1. The Re-emergence of a shambles in Queensland's Public Service was indicated by anecdotes quoted in letters to MLAs dated 28/5/99 and 23/7/99 which were enclosed with my letter of 3 August 1999. Those anecdotes were volunteered by responsible observers without leading questions.

2. A lack of real progress: our poor economic positioning includes: our past economic specialisation; a lack of institutions able to be effective in developing stronger economic capabilities; and a lack of relevant knowledge and research capability associated with our small-business, branch-office foreign-investor-reliant economy. The latter is a severe limitation as knowledge is now replacing capital as the critical factor in competitive advantage and productivity. Queensland has long given economic priority to securing capital investment - without complementary efforts to acquire the knowledge assets now usually required for investment to be highly productive. For example, investment has been cultivated in (often) low productivity sectors such as tourism, resource extraction and basic mineral processing. Queensland has thus under-performed economically (despite its fast overall growth due to increases in labour and capital inputs). Per capita income has continually declined, relative to leading international trends. The quality of jobs has often been poor. Over the past decade, the rural, coastal and metropolitan margins and many individuals have suffered high under-employment (or unemployment), due to an inability to cope with fundamentally changed requirements. In turn this has led to social stresses and political instability. And the problem does NOT seem to be being solved. For example a summary is enclosed of Comments on Innovation: Queensland's Future (which was a recent draft plan by the Department of State Development). The draft plan suggested an ambitious goal of making Queensland a world leader in innovation. This was consistent with the Smart State theme of the 1999-2000 State budget, and seems to be part of a whole-of-government program orchestrated by the Department of the Premier and Cabinet to 'reposition' Queensland globally in the knowledge economy. The goal of a stronger innovation capability is desirable, and overdue. As innovation is the main way to create economic value from knowledge, a good commercial innovation capability in regional communities would reduce many current social symptoms. But, despite the draft plan's intentions, much of the innovation infrastructure it suggests can (at best) provide costly 'toys' for Ministers to play with, rather than being commercially relevant - for reasons outlined in enclosed summary comments. There are also risks that a politically based push to 're-position' Queensland could unwittingly de-skill our innovation capabilities, as political efforts to 're-engineer' the Public Service (theoretically to make it business-like) did to the Service's professional skills in the early 1990s. A full version of enclosed comments can be provided if of interest.

3. Public Evidence: The issuance of an Interactive Casino licence MAY have been a visible consequence of defective Public Service action - as hypothesised in my letters of 3/8/99 and 3/10/99.

4. Hidden Under-performance: The main risk with initiatives such as that to build an innovation capability (see Note 2) is not that they will result in visible fiascos (like the APEC Technomart, which was a part of that program) but that they achieve their short term political goal of convincing community leaders that enough is being done about innovation - while producing practical results which are not commercially effective.

5. Westminster tradition: One observer apparently described my situation as a test case for this (apparently now defunct) tradition (see McDermott P `Tenure of Senior Queensland Public Servants', Australian Journal of Public Administration, March 1993).

6. Reporting? QAO's analysis of risk management (Corporate Governance: Beyond Compliance, Report No 7 of 1999-2000) suggests a way to bring such matters to Parliament's attention.

7. The Competitive Disadvantage of GOCs: Several persons (eg in the electricity industry, in industry research) have highlighted to me how political expectations have obliged government businesses to serve clients who do not offer best prospects for financial returns. This should, in principle, be compensated by Community Service Obligation payments - but in practice it is (usually) not. Corporatised and commercialised government entities are now in a position equivalent to that of nationalised industries (ie are subject to both political influences and competition). Such entities tend worldwide to produce major financial losses for governments because of (a) conflicts between (often informal) political demands and the focus on market demand which is required for commercial success (b) the effect of politics on management skills and orientation. The reality of actual trading losses beginning to emerge in the electricity industry (the tip of an iceberg?) can also be noted.

8. Enclosed with my letter of 3 August 1999

9. Producing only a balance sheet of tangible assets may be futile because (a) the intangible assets of a major organization (which reflect the staff knowledge and skills and organisational arrangements which allow them to work together) are often much more valuable than the tangible assets which accrual accounting can assess and (b) politicisation of the Public Service can potentially erode the value of (intangible) public assets more than any potential gains through superior management of tangible assets.

10. Professionalism can usefully be defined as a combination of high level theoretical knowledge with practical experience of what should happen when that theory is applied. Our political process has been moving away from professionalism as a basis for Public Service (a fashion which has had bi-partisan support because the consequences and alternatives were not properly evaluated). The political system has then proven singularly unable to accurately identify persons who do combine high level knowledge with practical experience (ie are true professionals). And as politically selected senior staff then lead, train and appoint all others, the net effect is of a massive loss of real professional competence in the public sector. Despite this our political system has also been singularly unable to tell what harm it is doing. The idea of 'information asymmetries' (which the Institution of Engineers recently used to good effect in the submission about Queensland's Professional Engineers Act) provides an explanation of why politicisation of senior Public Service positions is so disastrous. It is equivalent to the client deciding who should be a qualified professional. Unless something is done by professional organisations to restore professionalism (ie to re-emphasise a proper balance of real knowledge and experience) as the basis for senior Public Service then the context within which a large fraction of younger professionals work is NOT going to be hospitable to their professional development.

11. Appearance and reality - an example: Such a gap MAY have contributed to the clearly poor decisions associated with the granting of an Internet Casino license which was referred to in my letter of 2/8/99 and 3/10/99.

12. A Loss of objectivity: This phenomenon is arguably closely related to concerns expressed by Alan Bloom in his influential work The Closing of the American Mind (1987). He argued that the quality of universities was deteriorating because the reference point for truth had shifted from empirical reality onto human culture (ie what people wanted to be true) - a shift which he argued eroded the possibility of further learning. [This shift is probably the result of post-modern / post-positivist philosophies which argue that knowledge is merely a social construct. This view clearly applies in SOME situations, but many appear to have erroneously assumed it applies to ALL knowledge]. In some respects Bloom's work seems to have been a complaint about political correctness (ie the view that whatever an interest group wants can become 'true', if anyone who says that it isn't 'true' is suppressed by political action), but in other ways it was a comment about a fundamental reduction in Western societies' faith in the traditional empirical foundations of their science and technology.

13. Appearances and reality - another example: QAO's Report No 7 for 1999-2000 dealt with risk management. In risk management a key issue is presumably whether agencies understand their strategic environment. The pretence is that they do. The reality is that they are not organised to do so (a conclusion expressed in early 1998 by an interdepartmental committee in Initiating the Preparing for the Future Project (summary enclosed) - a report which was lost in the change of government). In a letter in September 1999, the Premier's Chief of Staff, Mr Rob Whiddon, indicated that the strategic capability of the Public Service was of key importance to the present government. But this can only be a polite fiction, because a politicised Public Service can never have the depth of knowledge and experience required to give realism to such aspirations (see enclosed copies of letters to Mr Whiddon of 24^th and 25^th September). However, unless they do get it right, risks will not (in fact) really be managed - and losses WILL be sustained.

14. Managing for Outcomes: Only Part of the Answer: The summary of a paper which outlines concerns about unrealistic assumptions underlying the Managing for Outcomes approach is enclosed. A complete version can be provided if of interest.

15. Emphasis on government outputs can be dysfunctional: as outlined in Note 9 on a letter to Professor Robert Mulgan which concerned Public Service politicisation (enclosed with my letter of 3/10/99). Arguably our systemic fixation on government outputs (eg public sector 'assistance' to individual firms) was a major factor in Queensland's failure over the past decade to develop a productive modern economy (as such 'assistance' is the opposite of developing the ability of business and the community to provide such support - which would be the hallmark of a developed economy).

16. Difficulties in realistically defining outputs were highlighted by Robinson M., 'Contract Budgeting', QUT School of Economics and Finance.

17. The Value to Queensland of Non-Financial Performance Indicators - a 1997 paper is enclosed which outlines this matter, and why accountability in terms of the use of financial assets is no longer sufficient to ensure the effective management of organisations.

18. Pressure to evaluate non-financial output performance data is coming through the Managing for Outcomes Policy Guidelines according to your 1999-2000 report.