23 September, 1999

Professor Richard Mulgan,
Graduate Program in Public Policy,
Asia Pacific School of Economics and Management,
Australian National University.

Further to my letter of 29 July 1999, I should like to thank you for the copy of your analysis Politicisation of Senior Appointments in the Australian Public Service.

Your analysis ⁽¹⁾ has expanded the politicisation question from a simple issue of political neutrality to one which also considers a Public Service's functional competence (ie the value of the experience a professional Public Service can provide). This, and your ideas about how problems might be reduced based on New Zealand practices, are a most useful contribution.

I have taken the liberty of referring your work to the Member in Queensland's Parliament who has shown the most interest in Public Service merit issues.

However I am concerned that there seems to be much more that needs to be said, eg:

•  your recognition that the threat to Public Service competence may be more important than reducing its independence ⁽²⁾, can not be emphasised too strongly ⁽³⁾;
•  basing appointments on merit (which you correctly described as the basis for ensuring professionalism) will fail unless there are professionals available to act as selectors ⁽⁴⁾;
•  the value of a professional Public Service can include providing unique and important insights into the practical relevance of leading edge policy options ⁽⁵⁾;
•  increasing political accountability (which you noted was often the basis for Public Service changes) may not guarantee outcomes most in the community interest ⁽⁶⁾. In Queensland, the lack of reliable 'raw material' for public policy ⁽⁷⁾ has compounded this problem;
•  there is a qualitative difference between the functions of government and the private sector ⁽⁸⁾. This reinforces the (very significant) governance difference which you identified;
•  the contrasting of 'outcomes' with 'outputs' may have more complex implications than your analysis suggests (eg encouraging the production of ineffectual 'outputs' is a risk) ⁽⁹⁾.

The above points are elaborated in attached notes, together with comments on the difficult relationship between economic welfare and effective governance ⁽¹⁰⁾ and on another issue ⁽¹¹⁾.

My comments draw on Queensland examples, because I can clearly see the gap here between political rhetoric and administrative reality. External appearances suggest that similar processes may be at work elsewhere - though I can not be sure at a distance.

[Signed John Craig]

Notes:

1. I interpreted key themes of your paper, 'Politicization of Senior Appointments', Australian Journal of Public Administration, Sept 1998 , as:

•  politicisation has become an issue due to changing practices and legislation;
•  it can be seen as the opposite of political neutrality - though it has broader interpretations;
•  neutrality requires more than abstaining from politics, eg an ability to serve any government;
•  a professional service may not be a career service, but must have appointments on merit;
•  by contrast, politicisation implies that appointments suit the government of the day. This might involve selecting those with: a particular political affiliation; a preferred policy orientation; or the ability to impose control on a department;
•  such appointments are not always politicisation. Much depends on the character of the appointee; the attitude of ministers to independent advice and on other circumstances;
•  dismissals without evidence, or poor treatment of those replaced, reveals politicisation;
•  a key issue is whether an appointment compromises neutrality and professionalism;
•  the present Prime Minister endorsed professionalism, but also endorsed arrangements which allow it to be reduced. The effects could now extend well down into the public service;
•  change to the public service has come from government efforts to re-exert control - which can be seen as (desirably) increasing political accountability;
•  opponents concentrate on the value of independence in allowing frank and fearless advice. But this may be misplaced, eg ministers may value robust advice;
•  the contribution from a professional public service which is more important than independence is its ability to provide accumulated experience in forming and implementing policy;
•  private sector practices may be inappropriate in government because the private sector does not face complete shifts in board policy from persons who lack experience;
•  politicisation can affect the public service beyond those directly involved. It can reduce incentive for gaining skills, and discourage talented people from considering the public service as a career;
•  professionalism may be maintained even with short term appointments - as illustrated by New Zealand's practices, which involve: a State Services Commissioner controlling the selection process; formal statements of skill requirements; and a distinction between the responsibilities of ministers (for outcomes) and chief executives (for outputs);
•  though such distinctions (eg between policy and administration) are arbitrary, professionalism may be lost if they are not made.

2. Loss of independence may not be the main issue, but it has worrying effects. Two specific Queensland cases can now be suggested where it appears that the Public Service should have given independent advice in the public interest, but did not seem to do so. These relate to Cabinet's unlawful destruction in 1990 of a magistrate's papers, containing allegations of serious child abuse (the 'Heiner' documents); and the 1999 Net-Bet affair related to the Government's issuance of a gambling licence to a firm with strong ALP connections. Such 'evidence' of a problem is, of course, not positive proof. It is a little like Sherlock Holmes deducing who-dun-it because a 'dog didn't bark'.

3. Inducing Amateurism: Your analysis has made a useful contribution by raising the question of professionalism / competence, but needs to be more strongly stated because:

•  the best description of the alternative to professionalism in a Public Service is amateurism. The (much debated) loss of neutrality is a comparatively minor issue;
•  politically driven 're-engineering' of a Public Service can lead to de-skilling (probably) because:
  • there is a large gap between being able to mouth trendy rhetoric to bluff politicians, and the ability (which those with little relevant experience lack) to see the practical significance of policy theories, cope with complex situations, be credible with their peers and achieve results;
  • political appointments tend to be limited to persons known to the political system - who furthermore tend to be those relying on such linkages to get ahead - often due to a lack of professional capabilities;
  • once amateurism is installed at 'senior' levels, real professional capabilities at lower levels becomes a major threat to the credibility of the 'senior' staff and tend to be eliminated.
• because of the above gap, the political system can be unable to tell what damage it is doing;
•  building a formal explanation of this problem may require expressing the value of Public Service experience in terms of current ideas about knowledge management, which recognise the importance of tacit (unstated, and unstate-able) knowledge. A parallel might also usefully be drawn with the recognition which economics gives to the limits to rationality, ie mainstream economists emphasise the market (ie the decisions of decentralised economic agents) because planning economic change through any form of centralised analysis is impossible;
• your paper discussed various 'active' politicisation options (ie making appointments because of: political allegiance; policy orientation; or ability to control a department). However the main reality of politicisation in practice seems to be passive compliance (ie where a Public Service loses the ability to put forward useful and considered independent policy advice as a result of amateurism induced through politically driven 're-engineering';

• the government of the day is not always satisfied with the effect of 'active' politicisation, because of a poor track record in 'picking administrative winners' which is evident. For example I have observed several cases like that recently of Mr Paul Barrett and the Defence Department, ie where politically appointed staff have become the main problem a Minister faces after 18 months. [This states a fact (ie media reports show that the Minister saw the situation as a problem). It is not a comment about where 'virtue' lies in the Barrett case (about which I have no knowledge).].
• the issue is of MAJOR significance. Some governments have been damaged far more than the Commonwealth. For example, Queensland's situation (if anecdotal evidence outlined in previously provided letters of 28 May and 23 July 1999 is accurate) does not look good (though the consequences have not yet become obvious in the public arena).

4. Ensuring merit is not a trivial problem. Your paper pointed out the need for professional competence (ie a high level of practical skill), as well as political neutrality. Those skills can typically not be recognised by persons who do not themselves possess them. Thus a group with relevant professional capabilities must be involved as selectors, if any attempt to ensure professional merit is to succeed (which is what the involvement of the State Service Commissioner hopefully ensures in New Zealand). But politically driven Public Service 're-engineering can destroy those professional capabilities, and the loss can be impossible to reverse. An account (and attempted explanation) of the 'fall of the house of Goss' is given in Towards Good Government in Queensland (enclosed with my previous letter). The major theme of that paper was that across-the-board re-staffing was run by people who generally lacked realistic understanding of what government actually had to do. Thus supposed Public Service 'reform' simply eroded its skill base and eliminated the best source of advice and support able to implement widely desired reforms. This slowly led to administrative breakdowns (eg muddles in health and education services, fumbled infrastructure planning) and to a failure to effectively create vital economic capabilities (see note 10). However recovery is still very difficult even now because virtually all that is available to build on is: an under-skilled Public Service; inexperienced academics; small business people and branch office managers (characteristic of Queensland's economy); and out-of-state recruits who lack background understanding.

5. An experienced Public Service has a unique contribution. It has essential knowledge and skills which will not be found in the private sector, because of differences in their core businesses (see note 8 below). It also has an edge over experts on public administration (eg academics who study 'government'), because the latter can not be as skilled in what government has to do (eg provide (say) health services; or develop the economy), as the latter involves quite specific and complex knowledge and skills. And those who study specific government functions (in theory), miss the practical dimension. [Despite the central roles of public administration 'experts', the skill base of Queensland's Public Service was severely eroded in the early 1990s, because the 'experts' were unable to tell whether competence levels relevant to the actual functions of government were being raised or lowered]. The practical costs of this can be large, as illustrated in Note 10 below.

6. Increasing political accountability may not increase community welfare. The political process (on its own) may not be an effective way of promoting, or even surfacing, policies which are most in the community interest. This question has been affected by (a) the diminished ability of governments to control social and economic outcomes in the face of globalization and (b) the shift from capital to knowledge (which requires special capabilities to use) as the major economic asset. The character of our political institutions is that they are intrinsically only able to slow the process of community / economic learning / development (see Attachment G of Towards Good Government in Queensland). Politics can thus reduce the size of the economic pie to a much greater degree than it could in the 'industrial' era. And reform designed to make bureaucracies more politically 'responsive', needs to consider that one of the main reasons that they lack responsiveness to 'reality' is that they are responsive to politics (See Attachment D of Towards Good Government in Queensland, on 'Why are Bureaucrats Bureaucratic'). Clearly our political process must result in effective control of the machinery of government, but this must occur within rules which prevent dysfunctional side effects.

7. A noteworthy feature of Queensland is its lack of capable institutions providing 'raw material' for business or public policy. The origin of this appears to lie in the nature of the state's economy - as outlined in an enclosed letter dated 16 March 1999. This characteristic may explain why autocratic and poorly informed Governments have, at times, been dominant in Queensland.

8. Another key difference between the public sector and the private sector is that the private sector deals with goods and services which can be treated as separate 'things' and traded in a market. In government, by contrast, the major products have a strong 'systemic' character (ie involving a framework for economic and community transactions, and goods and services subject to market failures - eg those with substantial externalities which can not so readily be treated as separate 'things'). Thus knowledge, and management, of relationships between things is THE skill required in a Public Service, to a much greater degree than in the private sector.

9. The distinction New Zealand makes between outputs and outcomes may be dysfunctional, as a Public Service which focuses on its 'outputs' rather than on 'outcomes' (ie what the overall result is for the community) can seriously limit what is achievable. Effectiveness in community or economic development is increasingly important to social and economic welfare, because globalization has reduced governments' ability to directly control outcomes or provide high levels of direct support. However success in such development often requires avoidance of programmed 'outputs'. For example, an economic strategy in the early 1990s (Queensland - Leading State) took what government did as its starting point, but did not consider ways to enhance the more important business support services which government does not provide. It was unable to significantly lift community welfare because it focussed on government 'outputs' though the provision of government support services to (say) firms can never be of appropriate quality, and providing such services is the opposite of (economic) development (ie it is the opposite of simulating business and the community to provide such support at a high standard). Even where a Public Service is nominally expected to consider 'outcomes', the reality is that current budget and staff career arrangements tend to encourage Public Services to focus only on what they themselves do (ie their outputs) - and thus limit community welfare.

10. Unsatisfactory Economic Outcomes for many individuals and regions has been a major factor in disillusion with the performance of governments (and the resulting strong political reactions). The problem can be illustrated by Queensland's failure to effectively develop its economy, despite its 'success' in the rapid growth of poor quality economic functions. Economic under-development is indicated by: the growth of mainly low productivity industries; low relative per-capita incomes and the existence of regional communities (and many individuals in urban areas) who have been unable to cope with economic change. Many have thus experienced the social symptoms resulting from under-employment and unemployment. This appears to have been a major part of the political support gained (temporarily) by One Nation. [Similar phenomena have emerged elsewhere eg in Victoria under Jeff Kennett - despite vigorous (so called) economic 'reform', resulting in similar political reactions]. Nationally the problem is indicated by (for example): the need for ongoing devaluations to price enough people into jobs; and the growing split of the community into those who have succeeded in the new economic environment and those who have not. Certainly, these unsatisfactory economic outcomes were partly due to the difficulty of the challenge (eg changed fortunes of resource based industries; and the high standards now required for high productivity industries). However the challenge has been recognized since the early 1980s. Thus poor outcomes must also be blamed on strategies used to deal with the problem. Emphasis has typically been placed on economic liberalisation (eg deregulation, reduced tariffs, competition policy) on the basis of microeconomic theory. Unfortunately this theory contains severe defects as a formula for building economic competitiveness. Two of these defects are that mainstream microeconomics does not properly deal with: (a) the 'systemic' capabilities within (regional) economies, which must be effective as a source of support if firms and individuals are to successfully compete (see, for example, Michael Porter's work on The Competitive Advantage of Nations); and (b) the effect which effective application of relevant knowledge can have in accelerating the emergence of those capabilities. The central role of knowledge in economic growth is widely recognised by economists - but treated (inadequately) as an input to a production function, rather than as a means for changing the causal relationships which a production function models. (Craig J. Transforming the Tortoise: A Breakthrough to Improve Australia's Place in the Economic Race, Prosperity Press, 1993). Examples of the 'systemic' capabilities which are needed include arrangements providing: market and technological intelligence; support in business development or innovation; business relevant training. There is a need for leadership in developing such integrated systemic capabilities, as well as liberalizing the economy (because sometimes no component of such a system can be viable unless all the others also exist). Without leadership of such development, growth can be limited by the weak capabilities of under-developed economic systems (eg in rural and regional areas). Development of such capabilities requires accelerating 'learning' by the real economy (see Towards Good Government in Queensland, Section 7), which is impossible for politically driven institutions (opcit, Attachments G). In Queensland (and perhaps elsewhere) the professional Public Service had documented and experimented successfully with options to do more than liberalize the economy in the 1980s. However politicization of key functions under successive governments then prevented such 'learning'. For example, it resulted in four economic strategies from 1988 to 1997 being seen as political statements. This prevented them being an opportunity for networks of relevant citizens to learn about their challenges and opportunities - which could have accelerated development of the real economy. Furthermore politically driven 're-engineering' of the Public Service in the 1990s seriously eroded the professional skill base required to help find viable solutions.

11. Another Comment: some debate has emerged about whether Australia might adopt a US style system where senior public servants accompany an administration into, and out of, office. I submit that this is impossible in the foreseeable future without suffering a major loss of functional effectiveness, because other institutions would first need to be created like those which support this practice in the USA (see enclosed letter dated 10 June 1999).