Policy Autonomy – Reality or Fiction? From Bretton Woods to the Banana Republic

Abstract

The thesis argues that macroeconomic policy autonomy is a post-Second World War construct based on both the Bretton Woods system and macroeconomics becoming a cohesive tool of economic management. Under the Bretton Woods system policy autonomy was ‘assumed’ through multilateral support. Following the end of the Bretton Woods system policy autonomy changed to becoming an ‘aspiration’ as multilateralism gave way to unilateralism, demanding political-economic action by individual states to achieve it. The thesis defines policy autonomy using Tinbergen’s lines of policy resistance, that include boundary conditions and defence lines, that is synthesised into ‘boundary lines’. One side of the boundary line are non-elected actors and exogenous forces and events that create resistance or limit policy autonomy. The opposite side is the home to elected actors and is the endogenous zone of government action (policymaking) and internal tensions (priorities and competing ideologies). Government can re-set boundary lines to extend the scope of policy autonomy where they have permission from non-elected actors. The key issue is that permission, boundary lines and consequently policy autonomy are not static, they are in a constant state of flux due to changing exogenous forces and events, and endogenous actions and tensions. The thesis examines the changing Australian political-economic context from 1947 to 1986 to illustrate how policy autonomy was impacted over that period; it was not a constant and required either proactive or reactive political-economic management to be maintained. The events of 1983 that led to the float of the Australian dollar and liberalisation of the currency and financial markets are examined in depth to draw out the role of endogenous action in the process of gaining permission, re-setting boundary lines and restoring policy autonomy, after it had been undermined following the end of Bretton Woods and the economic turmoil during the decade that followed.