A present-laden kiss from Santa won't make healthcare better

Whenever voters are asked what are their main issues of concern, one worry always comes top: healthcare. That explains why we’re hearing so much about health in this ever-so-exciting election campaign.

Bill Shorten wants to talk about health because it’s one of the issues voters always regard as better handled by Labor than by the Coalition. (Voters habitually favour the Coalition on running the economy and on taxation, which explains why these are Scott Morrison’s favourite topics.)

But this time the Coalition’s also keen to talk about all it’s done – and is promising to do – on health because it blames Labor’s last-minute social media scare campaign – that the Libs had plans to “privatise” Medicare – for its loss of seats in the 2016 election.

The truth is, by international standards Australians have good health and a good healthcare system, which doesn’t cost all that much.

So why is healthcare always our biggest worry? Perhaps because of the well-publicised waiting times for elective surgery in public hospitals. Or because most medical specialists charge fees far higher than the Medicare benefit, with the gap paid out of the patient’s pocket.

Australia’s health system is more reliant on out-of-pocket payments than most other rich countries. Part of this is the ever-rising cost of private health insurance.

This explains why the things politicians say about healthcare during election campaigns invariably involve spending more money. Governments boast that they’re spending record amounts (which is always true because both prices and the population keep rising) and promise to spend a bit more.

This time, Labor claims the Coalition has “cut” healthcare spending – by which it means that the Coalition hasn’t spent as much as the previous Labor government had planned to – and is promising to restore that funding (mainly in the form of the feds picking up a higher share of the states’ spending on public hospitals) and to spend more on reducing the out-of-pocket costs of cancer patients.

Are you detecting a pattern here? Because the health system has long been about as privatised as it could be – private hospitals, private health insurance, subsidised fee-for-service payments to self-employed GPs and specialists, co-payments for pharmaceuticals and for doctors who don’t bulk-bill – governments can never spend enough.

As presently organised, our system is a bottomless pit. Governments could never satisfy the demand that doctors and hospitals could generate if left to their own devices.

When you add federal and state, healthcare is by far the biggest and the fastest growing category of government spending – and thus the biggest reason we need to pay more in taxes each year.

It’s also our fastest growing employer. It’s certain to keep growing rapidly, not only because of the ageing population but also the ever-rising cost of advances in medical technology.

This isn’t bad, it’s good. The richer we get, the more we can afford to spend on top-quality healthcare. But that’s not to say we couldn’t be getting much better value for the dollars we spend.

Because our present badly organised system is driven mainly by doctors’ – particularly specialists’ - desire to protect and increase their incomes, whichever side of politics is in office, federal or state, spends most of its time between elections trying to hold back the growth in health spending.

They do this mainly by crude methods such as allowing backlogs and waiting lists to build up, freezing the level of Medicare rebates, increasing patient co-payments and delaying the approval of new pharmaceuticals.

Then, when an election looms, they approve a raft of new drugs, promise to spend more on a few things chosen to appeal to voters, and to spend $X million shortening surgery queues which, for some mysterious reason, seem to have built up.

That is, at elections both sides play Santa, not Mr Fix-it. Any plan to reform something would be bound to have some brand of specialists howling for your blood, and conning old ladies into monstering their local member.

In consequence, progress in reducing waste and improving the quality of care is slow. Doctors earn their living by fixing people who are sick. There’s little incentive to do what makes more sense: divert more of the spending into encouraging people to avoid getting sick in the first place.

After that comes more emphasis on early detection: better for the patient, better for the taxpayer. And the best way to improve prevention and early detection is to divert more money into “primary care” – by GPs and other health professionals, such as specially trained nurses, physiotherapists, psychologists etc.

GPs need to be shifted from providing acute care – charging a fee every time someone turns up for a consultation – to receiving larger payments from the government for accepting responsibility for helping a particular patient deal with a particular chronic condition, such as diabetes, for a period of time.

The Coalition’s record in making progress towards such a better, more integrated system is, at best, mixed.

The parts of Labor’s policy it doesn’t want to talk about – setting up a federal-state Australian healthcare reform commission – and the specifics of how it would keep its promise to encourage cancer specialists to bulk-bill, hold the promise of systemic improvement. But also the risk that the extra spending did more to help specialists' pockets than patients'.

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If you’re virtuous, don’t be afraid to signal it to the world

I’m troubled by the fashion of accusing others of “virtue signalling”. This world could use more virtue and less vice. And if people want others to see their virtue, well, there are worse sins.

Usually, it’s an accusation hurled at those on the other side of the political fence as a way of impugning their motives. They’re not genuinely virtuous, they just want people to think they are when they’re not.

They want to be seen as better than we are. They want me to feel guilty for not being as good as them, but I’m not buying that. I may be motivated by self-interest in the government policies I advocate, but so are they – they’re just pretending otherwise.

You can rationalise such a response by using the assumption of the neo-classical economic model that economic agents (you and me) are always and only motivated by self-interest. Altruism doesn’t exist. When I help someone, I’m doing so only because it makes me feel good.

In truth, social psychology has found plenty of evidence for the existence of altruism. It’s associated with another truth: homo sapiens’ success as a species is owed as much to co-operation as to competition.

I remember how shocked I was years ago to hear a top Treasury official refer with contempt to the Australian Council of Social Service – the peak body representing welfare organisations, including the Salvos – as “the compassion industry”.

First time I’d heard that word used as a term of derision. It reminded me of a song we sang when I was a Salvo: “Except I am moved with compassion, how dwellest Thy Spirit in me?”.

The Treasury man’s claim was that the ACOSS people didn’t really care about the poor and needy, they’d just found a way to make their living by representing the interests of poor. They were no more than another lobby group with their hand out.

As social animals, humans form themselves into tribes – groups. We have a compulsion to divide the world into good guys and bad guys. Naturally, my group are the goodies but, unfortunately, your group are the baddies.

Each of us sees ourselves as good, but some others as bad. I’m genuinely virtuous, whereas you’re just pretending to be.

In truth, none of us is all good or all bad. All of us are good in some respects and bad in others. And psychologists tell us we’re all often guilty of hypocrisy – applying high standards in judging others’ behaviour while making excuses for our own.

Equally, much of what we do we do for mixed motives. Try this test (one I usually fail): when you’re giving money to charity, how do you answer when asked if you’d like your donation to remain anonymous?

It’s possible some of us do virtuous acts – or make statements in support of virtuous policies – without any genuine interest in the wellbeing of others. It’s possible, but I doubt it’s very common.

What’s much more likely is mixed motives: we’re genuine in our professed concern about others, but equally genuine in our desire to be seen by others as having such a concern. That’s not really hypocritical, just being human.

Because we’ve evolved as group animals, all of us care deeply about what others think of us. We want to be accepted by the other members of the group. And we fear being excluded from the group.

Like teenagers, we’re desperate to fit in. The more we look and act like the others, the more comfortable we feel.

(This points to a further weakness in the neo-classical model: its assumption that each of us is a rugged individualist who makes decisions – about what movie to see or what clothes to buy – totally without reference to what those around us are doing.)

Turns out humans are signalling animals. We’re always using what we do, what we say, the way we dress, to signal our virtues to others – including our conformity to the group’s norms of acceptable behaviour.

The economy abounds with people and businesses sending signals. The first three economists to realise this won the Nobel prize for their genius.

We resort to sending signals because neither we nor others have enough hard information about the people we deal with and who deal with us. The main message we send is: you can trust me to deal with you honestly.

In today’s economy we’re suffering from a loss of trust, caused by a lack of virtuous behaviour, which has damaged reputations. We need economic behaviour to be a lot more virtuous. As that virtue is signalled, others will join in and the group norm of acceptable behaviour will be restored.

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Sidney Kidman: how to make a buck out of a terrible climate

You may not have heard of Sir Sidney Kidman, once known as Australia’s Cattle King. He died in 1935. But when it comes to using “innovation” to get rich, he was tops – certainly, the most amazing. And he’s about to become our patron saint of climate change adaptation.

He chose to farm in the most arid, unpredictable and unforgiving part of Australia, and he made his pile. His company, S. Kidman & Co, exists to this day, and in 2016 was acquired by Hancock Prospecting, owned by Gina Rinehart, with Shanghai CRED as junior partner.

There are two ways to respond to climate change. Plan A is mitigation: do things to stop it happening. Plan B is adaptation: learn to live with a much hotter world where, apart from the rising sea level, extreme weather events are more frequent and bigger.

Since we’re making such a hash of Plan A – not just us, but the world in general – it may not be long before we have no choice but to get on with Plan B. Innovation – finding new ways to do things – will be king and Kidman will be recognised as the forerunner he was.

As any climate-change denier will tell you, there’s nothing new about drought. These days, all our good farmers have learnt that, though you can never tell when, another drought is always coming, so you have to be ready for it.

But Kidman was on quite another level: he found a way to make money out of drought. Dr Leo Dobes, an economist from the Crawford School of Public Policy at the Australian National University, has written a paper attempting to uncover the secret of what Kidman would never have called his “business model”.

From the turn of the previous century, Kidman, born in modest circumstances, built up a collection of cattle properties in the most marginal country in Australia’s Dead Heart – the area around the Simpson Desert, to the north of Lake Eyre – and in the “corner country” where the borders of the Northern Territory, Queensland, South Australia and NSW meet.

In this arid core of Australia, rain was very irregular and occurred mainly through thunderstorms after very hot weather. Kidman said his South Australian properties generally got less than 100 to 200 millimetres a year.

Kidman was always buying and selling properties, ending up with properties extending across the whole continent.

There was an underlying rationale to his acquisitions, however. He had several breeding properties in the north, including Newcastle Waters in the NT and Augustus Downs and Fiery Downs in Queensland, which had a tropical climate with a short rainy season.

Further north in the Gulf country, the summer rainfall seasons were more prolonged, and Kidman also used his properties there to source cattle for southern markets. Properties in the Channel country of south-western Queensland, where the grasses where softer, were used to fatten cattle for market.

A second characteristic of his holdings was the concentration of adjoining properties, running from west of the Darling River to the SA border, along the Diamantina and Georgina rivers and Cooper’s Creek in the Channel country, and along the stock route to the west of Lake Eyre via Charlotte Waters to Marree and Farina. This amounted to two major chains of properties.

“Because the holdings were on, or in close proximity to, major stock routes (and associated watercourses), they afforded easy access to rail heads connected to southern markets” in Sydney, Melbourne and Adelaide, Dobes says.

So, what was the business model that allowed Kidman to succeed where so many others failed? You can see signs of a supply-chain model – a vertically integrated business, from properties that bred cattle, to fattening properties and final sale in capital city markets.

Also signs of spatial diversification. Lack of rain or feed on one property could be compensated by moving cattle to a property with sufficient feed.

“Kidman’s drovers were shifting, shifting, shifting all the time. There was no such thing as starving or dying stock on Kidman’s stations. They just shifted them.”

But Dobes sees Kidman’s business model as captured by his creation of three “real options”. In financial markets, buying an “option” gives you the right, but not the obligation, to buy (or, in other cases, sell) a parcel of shares at a set price at a specified date in the future. It’s a way of trying to protect yourself from uncertain future developments.

In Kidman’s case, however, the options weren’t financial, they were real – physical. Kidman could easily move his stock to better conditions because his properties were adjacent and because he kept those properties understocked. The opportunity cost of understocking was the price of the option.

Second, because his properties followed stock routes and waterways, Kidman could move his stock towards better conditions – and towards the market – in a way that gave his cattle priority over other people’s herds on the route. Again, understocking was the price of this option.

Third, Kidman’s practice of holding properties near rail heads, plus his maintenance of a network of drovers, camel drivers, Aborigines, dingo trappers and friendly telegraph operators, who provided information about the movement of competing herds being driven to various markets, allowed him to direct his cattle to the city market where prices were likely to be highest.

Kidman’s modern relevance is not just in overcoming a harsh and unpredictable climate, but in coping with unexpected changes – in his case, rabbit infestation, erosion, the rapid spread of cattle ticks in northern Australia and the results of overstocking by earlier pastoralists.

Kidman’s “real options” were innovative ways of coping with, reducing and even profiting from uncertainty – which Dobes concludes is the hallmark of climate change. Australia’s farmers and others can adapt to climate change by finding their own real options.

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The great election diversion: arguments about tax, tax, tax

No one’s more interested in taxation than me, but there’s got to be more to this election campaign than claims about which side is high taxing and which low taxing, and interminable arguments and scare campaigns about franking credits and negative gearing.

Fortunately, the nation’s best and most independent think-tank, the Grattan Institute, has taken a much broader view of the issues to which the winning side should pay most attention in its Commonwealth Orange Book (an allusion to the red book and the blue book that the public service prepares to present to whichever side wins).

To help voters put the election issues into context, however, Grattan starts by comparing our performance on a broad range of indicators with nine comparable countries.

On standard of living – measured by gross national income per person – our $62,800 a year is well behind the United States ($75,900) and less behind the Netherlands ($68,100), Germany ($66,900) and Sweden ($64,900), but ahead of Canada ($57,300), Britain ($54,900), Japan ($54,300), New Zealand ($48,800) and South Korea ($48,400).

So we’re in the middle of the pack of rich countries. We can afford high quality public services (paid for by moderately high taxes) and afford to treat the disadvantaged with consideration.

But, despite all the times Scott Morrison repeats the words “strong economy”, our living standards have stagnated in recent times.

At 73 per cent, our rate of employment – the proportion of the working-age population with jobs – is at the low end of the range (New Zealand is on 77 per cent), but all countries are comfortably above America’s 70 per cent – a sign that all’s not so well in Trump’s supposedly strong economy.

A good check on our present success is our NEET rate – the proportion of people aged 15 to 29 who are not in employment, education or training. At 11 per cent we’re level with New Zealand, and better than Canada, Britain and the US, but worse that Germany, Sweden and the Netherlands.

Could do better. We need to fix the almighty mess we’ve made of vocational education and training.

On income inequality, our gap puts us towards the wrong end of the pack: equal with New Zealand, worse than Sweden, the Netherlands, Germany, Canada and even Britain, but better than South Korea, Japan and the pinnacle of inequality, the US.

We could greatly reduce inequality simply by paying the $3 billion a year it would cost to raise the dole by $75 a week – a truth Bill Shorten shouldn’t need a protracted inquiry to tell him. That $3 billion, by the way, compares with the estimated annual cost of Morrison’s tax plan, when fully implemented, of $35 billion a year.

We do surprisingly badly on housing, with fewer dwellings per 1000 adults than all the others bar South Korea. And with median housing costs as high as 23 per cent of disposable income, we’re dearer than everywhere except Holland.

Less surprising is how badly the land that used to boast about its cheap power is doing. These days, only German households pay more for electricity than ours do. Despite our ever-growing exports of LNG, our industries pay more for gas than the Canadians, Kiwis and Americans.

And, thanks to the policy dominance of the climate-change deniers, our electricity use generates far more carbon emissions than the others do. A lot more reform of the reforms needed.

Our relatively low funding of schools, and its division on a sectarian basis – the religious get more than the non-religious; some religions get more than others – hasn’t left our kids' performance looking good in international comparisons.

If you ignore the poor deal we give our Indigenous (as we usually do), our health system ranks well. Our life expectancy at birth is bettered only by Japan, and the cost of our healthcare as a proportion of national income is at the lower end (and only a bit more than half what the Yanks pay for their appalling system).

Even so, there’s room for us to get better value for money, and our out-of-pocket healthcare costs are higher than everywhere except Sweden and South Korea.

Which brings us to the quality of our governance. In Australia, trust in government is low and falling. In international comparisons, we’re about middle of the pack on trust.

But Australian cynicism is now at an all-time high – only a quarter of us think “people in government can be trusted to do the right thing” – the lowest since the survey began in 1969.

Grattan says there’s a growing sense that people in government look after their own interests, or those of powerful groups, rather than the public interest.

Many other democracies have stronger rules on political donations and lobbying, designed to keep special-interest influence in check. Most rich countries restrict political donations or party spending in some way. We don’t.

The feds are lagging the states in establishing an effective anti-corruption or integrity commission, in requiring timely disclosure of political donations, publishing ministerial diaries and in imposing a lobbyist register without glaring loopholes.

The failure of both sides to act at the federal level undermines the effectiveness of state measures.

So, turns out we do have issues other than tax we should be focusing on.

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Strong economy? No, but maybe it will be eighth time lucky

Scott Morrison wants the Coalition re-elected because of its superior management of the economy. In Josh Frydenberg’s budget speech he referred to our “strong economy” 14 times. Why? He had to keep saying it because it ain’t true.

But get this: it’s not the government’s fault. It’s happening for reasons far beyond the government’s control. Growth is weak in Australia and throughout the developed world for deep reasons economists don’t yet fully understand.

It’s taken a while to realise this because the econocrats – mainly Treasury, but with the acquiescence of the Reserve Bank - either can’t or won’t accept its truth. They’ve gone for eight budgets in a row forecasting an early return to strong growth.

And for seven years in a row they’ve been way off. But so great is their certainty that nothing fundamental has changed, they’ve fronted up with yet another forecast that this year will be different. This year we'll reach lift-off.

It may not be entirely coincidental that, the longer Treasury dwells in the land of hope-springs-eternal, the more it gives its political masters the budget numbers they crave: ones showing the budget deficit soon returning to surplus and staying in surplus as the net debt falls to zero.

In what follows, I’ll ignore Treasury’s cute distinction between “forecasts” and “projections”. Sorry, guys, you’ve played that card too many times.

It’s a key part of the way you’ve misled the public, your political masters, economists and probably even yourselves, that everything’s going fine and will soon be back to normal. It’s part of the reason the net debt’s been allowed to double under this government – we kept being told it wasn’t happening.

When laughing-stock Wayne Swan began his 2012 budget speech promising four budget surpluses in a row, this was based on Treasury’s forecast that real gross domestic product would grow by 3.25 per cent in 2012-13, and then by 3 per cent in each of the three following years.

The 3.25 per cent turned out to be 2.6 per cent, then another 2.6 per cent, 2.3 per cent and 2.8 per cent.

After such an embarrassing stuff-up, you’d think Treasury might have had a rethink. Not a bit of it. Just two budgets later – this government’s first - it had the economy’s growth accelerating over the forward estimates not to 3 per cent, but 3.5 per cent. The first of these turned out to be 2.3 per cent and the next one, 2.8 per cent.

In the 2016 budget, Treasury took a bit of a pull and reverted to forecasting recoveries to no more than 3 per cent growth.

In this month’s budget, Treasury has us growing by only 2.25 per cent in the year just ending. But not to worry. In the coming year it will strengthen to 2.75 per cent, and be back to 3 per cent in the second last year of the forward estimates, where it will stay in 2022-23.

It’s a similar story with what’s become the key problem component of GDP, wages. In Swan’s ill-fated budget, the wage price index was forecast to grow by 3.75 per cent in the budget year and the year following. Turned out to be 2.9 per cent and 2.5 per cent.

The following year’s budget – Swan’s last – put expected wage growth in 2014-15 at 3.5 per cent. Turned out to be 2.3 per cent. Treasury’s first guess for 2017-18 was 3 per cent. Came in at 2.1 per cent.

Treasury’s response to its repeated over-forecasting is just to push the ETA of the return to strong growth out another year. Nothing fundamental in the economy has changed, nothing’s wrong with the forecasting method, it’s just taking a bit longer than we thought. This time we’ll be right.

But, you may object, if the economy’s remained so weak for so long, how come growth in employment has been strong since early 2017 and unemployment has slowly fallen to 5 per cent?

Because of high levels of immigration – high even by our standards, and unmatched by the other rich countries – and because the under-employment rate was worsening until recently.

Much of the jobs growth has come from federal government spending on rolling out the National Disability Insurance Scheme, and state government spending on infrastructure. After all, public sector consumption and investment spending accounted for more than half the surprisingly weak GDP growth of 2.3 per cent over calendar 2018.

Remember this: a strong, healthy economy is one where demand is always threatening to push inflation above the target zone. Our inflation rate's been below the target for three years.

And this amazing fact: the world real long-term interest rate has been falling for years and is now at zero or below. That’s a sign of strong growth?

It’s time Treasury and the Reserve stopped kidding themselves – and us.

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