The Federation Press

Who Rules?

How government retains control in a privatised economy


For the past 20 years, the Australian government has been washing its hands of direct responsibility for the provision of services. There has been incessant “privatisation”, “deregulation” and “ contracting out”.

Has it gone so far that the government has lost control of substantial parts of economic and social policy?

Has this greater reliance on markets led to a change in our values and in the willingness of government to support our democratic traditions?

Michael Keating AC, Australian public service doyen and leading economic analyst, contests both propositions.

There is clear evidence, he argues, that governments still govern. He shows there has been no decline in the power of government to decide what it wants to do nor in its ability to achieve its traditional objectives. To the contrary, government, by making greater use of “managed” rather than “free” markets, is now more effective in pursuing its policies than it used to be.

Keating argues that what really limits the capacity of modern Australian government is the conflict resulting from the differential impact of policy changes on electorally potent interest groups. This incapacity is compounded by a more individualistic, less trusting society, which leaves governments struggling politically to present unifying, national policy acceptable to the wide variety of interests and opinions.

This is an absorbing, clear and closely argued book which paints a different picture of the current relationship between government, markets and the Australian community and charts a different path for the future.


Michael Keating’s thoughtful study deserves to be widely read. His potential audience encompasses all those who want to understand recent developments in public policy and Australia’s emerging economic and social agenda. ... ... Michael Keating brings to his task the analytic rigour of a first rate economist, many years near or at the pinnacle of public service and a liberality of spirit. The events surveyed in this book involve developments in which he played a leading part. His basic thesis is that the purposes of the Australian state – economic growth, full employment, and equity in social and economic outcomes – have remained constant, as has its broad capacity to attain these goals. But in line with changing technological, economic and social forces, the means have of course varied dramatically. Indeed, the reconfiguration engineered in the years after 1983 involved a transformation of the economic and social frameworks that had guided Australian public policy for the preceding eighty years. That so much was accomplished in such a relatively short period is a remarkable testament to both political and policy capacity. - Australian Journal of Political Science, Vol 41 No 3, September 2006

This book is a thoughtful examination of the policy changes that have taken place over the past few decades, and should provide the impetus for more reform. - The Economic Record, Vol 81 No 254, Sep 2005

Michael Keating’s book is full of insights and opinions that can be related to [his] experience as the nation’s top mandarin. Party politics plays little part in his story ... He identifies and refutes two alleged causes of a decreased government role. One is a narrowing of options due to market – especially external – pressures. “One point on which the political Left and the Right are agreed”, he says “ is that marketisation results in a substantial loss of state power. Indeed, this loss of power is precisely why the Left opposes marketisation and why the Right wants to advance it further.” Keating denies the loss of state power. The instruments have changed but they are still effective. ... The other claimed cause of diminished government is the ascendancy of neo-liberal doctrine. Keating’s position, if I understand him, is that policy has not embraced a doctrinal antipathy to intervention, but reflects, rather, a conviction that there are better means of achieving given ends. ... ‘Deregulation’ says Keating is a misnomer. The more accurate term is ‘reregulation’. In general it entails a shift from ‘command and control’ to supervised and enforced competition. ... The financial sector has probably been the most affected. Keating clearly thinks that the change has been for the better - the result of a critical assessment of the unintended results of regulation. In many ways respects, the judgement is difficult to resist. But there are areas of controversy. One of them is the labour market. ... This is an important book, giving clear expression to a coherent political philosophy. The level of public and academic debate will be improved if it commands a wide audience. - Dialogue, Vol 24:1, 2005

A strong feature of the book is its illumination of the thinking behind such a significant period of reform [as the Hawke-Keating years]. As an insider and practitioner, Michael Keating provides an interesting discussion the actual motivation behind government action. He also considers the social impacts of marketisation, providing a good example of ‘third way’ thinking – while the benefits of marketisation should be harnessed, any adverse social effects can be headed off through fostering social capital. - Alternative Law Journal, Vol 30(2), April 2005

The reflections on privatisation, deregulation and contracting out of Dr Michael Keating, a former public service head in the Hawke, Keating and Howard governments, will certainly be of interest to LIJ readers. At approximately 200 pages this is the one to take on the plane. This is a policy book from one of the architects of today’s Australia, explaining the background of some of today’s regulation. It is not a law book, although it does touch on legal themes such as deregulation, wage fixing, “contractualism”, “user charging” and administrative law reforms. ... - Law Institute Journal (Vic), June 2005

Both sides of politics ... need to reappraise their approach. Happily they have the ideal guide in a little book published late last year by Michael Keating, Who Rules? How Government Retains Control of a Privatised Economy... Who Rules is a primer of modern social democratic economic management which recognises the importance of markets in government delivery of services.... ... [N]o one who has seriously studied economic management and governance in developed countries like Australia would argue with his fundamental approach. ... Michael Keating’s book should become the bible of the Labor Leadership – and Howard and Costello had better not neglect it either. - Quadrant, March 2005

Table of Contents

Introduction: Are markets on tap or on top?
Australian government traditions
The marketisation of Australian government and its implications
Why have Governments changed?
The attractions of managed markets
The structure of this book

Macro-economic policy: Resilience over markets
Policy Goals
The available economic instruments
The use of economic instruments
Policy outcomes

National development: Policy guiding markets
Why has national development policy changed?
The new strategy for national development
Outcomes achieved

Improving human services by managing markets
The pressures for change
Marketisation and the reshaping of government
The nature and extent of marketing human services on Australia
Assessment of the marketisation of human Services
Issues for the extension of contracting out
Possible future developments

Have markets changed our social values?
Economic equality
The future outlook for economic equality
Quality of life issues
Strengthening community relations and social capital

Future demands and government capacity
Fiscal demands and revenue capacity
Has political capacity eroded?
Augmenting political capacity
Policy coordination and coherence

Conclusions: Balancing markets, government and society
Our institutions and our values
Citizens and government
Government, society and the economy
Future challenges


Of interest...