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Beyond Populist Rhetoric (email sent 27/3/11)

Michael McKenna,
The Australian

Re: Campbell Newman has Queensland’s public sector in his sights, The Australian, 26-27/3/11

Your article referred to proposals by Campbell Newman for resolving Queensland’s economic and governmental woes. I should like to suggest for your consideration that (so far) his solutions seem unconvincing. Attention most needs to be given to raising the quality of the economy (as reflected in its productivity, and thus the strength of the tax base) and of policy advice (from both the community and the public service). Campbell Newman’s proposals (if they are as your article suggested) would not boost the knowledge, skills and experience that underpin either Queensland’s economy or public policy any more than others’ efforts have done.

My interpretation of your article: Campbell Newman would cut Queensland’s public service, outsource management of government assets and hand more power to councils – in an effort to boost infrastructure spending and revive the state economy. His focus would be on the economy. The ALP (under Bligh and Beattie) is seen to have allowed the bureaucracy to get out of control. Newman sees Queensland’s economy as foundering and in desperate need of infrastructure spending to entice investment (eg dams to support agriculture). ALP will object that it is already struggling to fund services. But Newman envisages balancing increased spending with public service savings – arguing that Brisbane City Council numbers had been slashed by attrition not sackings. Efficiency dividends would be forced on departments. The bureaucracy is seen to be huge and out of control – so the head count needs to be controlled. More spending is needed on infrastructure, with less on services. Former LNP leader was seen to have ignored business calls for more infrastructure spending, and failed to set out a detailed economic vision. Despite past LNP criticism of Ms Bligh’s privatisation program, Mr Newman saw room for more. Private firms could maintain government-owned power grids. Government authorities don’t need to own coal terminals.

In relation to the specific proposals that your article ascribed to Campbell Newman it is noted that:

  • Infrastructure is only one component in a developed economy, and is usually not, by itself, the key to stimulating growth. A better alternative would be to empower strategic leadership in market oriented learning within potential industrial clusters. This should help strengthen government’s tax base and revenues;
  • Infrastructure spending has already been escalated enormously in Queensland. However much investment has been badly directed or even wasted, mainly because poorly advised changes to government machinery rendered the latter largely ineffectual;
  • To overcome such problems, there is a need to re-consider (for example): the nature and functions of government; the effect of centralised efforts to decide / control everything; and the contribution of public service knowledge and experience to effective government;
  • Undertaking some government functions through the private sector can provide some, but unfortunately limited, benefits;
  • Problems in government have been obvious for years, and will be hard to fix. These have not arisen simply because the public service is ‘out of control’ and too numerous. Efficiency dividends or counting heads will achieve little (and could be counter-productive). Improving the quality of government decisions (with the support of a better informed community and a professional public service) is the best route to achieving more effective government and cost savings.

These suggestions about the need for more than populist rhetoric are developed in more detail below.

John Craig



Getting Serious about Economic Development

  • Infrastructure spending is necessary to complement the growth of productive economic activities, but it will not necessarily stimulate those activities – as can be illustrated by Queensland’s past emphasis on publicly-funded industrial estates (which in some ways were the equivalent of the ‘Cargo Cults’ practised in New Guinea);
  • Queensland’s infrastructure backlogs have been largely the result of: (a) rapid population growth (especially in SE Queensland) due to high rates of migration; and (b) problems in government machinery that had been exacerbated in the 1980s and 1990s (see below). Rapid migration was probably started by eliminating death duties in the 1970s, and then became a self-sustaining ‘sun-state’ phenomenon (see SEQ 2001 suffered from naval gazing, 1994). While rapid population growth (and eventually massive infrastructure investment) has sustained high rates of economic growth, it has not contributed much to economic development (ie to creating an economy that is well-positioned strategically, or highly productive). Queensland’s gross state product grew faster than the national average for some years, but in per capital terms (a measure of productivity) the state’s GSP has remained below the national average. Now one major driver of past growth (ie interstate migration) seems to be disappearing – and thus creating negative feedback effects on job prospects (see Speculations about Queensland's Economic Predicament, 2010). This arguably reflects: (a) the shock of the global financial crisis; (b) the fact that housing is no longer much cheaper than in southern cities; and (c) increasing congestion and household costs partly due to poor infrastructure efforts;
  • Strategies put in place by governments since the 1980s to try to raise the quality / productivity of the state’s economy have not been effective – because they have been politically, rather than market, oriented (eg see Queensland's Economic Strategy, 2002 and Commentary on 'Smart State', 2003). As noted in the former, government programs to ‘assist’ individual enterprises, while they may be politically appealing and lead to short-term activity, are actually obstacles to developing the economy (ie to increasing complementary firms’ ability to provide effective and sustainable assistance to one another);
  • Better methods are outlined in A Case for Innovative Economic Leadership (2009). The latter suggested democratically empowering new methods for market-oriented economic leadership to accelerate the emergence of economy or region wide systems that individuals / enterprises require for success in high value-added activities. Economic opportunities that might be given particular attention could include: agribusiness; functions linked to mineral and energy resources; globally-oriented small and medium enterprises; existing embryonic industry clusters in various regions; and functions linked to solving social and environmental challenges. While the need for dams (for example) to support agriculture might be an outcome of such a process, it should not be seen (in the absence of all complementary functions) to be the sufficient precondition for the emergence of a productive industry;
  • Effective economic development methods should boost economic productivity (and the tax base), and thereby reduce government financial constraints

Infrastructure Problems: Partly A Self Inflicted Wound

  • Queensland’s infrastructure spending has already increased dramatically – from about $3bn pa in the mid-1990s to about $18bn pa. Many problems have arisen as a result (eg as noted in 'Neglect catches up with Beattie' - 'Sunshine dims as borrowing goes up', 2007). The latter, in commenting on the jump from $10bn pa spending to $14bn pa, noted: (a) the dubious capital accounting that had apparently been the basis of funding some spending; (b) the cost blow outs that had resulted from simultaneous infrastructure and resource investment booms; and (c) the dubious nature of some water infrastructure investments;
  • Poorly considered infrastructure investments have also been apparent in electricity (see Failure in Queensland's Electricity Distribution Network, 2004) and transport (see Brisbane's Transportation Monster, 2008). Causes of ineffectual and wasteful infrastructure development arguably include: complexities and buck-passing due to extreme federal financial imbalances; and political advisers’ naivety about the nature and functions of government. Machinery of government was crippled by politicisation, loss of essential knowledge and experience and attempts to apply business-like methods to non-business-like functions (eg see Defects in Infrastructure Planning and Delivery in Queensland, 2002).

Some Overlooked Requirements for Effective Government

  • The core function of government is ‘governing’ (ie creating a framework in which others can do things, eg via a system of law). Limits on the ability of central decision makers to acquire the dispersed and often-tacit knowledge needed to decide everything is the basis of economists’ case for a market economy. The same constraint also applies within complex organisations such as governments. Thus government leaders who don’t recognise that they can’t know and decide everything can cause serious problems (see The Secret of Failure: Claim Wisdom without Practical Realism). Political leaders can usefully state the community’s aspirations to provide a coherent sense of direction for decentralised efforts. This can be part of the core task of government (and its leaders in particular) of creating frameworks in which others (both externally and internally) can decide and take the initiatives needed to achieve practical outcomes.
  • Unfortunately machinery of government intended to facilitate highly centralised strategic control of outcomes was put in place in Queensland by the inexperienced Goss administration – and, though partly reformed later, this has done a great deal of damage by: (a) initially purging the knowledge and skills required to do anything other than carry forward that government’s electoral policies; and (b) subsequently suppressing the knowledge, experience, initiative and commitment of those not at the centre. Highly centralised machinery of government seemed to be the major factor in the inadequate skills and bullying culture exhibited in agencies such as Queensland Health – and the medical failures that resulted at Bundaberg Hospital (eg see Intended Submission to Health System Royal Commission, 2005);
  • There has been no serious consideration of the importance to effective government of the public service’s knowledge and skill base (eg see Competence is more useful to good government than compliance and Misunderstanding the Public Service’s Contribution). For Australia’s system of government to work, the public service needs to complement political understanding of the popularity of policies with knowledge of practical requirements, and of the hundreds of other considerations that arise from past policy decisions (or the emerging environment) that are not in the present government’s agenda. Eliminating the knowledge and skills required to do this in a search for unquestioning compliance has led governments to now often pursue populist (ie trendy-sounding but ineffectual) policies, in the way that they could not have done previously (see On Populism, 2007).

Public-Private Interface

  • While the possibility of transferring government functions to the private sector should always be kept in mind, it is not a panacea for problems in government, and can create new sets of problems;
  • Governments traditionally take responsibility for providing some goods and services because market failures exist and imply that problems will arise if they are undertaken by the private sector (see Governing is not Just Running a Large Business). Providing goods and services in a political environment can generate inefficiencies. However private sector involvement, hopefully to promote operational efficiencies, may be of limited benefit, because market failures remain and have to be dealt with in other ways that offset operational cost savings (see Public-Private Partnerships for Infrastructure, revised 2002);
  • Privatisation (ie transferring ownership to the private sector) can generate problems for functions that are subject to serious market failures (as illustrated by problems with the Dalrymple Bay Coal Loader). Privatisation options should be considered in terms of whether or not market failures exist that require public ownership, rather than in terms of (say) the effect on government balance sheets;
  • Outsourcing the performance of some government functions can be of great value (eg via contracting). However, in doing so, there is a critical need to ensure that the knowledge and skills in the public service related to those functions remains in advance (and independent) of contractors. A risk otherwise emerges of private contractors gaining the ability to politically manipulate public programs in their own interests (as appears to be a major problem for the US administration – noting controversies about its military-industrial complex). Embryonic versions of such problems seem to be emerging in Queensland (eg see Conflict of Interest in Brisbane's Transportation Monster).

Fixing Queensland’s Government

  • There is nothing new about problems arising in Queensland’s public service (eg see The Growing Case for a Professional Public Service, from 2001, and The Decay of Australian Public Administration, 2002);
  • It is unwise to blame the Government’s financial constraints on the public service, or suggest that all that is needed is to bring the public service under control. As suggested in Why does Queensland have a financial problem? (2009), the ratio of public servants to Queensland’s rapidly rising population seems to have been roughly constant [1]. Moreover Queensland’s government for years has been characterised by crises (eg in child protection, electricity distribution, hospitals, water supply) and the ‘solution’ was usually to throw large amounts of money at the problem to make it go away, rather than address the machinery of government deficiencies that had given rise to the crises. Thus it can reasonably be argued that it is rapid increases in public spending that have led to increasing numbers of public servants (rather than the other way around). Billions of dollars have also been thrown at sometimes-poorly-considered infrastructure or at poorly-considered political agendas (eg consider Queensland's Biotechnology Bubble, 2002);
  • The head count in public agencies may well need to be cut – hopefully by attrition, rather than by sackings. But this won’t be achieved without disrupting services just by imposing ‘efficiency dividends’, or counting heads. Pressure to boost public service efficiency, eg by requiring efficiency dividends, is not new (see Improving Public Sector Performance in Queensland, 2005). The latter was primarily a comment on a proposal for a Service Delivery and Performance Commission. It argued that: (a) such efforts are a most inefficient way of boosting efficiency; and (b) better outcomes would result from restoring a professional basis for public service, and improving community understanding of what governing is about. Government can be small and effective – providing its top level focus is on ‘governing’ (ie creating a framework for others to do things, both internally and externally). However when the top level focus is on government’s secondary role of delivery of services (including infrastructure), options that might result in smaller government spending will not tend to be considered. Central agencies will be busy trying to micro-manage outcomes, and line-agencies will be stripped of the skills and motivations to envisage alternatives. Infrastructure involves capital expenditure as part of public functions that have much broader implications (eg managing water resources involves environmental, land use, legal and other considerations – as well as perhaps building dams). Managing infrastructure projects should be a middle-management function. When infrastructure shifts to become the top-management focus, then top-management capacity to deal with the broader responsibilities of government gets marginalised or squeezed out (see Middle Management from the Top, 2005);
  • Some suggestions about fixing government in Queensland are included in Response to an Open Note to Campbell Newman (2011). Key suggestions include: (a) seeking much higher quality advice to Queensland’s political process both externally (eg through more realistic and up-to-date understanding of policy issues by community leaders generally) and internally (eg through restoration of professional independence in public services); and (b) seeking institutional reform, not as a precondition for ‘doing things’, but rather as a recognised goal which is part of the process of achieving practical outcomes;
  • Making government effective will not be a simple challenge, noting the complexities involved that are suggested in Australia's Governance Crisis and the Need for Nation Building. However this has to be done because the continuance of populist ‘quick fixes’ (such as scapegoating public servants or transferring parts of extremely complex functions to the private sector) are likely to continue to make the situation worse.