19 August 2005

Nicholas Gruen
Lateral Economics

Treat Economic Ills

I should like to congratulate you, and offer a little feedback, on your recent article about Queensland's economic underperformance.

My interpretation of your article: Queensland's health system harbours negligence which has been hushed up. It has probably been a shambles for decades, and this has only now become obvious. Government should not be blamed for the health system if it stops taking credit for the economy. Unemployment is around national average, and investment is strong. But Hawke Governments tariff cuts helped exporting states. And economy has gone from one boom (in housing) to another (mineral exports to China), and much investment will be to support this. Despite all this, the productivity of Queensland's economy (and the wages it can afford to pay workers) is well below the national average. This gap is closing, but only slowly. The gap is due to disproportionate orientation to low-skill low wage services such as hospitality, agriculture, retailing and wholesaling. Also Queensland's decentralization reduces potential scale economies. There are some benefits in Smart State initiatives - though much of this is just rebadging of what would have happened anyway. Smart State has genuinely affected state priorities. Government is also to be applauded by its focus on government's net worth rather than on debt. However there is a need to work out where debt could be used productively - as building assets for the future is fairer and more efficient by paying interest on the debt (Gruen N., 'Treat economic ills', Courier Mail, 17/8/05).

Firstly, its seems likely that you are correct in suggesting that the Beattie Government did not create the problems in Queensland's health system. The emergence of those problems has been well telegraphed for years (see Intended Submission to Health System Royal Commission). Such problems are more likely to have their genesis in the early 1990s, given that:

• the lack of overt symptoms 10 years ago shows that the health system has not been a shambles for 'decades';
• Queensland's health system seems to be only one of many areas of public administration in Queensland that are now experiencing similar serious problems (see The Growing Case for a Professional Public Service); and
• Queensland's machinery of government has been claimed to reflect mainly the effect of the Goss Government's reforms (see Queensland's Worst Government).

Reasons to suspect that problems could have their origin in the early 1990s are suggested in Towards Good Government in Queensland and the Decay of Australian Public Administration.

Secondly, highlighting the low productivity of Queensland's economy, as your article did, is long overdue. This is however a message that few have wanted to hear because a more productive economy is more demanding in terms of the knowledge and skills required by community, business and government leaders. Though the problem has been obvious for decades, the need to lift the productivity of Queensland's economy was only officially acknowledge in a state strategy produced in 1997, and in fact little practical progress has been made because of the chronic weakness of economic strategies (see Queensland's Economic Strategy).

Thirdly, as you suggested the Smart State strategy has been a real attempt to change state priorities. Unfortunately it has been an ineffectual in practice because its emphasis has been on providing 'smart' inputs to an economic system which remains chronically unable to use them effectively. Moreover to develop commercial competencies the favoured method has been to try to increase the commercial application of publicly funded R&D - a method that was described by one experienced observer as an 'ideological frolic' (see Commentary on Smart State).

Finally, your suggestion about working out where public funds could be used productively to increase community assets seems most worthwhile. Unfortunately the institutional capability to do this has progressively been demolished as a result of (a) federal fiscal imbalances and (b) the effect of the reforms mentioned above which turned government agencies into politicised pseudo-businesses which are now structurally almost incapable of doing the job they are really supposed to do, ie give competent advice to elected governments and provide public goods and services (eg see Middle Management from the Top).

As will be apparent from the above, your article's suggestion about treating Queensland's economic ills is most timely.

Regards

John Craig