|CPDS Home Contact||Professionalism: Chronological Summary|
Email sent 19/1/09
Fixing State Governments
I should like to comment on your contribution to the debate about improving the effectiveness of state administrations ('In a State of Dysfunction', Australian Financial Review, 14/1/09). My interpretation of your argument is that:
While you are raising important issues, I have to submit that the situation is more complex. In particular:
The above argument is presented in slightly more detail below.
My interpretation of your article ('In a State of Dysfunction', Australian Financial Review, 14/1/09) is as follows:
Your article raised very serious issues - but unfortunately dealt with only part of the problem.
The Roles of Government
State governments are important, not only because they spend money and have an economic impact, but even more because they are part of Australia's system of government. The core function of government is 'governing' (ie creating a framework for social and economic activities within the community). Governments also have vital secondary roles in relation to the provision of 'public' goods and services (eg those which can't satisfactorily be undertaken within a market framework - because of (say) their monopoly character or externalities that can't be dealt with by any simple price mechanism).
In both their core and secondary roles, governments' main contribution involves managing social and economic relationships (see also 'Governing is not just Running a Large Business').
Governments' Contribution to Public Goods and Services Matters
In functions where governments have traditionally spent large amounts and involve true public goods and services, outcomes can't necessarily be improved simply by examining the goods and services provided and envisaging more efficient private sector provision, while ignoring what is needed for government to continue effectively influencing those functions to (for example) counteract the effect of market failures.
Alleged 'reform' of government in recent years has done a great deal of damage to governments' performance by trying to promote 'efficiency' in service delivery while ignoring the need for ongoing effective performance of government's core and secondary roles. For example:
Even if private production of various goods and services is more cost efficient, the community is not necessarily better off. In the first place, more complex / costly internal arrangements within government are likely to be needed.
However the biggest costs are likely to result from displacing the understanding of complex social / economic / administrative / legal systems and the practical experience that are vital for effective government. Unfortunately this is just what 'reformist' state governments (eg those of Kennett, Greiner and Goss) achieved, because of the populist idea that private sector methods must be the 'answer' to what ails government .
Deficiencies in State Governments
As your article realistically implied there are and have been serious deficiencies in the performance of state governments. However, contrary to your suggestions, these are not entirely self-inflicted (ie problems are not solely due to the naive 'reformist' governments of the 1980s and 1990s, or their successors). Rather they have much more complex causes.
One attempt to provide an account of these is in Is our System of Government in Queensland Working? This refers to a diversity of factors including:
State Governments are Not Alone in Inefficiency
For example, Infrastructure Australia was envisaged as a key element of the present federal government's 'solution' to Australia's infrastructure crisis - yet central planning through such a body is no more likely to work for infrastructure than in any other area of the economy (see Infrastructure Magic?). Moreover, as others have argued, this arrangement was not only intrinsically inadequate, it has been derailed by the global financial crisis (see O'Neil P. Why our infrastructure is failing, Business Spectator, 5/1/09).
State Governments are not Alone in Financial Trouble
Budgetary stresses are not confined to state governments. For example, the federal government also seems likely to face severe constraints, and these will not just be in its inability to intervene decisively to overcome infrastructure backlogs, because (for example):
The resulting challenge for the federal government in unwinding entitlements will be just as long-term and structural as the states' financing problems. And unfortunately the new budgetary pressures on both federal and state governments that have been revealed by the global financial crisis are also likely to be structural and long term - because, for reasons suggested in Global Financial Crisis: The Second Test, that crisis has undermined much of the past basis of economic globalization.
One option to consider for reducing these pressures might involve strengthening the tax base through the creation of apolitical machinery to accelerate economic development. While deregulation and competition create incentive, more could probably be done to improve the capacity of enterprises and regional economies to compete successfully in high productivity endeavours (see Defects in Economic Tactics, Strategy and Outcomes).
The Growing Importance of Government
Finally it needs to be recognised that the global financial crisis is having a significant impact in terms of the respective roles of the public and private sector. Whilst the investment capacity of the public sector is constrained, that of the private sector seems even more so. In terms of spending to stimulate recovery from the global financial crisis, it is public sector (for good or ill) that is being required to take the economic lead. Moreover, questioning of the extent of economic deregulation is arising and valid, because (for example) reasonable doubt exists about whether ungoverned financial markets actually tend towards equilibrium (eg see Soros G., "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means").
As noted above, the questions your article posed are vitally important. However I submit that the solution must involve much more than simply privatising many non-core public functions of state governments.
Email sent 10/1/09
I should like to offer some feedback concerning your useful speculations about improving Australia's infrastructure systems (Smarter infrastructure, Business Spectator, 9/1/09).
There is no doubt that attempting to privatise infrastructure to date has been clumsy d for the reasons that you suggested.
However the resulting problems have not been confined to infrastructure services. Involving the private sector in ownership and control of infrastructure (rather than in a contracting role) has been part of broader efforts to reform government administration to increase its political responsiveness and productive efficiency - but the result has been politicisation (which eroded the knowledge and skill base) and the loss of governments' ability to 'govern' through the application of 'business-like' methods to governments' intrinsically non-business-like functions (see Decay of Australian Public Administration, 2002). As noted in Infrastructure Constraints on Australia's Economy (2005), attempts to introduce competitive service delivery within government resulted in the first instance in a fragmentation of responsibility between providers / purchasers / regulators which made it impossible for anytone to plan, while transforming infrastructure projects into PPPs created huge difficulties because of the intrinsic complexity of true 'public' goods and services.
Your article was useful in identifying the importance of externalities in relation to infrastructure. However goods and services can have a 'public' character not only because of positive externalities, but also because of negative externalities or natural monopoly - all of which make it impossible for price mechanisms to provide an effective basis for competition in service delivery. I doubt that it is practical to set up administrative processes such as you suggested to competently supervise the allocation of rewards / punishments related to the externalities an / or monopoly character of particular infrastructure services. The potential for corruption would be enormous, and the public sector is a mess as a result of poorly considered past 'reforms' . As far as I can see, infrastructure constitutes the capital component of particular functions (eg transport / education / health) which are usually true 'public' goods and services - and (as illustrated by the current mess in the public sector) separating control of the capital component in the hope of gaining production efficiencies merely compounds the complexities which leads to production inefficiencies when the capital component is controlled by the public sector.
Your idea about clever networks is excellent. The question is how this could be managed. The challenge can be illustrated by the probable requirements for transformation of transportation systems as a result of the looming global peak oil event - eg a step function increase in public transport and a phasing down of current emphasis on road / freeway systems, combined with significant changes to urban form. Infrastructure Australia seems to have an interest in this issue. But how can it be managed both in a policy sense, and also in terms of the physical arrangement of networks that your suggestion has focussed on?
I fear that my comments are complicating the scene as far as your proposals are concerned. However unless such complexities are taken into account progress can't be achieved,
... on the issue of private provision of services, I am generally an advocate of moving in that direction, but at a sensible pace. Lets do that according to what makes sense, not according to blind faith.
Current transport-related problems in Queensland have a lot to do with a) constraints of capability within the public sector, but also b) over-reliance on private sector players, namely high-priced consultants, who are often appallingly under-qualified and incompetent themselves. Don't get me started on the drag that certain "transport planning consultants" of limited capability are currently playing - charging phenomenal hourly rates to provide rubbish input.
Would be great if there were competent, productive, effective strategic planning (or delivery) capabilities available in Queensland's private sector for government to access, but at the moment its just another disaster.
My feeling also is that the ideological commitment to the idea that the private sector is inherently more efficient has run out of legs. Once again, I would be glad if that were the case - but having seen the inside operations of a few major corporations, I more often wonder how they survive at all, let alone make money...
A major aim of state politicians nowadays is to get media exposure eg don a safety helmet and try to look as if you are contributing something. In addition they recognise that the best and most continuing way to get exposure by far is to spend on infrastructure so we therefore have one of the reasons for the push for lots of new infrastructure
the private sector has found that there is no money in investing in (eg toll road) infrastructure so government is now left with the problem. this works well with the politicians as they now get even more coverage as it is their project!!!
The demands on taxpayers will only get worse as things get more expensive and complex in the major cities.
As I have said for a long time we need a new decentralisation policy that will achieve the demands of the pollies but keep costs down for taxpayers in general.
The push into Queensland by southerners has been fuelled over the years by lower costs here and high costs elsewhere eg Sydney This has changed recently so a new initiative is needed otherwise Queenslanders will go down under a mountain of debt
the decentralisation model thus seems to have no downside. I would suggest targeting Bundaberg as a starter
Have not heard any word on decentralisation from the Qld opposition, but I could be mistaken