Monday, August 3, 2009


Dinner speech to Department of Resources, Energy and Tourism Corporate Planning Day
August 3, 2009

I note I’ve been invited to be the dinner speaker rather than the after-dinner speaker, so I take that as a sign the desire is for me to say something thought provoking rather than just entertaining. I’d like to give you some of my thoughts on the role of government and the role of the public service.

When you look past simple party loyalties, there’s no greater divide in politics than the philosophical divide over the appropriate role for government. You can say the great divide is between individualism and communitarianism - but that ends up being an argument about the role of government. There’s a vocal school of thought that’s simply anti-government. The anti-government camp has two interrelated strands: the libertarian strand where governments are seen as limiting people’s freedom, both by passing laws that constrain their behaviour and by using taxation to require them to subsidise the provision of income and services to others. Then there’s the economic, neo-liberal strand that sees markets as the ideal - often idealised - way of allocating resources and government intervention as a highly unsatisfactory way to allocate resources. The two strands - political philosophy and neo-classical economic - fit together well, which is why economic rationalism has a much bigger right wing than left wing. These people see market failure as a minor problem, but government failure as a major problem. They’re not opposed to all government, of course. They do accept the need for law, order and defence - the need for the government to ‘hold the ring’ in which markets operate - and I guess most would accept the need for government to provide a minimal social safety net, but the more that can be left to the individual and to the market, the better it will be for society. From this we get a suspicion of government intervention - even in the form of assistance to industry - and a desire to keep government as small as possible. In practice, this is manifest in an insatiable desire for tax cuts, even in the absence of sufficient political will to cut government spending to fit - as we saw with the Bush administration, and the Reagan administration before it.

I have to tell you that I’m not a supporter of the anti-government position. I think government needs to be bigger rather than smaller, that taxes ought to be higher rather than lower, that we ought to do more to redistribute income from the top to the bottom and that there are cases where greater government restrictions would leave us better off. I reject the fundamental proposition that provides the rational for the philosophical and economic anti-government position: that there’s no way a government could know what’s in my best interests better than I do myself. I reject that proposition because I reject the key assumption on which it’s based: that humans are rational decision-makers rather than being highly emotional, instinctive social animals with a tendency to herd behaviour. Just about all of us have significant problems with self-control - making ourselves do the things we know we should do in our own longer-term best interests - and we often welcome the constraints governments impose on us that help us with our self-control problem. Road safety is just one example.

But I’m not here to expound on all that. I mention it only to demonstrate that I’m not anti-government and not a public-service basher. I think my original profession as a chartered accountant has left me with a lot of sympathy for Treasury - the people who often have to say no when everyone else wants to say yes - but my family background has left me in sympathy with the people accepting the ultimate responsibility for keeping the show on the road. The people who sweep up after the dance is over and everyone else has gone home. That used to be my family and I know how it feels. And years of hanging around with econocrats have left me with the opposite prejudice to most of the public: I think rent-seeking is rife and I’m suspicious of special pleaders and sympathetic to public servants trying to ensure the wider public interest prevails over sectional interests. So though I intend to say some things I hope you’ll find challenging, don’t think I’m unsympathetic.

Before I go on, let me add some qualifications. Although I have no in-principle objection to government intervention, I’ve been around too long to be naïve about the ease with which intervention can correct market failures. Intervention is a very tricky business, with enormous potential for creating perverse incentives and other unintended consequences. Economists delude themselves that they’re in the incentive business but, in fact, they often come unstuck because they’re conscious only of monetary incentives, whereas non-monetary incentives - motivations, would be a better word - are often pervasive. For instance, people can work hard because they’re ambitious for power and promotion independent of the extra salary, because they love what they’re doing, because of a work ethic or a sense of duty, because of the institution’s esprit de corps. Sometimes the creation of monetary incentives - paying people to do things - can be counterproductive if it crowds out pre-existing non-monetary motivations. SES performance bonuses may be a case in point. So, yes, intervening in ways that help rather than hinder isn’t easy.

The part of economics known as ‘public choice’ has influenced many in the anti-government camp to believe that, however well-intentioned government intervention may be at the outset, it’s virtually inevitable that the regulators end up being captured by the regulated - by the big firms in the industry, or by the industry association. The regulated have a huge incentive to get to the regulators so as to modify the regulation in ways the industry finds more congenial, or even to advantage the existing players against new entrants or rival industries. Now, if I fully believed that, I wouldn’t be a believer in intervention. But I do have to admit that there’s more than a grain of truth to the accusation: there is considerable scope for regulatory capture. And I’ve often suspected that the way most bureaucracies are organised - where the department of agriculture looks after the farmers, the industry department looks after the manufacturers, the environment department looks after the greenies, the resources and energy department looks after the miners and the tourism department looks after the tourist industry - could have been purpose-built for regulatory capture. In the various industries’ battle for their share of industry assistance, in the inter-departmental battle for influence and resources, each industry has its own special champion, the people whose true role is supposed to be to keep the industry acting within the bounds of the wider public interest. Is the bureaucracy divided up this way just to gain the benefits of specialisation, or is each department’s real role to keep their particular industry happy and not making trouble for the elected government?

Terry Moran gave a speech recently where he quoted Peter Shergold on the role of the public servant. The public service, he said, provides ministers . . . with frank, fearless and robust policy advice - and it does so in a confidential manner. The confidentiality of advice is critical to our ability to be professional. Ministers carry accountability for policy decisions. Our role is to assist them to make good decisions, not launch alternative policy proposals into the public domain. We do not therefore advise the Opposition, backbench members . . . or the media. The community perception, however, is that public servants have some duty to the public interest, something beyond, and greater than, the interests of the government of the day, and where the public interest and the government’s interests are perceived to conflict , public servants should speak out. This is a view encouraged by the media, which has a strong self-interest in public servants doing just that. Unquote.

The Crikey email newsletter conducted an interesting debate about all this, and I’d like to add some observations of my own. First, I do accept that, for policy advice to ministers to be frank, fearless and robust, it does need to remain confidential. However, it doesn’t automatically follow that because it’s confidential it will be frank and fearless. And, precisely because it is confidential, it could be weak, servile and overly accommodating of the government’s short-term political interests without anyone in the public ever knowing. A great set-up for public servants - a case of a ‘strong self-interest’ you might say - but a poor one for the public. In other words, the public just has to take it on trust that the advice we are paying you to give ministers is frank and fearless. There have been times in recent years when I’ve wondered how much of it was. And this puts a moral onus on public servants to ensure they deliver high quality, apolitical advice, even though no one will ever know whether they did. So it gets down to a moral, ethical duty - a matter between you and your conscience. You may be surprised to hear an economic journalist saying something so touchy-feely as that, but I mean it quite seriously. After all I’ve seen first about the failures of regulation and now the failures of deregulation, what’s left? For me it’s personal morality, professional ethics, a sense of duty. Consider this: given the problem - in the interests of ensuring frank advice we keep that advice confidential, so we can’t be sure it’s actually happening - what incentive would you suggest to encourage the continuing provision of frank advice: performance bonuses?

The thing that worries me most about Mr Moran’s remarks is the potential implication that public servants don’t have a duty to the public interest beyond and greater than the interests of the government of the day. Of course they have such a duty. And if the frank and fearless advice isn’t about putting before the minister the policy advice the public servant genuinely believes - rightly or wrongly - to be in the greatest long-term public interest, what else is there to be frank and fearless about? I solemnly warn you, minister, don’t pursue this policy because it would cost the government too many votes? Even though their advice remains confidential, public servants are servants of the public, not just of the government of the day. They do have a higher calling: to advance the public interest as best they discern it within all the constraints of our system of democracy. If most public servants didn’t agree with me - if they didn’t see a public service career involving the pursuit of a higher purpose than just salary and advancement - I think there’d be a lot fewer people living in Canberra. I think most senior people are attracted to the public service precisely because they believe they’re helping to make the world a better place. And my observation suggests that the happiest and most successful departments, those with esprit de corps, are those with a well defined sense of purpose, who see their role as about more than just helping the government get re-elected or keep on top of the 24-hour news cycle.

Mr Moran said the public service doesn’t advise the Opposition, backbenchers or the media. Perhaps not in the narrowest, most formal sense of ‘advice’. But public servants do provide (closely supervised) briefings to the Opposition in certain circumstances, and when you look at the farce the costing of election promises under the Charter of Budget Honesty has become, you quickly conclude that good government would be served if access to costing advice wasn’t so hugely unequal. As for advising the media, let me say that, because I promptly forgot most of the economics I learnt at university, most of what I know about economics was taught to me by infinitely patient econocrats. Why did so many of these now-senior people devote so much of their time to my edification? Because of a sense of public duty. Because they believed the public debate about policy needed to be well-informed. So if you think my work plays a generally positive role in the public policy debate, you can thank public servants.

The great temptation for public servants providing confidential advice to ministers is to cross the line between public policy and political tactics. Stick to policy; leave the politics to the politicians. Often, however, it’s not that simple. In this I think your choices are similar to mine as a commentator. I, too, give advice to governments - what’s more, mine costs the taxpayer nothing (ie it’s gratuitous). Do you give advice so pure that it’s dismissed as utterly unrealistic, or do you make it ultra-realistic because you know this mob is neither high-minded nor very brave? I think you’ve got to give advice you can be proud of, advice that discharges your daily obligation to help make the world a better place. You have to be in the ballpark of realism, but you can’t tacitly condone short-sighted political self-interest. You have to always err on the side of encouraging politicians to be just a little more far-sighted and a just little braver. As a columnist, I don’t want to waste my life writing columns that say no more than: what would you expect? Boys will be boys. To the tiny extent that anything I write has any effect on what politicians do, my goal is to encourage them to jump just a little higher in the direction of the public interest.

Before we finish with Mr Moran I want to make one further point: confidentially of ministerial advice is fine, but it has to be matched by accountability, and accountability is crippled without sufficient disclosure. If the public is inadequately informed about government actions then the electoral process can become just a caricature of the democratic ideal. The plain truth is that most ministers would prefer to keep most information about their department’s activities completely out of the public eye. It’s not hard to see why; it makes life so much simpler. It must be terribly tempting for senior public servants to see it just the same way. This becomes an issue when the department, not the minister, makes decisions about FOI requests. My point is: make sure you’re acting in the public interest, not just the short-term interests of the government of the day, nor yet the department’s own convenience.

When you hear the silly things oppositions say - all oppositions - it’s tempting to think them a waste of space. But consider how our system of government would perform without oppositions to keep on the government’s hammer. How much worse our governance would be without opponents making eight unjustified criticisms out of 10. It would be appalling. So this is something to remember when making speeches about how public servants don’t advise the opposition. Whatever their failings, they have an indispensible role to play in ensuring good government and public servants should avoid sharing the same distain for the opposition’s role as their current masters do.

Similarly, despite the many crimes committed by the media, consider how our system of government would perform without the media pursuing its ‘strong self-interest’ in digging up stories that will embarrass the government of the day. Do you really believe the public interest would be served by a much higher proportion of the government’s dubious decisions going unnoticed by the electorate? If you do, you’re too close to your political masters.

No matter how debased the process becomes on occasion, good governance requires that oppositions and the media play their part in keeping governments on their toes. Governments - and their public service agents - have some of the characteristics of a monopoly. Monopolies are almost always bad, becoming lazy, unresponsive, self-serving and high-handed in their treatment of the individual members of the public they are supposed to serve, who can be seen as ignorant inconveniences. Good public servants resist the temptation to exploit their monopoly position.

Mr Moran sees public servants as having no obligation to ‘advise’ anyone but the minister. But public servants are responsible for the dissemination of information. We’ve mentioned FOI, but there are also departmental reports and publications. It can be argued that a departmental report is really the government’s report, which gives it the right to include whatever self-serving statistics and arguments it sees fit. But I can remember a day when departments took a pride in ensuring their reports to the public were very straight-up-and-down, carefully factual affairs, with as little spin as possible. I mention it because I think I’ve detected a decline in the standards of reports in recent years. I hope that’s not true of this department.