What is meant by the term, ‘path dependency’? Discuss how path dependency has effected the development of two major Australian economic institutions. 750 WORDS What is the role of Fair Work Australia?...

ECON243 AUSTRALIAN ECONOMIC INSTITUTIONS AND PERFORMANCE.
QUESTIONS
1. What is meant by the term, ‘path dependency’? Discuss how path dependency has effected the development of two major Australian economic institutions. 750 WORDS
2. What is the role of Fair Work Australia? Why does Australia have such a powerful labour market regulator? 750 WORDS
3. What is industry policy? How have government policies and changes in the regulation of secondary industry changed the balance between the primary, secondary and tertiary/quaternary sectors? 750 WORDS
4. What is ‘the farm problem’? Why does this problem occur? What impact has the deregulation of the rural sector had on the farm problem?
AND PLUS THE REFERENCES.
Ans 1
Path dependency refers to the dependency of cu
ent economic outcomes on the path followed in the past, than merely on cu
ent conditions. The theory of path dependence was developed principally as a critique of the neo-classical model, and was formalized by David (1985, 1986), who tried to study the sustainability of the QUERTY keyboard. Despite being inferior in terms of technical efficiency, the QWERTY keyboard has not only spread around the world but has never been seriously challenged by technically more efficient alternatives. On this observation, that some technologies despite being inferior became more popular than those that were efficient, David proposes two divergences from the basic assumptions of neo-classical theory. First, because of the market pressures, the most efficient outcome will finally prevail, and secondly that decisions are essentially reversible, and will be reversed if better solutions become available. In sharp contrast to these two assumptions the path dependence theory emphasizes upon the i
eversibility or lock-in of certain processes and their underlying decisions and also the domination of present and future realities by past decisions and solutions, including even the random events. Therefore in the theory of path dependence, "history matters", as the choices made in the past based on the then conditions persist long after those conditions change, so that “bygones are rarely ever bygones” (Teece etal, 1997). Therefore former decisions have an impact upon those that follow. The initial decisions are open to revisions but once taken, they have an increasing imperative for future course of action. Thus the explanations for the outcomes of path-dependent processes necessitate looking at history, rather than cu
ent prevailing conditions.
Path-dependency affects a wide range of economic aspects from small-scale technical standards to large-scale institutions and patterns of economic development. For instance, the "standard gauge" (four feet 8-1/2 inches or 1.435 meters) of railway track (the width between the rails) has been the most common gauge throughout the history of modern railways, since the late 1820s, although it has proven to be technically and economically sub-optimal than the
oad gauge. Neither the different technologies, nor different traffic conditions in different regions of the world favor these gauges. These gauges were first adopted more than 200 years ago for horse driven coal carts, for transportation over small distance at low speeds. Yet when the railways were invented, instead of trying new gauges for them, the same standard gauge came into use instead of designing new gauges for the railways, which were more heavy locomotives meant for fast transportation over long distances.
There are several reasons responsible for giving rise to such path dependency, which include durability of capital equipment, increasing returns, and technical inter-relatedness. Durability of capital equipment implies that it is more expensive to discard an obsolete technology, for which fixed costs have been already paid, than to combine it with modern technology by changing only the variable costs. Increasing returns to a technology in turn arises because of economies of scale and economies of scope, direct and indirect network externalities, learning by using (Arthur, 1994, Katz and Shapiro, 1985), expectations and expectations of expectations regarding the physiological and social disposition of single and collective actors, coordination effects of rules and institutions, and complementary effects between different rules constituting an institution or between institutions. Therefore increased use of the same technology across all industries over time, howsoever inferior, reduces per unit cost of production and thus makes the products more competitive in the markets. Similarly at times technical inter-relatedness is responsible for path dependency, as in the case of the QWERTY keyboard, which has a
oad range of applications, so that firms avoid incu
ing extra expenditure on conducting the R&D for developing a new kind of a keyboard.

One economic institution that is affected by path dependence is R&D in wine production. After the early 1980s, the Australian wine industry successfully transformed itself from a domestic-oriented, cottage-style industry into a leading
producer, exporter and innovator of table wine. The key to this success lay in the centralization of resources and funding, together with a nationally focused R&D program. It united a fragmented industry with
disparate objectives and markets and created an organization focused on a single
agenda - that of ‘Brand Australia’. As a result, within two decades Australian
wine dominated the popular-premium price points in both the UK and US markets. However, during the past one decade, there has been a dramatic escalation in merger and acquisition activity within the global industry, and the resulting alliances are making national industries and firms mere subsidiaries of international conglomerates. Besides, increasingly educated consumers are demanding a noticeable departure from the blended, nomadic wine styles that were once popular. The newly changed paradigm demands regional differentiation among different wineries of Australia, for which region-specific R&D,
anding, infrastructure, marketing and distribution in turn are necessary. But Australia’s historical success in R&D is now hampering the drive for differentiation. The industry’s previous success in delivering a national R&D agenda has created a path dependency from which stakeholders are now finding it difficult to deviate. Besides, innovation lock-ins and inertia are now emerging as a response to discordant priorities between regional wine firms and the industry organizations, whereby the national industry organizations continue to prioritize funding R&D along national pathways, while regional firms favor regional R&D.
Another institution that is marked by path dependence is u
an transport development. Australia, being principally an u
an nation, needs to pay special attention to u
an transportation. However, Australia for long has been under the influence of the British policy of non-intervention and therefore this ideological path dependence is hindering the development of public u
an transport facility, which is falling desperately short of its need.
Ans 2.
The Fair Work Australia is a part of a new national workplace relations system that began its operations on...