Showing posts with label microeconomic reform. Show all posts
Showing posts with label microeconomic reform. Show all posts

Wednesday, September 20, 2023

How to make big business deliver for us, not just the fat cats

When we’ve got big business behaving badly, what can we do about it? Most of the answer’s obvious: strengthen the laws against misbehaviour, greatly increase the penalties and then, most obvious of all, police them vigorously until the fat cats get the message.

As the banking royal commission showed, much of the misbehaviour uncovered involved breaking the existing law. And the casinos in Sydney and Melbourne seem to have been breaking the law.

If PwC’s decision to pass on to other clients the information it had been given by the Tax Office after promising to keep it confidential wasn’t illegal, it should have been. And obviously, the many big businesses found to have been paying their workers less than they were legally entitled to were breaking the law.

The High Court has just confirmed that Qantas’ dismissal of 1700 workers was illegal, just as the Federal Court had originally found it to be many months ago. Qantas had appealed against the Federal Court decision but failed, so it took its appeal to the High Court and was again rebuffed.

Think how much shareholders’ money was spent trying to escape what most people would have thought was the company’s legal duty to its employees. And how much the shareholders will now have to pay to compensate the unlawfully dismissed employees.

Now the Australian Competition and Consumer Commission is taking legal action against Qantas, alleging it continued selling fares on flights it had already cancelled. Should the airline lose the case, it will be up for hefty fines.

It’s hard to believe that in all these cases big businesses, with their own legal departments, didn’t know that what they were doing could be found to be against the law. Much easier to believe they thought the chances of being prosecuted were low.

It’s possible some thought that, should they be prosecuted, they could afford the legal firepower to find a way to get them off the hook. But I think the main reason so many big companies have been acting as they have is their confidence that they wouldn’t be prosecuted.

Of course, in competitive markets – even markets like ours, where competition on price isn’t nearly as strong as it’s supposed to be – when one big business is seen to be gaining an advantage by finding neat legal arguments, the temptation for other businesses to do the same is intense. And it’s all too human to assume that the test of what’s ethical behaviour is what you imagine everyone else is doing.

Remember, too, that although many personal crimes are committed in the heat of the moment, big-business lawbreaking is likely to be the result of carefully considered advice.

That’s why penalties for business lawbreaking need to be very high. I think going to jail – even for just a few months – would be a highly effective deterrent. Think what your spouse would say if you got caught.

But why have chief executives been so confident their misdeeds would go undiscovered and unpunished? Because for a long time, it was pretty true.

During the now-ended era of “neoliberalism” – the doctrine that what’s good for business is good for the economy – successive governments used nods and winks to let corporate watchdogs, competition and consumer watchdogs, and wages watchdogs know their job was to look impressive without ever biting anyone.

And, if that wasn’t enough, governments would deny them the funds needed to police adequately the laws they were responsible for. Even the Tax Office wasn’t funded to do as many audits of taxpayers as it should have done – despite those audits bringing in far more revenue than they cost.

But, as I say, the neoliberal era is over, a victim of the manifest failure of much privatisation and outsourcing, and the exposure of big business misconduct by investigative journalists – most of them working for this august organ and the ABC.

And, of course, the crossbenchers are using Senate committees to draw attention to failures the two major parties would prefer to go unnoticed.

Once the public’s attention is aroused, governments have to act, calling royal commissions and being seen enforcing the law.

Now the watchdogs are better funded, and the ACCC is calling for stronger powers. Last week its chair, Gina Cass-Gottlieb, told a parliamentary committee that many unfair trading practices currently fall outside the scope of Australian consumer law, “despite causing considerable harm for consumers, small business [note that; big businesses often mistreat small businesses] and competition”.

She was referring to practices such as making it hard for people to cancel digital subscriptions, online sites with opaque and confusing trading terms for small businesses, manipulative sales practices such as misleading scarcity claims (“Hurry, stocks limited”), or deceptive design patterns such as sites that confuse you into buying things you didn’t actually want.

In the post-neoliberal world, there’s much cleaning up to be done.

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Monday, February 6, 2023

Want a better economy? Design better policies, don't just pick sides

A wise person has said that our brains love to make either-or choices. Which is why it’s wise not to waste much energy on the concocted furore over Treasurer Jim Chalmers’ 6000-word essay musing on future economic policy.

The world is a complicated place, and so are the choices we make about what we need to do get an economy that improves the lives of the humans who constitute it, including those at the bottom, not just the top.

But our brains look for ways to simplify the many choices we face. The simplest choice is binary: between A and B, black or white, good or bad. This fits with our tribal instincts. My tribe versus the rest, us and them, the good guys versus the bad guys.

Our two-party political system has been built to keep things simple. And thus, to minimise the need for hard thinking. Many people don’t have time to decide what they think about this policy or that, so they pick a political party and outsource their thinking to it.

“Am I for it or against it? Tell me what my party’s saying, and I’ll know what I think.” There’s plenty of survey evidence that people who voted for the government – any government – are more inclined to think the economy’s going well, whereas those who voted for the other side think it’s going badly.

Too much of the outrage over Chalmers and his essay has come from media outlets whose business plan is to pander to the prejudices of a particular “market segment”.

Economists like to think of themselves as rational and objective, but economics and economy policy are highly susceptible to binary choices, and fads and fashions.

All I’ve seen over the years has made me a believer in the pendulum theory of history: we tend to swing from one extreme to the other. After World War II, people – particularly in Britain and Europe - were very aware of the failings of the private sector, so they decided to nationalise many industries.

By the time Maggie Thatcher and Ronald Reagan arrived, people had become very aware of the failings of government-owned businesses. So they decided to privatise many industries.

The big binary issue in economic policy is broader than privatisation, it’s government intervention in markets. Should governments intervene as little as possible, or as much as is necessary? To put it in the comic book terms beloved by Chalmers’ partisan critics: we face a choice between the free market or socialism.

Except that we don’t. My point is that the truth – and the ideal place to be – is unlikely to be found at one extreme or the other. It’s much more likely be somewhere in the middle.

To me, this is what economics teaches. It’s why economists say we should make decisions “at the margin” and are obsessed by finding the best “trade-off” between our conflicting objectives.

We want to be free to do as we choose, but we also want to be protected from instability (high inflation and high unemployment) and unfair treatment in its many forms.

The period of deregulation and privatisation instigated by the Hawke-Keating government in the mid-1980s, known locally as “micro-economic reform” motivated by “economic rationalism”, eventually degenerated into a belief in public bad/private good under subsequent governments, and was dubbed “neoliberalism” by leftie academics.

While the inclination to favour business and sell off government businesses remained under the former Coalition federal government, it had no commitment to minimising government intervention. Its willingness to impose its wishes on electricity and gas producers, for instance, was often on display.

And while the big reforms undertaken in the name of economic rationalism – floating the dollar, deregulating the banks, ending import protection, and introducing national competition policy – have served us well, many of the privatisations and efforts to outsource provision of government services have not.

In 2023, we’re left somewhere between the two extremes, with an economy that’s not working nearly as well as we need it to. Chalmers and Labor’s other ministers will have to intervene – but do so in ways they’re reasonably sure will make matters better rather than worse.

That’s the hard part, and their econocrat advisers aren’t nearly as well-equipped as they should be to tell them “what works and what doesn’t”.

Why not? Because we’ve done far too little hard thinking about the problems, preferring to take refuge in the happy delusion that the answer lies at one extreme or the other.

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Tuesday, June 21, 2022

Perrottet's bold re-election bid: the world's first teal budget

A budget can tell you a lot about the government that produced it, especially a pre-election budget.

This one reveals a reformist Premier anxious to persuade us his government has reformed itself. It’s your classic, all-singing, all-dancing pre-election affair, offering increased government spending on 101 different things.

In his effort to get re-elected, Dominic Perrottet has left no dollar unturned. Enjoy, enjoy.

But recent lamentations in Canberra remind me to remind you: whoever wins the state election in March, next year’s budget won’t be nearly so jolly. If there’s bad news in the offing, that’s when we’ll get it.

For a government going on 12 years old and up to its fourth premier, this budget should be the Coalition’s swansong. But Perrottet wants us to see him as new, young, energetic and reforming.

On the face of it, proof of his reforming zeal is his controversial plan to press on with replacing conveyancing duty with an annual property tax, despite Canberra’s lack of enthusiasm for helping to fund the loss of revenue during the transition.

Most economists would loudly applaud such reform. On close examination, however, the budget’s first stage doesn’t add up to much.

Even so, let’s not forget that the desire to make their people’s lives radically better has become almost non-existent among today’s self-interested politicians.

Perrottet wants a return to co-operative federalism, and will happily work with a Labor Victorian premier and Labor prime minister to achieve it.

And the reform doesn’t stop there. This pre-election budget is also the first post-election budget following the crushing defeat of the Morrison federal government. The NSW Liberal Party, with the least to learn from Scott Morrison’s many failings, is also the one that’s learnt most.

Genuine action on climate change, measures to improve the treatment of women in the workplace and the home, promoting co-operation rather than conflict and division, increased spending on early education, childcare and hospitals, the educated talking to the educated, Perrottet’s rejection of the pork barrelling condoned by his predecessor – this budget has everything.

I give you ... Australia’s first teal budget.

Much of the credit needs to be shared with the new Treasurer, Matt Kean. He is a reforming Treasurer – with many of his predecessors’ mistakes needing reform. This budget is mercifully free of the funny-money deals that blighted so many previous efforts.

The spirit of positivity that pervades the Treasurer’s fiscal rhetoric also infects his confidence that the budget will be back to surplus in a year or three, and the debt will one day stop growing. Should this optimism prove misplaced, there’s always scope for adjustment after the election.

The government is rightly proud of all it’s done building new metros, light rail and expressways. But the Coalition’s original desire to get on with a hugely expensive transport infrastructure program while limiting the state’s debt and preserving its triple-A credit rating, led it into crazy arrangements to hide much of the debt by, for example, paying businesses such as Transurban over-the-odds to do the borrowing for it.

Now Sydney, much more than any other city, is girdled by a maze of private tollways, most with a licence to whack up the tolls quarterly or annually by a minimum of 4 per cent a year. What was that about fighting inflation and the cost of living?

This was always a way of keeping official debt down by shifting the cost onto the motorists of present and future decades.

This ill-considered mess has proved so costly to people in outer-suburban electorates that the latest “reform” is for taxpayers to subsidise the worst-affected motorists – and thereby the excessive profits granted to the tollway companies.

Another false economy was to fatten the sale price of privatised ports and electricity companies by attaching to them the right for the new owner to increase prices and profitability. This has played a small part in all the trouble we’re having now making the National Electricity Market work for the benefit of users rather than big business.

In my home town, a formerly secret deal to enhance the sale price of Port Botany is effectively preventing the Port of Newcastle from responding to the looming decline of the coal export trade by setting up a container terminal.

And all that’s before you get to the creative accounting madness of transferring the state’s railways to the still-government owned Transport Asset Holding Entity.

Perrottet, who was up to his neck in that trickery, seems to be making a better fist of Premier than treasurer. And Kean seems a better Treasurer than his many Coalition predecessors. But will that be enough to cover all the missteps of the past?

Read more >>

Wednesday, May 25, 2022

Replacing the misbehaving ScoMo is an easy act for Albo to follow

It is a truth (almost) universally acknowledged by Labor politicians that it’s near impossible to reform from opposition. Be too ambitious, make yourself too big a target, and the government will happily use the many advantages of incumbency to shoot you down.

That’s because all reforms have opponents, and most create losers as well as winners. That’s why, after being reminded of this truth at the 2019 election, Labor made itself as small a target as possible. Part of this was for Anthony Albanese to neutralise most of Scott Morrison’s vote-buying promises by matching them.

Back then, Morrison convinced himself that – apart from having God on his side – his miraculous win was owed to his cunning strategy of painting Labor as the party of tax-and-spend, and the Liberals as the party of lower taxes. He tried repeating the strategy this time.

The first part of his mantra was true enough. The second was bulldust. As independent economist Saul Eslake has demonstrated, in the highest-taxing stakes, the just-departed government runs second only to the Howard government.

Find that hard to believe? You’re forgetting the invisible magic of bracket creep. The loophole in Morrison’s promise not to raise taxes – which Albanese matched – is that it doesn’t include bracket creep. And now that inflation’s back, bracket creep proceeds apace.

Many of the reforms we need – fixing aged care, reversing the squeeze on universities and TAFE, making homeownership affordable, exploiting our chance to become a renewables superpower – would cost big bucks and require greater and changed taxation.

But Albanese’s problem is not just that he’s promised not to increase taxes while making a huge and blatantly unfair cut in income tax in two years’ time, or even that he’s inherited a big budget deficit and huge debt overhang.

That much you see from the budget papers. What you can’t see is the extent to which the Morrison government has been holding back the tide of higher spending by cutting public service jobs, increasing waiting times, cutting NDIS packages and finding excuses to suspend people’s dole payments.

This dam had to burst after the election. And it will do so at just the time when the econocrats are telling Labor the budget deficit must go down, not up.

What was it Paul Keating used to say about excrement sandwiches? Come on down, Albo.

But all is not lost. For a start, on expensive and controversial reforms, Albanese should follow the aforementioned Eslake’s advice and copy John Howard. He got elected in 1996 with a promise to “never, ever” introduce a goods and services tax. So he made an honourable escape by having such a tax fully developed for presentation at the next election.

It was approved – by a whisker. As Eslake reminds us, not since 1931 has any first-term federal government failed to secure a second term.

“Labor needs in its first term to lay the groundwork for a more expansive mandate for its second term,” Eslake recommends.

Next, Labor does have a mandate – both direct and indirect, via the higher votes for the Greens and teal independents – to proceed with climate action, an anti-corruption commission “with teeth”, gender equality, and commitment to the Uluru Statement from the Heart “in full”.

Except for climate action, none of these historic reforms will greatly trouble the budget accountants.

However, as Professor Mark Kenny, of the Australian National University (but formerly of this parish), has helped us see, this election was about something deeper: “The urgent need to rescue longstanding governing norms around transparency, accountability, ministerial standards, trust and honesty and, of course, the viability of the public service.”

Morrison’s approach, he says, was “divide and dither”. “Accountable government, national unity, evidence-based policy, and democratic accountability [whether voters give his performance a tick or a cross] are all on the ballot at this election.”

Let’s get personal. The biggest reason Albanese is now PM is that he’s not Scott Morrison. The biggest policy question in this election, the one almost everyone in the great majority who didn’t vote for the Coalition wholeheartedly endorsed, was: “would you like to see no more of Scotty from marketing?”

It’s simple. The surest way for Albanese to ensure his re-election is to be a better, more likeable PM than that other one.

Just be more truthful, more respectful, more humble, more answerable, more willing to admit your mistakes, more inclusive, more even-handed, more charitable towards the needy, more willing to answer the question, and more protective of Australia’s reputation abroad.

Be less prevaricating, less divisive, less bulldozer-like, less willing to help mates and punish enemies, and less unable to let that five-letter S-word pass your lips unqualified.

I think Albanese’s already got that message. “I want to bring people together and I want to change the way that politics is conducted in this country,” he’s said. Australians have “conflict fatigue”.

Being a saintly prime minister won’t be easy. But think of it this way: conduct-wise, being ScoMo’s successor won’t be a hard act to follow.

Read more >>

Friday, May 20, 2022

Infrastructure spending has degenerated into wasteful vote buying

The capacity of our politicians to take a good economic policy idea and pervert it into a partisan waste of taxpayers’ money never ceases to appal.

Once I was a big supporter of greater spending on infrastructure projects, even when most of the cost had to be borrowed. That’s because well-chosen projects will add to the economy’s productivity – say, by reducing the time taken to get from A to B – and thus more than pay for themselves over time.

But for that, you have to be sure to pick only those projects that offer economic and social benefits well exceeding their costs. When a politician doesn’t bother with that, but picks projects just on winning votes, you can’t even be sure people in the chosen electorate will gain much benefit.

In this election campaign, the Morrison government’s promise to add transport infrastructure spending of $18 billion to our already high public debt in the hope of buying votes in key electorates, would not only involve wasting much money. It would also “crowd out” spending on more valuable things, such as education, aged care or research.

Of course, Labor plays the same game. In this election, however, it’s proposing to waste no more than $5 billion. (This is a big improvement on the 2019 election, when Labor wanted to spend $49 billion, against the Coalition’s $42 billion.)

It would be good to have some knowledgeable person keeping tabs on these huge sums. And fortunately, there is: Marion Terrill, of the Grattan Institute.

In her assessment of the two parties’ promises this time, she notes that the emphasis on winning votes in key marginal seats is quite unfair. Those of us not in marginal seats get little of the moolah. And some states get a lot more than others. The Coalition is offering nearly $900 per Queenslander, compared with about $500 a person in NSW and Victoria.

As for Labor, it’s offering close to $400 a person in Victoria, with Queenslanders next on about $200 each.

Total bribes are well down this time because billion-dollar projects are less prevalent, with the Coalition offering just five (in ascending cost, the Sydney-Newcastle rail upgrade, the Brisbane-Gold Coast rail upgrade, the Beveridge intermodal terminal in Victoria, the Beerwah-Maroochydore rail extension and the North-South Corridor in South Australia) and Labor offering just one (the Melbourne suburban rail loop).

Note, however, that none of these six projects has been assessed by Infrastructure Australia as nationally significant and worth building. Only one of them has actually failed the assessment (the cost of the Maroochydore rail extension was found to exceed its benefits), with the other five being proposed without completed assessments.

Terrill says it’s prudent to be stepping back from last election’s megaproject binge. For some years, the engineering construction industry has been warning about its limited capacity to deliver the existing pipeline of projects, let alone add to it. Even before the pandemic, employment in the sector had surged by half, and supply-chain disruptions had made it slower, more difficult and more expensive to find materials.

With the recent slowing in population growth, maintaining and upgrading existing assets should take priority over big new projects. But both parties have promised to spend more on new projects than upgrades. Pollies always prefer the flashier projects.

But while big projects are down, tiny projects are way up. Two-thirds of the Coalition’s promised spending is on projects costing $30 million or less, and nearly half of Labor’s. We’re talking commuter station car parks and roundabouts.

My guess is this is about spending less money overall on projects targeted towards many more key electorates. That is, it’s about greater vote-buying efficiency. Presumably, the voters in these seats find the projects attractive.

But that doesn’t make the money well-spent. Terrill reminds us these tiny, hyper-local projects violate a longstanding principle that the Feds stick to infrastructure of national significance, leaving the small stuff to state and local governments.

They know a lot more about what’s most needed where, meaning that when the feds blunder in with their vote-buyers, things often go amiss. Many commuter car parks promised at the last election had to be cancelled, Terrill says, because there were no feasible design options, feasible sites or because the rail station was being merged with another.

How were the young political staffers with their whiteboards in Canberra supposed to know that?

Terrill notes two further objections. First, “the quality of the projects promised in the heat of election campaigns is poor,” she says. The tiny projects are too small to be assessed by Infrastructure Australia and, as we’ve seen, the big ones get promised without completing proper assessment.

Second, she says, “government decisions should be made in the public interest, and those making the decisions should not have a private interest – including seeking political advantage with public funds”.

“A better deal for taxpayers would be for whichever party wins government on Saturday to halt this spending on small local infrastructure, and focus instead on nationally significant projects that have been properly assessed by Infrastructure Australia,” Terrill says.

In an earlier report, Terrill argued that the next government should strengthen the transport spending guardrails. It should “require a minister, before approving funding, to consider and publish Infrastructure Australia’s assessment of a project, including the business case, cost-benefit analysis, and ranking on national significance grounds”.

This would go a long way towards increasing the social and economic benefit from projects, while reducing their use to buy votes with taxpayers’ money.

And all that’s before you get to cost-overruns. Back in 2020, Terrill reported that the Inland Railway was originally costed at $4 billion, whereas the latest estimate was $10 billion. Melbourne’s North-East Link had gone from $6 billion to $16 billion. The Sydney Metro City & Southwest underground had gone from $11 billion to $16 billion. Incompetence or deliberate understatement?

Read more >>

Monday, February 28, 2022

Competition boss warns faith in market economy under threat

In his parting remarks last week, veteran econocrat Rod Sims, boss of the Australian Competition and Consumer Commission, offered some frank advice to his political masters and big business.

Let me put it even more frankly than he did: if governments don’t require businesses to improve their behaviour, voters and consumers could lose faith that they’re getting a fair shake from a lightly regulated economy and fall for populist solutions that make things worse for everyone.

Though business leaders make speeches in praise of competition, the truth is businesses hate competition. Why wouldn’t they? It makes their jobs much harder. To the extent the law allows, they buy out or bankrupt small competitors, and take over big ones.

In its public statements, the Business Council poses as wanting economic “reform” in the interests of us all. Behind the scenes, it lobbies governments hard to preserve big businesses’ ability to take over competitors and to impose unreasonable terms in transactions with small businesses.

Politicians make speeches about the importance of small business because all those owners add up to many votes. But pollies yield to the lobbying of big businesses because they make generous donations to party coffers, which can be used to buy votes through advertising and the rest.

It follows that the competition commission and whoever’s running it get a hard time from business interests. The more effective that person is in seeking to achieve “effective competition”, the more criticism they attract.

Whenever they take court proceedings that fail, there’s much crowing by business commentators. Elsewhere, competition regulators are attacked for being sleepy and toothless watchdogs.

Of course, public servants are too discrete to say all that. So let’s switch to what Sims actually said in his valedictory speech to the National Press Club. It was frank - by the standards of econocrats.

“When I arrived at the commission [11 years ago] I mentioned my main objective in chairing the commission was ‘that Australians see that a market economy and strong competition work for them and that they see the commission working tirelessly for the long-run interests of consumers’, he said.

“We must recognise that a market-based economy is fragile, as its organising principle relies on companies and businesspeople pursuing their own self-interest. This is not an obvious way to organise things.

“For this to work to the benefit of all Australians requires, at a minimum, strong competition between firms and strong enforcement of the Competition and Consumer Act.

“In our society, large established businesses have a strong voice, which is not surprising as the largest firms employ many people and supply Australians with many of their needs.

“Often, however, the understandable interest of large established businesses in short-term advantage sees them, I believe, work to the disadvantage of their own long-term interests,” he said.

Large established businesses had opposed all the main changes to the competition Act when they were introduced, he said. For example, laws against misleading and deceptive conduct.

“I would ask, however, how many specific interventions and extra red tape would we now have that would damage our market economy, if we did not have this general provision?”

The competition Act largely had economy-wide laws, whose effectiveness underpinned the necessary wide acceptance of the market economy. “Perceptions of unfairness and inequity will see faith in a market economy eroded,” he warned.

Last year Sims proposed a tightening of our merger law. Big business was loud in its disapproval. Distinguished corporate lawyers insisted the present laws were working fine. Business commentators were dismissive.

Last week Sims said “large established businesses and their advisers will oppose these changes, but my guess is that well over 90 per cent of Australians would support them. Further, I think such changes would strengthen our market economy, and would benefit the vast majority of Australian businesses.” (He means the smaller ones.)

When Sims took over the commission in 2011, it had a near-perfect success rate in its court actions. He took this as a sign it was being too cautious in its efforts to enforce the law.

Eleven years later, “we have a good win/loss record, including recent guilty pleas in cartel cases, including by individuals in two criminal cases. I recognise, however, that we have had some losses, including in a recent high-profile case.”

The commission’s record on enforcing the protection of consumers “includes creative wins against companies such as Trivago (where we unpicked its algorithm) and Google, and we have seen penalties imposed by the courts for breaches of the Act increase from $1 million being seen as high, to recent penalties of $50 million against Telstra, $125 million against VW, and $153 million against AIPE, a vocational education provider.”

Let’s hope Sims’ successor is just as diligent in protecting the market economy against its own excesses.

Read more >>

Wednesday, October 13, 2021

We risk becoming a business kleptocracy, with pollies showing how

I was startled the other day to hear a mate saying he was a bit depressed by the thought that Australia was turning into a business kleptocracy. What? Surely not. But the more I thought about it, the more I realised he was on to something.

I’ve written a lot in recent times about the failure of what lefty academics call “neoliberalism” and its quest for smaller government. Going back to the reign of the Howard government, both sides of politics have accepted the fashionable idea that, though there are plenty of services governments should continue asking taxpayers to pay for, the actual delivery of those services should be “outsourced” to the private sector.

Why? Because, as everyone knows, the public sector is inefficient, whereas the private sector is highly efficient. Because it would be so much better to have more of us working for business and fewer working for the various arms of government. The greater efficiency should lead to lower taxes.

I’ve pointed to instances where this mixture of ideology and tribalism has failed, leading to lower quality services without much evident saving to the taxpayer. In a democracy, it’s always right to hold governments ultimately responsible for their stuff-ups.

But is that the whole story? My mate’s looking at it from a different angle: what do the many failed attempts to hand service delivery to for-profit operators say about the ethics and trustworthiness of Australia’s business people?

That, for a surprising number of them, if you see some money lying around with nobody watching, you grab it? That while ripping-off customers is unethical and will soon get you a bad reputation, overcharging “the government” is a harmless, victimless crime? No human was hurt in the making of this profit?

One of the first government services to be outsourced was childcare. Before long, a single company bought up more than half the childcare centres, expanded overseas and then collapsed. To avoid leaving many parents in the lurch, government had to step in and sort it – at great expense.

Much of the sector remains privately owned. Last week the United Workers Union produced a report finding that three-quarters of the 12,000 enforcement actions taken since 2015 were against for-profit providers.

The Rudd government drew much criticism over the deaths of several people caused by faulty installation of pink batts during the global financial crisis. But what does it say about all the inexperienced operators using unqualified workers who flooded into the industry because they saw an easy buck to be made?

Bipartisan decisions to open vocational education to private operators and charge fees on a similar basis to the HECS loan scheme, attracted many new operators, some of which used salespeople offering free iPads to unsuitable youngsters who signed up for “free” online courses. Cost the taxpayer millions in debt write-offs.

The present government and the four big banks swore there was no need for a royal commission into possible misconduct but, when its hand was forced, we all remember how much misconduct was uncovered.

An accountants’ report for the royal commission into aged care found that, using a common definition of profit (earnings before interest, taxes, depreciation and amortisation) for-profit aged care providers in the second-highest quartile had a profit margin of 16 per cent, compared with 13 per cent for non-profits and 4 per cent for state government providers in 2018. Return on equity was 12 per cent for non-profit providers and 72 per cent for for-profit providers.

This week Sydney’s Star casino joined Melbourne’s Crown casino in being accused of turning a blind eye to suspected money laundering, organised crime and foreign interference.

Whether or not you think Treasurer Josh Frydenberg should have included in the JobKeeper scheme a provision to claw back assistance that proved not to be needed, it’s surprising to see some big companies announcing healthy profits while hanging on to their grants.

This week the Fair Work Ombudsman filed court proceedings alleging that the Commonwealth Bank had knowingly breached its wage deals with employees as part of a $16.4 million underpayment.

The ombudsman’s annual report for 2019-20 said it had recovered more than $123 million for 25,000 employees, including $90 million in underpayments that employers self-reported.

Some of our biggest and seemingly most respectable companies, including Woolworths, Coles, Wesfarmers’ Target and Bunnings, Qantas and Crown casino – not to mention the ABC – have admitted or been accused of “wage theft”. Underpayment seems standard practice in the restaurant industry.

We’re asked to believe these are innocent mistakes made by big corporations with big human relations departments and computerised payroll systems because industrial awards and agreements are so hellishly complex. Sorry, I don’t.

Much easier to believe a culture has developed that business’ contribution to the economy is so heroic that behaving with honour and even obeying penny-fogging laws is optional.

And how could business people have reached such a self-serving conclusion? Perhaps by observing the Morrison government’s unashamed rorting of grant programs and Saint Gladys’ sanctification of political pork barrelling: it’s not illegal and everybody does it.

Read more >>

Monday, August 2, 2021

Privatisation has done too much to perpetuate monopolies

It always disturbs me to see how few of our econocrats and economic rationalists – “neo-liberals” to their lefty critics – are willing to acknowledge the many cases where, what looked like perfectly sensible micro-economic reform on the drawing board, turned into a disastrous rort in the hands of the politicians.

But that’s not true of one of the great survivors from the reform era. Rod Sims, now chair of the Australian Competition and Consumer Commission, who’s an experienced econocrat and formerly a key advisor on the 1993 Hilmer report on national competition policy, which urged increased competition at state as well as federal level.

At the commission’s annual regulatory conference last week, Sims criticised the many privatisations of government-owned businesses that have simply bundled up a public monopoly and sold it to the highest bidder, without doing anything to get some competition into the industry, or even to adequately regulate the prices charged by a now-privately owned monopoly.

“Privatising assets without allowing for competition or regulation creates private monopolies that raise prices, reduce efficiency and harm the economy,” Sims said.

Why would governments do such a terrible thing? Because they put short-term budgetary pressures ahead of the best interests of their voters, as consumers and business-users of essential services. It’s actually part of a trick that buys the appearance of good management at the price of paying more than necessary for essential services from now on.

The pollies say: “Look at how much I got for that business, look at how I’ve got the budget back to surplus and reduced government debt, look at how I’ve kept our triple-A credit rating”. (Just don’t look at how much more you’re paying for electricity, for using the airport and for imported goods.)

Adding to these short-term budgetary temptations is the way politics and public policy have become more tribal, more public bad/private good. More “binary” as Prime Minister Scott Morrison would say. By definition, the public sector is inefficient and the private sector is efficient, people think.

It follows that merely by changing the ownership of a business from government to private you’ve made it more efficient. But that’s not economics, it’s just prejudice. Economists believe that whether a business should be privatised should be judged case-by-case, and by the way it’s proposed to be done.

Sims says “privatisation can generate important benefits to the economy, such as improved incentives for cost control, investment and innovation to meet the needs of consumers”.

“There have been many examples of privatisations that have been done well and that have benefited Australia. The privatisation of Qantas was done appropriately, for example, and the privatisation of Telstra was accompanied with measures to promote rather than constrain competition.”

Governments can be bad owners of businesses because – thanks to budgetary pressures – they’re usually hungry for big dividends, but reluctant to provide the extra capital needed to keep up with innovation and changing consumer needs.

But I’ve never understood people who lament the privatisation of the Commonwealth Bank. Its treatment of customers was never very different to that of its three big privately-owned competitors. On aviation, we’ve long had trouble keeping enough competition in our domestic market, but Qantas had plenty of international competitors.

“The problem is that, in more recent years, many of Australia’s key economic assets have been privatised without regulation, and often with rules designed to prevent them ever facing competition. This makes us all poorer,” Sims says.

“You regularly hear people calling for micro-economic reform these days. The best way to do that is to expose more of our economy to competition, and by dealing with excessive market power. Australia has on a number of occasions been doing the opposite.

“Many monopolies are subject to regulation, such as gas pipelines, electricity networks, railways and the NBN. In contrast, many ports and airports, which are essential gateways for our economy, are largely unregulated, mostly due to decisions made when they were privatised.”

In its search for a top-dollar selling price, the Keating government stuffed up the privatisation of capital-city airports, particularly Sydney’s. But nothing Victorian governments have done compares in infamy with the behaviour of the Baird and Berejiklian governments in NSW.

They took the state’s three vertically integrated electricity companies – each owning power stations and electricity retailers – and sold them to the people offering to buy them at the highest price. They became the three oligopolists dominating the national electricity market, Origin Energy, AGL and EnergyAustralia.

Then, when they privatised NSW ports, they promised the new owner of the Botany and Port Kembla ports it would be compensated should the Port of Newcastle start handling containers, not just coal.

Then they made the new owners of the Newcastle port agree to pay this compensation should they set up a container facility. They were so proud of this deal they tried to keep it a deep dark secret.

When its existence became known, the ACCC tied to get it struck down by the court as anti-competitive. But it failed to persuade the judge that trying to maximise the sale price by including monopoly rights in the deal was anti-competitive.

Which shows that it’s not just the ulterior motives of politicians that can turn good reform into a travesty. It’s also that many privatisation deals end up before the courts, where economic questions are decided by judges “learned in the law” but, in too many cases, not as well-versed in economics.

I understand that, in a recent case where one of the state’s public-sector unions sought to object to the NSW government’s wage freeze before the NSW Industrial Relations Commission, an economist brought as an expert witness by the union mentioned that wage increases were supposed to reflect productivity improvement.

He was chastised by the bench for introducing such a novel and controversial notion so late in the proceedings. Really?

My point is that would-be reformers need to be a lot warier of doing more harm than good.

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Monday, July 26, 2021

The real reason we’ve hit policy gridlock: fear of public opinion

You don’t have to agree we owe big business a living to know that our public policies are far from perfect and that every government’s job is to beaver away at improving them. Nor to know recent governments have tired of doing that. We each have our theories on why this has happened, but now someone sensible has analysed the reasons policy reform has ground to a halt.

John Daley, the man who spent the past decade building our leading non-aligned think tank, the Grattan Institute, having handed its leadership over to Danielle Wood, has just released his last report, Gridlock: Removing barriers to policy reform. It’s his magnum opus, worthy of study by everyone who thinks they know a bit about how modern Australia ticks.

Daley defines “reform” as “changes to policy that would improve the lives of Australians” (as opposed to improving the careers of our top business people).

He starts by demonstrating that the pace of reform really has slowed, and isn’t just old-timers remembering the glory days of Hawke, Keating and Howard and complaining about “the young people of today”. He dismisses the excuse that “you can’t float the dollar twice”, noting “there are plenty of other good policy ideas that governments have failed to adopt”.

Daley examines the fate of the many policy recommendations in the regular reports of the Organisation for Economic Co-operation and Development, but focuses on the success or failure of the 73 proposals made in Grattan’s reports over the decade to 2019, covering budgets, tax and welfare, retirement incomes, housing, transport and cities, health, energy (aka climate change) and education.

He finds that, of the 73 reforms, about a third were substantially implemented and two-thirds weren’t adopted. He identifies seven main potential blockages to good ideas going ahead: popular opinion, partisan shibboleths, vested interests, a weak evidence base, budgetary costs, upper house obstruction and federal-state disagreement.

By “partisan shibboleths” he means policy views that are contrary to the weight of policy evidence, but are almost universally held within a political party or party faction, while much less widely accepted in other circles.

“One of the functions of shibboleths is that they mark membership of a group – a ‘tribe’. A belief is likely to be more effective as a marker of membership when it is not rational – otherwise the belief would be shared by many people who are not part of the tribe,” he says.

It will surprise many that, by Daley’s reckoning, the biggest blocker by far is popular opinion, not opposition from vested interests or party shibboleths.

Of the 23 Grattan reforms that were substantially implemented, none was unpopular, and none was opposed by powerful vested interests without that opposition being countered by substantial independent evidence from government reports and the like.

Only one of the successful proposals ran counter to a party shibboleth, and only one involved a big budget outlay.

By contrast, the most common blockage among the 50 proposals that weren’t adopted was that they were unpopular with the electorate. That accounted for 15 of them.

After that came 10 blocked by party shibboleths (although three of these were also unpopular). Six of the remainder were actively opposed by powerful vested interests not countered by strong independent evidence. Three more were blocked because the evidence for them was poor or contradictory, and five were blocked because they involved large budgetary costs exceeding $2 billion a year.

As for the other potential causes of blockage, in only two cases could their rejection be attributed mainly to a failure to pass the Senate. Federal-state disagreement was a significant issue in only six of the proposed reforms that weren’t adopted, and all of them were probably blocked for other reasons.

It’s hardly surprising that popular opinion is a powerful force in a democracy. But this is worth remembering when we’re tempted to think that the power of vested interests and politicians’ corruptibility are the reasons governments don’t make the changes we think they should. Maybe they don’t because not enough people agree with us.

Daley finds that whereas, over the past decade – but not necessarily during the preceding “golden age of reform” – public opposition invariably doomed a reform proposal, popular support is no guarantee a policy will be adopted. However, it certainly improves the chances.

Where the immediate effect of a reform is to reduce taxes or prices for consumers, it’s likely to be popular. And public opinion has a tendency to focus on immediate effects rather than on promised longer-term benefits.

But liberal democracies have always been a delicate balance between popularly elected rulers and a whole series of institutions – ranging from the courts and central banks to expert administrators of everything from water allocation to child protection – designed to temper popular views.

People tend to trust these experts much more than politicians. And it’s long been accepted that the primary duty of elected representatives is to govern according to their judgment of what's in the interests of their electors, rather than simply following the opinion of their electors, Daley says.

Our not too distant past holds plenty of examples of governments pressing on with controversial policies, confident in the belief that public opinion can change once people experience the reality of a policy change they didn’t like the sound of.

When they do so, they end up winning a lot of respect – something they so obviously lack at present. “So it is surprising that unpopularity has become an automatic strike-out for policy reforms,” Daley says.

He concludes that, “in general, Australian governments today seem less willing to take on public opinion.” How have Australia’s institutions changed to make public opinion so much more decisive?

And what can we do to improve things? Good questions – for another day.

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Friday, July 23, 2021

Reduced competition between businesses is harming productivity

In the search for explanations of the slowdown in productivity improvement, the world’s economists are closing in on one of the significant causes: reduced competition between the businesses in an industry, giving them increased “market power” – ability to raise the prices they charge.

Research by various Treasury economists has found evidence of this happening in Australia. And this month US President Joe Biden acted to increase competition in various markets where it had been lacking.

A new study by Jonathan Hambur has added to earlier research by Treasury people finding that Australia’s private sector has shown less “dynamism” – ability to become more economically efficient over time – during the past decade or so.

Hambur has used a database of tax returns covering almost all Australian businesses to find that their “mark-ups” have increased by about 5 per cent since the mid-noughties.

To economists, a firm’s mark-up is the ratio of the prices it charges compared to its “marginal” cost of production – that is, the cost of the last unit it produced.

Hambur says that, while part of this increase seems to have been caused by technological change, it also shows an increase in firms’ market power and a decline in competition.

If so, this would explain about a fifth of the slowdown in the rate of productivity improvement we’ve seen over the past decade, since we already know the same period has seen slower reallocation of resources from low-productivity to high-productivity firms.

We measure productivity by comparing the quantity of the output of goods or services with the quantity of inputs of raw materials, labour and physical capital used to produce the output. Increasing output per unit of input is the main way we’ve been able to keep improving our material standard of living over the past two centuries.

And one of the ways an economy increases its productivity is by more of the production being done by the firms that are best at turning inputs into outputs at the expense of the less-efficient firms. Resources (inputs) are thereby “reallocated” to their most efficient use. What causes this reallocation to occur? Price competition between the firms in an industry.

Many people assume big companies can set whatever price they like. But this can’t be true. Even in the case of a single firm selling an important product, if the monopolist uses its considerable market power to set a price that’s simply too high for many people to afford, it will get to a point where it loses more from the sales it no longer makes than it gains from the extra profit it makes from those people still willing and able to pay the extra.

This is why economists say a firm wanting to maximise its profits is able to charge no more than “what the market will bear”. How much the market will bear depends mainly on the strength of the competition it faces from other firms selling the same product.

The textbook, neo-classical model of a “perfectly competitive” market – which is hugely oversimplified and has never existed in the real world – tells us the many firms in a market are able to charge a price no higher than their marginal cost of production (remembering that the “cost” includes a rate of profit just sufficient to discourage the owners of the firm from taking their financial capital to another market).

In this case, each firm that survives in the market will be able to charge only the identical market price set by the marginal cost. A firm that tries to charge more than the market price will sell nothing, whereas a firm that charges less will sell out immediately, but then go out backwards because it hasn’t covered its costs.

In the real world, there are a host of possible reasons why firms are able to charge a price higher than their marginal cost, and so make excess profit: because customers don’t know where to find the products that are cheaper but just as good, because customers are bamboozled by advertising and phoney “product differentiation”, because economies of scale and improved technology allow firms to get bigger and reduce their average cost of production.

Firms pursue scale economies and other innovations in the hope of making excess profits, but theory tells us that competition from other firms will end up forcing them to pass their cost savings on to their customers in the form of lower prices. The consumers always beat the capitalists.

When competition isn’t strong enough to make this happen, however, firms can and do earn mark-ups well above their marginal costs. Now Hambur has confirmed this happens in Australia. Worse, our mark-ups have increased over the past decade, telling us competition has weakened further and given our businesses greater market power.

With US economists finding similar evidence of reduced competition contributing to America’s own productivity slowdown, it’s not surprising to see President Biden acting to increase competition. Earlier this month he signed an executive order urging federal government agencies to crack down on anti-competitive practices ranging from agriculture to pharmaceuticals.

He denounced the present era of business monopolies. “Rather than competing for consumers [businesses] are consuming their competitors; rather than competing for workers they are finding ways to gain the upper hand on labour,” he said.

“Let me be very clear, capitalism without competition isn’t capitalism, it’s exploitation.”

Biden directed the Department of Justice and Federal Trade Commission to carefully review mergers and even challenge deals already put through.

He directed the trade commission to deal with competition concerns about the behaviour of Facebook, Apple, Alphabet’s Google, and Amazon, and to limit “killer acquisitions” where large internet platforms buy out potential competitors.

The justice department will launch a review of merger guidelines to determine whether they are “overly permissive”.

So, what could our government do about our own decline in competition? Well, we could start by tightening our own merger laws so the Australian Competition and Consumer Commission can be more successful in its efforts to protect us from anti-competitive takeovers.

Read more >>

Friday, July 16, 2021

Reform not a dirty word when it benefits the many, not the few

The idea that the economy needs to be “reformed” has been hijacked by the business lobby groups. Their notion of reform involves making life better for their clients at the expense of someone else. But that doesn’t mean there aren’t things that could be changed to make the economy work better for most of us, not just the rich and powerful.

Trouble is, Scott Morrison shows little interest in any kind of reform, whether to advance business interests or anyone else’s. Reform involves persuading people to accept changes they don’t like the sound of, and increases the risk they’ll vote against you at the next election.

Morrison’s government is making heavy weather of our most urgent problem – getting all of us vaccinated against the virus ASAP – so maybe it’s not such a bad time for him to Keep it Simple, Stupid.

But we do have an election coming up, in which it’s customary to think about what improvements could be made over the next three years. And it’s not illegal for us to dream about what could be improved if sometime, somewhere we ever found leaders interested in doing a better job as well as staying in office.

Next to the pandemic, the most important problem we need to be working on is climate change. That’s stating the obvious, I know, but not to Morrison and his Treasurer, Josh Frydenberg, whose recent intergenerational report paid lip service to the issue but then proceeded to project what might happen to the economy and the federal budget over the next 40 years without taking climate change into account.

What’s surprising is that another Coalition government, Gladys Berejiklian’s in NSW, did take account of global warming in its state intergenerational report. It found that more severe natural disasters, sea level rises, heatwaves and declining agricultural production would reduce incomes in NSW by $8 billion a year in 2061 under a high-warming scenario compared to a lower warming one.

Clearly, climate change will be bad for everyone in the economy – some people more than others – while acting to reduce our emissions of greenhouse gases will be a cost to our fossil fuel industries.

But the world’s demand for our coal and gas exports is likely to decline whatever we do. Our government doesn’t believe climate change needs to be taken seriously but, fortunately for more sensible Australians, the rest of the world does, and is in the process of forcing “reform” on our obdurate federal government.

In the meantime, however, our electricity industry is finding it hard to know what to do because the Morrison government won’t commit itself to a clear plan on how we’ll make the transition to all-renewable power.

Worse, our abundance of sun and wind relative to most other countries makes us well placed to become a world renewables superpower – exporting “clean” energy-intensive manufactures, maybe even energy itself - if we act quickly.

Right now, however, our need to choose between being a loser from the old world or a winner in the new world is sitting in the too-hard basket.

Moving to less strategic issues, Danielle Wood, chief executive of the Grattan Institute, gives a high priority to lowering barriers to workforce participation by women, by making childcare more affordable and improving paid parental leave.

We’ve long seen the benefits of free education in public schools. Making “early childhood education and care” free would not merely make life easier for young families, it would get more of our kids off to a better start in the education system and allow women to more fully exploit the material benefits of their extensive education, not just to their benefit but the benefit of all of us.

The benefits of getting an education greatly exceed getting a better-paid job – education broadens the mind, don’t you know – but it makes no sense for girls, their families and the taxpayer to put so much effort and money into gaining a better education, then make it so hard for them to do well in the workforce when they have kids.

One factor that’s widening the gap between rich and poor in the advanced economies is years of “skill-biased” technological change, which is increasing the wages of highly skilled workers while doing little to increase the wages of unskilled workers. Indeed, many routine jobs are being replaced by machines.

This says one way to ensure Australian workers prosper in the digital future of work is to ensure our workforce is well educated and highly trained. We must be willing to spend – to invest – however much it takes to have a workforce capable of providing the more analytical, caring and creative skills employers will be demanding.

We need to do more to help our teachers teach better so that fewer kids leave school early without having acquired sufficient education to survive in the world of work. Some teachers are better at it than others; they need to be used to train younger teachers on the job and rewarded accordingly.

Universities need to be better funded by the federal government, so they can afford to give students a higher quality education, vice-chancellors aren’t so eternally money hungry, unis stop exploiting younger staff with insecure employment and aren’t so dependent on making money out of overseas students and thus obsessed by finding ways to game the international university league tables.

How’s all this to be afforded? By all of us paying somewhat higher taxes, how else? By politicians giving up their election-time pretense that taxes can come down without that leading to worse quality government services rather than better.

Throwing money at problems doesn’t magically fix them, you must use the money effectively. But when mindless cost-cutting is the source of much of the problem, nor is it possible to fix problems without spending more.

If our politicians would speak to us more honestly along the lines of “you get what you pay for”, that itself would be a welcome reform.

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Friday, July 9, 2021

Little sign Morrison is serious about improving productivity

Improving the economy’s productivity is so central to lifting our material standard of living that politicians and big business people talk about it unceasingly. But the funny thing is, most of what they say makes little sense.

But first, let’s be sure we know what “productivity” means. It may be that politicians and business people get away with talking so much nonsense on the subject because so many of us aren’t sure.

A lot of people assume “productivity” is just a flash way of saying “production”. Wrong. It’s also possible people – particularly business people – think it means the same thing as profit, competitiveness or effort.

Wrong again. As Dr Richard Denniss and Matt Saunders, of the Australia Institute, say in a new paper, “while cutting the wages of a worker may lead to an increase in profit, and potentially improve the competitiveness of one firm compared to another, wage reductions do not result in an increase in productivity.

“Indeed, lowering wages may lead to a reduction in productivity if it dissuades firms from investing in labour-saving technology.”

The productivity of a business (or an economy) is the quantity of its output – production – of goods and services compared with the quantity of its inputs of raw materials, labour and physical capital.

It’s most commonly measured by dividing output by the quantity of usually the most expensive input, labour, to get output per hour worked.

The great achievement of capitalist economies is that they’ve been able to extract a bit more output from the average hour worked almost every year for the past two centuries.

It’s this improved productivity that almost wholly explains why the developed countries’ material living standards have got a bit better almost every year.

But how on earth has it been done? Mainly by advances in technology. Continuously since the Industrial Revolution, we’ve been inventing machines that allow us to produce goods using fewer and fewer workers.

This has greatly reduced the proportion of the workforce needed to work in farming, mining and manufacturing, but made it possible to afford far more people delivering services ranging from doctors and professors to people working in aged care, disability care and child care. Over the decades, total unemployment has been little changed by labour-saving technology.

The productivity of labour has been improved also by better education and training of workers, and by improvements in the way businesses are managed.

Now, as discussed last week, Australia’s rate of productivity improvement has slowed markedly since the global financial crisis. And, to be fair, we should remember that much the same has happened in the other rich economies.

But that’s no reason why the government shouldn’t be doing what it can to turn this around. And there’s been no shortage of talk about all the things the Coalition is doing to improve our productivity. What’s missing are signs that all this professed effort is doing much good.

It’s clear Scott Morrison hates being held accountable, but Denniss and Saunders have gathered a remarkable list of the claims he’s made, particularly while he was treasurer, to be working wonders on the productivity front.

In 2016, he claimed the creation of the Australian Building and Construction Commission was “an important reform . . . that will drive productivity, that will support wages growth, that will support increases in profits of small businesses so they can grow and expand”.

The same year he claimed the alleged “free-trade agreements” that the government had been making with other countries would “increase Australia’s productivity and contribute to higher growth by allowing domestic businesses access to cheaper inputs, introducing new technologies, and fostering competition and innovation”.

That’s a claim the Productivity Commission and many economists would strongly dispute.

Treasurer Morrison also claimed “the government is implementing a $50 billion national infrastructure plan to unlock our productive capacity, generate jobs, and expand business and labour market opportunities”. Train station car parks, for instance?

Other ministers have made similar claims, including Christian Porter’s assertion that his reform of wage-fixing rules would “make the bargaining system . . . more efficient and, most importantly, capable of delivering those twin goals of productivity and higher wages”.

This is not to mention the various tax cuts – in the rate of company tax for small business; the three-stage cuts in income tax, including the last stage, in 2024, which will give huge tax cuts to high income-earners despite adding $17 billion a year to an already swollen budget deficit – which are always justified as encouraging more effort, innovation and investment.

Trouble is, all this supposed achievement did nothing to encourage the authors of last week’s intergenerational report to raise their assumed rate of annual productivity improvement over the next 40 years.

Indeed, they cut the rate a fraction to 1.5 per cent a year. They said nothing about any of the above “reforms” helping to justify even that lower assumption, which is actually much higher than the 0.7 per cent average annual improvement achieved over the five years before the coronacession.

What’s more, both the report and Treasurer Josh Frydenberg acknowledge that it will take a lot more reform to get the rate of productivity improvement up to 1.5 per cent a year. What they don’t do is say what reforms they have in mind. Maybe we’ll be told after next year’s election. Or maybe it’ll just be more of the same sort of “reforms” Morrison has assured us are doing so much good.

In former times, big business worthies and conservative politicians used to tell us our goal must be to increase the size of the pie for everyone (which is what improved productivity does), not fight over the size of my slice of the pie compared to yours.

Maybe they’ve stopped saying this because, if we looked too hard at all the changes they assure us will improve productivity, we’d notice they’re aimed at increasing the slice of pie going to business owners and high income-earners.

Read more >>

Friday, May 28, 2021

Reform of “human services” the triumph of hope over experience

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”.

Read more >>

Wednesday, February 17, 2021

Water reform report’s big smile hides its big teeth: much more to do

A quick look at the Productivity Commission’s draft report on national water reform reminds me of the repeated judgment from old Mr Grace, the doddering owner of the department store in Are You Being Served? as he headed for the door: “You’ve all done very well!”

Its review of the progress of the National Water Initiative signed by the federal and state governments in 2004 – encompassing agreements on the Murray-Darling Basin – is terribly polite, understated and relentlessly upbeat.

Apparently, governments have made “good progress” in having “largely achieved” their reform commitments. All that remains is just the need for a teensy-weensy bit of “policy renewal”.

This mild-mannered stuff and congratulatory tone bear no resemblance to my memories of meetings of angry farmers railing against stupid greenies and other city slickers; of their insistence that the immediate needs of irrigators and irrigation towns along the river take priority over the river system’s ultimate survival; of each state government’s insistence on favouring their own irrigators over those in states further down the river; of federal and state National Party ministers happy to slip farmers a quiet favour, avoid enforcing the rules and turn a blind eye to blatant infringements; of federal Labor ministers who, even with no seats to lose in the region, were unwilling to make themselves unpopular by standing up for the rivers’ future.

I remember that the Howard government spent billions of city slickers’ money helping individual farmers make their irrigation systems more resistant to evaporation and seepage when all the benefits went to the farmer and none to the river system.

I remember all the infighting between government water agencies, and the mass fish kills during the recent drought in NSW and Queensland, for which the managers of the system accepted no responsibility.

Fortunately, reporters are adept at ignoring all the happy flannel up the front of government reports and finding the carefully hidden bad bits. And fortunately, we have the assistance of long-standing water experts, including the economist Professor Quentin Grafton, of the Australian National University, whose summary of the report on The Conversation website is headed: “Our national water policy is outdated, unfair and not fit for climate challenges.”

“The report’s findings matter to all Australians, whether you live in a city or a drought-ravaged town. If governments don’t manage water better, on our behalf, then entire communities may disappear. Agriculture will suffer and nature will continue to degrade,” he says.

The report’s proposal to make “water infrastructure developments” a much larger part of the National Water Initiative is a critical way to keep governments honest. For years, state and federal governments have used taxpayers’ dollars to pay for farming water infrastructure that largely benefits big corporate irrigators, Grafton says.

Last year the Morrison government announced a further $2 billion for its Building 21st Century Water Infrastructure project. Such megaprojects, he says, perpetuate the simplistic myths of the early 20th century that Australia – the driest inhabited continent on Earth – can be “drought-proofed”.

When governments signed the original initiative in 2004, they agreed to ensure investments in infrastructure would be both economically viable and ecologically sustainable. But many projects appear to be neither.

The report notes, for example, that the construction of Dungowan Dam in NSW means “any infrastructure that improves reliability for one user will affect water availability for others”. The “prospect of ‘new’ water is illusory”.

The report warns that projects that aren’t economically viable or ecologically sustainable can “burden taxpayers with ongoing costs, discourage efficient water use and result in long-lived impacts on communities and the environment”.

Equally disturbing is that billions of dollars for water infrastructure are presently targeted primarily at the agriculture and mining industries, while communities in desperate need of drinking water that meets water quality guidelines miss out, Grafton says.

Fortunately, the report isn’t so house trained as to avoid mentioning the gorilla the Morrison government prefers not to notice. There’s a lot about the consequences of climate change. It says droughts will likely become more intense and frequent and, in many places, water will become scarce.

In Grafton’s summary, the report says planning provisions were inadequate to deal with both the millennium drought and the recent drought in Eastern Australia. The 2012 Murray-Darling Basin Plan, for instance, took no account of climate change when determining how much water to take from rivers and streams.

The present federal government actually dismantled the National Water Commission in 2015, meaning we no longer have a resourced, well-informed agency to “mark the homework” and make sure the reforms were being implemented as agreed, Grafton says.

In 2007, the worst year of the millennium drought – and the year John Howard feared he’d lose the election if he didn’t match Labor’s promise to introduce an emissions trading scheme – Howard remarked that “in a protracted drought, and with the prospect of long-term climate change, we need radical and permanent change”.

Grafton says we’re still waiting for that change. “If Australia is to be prosperous and liveable into the future, governments must urgently implement water reform.”

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Monday, October 5, 2020

Smaller Government has failed, but let's cut taxes anyway

Think about this: despite a rocketing budget deficit, Scott Morrison is planning to press on with, and even bring forward, highly expensive tax cuts for high income-earners at just the time we’re realising that the 40-year pursuit of Smaller Government has been a disastrous failure.

Wake-up No. 1: the tragic consequences of the decision to outsource hotel quarantine in Victoria have confirmed what academic economists have long told us, and many of us have experienced. Contracting out the provision of public services to private operators cuts costs at the expense of quality.

Wake-up No. 2: efforts to keep the lid on the growing cost of aged care have given us appalling treatment of the old plus high profits to for-profit providers and some not-for-profits seeking to cross-subsidise other activities.

A new report by Dr Stephen Duckett and Professor Hal Swerissen, of the Grattan Institute, summarises the aged care system’s “litany of failures”, as revealed by the royal commission, as “unpalatable food, poor care, neglect, abuse and, most recently, the tragedies of the pandemic”.

There was a time when aged care was provided by governments, particularly in Victoria and Western Australia. But as the population has aged, successive federal governments have sought to limit the role of government by having aged care provided first by religious and charitable organisations and then by for-profit businesses.

The report’s authors note how little we spend on aged care. Countries with well-functioning aged care – such as the Netherlands, Denmark, Sweden and Japan – spend between 3 and 5 per cent of gross domestic product, whereas we spend 1.2 per cent.

“Rather than ensuring an appropriately regulated market, the government’s primary focus has been to constrain costs,” they say. When old people are assessed for at-home care or for residential care, the emphasis is less on their needs than on their eligibility for less-costly or more-costly support.

Partly because of the failure to set out clear standards for the quality of the care the community should be providing to our elderly – presumably, because keeping it vague helps limit costs – the system has become “provider-centric”.

Over the past two decades, the provision of aged care has increasingly been regarded by government as a market. “Residential facilities got bigger, and for-profit providers flooded into the system. Regulation did not keep pace with the changed market conditions,” the authors say.

But, though you’d better believe the profit motive of for-profit providers is super real, anyone who’s done even high-school economics could tell that the aged-care “market” offers nothing like the countervailing forces that textbooks describe.

The royal commission’s interim report found “it is a myth that aged care is an effective consumer-driven market”. A myth instigated and perpetuated by the Smaller Government brigade.

Duckett and Swerissen say that, “in practice, providers have much more information, control and influence than consumers. In residential care, a veil of secrecy makes it very difficult for consumers to make judgments about key quality variables such as staffing levels.”

Rather than turning aged care into a well-functioning market, “the so-called reforms resulted in for-profit providers increasingly dominating the system. The number of for-profit providers has nearly tripled in the past four years, from 13 per cent in 2016 to 36 per cent in 2019".

Even the Land of the Free has instituted a five-star system for ranking residential institutions to better inform the aged and their families. We haven’t bothered. But research for the royal commission shows that a majority of providers have staffing levels below three stars. And, the authors add, it doesn’t necessarily follow that the more you pay, the higher the quality.

Residential aged care can be so offputting that it’s gone from being a lifestyle choice to a last resort. So great is the public’s aversion to aged care that the government has had to offer a range of at-home assistance packages.

But, consistent with the half-arsed pursuit of Smaller Government, the government has allowed a waiting list of about 100,000 people to build up. And, since the packages are delivered by private providers, amazing proportions of the cost can be eaten up by “administrative costs”.

Duckett and Swerissen say that, while (much) more money is needed, this won’t be enough to fix the problem without not only better regulation but fundamental change in principles, governance and incentives. Access to extra funding should be tightly scrutinised so the money goes to upgrade staffing and not to greater profits for wealthy owners of provider businesses.

Back to tomorrow’s budget. The strongest motivation behind the Quixotic quest for Smaller Government is the desire of the better-off to pay lower taxes. Like Don Quixote, it has failed. Fixing it will cost billions. But blow that, let’s cut taxes regardless.

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Monday, September 28, 2020

Budget warning: more rent-seeking won't create jobs

While we wait to see next week’s budget, think about this: economists must shoulder much of the blame for past "reforms" that ended up doing more harm than good. But more of the blame should go to the politicians who allowed lobbying by generous industries to subvert reform and turn it into rent-seeking, or worse.

Lefty academics who bang on about the evils of what they love calling "neoliberalism" seem to see it as some kind of conspiracy between the economics profession and big business.

There’s some truth to this – after all, many economic practitioners work for or produce "independent" consultant reports for big business. But the old rule from politics applies: what may look like a conspiracy is more likely to be just a stuff-up.

The term neoliberalism – a pompous, hipster word only a "problematic" academic could love – conceals more truth than it reveals. The words we used in Australia when this way of thinking became dominant in the 1980s were "economic rationalism" in pursuit of "micro-economic reform" – the very thing Productivity Commission boss Michael Brennan advocated a return to in a speech last week.

The more revealing label, however, is the one preferred by two leading British economics professors, Paul Collier and John Kay, in their new and enlightening book, Greed is Dead: "market fundamentalism".

The economic rationalist thinking that drove extensive economic policy change in the ‘80s and ‘90s took the profession’s ubiquitous neo-classical, demand-and-supply model of how markets work and assumed it was all you needed to know about how the economy worked.

It thus overemphasised the role of competition between "self-interested" (selfish, greedy) individuals, but underestimated the role of co-operation and community spirit and the importance of touchy-feely things such as job security, loyalty and our trust in economic and political institutions in making the economy work well.

The simple model’s assumption that all individuals and firms unfailingly act with full foresight of their best interests implies that government intervention is unnecessary and may well make things worse.

So the greatest crime of the rationalists (including, until far too late, yours truly) was naivety. They saw reforms that worked well in theory and assumed they’d work just as well in practice. In many cases they did work well enough, but in too many others they failed badly.

Unintended consequences abounded, the greatest of which was what I call "the sanctification of selfishness". When the econocrats were planning the removal of import protection they confidently predicted a benefit would be to discourage "rent-seeking" – businesses incessantly lobbying the government for favours when they should be getting on with running their businesses more efficiently.

In reality, rent-seeking has become rife. Since the mid-80s, the Canberra-based lobbying industry must surely have been one of our fastest growing and most lucrative. The economists’ greatest naivety has been their assumption that successive governments would faithfully implement their reform plans while resisting the temptation to do favours for generous mates.

Which brings us to next week’s budget. Recent days have seen big business campaigning for tax breaks, a further shift in the industrial relations power balance in favour of employers, and the removal of "burdensome regulations", all to create jobs.

Trouble is, years of bitter experience have taught us to recognise rent-seeking when we see it. Because economic rationalists have left people with the notion that economic progress is driven solely by self-interest, the rich and powerful now see themselves as justified in demanding that the economy be re-organised in ways that facilitate their efforts to get richer and more powerful.

Among the various micro-economic reforms advocated last week by the Productivity Commission’s Brennan as ways of speeding up the recovery were: removing rigidities in the labour market, streamlining the approvals process for new businesses and improving the “culture” of regulators.

I have no doubt there are plenty of anachronistic, pettifogging, cumbersome provisions of industrial relations law that both sides could readily agree to remove. But I doubt that’s what the employers are seeking. They want their quid without any quo.

Equally, I don’t doubt that much could be done to minimise the time-wasting involved in the regulation of business, without compromising other public policy goals. But too often removing "green tape" is code for sacrificing long-term protection of our environmental assets in favour of letting a few developers temporarily create a few hundred jobs while they build some highly automated mining project.

And while the culture of pushing people around at Centrelink or the local council should definitely be corrected, the last time the pollies went down this road they left the banking and corporate regulators with the clear impression that what they wanted was a buddy-buddy culture. The banks concluded that, for them, obeying the law was optional, and we all remember what happened next.

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Saturday, September 26, 2020

It won’t be just the budget that sets our speed of recovery

 In Scott Morrison’s efforts to get us out of the coronacession, lesson No. 1 is that it’s up to the government to produce the increase in demand we need by spending an absolute shedload of money. But this week the boss of the Productivity Commission interjected with lesson No. 2: while you’re at it, don’t forget the role of the supply side.

In every recession, “aggregate demand” (gross domestic product) goes backwards, and unemployment shoots skywards, because the private sector – households and businesses – have cut their spending on consumption and physical investment in new houses, business equipment and structures.

To get the private sector going again, the public sector has to more than make up the gap by greatly increasing its own spending. That’s particularly true in this recession because, with the official interest rate already close to zero, there’s been almost no scope for the authorities to do the other thing they usually do to get the private sector spending again: slash interest rates to encourage spending on borrowed money.

Because this government has made so much of the evils of “debt and deficit”, however, it’s been tempted to limit its budget spending by using economic reforms to pursue “jobs and growth”. The response of me and others has been to say “not so fast”. Reforms aimed at making our production of goods and services – the “supply side” of the economy - more efficient are no substitute for boosting the demand side of the economy when that’s what’s causing high unemployment.

After all, what could be more inefficient and wasteful than having hundreds of thousands of people who could be working and producing things sitting on their bums?

But in a virtual speech to the Australian Business Economists this week, Productivity Commission chairman Michael Brennan argued that the state of the supply side of the economy would be highly relevant to our success in having the economy recover as quickly as possible.

He made some good points. Note, he wasn’t challenging the fundamental importance of ensuring adequate growth in aggregate (total) demand. He was saying that the state of the supply side also matters. It’s not a substitute for adequate demand, but is an important supplement to it.

“Supply-side policy is an important enabler of the recovery, without which demand-side stimulus is incomplete or compromised in its effectiveness,” he says. It’s not so much about correcting inefficiency in the allocation of resources (labour, capital and land), as about “dynamic efficiency” – the speed with which the economy can move from one state to another, and how we minimise the various “frictions” that slow it down.

He says there are three main reasons why we should focus on micro-economic policy even in the midst of a recession. First, the coronacession is not just a demand shock, it’s also a reallocation shock. It will involve many workers, and much capital and land-use moving between industries and locations. Some industries will get bigger, some smaller.

Change in the industry structure of the economy is happening continuously, but a lot more of it happens during and after recessions. Many more businesses go out backwards, while new ones spring up. As well, firms use the impetus or excuse of the recession to stop doing unprofitable things they should have stopped doing years earlier.

Classic example: all the firms in this recession slashing the amounts they’re prepared to pay for sport broadcast rights and sponsorships. They’re blaming the tough times, but they’re also correcting their own error in allowing bidding wars to push the salaries of professional sportsmen (but few sportswomen) way above their commercial value.

So recessions involve much reallocation of resources. The economy won’t have fully recovered from the recession until that process is complete. But how long it takes will be heavily influenced by the frictions that slow it down.

Brennan quotes research showing that reasons for delay in reaching the new allocation “include the time needed to plan new enterprises and business activities, the time required to navigate regulatory hurdles and permit processes to start or expand businesses, time [to acquire new financial and physical] capital . . . and [time to seek out] new relationships with suppliers, employees, distributors and customers”.

His point is that some of these delays are caused by government regulation, so there are things governments could do to speed up the reallocation process and thus cause unemployment to come down faster.

Brennan’s second reason for arguing that micro-economic policy is relevant to the recession is the need to facilitate the forming of new businesses, and the possibility that recent experience of the pandemic leads entrepreneurs to overestimate the risk of future disruption to any business they start.

Governments can try to offset such “belief scarring” by streamlining the approvals process for new businesses, improving the culture of regulators, reforming insolvency rules, and in other ways.

Brennan’s third reason for arguing the relevance of micro policy is that reforms can help reduce the disruption caused by macro-economic shocks by making the economy more resilient – able to roll with the punches. (I believe this was one of the big but unexpected benefits of the Hawke-Keating government’s many micro reforms, which helps explain why we went for 29 years between recessions.)

But though Brennan makes good points, let me make two. As he envisages them, the reforms he advocates would leave us better off. But economists’ grand plans have to be implemented by fallible politicians and, as we’ve seen too many times in recent decades, by the time the pollies have engaged with the lobbyists what emerges is often more akin to rent-seeking than good policy.

Finally, unlike macro measures, micro reforms usually take some years to be brought into effect and then have their affect on behaviour. So, unless we take years to recover from this recession, any micro reform we begin now will be in time to help us with the next one.

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Wednesday, August 5, 2020

Virus reminder: governments need to be better, not smaller

One good thing the coronavirus has done is slow the pace of our lives, leaving us more time to think about them. And since the main device being used to stop the spread of the virus has been to reduce physical contact between people, it hasn’t been hard to see that what matters most to us is face-to-face contact with family and friends.

People of middle age fret about not being able to visit elderly parents. The great Dr Brendan Murphy, flat out advising the Prime Minister, really misses being able to hug his granddaughters. (Grandsons and granddaughter, in my case.) Teenagers take their family for granted, but miss their friends. Younger kids realise they actually like going to school and mixing with others.

The virus has also thrown into relief our rights as individuals versus our obligations to the group. The prevailing political and economic ideology highlights the individual and plays down the group, but in emergencies like this even our squabbling federal and state politicians see that the only way of coping is to co-operate rather than compete.

Looking at the Americans and the terrible disaster they’re making of it – including people refusing to wear masks because it’s a violation of their personal freedom – it’s not hard to see that individualism can go too far, and playing your part as a loyal member of the group has its virtues.

The virus reminds us that many of the problems we face can’t be solved by individuals acting alone, but by all of us acting together. For this we need leadership; we need the government to govern. To tell us what needs to happen, to issue instructions, provide support for those who need it, and then have all of us falling into line and pulling our weight.

That’s easy to see – and accept – in a crisis, but harder when we’re muddling along as normal. Fact is, however, our world abounds with problems that can’t be solved by individuals and businesses acting on their own initiative.

For these we do need somebody – or some body – with the authority to act on our behalf, calling the shots, fixing things, spending money and requiring us to cough up that money according to our ability to pay.

And yet the rise of individualism has been accompanied by the denigration of the role of government. It was the now-canonised Ronald Reagan who famously said that the nine most terrifying words in the English language are "I’m from the government and I’m here to help".

Obviously, governments can be far from perfect. Government agencies can be unhelpful, they can push us around for no good reason, be inefficient and waste our money. And yet the prevailing ideology’s response – influencing the behaviour of both sides of politics – hasn’t been to improve the functioning of government, but to chop it back as much as possible.

Any government business that can be sold, should be. Industries should be deregulated so private enterprise is given maximum freedom to be enterprising. There are services that governments need to pay for from the public purse, but their provision should be contracted out to private firms.

The trouble is, the advocates of Smaller Government have never persuaded the public of the wisdom of this approach, nor received a mandate. When governments try to cut back government spending in big licks – as Tony Abbott, despite promises to the contrary, tried to do in his first budget – they get repudiated.

So they end up forever trying to keep the lid on government spending – quietly cutting money going to politically unpopular causes (the unemployed, public servants), and ignoring all the people warning them to start preparing for possible problems in this field or that (a bad bushfire season, for instance).

They justify all this short-sighted penny pinching by saying no one wants to pay more taxes. Which is the message we so often send them, partly because we’ve grown distrustful that our money will be spent wisely.

See where this is leading? All the denigration and distrust of government does much to explain why we haven’t responded to the pandemic as well as we should have. National planning for a pandemic was discontinued after 2008 and it’s likely that the recommended national stockpile of personal protective equipment was a victim of successive "efficiency dividend" cut backs.

The ironically named efficiency-dividend cuts to the public service may help explain the inadequacy of Victoria’s contact tracing arrangements. There’s an inquiry into the failures of Victoria’s quarantine of returning travellers, contracted out to private firms.

Deregulation of wage-fixing has encouraged the growth in casual workers, whose lack of paid sick leave tempts them to go to work while at risk of having contracted the virus. Governments are scrambling to fill this dangerous gap.

Finally, the decades of wilful neglect and misregulation of aged care facilities, “left out of sight and out of mind” and “fragmented, unsupported and underfunded” – to quote the latest of many inquiries. All to keep taxes low.
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