement, which advocates peaceful and free evolution. When going beyond this, it attacks the institutions of social life under the impression that it thus be able to remove the natural barriers, it is a spiritual child of Socialism’ (Mises 1920: 101).

It is hoped that further exploration of the issues presented in this paper will highlight the intellectual possibilities of reorienting feminist economics – including views on economic agency and market competition – through an Austrian economics lens.

References Barker, Drucilla, 1999, ‘Neoclassical Economics’, in Lewis, Margaret and Peterson, Janice, eds., The Elgar Companion to Feminist Economics, Edward Elgar, Cheltenham (UK). Bennett, Rebekah and Dann, Susan, 2000, ‘The Changing Experience of Australian Female Entrepreneurs’, Gender, Work and Organization 7 (2): 75 83. Bowman, Dina, 2006, ‘Entrepreneurs: family, business, and gender’, Paper presented to TASA Conference, December. Brown, Jessica, 2008, ‘Feminism is about choice’, Sydney Morning Herald, 21 August. England, Paula, 1993, ‘The separative self: Androcentric bias in neoclassical assumptions’, in Ferber, Marianne A. and Nelson, Julie A., eds., Beyond Economic Man: Feminist Theory and Economics, University of Chicago Press, Chicago. Grapard, Ulla, 1995, ‘Robinson Crusoe: The Quintessential Man?’, Feminist Economics 1 (1): 33 52. Hayek, Friedrich A., 1945, ‘The Use of Knowledge in Society’, American Economic Review 35 (4): 519 530. Hayek, Friedrich A., 1973, Law, Legislation, and Liberty, vol. I, University of Chicago Press, Chicago. Hayek, Friedrich A., 1976, Law, Legislation, and Liberty, vol. II, University of Chicago Press, Chicago. Hewitson, Gillian J., 1999, Feminist Economics: Interrogating the Masculinity of Rational Economic Man, Edward Elgar, Cheltenham. Horwitz, Steven, 1995, ‘Feminist economics: an Austrian perspective’, Journal of Economic Methodology 2 (2): 259 279. Jennings, Ann, 1999, ‘Dualisms’, in Lewis, Margaret and Peterson, Janice, eds., The Elgar Companion to Feminist Economics, Edward Elgar, Cheltenham (UK). Jonson Ahl, H., 2002, ‘The construction of the female entrepreneur as the Other’, in Czarniawska, B. and Hopfl, H., eds., Casting the Other, Routledge, London. Kirzner, Israel, 1973, Competition and Entrepreneurship, University of Chicago Press, Chicago. Lewis, P., 2006, ‘The Quest for Invisibility: Female Entrepreneurs and the Masculine Norm of Entrepreneurship’, Gender, Work and Organization 13 (5): 453 469. Matthaei, Julie, 2000, ‘Healing Ourselves, Healing Our Economy: Paid Work, Unpaid Work, and the Next Stage of Feminist Economic Transformation’, Wellesley College Department of Economics Working Paper 2000 03, February. McCloskey, Dierdre N., 1993, ‘Some Consequences of a Conjective Economics’, in Ferber, Marianne A. and Nelson, Julie A., eds., Beyond Economic Man: Feminist Theory and Economics, University of Chicago Press, Chicago. McNulty, Paul, 1987, ‘Competition: Austrian conceptions’, in Eatwell, J., Milgate, M., and Newman, P., eds., The New Palgrave Dictionary of Economics, MacMillan, London. Mises, Ludwig von, 1945 [2007], Human Action: A Treatise on Economics, vol. 2, Liberty Fund, Indianapolis. Nelson, Julie A., 1995, ‘Feminism and Economics’, Journal of Economic Perspectives 9 (2): 131 148. Nelson, Julie, 1996, Feminism, Objectivity and Economics, Routledge, London. Nelson, Julie, 1999, ‘Economic Man’, in Lewis, Margaret and Peterson, Janice, eds., The Elgar Companion to Feminist Economics, Edward Elgar, Cheltenham (UK). Nelson, Julie A., 2001, ‘Economic methodology and feminist critiques’, Journal of Economic Methodology 8 (1): 93 97. Nelson, Julie, 2005, ‘Rationality and Humanity: A View from Feminist Economics’, Tufts University Global Development and Environment Institute Working Paper No. 05 04, May. Robeyns, Ingrid, 2000, ‘Is There a Feminist Economic Methodology?’, Working paper, October. Rural Industries Research and Development Corporation (RIRDC), 2004, Women in Business in Rural and Remote Australia – Growing Regional Economies, September. Schumpeter, Joseph A., 1943, Capitalism, Socialism, and Democracy, Allen & Unwin, London. Stevenson, L., 1990, ‘Some Methodological Problems Associated with Researching Women Entrepreneurs’, Journal of Business Ethocs 9: 439 446. Still, Leonie V. and Walker, Elizabeth A., 2003, Women in Small Business: Results of a National Study, University of Western Australia, Graduate School of Management, Centre for Women and Business, Discussion Paper 2003 08. Strassmann, Diana, 1993, ‘Not a Free Market: The Rhetoric of Disciplinary Authority in Economics’, in Ferber, Marianne A. and Nelson, Julie A., eds., Beyond Economic Man: Feminist Theory and Economics, University of Chicago Press, Chicago. Strober, Myra, 1994, ‘Rethinking Economics through a Feminist Lens’, American Economic Review 84 (2): 143 147. Strober, Myra, 2005, ‘Feminist Economics: Implications for Education’, in Fineman, Martha Albertson and Dougherty, Terrence, eds., Feminism Confronts Homo Economicus: Gender, Law and Society, Cornell University Press: x. Vaughn, Karen I., 1994, ‘Beyond Beyond Economic Man: A critique of feminist economics’, Journal of Economic Methodology 1: 307 313. Waller, William, 1995, ‘Austrian Economics’, in Lewis, Margaret and Peterson, Janice, eds., The Elgar Companion to Feminist Economics, Edward Elgar, Cheltenham (UK). Walker, Deborah and Joyner, Brenda E., 1999, ‘Female entrepreneurship and the market process: Gender based public policy considerations’, Journal of Developmental Entrepreneurship Walker, Deborah, Dauterive, Jerry W., Schultz, Elyssa and Block, Walter, 2004, ‘The Feminist Competition/Cooperation Dichotomy’, Journal of Business Ethics 55 (3): 243 254. Walker, Elizabeth A., 2004, Self employment: The Way of the Future?, University of Western Australia, Graduate School of Management, Centre for Women and Business, Discussion Paper 2004 01.

Homophobic capitalism: A rebuttal

*A revised version of a post that appeared on my previous Political Economist blog*

In 1956 the book The Anti-Capitalistic Mentality by twentieth-century classical liberal great Ludwig von Mises was first published. This work investigated the psychological underpinnings of anti-market biases that was (and still is) widespread throughout advanced economies, predating important recent contributions such as Bryan Caplan’s The Myth of the Rational Voter.

According to Mises, the sources of resentment against capitalism are numerous.

Some individuals may feel an intense sense of frustrated ambition, as their hopes to sell goods and services for profit are dashed by the discerning consumer sovereign. The intellectuals, those who specialise in the production and distribution of ideas, may feel jealousy against the less intellectually-inclined entrepreneur who makes his or her wealth by producing demanded outputs.

The middling white-collar worker spies enviously upon the good fortune made by the manual worker plying his trade in competitive markets, not to mention the fortune gained by his more successful colleague. Similar attitudes were identified by Mises as being displayed by beneficiaries of inheritances, film makers, novelists and artisans.

Disappointment, envy, frustration and resentment are, to Mises, the common psychological drivers of the hatred of the spontaneously ordered improvement in material living standards brought about by competitive and (relatively) free markets.

While the anti-capitalistic players within society identified by Mises largely exist to this day, I think it is also important to extend our understanding of modern anti-market impulses by paying attention to the words and actions expressed by social groupings that were not so publicly prominent in Mises’ time.

One group I want to consider for the purpose of this post is the now highly visible and active gay and lesbian communities. In particular, I want to critically examine the attitudes of some queer scholars and activists towards market capitalism. Do voices purporting to speak for the queer community do so in support or in opposition to capitalism? Are these justified?

Based on an admittedly selective reading of the queer economics and general queer theory literature, I identify three interrelated strands of queer anti-capitalism often, but not always, closely infused with Marxist thought.

Proposition: Capitalism requires the maintenance of heterosexual family structures, and is thus destructive of queer identity

 A Socialist Alternative (SA) online newsletter article proclaims that ‘discrimination against queers is centred in the nuclear family. … Queers do not fit into the nuclear family structure and therefore threaten one of capitalism’s central institutions. So rather than blame straights for homophobia, it is much more useful to fight the [capitalist] system that calls heterosexuality normal.’

This message was endorsed by Canberra-based SA member John Passant who stated that ‘the nature of capitalism is such that it still sees the family unit as the best model for cheaply producing the next generation of workers.’

These claims are difficult to sustain on a number of fronts.

The advent of reproduction technologies, such as IVF, has enabled many gays and lesbians to form their own families. Other same-sex couples have established families as a consequence of broken previous heterosexual or homosexual relationships, while others have engaged in the adoption of children.

In other words, the existence of heterosexual families is not a sufficient condition for the ability for society to produce the next generation since queers are themselves increasingly engaging in family formation.

It is also an empirically undeniable fact that fertility rates tend to exhibit a secular decline with economic development made possible by market capitalism. As explained by economist Seth Norton, fertility rates are more than twice as high in countries with low levels of economic freedom and the rule of law compared to those countries with high levels of these measures.

In other words, the idea that market capitalism is a vehicle for the propagation of future workers is countered by the very fact that freer and more developed economies are associated with fertility rates typically below replacement level, and are already increasingly seeking working age migrants. If anything, families in market-oriented countries tend to have fewer children, and use their growing wealth to invest heavily in the human capital and general care of their offspring.

Finally, as queer scholar John D’Emilio wrote in his iconic paper ‘Capitalism and Gay Identity,’ the relationship between market capitalism, family structure and queer identity is most complex. According to D’Emilio, the expansion of capital and the spread of wage labour due to industrialisation ‘have effected a profound transformation in the structure and function of the nuclear family, the ideology of family life, and the meaning of heterosexual relations.’

With wages growing over time, and the cost of goods and services provided by the market becoming cheaper in real terms, the need for families to engage in their own household production of goods became increasingly unnecessary. Associated with these developments was the reduction in fertility rates as households no longer depended upon the labour of children for their basic survival.

As a result of, and in conjunction with, these trends, the prevailing ideology surrounding the desired role and functions of the family shifted gradually. D’Emilio considered that ‘the family took on new significance as an affective unit, an institution that produced not goods but emotional satisfaction and happiness. … The family became the setting for a “personal life,” sharply distinguished and disconnected from the public world of work and production.’ Exit the notion of families as a means to pursue economic production, and enter the notion of families as a spontaneously ordered institution of love and care.

Critically, D’Emilio observed that ‘as wage labor spread and production became socialized, then, it became possible to release sexuality from the “imperative” to procreate. … In divesting the household of its economic independence and fostering the separation of sexuality from procreation, capitalism has created conditions that allow some men and women to organize a personal life around their erotic/emotional attraction to their own sex.’

For gay men, followed sometime thereafter by lesbian women, their independent capacity to earn a living through the market economy made it possible for them to forge their own identity, and affiliate with their group identities as homosexuals, outside the domain of the heterosexual family. In other words, it is unclear that the outgrowth of competitive markets since the Industrial Revolution has implied, if ever, the entrapment of individual queers in nuclear and/or heterosexual family structures.

Proposition: Capitalism financially exploits queers, since producers only see people and their culture as commodities to sell

On a blog for a queer theory course provided by the University of Minnesota, it is stated that ‘materialism is central to the intelligibility of heteronormative subjects, and the straight engagement of time dictates that as “grown” folks, people must be good producers of capital, in order to be providing procreators. Similarly reinforcing the capitalist agenda, mainstream gay activism is populated primarily by class privileged white gay men, focussed on an assimilationist agenda that stabilizes a gay identity ripe for marketable exploitation.’

The blog post claims that ‘temporalities like the D.I.Y. punk culture, urban gardening, the anarchistic gift economy have liberated some queer people from the trajectory of capitalist “progress”.’

In a 2006 paper for the Canadian Online Journal of Queer Studies in Education, Nadia Guidotto castigated the glamourised setting for the television series The L Word: ‘by normalizing the capitalist/consumptive framework, queer subjects are presented with a model for how they can achieve full subjectivity.’

Guidotto considers there is a conspiratorial element to the production of goods and services for the queer community. She refers to a president of a gay entertainment media company, who was reported to have stated ‘you’ll be seeing many more large corporations ‘coming out’ as friendly to gays, once they see what a positive image in the gay community can do for sales.’ Guidotto criticises this, observing ‘there is nothing altruistic about this concession. The only reason a company would change their policies and marketing strategies is the fact that the queer population has sales potential.’

She concludes by insisting that ‘many queer commodities are not actually fashioned after the queer experience at all, but rather on a heteronormative, desexualized stereotype that corporations and marketing strategists think will sell their product.’

There is a strong tradition in the classical liberal economic and philosophical literature that emphasises that market capitalism represents a civilising force within societies more generally. Montesquieu explicated the doux-commerce (‘gentle commerce’) thesis when he suggested that ‘commerce cures destructive prejudices.’ Thomas Paine noted that commerce ‘is a pacific system, operating to cordialise mankind, by rendering … individuals useful to each other.’ Similarly, Adam Smith taught us that ‘the real and effectual discipline which is exercised over a workman is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.’

It is these pressures in competitive markets for producers to please consumers that have created a space for queer-friendly products to exist, if not flourish. By emphasising the prospect of increased sales, Guidotto seems to overlook the gay-friendly impact of producers looking to convey a more positive image that has spin-off benefits in fostering broader communal acceptance of sexual minorities.

This concept was endorsed by Michael Piore, in a contribution to a 1997 book entitled A Queer World: in ‘a market system everyone could pursue his or her own particular pattern of consumption. A capitalist economy was, in other words, the kind of economy more apt to produce specialty items for gays and lesbians: lube, dildos, poppers, and bathhouses.’

In addition, the power of revealed preference in an open market is difficult to beat. If gays and lesbians believe that existing corporations are exploitative, or are not producing desired outputs, these individuals are free themselves to enter the market and produce and retail more queer friendly products.

In particular, the advent of the internet has enabled many small niche sole-operators and small businesses to find their place in the marketplace ecology in a cost-effective manner, selling a wide variety of products demanded by gays and lesbians.

Considering changes over the past two decades, Piore states, ‘in organizational forms, in the technology, and in the business environment, one must also add the emergence of more and more businesses catering to the gay market. It is hardly in the interests of these businesses to assimilate to the dominant culture. Thus to the extent that we are developing an entrepreneurial class, a capitalist class of our own if you like, it is a class that has an interest in preserving a distinctive gay culture and niche markets.’

Proposition: Capitalism displaces not-for-profit or communal queer spaces

 Writing in the Science and Society journal in 2005, Alan Sears argued that ‘market relations have penetrated much deeper into our daily lives and alternatives to the market (such as social programs) have been eroded or eliminated. Open lesbian and gay life has thrived primarily in commodified forms: bars, restaurants, stores, coffee shops, commercial publications, certain styles of dress and personal grooming, commercialized Pride Day celebrations with commercial sponsorship. The early period of the post Stonewall movement saw a variety of non commercial spaces opened up, such as community centers, non profit publications, … community dances or movement gatherings; but these have tended to wither with the development of a gay and lesbian commercial sector.’

Any cursory glance of the queer community literature, both in Australia and abroad, illustrates that the queer civil society is alive and well and, in many respects, growing. As an example, over the past decade a number of queers have sought to establish new social groups in regional areas thereby reducing the risk of isolation for individual gays and lesbians.

The role of businesses in selling goods and services demanded by queers is necessarily complementary to efforts by queers to establish their own communal spaces.

The economic historian Deirdre McCloskey once made the important, broader point that ‘the market is not the enemy of queers. The restaurants and bars from which the drag queens exploded in political action in the 1960s in San Francisco and then in New York were after all profit making entities. The enemies were the gender cops, not the owners of coffee shops. States use conservative institutions, anti queer institutions, anti free institutions, institutions that keep citizens sitting where they can be taxed and won’t cause trouble.’

In the opening section of The Anti-Capitalistic Mentality, Mises explained the role of market capitalism as follows:

‘The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers. The capitalists lose their funds as soon as they fail to invest them in those lines in which they satisfy best the demands of the public. In a daily repeated plebiscite in which every penny gives a right to vote the consumers determine who should own and run the plants, shops and farms. The control of the material means of production is a social function, subject to the confirmation or revocation of the sovereign consumers.’

 The claim expressed by some modern queer scholars and activists that markets are inherently exploitative or corrosive of community represents an element of the broader, longstanding critique of capitalism that has, time and again, been found intellectually and practically wanting.

Indeed, it is entirely reasonable to suppose that market capitalism plays a crucial role in economically and culturally liberating individuals and groups in ways that no coercive government or other grouping or circumstance could ever achieve.

Letters from a liberal

In addition to writing over 100 opinion pieces for Australian newspapers, perhaps nearly a dozen articles for applied policy journals, and a dozen or so research papers for a free-market think tank, I have written about a half-dozen published letters to newspaper editors about various economic and social policy issues. Some future posts on this blog will include details of published (and perhaps unpublished) letters, however at this time I provide a transcript of all previously published letters.

 

11 September 2008

The Australian Financial Review

 

Your article on education funding in Australia (“Education falls behind”, September 10) reveals only half of the picture. The system is funded by governments and a mix of private-sector entities, such as not-for-profit schools. As the Organisation for Economic Co-operation and Development report shows, while funding from public sources in 2005 (as a percentage of gross domestic product) was lower than the OECD average, the gap was supplemented by private funding sources. Combining both sources of funding reveals that Australia’s total education spending was about the OECD average.

 

Far from falling behind, total expenditure on education services had increased compared with 2000.

 

The funding mix of government and private providers ensures that Australians have access to well-funded, high-quality education services, without the price tag of high Nordic-style tax rates.

 

Julie Novak

Institute of Public Affairs

Melbourne Vic

 

23 September 2008

The Australian Financial Review

 

Kevin Rudd has signalled his intention to pump-prime the nation through the economic slowdown (“Rudd says he’ll build his way out of trouble”, September 20-21).

 

Rudd would do well to learn some basic economics. The notion that government infrastructure spending can boost the economy, at no cost, is simply false.

 

All government spending is ultimately financed by taxation. This impost reduces jobs and economic activity in the private sector.

 

Another problem with government spending is that bureaucratic planning is no substitute for entrepreneurial insight, and government is unlikely to spend our hard-earned tax dollars wisely.

 

Rudd tells us that his government “will be engaged directly in economic activity across the economy to provide strong leadership into the future”. Given the uninspiring record of fiscal pump-priming by previous governments, with the economic pain that it entailed, this is the kind of talk that Australia doesn’t need.

 

Julie Novak

Institute of Public Affairs

Melbourne Vic

 

24 October 2008

The Australian Financial Review

 

At the Senate estimates hearing on October 22, Treasury secretary Ken Henry expressed his preference that the government’s bank deposit guarantee scheme ought to have been developed away from the prying eyes of public scrutiny.

 

In his own words: “I really think that it would be much better if these things could be dealt with in a sober way, out of the public gaze for the time being. Allow the officials the opportunity to reflect soberly and deeply upon the implications of various options and provide appropriate advice to government.”

 

This is an extraordinary statement to make, and has all the hallmarks of a “we know best” attitude.

 

Fortunately, our liberal democratic system obliges governments to propose and implement policies to be critically scrutinised by the public. Our system is one of “government by discussion”, with the discussion applying to every aspect of policy.

 

Important checks and balances are also in place to monitor government revenue raising and expenditure, and the conduct of bureaucrats in implementing policy.

 

The estimates committee hearing was a fine example of this in action. For example, it revealed that Treasury did not undertake formal modelling of the impact of the guarantee. The hearing also revealed that the $10.4 billion spending target was essentially plucked out of thin air.

 

To have government policies out of the public gaze runs the risk that taxpayers’ money will be wasted to an even greater extent than is evidenced today.

 

Julie Novak

Research fellow

Institute for Public Affairs

 

2 July 2009

The Australian Financial Review

 

Federal Finance and Deregulation Minister Lindsay Tanner gives a spirited, but ultimately unsuccessful, defence for retaining “deregulation” in his ministerial title (“Deregulation effort still on track”, Opinion, July 1).

 

The minister cited a range of cases where the federal government intends to take over existing state regulations in areas of credit, fair trading and property securities law.

 

These activities clearly constitute a reregulation of those activities.

 

For an intelligent minister, to create such a definitional tangle is surprising.

 

Also mentioned were proposed laws about disclosure and licensing of credit rating agencies, regulation of executive remuneration, acquisitions, contracts and lending practices.

 

These plans are far removed from any common understanding of what deregulation is about, entailing less regulation of markets.

 

It is also highly likely that new and amended regulations in these areas will create additional compliance cost burdens for businesses already struggling with red tape.

 

Tanner highlights a bill to repeal redundant regulatory provisions in more than 30 acts. This action simply recognises a reality that the regulations are outdated and no constituency supports them – it is not meaningful deregulation.

 

It is intriguing that the minister would focus on the deregulation aspect of his responsibilities, without mentioning his core responsibilities in finance.

 

With the federal budget expected to hit a deficit of $58 billion this financial year, recipients of the minister’s business cards might be forgiven for crossing out the word “Finance” as well as the letters “De” in deregulation.

 

Julie Novak

Research fellow

Institute of Public Affairs

Melbourne Vic

 

3 September 2011

The Canberra Times

 

Measuring the true size of government is an active area of economic research, although Jeff Lawrence of the ACTU does not seem to recognise this (”We need a tax system that reduces inequalities”, September 2, p17).

 

Lawrence accuses me of revising up Australia’s tax-to-GDP ratio on ”flimsy” grounds. However, my revisions are based on a 2007 Australian Tax Research Foundation paper written by Greg Smith, himself a member of the Henry tax review panel. In that paper it is noted that Australia ”uses tax laws to enforce compulsory superannuation contributions”.

 

This, and other off-budget fiddles, makes our tax system appear smaller than it actually is. The Smith paper also points to the need to account for the intertemporal shifting of tax burdens when calculating Australia’s tax burden. The OECD tax statistics might give an impression that Australia is a low- taxing nation, but such an impression is a misleading one.

 

Julie Novak, Research Fellow Institute of Public Affairs, Melbourne, Vic

 

3 September 2013

The Sydney Morning Herald

 

Joseph Stiglitz invites readers to indulge in the economic fantasy that the Rudd stimulus somehow saved the economic structure of Australia (“Cheer up, Australia, you’ve got it good”, September 2). Nothing could be further from the truth.

 

The fiscal stimulus package, totalling some $80 billion from October 2008 to May 2009, was mainly comprised of low-value spending.

 

The Building the Education Revolution program entailed numerous cases of functional school builds knocked down, only to be rebuilt with construction and materials costs set above the going market rate.

 

Studies show that little of the $900 “cash splash” was spent, with households that feared higher future taxes putting away the cash as savings for a rainy day.

 

The home insulation program entailed the most tragic of consequences for young electricians who died on the job, an indictment of the “go hard, go early and go household” approach to spending.

 

Australians are paying a heavy price for the Rudd stimulus, through burgeoning public debts to be repaid by future generations, and rising costs contributing to fragile private sector activity.

 

Dr Julie Novak senior fellow, Institute of Public Affairs, Melbourne (Vic)

 

20 March 2014

The Australian Financial Review

 

Jennifer Westacott and Elizabeth Broderick (“Gender reporting not a yes or no issue”, AFR, March 19) present gender reporting regulations as something of a fait accompli within the overgrown Australian regulatory structure. They invite the public to dismiss questions about whether gender reporting regulations are needed altogether, but instead entertain proposals to tinker with the existing reporting regime.

 

Businesses should be free to hire on any basis they wish, and publicly disclose as much, or as little, as they like about their staffing diversity.

 

For commercial reasons, some firms might wish to publicise their hiring record, others might not.

 

There is no role for regulatory compulsion by government in this field, and that there is needlessly adds to the compliance burdens keenly felt by businesses with 100 or more employees.

 

Julie Novak

Institute of Public Affairs

Melbourne, Vic

 

26 March 2014

The Australian Financial Review

 

It is surprising that economist Richard Denniss would liken federal government revenues to Qantas fares (“How to fix the deficit very quickly”, AFR, March 25).

 

Qantas could increase its fares to try to bring its budget into the black, but that strategy risks reducing market share as travellers consider switching to alternative, cheaper airlines.

 

Unfortunately taxpayers do not enjoy the same luxury, since governments impose tax and other revenue increases by force.

 

The general public would simply be stuck with the revenue increase. No country has ever taxed itself into prosperity, and this should be borne in mind when considering ways to address Australia’s budget emergency.

 

Julie Novak

Institute of Public Affairs

Melbourne, Vic

 

 

 

 

 

 

 

 

 

The regulatory state: From definition to reform

The Australian Taxpayers Alliance and Western Sydney Young Liberal movement recently convened a discussion series about key contemporary policy problems, and the political strategies required to achieve successful economic and social policy reforms.

I provided a presentation about the dimensions of the Australian regulatory state, and the kinds of regulatory reform necessary to embed a deregulatory stance within the prevailing political culture.

A copy of the presentation can be found here: ATA-YOUNG LIBERALS – Regulatory State

Reforming the welfare state leviathan

(The following is an extract from an unpublished paper, written a few months ago, on Australian public sector reform.)

A reasonably consistent feature of public sector growth throughout the Western world, including in Australia, over the past century has been the growing importance of redistributive activities within the overall governmental spending mix.

From modest beginnings in the late 1900s and early 1910s, with the inception of a federal age pension and maternity allowance, the commonwealth government welfare state has grown dramatically over the past century, accounting for almost 15 per cent of national economic output today.

One of the more concerning features of the welfare state’s fiscal trajectory is that expenditures continue to grow, albeit more modestly compared to previous decades, during the many years of uninterrupted Australian economic growth from the early 1990s to 2007.

Although Australia’s welfare state has been widely lauded as a relatively parsimonious system, at least compared against the fiscally exorbitant continental European welfarist regimes, a combination of population ageing and political acquiescence to demand for more generous benefits is widely expected to lead to a welfare state posing substantially greater burdens upon future generations.

If anything, the 2010 Intergenerational Report, which warned of this daunting fiscal prospect, underestimates the likely long term burdens of the welfare state, since it does not take into account subsequent policy decisions, or announcements, which have extended the scope of income support and other subsidies. These include the proposal for a National Disability Insurance Scheme (NDIS), paid parental leave, and increasing government funding for schools.

Accordingly, no government elected on a platform to restrain the size and scope of the commonwealth government can ignore the need for long term, systemic reforms to the welfare state.

To set the policy tone for significant structural reform, it is suggested that the commonwealth consider a range of interim measures to restrain the projected increases in welfare expenditure in the short to medium term:

  • Adjusting the indexation of age pension, disability support pension, and all other relevant pensions and allowances to the consumer price index.
  • Progressively and quickly raising the eligibility age for the age pension.
  • Introduction of strict time limits, say one year, for the duration of receipt of newstart allowance.
  • Means testing arrangements should be extended in several ways, such as: inclusion of the family home in age pension assets tests; means testing of child care rebate and medicare; and enabling individual government schools and hospitals the flexibility of directly charging fees for wealthy students and patients, respectively.
  • Tighten work tests for disability support pension recipients with a capacity to work, including people disengaged from workforce activities with musculo-skeletal complaints.
  • Introducing or increasing co-payments for various medical services, for example those provided under the medical benefits schedule and pharmaceutical benefits scheme, and other services.
  • Winding back family payments, including the short term abolition of family tax benefit part B, and the cessation of paid parental leave subsidies enabling businesses to compete for labour with their own paid leave arrangements.
  • Reduce the extent to which income support recipients can simultaneously access multiple forms of payments.

The prospective introduction of the NDIS is likely to pose as another significant threat to future budget sustainability, given the increasing incidence of people with disabilities within the Australian population.

To head off the looming fiscal burdens of the NDIS, the commonwealth should ideally not proceed with the proposal, encouraging the states, with traditional constitutional responsibilities in this field, to maintain, and in some instances introduce, personalised care provision models specifically directed to the needs of the disabled person.

However, with exceedingly high expectations now firmly entrenched for this federal intervention, there seems little practical prospect of the commonwealth aborting the NDIS. An imposing challenge is therefore presented for future governments to reconcile likely strong demands for services, with the need to retain economy in the budgeting of the scheme.

Ultimately, in the longer term, the key to restraining the welfare state will be for the government to withdraw from the financing and provision of redistributive subsidies, and privatising a range of merit goods such as schools, hospitals, and government housing stock. Some necessary ingredients for this state of affairs to materialise will need to incorporate the following elements:

  • cultural and political dedication to strong, robust economic growth, primarily directed by the market sector
  • development of a vigorous private savings culture as a key means for individuals and families to achieve dignity through self reliance, assisted by tax systems unbiased toward savings, and widespread financial and economic deregulation (including abolition of minimum wages and occupational licensing requirements)
  • encouragement of the development of vibrant private insurance markets providing various products enabling people to hedge against income fluctuations or unfortunate circumstances
  • widespread deregulation of markets enabling new providers of education, health and housing services to offer new products at progressively lower costs
  • an economic and social environment conducive to the development of mutual aid or friendly societies, assisting people during difficult personal and financial circumstances, and diversified local charitable organisations
  • encouragement of acts of philanthropy by businesses and high-wealth individuals.

The implied substantial reduction in public sector expenditures implied by these proposals would enable governments to significantly reduce the overall taxation burden, which in turn would induce additional growth and productivity enabling low income earners to grasp abundant new economic opportunities.

The artistry of the market process

‘Making money is art and working is art and good business is the best art.’ (The Philosophy of Andy Warhol: From A to B and Back Again)

Human beings marvel at outstanding expressions by creative and enterprising people, in the form of dance, film, music, painting, sculpting, theatre, writing, and other artistic pursuits.

Participants within the market process share many of the behavioural traits often attributed to artists, such as exercising creative flair and committing to bold, if not daring, acts of expression.

For several reasons, however, entrepreneurial activity, production and consumption activities are not typically conceived as being akin to artistic activity, or at least not as dignified as works of art.

The structure of production gives form to entrepreneurial inspiration

The ‘wealth of nations’ is founded upon the production and exchange of valued goods and services within markets, and a necessary condition for the state of economic prosperity we enjoy are the economically creative acts of the entrepreneur.

The entrepreneur is responsible for making decisions about what, why, how, when and where to produce commodities, at given prices, in the hope of securing sufficient sales to customers that more than cover the costs of production.

Like a painter applying brush strokes to a canvas in the hope of producing a masterpiece, economic entrepreneurship involves marshalling and applying a range of resources in the quest to bring to life, as it were, a new form of output into existence.

Entrepreneurs must apply their visionary perceptions, establishing how heterogeneous capital, labour, land, raw materials and finances coalesce in bringing about a harmonious whole, in the form of a final good or service intended to benefit customers.

Contrasting many forms of conventional art work, involving one person or a few people at a time, the creative market process practically involves many people individually applying small, but uniquely creative, entrepreneurial imprints onto the supply chain.

From minute alterations of existing products, to the sweeping reconfiguration of outputs and production techniques implied by Schumpeterian ‘creative destruction,’ the market process allows entrepreneurs to express original economic ideas, and coordinate their creative energies, giving coherence to new forms of production that is reminiscent of artistic works.

Profits as customer applause for entrepreneurial creativity, losses as customer disapproval

Perceptions of the aesthetic values inherent in art works are powerfully influenced by the evaluations rendered by art critics, through their reviews as presented in newspapers, magazines and, more recently, web sites.

A similar process takes place in markets, as explained by Ludwig von Mises:

‘In the capitalist system of society’s economic organisation the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the buying public, the consumers. If they fail to produce in the cheapest and best possible way those commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve the consumers replace them.’

In other words, the customer, who either chooses to purchase a given product or abstains from purchasing it, is the economic equivalent of the art critic.

The attainment of profits serves as an economic signal to the entrepreneur that their creative productive exploits are a valuable addition to the stock of prevailing economic knowledge, and that production ought to continue in a similar fashion in order to satisfy the needs and desires of customers.

Resembling the applause volunteered by patrons at an art exhibition, profits represent the echoes of economic applause resonating throughout the entire market system, encouraging new entrants to deepen the market with a view to achieve additional sales to new customers.

However, not all goods and services offered for sale, at given prices, can earn the economic approval epitomised by strong profitability, with some businesses not providing a useful product or decent service in the subjective assessments of consumers.

In this scenario the producers is at risk of incurring financial losses, signalling to the wider market that, unless additional creative energies are expended to improve the final good or service, scarce resources should be redirected to other uses instead.

Government should let the artistic expression of the market flow

If the market process does resemble the visionary, creative, risk‑taking and free expression usually attributed to the efforts of artisans, it follows that government intervention not is only hampering gains in material living standards but is stifling an important form of human expression.

Just as we guard against censorship and impositions against free speech, we should recognise that government involvement in the economy is doing nothing less than preventing people from economically engaging in the productive arts of buying and selling.