Monday, February 8, 2016
There are many reasons why economic reformers should be paying more attention than they are to education and health. One is that they're bedrock responsibilities of government.
The second is that each of them constitutes a major industry, big enough for a poor performance to be significant at the macro-economic level. Together they account for 11 per cent of gross domestic product, but for technical reasons this understates their significance.
A better indication of their contribution to economic activity is given by their shares of total employment. Education and training accounts for 8 per cent all jobs, making it a bigger employer than manufacturing.
Health care and social assistance is actually our biggest industry by far, accounting for almost 13 per cent of all jobs. All told, these two public sector-dominated industries account for more than one worker in five, 2.5 million souls.
A third reason for giving health and education more attention than economists have done is that their unavoidable – and, indeed, desirable – high degree of government regulation and participation means normal market disciplines are missing, making them more susceptible to waste and ineffectiveness.
Every doctor or health worker will tell you of waste in the health system, while the anti-government brigade is right in saying there's little evidence of improvement to show for all the extra money we've pumped into education in recent years.
A fourth reason is the intrinsic importance of both industries. Not many industries have more significant effects on our lives, wellbeing and quest for longevity than healthcare. Education hugely influences the quality of our lives and, to get mercenary, our earning capacity as individuals and as a nation.
It's amazing how business people and economists wring their hands over our supposedly weak productivity performance without ever concluding it means we should leave no stone unturned to get education right at every level, from early childhood development to post-grad research.
In the era of the information economy, any country that's stuffing up education at almost every level the way we are is asking to be relegated to the ranks of the poor and needy.
The final reason is that, precisely because government involvement in health and education is unavoidable, they constitute a major part of government spending – federal and state – and thus a major part of the other dimension of our economic challenge: budget repair.
Study the successive Treasury intergenerational reports – federal and state – and a single fact leaps out: the one, overwhelming threat to future budgets is the projected ever-growing cost of health care, only part of which is explained by an ageing population.
Which brings me to the point: econocrats are frequently involved in governments' unceasing decisions about health and education, but that involvement is much more focused on achieving budget savings than on ensuring all the government regulation and subsidisation of health and education leaves us with health and education systems that deliver Australians value for money both socially and economically.
Like so many of the interest groups, econocrats are obsessed with funding education and health rather than ensuring both systems are working in ways that have found a good trade-off between fairness and efficiency and effectiveness.
Quite frankly, when Treasury and Finance put on their expenditure review committee hats their contribution to the decision-making process is more likely to be welfare-diminishing than welfare-enhancing.
Their first besetting sin is short-sightedness. Forgetting (as we usually do) that knowledge is valuable for its own sake, education is all about long-term investment in human capital. But who can worry about that when we're pulling out all the stops to ensure this year's budget deficit doesn't look bad?
In health, it's obvious that well-chosen preventive health measures will yield big payoffs to taxpayers down the track. But when the heat was on in the first Abbott/Hockey budget, preventive health measures were among the first items thrown on the bonfire.
The econocrats' other besetting sin is what I call "no-brainer" economics. Don't bother learning about the specifics of the field you're dealing with, don't consult the health economists – if there are education economists out there I wish they'd get in touch – just wade in with your pocket-rocket model of all markets and propose "getting the [exclusively monetary] incentives right" and "introducing competition" from for-profit providers (such as shonky vocational "colleges").
Is this the best economists can do? If so, they're part of the problem and need reforming.