Morrison needs the guts to save business (and the unions) from folly

Talk about don’t mention the war. The great and good – who miss jetting off overseas several times a year – keep telling us the economy won’t recover until we’ve reopened to the world. Seems they just can’t bring themselves to focus on the obvious: it’s wages, stupid.

It’s self-evident that, ultimately, it would be bad for our economy for us to stay a hermit kingdom. But these worthies are wrong if they imagine that re-opening our borders would immediately strengthen the recovery.

It’s true that our airlines won’t recover until the borders open, and our universities will remain crippled. But because Aussies normally spend far more on touring overseas than foreigners spend touring here, our tourism industry (including every country town) has been doing nicely thank you from the temporary ban on Aussies doing their touring abroad.

Our econocrats have been busy extending the fiscal stimulus to get unemployment down and skill shortages up, in the hope this will bid up wages, and so give the nation’s households more to spend through our businesses.

Trouble is, business has grown used to covering shortages of skilled labour by importing workers on temporary visas, thus avoiding pushing up wage rates (and training costs). Get it? The real reason they want the borders re-opened ASAP is so they can go on playing this game.

But it’s just one of many stratagems our businesses have been using to keep the lid on wages: increased use of part-time and casual employment, labour hire companies, discouragement of collective bargaining and greater use individual contracts, evading labour laws by pretending workers are independent contractors, and even wage theft.

Little wonder “most Australians have not had a meaningful pay rise for almost a decade” and “living standards have stagnated”, as Brendan Coates, of the Grattan Institute, reminds us.

And little wonder the economy’s growth was so weak before the arrival of the pandemic, and threatens to go back to being weak once last year’s massive fiscal stimulus has dissipated.

Market economies are circular – the money goes round and round. And nowhere is this clearer than in the two-sided nature of wages. Wages are both the chief cost faced by most businesses, and the chief source of income for their customers.

See the problem? The more success the nation’s businesses have in keeping the lid on wage costs, the less money the nation’s households have to spend on all the things business wants to sell them.

When the two sides of the wage coin get out of whack, so to speak, business starts strangling the golden goose. Efforts to achieve a healthy rate of economic growth – and rising living standards – won’t be sustained.

This is a form of market failure called a collective action problem. What seems to makes sense for the individual business is contrary to the interests of business as a whole. But no business wants to be the first to stop skimping on wage costs for fear of losing out to its competitors.

The solution to collective action problems is for some authority to come in over the top and impose a solution on all players, thus leaving none at a competitive disadvantage and all of them better off in the end because their customers have more money to spend.

In other words, the only way for us to escape an anaemic, wage-less recovery is for Scott Morrison to intervene in the economy to get wages up.

Since the Fair Work Commission’s annual minimum wage case affects the wages of one worker in four, he should have intervened in the case – as has always been the feds’ right – to encourage the commission to give a generous increase after last year’s miscued pandemic minginess.

He should be trying to set a higher wage “norm” for private sector employers by giving his own federal employees a decent, 3 per cent annual pay rise, and pressuring the premiers – Labor and Liberal – to do likewise.

He should be legislating to protect Australian workers – and his own tax collections - from the ravages of the “gig economy”, which tries to hide its evasion of our labour laws behind its genuine and welcome technological innovation.

And the very least he should be doing is to beef up the Fair Work Ombudsman’s staffing and ability to stamp out wage theft which – purely by mistake, you understand – has become endemic. This outbreak of utterly unAustralian illegal behaviour tells us a lot about the ultimately self-destructive, anti-wage mania that is gripping the nation’s business people.

The obvious problem is that doing anything to increase wage rates is totally foreign to a Liberal politician’s every instinct. The Business Council would be incandescent. Nixon going to China is one thing, but a Liberal putting up wages? Never.

Sorry, but the world turns, and successful leaders must turn with it. We used to have a chronic problem with inflation; now it’s chronic spending weakness. The unions used to have too much power; now they have too little.

Even so, there’s one thing a Liberal Prime Minister could be doing to help without giving offence to Liberal sensibilities. It would actually be a blow against his union and Labor enemies that would do a lot to strengthen the economy’s prospects over the next four years, should he have the strength to put the economy ahead of his own political discomfort.

It would save Australia’s workers from the self-interest of the union elite and the mindless tribalism of Labor (not to mention the bullying of a certain former Labor prime minister), which is happy to give their unions mates what they demand because the Libs want to destroy industry super (which is true, but not a good enough reason to oppose a change that would leave workers and the wider economy better off).

The strange thing about last month’s budget is that, though it sees the econocrats’ wage-lifting strategy getting unemployment down to 4.5 per cent by about the end of 2023, it sees no growth in real wages for the next four years.

In evidence to a Senate committee last week, Treasury secretary Dr Steven Kennedy was obliged to explain this discrepancy. It’s because, starting next month, legislation requires compulsory employer contributions to their workers’ superannuation to be increased by 0.5 percentage points for five Julys in a row, until they reach 12 per cent of wages in July 2025.

Relying on strong empirical evidence, Treasury has assumed that employers will cover 80 per cent of the cost of this impost by raising wages by that much less. The nation’s workers will thus be forced to save rather than spend a significant portion of what would have been their future pay rises.

The nation’s greedy, ticket-clipping super-fund managers play on everyone’s instinctive fear that they aren’t saving nearly enough to provide for a comfortable retirement. It suits the union elite (and their gullible Labor mates) to go along with this deception, even though Grattan’s Coates (and Treasury before him, and the recent Retirement Income Review since him) has demonstrated that, after including a part-pension, most workers will have plenty.

So the Labor tribe wants to force the nation’s employees to live on less during their working lives so they can live like royalty in retirement. Why doesn’t Morrison seek to reverse this Labor-initiated legislation? Because he fears he’d lose votes in the labour movement’s ensuing fear campaign.

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Banks: bad guys one minute; put-upon credit providers the next

With Scott Morrison hit by a seemingly unending series of headline-making problems, his standard techniques for dealing with them are getting easier to detect. He sees them not so much as policy deficiencies to be rectified as political embarrassments to be “managed” away.

One technique is to tough it out, hoping the media caravan will soon lose interest and move on. When that doesn’t work you give the appearance of responding to the outcry without actually doing much. Call an inquiry of some sort – maybe, if the pressure continues, even three or four different inquiries – then say you can’t act, or even discuss the matter further, until the inquiry has reported many months hence.

I’m finding it hard to avoid the suspicion this is how he’s dealing with the huge – and hugely expensive – problems in aged care. When Four Corners came up with (yet another) expose of the mistreatment of old people in institutional care as the election approached in 2019, he neutralised it as an election issue by promising a royal commission.

The commission’s hearings and interim report confirmed our suspicions that mistreatment was widespread. While releasing the interim report, Morrison announced that quite some millions would be spent on measures that sounded like they should help ease the problem – a bit.

When he released the commission’s final report early this month, he announced more millions of spending on this and that, promising the government’s full response to the commission’s multi-billion-dollar recommendations would be revealed in the May budget.

He seemed open to the idea of using an increase in the Medicare income-tax levy to cover the massive cost, but Treasurer Josh Frydenberg lost little time in hosing down that possibility. Aged care has hardly been mentioned again from that day to this.

Why do I have a terrible feeling that, should aged care not come back on the media agenda between now and budget night, what’s announced will be only a token response to the continuing and worsening problem?

You see a similar trickiness in the government’s response to the widespread complaints about the behaviour of the banks and other financial institutions. Those complaints led to repeated calls for a royal commission.

Malcolm Turnbull and his treasurer, Morrison, went for ages fobbing off these demands – denying there was a problem. But when some government backbenchers threatened to support an opposition motion for an inquiry, Turnbull had no choice but to relent.

The hearings by former High Court judge Kenneth Hayne revealed endless instances of financial “misconduct” and received months of media coverage.

Hayne’s final report lobbed just a few months before the 2019 election. Morrison’s successor as Treasurer, Frydenberg, immediately announced he was “taking action on all 76 recommendations” and “going further”. This apparently wholehearted acceptance of the recommendations defused bank misconduct as an issue in the election campaign.

It’s now two years since Frydenberg’s commitment. Professor Kevin Davis, of Melbourne University, says the government has yet to implement 44 of the commission’s recommendations, and has turned its back on five key reforms.

Frydenberg initially accepted the proposal to outlaw the practice of mortgage brokers being remunerated by the lending banks with a commission based on a percentage of the size of the loan. But, after industry lobbying, Frydenberg let it stand, replacing it with an obligation that brokers act in the best interests of their customers.

Hayne’s very first recommendation was that the existing “responsible lending obligation” – making it illegal to offer credit that was unsuitable for a consumer based on their needs and capacity to make payments – not be changed.

But, last September, Frydenberg announced that this obligation had been costly to lenders and was delaying the approval of loans. The present principle of “lender beware” would be replaced with a “borrower responsibility”. Legislation to bring this about is awaiting approval in the Senate.

It’s a “reform” that’s been welcomed by the banks, but vigorously opposed by Davis, various legal academics, consumer groups, the Financial Rights Legal Centre, Financial Counselling Australia – and my co-religionists at the Salvos, whose free Moneycare financial counselling service is offered at about 85 sites across Australia.

Like all the critics, the Salvos note the “asymmetry of knowledge and power” between consumers and the providers of financial services. The credit products offered have become increasingly complex and opaque. “Our experience is that understanding these products requires an above average level of literacy and financial literacy,” they say.

The proposed reduction in the scope of responsible lending obligations would reduce regulatory oversight and thus increase the risks for borrowers. “Our overwhelming evidence [from] delivering financial counselling in Australia for the past 30 years is that credit remains too easily accessible and that this has devastating consequences for the people we support . . .

“For people already experiencing, or at risk of, financial hardship, easier access to credit may mean they will get caught in a cycle of increasing debt. This has significant implications for physical and mental health.”

I fear the Salvos are right.

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Neglect of aged care more proof of PM's blokey blind spot

Everywhere you look, Scott Morrison and his ministers have a women problem. You see it even as he uses the media focus on allegations of sexual assault as cover for his efforts to convey the aged care royal commission’s damning report to the too-hard basket.

When you think about it, aged care is the ultimate women’s issue. Of those receiving aged care, women outnumber men two to one. Who does most of the worrying about how mum or dad are being treated – and probably most of the visiting? More likely to be daughters than sons.

The commission’s report found that the root cause of the common ill-treatment of people in aged care is the insufficient number, inadequate training and low pay of aged care workers. And who are these overworked, undertrained and woefully paid age care workers? Almost all of them are women.

Now do you see why aged care conditions have been low on the priorities of successive governments? Not enough rich white men jumping up and down.

Aged care is huge. Despite understaffing, it has 366,000 paid staff, 68,000 volunteers and 28,000 contractors – about 3 per cent of the whole workforce.

The report found that at least a third of people in residential and at-home care had experienced substandard care. It identified food and malnutrition, dementia care, use of physical and chemical restraints and palliative care as needing urgent improvement.

Aged care used to have prescribed staffing ratios, but they were removed as part of the push to get for-profit providers into the “industry”. The report found that what regulation of facilities exists isn’t enforced because the government knows it’s not paying enough to make quality care possible.

The providers will tell you there’s a shortage of properly qualified personal care workers and nurses. Probably true. But those who are qualified are less attractive because they have to be paid more. Registered nurses have more choice about the industry they work in, so they must be paid more and treated better.

Lack of trained workers is a two-sided problem. If there was more demand for qualified workers and they were offered better pay and conditions – permanency, for instance – more would go to the trouble and expense of acquiring qualifications to supply.

Providers complain of high rates of staff turnover. They don’t mention that when they overwork, underpay and give workers no guarantee of regular work – or delegate their responsibilities as employers to a labour-hire company - a lot of workers soon leave in search of something less terrible - say, picking fruit in the blazing sun at Woop Woop.

It’s a funny thing: workers who are given little loyalty don’t tend to give much back. You’ve no idea how selfish workers can be. Don’t they know I’m trying to increase profits? Next time I see a Coalition MP I’ll give him (the hims are more receptive) an earful about how the dole’s so cushy these young bludgers don’t want to work.

It takes a lot of dedication to deal with the bodily needs of elderly people you’re not related to. But if you can find the motherly types, surely they won’t mind if you pay them peanuts. The full-time award rate for base-level aged care workers is $21.09 an hour, a fraction less than for base-level cleaners and just $1.25 above the Australian minimum wage.

Much of the poor treatment of people arises from the use of casualisation to save on wages and the resulting high rate of staff turnover, which makes it hard for residents and their carers to develop relationships.

The report found that “older people get the best care from regular workers they know, who respect them and offer continuity of care as well as insights into their changing needs and health requirements”.

In contrast, casually employed carers can struggle to “provide continuity of care and form ongoing relationships with older people”.

Professor Kathy Eagar, of the University of Wollongong, has said that “the staff are so busy that all they get time to do is tasks, like helping with toileting, showering, dressing and feeding residents. A lot of residents report they’re relatively lonely because, even if there are staff, they don’t have the time to talk to them.”

“For people with dementia, it helps to have the same people every day. If I don’t know my name because I’ve forgotten it, but the care worker does know my name, that’s a whole different proposition to if I don’t know it and my carer doesn’t know either,” she said.

Morrison says he’s focused on getting more jobs in the economy. Eagar has estimated that implementing the report’s proposals on staffing would increase the aged care workforce by about 20 per cent.

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Ross Garnaut's new plan to lift us out of mediocrity

If your greatest wish is for the virus to go away as we all get vaccinated, and then for everything to get back to normal, I have bad news. You’ve been beaten into submission – forced to lower your expectations of what life should be bringing us, and our nation’s leaders should be leading us to.

Without us noticing, we’ve learnt to live in a world where both sides of politics can field only their B teams. Where our politicians are good at dividing us and making us fearful of change, but no good at uniting us, inspiring us and taking us somewhere better for ourselves and our kids.

Scott Morrison hopes that if he can get us vaccinated without major mishap and get the economy almost back to where it was at the end of 2019, that should be enough to get him re-elected. He’s probably right. Even his Labor opponents fear he is.

Fortunately, whenever our elected leaders’ ambition extends little further than to their own survival for another three years, there’s often someone volunteering to fill the vision vacuum, to supply the aspiration the pollies so conspicuously lack. Among the nation’s economists, that person is Professor Ross Garnaut, of the University of Melbourne.

In a book published on Monday, Reset: Restoring Australia after the pandemic recession, Garnaut argues we need to aim much higher than getting back to the “normal” that existed in the seven years between the end of the China resource boom in 2012 and the arrival of the virus early last year.

For a start, that period wasn’t nearly good enough to be accepted as normal. Unemployment and underemployment remained stubbornly high – in the latter years, well above the rates in developed countries that suffered greater damage from the global financial crisis in 2008-09 than us, he says.

“Wages stagnated. Productivity and output per person grew more slowly than in the United States, or Japan, or the developed world as a whole,” he says. (If that weakness comes as a surprise to you, it’s because our population grew much faster than in other rich countries, making it look like we were growing faster than them. We got bigger without living standards getting better.)

So that wasn’t too wonderful, but Garnaut argues if that’s what we go back to, it will be worse this time. Living standards would remain lower, and unemployment and underemployment would linger above the too-high levels of 2019.

We’d have a lot more public debt, business investment would be lower and we’d gain less from our international trade, partly because of slower world growth, partly because of problems in our relations with China.

Continuing high unemployment would devalue the skills of many workers, particularly the young. Many of our most important economic institutions – starting with the universities – have been diminished.

The new normal would be more disrupted than the old one by the accumulating effects of climate change and continuing disputes about how to respond to this.

So Garnaut proposes radical changes to existing economic policies to make the economy stronger, fairer, and to treat climate change as an opportunity to gain rather than a cause of loss.

At the centre of his plan is returning the economy to full employment by 2025. That is, get the rate of unemployment down from 6.5 per cent to 3.5 per cent or lower – the lowest it’s been since the early 1970s.

This would make the economy both richer and fairer, since it’s the jobless who’d benefit most. Returning to full employment would take us back to the old days when wages rose much faster than prices and living standards kept improving.

Returning to full employment, he says, would require a radical change to the way businesses pay company tax and the introduction of a guaranteed minimum income, paid to almost all adults at the present rate of the dole, tax-free and indexed to inflation.

It would involve rolling the present income tax and social security benefits into one system. This would benefit people working in the gig economy and other low-paid and insecure jobs, and greatly reduce the effective tax rates that discourage women and some men from moving from part-time to full-time work.

Changing the basis of company tax would cost the budget a lot in the early years but then raise a lot more in the later years. The guaranteed minimum income would cost a lot but would become more affordable as more people were in jobs and paying tax.

Much of the economic growth Garnaut seeks would come from greater exports. Australia’s natural strengths in renewable energy and our role as the world’s main source of minerals requiring large amounts of energy for processing into metals creates the opportunity for large-scale investment in new export industries. We could produce large exports of zero-emissions chemical manufactures based on biomass, and also sell carbon credits to foreigners.

Of recent years, Australia has fallen into the hands of mediocrities telling us how well they – and we – are doing. Surely we can do better.

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Canberra's latest innovation: politics without policy

The most remarkable development since we returned to work this month is Scott Morrison’s barefaced announcement that the government has enough on its plate rolling out the virus vaccine and getting unemployment down, and so there’ll be no attempt to deal with any of our many other problems before the election late this year or early next.

There could be no franker admission that we live in an era of leaders who lack the ambition and courage to lead. Only on those problems so acute the mob is baying for the government to “Do Something!” will something be done – or grand announcements made that give the appearance it’s being done.

It’s Prime Minister as odd-job person. You don’t look for ways to secure our future, you sit there waiting for pressing matters to turn up: a light bulb that must be changed, a dripping tap that needs a new washer. Acute problems, yes; chronic problems, through to the keeper.

It’s the confirmation of what all but the rusted-on voters have long suspected: that our politicians are motivated far more by the desire to attain and retain office than by any great desire to make the world a better place for us to live and bring up our kids.

The opposing political parties continuously accuse each other of being “ideological” – of being mad free-marketeers or tax-and-spend socialists – but this serves mainly to con along their side’s true believers and conceal from the rest of us the political class’s overriding objective: to win the next election by fair means or foul.

It’s not hard to decipher Morrison’s thinking. Like the premiers, his popularity has soared following our successful containment of the pandemic, so his prospects of re-election are high – provided nothing goes wrong between now and then.

That does mean he must ensure there are no major glitches in the rollout of the vaccine – to which he will have to pay much attention – but he needs no further achievements to improve his chances of winning.

Indeed, anything else he attempts to fix offers more chance of losing the votes of the disaffected than of adding votes to his existing pile. According to informed sources (aka well-briefed gallery journalists), there’s little enthusiasm for “reform” of taxation, religious freedom, industrial relations or superannuation.

The government’s existing proposals for modest changes to industrial relations rules – about which the unions are making such fuss at present – will be put to the Senate next month but, should they fail to pass, will be dropped.

Some Liberal backbenchers’ urgings that the legislated phased increase in compulsory employer super contributions from 9.5 per cent of wages to 12 per cent be reversed (which I support) and the success of the non-profit industry super funds be sabotaged in other ways (which I don’t), have yet to be decided on, but will probably be rejected.

We’re told that Morrison’s thinking in turning away from any further policy improvement is that, after all the upheavals of 2020, the voters just want everything to calm down for a while. But that’s probably always true of many politician-weary voters. Sounds to me like a convenient rationalisation for a deeply cynical and self-serving political calculation.

You might expect this to hugely disappoint a policy wonk like me, but I confess my feelings are divided.

Morrison’s decision strike cuts both ways. He won’t be doing many things he should, but he won’t be doing many things he shouldn’t. The need for tax reform, for instance, is always with us – and urgent only in the minds of tax economists, who think of little else, and those well-to-do urgers hoping it will involve them paying less while others pay more.

There are, of course, many big problems he’ll be doing nothing to improve: the misregulation of aged care, the need for better-considered mental healthcare, the way the universities have been hung out to dry during the pandemic, the neglect and destruction of technical and further education, the many respects in which governments help oldies (including their parents) screw the younger generation.

The most urgent and important area of neglect is, of course, our response to climate change. But the federal Coalition is so deeply divided on the issue – and Morrison so hog-tied by loudmouth Liberal backbenchers and the Neanderthal Nationals – that it’s a delusion to expect genuine progress without a change of government.

And maybe not much then. As we speak, Labor is working on how many of its own policies to throw overboard. As Labor was reminded by its shock defeat in 2019, the trouble with policies is that they’re much harder for you to sell than for your opponents to misrepresent.

A big part of the reason politicians have become so lacking in policy courage is the way election campaigning has become so negative. After last time, the coming election is shaping as the battle of the scare campaigns.

Bulldust will fly on both sides. Both sides are readying themselves by having as few policies as possible. An unthinking electorate is being rewarded with policy-free elections. How edifying.

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Whatever our other problems, there’s much less crime to fear

When I went to Sunday school we used to sing “count your many blessings, name them one by one”. It’s good advice, enthusiastically endorsed in recent times by the practitioners of “positive psychology”. But it’s not something the media do much to help us with. So you may not have noticed that we see far fewer stories about the rising crime rate and shocking descriptions of particular crimes.

That’s because, after rising for about three decades, Australia’s crime rate has fallen sharply since 2001. When the dog doesn’t bark, the media rarely notice. But this is a blessing we should be more aware of. Not everything about the world is going to the dogs.

In a book published this week, The Vanishing Criminal, Dr Don Weatherburn and Sara Rahman seek to answer the obvious question: why something that just kept getting worse has now been getting better for a decade or two. Weatherburn, formerly director of the NSW Bureau of Crime Statistics and Research, is now an adjunct professor at the University of NSW. Rahman is a researcher working in the NSW government.

First, the back story. The figures show that during the 1970s, ’80s and ’90s, Australia faced rapidly rising rates of break-and-enter, motor vehicle theft, robbery, stealing, assault and fraud.

The international crime survey of 2000, covering 25 countries, showed us having the second-highest rate of car theft, the highest rate of burglary, the highest rate of contact crime – covering robbery, sexual assault and assault with force – and the highest overall level of crime victimisation, the authors say.

At that stage, one in 20 Australian households was falling victim to burglary every year, one in 60 was losing a car to theft, and one in 20 people over the age of 15 was being assaulted, according to the Australian Bureau of Statistics.

Although the rates of particular crimes varied widely between suburbs and towns, no state or territory escaped the rise. “The spread of lawbreaking into the suburbs led to rapidly rising public concern, fuelled by an insatiable media and political appetite for stories about rising crime,” the authors say.

At the time, the country was in the grip of a heroin epidemic, which many believed to be responsible for the rise in theft and robbery.

But then, for no obvious reason, crime rates turned from going up to going down. This, too, occurred across all states and territories.

The authors say national recorded rates of property crimes fell precipitously after 2001. By 2017, break-and-enter had fallen by 68 per cent, car theft by 70 per cent, robbery by 71 per cent and other theft by 43 per cent.

The rates for murder fell by 50 per cent, attempted murder by 70 per cent and the overall rate of homicide (including manslaughter) by 59 per cent.

Rates of assault and sexual assault continued to increase, but since 2008, the annual prevalence of actual assault fell by a third, and threatened assault by almost a quarter.

The big exception is recorded rates of (adult) sexual assault, which were higher in 2017 than in 2001, which were higher than in 1993. This is probably due to increased willingness to report offences to police.

Internet fraud has increased, of course. So has use of methamphetamine – “ice”. But unlike heroin, the authors say, ice has so far not made any measurable impression on rates of theft and robbery. It’s probably affecting violent behaviour, of course.

So why the marked decline in so many forms of crime?

The authors note that crime rates have fallen in the United States, Canada, Britain, New Zealand and many European countries. But the decline has differed in its timing and degree in those countries, suggesting there is no single cause.

Rather, in explaining Australia’s decline, they see a coincidence of various factors. With homicide, they find that all the decline has been in gun deaths, rather than the more common knife attacks. So John Howard’s gun buy-back scheme may get some credit, but they think the best explanation is the steady improvement in emergency medical treatment.

Their best explanation for the fall in assaults is the decline in alcohol abuse among young people, in response to rising alcohol prices. Changes in some factors – such as the fall in heroin dependence – have had knock-on effects.

A reduction in the number of offenders relative to the number of police, and a decline in the size of the market for stolen goods, have allowed other factors – such as the risk of getting caught – to exert a greater influence.

Fortuitously, public pressure for the police to get better results reached its peak just as knowledge about what works in policing began to affect police strategy and deployment.

And all this occurred against a backdrop of low inflation, rising real wages and falling unemployment. Crime rates and unemployment do tend to rise together – something for Scott Morrison to remember as he contemplates putting out his Mission Accomplished banner.

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Economies malfunction when we can't trust our leaders

With the federal, NSW and Victorian governments all mired in questionable conduct but refusing to accept responsibility for their actions, a reminder of the value of ethical behaviour to the good governance of the nation is timely.

A report, The Ethical Advantage, by John O’Mahony, of Deloitte Access Economics, and commissioned by Dr Simon Longstaff’s Ethics Centre, reminds us that while ethical behaviour and trust are different things, a long record of ethical behaviour builds trust, which can be quickly destroyed by unethical behaviour.

To be successful, business leaders need the trust of their customers, employees and suppliers. The less people trust them, the harder they must work – and the more they must spend on marketing and security – to remain profitable.

It’s true you can go for a fair while abusing the trust of others, but when eventually they wake up, they tend to be pretty dirty about it. For years our banks took advantage of their customers’ trusting inattention by, for instance, failing to advise loyal customers of the better deals they were offering new customers. Now they wonder why their customers hate and distrust them.

Years of declining standards of behaviour on both sides of politics, and refusal to accept responsibility when things go wrong, have led to declining levels of trust in our politicians, and lowering respect for our leaders.

The imminent threat posed by the pandemic prompted our federal and state leaders to stop bickering and pull together, with oppositions anxious to be co-operative. The result was a marked increase in public confidence in the Prime Minister and premiers – a bonus Queensland’s Annastacia Palaszczuk banked on Saturday.

But no sooner had the threat eased – but not passed – than we were back to politics as usual. Our leaders don’t lead, they try to score points off their opponents. Great way to kill their newfound popularity.

Unsurprisingly, the report finds that there remains significant scope for us to raise our levels of ethical behaviour and trust. The Governance Institute of Australia’s ethics index, based on an annual survey of Australians’ perceptions of the level of ethical behaviour in society, gave us a “somewhat ethical” score of plus 37 on a scale of minus 100 to plus 100.

This was for last year, before the pandemic, and down from plus 41 in 2017. Across industries, healthcare was seen as the most ethical, with a score of plus 67. Then came education, charities and not-for-profits, and agriculture. Banking, finance and insurance was seen as the least ethical industry, with a score of minus 18.

According to the 2020 Edelman Trust Barometer, just 47 per cent of Australians trust business, government, media and our non-government organisations to do the right thing. Worse, none was seen as strongly competent or ethical – with government being seen as the least competent and ethical out of all our institutions.

Remembering the “steady stream of state and federal political scandals”, the report says, this weak ethical performance is no surprise. Royal commissions have uncovered unconscionable behaviour in religious and other institutions, widespread misconduct in the banking, superannuation and financial services industry, and alarming lapses in aged care quality and safety.

Behaving ethically requires us think a lot about what’s right and wrong in the things we do, the way we treat people and the choices we make. For some action to be legal doesn’t make it ethical. Grant Hehir, Commonwealth Auditor General, says “we care not only about whether an entity is following the legal rules, but also whether it is acting within the intent of the law and community expectations”.

Nor is an action ethical because “it’s what everyone does”. Professor Ian Harper, of Melbourne University Business School, says “we all have values and moral convictions – ethics is about having the courage to apply these in the real world”.

The report says that, apart from the pandemic, we’re facing big challenges to our future, including from climate change, an increasingly risky geo-political environment, new technology and the future of work, and reconciliation with Indigenous Australians.

The actions needed to cope with these challenges “will require leadership of a quality that enables society to cohere in the face of external and internal pressures that would otherwise cause divisions.

“In these circumstances, trust will be at a premium – especially for key institutions. In turn, this will depend on the quality of ethical decision-making by individuals, groups and organisations,” the report concludes.

When the unethical behaviour of business and politicians causes them to lose the public’s trust, governments lose the ability to make tough “reforms”. As the pandemic demonstrates, only when politicians can clearly be seen as acting in the whole public’s best interests will they be safe at the polls.

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Privatisation crusade is core business for tribal Libs

Critics of this year’s strange budget, which claims to be “all about jobs” but is really about helping some people and not helping others, accuse Scott Morrison and his faithful Treasurer of being “ideological”. That’s not a sensible criticism.

To accuse someone you disagree with of being “ideological” is dishonest and hypocritical. It misuses the word, turning it into a meaningless term of abuse. It implies that you’re being ideological, but I’m not.

To be ideological is to hold to a system of beliefs about how the world works and how it should work. So every adult who hasn’t wasted too much of their life watching reality television rather than thinking has an ideology — some better thought through than others.

When I accuse you of being “ideological”, what I’m really saying is that your ideology differs from my ideology and I think yours is wrong.

But I object to the term also because it’s an attempt to intellectualise and dignify a motivation far less noble: our deeply evolutionary instinct to form ourselves into tribes. My side, your side. Us and them. Good guys versus bad guys.

In politics, partisanship leads to polarisation and polarisation to policy gridlock and impotence. For example, look at the dis-United States. The richest, smartest big country in the world has been hopeless at coping with the pandemic, with many, many deaths. The Democrats and Republicans refuse to co-operate on anything. They’ve even turned mask wearing into a partisan issue.

It’s not so surprising that Morrison and Josh Frydenberg have been happy to justify their widely criticised budget choices by reference to their own ideology, saying the budget strategy “is consistent with the government’s core values of lower taxes and containing the size of government, guaranteeing the provision of essential services, and ensuring budget and balance sheet discipline”.

These “core values” are elaborated on the Liberal Party website. “We work towards a lean government that minimises interference in our daily lives, and maximises individual and private sector initiative.”

“We believe ... in government that nurtures and encourages its citizens through incentive, rather than putting limits on people through the punishing disincentives of burdensome taxes and the stifling structures of Labor’s corporate state and bureaucratic red tape.”

“We believe ... that businesses and individuals — not government — are the true creators of wealth and employment.”

To summarise, the individual is good, the collective is bad. Private good, public bad. Government is, at best, a necessary evil, to be kept to an absolute minimum.

Sorry, but this is just tribalism — the Liberal private tribe versus the Labor public tribe — masquerading as eternal truth. It’s phoney party-political product differentiation. Vote Liberal for low taxes; vote Labor for high taxes. Really? I hadn’t noticed much difference.

Private good/public bad makes no more sense than its left-wing opposite, public good/private bad. Both are a false dichotomy. It takes little thought to realise that the two sectors of the economy have different and complementary roles to play. One could not exist without the other, and we need a lot of both.

The individual and the collective. Competition and co-operation. Both sectors do much good; both can screw up. The hard part is finding the best combination of the two somewhere in the middle, not at either extreme.

As Frydenberg has often said, the budget’s strategy is to bring about a “business-led” recovery. This explains why most of the money it spends or gives up goes to business as tax breaks. Tax cuts and cash bonuses to individuals come a poor second and direct spending on job creation has largely been avoided.

Frydenberg justified this by saying that “eight out of every 10 jobs in Australia are in the private sector. It is the engine of the Australian economy.”

Surely he’s exaggerating, I thought on budget night. But I’ve checked and it’s true. Or rather, it is now. These days, 89 per cent of men and 81 per cent of women work in the private sector, leaving just 15 per cent of workers in the public sector.

In 1994, before the mania for privatisation and outsourcing took hold, 28 per cent of employees worked in the public sector (with two-thirds of those working for state governments).

The electricity, gas and water utilities used to be almost completely public sector. Now they’re 78 per cent private. Sale of the Commonwealth Bank, state banks and insurance companies mean the finance sector is almost totally private.

The sale of Qantas and Australian Airlines, ports and shipping, airports and much public transport means employment in the transport industry is 90 per cent private. Despite state government ownership of schools, TAFEs and universities, employment in education is now only 54 per cent public.

Despite health and community services being largely government-funded, three out of four workers are privately employed.

See what’s happened? With some help from their rivals, the Libs have worked tirelessly over the past 25 years moving workers from the Labor public tribe to the Liberal private tribe. Haven’t you noticed the big improvement?

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Memo generals: China is our inescapable economic destiny

There must be times in Australia’s history when people look at the nation’s economic experts and wonder if they have any idea what they’re doing. Today, the boot’s on the other foot: people who care about our economic future are wondering what game the nation’s defence and foreign affairs experts think they’re playing.

The concern of many business people and others has been most eloquently expressed by Dr John Edwards, former Reserve Bank board member, in a paper for the Lowy Institute. He’s in complete agreement with Scott Morrison’s assertion last year that “even during an era of great-power competition, Australia does not have to choose between the United States and China”.

Edwards says Australia made its choices long ago, and is now locked into them. “It chose its region, including its largest member, China, as the economic community to which it inescapably belongs. It also long ago chose the US as a defence ally to support Australia’s territorial independence and freedom of action.”

There is a good deal of tension between these two choices, but no possibility that either will change, he says. “Like many other enduring foreign policy problems, it cannot be resolved. It must instead be managed.

“However, it can only be managed if the Australian government has a clear and united understanding of Australia’s interests, and competent people to execute policies consistent with that understanding.”

Australia’s trade with East Asia has been growing faster than its gross domestic product and its trade overall for many decades. Our exports to East Asia now account for more than a sixth of our total GDP. Half of these exports go to China, and now amount to 10 times those going to the US.

Australia is meshed with China’s economy not only because China is such a big market for our exports, but also because China is the major trading partner of our other major markets in East Asia: Japan, South Korea, Taiwan and the ASEAN countries.

Today, East Asia and the Pacific form a regional economic community that, in terms of trade and investment between its members, is only a little less integrated than the European Union, and very much more integrated than the North American region.

“Already selling all it can to Japan and Korea, Australia would not find new markets for iron ore and coal to replace even a part of what it now sells to China. Nor could it easily replace exports of wine, meat, dairy products and manufactures to China. The largest share of foreign tourists is from China, as is the largest share of foreign students,” Edwards says.

“Without trade with China, Australia’s living standards would be lower, its economy smaller and its capacity to pay for military defence reduced.” (Generals – armchair and otherwise – please note.)

“It is difficult to imagine plausible circumstances in which an Australian government would voluntarily cut exports to China. Australia cannot and will not decouple from China’s economy any more than Japan, Korea, Taiwan or Southeast Asia can, wish to, or will,” he says.

Australia’s stance towards the US-China competition must therefore be informed by a recognition that what injures China’s prosperity also injures Australia’s prosperity. Economic "decoupling" of China from North America or Europe is not in Australia’s interests.

But “nor will Australia decouple from its security arrangements with America. The US will remain the primary source of advanced military technology for Australia. It will also remain the primary source of security intelligence.

“And no hostile power can entirely discount that possibility that the US would come to Australia’s military assistance if required. The security arrangements Australia has with America are therefore sufficiently valuable that no Australian government would voluntarily depreciate them, let alone relinquish them.”

The tension between these two pillars of Australia’s engagement with the world will continue for decades to come. The centrality of these relationships makes it all the more important for Australia to conduct them carefully and cleverly, always guided by a notion of Australia’s long-term interests, we’re told.

“China’s growing role on the world stage, its authoritarian government, its suppression of internal dissent, its territorial claims and defence build-up in the South China Sea, together with the deterioration of the relationship between the US and China, make this tension increasingly difficult to manage.

“Thus far, the cleverness Australia increasingly needs is not evident in its handling of relations with China . . . Refusing to take sides in the trade and technology competition between China and the US is Australia’s declared policy. It was wisely adopted – but not deftly implemented,” Edwards concludes, with admirable restraint.

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Weak inflation tells us: it's the demand side, stupid

Despite the remarkable 1.9 per cent fall in the consumer price index in the June quarter, we face no imminent threat of deflation. But it’s not as improbable a fate as it used to be.

Apart from in headlines, one negative quarter does not deflation make. Deflation occurs when price falls are modest, widespread and continuous, the product of chronically weak consumer demand. Businesses cut their prices as the only way to get people to buy what they’ve produced. Their goal is not to make a profit, but to reduce their losses.

Paradoxically, deflation – which was dogging Japan not so many years ago – is to be feared. Why buy now if prices are falling? Why not wait until they’re even lower? But the longer consumers wait, the more prices fall. And the faster they fall, the more businesses cut production and lay off workers. The economy implodes.

By contrast, our fall was produced by cuts in two key government-controlled prices – for childcare and pre-schools – plus petrol prices. We already know these falls will largely be reversed in the present quarter.

Even so, all the other prices in the CPI basket of goods and services rose during the quarter by just 0.1 per cent. People are reluctant to buy during recessions, so businesses don’t raise their prices for fear of selling even less. It’s a safe bet inflation will stay negligible for as long as the recession lasts and for as long as it takes the economy to recover.

Trouble is, we had unduly weak price growth long before the coronasession. Our rate of inflation’s been below the bottom of the 2 to 3 per cent target range for almost six years. The Reserve Bank has been struggling to get it up into the target, "Goldilocks" range without success.

Point is, when you have a problem with high inflation, you have a problem with the supply side of the economy. Supply isn’t keeping up with demand, so something needs to be done to get the economy’s production growing faster and more efficiently.

Conversely, when inflation isn’t a problem but high unemployment is, you have a problem with demand side of the economy. Consumers aren’t spending enough and businesses aren’t investing enough.

But too-low inflation isn’t the only indicator that demand and supply are out of whack. Another sign is record low interest rates. They’re low not just because inflation is so low, but also because “real” interest rates – the lenders’ above-inflation reward for letting other people use their money – have also fallen.

Why? It can only be because the amount of money savers have available to lend (the “supply of funds”) exceeds the amount home-buyers, businesses and governments want to borrow to cover their investment spending (the “demand for funds”). That real interest rates have been falling for years is another sign that our problem is chronic deficient demand, not inadequate supply.

One consequence of this is that the authorities’ ability to encourage borrowing and spending by cutting interest rates has been exhausted. So “monetary policy” has done its dash, leaving “fiscal policy” – the budget – as the only instrument left for the government to use to support the economy during the recession and then to stimulate growth.

If it wants more spending in the economy, the government must do it itself.

There’s just one difficulty. During the period in the 1970s and ‘80s when it was clear the developed economies had a major problem with inflation – meaning the supply side was chronically unable to keep up – the conventional wisdom emerged that the short-term management of the economy should be left to monetary policy, with fiscal policy reserved to help with other, medium-term issues.

This approach fitted neatly with the conservative side of politics’ preference for Smaller Government. Our Liberals have come to view macro-economic management in largely party-political terms: we use monetary policy; Labor uses fiscal policy. We follow neo-classical economics; Labor follows Keynesian economics. We cut government spending and taxation; Labor loves to spend and tax. We worry about deficient supply; Labor worries about deficient demand.

This political ideology approach to macro management can’t cope with the developed economies’ tendency to switch from long periods when supply and inflation are the big problem to long periods when demand and unemployment are the big problem.

You can see this in the Morrison government’s obvious reluctance to spend enough to limit the economy’s contraction to two successive quarters, despite our continuing struggle to contain the virus. You see it in Morrison’s desire to move on to “reforms” aimed at improving the supply side.

Both political sides see that wage growth is too weak at least partly because the productivity of labour is improving only slowly. But the Liberals’ ideological approach to macro tells them the answer to low productivity is more supply-side reform, whereas a pragmatic, more contemporary analysis says it seems obvious that if consumer demand is weak, business investment will be weak and if business investment in the latest technology is weak it’s no surprise that productivity improvement is slow. It’s the demand side, stupid.

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Let's not go back to politics as usual. It doesn't work.

With life cautiously returning to normal after the great lockdown, it’s time for Scott Morrison – who’s “had a good virus” – to think about where he goes from here. Does he want to be remembered as a single-minded warrior for his Liberal tribe, soon replaced by another scrapper, or as one of our great prime ministers, up there with Curtin and Menzies?

Does he want to cling to office by exploiting our divisions, or by uniting us in common cause? Does he want to deliver for the party base and its big business donors, or for everyone, even those without political clout?

After the shock of winning an election neither he nor anyone else expected him to, then being caught with no plans to do anything much, Morrison has been on a fast leadership learning curve. First his failure to take command of the bushfire crisis, then rising to the challenge of a pandemic for which we were quite unprepared.

Along with the premiers, his popularity has soared. At times of threat, people crave strong, confident leadership, and he has provided it. But as things start returning to normal, will it be back to squabbling politics as usual, as so many smarties are gleefully predicting?

Certainly, that’s where all our politicians’ instincts would lead them, and the media’s love of conflict would want them to be. But if Morrison allows that to happen, all the goodwill and community spirit will be lost – to Morrison’s detriment and ours.

Much has been made of our loss of trust in politicians and governments in recent years, but new polling by the Australian National University shows that, between January and April this year, confidence in the federal government increased from 27 per cent to 57 per cent, with state governments up from 40 per cent to 67 per cent.

This may be explained solely by our need for strong leadership, but I suspect another part of it is the cessation of politics as usual. Morrison has been too busy fighting the virus to waste time badmouthing his political opponents, saying things calculated to mislead, or making promises he can’t keep.

He’s been busy explaining how viruses work, what he plans to do about it and what he needs us to do. He’s been explaining, explaining, explaining. He’s stopped taking shots at the unions because he needs their co-operation. The opposition hasn’t been game to make any criticisms that weren’t constructive.

And we’ve loved it.

The news media are getting far more attention from their customers than usual. That may be because the virus is so new and frightening, but it also suggests the public finds a constant diet of the pollies’ squabbles and misbehaviour less engrossing than the press gallery does. Maybe people might be more interested in sensible discussion of the policies affecting their lives.

The handling of an epidemic and the way we cope with the huge economic cost of the medicos’ drastic remedies have obliged Morrison to rely heavily on his health and economic bureaucrats – the same people he was telling a few months earlier to keep their policy opinions to themselves and just do what they were told.

The ANU polling shows the public’s confidence in the public service has gone from 49 per cent to 65 per cent. Apart from serving the public, the bureaucrats’ job is to keep their political masters out of trouble. Who knew? Another of Morrison’s recent “learnings”.

Like most issues, responding to pandemics is a shared federal-state responsibility, requiring much co-operation and co-ordination – which, except for those holding neatness to be the highest virtue, has not required states with widely varying experiences of the virus to move in lockstep.

I suspect one reason the pollies are rating high is the blessed relief from federal-state bickering and buck-passing.

What all this says is that politics as usual wasn’t working well. The public was sick of it – as demonstrated by the two main parties’ ever-falling share of the vote and the rise of various populist parties.

Those who think there’s no alternative to politics as we’ve grown used to it show their ignorance. It wasn’t always this unedifying. And now Morrison has demonstrated how well he’s doing without it, there’s no reason we should return to it.

There’s no shortage of problems that need fixing, so governments need a big to-do list. They should focus on explaining and defending those programs, leaving no time for denigrating their opponents. They seem to have no inkling of how unpersuasive and off-putting voters find this.

If you don’t want voters to stop listening, stop refusing to give straight answers to questions. Pretend you’re a real person; throw away the talking points. Stop trying to get elected by telling us the other guy would be worse.

There’s always an important role for oppositions to keep governments on their toes. But less of the “they said white so we’d better say black to make us look different”. And, as Morrison has lately demonstrated, it does impress when you under-promise but over-deliver.

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Lack of trust may have made economic reform impossible

Life’s getting a lot tougher for optimists. I’m starting to wonder whether our politics has passed the point of peak economic reform and controversial policy changes are no longer possible.

We keep berating our politicians, urging them to show leadership and have the courage to make much-needed reforms, but they never do. Right now, it’s easy to look at the way Scott Morrison has fumbled the bushfire response, the need to get real about climate change, and even his reluctance to take a stand against blatant rorting of taxpayers’ money, and decide we have a Morrison problem.

But though we’re discovering the miracle election-winner’s various shortcomings, it’s a mistake to think one man is the cause of our reform problem. It’s possible to argue things have got steadily worse in the revolving-door period since the departure of John Howard, but the greater truth is that the problem’s systemic.

It’s hard to think of any major improvements made by five prime ministers over the past 12 years, with the possible exception of the National Disability Insurance Scheme (which we’re still busy stuffing up).

The carbon tax was a significant reform before Tony Abbott abolished it, but Labor had sabotaged its mining tax long before Abbott got to it. Malcolm Turnbull took one look at the great goal of increasing the goods and services tax and realised it was politically impossible without full compensation of low to middle income-earners, but net of compensation it would have raised peanuts.

All this is just the Australian version of similar stories that could be told in most of the other rich democracies. But, sticking with our story, why has it become next to impossible for our governments to make controversial policy changes?

The pollies would tell you it’s because the 24-hour news cycle – the media are constantly demanding to be fed, and will turn to you opponents if you don’t oblige – and the power of social media to set hares running that have to be chased. This now gets so much attention from ministers and their staff they have little time left to get on with policy development.

Maybe. A less convenient explanation is the way politics has turned into a lifelong career – from staffer to minister to a late-career job advising big business – leading pollies to worry more about their careers and less about the ideals they espoused in their first speech on entering Parliament.

But however you explain it, there’s little doubt that the life of ministers has become pretty much all day-to-day tactics and no long-term strategy. This both explains and reinforces the long-established trend – which Morrison now freely acknowledges – for ministers to prefer the advice of the ambitious young punks in their office to the advice of their department.

The staffers know about what matters – political tactics – whereas the bureaucrats want to keep banging on about policy and warning you about looming problems. Worse, they’re obsessed by the notion that whatever governments do must be strictly in accordance with the law.

Partly because fixing problems usually costs money, the era of Smaller Government and the politically motivated obsession with returning the budget to surplus has heightened the politicians’ normal temptation to pigeonhole government reports warning about problems that need to be fixed now before they get much worse.

A bunch of former fire chiefs want a meeting to warn about how much worse this year’s bushfire season will be and the need for much more equipment and action to limit climate change? Sorry, too busy with more pressing matters.

Even the idea that politicians should “never waste a crisis” – that you won’t get broad support for unpopular measures until everyone’s up in arms about the actual arrival of the problem – and its corollary – don’t act on the multitude of mere warnings of problems ahead, wait and see which of them actually transpire – seem themselves to have been pigeonholed.

Why are politicians no longer game even to seize the moment to do something real when everyone’s demanding that something be done? Because years of declining standards of political behaviour mean that trust in political leaders is now lower than ever. There’s strong survey evidence of this.

Neither side of politics is trusted to take tough measures that are genuinely in everyone’s interests. It’s got to be a trick. Mainstream politicians are trusted only when they run scare campaigns against the other side’s reform plans. But hope springs eternal that some populist rabblerouser may have the answers.

The more impotent mainstream politicians are seen to be, the more disillusioned voters will turn to populist saviours – and the more the main parties will themselves turn to populist diversions and trickery. Freeing ourselves from this vicious circle won’t be easy.

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How Morrison is putting politics ahead of policy

If you think Scott Morrison’s been busy doing not very much since the election in May, you are much mistaken. In truth he’s been very busy doing stuff of not much interest to you. But sometimes it pays to take an interest in things that don’t seem of interest.

For instance, I wouldn’t expect you to have taken much interest in the reshuffle of government departments he announced on Friday. But I’ve been reading up on it and been amazed – or appalled – by what I’ve learnt.

It’s said to be the most dramatic overhaul of the federal public service since 1987, cutting the number of departments from 18 to 14 while creating four new mega-departments and removing five department secretaries, three of them women.

Morrison said it was not a cost-saving measure, but had been done to “better align and bring together functions within the public service so they can all do their jobs more effectively and help more Australians”.

So be very clear on that: it’s been done to ensure you and I get better service from the public service. Specifically, the number of departments was shrunk so as to “ensure the services that Australians rely on are delivered more efficiently and effectively”.

I just have one problem: that’s what they all say. If Morrison had increased rather than decreased the number of departments, he would still have assured us it would make the public service more efficient and effective.

This is hardly the first time departmental arrangements have been changed. They’re changed after every election and often several times more. Changes are so common bureaucrats have a name for them: MoG – changes in the “machinery of government”.

According to calculations by Bob McMullan, former Labor minister turned academic, more than 200 changes have been made since 1993-94. “In 2015-16, machinery of government changes involved the movement of 8000 staff in 21 separate changes. Changes following the 2013 election, which involved the movement of 12,000 staff, cost an average of $14 million per agency.”

Governments everywhere do it, but research by academics at UNSW’s Canberra campus suggests Australian governments do it far more than others. “Even governments with an emphasis on ‘cutting red tape’ [such as this one] have undertaken extreme and costly MoG changes,” they say.

So why are the latest changes said to be the biggest since 1987? Because that’s when the Hawke government introduced the idea of merging departments into mega-departments. Paul Keating reversed some of those changes and John Howard undid much of the rest. Get it? It’s time to mega up again.

When the changes cause the name of some function to drop out of the ever-longer titles of departments, the interest group invariably sees red. A few years ago it was the scientists, this time it’s the arts. Actually, the arts have never had their own department, but have been shunted from one department to another.

Since Bob Hawke’s day they’ve gone from Environment to Communications, back to Environment, then Regional Development, Prime Minister and Cabinet, back to Regional Development, then Attorney-General’s, back to Communications and now to the new mega Department of Infrastructure, Transport, Regional Development and Communications.

So many MoG changes involve moving functions from one department to another that McMullan has christened them “merry-go-round decisions”. “Responsibility for childcare, aged care and Indigenous affairs (to name a few) have all been the subject of multiple shifts in the past decade. In some cases, the functions have moved out of one department only to return to their original home a few years later,” he says.

He adds that “disentangling financial structures, IT support structures, property responsibilities and HR systems from old organisations and reintegrating them into new ones takes considerable time and effort”.

Former boss of Prime Minister’s Terry Moran’s comment on the latest changes is blunter: “There’ll be turmoil in many departments for a significant period."

So why do the changes keep happening? Partly to create the appearance of progress – “reform”. Sometimes I think the pollies are trying to convince themselves as much as us. But mainly to indulge the preferences, prejudices and professed priorities of the prime minister and his or her ministers.

It’s notable that these extensive changes to the bureaucracy – including the sacking of five department heads – involve no changes to the ministry. The new mega Department of Agriculture, Water and the Environment will now contain three Cabinet ministers, co-equal in power and glory.

What particular preferences and prejudices of Morrison do the latest changes reveal? I think it reveals this government’s disdain for public servants. It’s the revenge of the ministerial staffers (which many ministers started their political careers as). Who needs public servants giving ministers advice when it’s the staffers who understand the politics of the matter?

This is Morrison surrounding himself with the top public servants he knows and likes, replacing the ones who want to keep talking about policy with can-do men and women who don’t argue.

Morrison has repeatedly expressed his belief that he doesn’t need policy advice from public servants. They should just be getting on with implementing the policies the government gives them.

I think this is Morrison perfecting the hermetic seal of his personal Canberra bubble. He already knows what’s on his to-do list and he doesn’t want news from the outside world delaying or deterring him from his purpose.

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Confessions of a pet shop galah: much reform was stuffed up

As someone who, back in the day, did his share of being one of Paul Keating’s pet shop galahs – screeching "more micro reform!" every time they saw a pollie – I don’t cease to be embarrassed by the many supposed reforms that turned into stuff-ups.

My defence is that at least I’ve learnt from those mistakes. One thing I’ve learnt is that too many economists are heavily into confirmation bias – they memorise all the happenings that affirm the wisdom of their theory, but quickly cast from their minds the events that cast doubt on that wisdom.

Well, let me remind them of a few things they’d prefer to forget.

Of course, it’s not the case that everything done in the name of "micro-economic reform" was wrong-headed. The floating of the dollar was an unavoidable recognition that the era of fixed exchange rates was over. And the dollar’s ups and downs have almost always helped to stabilise the economy.

The old regulated banking system wasn’t working well and had to be junked. With the rise of China in a globalising world, persisting with a highly protected manufacturing sector would have been a recipe for getting poorer. Nor could we have persisted with a centralised wage-fixing system or a tax system that failed to tax capital gains, fringe benefits and services – to name just a few worthwhile reforms.

Many privatisations were justified – the government-owned banks, insurance companies and airlines – but the sale of geographic monopolies (ports and airports) and natural monopolies (electricity and telephone networks) was a step backwards, mainly because governments couldn’t resist the temptation to maximise the sale price by preserving the businesses’ pricing power at the expense of consumers.

The conversion of five state monopolies into the national electricity market proved a monumental stuff-up at all three levels: generation, transmission and retail. It quickly devolved into an oligopoly with three big vertically integrated firms happily overcharging consumers at every level, with collateral damage to the use of carbon pricing in reducing greenhouse gas emissions.

We’ve learnt that “markets” artificially created by governments and managed by bureaucrats are – you wouldn’t guess – hugely bureaucratic, with the managers susceptible to “capture” by market players. The gas market has also been an enormous stuff-up, threatening the survival of what remains of Australian manufacturing.

The ill-considered attempt to treat schools and TAFEs and universities as being in some kind of market, where fostering competition between them and paying teachers performance bonuses would spur them to lift their performance, proved an utter dud.

Had the harebrained plan to deregulate uni fees not been stopped, it would have made even worse the chronic disorientation of the nation’s vice chancellors on what universities are meant to do and why they’re doing it. Lesson: trying to turn non-market parts of society into markets, while blithely ignoring all the obvious reasons such "markets" would fail, is a fool’s errand.

Which brings us to the half-baked idea of trying improve the provision of taxpayer-funded services by making their delivery “contestable” by for-profit providers. It's been an expensive failure pretty much everywhere it’s been tried: childcare, employment services, vocational education and training, and aged care (see present royal commission), not to mention privately run prisons and offshore detention centres. How long will it be before we’re having a royal commission into the abuses of the largely outsourced national disability insurance scheme?

Why have so many reform programs ended so badly? Partly because of the naivety of econocrats and other proponents of "economic rationalism". They had no notion of how far the grossly oversimplified neo-classical model of markets they carry in their heads misrepresented the big bad real world.

And many of them, having spent their working lives solely in the public sector, had no idea of how wasteful or bureaucratic the supposedly rational private sector could be. Actually break the law if they thought they wouldn’t get caught because corporate law-breaking wasn’t being policed? Sure. Rip off the government because the bureaucrats wouldn’t notice? Love to.

But there’s another reason so many reforms blew up. Because naive econocrats failed to foresee the way reforms intended to leave consumers or taxpayers better off could be hijacked by Finance Department accountants looking to cut government spending and produce "smaller government" by whatever expediency possible (see uni fee deregulation) and politicians looking to win the approval of big business or to move money and influence from the public sector column (them) to the private sector column (us).

Lesson: if a venal politician can find a way to sabotage micro-economic reform to their own advantage, they will.

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Insincere, misguided displays of concern make the drought worse

Sometimes I think our politics has got into a vicious circle: the worse our politicians behave, the more of us give up and tune out. But the less we monitor their behaviour, the worse and more lackadaisical the politicians become.

Take the drought. Good politicians would see it as a recurring problem and try to find substantive ways of helping farmers cope with droughts in general; weak politicians settle for giving the impression of being very busy caring and helping – especially when the TV cameras are rolling – while they kick the problem down a country track.

Scott Morrison and his ministers keep announcing (or re-announcing) new measures to help, but the experts – including the National Farmers' Federation - keep lamenting that we don’t have a National Drought Policy and haven’t had one for years. We just keep knee-jerking and ad hocking every time another drought comes along.

So what would a decent national drought policy look like? It would start by reverting to an understanding the Hawke-Keating government established years ago, but has since been blurred: droughts aren’t a “natural disaster” in the way floods, cyclones and bushfires are. For a start, those others are sudden and short-lived, whereas droughts develop gradually, spread over huge areas and can last for years.

As Dorothea Mackellar realised more than a century ago, if you want to be an Australian, regular droughts are part of the deal. Always have been but, thanks to the two C-words we’re not supposed to say, are now likely to become more severe and more frequent. The day may come when not being in drought is the exception.

According to former top econocrat Dr Mike Keating, “the possibility of recurring droughts must therefore be planned for and not just treated as bad luck, for which farmers themselves bear no responsibility”.

The national drought policy of 1992 required farmers to be more self-reliant and absorb the impact of droughts as something to be expected. Many, many farmers have long been doing just that. Some haven’t bothered and they’re the ones getting most care and concern from fly-by-night journalists and politicians.

Everyone wants to “help those poor farmers”, but how should governments do it? John Freebairn, an economics professor at the University of Melbourne, says you can divide government drought support into three categories: subsidies for farm businesses, income supplements for low-income farm families, and support for better decision-making.

His message is that the main thing we should be doing is supporting programs to help farmers better manage the risk of drought and make their farms sustainable. Such support needs to come mainly between droughts – precisely when media and political interest in the topic evaporates.

Although income supplements for drought-stricken farmers raise questions about why they should get help other small-business people don’t, they’re a much more effective way of alleviating poverty than subsidising farmers’ loans, freight and fodder – which is just what federal and state politicians (and volunteer organisations) have been heaping on this time as the ad hockery has mounted.

As Professor Bruce Chapman, of the Australian National University, said this week, “the politics of drought is not only about helping farmers, [it’s] about showing the world – including city dwellers – that the government cares. It does that by giving money away and having lots of announcements.”

But here’s the less-obvious truth recognised by a considered drought policy: the too-ready availability of drought assistance helps create droughts.

How? By reducing “the risks associated with a bad year, and thus encouraging over-cropping and over-grazing. If farmers know that their mistakes will be bailed out, then they have an additional incentive to maintain their herds even when the risk of not having enough feed is quite high. They anticipate that the taxpayer will bail them out if it doesn’t rain, and that they will be able to buy in the additional (subsidised) fodder when they might need it,” Keating says.

Now get this: according to Lin Crase, an economics professor at the University of South Australia, “there is mounting evidence that farm businesses can actually benefit from drought in the longer term. This seems to occur because businesses that go through a drought develop coping strategies that, when invoked in good years, produce much greater profits.”

This doesn’t mean droughts are a good thing, of course, but it does mean that shielding farm businesses from drought runs the risk that they won’t adapt, Crase says. Changing climate suggests that a lot more adaptation – including bigger, more mechanised farms and many more farmers leaving the land – lies ahead.

Sensible drought policy long ago recognised that more dams don’t help, which is why so few have been built in recent decades. That politicians are popping up with plans for new dams is another sign they’re making it up as they go.

John Kerin, a minister for primary industry in the Hawke government, says that while you can fill new dams when you’ve eventually built them, “you can’t keep them full waiting for a drought, or empty waiting for a flood”. Increased stored water will be used to increase irrigation. And increased irrigation in a time of climate change means greater shortages of water in the next drought.

The expertise to respond to drought more sensibly is there. It’s just that our politicians find it easier pretending to fix the problem.

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We’re relying on a government that spurns economic advice

I’m starting to wonder if the trouble with our politicians is that they’ve evolved to do politics but not economics, making them unfit to cope with the economic threats we now face.

On the one hand, they’ve been able to leave the management of the economy to the independent Reserve Bank, whose tinkering with interest rates – up a bit, down a bit – has successfully kept the economy growing for 28 years.

On the other hand, the pollies have been locked in a decade of unprecedented political instability where, since the demise of the Howard government in 2007, no prime minister has been safe from attack – from their own side.

In such an environment, with monetary policy (interest rates) so successfully managing the economy, the budget ceases to be “fiscal policy” and becomes just an instrument of politics.

Because you’re eternally looking over your shoulder trying to spot the next colleague holding a dagger behind his back, you use the budget primarily to shore up your support within the party, rewarding the base and punishing its designated enemies.

Be slavish in feeding the 24-hour news cycle. Keep up the pressure for ministers and their departments to provide a continuous flow of minor “announceables”. Remember, any vacuum you leave will be filled by your enemies (external or internal). If you run out announceables, just slag off your (official) opponents.

Of course, if the punters understood what you were up to, they wouldn’t be impressed. So when you’re trying to shore up the support of big business by cutting the rate of company tax, you keep claiming it’s a “plan for jobs and growth”.

When you’re using an income tax tax cut to buy some popularity at the election, you pretend that economic growth is driven by lower taxes.

The worst of it is, since the things your side really cares about – cutting taxes, preserving tax breaks favouring high income-earners, cracking down on the leaners and loafers on social welfare – are economic measures, you convince yourself you’re really into economics.

And running a budget surplus – that’s economic isn’t it? (No, not when your forecasts of a strong economy have proved way too optimistic and you’re counting on a freak improvement in iron ore prices to get you over the line. Then, it becomes an indulgent stretch for political kudos.)

You don’t actually know enough economics to realise economics is about rolling back rent-seeking and increasing the efficiency with which resources are allocated, at the micro level, and managing the economy through the ups and downs of the business cycle, at the macro level. All the rest is politics.

We’ve come to expect that if the person taking the treasurer’s job doesn’t know much about economics, Treasury will give them a crash course and get ’em up to speed. But former senior Treasury officer Paul Tilley’s new book, Changing Fortunes, leads me to think this no longer happens.

These days, treasurers are so preoccupied by the daily battle for political survival they have little time or interest in economics tutorials. Treasury has got out of the habit of giving the treasurer any advice his staff doubts he’d want to hear. Treasury’s job is largely to supply facts and figures when demanded by the treasurer’s staff.

In which case, you have to worry about how much professional rigour goes into producing the budget forecasts. How much they’re designed to avoid giving the treasurer news he doesn’t want to hear.

The Reserve Bank’s latest forecasts for wage growth are laughing at the optimistic forecasts of the budget in April. Where the budget has wages growing by 3.25 per cent a year by June 2021, the Reserve has the growth rate rising only a fraction to 2.4 per cent.

But here’s the surprising thing. Despite the central importance of wages in driving consumer spending and overall economic growth, the Reserve’s year-average forecasts for real GDP differ little from those in the budget.

I find this suspicious. And worrying. If the central bank feels constrained by the forecasts of a Treasury anxious to avoid displeasing its political masters, we’ve got a problem.

Last week, while worries about how much damage Trump’s trade war might do to the world economy were causing share markets to plunge, Treasurer Josh Frydenberg – who was 20 at the time of our last big recession – emerged from his bunker to assure us the government would “take the necessary actions to ensure our economy continues to grow”.

Great. But who’ll be advising him on which actions are necessary? The young punks in his office?

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Economic reform is stalled until politicians get back our trust

For those who care more about good policy than party politics, there are unpleasant conclusions to be drawn from the federal election. The obvious one is that it was a case of policy overreach leading to failure.

The less obvious one is that decades of misbehaviour by both sides have alienated so many people from the political process and turned election campaigns into such a cesspit of misrepresentation and dishonesty that, henceforth, neither side will be game to propose or implement controversial reforms.

The election was lost by the party proposing to remove a long list of sectional tax breaks and use the proceeds to increase spending on hospitals, schools and childcare, and won by the party that couldn’t agree on any major policies bar a humongous tax cut.

The risks to good economic policy are obvious. Labor concludes only a mug would try to get themselves elected on the back of good policy; the Coalition concludes you don’t need to be promising to do anything much to get re-elected.

Labor’s conclusion could be used to reinforce the political class’s widely held view that controversial reforms should only be pursued once in government, never from opposition.

Trouble is, the Coalition’s conclusion could be used to argue that, if you can get re-elected without any plans to fix things, why take the risk of proposing anything that could be unpopular?

But I think the threat to good policy runs even deeper. It comes from the electorate’s ever-growing disillusionment and alienation from politics and politicians, and from the two main parties in particular.

The vote for a changing array of third parties continued to rise, while the primary vote for both the majors was down – though more so for Labor than the Coalition. Until now, the rise of One Nation and other populist parties of the right has been a much bigger worry for the Coalition than the Greens have been for Labor.

This time, however, many former Labor voters in outer suburban and regional electorates used One Nation and Clive Palmer’s United Australia Party as a bridge to switch their vote to the Liberals.

In numerical terms, that’s why Labor lost. The point for good-policy advocates to note is that, when so many voters tune out of the political debate, but are still required to vote, they tend to make a last-minute choice based not on a well-informed assessment of how they would be affected by the rival parties’ policies, but on superficialities (“that nice Mr Rudd” or “Shorten looks shifty to me”), scare campaigns and negative advertising.

In other words, in a world where switched-off swinging voters aren’t even guided by informed self-interest, the scare campaign is king. To be blunt, the best liars win.

The Libs were convinced that former prime minister Malcolm Turnbull came so close to losing the 2016 election because of the success of Labor’s Mediscare campaign, conducted at the last minute using social media.

My theory is that, this time, the Libs resolved to turn the tables. This time they made much superior use of social media to run bigger scare campaigns about Labor’s “retirement tax” and “housing tax”. That was mere misrepresentation of Labor’s policies (most of which had strong support from economists and econocrats). The anonymous soul who dreamt up the “death tax” was an outright liar.

I think the biggest single reason so many outer-suburban and regional voters turned away from Labor was its opponents’ success (with much help from Palmer’s blanket advertising) in convincing those voters that Labor planned to increase their taxes.

My guess is that the next federal election will either see each side battling to out-scare the other – an orgy of lies - or, more likely, neither side being game to propose any reform of consequence, for fear of having it grossly misrepresented by the other side.

The more the bad behaviour of both sides – the broken promises, the hypocrisy, the spin, the abuse of statistics, the preference for bad-mouthing your opponents rather than explaining your policies – continues, the more both sides will turn from substance to empty populism.

And guess what? The more they do, the more voters will disengage and become more susceptible to lies and superficialities.

From the noises Anthony Albanese has been making, everything Labor did was wrong, and every triumphalist Liberal explanation of why Labor lost is right. The trouble with Labor selecting leaders from its Left faction is that they’re so anxious to prove they’re not left wing (which, these days, they aren't) they end up standing for nothing.

It would be nice if, having worked a miracle and established his authority over the Coalition’s warring tribes, Scott Morrison now turns his mind to fixing at least some of the many bits of the economy that need fixing. We can but hope.

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Without decent policies, Labor would get fewer votes, not more

The main reason so many voters have given up on politics and politicians is their belief that modern pollies care more about advancing their careers than advancing the wellbeing of the nation.

So, were Labor to decide that it lost the election – which dodgy polling encouraged it and everyone else to believe it was sure to win - because it made itself a "big target" by having lots of policies to fix things, rather than "small target" with few policies of any consequence, it would risk confirming voters’ suspicions that it cared more about getting back to power than improving voters’ lives.

Not a great way to garner votes. Particularly because, for reasons I’ll get to, the small-target strategy works better for the party of the business establishment and the status quo than for the party representing those who think the status quo needs reforming.

When you decide that having too many policies was the main reason you lost, it’s only human nature to flip to the opposite extreme of having none. Human, but not smart.

Economics teaches that success in life comes from seeking out the best “trade-off” between conflicting but equally desirable objectives. It involves using your brain to nut out the best answer, not turning it off.

As political scientist Rod Tiffen has reminded us, the no-brain response after elections is that “everything the winning party did is treated as a stroke of genius, and all the loser’s moves were foolish”.

If Labor wants to draw the right conclusions about the various reasons for its failure it will need to put a lot more mental effort into answering the eternal policy question: “what works and what doesn’t?”.

One obvious possibility is that Labor lost partly because it “did a Hillary Clinton,” focusing on the well-educated, socially progressive (and often public-sector employed) section of the party’s base and forgetting about the less educated, less progressive section in outer suburbs and the regions.

Labor’s had the tricky job of straddling these two, very different parts of its heartland for decades. When John Howard perfected the technique of “wedging” your political opponent, the original application involved driving a wedge between the well-educated and the blue-collar parts of Labor’s base. The classic case is the treatment of asylum seekers.

The no-brain response would be for Labor to “go back to” its blue-collar base. Labor can’t win without both ends. But it certainly needs to put a lot more effort into satisfying both ends. What can it do to help the regions than isn’t too blatantly wasteful? How can it look after victims of the inevitable shift from fossil fuels to renewable energy?

With every summer getting hotter, it’s not surprising the Greens had a good election. And the best explanation for the swing to Labor or independents in many well-heeled Liberal electorates is Liberal voters’ growing recognition that we need a government that’s genuine about combating global warming.

It’s quite possible this is of less concern to the blue-collar end of Labor’s heartland, particularly if it can be (falsely) convinced the immediate cost to household budgets would be high. But for Labor to tone-down its climate policy would risk it getting an even lower primary vote as more of its progressive base shifted to the Greens and, in the case of the Senate, didn’t flow back.

Labor needs reminding that life wasn’t meant to be easy for reformist parties. The party of the business establishment and the status quo always starts with a built-in advantage. They’re the people who surely must be better at running the economy and who stand for minimal change – the thing we all fear.

That’s why the Libs can get elected with no policy other than blocking the rise of all those Labor trouble-makers, and why Labor gets elected only by making the case for change. Why vote for a Labor status quo when you can vote for the original and best?

One of the Libs’ most effective lines was “Labor can’t manage money so they’ll come after yours.” Labor’s eternal vulnerability on the money question is why it would be folly for it to lay most of the blame for its failure at the feet of its one money man who does command the respect of econocrats, economists and business people, Chris Bowen. All the people who wanted to win votes by promising to spend big on education and health, scapegoating the poor blighter who had to find ways to pay for it all.

Similarly, when Labor relegates to a junior role a highly regarded former economics professor, Andrew Leigh, simply because he’s not a member of any faction, it reinforces voters’ suspicion that Labor members put their own careers ahead of the country’s good governance.

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