A new political dawn

The State election on 26th March saw a crushing political defeat for the Australian Labor Party in New South Wales. Both sides of politics are still coming to terms with the magnitude of this change.  On the Labor side internal recriminations seem to have spread beyond NSW.  The Coalition now seem to have an assured eight and probably twelve years, or more, to carry out their agenda.

On April 3, following the advice of the Executive Council, the Lieutenant-Governor of New South Wales, gave effect to an Order to restructure the NSW Public Service. Read more...

It remains to be seen how the restructured agencies will go about the business of rebuilding the State.

The difference between a political parties and Australia has become less well defined during the last 40 years as the major parties have competed for the centre.   

We might expect the new government to make some changes in some regulatory areas but in many cases there is considerable cross party consensus.  Paradoxically the Australian Labor Party is still nominally socialist, yet the final straw that broke their back was an attempt to privatise part of the state’s electricity infrastructure.  There is an interesting letter from Paul Keating to John Robertson on this subject (click here).  Although Labor likes to maintain that they are more generous in social assistance areas, we are unlikely to see significant cutbacks under a Coalition that, as always, say it governs for all Australians.  So what will be the major differences?

The new Premier, Barry O'Farrell, has issued the following short statement:

Renovating essential infrastructure and restoring quality services

The electorate now expects the new government to actually do something to improve the State’s ailing transport and utilities infrastructure and to get regional business moving.  Also on the agenda are improvements to health services and education.   In each of these areas the Commonwealth has already made commitments of support but there are some grounds for believing that NSW is getting less than its per capita share of Federal support; and the new government can be expected to be more aggressive in making this point.

In many of these areas the new government will be constrained by the same things that constrained the old.   Treasury continues to be concerned that the State does not risk its triple-A rating as this would raise the cost of existing loans and new borrowings, through increased interest rates, to unacceptable levels.   It has been argued that borrowing for legitimate capital purposes should not injure the State’s credit rating.  But this only applies if it can be demonstrated that such investments would generate a return sufficient to pay for the cost of capital.   Thus the State could raise capital for a Sydney metro, provided it could demonstrate that the revenue from fares and taxes, and possibly associated land development, would be sufficient to service the capital borrowed for the project.

The previous Government attempted to borrow indirectly on several road developments through a variety of public private partnerships (PPPs).  This seems to be a model that is fraught with difficulty in that investors either profiteer or fail miserably.    But the older model, in which the State raises the loans and recovers the cost, through a toll or increased taxes, is often subject of special pleading by a variety of interest groups.  This seems to be particularly fraught in the case of rail development where proper fares are seldom charged and where property owners, rather than the Government, make windfall gains in the vicinity of new stations. 

It is to be hoped that some new administrative and governance paradigms will be explored; and professional and fearless, rather than political advice, will be sought from the appropriate experienced and qualified professionals in the public sector.

Rebuilding a strong economy

Government is the process of intervention in society and the economy.

All government interventions fall within one of the following categories:

• Redistributive policies - taxing one sector to subsidise another, taxing one sector less than another or making direct payments (includes taxes; tariffs; bounties; tax concessions; rebates; grants and social security payments, subsidies and pensions).
• Regulatory and legislative policies - imposing, restrictions, quotas or sanctions on certain types of economic activity and social behaviour, legislating special qualifications for some activities, restricting competition of certain kinds;  associated enforcement.
• Direct Government business activities:  provision of selected services; competition in selected markets; GTEs and public ownership of natural monopolies - like roads; drainage and so on; other public infrastructure like National Parks; and some utilities.
• Encouragement, advice and leadership; a special class of subsidised services.

The difference between good government and bad, successful societies and unsuccessful, is the quality of those interventions. 

At the political heart of any intervention in Australia is the historical underlying economic debate between free trade and individualism and industry protection and socialism.  This debate is older than Australian Federation and now finds its main expression in adherence to rationalist (dry) and interventionist (wet) economic theories. Today both strands can be identified in both major political parties.  Minor parties tent to hold more strictly to one or the other.

Attitudes to economic intervention vary between the dry view, held by elements within NSW Treasury and the right wing of both major political parties, that government has no active role in economic development.  The marketplace will result in the optimum level of resource allocation and hence wealth creation.  Any intervention by the Government (regulations or transfer payments) is likely to result in disrupted economic equilibrium and inefficient distribution of resources.  As it is not possible to set social and political goals without implicitly or accidentally making economic redistributions; and often the actual outcome of intervention differs unfavourably from the expected outcome, the best method of achieving economic efficiency is to minimise essential interventions such as regulations or transfer payments.  Under this view the main role of the Government in economic development should be to identify those areas of Government community service and regulatory activity impacting negatively on economic growth and develop and offer alternatives to minimise these impacts, while retaining the politically desired outcome.

Opposed to this view is one that says that the Government should be actively interventionist and proactive.  This view has strong supporters in rural areas and the National Party as well as among the left, unions consumer organisations and the Greens.  Under this view it is the responsibility of government to establish and agree a vision; to set social and economic goals.  It doubts the capacity of markets or business to do this unaided and holds that true market-place equilibrium is a myth, as markets are persistently and systematically manipulated by large buyers and sellers (like grocery oligopolies) and/or by the collusion of large and small participants.  Even if markets were free, as a result of the activities of the competition watchdog, John Maynard Keynes famously demonstrated that full employment is not necessarily consistent with free market economic equilibrium.  So there is no guarantee that market based economic equilibrium is consistent with optimum growth or social equity.  A subset holds that just as individuals and companies become wealthier than others by monopolising markets or controlling suppliers, so countries gain wealth by the same means; for example by consolidating our trade in wheat, wool or coal; or by manipulating currency values or imposing restrictions on trade; for example restrictions on importing bananas or various other potentially competitive rural products.   

A discussion on markets can be found elsewhere on this site - follow this link.

Returning power and decision making to the community

Many Labor voters have changed their allegiance for the first time and together with the Liberal heartland are expecting significant changes to be made.  In particular people in the country now believe that they have a stronger voice in government. 

But there is a fine line between  'returning power and decision making to the community' and cynical political pragmatism.

 Recently, during the term of the past Government a political view developed under which economic theories, and concerns about effective markets or social equity, become irrelevant.  This has recently been described as focus group driven politics;  political pragmatism or simple cynicism.

Political pragmatism says that the first business of government is not economic development, wealth creation, jobs or other social benefits, but being re-elected.  The idea is to find out in which direction the electorate is going then to get out in front, to be seen to be a leader.

The ten rules of political pragmatism:

1. If there is no electoral gain don’t do it.
2. Appearance is more important than reality. 
3. Media, myth and fashion drive out substance.
4. Keep the powerful, and particularly the electronic media, ‘on side’.
5. Short term drives out long term. 
6. Personal interest (‘hip pocket’ etc) drives out the general interest.
7. Local concerns drive out national or global concerns; always be ready to use the 'not in my backyard' motivation.
8. The first response to any issue with potential to alarm the electorate, is to express concern.
9. The second is to regulate.
10. The third is to reallocate resources to that issue, irrespective of its relative merits.

For example a good standby for the political pragmatist is to promise to regulate to protect the vulnerable while simultaneously promising to cut red tape.  Removing regulations or unnecessary qualifications, limiting competition in commodity, goods, services or labour markets, might produce economic gains fast enough to have electoral advantage.  But beware, these regulations protect the income of sometimes numerous or politically powerful groups within the electorate.  Never offer a reduction in the volume of legislation, or its simplicity, as a measure of success.   Many regulations are likely to be difficult to remove; to become increasingly complex and qualified; and new regulations will continue to proliferate, to address new factors directly impacting individuals or of immediate (fashionable) concern to the electorate.

Restoring honesty and accountability to Government

In its last term the previous Government was particularly scandal prone.  Several Ministers resigned over inappropriate behaviour and due process was not always observed within the Public Service.  No doubt new, or reasserted, standards of Ministerial behaviour will now be imposed.

Ever since the Wilenski reforms to the Public Service Act in 1979 Minsters have exerted extraordinary authority.  As a result more than one ministerial staffer has been elevated to a senior Public Sector position, ahead of the qualified and experienced professionals familiar with the inevitable complexities and who actually do the work of the Agency.  We have also seen the unedifying increasing use of public officials to prepare political press releases and parliamentary questions, that should be the work of ministerial staffers, and correspondingly undue authority was given to that staff to make political demands on public servants.

It can be expected that most of the previous 'jobs for the boys and girls' appointments will now be reversed.  But the ministerial power to summarily remove a, now non-permanent, Director General (or Department CEO) remains.  Through this authority Ministers are able to influence the composition of the entire Senior Executive Service. 

In the hands of a politically pragmatic Minister this power can effectively destroy the effectiveness of a public sector Department as 'frank and fearless advice' becomes impossible.

An outcome has been risk avoidance and consequent deskilling within the NSW Public Sector.  It is safer to be able to sheet-home blame to a contractor, that can be sacked, than to undertake responsibility for a project or initiative directly.  While there are still some areas of expertise in science, engineering, town planning, IT, social work and so on, many agencies simply outsource their need for professional skills; they now indirectly employ the people who actually 'do stuff'. 

This reduces many public sector managers to supervising external relationships; now inevitably 'managing' projects at arms length, in areas that they personally have little or no current 'hands on' knowledge or day-to-day experience in.  Because they have limited grasp of what actually needs to be done or how the desired outcomes might be achieved; inappropriate, excessively complex, and often ever-changing functional specifications; mismatched budgets; and ridiculous, often politically imposed,  timelines are commonplace. 

As a result, the potential for such contracted-out services to underperform; to be excessively costly; or to go badly awry in other ways; is very high.  

But public sector numbers are not reduced.  Instead of professionals to actually do the job; staff to prepare contracts and specifications are needed; and regular project management and 'work in progress' meetings must be held.  Some officers spend their lives running from one meeting to the next instead of exercising their professional skills at their desktop; actually supervising a team; or in the field.  To give the appearance of effectiveness these 'meeting junkies' require numerous support staff who in turn require administration; HR, payroll, OH&S. 

When badly designed and managed projects do go awry the internal politics of 'blame and gain' come to the fore. Someone's failure is another's godsend. Honesty and accountability are the first casualties; followed by trust, loyalty and efficiency.

Let's hope the new Government can avoid these pitfalls.  But perhaps they are unavoidable in a post Wilenski New South Wales Public Sector?