Those leftie academics who keep accusing Scott Morrison and his government of being “neo-liberal” aren’t keeping up. This government’s neo-liberal days are long gone. But “micro-economic reform”, on the other hand, is alive and well.
If neo-liberal has any meaning, it’s a belief in free-market capitalism, privatisation and smaller government. It’s a presumption against government intervention in markets.
But that’s just what Morrison keeps doing: intervening to prop up the Portland aluminium smelter, intervening to keep oil refineries open and, of course, spending $600 million-plus to build a government-owned gas-fired power station no one in the industry wants.
By contrast, it’s clear from Treasury secretary Dr Stephen Kennedy’s big speech last week that he’s hot to trot with a new round of economic-rationalist inspired micro reform. The good old days are back.
Kennedy noted that the budget announced “significant additional funding and reforms relating to the provision of mental health, aged care and employment services,” not to mention more money for the national disability insurance scheme.
These sectors are “non-market services” – services that are either provided by the government directly or where the government provides substantial funding. “Lifting the productivity of these sectors can lead to a higher quality and quantity of services, as well as reduce demands on the budget,” he said.
Historically, the care sectors had experienced low productivity growth. In part this reflected the labour intensity of the services delivered (they must be performed by a person, not a machine), and challenges in measuring the quality of outcomes (was it done well or badly?). But there had also been failings in the design of policies and their implementation, Kennedy said.
He noted with approval a speech given in 2019 by the Productivity Commission’s Professor Stephen King, a micro-economist, identifying “human services” as the “next wave of productivity reform”.
“The government clearly has a role to play in incentivising greater productivity in these sectors, and can do so by applying sound economic principles when designing systems for funding and the provision of services, and encouraging innovation among providers to improve the quality and safety of care provided,” he said.
Using the example of aged care, Kennedy outlined four principles for improving the effectiveness (achieving the desired objective) and efficiency (doing so with the least waste of resources) of government services.
First, provide users with more choice. “Informed choice can improve outcomes for users because it enables people to make decisions that best meet their needs and preferences, generates incentives for providers to be more responsive to users’ needs and drives innovation and efficiencies in service delivery,” he said.
“However, to be truly informed, choice must be accompanied by accurate and accessible information about what the user really cares about.”
Giving consumers and their families digestible information on metrics of care . . . allows them to prioritise these metrics in choosing an aged care facility and encourages competition amongst providers on the quality of care they provide, he said.
“But we need to be careful to ensure these metrics are robustly constructed and free of manipulation by providers.”
Second, improve competition. To encourage competition between providers, the government will move from the present system of allocating subsidised places directly to particular providers, to giving the subsidy to the user and allowing them to decide which provider to take it to.
Giving users better information about the quality performance of particular providers should counter the temptation to choose providers of low-cost but low-quality care.
Third, set “efficient prices”. These refer to the size of the per-person subsidy the government pays to private providers. Efficient prices reflect all the costs and “clear the market” (attract just sufficient supply to meet demand). The government will work to set up an independent pricing mechanism.
Fourth, improve accountability and governance. The government has a direct role to play in assuring confidence in the quality, safety and sustainability of the sector, Kennedy said.
Providers will be subject to greater oversight by a new inspector-general of aged care and a beefed-up Aged Care Quality and Safety Commission. “The government requires a well-equipped regulator to undertake surveillance and enforcement of [the new] standards across the sector,” he concludes.
Sorry. It all sounds lovely – especially with the provisos added by Kennedy, who’s more worldly-wise than his Treasury predecessors – but I’m hugely sceptical.
We’ve been watching these attempts at micro-economic reform for decades. They all work the same way: take a public service that’s always been provided by the government, turn it into something that looks like an ordinary market by adding choice, contestability, monetary incentives and a smidgen of regulation, and you won’t believe the difference it makes.
Well, I would believe it’s very different – just not that it’s better. We’ve seen this game played many times and seen many stuff-ups. Using “contestability” to turn a public good into an artificially created market is the econocrats’ version of magical thinking.
They expect to see all the magic of rational self-interest-driven market forces, but don’t expect to see all the real-world complications their beautiful model leaves out: the lack of competition in country towns, the efforts of firms to make their products incomparable, the unequal bargaining power between sellers and buyers, the “transaction costs” that stop a frail, near-death old lady changing providers like you’d change from Woolworths to Coles, the non-monetary motivations, the gaming of metrics and the unintended consequences.
To get technical, the “incomplete contracts” and massive “information asymmetry” between sellers and buyers.
Yet another problem is that these grand designs are implemented not by Treasury economists, but by departmental bureaucrats who are too easily “captured” by well-organised industry lobby groups (who’ll be fighting all that “accountability and governance” every step of the way), and answerable to politicians anxious to look after those industries that give generously to party funds.
To see “human services” as “the next wave of productivity reform” is, to borrow a favourite expression of legendary Treasury boss John Stone, “the triumph of hope over experience”.