There are serious defects in the machinery that Queensland is trying to use for infrastructure planning and delivery. The following attempts to identify the nature and causes of those defects, and a potential cure.

In Brief:

• Queensland traditionally planned and delivered most infrastructure through government departments and other authorities. This machinery (which was constrained by the vertical fiscal imbalance of Australia's federal system) virtually ceased to operate in a process of reform in the 1990s which unfortunately involved both de-skilling of the Public Service, and ignoring the need for realistic infrastructure planning while adopting 'commercialization' and competitive service delivery;
• there are fundamental defects in the new system that has been created because: public administration remains politicized (ie obliged to focus on the opinions of influential interest groups rather than on whether policy will work in practice); agency strategic planning systems are unrealistic; and (in a competitive user-pays environment) much infrastructure now needs to be demand, rather than public policy, driven;
• the situation has been somewhat further complicated: by attempts to integrate infrastructure planning with regional planning; by underlying potential problems in public financing; by a couple of attempts at 'central planning' for infrastructure that ignored both of the previous complications; by procedures for Public Private Partnerships which it has been hoped might provide greater value-for-money (but can seldom do so because likely savings in production costs and infrastructure quality will be lost in the complexities of contract management); and by the privatization of monopoly infrastructure which has created an impossible regulatory conundrum;
• any realistic solution will require: professional renewal of the Public Service; elimination of the systemic problems that have been created; and serious efforts to develop a productive economy (and thus a stronger tax base for infrastructure and other services).

Mismanaged 'Reform': one Direct Contributor to the Problem

Australia's federal system has long distorted infrastructure planning and delivery because of the existence of the world's highest level of vertical fiscal imbalance. As the result of constitutional, political and judicial decisions, the Federal Government gains most tax revenues and the states have most spending responsibilities.  This fact, and partial efforts to achieve national goals through special purpose funding, have traditionally complicated the planning and delivery of infrastructure. And the massive increase in such funding by the federal Whitlam Government in the 1970s seriously eroded the ability of states to plan or undertake significant infrastructure initiatives - by creating dependency, biasing state efforts towards lobbying for funding and shifting power within state administrations away from technical specialists who knew what infrastructure was needed and how to provide it. The effect was like the impact which tariff protection had had on manufacturing industry, and this is the most probable initial cause of the infrastructure backlogs which some observers argue emerged in the 1980s and 1990s. See also Federal-State Fiscal Imbalances.

However most of the above symptoms (probably the fore-runners of larger still-hidden problems) seem to be mainly due to very poor economic and public sector management tactics in the 1990s.

Queensland's traditional system had involved infrastructure planning and delivery by government departments or statutory authorities - with considerable use of private design consultants and construction contractors. Under this system infrastructure planning relied on the accumulated knowledge and experience of a fairly professional bureaucracy which was subject to:

• political control over general policy and the ultimate allocation of funding; and
• diverse other pressures, such as: expert opinion; changes in technology and international practices; community and business proposals; needs studies; etc. 

However in the early 1990s this system was broken down  without the creation of any effective alternative. This occurred because reformers who lacked the ability to anticipate the effect of what they were doing were politically authorised to pursue simplistic goals. In particular

• badly conceived Public Service 'reform', whose only serious goal was to increase political control and which was characterised by the complete absense of any moral or professional credibility, stripped Government of much of the knowledge, skills and experience required for practical advice about, and implementation of, policies for infrastructure and many other public functions; and
• tactics chosen to boost economic performance emphasized competition and 'business-like' methods for public services delivery. And these were introduced without considering: the need for infrastructure to be planned; or the intrinsic complexity of many public goods and services which often makes it impossible to define satisfactory market or business-like solutions.

The intelligent way to change any complex working system (eg that for planning and implementing infrastructure) is through evolutionary adjustments which allow important aspects of the system to be maintained (see the author's 1990 suggestions for Changing the Queensland Public Sector which were based on earlier (1970s') experience of successful reforms). This can protect the integrity of such a system from single-issue reformers who are not familiar with every aspect of it.

Only the most extreme optimist would allow amoral first-year apprentice aircraft fitters to completely redesign and rebuild the engines of a jet while the plane is flying at 30,000 feet.

But the latter was, in effect, what was done. And the optimists were then quite surprised when the plane crashed (see The Origin and Spread of the 'Queensland effect').

Unfortunately the reformed 'engines' can still not realistically be expected to work.

How Queensland's Infrastructure Management System Deteriorated

1. Deskilling Government Administration

Many senior staff with technical skills relevant to infrastructure (and all other public functions) were eliminated in an ill-informed and  autocratic process of across-the-board 'restructuring and re-staffing' in the early 1990s.

Amongst other things the 'reform' process under the Goss Government involved the adoption of 'managerialist' philosophies and the parallel politicisation of public administration. Managerialism was the view that management was a generalist / coordinating process that did not require technical skills, and that, in fact, such skills tended to result in biases. This process and its outcomes are outlined in Towards a Professional Public Service for Queensland.  

Observers' comments on the resulting predicament of Queensland's administration in 1999 are outlined in Note 43 on Queensland's Challenge - and (though the exercise has not been repeated) it appeared in 2002 that recovery has been patchy and that in many areas the situation had continued to get worse.

A lack of administrative realism (and administrative failures) have been the predictable consequences (eg see Queensland's Ongoing Challenges)

2. Commercialization and Competitive Service Delivery

Queensland's public infrastructure service providers were then increasingly exposed to:

• commercialization (ie adoption of commercial goals initially in an effort to create a 'cash cow' to underpin public revenue in a situation in which there was little competition); and then to
• competitive service delivery under National Competition Policy (which had been introduced to promote economic productivity by removing regulatory protection of inefficient producers). 

National Competition Policy required competitive neutrality between public and private providers, so the main emphasis of Departments shifted onto:

• regulating the 'commercial' operation of competitors (of which one or more was usually a government business enterprise - either a Government-owned Corporation (GOC) or a commercialized subsidiary of the department);
• purchasing services on behalf of the public - where the service was considered to be a public good;

At the same time private provision of some infrastructure was encouraged

The immediate effect of these often well-intended but poorly-implemented changes was to further erode Queensland's machinery for planning infrastructure, because:

• the state government's ability to take responsibility (or be held accountable) for economic infrastructure (eg electricity, ports), which had already been hamstrung by federal / state fiscal imbalances, was further reduced by the need for services to be developed in response to market demand rather than public policy;
• those responsible for infrastructure delivery (who had the detailed technical knowledge) were shifted from departments into separate entities - with only a lightweight technical capability remaining to determine what actually needed to be done, or how to do it;
• competing interests (ie GOCs; private service providers; and government departments) were simultaneously trying to plan infrastructure - which made particular problems for infrastructure that has to be integrated (eg into transportation networks) [1] and for that hard infrastructure that needs to be integrated with regional land use and environmental considerations (which requires that someone be able to negotiate this);
• government agencies, informed of private proposals and accustomed to making the decisions, could not resist using the ideas themselves (giving rise to 'intellectual property' concerns).

However, less obviously, Queensland's 'commercialization' models for government business enterprises (ie where entities subject to competition remain in public ownership) has also created an impossible conflict in planning infrastructure between the desires of their Ministerial shareholders (ie to achieve political goals), and the often quite different requirement to respond effectively to market demand.

Given real commercial competition and the adoption of commercial goals, infrastructure service providers (whether public or private) must respond mainly to market demands - and only to public policy to the extent that this makes government into a customer (or a Community Service Obligation contributor). If they do not do so, then in a competitive user-pays environment they will not be financially viable, and / or government's CSO costs will blow out.

However there is no way that GOCs can be protected against informal political pressure (given the power that Ministers have over Board appointments).

The effect of this conflict of interest does not yet really seem to have begun to be appreciated.

Ultimately, in a highly competitive environment quasi 'nationalized industries' (ie entities subject to both political direction and commercial competition) are likely to be sources of large financial losses to a state budget - which is critically dependent on their competitive success (See Notes 76 and 75 on Queensland's Challenge).

3. Regional Planning

A further (minor) complication then arose from a desire to integrate regional land use and infrastructure planning. An attempt was first made to plan infrastructure through regional planning studies (eg SEQ 2001), followed by the embodiment of infrastructure coordination procedures in the Integrated Planning Act (IPA). 

However while it may improve information interchange the IPA could not be taken seriously as a way of defining infrastructure needs:

• the task of planning any particular facility tends to be very complex. It is not just a case of nominating 'projects' that look good on a map. Rather attention must be given to detailed considerations affecting infrastructure service providers. This must involve, for example,  (a) technical questions (b) integration with existing operations and (c) consideration of financial viability. Land use planners simply can't take these issues into account - or rely on advice given to them by service providers who have to seek corporate competitive advantages; 
• regional planning studies can not realistically envisage how a region's economy will change - and thus planners' forecasts of infrastructure requirements can be indicative at best (eg SEQ2001 was merely a plan for perpetuating SE Queensland's poorly developed economy);
• in practice a coordination role in government can only be undertaken by entities with a high status and institutional power - and this is limited to agencies under the Chief Executive (who has a general coordination role in Cabinet) or the Treasurer (who has financial power). Coordination on a 'regional' basis never works - because of the absence of any ability to control either the budget or flow of papers to Cabinet. Even if well-meaning governments try to establish other coordination agencies 'with teeth' they will always be undermined - because their technical credibility depends on the quality of information which those they are coordinating supply them with (which won't be provided if there is any real difference of opinion - ie if a coordinating agency which lacks institutional power tries to show any 'teeth' it will soon find itself made to look ridiculous).

The Integrated Planning Act has been described by a reputable commentator as: disastrously conceived; making no contribution to achieving real outcomes; and creating a mass of procedures and processes which add to legal disputation and costs while allowing the state to escape responsibility for coordinating local planning  [1]

4. Central Planning

The Queensland Government then tried to solve these problems by creating a whole-of-government mechanism for coordinating infrastructure through State Infrastructure Plans produced by the Department of State Development (DSD).

DSD's initial effort, Strategic Infrastructure for Queensland's Growth (2000), clearly showed that administrative difficulties and confusion existed.

The author's preliminary analysis of SIQG suggested that: 

• SIQG was unlikely to identify meaningful proposals because it did not even reveal awareness of the practical obstacles to traditional means for planning infrastructure; 
• an attempt was made to define infrastructure 'projects' centrally, even though institutional changes to promote productivity, now require government to manage much infrastructure primarily by setting rules that govern the operation of 'enterprises' who provide infrastructure services in response to diverse demands - only some of which are from government; and
• there was no consideration of the financial implications of infrastructure - despite Queensland's increasingly difficult financial predicament and the budget's critical dependence on the financial health of government business enterprises.

DSDs' State Infrastructure Plan: Strategic 2001 was no more satisfactory. It made a useful start by outlining why it is hard to define economic infrastructure through a central plan - but it then presented no real solution, as reliance on consensus amongst infrastructure service providers (apparently a major method used) is inadequate especially in a competitive user-pays environment.

Moreover:

• the Plan only considered the relationship between infrastructure and economic considerations;
• the relationship between the Queensland Government's two independent infrastructure coordinating arrangements (the other being the Integrated Planning Act) was not defined; and
• the extent to which private infrastructure service providers are able (or encouraged) to act independently in initiating infrastructure proposals was unclear. 

Ultimately DSD's infrastructure plan disappeared without a trace and did not seem to be mentioned in 2004 when a newly created Office of Urban Management and Infrastructure Coordination produced a draft SE Queensland Regional Plan which sought to identify a growth strategy for that region.

In May 2005, a SEQ Regional Infrastructure Plan and Program was released to complement the Regional Plan. This appeared to present a coherent and modest proposal for infrastructure development in the region. However it suffered numerous deficiencies such as: producing a glossy report rather than addressing defects in infrastructure machinery such as outlined here; uncertain financial viability; and various apparent practical defects.

5. Public Private Partnerships (PPPs)

Arrangements for private sector involvement in infrastructure were formalized through Public Private Partnership Guidance Material, in 2002.

The latter identified agency strategic planning as the primary way in which infrastructure projects would be defined, though this was of limited value because:

• that strategic planning process itself lacks realism in dealing with core government functions (see Evaluation of 'Managing for Outcomes');
• the Commonwealth, through its AusLink scheme for transport PPPs, envisages planning and development in this critical area by the private sector under a national indicative planning process rather than by state governments (Marris S. 'States fear federal road funding cuts', Australian, 23/5/02); and
• for infrastructure subject to competition and user-pays, planning through politically accountable institutions seems likely to be financially dangerous.

The main goal of PPPs is apparently to help overcome serious underlying problems in Queensland's financial situation by increasing efficiency.

There are many aspects of Queensland's underlying potential difficulties in balancing its budget, eg greatly increased public spending, stripping the assets of Government Owned Corporations to fund a short term boost in capital spending, reliance on a transitory boom (see About Queensland's Budgets)

However what is particularly important is that the financial challenge is closely related to the state's economy, because:

• Queensland's Gross State Product / capita is well below the national average - reflecting the low productivity of the industrial structure that has been encouraged by past economic strategy. This can not provide an adequate tax base for funding a rapidly growing state at a high standard;
• raising tax rates to increase revenues would have adverse economic impacts;
• several other states have launched an inquiry into Commonwealth Grants Commission arrangements because of concern about large interstate transfers to Queensland of Commonwealth tax revenues that are ultimately due to Queensland's economic underdevelopment, and weak tax base. (see Review of Grants Commission Arrangements)

However PPPs (while they are undoubtedly of value in some situations) have no significant prospect of improving the financial position, and are likely to further complicate the environment in which infrastructure is planned.

Comments on Public Private Partnerships for Infrastructure suggests that:

• the UK who originated the PPP model that Victoria, and now Queensland, have copied, is experiencing serious difficulties in its public services;
• at best PPPs can be used for a very small percentage of infrastructure - and so should not be the main focus of attention;
• the greater production efficiencies achievable through private delivery of infrastructure services is unlikely to produce high quality services at lower cost because of problems in contract management ie (a) many public goods and services are intrinsically complex - for the same reasons that they became 'public' in the first place - and thus difficult to define (b) Public Service skills may be inadequate and (c) ultimately the arrangement could raise the risk of corrupt collusion in contracting for infrastructure;
• many infrastructure systems need to be managed as a whole, and this can be impossible where some elements are undertaken as essentially private undertakings;
• Queensland's situation is much more complex than that in Victoria (and the UK) from which Queensland copied its PPP model (and that model is thus even less appropriate), because Queensland did not privatize its major economic infrastructure. Thus their market-oriented planning requirements must be dealt with through a politically-prioritized system not designed for their needs;
• the real requirement for improved infrastructure provision in Queensland is to strengthen the state's tax base - which requires becoming serious about developing the economy.

More particularly it is understood that Melbourne's City Link freeway system was developed under a PPP arrangement which reportedly had to involve a provision for government to compensate the developer for any other changes in the transport system that might reduce their revenues. Creating a few such links in a region's transport system would ensure that planning future development of the network became essentially impossible.

These are not likely to be just 'teething' problems which will can eventually be overcome, because the market failures that cause many functions to be in the public sector in the first place (eg their complex relationships with other functions, dependence on political value judgments, or 'lumpy' investments) also makes them hard to manage contractually.

It is also clear (on the basis of intense lobbying for a very high level of infrastructure investment by self-interested groups) that PPP arrangements have the potential to distort the process of decision making about infrastructure - a risk that is amplified by the weakening of public services referred to above.

6. Privatization of Monopolies Leading to Regulatory Failure

In at least one case, a monopoly service (the Dalrymple Bay coal loader) became the centre of controversy in relation to the operator's failure to expand capacity to meet demand for coal exports [1, 2, 3, 4, 5, 6, 7], after it had been sold by the Queensland Government for $600m to a private operator.  

Problems were seen to arise because the regulatory authority (the Queensland Competition Authority - which under National Competition Policy is required to review the prices charged for monopoly services) had made a price determination which was said to be too low to encourage further investment [1].  The issue (which has led to disputes in other cases) became a matter of national political concern, resulting in the establishment of a task force to report to the Prime Minister [1], which did not seem to generate a viable solution.

In that case a failure to invest by a privatised / regulated business threatened to block regional development. The problem seemed to revolve around difficulties in managing the difference between prices needed to earn a reasonable return under normal circumstances (which regulators’ models showed to be reasonable) and the much higher prices needed to justify the risk of major new investment (which market forces would have bid up if the system was not being regulated).

 The problem may well be that regulated private ownership (rather than public ownership) may simply not be a viable option for monopoly infrastructure.  It can be noted that this case is not unique, eg:

• regulatory delays in determining an access regime have also affected Queensland's rail system [1];
• disagreements have arisen about whether charges at Sydney Airport are excessive [1];
• serious difficulties are arising in setting prices for aging electricity distribution networks. When the networks were privatized, investors paid too much and expect access prices to be set to give them a return on what they invested, rather than on the underlying asset value [1].
  • [Comment: This is like problems that have arisen from regulatory determination of taxi prices in Queensland, which have been set to provide an assured return on the cost of a taxi license. Naturally the result was that the value of a taxi license rose rapidly - along with the prices paid by customers. Ultimately a substantial fraction of taxi fares simply went to pay for taxi licenses, and this greatly reduced demand and the contribution that the taxi industry might have made to the overall transport task]

• there has been concern about abuse of monopoly positions by rail freight companies [1]

In other situations attempts to create competitive markets have resulted in systemic failures (eg in efforts to create electricity markets in US where prices were reportedly manipulated through blackouts and power shortages) [1]

Moreover: it has realistically been noted that Queensland has difficulties interfacing with Australia's national electricity market [1] because:

• during the 1990s there was little investment in generating capacity, and supply shortages which forced up wholesale prices became apparent in 1998;
• a policy of ensuring 25% spare capacity was then adopted resulting in large overcapacity, and falling prices to the point where parallel private investment became uneconomic;
• interstate connection will in future prevent the intended 25% spare capacity being available to Queensland

The problem is that there may be an unavoidable market failure in electricity generation because it is commercially to provide peak / spare generation capacity and highly advantageous (in terms of gaining high prices) to allow power shortages to develop. 

The problem at the Dalrymple Bay Coal Loader (and in relation to similar concerns about regulatory price fixing in relation to other assets) was probably not that regulators went too far in trying to constrain the prices of monopoly infrastructure services,

Why: Fixed prices on monopoly infrastructure must either be set at a level that inhibits new investment (at times) or else allow excessive profits (at other times), because no regulator can determine a fixed price which mimics the dynamic response of a competitive environment which would vary the pricing at different stages in a business / investment cycle.

The problem of effective regulation can also be described in terms of (a) the difference between average prices and the marginal prices required to justify new investment (b) the need for a pricing structure which meaningfully rewards increased service quality as well as increased quantity and (c) the fact that gains from investment may be achieved by users rather than by operators [1] 

Another source of difficulty is that regulators are likely to have concern about the rent-seeking behaviour, which makes it difficult to gain agreement on an appropriate rate of return [1].  At Dalrymple Bay port users initially saw the problem as the port operator's desire to gouge out unjustified profits [1].

Where goods and services that have a 'natural monopoly' character are privatized, regulatory failure seems to be a common outcome [1, 2] - and this may well be unavoidable and require serious consideration about where such functions should be operated by the public sector.

It has been pointed out that (a) regulation always distorts the use of resources and (b) such problems were deliberately ignored in advocating 'reform' in order to reduce obstacles to change [1] - an approach to policy which may have been quite irresponsible.

In response to these difficulties a federal government task force reportedly concluded that there was no current infrastructure crisis - but one is possible in future unless an effective regulatory regime is established to mobilize private investment [1]. It suggested in May 2005 [1, 2, 3] that:

• export ports should be subject to little regulation;
• the goal should be to promote collaboration between ports, road / rail connections and port users;
• regulation should be a federal government responsibility (though perhaps not by the ACCC).

This proposal seemed significant because:

• recognition of the importance of promoting 'vertical' collaboration (ie the development of industry clusters) is long overdue (see The Inadequacy of Market Liberalization) - and presumably arose because the task force comprised representatives of ports and users, rather than economists;
• the possibility of a national regulator other than the ACCC presumably was considered because the ACCC would promote 'horizontal' competition, not 'vertical' collaboration;

However the task force's conclusion that a regulatory regime which enables large scale private infrastructure investment is an adequate solution to future infrastructure development appears invalid (eg as argued above PPPs are a mechanism of limited relevance and proper regulation of privatized monopoly assets appears impossible).

Moreover the method reportedly proposed by the task force to achieve its goals seemed very poor because:

• 'export' ports (even those which are primarily dedicated to one or a few users) may also have other 'public' users - and in this respect require regulation as monopoly assets. The task force appeared to have devalued market failure issues;
• a government-administered collaboration process would be inadequate in dealing with commercial functions or leading edge economic trends (as suggested in Defects in Economic Tactics, Strategy and Outcomes).  The process would tend to be slow to respond, and be unworkably 'political';
• there is a risk of creating a 'corporate state' arrangement whereby 'mates' gain strong influence over government decisions;
• a confusing lack of uniformity in dealing with infrastructure would be introduced (especially for ports though this could extend to road, rail and airports) if the intent was that all 'export' infrastructure be treated in uniform way [1], that was different to other infrastructure of the same type).

The best way to stimulate and manage collaboration could be through better constituted port corporations - of which there are examples elsewhere in the world. A similar approach would seem to be useful in promoting collaboration around ports which are not primarily dedicated to exports.

A private group proposed an independent arrangement to managed Queensland's coal supply chains [1], which would be an alternative that could work - though implementation would require great care to avoid the risks implicit in central planning.

However even before the task force reported the Federal Transport Minister sought to take over regulation and planning of all ports [1, 2] - apparently seeing in this an extension of Auslink [1]. It was also suggested that the ACCC would in fact be an appropriate regulator for ports - and that it would be desirable for ACCC to adjudicate in all disputes over access to transport systems [1]. In relation to this proposal it was argued that:

• state regulation would be more effective [1];
• the Commonwealth's constitutional base for such action was weak; the resulting regulatory regime could be very complex because the Commonwealth could only deal with some aspects; coordination problems would thus grow; and creating conflict with the states over this might not be in the national interest [1];
• the legal basis of extending the ACCC's powers would be difficult to build, and likely to result in disputes [1]

The Federal Transport Minister's proposal seemed undesirable also because:

• the reason given for the proposed takeover was regulatory delays (which adversely affected exports) as the reason for the proposed takeover [1]. However, as argued above, adequate regulation of privatized monopoly infrastructure is not actually possible. The problem arises from defects in National Competition Policy assumptions;
• obstacles to port expansion in one case involved purely local factors that the federal government would not want to have to adjudicate [1]
• the centralization of government power which the present federal government has been pursuing seems undesirable in the Australian situation for many reasons. One of these is that developing ports can be critical element in economic development, which is a state responsibility;
• the ACCC seemed to be being expected to cover too wide a field ranging from consumer protection to the completely different domain of managing logistics systems. 

The private sector reportedly make numerous submissions to the Prime Minister's task force on infrastructure bottlenecks which sought 'solutions' mainly through either central planning or large scale private investment [1]. None seemed to address the general systemic breakdown in infrastructure machinery that has cause the problem.

The Prime Minister's ultimate proposal reportedly involved performance incentives for the state for regulatory reform on the grounds that federal regulation of ports was impractical [1]. However it is not clear what can be achieved by providing incentives to do things that are impossible such as regulatory price fixing on privatized monopolies.

It was also suggested that:

• emphasis should be placed on commercial negotiations rather than regulation [1, 2];
• new federal regulations were introduced which favoured port owners and made it harder for others to seek regulatory determinations [1] [Comment: This simply avoids the problem of regulation by increasing the risk of abuses of monopoly power]
• in the event that state regulators fail, provision was made for federal intervention [1] [Comment: transferring a decision to the federal government does not help if the problem is impossible for anyone]

An expert member of the PM's task force argued that infrastructure constraints were not a serious problem but merely evidence that infrastructure machinery, which is much better managed that it used to be, is being tested and thus developing [1]. Attention was seen to be needed to:

• effective governance - eg by avoiding half-publicly owned facilities;

• problems in deciding who should pay for infrastructure associated with splitting facilities vertically (so as to separate monopoly activities from those subject to competition);

• reducing the number of regulators.

The problem with this view is that Australia's machinery for managing infrastructure is not more effective than it was. In seeking to create arrangements that would increase efficiency in undertaking individual projects, arrangements needed to deal with infrastructure systems as a whole have been incapacitated as argued above. Moreover:

• the governance problems that arise from incompatibility between the goals of private and public joint owners of infrastructure undertakings apply equally to public-private partnerships (ie the private sector's focus is on efficiency a particular function, while government's focus is on the relationship amongst diverse functions)

• the vertical coordination and regulatory problems reflect fundamental weaknesses in assumptions about competition policies

In addition to regulatory failure, immense difficulties appear likely to emerge in achieving diverse policy objectives through privatizing assets subject to market failures (eg NSW Government's attempt to sell its share of Snowy Hydro has been seen as likely to sabotage 10 year environmental plan to restore river flows[1])

7. Economic and Infrastructure Committee

In August 2005 the Queensland Government established a top level committee to expedite action on major infrastructure, so as to demonstrate that it had the structure to get things done [1].

 Unfortunately this revealed quite the opposite, because such a task should have been able to be dealt with by upper-middle management (see Middle Management from the Top).

One apparent outcome of the deliberations of this group involved giving special priority to developing the Wiggin Island Coal Terminal an initiative that may not be constructive.

Gladstone will be world's biggest coal export port following a decision to fast-track a third coal loading facility.  Massive growth by China's / India's economies is expected to underpin global demand for Queensland coal for decades. For the first time in history it is seen to be possible to be confident of the future for 20-40 years [1]

Though many analysts express similar optimism, the claimed certainty about future prospects seems suspect. Future growth by China / India depends critically on sustaining US demand and deficits - which currently cause concern because global fiscal imbalances are simply not sustainable. Moreover others expect that the favoured position of Australian commodity exports will only last (say) 2 years because of growing competition from other sources [1] (eg Brazil and China itself) and there are many environmental uncertainties associated with large scale fossil fuel usage, while others (in recognition of all such considerations) point out that commodity markets are inherently volatile [1]. The proposal is thus risky.

Moreover creating procedures which expedite a particular project will necessarily disrupt work flows in relation to all others, and the net effect may not be constructive for the economy overall - especially as coal exports produce financial benefits mainly for investors and the state government, while the community generally might benefit more from other forms of economic growth.

A better initiative for the Coordinator General from the point of view of general public interest might have been to expedite routine work flows related to dealing with ALL infrastructure investments.

This project may however be favoured due to the possibility the state government hopes that increased mining and other revenue can pay for health spending increases without increased taxes [1]. Perhaps a proposed mini-budget on funding health reforms (which has been said to be taking a multi-year approach similar to that for SE Queensland infrastructure [1]) could rely on speculative projections of future revenues from coal exports to compensate for short term deficits.

Looking for Deeper Causes: Weak Economic Strategy

In addition to the tactical mismanagement of Public Sector change in the 1990s as outlined above, the main reason that difficulties are being experienced in dealing with infrastructure is arguably the weakness of the strategy adopted to boost economic performance in the 1990s.

While liberalizing the economy, no real effort was made to systematically develop the productive capability of the market economy to succeed in a competitive environment (see Defects in Economic Tactics, Strategy and Outcomes). The potential economic gains from doing so would have been (and remain) very high - given the gap between local commercial capabilities and leading world practices. In turn this would have dramatically improved the tax base for public goods and services.

In practice, rather than developing industry clusters within the market economy, emphasis was given to trying to 'fix' the public sector as a major way to boost economic performance (eg cutting public spending on the grounds that this would boost growth and by lifting productivity especially in infrastructure by introducing 'business-like' methods). When combined with the effect of politically-driven deskilling of the Public Service, the results were as outlined above.

A core of the problem is that reforms were designed to promote efficiency in undertaking individual infrastructure projects which disabled machinery for managing infrastructure systems as a whole because it was (incorrectly) assumed that those projects could be coordinated properly through market mechanisms.

Moreover, trying to undertake government service delivery in a 'business-like' way resulted in a Public Service that was even less well equipped to advise government about its core business of 'governing' (ie creating a framework for the community's economic and social transactions).

All of this probably came about because:

• there is a general lack of competent institutional means for developing public and economic policy. Economists (with no practical knowledge of infrastructure) and interest groups (eg business who knew little of public administration and favoured options that might lead to easy profits) developed certain theories. Political leaders listened to such opinions, and Public Services (increasingly dominated by opportunists) were unable or  unwilling to point out the risks;
• Australians' tradition is to seek benefits by lobbying government, rather than by taking initiatives - as indicated by the all-round industrial protection Australians relied upon as their status steadily declined for most of the 20th century. When protection was discredited, the only thing left that government could be lobbied about was 'fixing' the public sector - even if the public sector was not what was most broken.

What could be done?

If these difficulties continue escalating, it seems likely that:

• the perceived effectiveness of services' delivery will continue to deteriorate, as has reportedly been the case in the UK which is an original source of the models that Queensland is now emulating;
• financial losses recorded by infrastructure GOCs operating in a competitive user-pays environment will grow;
• both of the above will provide pressing reasons for tax rises that will have significant economic repercussions; and
• either the infrastructure system will be slow and cumbersome (to ensure proper accountability), or corrupt collusion could become a problem in infrastructure contracting.

Three key steps might overcome these difficulties, namely:

• renewal of Queensland's Public Service on a professional basis;
• creation of infrastructure coordination machinery - whose role is not be to 'call the shots' on infrastructure projects, but rather to sort out the systemic mess outlined above that makes it impossible for functional agencies to get on with the job;
• serious efforts to develop the productive capabilities of Queensland's economy to provide a stronger tax base for infrastructure and other services.

May 2002