9 August 2000

To Members of the Legislative Assembly 

More Evidence of the Need for Public Service Renewal?

As you may recall I wrote on 20 April 2000, highlighting the need for renewal of Queensland's Public Service on a professional basis, and suggesting how this might be achieved.

A recent report, Infrastructure for Queensland's Growth - Strategic Directions June 2000, again indicates the serious problems affecting our state system of public administration.

An analysis of the above report is submitted in Attachment A. It suggests that the methods being used are most unlikely to discover constructive infrastructure options, because:

• the strategic assessment of the environment within which infrastructure is to be planned is not a realistic assessment of the situation;
• current difficulties in infrastructure planning, arising from the adoption of competitive service delivery several years ago, were not mentioned - and the planning process adopted seems invalid in a competitive delivery environment;
• no mention was made of the financial implications of the infrastructure plan, despite apparent difficulties emerging in state financing; and
• the emphasis is on 'industrial era' infrastructure which is no longer adequate ⁽¹⁾, and references to 'smart' / 'soft' infrastructure are vague and indicate little understanding of what is involved.

Queensland has apparently been making large 'strategic' financial commitments (eg trying to stimulate economic change ⁽²⁾) supported by funds from Government Owned Corporations which are well beyond the latter's capacity to pay ⁽³⁾. It is critical our future economy and public finances that such spending be economically and financially successful. Unfortunately the attached analysis of infrastructure planning, and a prior analysis of the Smart State strategy ⁽⁴⁾, suggests that the 'strategic' guesses that are attracting funding are unlikely to be productive.

As suggested in Note 2 in my letter of 20 April 2000, Queensland may well be repeating Victoria's 1980's experience under the unfortunate Cain administration which: (a) politicised its Public Service; (b) ignored its 'bean-counters'; (c) spent heavily trying to 'force the pace' of what was politically seen as long overdue economic change; but (d) used methods which ensured that such spending would be unlikely to produce market-sustainable outcomes ⁽⁵⁾.

[Signed John Craig]

Attachment A: A Review of Infrastructure for Queensland's Growth
- Strategic Directions June 2000 -

The Strategic Directions report was prepared on behalf of the Queensland Government by the Department of State Development, and presented a draft Strategic Infrastructure Plan.

What it said: The report commenced with an outline of assumptions about the future economy (including the effect of globalization, the need for innovation, the challenge to commodity producers, the growth of services, and state's strong growth record). It next considered the role of infrastructure (including its traditional priority for government in a decentralised state, the new emphasis being placed on R&D, the introduction of competitive service delivery, and the need for a strategic approach to enabling technologies and infrastructure). The stated objective of producing a Strategic Infrastructure Plan were to (a) to define the direction for future public / private sector planning (b) identify initiatives likely to support economic development (b) establish budget priorities (d) provide private investors with a mechanism for identifying infrastructure opportunities and (e) give business confidence in investing. The process is to involve: defining key themes; resolving state-wide issues; and development of prioritised annual regional plans. Key strategic directions envisaged relate to: strategic / coordinated approach to infrastructure; systematic investment in soft and hard infrastructure; and particular priorities for improved modern telecommunications, integration of transport and economic priorities and resolving transport funding difficulties, advancing water policy issues, provision of 'smart' infrastructure, energy, and the preservation of land required for future infrastructure.

The following preliminary comments (which are based only on an Executive Summary of Infrastructure for Queensland's Growth) suggest that the objectives identified for a State Infrastructure Plan are important but that they will not be achieved through the methods which have been adopted.

Some obvious concerns suggesting that the apparently desirable objectives of the Strategic Infrastructure Plan will not be achieved are:

• the contextual picture which is painted within which infrastructure services are to planned seems to reflect 'hype' rather than a professional assessment of the situation (ie all good things will come to pass, and there are no constraints or uncertainties requiring caution and careful management). Some specific macro concerns about this are included in [[what was Attachment C]]. Similar uncertainties will affect every particular type of infrastructure (eg water, transport, power) and every region, yet none of these seem to be mentioned. This does not provide confidence that the product of such a plan would be realistic. [An aside: is it feasibility to realistically plan infrastructure services, if the political imperative of putting the best possible 'spin' on the state's future prospects is dominant?].
• the difficulties in now planning infrastructure were not mentioned - and are thus unlikely to be overcome. In particular:
  • a major unstated reason for the Strategic Infrastructure Plan is presumably that Queensland's framework for planning 'hard' infrastructure has been ineffective since the early 1990s. That system had involved planning and provision by departments or statutory authorities. It ceased to be effective when (a) many of those with knowledge and experience of infrastructure requirements were displaced through a naive process of Public Service 'reform' and (b) competitive service provision was introduced without consideration of how infrastructure services could then be planned. The latter has led to problems - as the elements of some infrastructure have to be integrated (eg into networks) and because hard infrastructure needs to be integrated with regional land use and environmental considerations (which requires that someone be able to negotiate this). An attempt was made to plan infrastructure through regional planning studies (eg SEQ 2001) which process was then embodied in the Integrated Planning Act. However this is ineffectual for infrastructure as it is not focussed on (and thus can not take account of) the considerations which affect infrastructure service providers. The result of the loss of relevant knowledge and skills and of effective planning processes is typified by: (a) the planning debacle, management difficulties and cost overruns associated with the South Coast Freeway in SE Queensland; and (b) the under-provision of power stations in the early 1990s (and resulting brownouts) [with the expected large overcapacity for the next few years reflecting the competitive excesses which can emerge in newly deregulated markets].
    • infrastructure services (even those that are provided by government) are now usually provided by enterprises which have to produce commercial benefits (perhaps with some input of public subsidies through Community Service Obligations (CSOs)). And for the most economically important infrastructure, government in NOT the purchaser. Thus:
    • central planning is made difficult as infrastructure enterprises must provide services which respond directly to public and industry demands, rather than to central plans. If such enterprises do not respond mainly to demand, then (in a competitive environment) they will not be financially viable, and / or government's CSO costs will blow out;
    • planning' can no more pick commercial winners for infrastructure than central 'planning' can do for any other economic activity - because it is impossible for a planner to obtain all the information needed for such a decision. Furthermore, the environmental uncertainties which face infrastructure service providers (which as noted above the draft paper appears to overlook) mean that all that can really be planned is how service providers should be equipped to respond to the demands which are placed upon them;
    • it is impossible to reach viable conclusions through 'consensus' amongst infrastructure providers - which appears to be the way in which the draft Strategic Directions proposals were formed. The problem with consensus is that it will reflect what infrastructure providers would like to do - but not what their customers (ie the public and industry who determine the commercial viability of the infrastructure service - and the level of CSOs which have to be paid if services which are not commercially viable) are willing to pay for; and
    • as government is potentially required to pay CSOs for some infrastructure services, the process must clearly avoid providing public or private service providers with insider influence over government decisions which could financially benefit themselves. However there is no mention of this potential conflict of interest.
• many of the Government Owned Enterprises (GOEs) involved in providing infrastructure services must be of dubious commercial viability - because of Queensland's 'corporatisation' model. Such GOEs are quasi 'nationalised industries' (ie businesses subject to both political demands and competitive pressures). Worldwide experience is that such entities tend to inflict financial losses on taxpayers - a phenomenon which has given rise to widespread privatisation of such entities. A reported recent government decision, that some GOEs can afford to take on more debt, is purely designed to meet state budgetary needs, and indicates the type of constraints on real commercial viability which such entities must suffer (see McCarthy J., 'Port's hollow log targeted', Courier Mail, 30/6/00). If the blow out in GOC deficits reportedly identified by the Opposition is correct (ie from $1.6bn to $3.4bn - see Franklin M. 'Borbidge blasts failed budget', Courier Mail, 21/7/00) then the problem is serious, and fully explains the intention reported in a leaked paper to keep the public ignorant of 'what we know internally' about the budgetary situation (op cit).
• there is no real discussion of the financial implications of infrastructure. Clearly what infrastructure services are actually provided depends on the costs, and on the resources available - and this is not a trivial issue given Queensland's reported emerging budgetary constraints (eg see Morley P. '$1 billion man', Sunday Mail, 25/6/00). Also an outline of the way in which proposals are to be evaluated must be part of any infrastructure planning. In practice the financial impact on the state budget of infrastructure proposals which might emerge could well be seriously damaging, because (as noted above) the process used for the draft State Infrastructure Plan does not ensure that infrastructure would accurately reflect external environmental pressures or the demands of the public and industry as customers for infrastructure services. For the same reason the economic impact of infrastructure proposals emerging would be at best uncertain - even for conventional infrastructure. However:
• the primary infrastructure goals outlined in the draft 'strategic directions' are almost entirely those of the industrial-era (ie those which are capital intensive and involve investment, rather than those which are knowledge intensive and involve organising / learning). This concern applies even to telecommunications infrastructure. Defects in Economic Tactics, [[which was Attachment B]] suggests that Queensland's failure to shift from industrial era economic tactics during the 1990s largely explains the continued growth of low value-added industries, and the difficulties which marginal rural, coastal and metropolitan regions have had in coping with competitive pressures, and the resulting under-employment, social stresses and political instability. The basic point is that only when priority is given to knowledge assets will investment be likely in higher value-added activities. Continued failure to realistically deal with this transition would again 'wrong-foot' Queensland over the next decade.

The draft paper does mention soft infrastructure and the State Government's desire to make Queensland a 'smart state' but it's discussion of 'Smart Infrastructure' is very weak. The latter says (at least in the Executive Summary this is all it says) that we need smart infrastructure, and government has to provide it. Strategic Directions does not define what 'smart infrastructure' means or identify the real limits to which government can be involved in its provision or suggest how the vast majority of such infrastructure in which government can not be directly involved is to be enhanced. Furthermore, the methods being used to make Queensland a 'smart state' appear likely to produce only political rather than commercially relevant impacts - for reasons outlined in Attachment C.

[Also the same process can not really be used for planning conventional hard infrastructure and the softer infrastructures which are now more important to regional competitiveness and productivity. The issues and skills involved are vastly different]

• a second stage of infrastructure planning is envisaged - at regional level. However the relationship between this process and the requirements of the Integrated Planning Act - which also provides for an (unwieldy) process for planning regional infrastructure - is not mentioned (at least in the Executive Summary of Infrastructure for Queensland's Growth).

For conventional 'hard' infrastructure, achieving the apparently desirable objectives identified for the State Infrastructure Plan probably requires management of Queensland's infrastructure system so that the enterprises involved can realistically plan - rather than a governmental process to pre-empt the results of such planning. This might include attention to:

• ensuring that private and public infrastructure service providers are supported by institutions which provides them with relevant apolitical intelligence about the demands and requirements for their services;
• enabling leadership in the development and implementation of proposals for new infrastructure services (eg by public or private service providers; or by government agencies under political direction if initiatives involve CSOs, or government as the purchasing agent). This might involve:

• reconciling the Integrated Planning Act with the need for such leadership;
• providing for forums at which overall requirements for particular infrastructure systems may be discussed, and through which differences of opinion about systemic questions can be professionally resolved;
• developing a viable process whereby government can pursue strategic infrastructure initiatives in the public interest including attention to: defining what public benefit currently means; ensuring an effective process for managing CSOs; and considering the interface between infrastructure services and the state budget;

• indicative business planning for a commercial brokerage function to assemble and disseminate information concerning infrastructure plans for the benefit of: the community; potential infrastructure and other business investors; and governments;
• removing current constraints on the commercial viability of publicly provided infrastructure services by making such entities either privately accountable on a competitive commercial basis, or publicly accountable on a non-competitive political basis;

For the 'smart' / 'soft' infrastructure, which Strategic Directions mentioned in passing but did not seriously address, a quite different procedure and set of skills seems likely to be required.

1. Defects in Economic Tactics [[which was Attachment B]] suggests why 'industrial era' economic tactics seem no longer adequate.

2. Consider the costly information technology / biotechnology strategies, and industrial recruitment.

3. This conclusion seems logical if the Opposition's claim about the large increase in the deficits of Government Owned Corporations is correct (see Franklin M., 'Borbidge blasts failed budget', Courier Mail, 21/7/00).

4. See a previous letter (dated 5/11/99) concerning the draft Innovation - Queensland's Future plan.

5. See also Attachment C of Towards Good Government in Queensland - previously provided