We're Closing the Gap, but far too slowly

The latest report on government spending on Indigenous people makes shocking reading. So let me explain it to you before some One Nation-type gives you her version.

The report estimates that federal and state spending on Aboriginal and Torres Strait Island Australians was more than $33 billion in 2015-16, a real increase of almost 24 per cent since 2008-09.

That amounts to spending $44,900 a year per Indigenous Australian, twice the equivalent spending per person on the rest of the Aussie population.

See? Proof positive of what many radio shock jocks and One Nation supporters have always said: Aborigines get a host of government benefits the rest of us aren't entitled too.

After the nation's vow to Close the Gap between Indigenous and non-Indigenous Australians on health, education and employment, it's hardly surprising Indigenous spending has grown.

Trouble is, there's little likelihood this apparently massive spending will see the Closing the Gap targets reached.

Bad, eh? Waste on a grand scale.

Fortunately, however, all is not as it seems. As associate professor Nicholas Biddle, a fellow of the Centre for Aboriginal Economic Policy Research, at the Australian National University, has explained in an article on my second-favourite website, The Conversation, a closer look at the figures shows there's no reason to swallow the rubbish peddled by the downward-envy brigade. ("Oh, Aborigines get it so much easier than we do.")

First point is that the $44,900 in annual spending per Indigenous person covers more than 150 spending categories, including social security payments, but also government spending on health, all levels of education, law and order, housing, community welfare, transport and even a share of the cost of the public service and defence.

So most comes in the form of services provided, rather than cash in hand. A bit over half of the spending comes from state and territory governments, leaving a bit less than half from the feds.

The report divides the $44,900 into "mainstream services" – services available to all Australians regardless of ethnic origin – and "Indigenous-specific services".

The latter account for just 18 per cent of the total – about $8000 a year per person. This proportion is down on earlier years.

But this still leaves the annual cost per person of mainstream services for Indigenous Australians exceeding the equivalent cost for other Australians by about $14,500. How's this explained?

Mainly by the greater intensity of Indigenous people's use of mainstream services. For instance, their rate of unemployment is higher. And, rightly or wrongly, a disproportionate share of law and order spending is devoted to Indigenous people.

As well, the Indigenous population is, on average, younger – meaning disproportionate spending on education.

The rest of the difference between the levels of spending on mainstream services is explained by the higher cost of providing those services in remote locations. Biddle says that 22 per cent of Indigenous Australians live in remote and very remote areas.

And remember this. While real spending on Indigenous Australians seems to be rising rapidly in absolute terms, so too is the Indigenous population. It's up by almost 16 per cent over the seven years to June 2016, compared with a little more than 11 per cent for the non-Indigenous population.

Biddle calculates that while real Indigenous spending per person has risen by 6.9 per cent over the seven years, real gross domestic product per person has risen by 7.5 per cent.

Sadly, it's true that the Closing the Gap targets set by the Council of Australian Governments in 2009 look unlikely to be achieved.

That's because progress to date has been so modest. The targets were worthy, but unrealistic. At this stage it's probable that setting revised, more achievable targets would do more to motivate governments to keep trying.

But this isn't to say we're making no progress. Biddle and a colleague at the Centre for Aboriginal Economic Policy Research, Francis Markham, have been examining last year's census for evidence on how we're going with the gap.

On employment they find no noticeable improvement since the previous census in 2011. On education, however, the news is more encouraging.

"Indigenous people are getting into the education system earlier and staying for longer," they say. "This is likely to lead to improved socio-economic outcomes in future."

The proportion of three to five-year-olds attending preschool is up from 43.5 per cent to 48.5 per cent. The proportion of 15 to 18-year-olds at high school is up substantially from 51.2 per cent to 59.7 per cent.

The proportion of Indigenous people who've completed year 12 has risen from 28 per cent to 34.6 per cent. And the proportion of 15 to 24-year-olds in tertiary education is up from 14.1 per cent to 16.2 per cent.

But let's get real in another sense. Checking the figures to see what's been happening to government spending on Indigenous people is fine, but it tells us nothing about whether that spending is efficient, effective or even adequate.

What's more, looking at how we've been going on the various indicators of progress during the same period tells us little about whether that money is being spent well or badly.

Why? Many reasons. Because spending in one year may take many years to have an effect. Because spending in one area can affect multiple outcomes. Because outcomes in one area can be influenced by spending in many areas.

We know we're spending more but not achieving the improvement we'd hoped for. What we don't know is whether we're wasting our money or need to be spending a lot more.

Why not? Because we know too little about the effectiveness of particular spending programs. We haven't done nearly enough research to see what works and what doesn't.

We won't get as far as we should in Closing the Gap until we do our homework. That includes making more data held by government departments available to researchers.

Read more >>

Report heralds big change in economic reform priorities

Government reports come and go with great rapidity. Some are acted on, most are quickly pigeonholed. Last week Scott Morrison tabled a report from the Productivity Commission called Shifting the Dial, but it was soon lost amid all the excitement about raids on a union and politicians being thrown out of their jobs.

Despite this inauspicious beginning, let me make a fearless prediction: when the history of the economy in the early decades of the 21st century is written, this report will get prominence.

Why? Not because this government or the next will rush out to implement its recommendations, but because it will be seen as a turning point in the thinking of the nation's economic advisers.

The populist revolt against the doctrines of "neoliberalism" – or economic rationalism, as we've called it in Australia – has been apparent for most of this year. It's been apparent since the middle of the year that the long-running bipartisan consensus in support of neoliberalism in the advanced economies has collapsed.

But where to now? The economy and its apparatus are far from perfect and there's always something that needs working on. The econocrats need something to be working on to justify their existence, so what are they to do now that so many citizens are jack of deregulation and privatisation?

Well, now we know. Ostensibly, the commission's report is just the first of many five-yearly reports on ways to improve the economy's "productivity" – its ability to increase its outputs of goods and services faster than the increase in its inputs of land, labour and capital – the magic that's made us so much richer than our great-grandparents.

The Productivity Commission, would you believe, is preoccupied with productivity. Same old, same old.

Don't be deceived. The commission – formerly a leader of the economic rationalist charge – has taken the initiative in proposing an agenda for economic improvement that's quite different to what we've had so far.

Its new agenda attempts to restore public support for economic "reform" (a word it tries to avoid) by responding to popular criticism of the push that, while well-intentioned and necessary when it originated in the Hawke-Keating years, has since seemed to degenerate into "bizonomics" – what's good for big business is good for the rest of us.

Gone is the unending obsession with tax reform (cutting the rates of tax on companies and high-earning individuals) and industrial relations (cutting penalty rates and shifting bargaining power in favour of employers).

In their place, the commission focuses on three big issues: healthcare, education and cities.

On health, it argues there needs to be more emphasis on preventing and managing the growing incidence of chronic illnesses, such as diabetes. This may involve less reliance on paying doctors according to fee-for-service.

The health system – state-run public hospitals in one box, most doctors in another and pharmaceuticals in a third – needs to be better integrated so as to make it more centred on the needs of patients rather than the suppliers of health care.

This greater co-ordination should happen at the local level.

On education, too many students are being let down at every level.

The commission finds that school results are deteriorating, vocational education and training is "a mess" and universities are more concerned with publishing research papers than improving teaching standards.

As for cities, they produce a growing portion of our gross domestic product – about 80 per cent, with Sydney and Melbourne accounting for half of that.

By the time we reach 2050, almost 11 million extra people will be squeezed into our capital cities, according to Morrison.

The social costs of congestion in our capital cities will grow from almost $19 billion a year in 2015 to more than $31 billion a year by 2030, we're told.

See how different all this is to the economic reform talk we're used to?

It's shifted the focus from business to the "non-market economy" run mainly by government bodies. It's less concerned with mining, farming and manufacturing, and more with the services sector.

Its approach to reform is bottom-up – concentrate on the needs of patients and students, on getting to work – not trickle down.

Putting it another way, it's people-friendly, not business-friendly.

The three issues are two-sided: they directly affect the wellbeing of individuals, but also the nation's productivity, as a healthier, better-skilled workforce gets to work more easily.

This means the "reform agenda" ought to be a lot more relevant and appealing to ordinary voters. It also means it can be pursued by either side of politics.

One of the great objections to the old agenda was fear that it benefited the better-off at the expense of the rest of us.

Rest easy – the commission has got the message.

"A key issue will be to ensure that future economic, social and environmental policies sustain inclusive [note that word]growth – by no means guaranteed given current policy settings, and prospective technological and labour market pressures ...

"One of the advantages of better healthcare, education systems and cities is that they provide strong prospects for improving lifetime outcomes for people from all backgrounds.

"Indeed, improvements in these areas have the potential to decrease health inequalities, and reduce job insecurity and wage risks for those whose skills are at most risk from technological change," the commission concludes.

Read more >>

Lure of globalisation battles our instinctive tribalism

What has caused the rise in populism that's threatening the mainstream political parties around the developed world, including here?

Economists tend to explain it essentially in economic terms – the bottom has been given a rough deal for years, and finally is rising up – but other scholars see it much more in social and cultural terms: people objecting to being overrun by incomers. Immigrants, asylum seekers, Mexicans, Muslims, Asians.

In his new book for the Lowy Institute, Choosing Openness, Parliament's most accomplished economist, Dr Andrew Leigh, also Labor's shadow assistant treasurer, readily acknowledges the role of xenophobia in explaining why "openness makes us uncomfortable".

He sees our fear of foreigners as part of our evolutionary make-up, and I don't doubt he's right.

Drawing on the work of British anthropologist Robin Dunbar, he argues that "for most of history, humans lived in groups of about 150 people" – a figure known as "Dunbar's number".

Such groups were big enough for some specialisation, but small enough for everyone to know and trust everyone else. People were born, mated, hunted and died within their small community.

"In this environment, there were two kinds of people: those in your tribe and those not in your tribe," Leigh says.

"It made sense to take care of your tribal members. You shared a lifelong relationship with them. Thanks to inbreeding, the rest of the tribe probably looked a lot like you and you certainly all dressed alike.

"Conversely, outsiders were likely to look a bit different and were probably dangerous. While some groups traded, killing was extremely common."

One in seven people in these kinds of societies met their end as a result of violence by another person, he says.

For about 99 per cent of the time that homo sapiens have been on the planet, most of us have lived in small groups. As a species, that is what we evolved to do.

"Each of us is here today because our primitive ancestors were skilled at either fighting outsiders or avoiding conflict. The rule that 'different equals dangerous' kept our forebears alive."

But while hunkering down in the face of difference might have been a useful evolutionary strategy in the past, the growth of cities changed the equation, Leigh argues.

Cities are bound together by not by familial relationships, but by rules and norms of acceptable behaviour.

For hundreds of years, the most productive cities have been those that welcome visitors. In a primitive tribe, a dislike of difference can keep you alive. In a city, it's likely to just make you poorer.

"In this sense, a distrust of diversity is a bit like wisdom teeth – an evolutionary vestige that once helped us grind up plants, but now are more likely to take us on a trip to the dentist's chair."

Today's backlash against openness, Leigh argues, shows how humans' natural discomfort with difference can be exploited for political gain.

In a seminal study of the politics of hatred, the Harvard authority on urban economics Edward Glaeser noted that the key to building a powerful coalition around hate is to focus voters' anger on an "out group" that is sufficiently large to be taken seriously as a threat, but too small to be electorally decisive.

Remind you of any redheads you know?

So Leigh says that populism – the idea that politics is a conflict between the pure mass of people and a small vile elite – is the product of four main forces.

First, slow growth in living standards when the proceeds of economic growth haven't been shared.

"In societies where prosperity is broadly shared, a cosmopolitan outlook steadily replaces traditional values of religion, deference to authority, and an exclusive focus on the security of our family and tribe," he says.

Second, populism is fostered by the pace at which society and technology are changing. Voters may turn to extreme politics as a way of saying "Stop the world – I want to get off."

Third, populism has benefited from canny political entrepreneurs – Duterte, Erdogan, Trump – able to generate massive free media coverage by attacking rivals and breaking taboos.

Fourth, populism has grown because of a loss of faith in mainstream centrist parties. (Their ever-declining standards of behaviour would have nothing to do with this, of course.)

In the late 1960s, seven out of 10 Australians said they always voted for the same party. Today, the share of party loyalists is down to four in 10.

Seems to me that, though much of the problem is manifest in fear of foreigners, the best way to strengthen cosmopolitan values is to ensure the benefits of globalisation and technological change are shared more fairly.

Read more >>

Our bulldust detectors are on the blink

The world has always been full of bulldust, which is why everyone should come equipped with a bulldust detector.

Trouble is, we're living in a time of bulldust inflation. Some of the things we're being told are harder and harder to believe. But a lot of people's detectors seem to be on the blink.

Part of the reason for the step-up may be that there are so many people shouting that anyone else hoping to be heard has to start shouting too.

These thoughts are prompted by the runaway success of the claim that 40 per cent of jobs in Australia are likely to be automated in the next 10 to 15 years.

This is a fantastic claim in the original, dictionary sense: imaginative or fanciful; remote from reality.

And yet it seems many thousands of people have accepted its likelihood without question.

Similar predictions have been made about America, and are just as widely believed.

As I've written before, two economists, Jeff Borland and Michael Coelli, of Melbourne University, who didn't believe it – because they could find no evidence to support it – traced the origins of the claim and the flimsy assumptions on which it was based.

Which led them to ask the question I'm asking: why do people so readily believe propositions they should find hard to believe?

The authors found a quote from a leading American economist, Alan Blinder, of Princeton University, in his book, After the Music Stopped.

"The consequences of adverse economic events are typically exaggerated by the Armageddonists​ – a sensation-seeking herd of pundits, seers and journalists who make a living by predicting the worst.

"Prognostications of impending doom draw lots of attention, get you on TV, and sometimes even lead to best-selling books . . .

"But the Armageddonists are almost always wrong," Blinder concludes.

What? Journalists? Bad news?

Blinder is right in concluding we take a lot more notice of bad news than good. Borland and Coelli observe that "You are likely to sell a lot more books writing about the future of work if your title is 'The end of work' rather than 'Everything is the same'.

"If you are a not-for-profit organisation wanting to attract funds to support programs for the unemployed, it helps to be able to argue that the problems you are facing are on a different scale to what has been experienced before.

"Or if you are a consulting firm, suggesting that there are new problems that businesses need to address, might be seen as a way to attract extra clients.

"For politicians as well, it makes good sense to inflate the difficulty of the task faced in policy-making; or to be able to say that there are new problems that only you have identified and can solve," the authors say.

I'd add that if you're a think tank churning out earnest reports you hope will be noticed – if only so your generous funders see you making an impact – it's tempting to lay it on a bit thicker than you should.

By now, however, it's better known that there are evolutionary reasons why the human animal – maybe all animals – takes more interest in bad news than good news.

It's because we've evolved to be continually searching our environment for signs of threat to our wellbeing.

All of us are this way because we've descended from members of our species who were pretty nervy, cautious, suspicious types. We know that must be true because those of our species who weren't so cautious didn't survive long enough to have offspring.

In ancient days, the threats we were most conscious of were to life and limb – being eaten by a wild animal. These days we keep well away from wild animals, but there are still plenty of less spectacular, more psychological threats – real or imagined – to our wellbeing.

This instinctive concern for our own safety is no bad thing. It helps keep us safe. It's an example of the scientists' "precautionary principle" – the dire prediction may not come to pass, but better to be on the safe side and take out some insurance, so to speak.

By contrast, failing to take notice of good news is less likely to carry a cost.

Except that, like many good things, it can be overdone. If we're too jumpy, reacting to every little thing that comes along, we're unlikely to be terribly happy. And unremitting stress can take its toll on our health.

Which brings us to the media. Journalists didn't need evolutionary psychologists to tell them the customers find bad news more interesting. Bad news has always received a higher weighting in the assessment of "newsworthiness".

But I have a theory that the news media have responded to greater competition – not just between them but, more importantly, with the ever-increasing number of other ways of spending leisure time – by turning up the volume on bad news.

This can create a feedback loop. People wanting their messages to be broadcast by a media that's become ever-more obsessed by bad news respond by making those messages more terrible.

I'm not sure the media have done themselves a favour by making the news they're trying to sell more depressing, BTW.

But Borland and Coelli offer a further possible explanation of why we're inclined to believe that the technological change which has been reshaping the jobs market for two centuries without great conflagration is about to turn disastrous: the cognitive bias that causes people to feel "we live in special times" – also known as "this time is different".

"An absence of knowledge of history, the greater intensity of feeling about events which we experience first-hand, and perhaps a desire to attribute significance to the times in which we live, all contribute to this bias," they say.

If so, a lot of people will continue believing stuff they should doubt.

Read more >>

Closing out the world won't fix our problems

Talk about a slow burn. It's 10 years since the beginnings of the global financial crisis, the greatest economic collapse any of us will ever see. Things ought to be back to normal by now, but they aren't.

The world is still picking through the wreckage, deciding what should be kept and what dispensed with. What needs to be done differently to restore normality and ensure there's never another disaster like that one.

A lot of people were surprised the retribution didn't happen at the time: bankers sent to jail, famous economists and their theories discredited, presiding politicians pushed out to pasture, their reputations in tatters.

For a long time, it looked as though the same people who brought us the disaster were kept on to clean up the mess. "Sorry about that. Poor execution. Nothing wrong with the basic policies, of course. Won't let it happen again."

Now, however, there's a revolt by disillusioned and angry punters evident in many developed countries: the Americans voting in an outsider oddball like Trump, the Brits voting to quit the European Union then knackering the government trying to arrange it, the French electing a president from neither of the two main parties, the Germans re-electing Mummy Merkel, but only after reducing the combined vote of her party and the main alternative to their lowest share since the war.

It's a similar story in Oz, where last year's election saw one voter in four avoiding the two main parties and the resurrection of One Nation to scourge the establishment.

Fancy footwork by the Rudd government at the time allowed us to escape the GFC with only a few scratches. Turns out it's not that simple. The economy's been below par ever since and, for the past four years, our growth in wages has been as weak as in the other advanced economies.

BREAKING NEWS ALERT
Get the latest news and updates emailed straight to your inbox.

Trouble is, when the pressure for change comes from the grassroots rather than frank admission of failure on the part of the policy elite, the great risk is that we'll flip to populism – policies that are popular because they sound like they'd make things better, when they wouldn't really because they misunderstand the deeper causes of the problem.

Much of the discontent has centred around globalisation – the breaking down of barriers separating countries.

Globalisation is a popular target because it can be blamed for the fall in jobs in manufacturing as well as the admission to our country of people who look different and have strange habits. Are they taking our jobs or just taking over our country?

But though it's true that some of the jobs lost in manufacturing have shifted to other countries (providing employment and income to people much poorer than any of us), our compulsive fear of foreigners blinds us to the much greater role played by automation.

As Dr Andrew Leigh, federal Labor's shadow assistant treasurer and a former economics professor, writes in a new book for the Lowy Institute, Choosing Openness, advances in technology have been shifting jobs from the farm to the cities, and now from manufacturing to the services sector, continuously since Australia became a federation.

This means attempting to "make Australia great again" by restoring protection – reducing our openness to the world – can't work. We'd have trouble establishing many new factories, and those we did would employ a lot more machines than workers.

What restoring protection would do, however, is raise the prices of all the goods we protected – starting with cars, clothing and footwear – worsening the cost of living of all working people.

It's too easy to forget the benefits of globalisation along with the costs.

Apart from being a bit too late, trying to return to White Australia would rob us of greater human links with rapidly developing Asia, where we all know our best hope of future prosperity lies.

Overall, we've gained more than we've lost from the successive waves of new technology, as well as from the way we opened our economy to the world in the 1980s. Trying to re-erect the shutters would be a costly mistake.

Overall, employment has just kept growing – which is not to deny that many less-skilled men formerly employed in manufacturing have not been able to find satisfactory employment.

The sensible conclusion is that there have been losers as well as winners, but little has been done to help the losers – with the winners required to do more to kick the tin.

"The chief challenge," Leigh says, "is to deal with the inequality that can accompany technological change and economic openness.

"This is not just a matter of fairness; it is also essential if we are to deal with the political backlash against openness.

"A spate of studies in economics and psychology have shown that humans exhibit loss aversion [we prefer to avoid losses more than we prefer making gains] and are more conscious of headwinds than tailwinds.

"Open markets require egalitarian institutions," Leigh concludes.

He's right. This is the key principle of reform we lost sight of after the departure of Hawke and Keating.

Read more >>