Reflections on Australian politics and policy

I came not knowing much about Australian policy or its political system. That’s partly because it was never really on my radar, but also because it – unduly in my view – seems to receive scant reporting overseas. To be fair I probably still don’t, but it’s been a fairly intensive time here and I’ve been fortunate to meet with politicians past and present as well as senior officials from six of the nine governments here. So, for what they are worth, here are some personal reflections on policy and politics down under…

First, it’s very clearly a new era. Like when you look back at an old photo and suddenly realise your hair cut was out of date even for then, Howard represented a bygone period, and the legacy of his time in office was as much a lack of action as taking the country in some unpleasant directions (like the migrant detention camp in Nauru).There’s now a lot of goodwill and optimism for the future, and strong economic foundations on which to realise progressive goals on health, education, the environment and fairness. On the downside too many issues were pushed into the “too difficult” box for too long and are now long overdue for attention – in particular national infrastructure, social equity, and the natural environment.

Second, the new Prime Minister Kevin Rudd is an interesting and rather unusual leader but ultimately underwhelming. A former public servant, he came into power on the wave of a public desperate to come up for air and look to the future. He has made some good steps forward – on reconciliation with Indigenous Australians, on international engagement, on climate change, on investment in skills and infrastructure. Yet he’s beginning to slip into the territory of endless reviews and initiatives with no clear sense of how they will all land or fit together. Of course this view may be a little premature – he is only one year in – but with a reputation built on technocratic expertise you have to deliver or you’ll fall; and when you do it’ll be fast. Most critically, he lacks a capacity to compelling describe a vision or excite people around that. Change not from, but to.

Third, policy making and public services here are going through a real culture shock after years of relative ease and inaction. There’s much to improve on: a lack of statistics and robust evidence base; weak think-tank and research groups; sloppy policy making processes; an absence of real scrutiny and rigour. In so far as there are articulated ends for public investment there’s still an insufficient account of the means to get there. Blair may have found them late, but the ideas behind market design and user empowerment were fundamentally right. One of the biggest challenges for Rudd will be creating this ‘enabling’ policy infrastructure and capability to drive the outcomes he’s after – and it won’t come quickly or without some heavy lifting.

Fourth, all countries have imperfect governance arrangements and Australia’s is its nine-government federalism. You can obfuscate into the language of vertical fiscal imbalance, or decree that it’s always been that way, but it is broken, doesn’t work for the challenges that Australia faces, and needs to be fixed. The proposed National Partnership Payments won’t solve it, are disingenuous, and will leave the problem to fester for another political generation. I don’t have a perfect solution by any means but a better start would be an honest and principled discussion of where roles and responsibilities should sit and how they might be exchanged.

Fifth, a very positive feature here, and also a good thing about having states, is that policy is made much closer to the community. They are more involved in decisions; policy makers have more regard for the genuine outcomes of policy and not just whether it is theoretically pure and tractable; and politicians devote their time and effort to understanding individual stories and experiences. Just to take one example: there’s much the UK could learn for its next spending review from Queensland’s Toward Q2 work on how to engage, involve and communicate priorities to the public.

Sixth, the policy challenges are unsurprisingly very similar to the UK. Both countries struggle with how to ensure all regions and citizens benefit from a more globalised and knowledge based economy. Both look to prevention, early intervention and personal responsibility to address rising expectations and demands on public services. Both are committed to addressing climate change, and weigh up difficult tradeoffs in how best to transition to a low carbon world. And both the British and Australian public cite quality of life, family and community as the most important things in life yet their politicians jostle to find the appropriate narrative and tools to reach them.

Yet there are also some subtle differences. The most pressing social challenges are here found in extremely remote areas, and this brings with it distinct service delivery challenges not found in the UK. Moreover, Australia’s economy and population are growing much faster than the UK, with consequential upsides and a need to manage changing hotspots like on congestion and infrastructure. Finally, a more balanced and diversified economy than Britain’s, policy makers down under ponder about Australia’s economic future and what balance for risk and reward to target.

But overall I’m left with an impression of optimism and of a country and policy environment that isn’t hostage to a past and has great opportunities to forge new directions. All of which means there’s much to watch in the future…

Learning the wrong lessons from crisis

One of Australia’s leading progressive think tanks, Per Capita, are holding their annual conference in Brisbane this week. It’s on ‘market design’ – in other words when, where and how to use markets to help deliver government services. It comes at a really unfortunate time though as politicians of all colours scramble to find fault with ‘markets’. Take for example Sarkozy’s recent “laissez-faire capitalism is over” speech, or the line No. 10 pushed that Brown long ago warned us that markets fail.

It would help to distinguish between at least three broad types of markets: financial markets which trade risk; goods and service markets which trade products between businesses and to households; and public service markets which provide government funded services but are not necessarily managed by government agencies (and could for example be run for profit).

Even such a simple definition shows how silly the politics has already got. When Sarkozy talks of the end of capitalism he’s beginning to slide into the goods and services territory – and to industry protection and state support policy. Even more bizarrely, the recently-dug-up speech which Brown gave at the SMF in 2003 is very much focused on the use and limits of markets in public services and is not a general theory of markets. (Amusingly it also talks a lot about the problem of state failure replacing market failure, a risk probably rising in significance daily.)

This ‘contagion’ effect is unfortunate: the financial crisis has some very specific and technical causes and shouldn’t lead us to hasty conclusions about the operation of goods and service markets (and junking long established competition policy) nor about public service markets (and putting unnecessary brakes on bringing the benefits of markets into public services when and where they can add value). In so far as there are general lessons about markets to be found from the financial crisis it’s the importance of good information for them to work effectively and of careful ‘agent-design’ (e.g. that the bank knows who the ‘right’ people to lend to are, and there’s no third party ready to benefit from misselling). But we knew all this already and the three broad market types I described each have specific features and come with very detailed theory as well as evidence and practice in how they work.

Perhaps it’s a good example of how societies – and politicians – respond to crises:

• We have to find historical precedence: so the current economic crisis is rivalled only by the Great Depression of the 1930s. (Actually it’s a poor comparison: we remember the Great Depression for the one in three who became unemployed and the almost half pushed below the poverty line, a human consequence that the current problems will have nothing to compare to, and not the fall in stock values.)
  
  
• We must all somehow be affected: perhaps this is some sort of solidarity effect, or maybe that people are perversely jealous of the attention a crisis gets. But it’s amusing that almost everyone is trying to claim relevance to the credit crisis at the moment. I’ve lost count of the number of times I’ve recently heard policy makers say things like “in the current turbulent times [environment/ social/ education/ insert random policy area] is now more important than ever”. Why don’t we just let the macroeconomists have their moment in the limelight and acknowledge that constitutional reform or what’s in the school curriculum isn’t the most pressing issue right now?
  
  
• Something must be done: we have to find the general lessons and apply them in all forms and in all places. So we get an equal and opposite reaction with for example politicians getting lukewarm on markets in public services. This is also a particularly common response following disasters whether natural or man-made with disproportionate reactions like with health and safety measures that represent extremely poor levels of cost-effectiveness.
  
  
• Obfuscation and denial of the root cause: a sensible reaction would be to say something’s gone wrong with (parts of) financial markets therefore we need to (1) stop this from worsening (2) limit the consequences elsewhere (3) reduce the chance of this happening again. We’re close to doing (1) now and attention is beginning to shift to doing (2) and (3) through fiscal measures and regulatory and banking reform. This will expend enough political time and effort without trying to fix all other areas of life with some element of market in. Arguably, even talking about the failure of ‘financial markets’ is far too loose a description – it is only some elements we now have problems with that will require fixing (e.g. subprime mortgages, derivative swaps) and the rest is effect on rather than cause of.
  

Anyhow I’ll be listening closely at the conference to whether (and for how long) each speaker drones on in generalities about the financial crisis and attempts to make convoluted links to other areas. I suspect the politicians will be the worst offenders...

Achieving Culture Change

I gave a talk on ‘culture change’ today to the communities and indigenous policy parts of the Queensland Government. (The supporting slides are below – and are a slight excuse to test out a new Google PowerPoint embedding function).





My argument was in four parts:

• First, that people’s cultural influences really do matter for the choices they take in life – and in turn these are particularly driven by the influence of our family, peers, community, as well as the organisations we spend our time in.
  


• Second, that the attitudes, values and norms we derive from these affect our behaviour in often quite unpredictable ways along with other factors like the legislation, information or rewards we face. So we might have a value of a university education being important because the people around us have reinforced this, but it’s only when we are provided with the information and financial support to actually go that it becomes a ‘behaviour’.
  


• Third, that government policy needs to get more sophisticated at understanding the different influences acting on different people. Sticking with the example, providing simple information about university options may be enough for some but others might not even value it in the first place. In which case policy needs to consider much more about how to promote different courses of action ‘upstream’, for example through thinking about the nature of relationships and relationship support.
  


• Fourth, following this approach seriously has some quite big implications for government: being able to develop the case to target different people with different types of support; using a range of disciplines and approaches to get better insight into how people make decisions (and not just economics); and being ready to invest in securing big change for the long term and not just looking for the quick wins (which the more punitive legislative approaches tend to provide). And all the while treading the ‘elastic band of public opinion’ carefully to avoid crossing the boundary into paternalism and the nanny state.
  

Whether any of this is relevant for communities and indigenous policy here is I think part yes and part no. Yes in that current policy like the Northern Territory intervention applies a very limited set of levers in a very intensive and indiscriminate manner. So it places the entire community under income management whereby an adviser decides how to spend your money (unlike the welfare reform pilots in Queensland which will use income management in a limited and targeted way). My view is that the Northern Territory intervention will only serve to reinforce negative signals about community development and personal responsibility. The culture change work is also relevant because of the broader messages about promoting strong families and positive role models, as well as provision of support and advisory services.

Yet the real missing piece is on the supply-side: namely that most indigenous communities are so remote and so lacking in real jobs that there’s little to practically aspire to. There are jobs in the mines, but these merely replace one form of passivity with another and don’t offer a diverse set of life courses.

To a certain extent it reminded me of a visit to Salford I made in writing the original longer discussion paper. What Salford has been doing quite effectively is integrating their community redevelopment policy with the local economy and businesses (not least helped by the BBC’s move up there) along with adopting some cultural and behavioural support policies. What this could mean in community policy speak would be shifting away from the intense place-based initiatives of the past to integrating policy on community assets and opportunities with policies on skills, capabilities, and with cultural capital and personal and mutual responsibility. All of which returns me to my conclusion from the Aurukun blog: that welfare reform and community development is only going to work once someone’s got a sustainable economic vision for these remote communities - which would let loose a whole virtuous circle of cultures, behaviours, and outcomes.

Income inequality

Interesting paper on income inequality out this week from the boffins at OECD. Particularly worth playing with the data in the graphical package Gapminder.

The main findings include:

• Income inequality rising since the 1980s in all countries along with increased social spending to offset it. This suggests if governments start to ‘let loose’, or fail to target poverty-reducing spending, income inequality will accelerate further.
  
  
• Income inequality rising since 2000 in countries like the US and Germany but falling in the UK and Australia. I tested this out on the historical data plotting poverty against social spending since the 1980s. Each bubble represents a year; I’ve added the green lines to highlight the change in most recent years. Of the four, the US has the highest rates of poverty, then Australia, Germany and the UK. Germany and the UK have traded places with a radical drop in poverty in the UK in recent years and coinciding rise in Germany. The UK’s cut appears to have cost an additional 3 percentage points of GDP on social spending; Germany’s rise has been while social spending has been pretty constant (presumably feedback from the structural and higher unemployment they’ve suffered in recent years).
  
  


• Getting more people in work is – unsurprisingly – found to be one of the major ways to reduce poverty, although capital inequality is now more significant in the past. This must be particularly so for those house buying, share-owning Anglo-Saxon economies.
  
  
• Growth and poverty is a more mixed story. The US and Australia have been growing but with rising inequality in recent years (albeit Australia from a much lower base). The UK has been growing but with sharply falling rates of inequality (albeit still higher than Australia).

Focusing solely on the Australian and UK trends for a second this does go some way to explaining in general terms where the two currently differ in political trends. The UK has cut poverty and inequality but the rising social spending this has cost is probably coming to an end and seems to have - for the present at least - maxed out taxpayers' willingness to spend. Meanwhile, Australia has had a long period of rapid growth, though the public now appear more willing to countenance higher spending on social security and public services to improve equity and fairness. I guess we'll find out what the US electorate think very soon...

End of the week...

Sorry for the gap in blogging this week – product of a mostly wasted week that culminated in a lesson why never to try doing a job interview by teleconference (or equally when in a different time zone).

So finishing up the week here’s a pick and mix of recent themes of the blog:

• Public administration: my work on public service reform and helping set up a new Public Service Commission has come to end. Last task was writing a speech for the new Chair on priorities for the Queensland Public Service. Set in the context of the Premier’s new Q2 targets, it argues the Government will need to build higher performing organisations, get serious about leadership and skills, work more effectively across agencies and continue to build on some good public engagement work. Accompanying slides with my favourite age-grade chart here, and further comment on this in a previous blog.
  
  
• Welfare reform: looks like a big plank of the welfare reform pilots could be in doubt with legal questions being raised whether income management is in breach of the Racial Discrimination Act. While specifically about the ‘intervention’ in the Northern Territories this would no doubt have implications for the welfare reform pilots about to start in northern Queensland (although the Government don’t seem ready to concede as yet).
  
  
• Crocodiles: the croc believed responsible for killing Scot Arthur Booker is off for a breeding programme because it exceeds – by 30cm – the cut off for ‘iconic crocodile’ status. It’s one thing to keep it, but you’d think they could quietly shunt it off to a retirement facility rather than an active breeding programme.
  
  
• Bad policy: legislation in New South Wales ‘accidentally’ allows tobacco sponsorship of racing events following a supposed drafting error. Clearly no accident and a disappointingly mild reaction from Action on Smoking Health (Clive: a cousin of the British group?) who are said to be ‘disturbed’. This comes at the same time as revelations in the UK about Blair’s involvement in the F1 exemption debacle a decade ago.
  
  
• Crap politicians: more evidence of the low bar for Australian politicians – a probe into Andrew Stoner’s comments that Federal MP Alby Schultz’s should be ‘blindfolded and shot at dawn’, and a new Committee being set up to find ways to punish bad behaviour in Parliament. Ultimately, the Australian public don’t seem to sanction such raucous characters at the ballot box which would be the best quality-control measure. Meanwhile in Queensland revelations about Ministerial interests still developing – a not unusual story but surprising no code of conduct exist here to prevent such holdings or set down clear standards about disinvestment procedures.

More Aurukun photos...

Australia's $10.6bn rescue package

Kevin Rudd this evening addressed the nation to give details of his $10.6bn ‘rescue package’. It is basically a massive fiscal stimulus package:

• $4.8 billion for an immediate down payment on long term pension reform;
  
• $3.9 billion in support payments for low and middle income families;
  
• $1.5 billion investment to help first home buyers buy a home;
  
• $187 million to create 56,000 new training places in 2008-09 (comment: small beer relative to the other items); and
  
• Acceleration of the implementation of the government's three nation building funds (education, health, infrastructure).
  

Benefits will start coming on line from early December with single pensioners receiving a lump sum payment of $1,400, pensioner couples receiving $2,100, and people receiving the carers allowance $1,000 for each eligible person in their care.

The rescue package comes on top of the guarantee over the weekend for 100% of bank deposits and is sourced from the c.$20bn surplus in the recent budget.

A good way to blow $10bn?

If a surplus ever was going to be drawn down now is probably the right time. What’s currently a credit crisis is soon going to become a nasty and lingering business recession here and elsewhere so an early inoculation against the downturn may be a good idea. IMF forecasts for Australia are for an economic slowing, although notably not the zero per cent growth facing many other OECD countries. Australia's well regulated banks also are generally in good shape so the landing is going to softer here than at home and this package may help ensure that's even softer and for worse off groups. $10bn is also not a huge amount of money in the scheme of things (c.1% of GDP) so it could be seen as a sort of insurance policy in uncertain times.

On the other hand there should be a few questions asked:

• Is it the right time to try and target a fiscal package? We’re in the eye of the storm of a credit crunch at the moment. Sure, the ‘real’ effects will land in due course in a business recession but what would be the cost of waiting another week or so to have a better idea of where markets are heading? The key to fiscal packages is ensuring they land at the right time and we'd have a better idea of when that might be in even a few days' time. Of course the timing is more about the politics but they'd be other ways to manage this (e.g. signal the size of the package but announce the timing in the next few weeks).
  
  
• Has there been sufficient time to fully think through? Perhaps they’ve been thinking about this for a long while and there's been some rigorous analysis. But I suspect not: and spending $10bn warrants serious examination to get it right.
  
  
• Is it appropriate targeted? The package is partially targeted but not completely – for example to all pensioners. If Australia’s income distribution is anything like the UK’s this is not a good way to tackle the potential poverty effects that Rudd says it is designed to – pensioners have the highest levels of income variance of any group.
  
  
• Some bad spending items in there. $1.5bn for first time buyers is more good money after bad.

Meanwhile, over in Blighty, Gordon seems to be getting some good headlines e.g. 'Gordon Brown has saved the world's financial system, says economics Nobel Prize winner' from today's Daily Mail as both Europeans and Americans copy elements of the British plan.

Implementing Government Priorities

I’m doing a talk today on ‘Implementing Government Priorities’ at Griffith University.

The context is the recent launch of Queensland’s targets and policy ambitions for the future – called 'Toward Q2: Tomorrow’s Queensland'. It’s essentially a set of targets that will go alongside a new performance management approach to drive public services here. It is in many ways quite similar to the UK’s ‘Public Service Agreements’.

I’ve been fairly involved in producing this, and am generally supportive despite having a few quibbles. Anyhow my argumentation today is that:

• Priority setting and performance management can be an effective model to drive public services – both politically and pragmatically
  
  
• But there have been a number of drawbacks with over reliance on the model – e.g. too one size fits all, risks disenfranchising front-line professionals
  
  
• Therefore need to refine how we use it – more devolution, proportionate intervention models, more engagement with citizens in its design and delivery
  
  
• But also we need to drive public services through other approaches – including use of public service information and transparency; user choice and voice; service devolution and autonomy; customer transformation; markets and contestability; and the public value and co-production model. Critically drawing on the most effective lever for each area.
  

This isn’t new stuff as such in the UK but certainly something not on the agenda here as yet.

Final Garnaut Climate Change Review

Final report of the Garnaut Review of Climate Change released today. Warning: it’s well over 600 pages in length but if you want to take it on the content page is here or the introductory chapter here.

Much better is a good one-page summary from crikey here.

I think there's much to be welcomed in the report. Clive Hamilton (author of Affluenza and sustainability activist) has done an excellent analysis of some of contradictions in the report so I won’t do an inferior duplication save to note a couple of the key points of debate.

• Garnaut recommends Australia aim for a 10% reduction on route to a 550ppm trajectory but go into next year’s Copenhagen conference pushing for 450ppm. Hamilton notes this odd - not only to pre-signal your negotiating position but also to expect others to sign up to deeper cuts than you yourself have committed to. In Hamilton’s words, lowering expectations is likely to become self-fulfilling.

• Garnaut argues the 550ppm is the most prudent economic approach for Australia, yet Hamilton notes the modelling itself finds little difference in the long-run between the different targets. For example, the 0.1% in GDP growth between the 450ppm and 550ppm trajectory would result in only having to wait another two years to double GDP (2042 to 2040). Essentially, Hamilton argues that the politics (and business lobbies) got in the way of the science. Always a difficult tradeoff in 'independent reviews'.

Paid family leave

On the back of a report from Australia’s Productivity Commission it looks like paid maternity leave may soon be on its way down under. If that sounds odd, it’s because it is – Australia and the United States are the only two OECD countries who don’t have state funded maternity leave (see chart below). So although some people are covered through their workplace, a sizable 51 per cent of employers don’t have any provisions for their employees. (One might note this isn't an entirely fair comparison though, for Australia have been paying a baby bonus of $5,000 for several years).

The PM today said he was prepared to ‘bite the bullet’ and accept the principle of maternity leave (though fudging the precise parameters).

What does the report actually say?

• It recommends paid 'parental leave' of 18 weeks, shared by either parent who is deemed the primary carer. This would be quite a progressive and welcome measure, for most countries provide maternity leave which clearly reinforces a gender bias and takes no account of modern family dynamics. However, either the media have failed to read the actual report (perhaps understandably given it's another gruellingly long 300+ pager) – or have failed to pick up the difference in what the PM is saying – for he has cannily and subtly said he’ll accept the report but switches into the language of ‘maternity’ rather than ‘parental’ leave.
  


• It recommends making all family types eligible, including same sex couples. Again to be welcomed, although may well get challenged by a number of the Opposition and fringes of the Labor party in the legislative phase.
  


• Suggests paying a rate equal to the minimum wage of $540 per week. This seems rather stingy compared to most European countries (who pay a rate based on a proportion of pre-birth income), but there are some decent arguments advanced for the flat rate e.g. that it’s more equitable, and many higher income families will have privately negotiated family leave benefits. It also means the scheme can be introduced at a relatively low cost to the taxpayer – establishing the principle which could be scaled in future.
  


• Estimates it’ll cost $530m per year – $450m picked up by the taxpayer and $75m by employers. Indeed, all that employers are being asked to pick up are employees' superannuation (pensions contribution), though business groups are still calling it an ‘excessive and unnecessary burden’.
  

Buried on page 248, the Commission rejected an interesting rival proposal from economist Joshua Gans for a 'return to work' credit – providing tax benefits to employers tied to family leave schemes. This would theoretically be more attractive because it incentivises effective return to work and also because the more income-based reward would encourage more men to take parental leave – but was ultimately rejected because of potential deadweight costs and uncapped cost exposure. A shame because they'll no doubt be a lot of deadweight in the preferred version and it's not as though costs would be that exposed. After the birth rate is pretty predictable and it's unlikely that many would go to the lengths of having a baby and manipulating income records solely to extract a few extra hundred dollars from the Government...

Health prevention in Victoria

A novel preventative health – work insurance model is operating in Victoria and appears to be delivering impressive results. Under the ‘WorkSafe’ scheme employers pay variable health premiums based on their health and safety record and ability to safely return and rehabilitate injured employees back to work. So over time this should reward employers who invest more in the health of their workforce. And important too – with ever more of us spending our working days slumped over a computer and likely living with one long-term condition or another, the workplace is becoming one of the front-lines of modern health systems.

Anyhow WorkSafe has delivered savings (in terms of lower employer premiers) of $1bn since 2004, with Victoria now having the second lowest employee premium levels in Australia. In addition to recycling profits back to employers, the scheme’s further surpluses have enabled creation of a $600m preventative fund.

This is providing occupational therapy services and other health interventions to partner and locate with employers, particularly SMEs. Incidentally this was a big theme of the UK’s recent Next Stage Review of the NHS led by Lord Darzi, although with no such innovative funding model.


Could it work in the UK?

The UK equivalent is something called Employers Compulsory Liability Insurance, or ‘ELCI’. In about four-fifths of cases ELCI premiums are non-variable, so there are very weak incentives for employers to actually stump up much to look after their employees’ health. In the past it’s been argued that reform would prohibited by the large asymmetries in the market – in other words that obtaining reliable information on employers’ health records is near impossible or very costly. Another argument made against reforming ELCI has been that it could be unfair to small employers who are less able to make investments to reduce likelihood of claims and who would be particular exposed to a spate of claims.

But I think the Victorian model goes someway to rebutting these. In the first place the asymmetries argument seems to have been got past in Victoria (and it’s less than a tenth the size of the UK) through clear statutory obligations to report health and safety records and risk-based use of inspectorates. And on the small employers point it’s quite easy to design in some rules which get past this – like limiting annual escalation in premiums for particular types of employers or in particular circumstances. Moreover, the Victorian model does all this in quite an efficient way. So rather than run the insurance as a state bureaucracy it has a list of preferred and accredited providers – so the state holds the ring and determines the rules but lets the market work within these parameters.


Anyhow a good excuse to show the classic health inspector clip from ‘That Peter Kay Thing’ – scroll in to 4 minutes….

Garnaut Report on Climate Change

The long-awaited Garnaut report on targets and trajectories on climate change was released this week. Its central recommendations are:

• Support for a target of 550 parts per million of concentration of greenhouse gases in the atmosphere.


• Australia to cut greenhouse emissions 10% by 2020, and 80% by 2050, in order to curb the effects of climate change.
  
• A fixed carbon price of $20 per tonne between 2010 and 2012, settling at $23 after 2013 and rising 4% annually (plus the percentage increase of the consumer price index).

Bizarre comment of the day from Australian Industry Group chief executive Heather Ridout:

“…cost rises in this range would test the viability of many businesses and would give rise to significant restructuring.” Errr, yes restructuring of the economy is the whole point.

Two charts caught my eye. The first shows the per capita convergence different countries would need to make in order to reach the 550ppm scenario. I hadn’t realised Australia was the highest per capita emitter at two-and-a-half times average EU levels. So adjustment here will clearly be very painful.

Second, the chart that points to that very tellingly, is a costs and benefits model to GDP growth of mitigation to 550ppm. It’s all costs well into the 2060s before benefits start to come on line. Like the Stern Report, it then uses two dodgily low social discount rates of 1.4% and 2.7% to determine the cost-benefit of mitigation finding a net cost of around 1% of the economy over the 21st century.

Garnaut asks: “Is this worth paying… for the benefits, insurance value and the enhanced value beyond the 21st century?”. I know we always accuse people of being myopic but really expecting the case to be sold on net benefits accrued to four or more generations in the future is quite an ask.

So with the economics ambiguous at best Garnaut pulls some heart strings, suggesting even some of the mitigation scenarios would be expected to lead to the destruction of the Great Barrier Reef and other coral reefs and lead to (more) species extinction. Very disturbing of course but I thought that it a little odd to appear the next page after the not so great findings from the macro model.

Over to Lord Giddens at the LSE and Policy Network next on the ‘Politics of Climate Change’ who among other things are looking at the implications for social justice.

Randomised Policy Trials

Good paper from Australian economist Andrew Leigh on the merits of ‘Randomised Policy Trials’.

What’s the idea?

Essentially the idea is to use the more scientific approach to experimentation in the design of policy. So, rather than just rolling out an idea, or doing simple before-after analysis, policy makers would subject an idea to the scrutiny of controlled tests. For example, a new approach to school exams might be trialled in several schools in a way that attempted to hold constant for other factors that influence performance before extending on a national scale (of course only if it proved effective).

If it’s so simple why don’t we do it?

Andrew debunks a number of arguments made against randomised policy trials in social sciences. My take on the most compelling – but ultimately wrong – arguments against randomised trials:

• Because they might involve denying treatment to worthy individuals. Some would, for example, argue that it is unethical to deny all the opportunity to the new school exams if they were thought to be superior to what everyone else got. But try the counterfactual: surely it’s more unethical to try the new school exams on everyone, rather than a small group first.
  


• Because there are other alternatives. Yes there are other ways to test the effectiveness of policies. But all too often we get stuck in a simple before-after analysis. So the government claims success on the new school exams because results turn out to be higher than they were ten years ago. But, of course, it may not be the new exams that actually caused the increase in results, instead being a consequence of other things like school investment, better teaching or inflation in marking. Randomised policy trials are the most scientific way to isolate the causal effect of policy.
  


• Because qualitative results are better. A simple rejoinder to this is that doing quantitative trials doesn’t preclude doing the qualitative analysis too – surely we’ll get a better result from doing both together?
  


• Because politicians are interested in re-election, not results. I think this is perhaps a slightly harsh phrasing that Leigh uses but probably gets to the heart of the problem. There are strong incentives for politicians to roll out and start doing. After all, elections come around pretty quickly and no-one is interested in a small scale pilot if the rest of the system is failing. Yet clearly over the long-term this leads to sub-optimal policy paths being taken.

Anyhow it turns out that it is in the US where most randomised policy trials occur, with Canada and the UK a little behind. Would be interesting to see this as a proportion of all new policies though – I suspect it’d be pretty low…

Affluenza

I met with the authors of the Australian book ‘Affluenza’ recently.

What’s the book about?

The argument is a familiar one. The Western world is in the midst of a consumption boom – we’ve never had it so good with seemingly unlimited availability of new goods and services to meet our wants and desires. We measure and define our progress on GNP indicators of economic growth. Yet, there’s little evidence we’ve become happier for it (see chart below). Indeed rates of depression and stress continue to rise. And meanwhile we run down the world’s resources at an alarming and unsustainable pace.

It’s trendy to think this is something new that humankind has hit on. It’s not – it goes back at least as far as the Epicurean school in 4th century BC ancient Greece. Of course, the lines of argument have evolved and changed since but the fundamental question about the relationship between material wealth and human happiness remains.

Is anything different now?

Yes, at least to some extent. First, prosperity has been growing at historically unprecedented rates since the industrial period and particularly since the Second World War. Essentially the first 6,000 years of human history were punctuated by marginal gains in wealth followed by major slumps and setbacks. So the last fifty years gives us a good opportunity to assess things.

Second, the science about what makes us happy and the evidence linking wealth and happiness has got much better. For example, lots of interesting findings are coming out of the field of neuroscience alone. Third, the sustainability trends have started to get really quite irreversible, particularly of course on climate change.

Time for a grand alternative?

This is where books and theories like ‘Affluenza’ rapidly deteriorate, as they amateurly try to create a grand-alternative narrative. It’s too easy to fall into the unthinking tradition of left-liberals from Hampstead. The consumer-orientated, economic-centric model of society won because its arguments are simple, powerful and complete. So it’s not a midnight session ‘solving the world’ over a bottle of Bordeaux, or a Hippie-like tendency to say ‘why don’t all businesses start being nice’, that’s going to make any difference. More to the point there isn’t any sufficiently robust alternative that can be systematically used for policy development. Indeed, that’s self evident in the terms of the debate – an offensive on materialism rather than promotion of a coherent set of rival solutions.

Give up and resign ourselves to a never-ending spiral of rising wealth but growing misery and depletion of the environment?

Personally, I think there’s much to be said for taking an admittedly less sexy but more focused approach to the debate. What might this involve?

First, some subtle shifts that have potential to add up to something more substantive:

• Let’s try to develop and mainstream some alternative measures of progress. The UK DEFRA’s attempt to look at wellbeing is to be welcomed even if it’s little known within Whitehall let alone beyond at the moment. Linked to this we also need some more systematic policy-testing of what the science and evidence on happiness is telling us. (We need to get over our social fear of randomised policy trials for a start).
  
  
• Reintegrate economic thought with other social sciences. The post-war debates between the likes of Milton Friedman and Ludwig von Mises against the Keynesian and Galbraithian schools were not just about what the right economic models were, but also how to think about economics. The legacy of which was the sad divorce of economics from other social sciences in which its roots lay (particularly politics, philosophy, psychology, sociology and geography). I think reintegrating the practice of economics with the developments of these other social sciences could start leading us some different policy conclusions – like the importance of making short-term transitionary adjustments to effects like globalisation or the value of labour market policies to reduce the harshness of tradeoffs that people have to make between work and leisure and family.
  


• Invest in community and public assets. A clear trend in the evidence is that we systematically over-invest in the individual things we think will make us happy (DVDs, clothes, cars, homes) but under-invest in some of the community and social assets that also contribute to our happiness. So it might sound old-fashioned but actually having high quality parks, civic institutions, public spaces and cultural activities is important to happiness and something government needs to initiate to overcome the free-riding problem.
  


• Teach young people some broader social and emotional skills. There’s long been an obsession with teaching the skills that most contribute to productivity. The focus on science, maths and literacy and numeracy is broadly the logical result of that. As too are political calls to meet the challenges of globalisation through developing ‘hard’ skills. All of course right in part but we shouldn’t under-value the importance of personal and social education – providing young people with the skills in order to make better choices later in life that will impact on their happiness and life satisfaction.

Second, a focus on reducing unhappiness, misery and want:

• Attack on the scourge of mental health. This was Lord Layard’s focus in his book on ‘happiness’ and there’s actually some positive developments here like the UK Government’s commitment to fund cognitive behavior therapy (e.g. see Scotland's recent initiative). I think this is only a start to tackling not just the high rates of mental illness we find today (one in six people will suffer from depression at some point in their lives) but also the attached social stigma.
  


• Prioritise health activity on long-term conditions and other ‘life-course’ ill health events. Proportionally too much health activity is on the visible, event based, and invasively-solved ill health. But, like mental health, there are 17 million people in the UK suffering from long-term conditions that materially impact on their quality of life. Getting really serious about this (and not just a few words about care planning) could have a dramatic impact on their wellbeing.
  


• Don’t surrender the fight on poverty and disadvantage. I think one of the as yet under-recognised achievements of New Labour was the shifting of the terms of debate on poverty. Admittedly, progress has been mixed (e.g. on child poverty), and in some cases has got worse (e.g. on relative inequality). But the Thatcherite legacy of implicit social acceptance of poverty in society is now in retreat. Even Cameron’s Conservatives now too have social and community policies where they would once have been unthinkable to them. The progressive left needs to continue to push the fight and not surrender this territory.

I’d meant to keep this one short but it’s already become too long and I haven’t started to do the topic justice. So I’ll stop for now and return to at another point…

Rudd's School Reform

Interesting package of school reform on its way in Australia soon, set out in a paper entitled 'Quality Education: The case for an Education Revolution in our Schools' and a speech by the PM.

What's it all about?

Like most advanced countries, Australia is worried about skills. The goal, it seems, is to improve economic productivity through broad skill development and to improve economic participation and inclusion through targeting measures at the people and places suffering from disadvantage.

The recently announced schools part of this includes:

• First, to measure school performance on their 'value-added' and to hold schools to account for this
  
  
• Second, to invest in weak schools (with c$500k per school) to do things like provide additional coaching or learning support and to create robust networks of parents, other schools, local communities and businesses to help students transitioning to FE or work
  
  
• Third, to close or merge underperforming schools or replace the senior management
  
  
• Fourth, to improve the quality of teaching through higher rewards for principals and through developing an accelerated graduate pathway
  
  
• Fifth, to spread the talent more effectively by offering higher pay for those starting in challenging posts
  
  
• Sixth, pedagogic reform to spread specialist teaching throughout schools
  
  
• Seventh, offering give more autonomy to schools on pay and conditions (presumably only to high performing schools although it's not clear)
  
  
• Eighth, to free up teachers' time through reducing administrative burdens

How's it all going to happen?

This is essentially all out as a discussion paper at the moment. A slight snag in the federal system here is that the Commonwealth government can't just announce and do these things. It has to negotiate (blimey - what's all that about?) with the States - who do most of the public service delivery - on exactly how to implement it all. So expect some delay. Nonetheless, the Commonwealth do have the funding levers as well as the political captial at the moment so most will get through.

Lessons from the Blair years?

The list might strike you as quite familiar to much of the education reform implemented by Blair. Notable absences are acadamies or such an equivalent programme (though perhaps will come later) and emphasis on parental choice (although that's partly due to the school catchment area thing being less relevant here). I'm broadly supportive of much of the reform, though there are probably a few lessons from the Blair years:

• Keep the professionals on side. It's a difficult balance to be made here as the public rightly should demand results for their taxes. But schools aren't McDonalds and it's quite a unique profession that once lost is hard to regain the confidence of. Rudd's had a pretty tough line here so far -- "arrive in the 21st Century" was the message the unions got last week which may have to be nuanced.
  
  
• Recognise supply constraints. Ultimately there'll never be enough money, nor good teachers and headteachers to go around. So sticking resources somewhere (like in high cost academies) does have opportunity costs elsewhere. It's importance to face up to this, as indeed that one parent's choice will impact on another parent's choice.
  
  
• Keep a market-maker. Opening up public services to incentives is a high risk, high return affair. Too many financial flows rewarding all sorts of performance can start creating distortions and perverse outcomes that no-one could anticipate (e.g. like funding surplus places in below capacity schools). Better to start slow and increase over time if necessary than go for hard edged incentives straight away.
  
  
• Be patient. It's hard turning around schools, particularly in areas of entrenched disadvatage. It's all very well expecting results, but you can't recreate leadership, cultures, or teaching practices overnight.
  
  
• Get the measures right. An obvious one but you'd be surprised -- defining exactly what 'value-added' means and how to control for a host of variables outside the control of schools is pretty tough.
  
  
• Don't forget about those that opt-out. A much bigger problem here where the private sector accounts for a large share of education, in part a result of the previous government's subsidies for private schools. If you don't have a policy that takes account of this sector (even though government leverage is weak) and the second-round effects as parents transfer then it's not a coherant package.

The Art of Strategic Government: ten principles for modern government

After spending the last few weeks on visits to several state and commonwealth departments I've become strongly of the view that strategic capabilities really need beefing up down under. I'm intending to test the waters on this soon based around the following principles.

I'd be grateful for views -- anything missing, need adding or re-framing?

1. Have a clear sense of the big picture - after all governing is about more than just a technocratic exercise, it's about that society which an elected government seeks to create and that which it seeks to avoid.
   
   
2. Organise people, programmes and resources around this - for example through a clear and consistent approach to public service reform.
   
   
3. Create institutional spaces for strategy and high-level policy analysis, and to act as an innovation bridge between local and national.
   
   
4. Establish rules and incentives for the strategic and long-term - for example through targets, performance management, accounting reform.
   
   
5. Use strategic systems management to drive results - New Public Management mostly worked well for the Democrats and New Labour. But now we need a more nuanced and differentiated account of public services - for example harnessing various approaches from information and accountability to customer transformation to choice and empowerment when and where they work best.
   
   
6. Recognise the different roles and relationships between the state and citizens in today’s society (e.g. as citizens, subject, service users etc…).
   
   
7. Build public value through debate and dialogue on the key long-term issues (e.g. climate change, obesity).
   
   
8. Make ready to test, trial and evolve policy ideas over time.
   
   
9. Invest in the capacity and capability of the workforce.
   
   
10. Be decisive on making tough choices, especially where these involve costs now.

Taking the long term view in policymaking

I spent last week at Sydney's Graduate School of Government. It's run by Geoff Gallop who is the ex-Premier of Western Australia and good friend of Tony Blair's since their college days together. Geoff was kind enough to invite me to Sydney as a visting fellow and guest lecturer at the University.

I gave a number of talks on strategy and policymaking, as well as an evening address on long-termism in government (rather embarassingly to most of the public service's top brass from past and present). It'll be podcasted soon, but otherwise available here.

My argumentation was that we should broaden the concept of long-termism; and that governments are typically poor at planning for the long-term, but increasingly need to get better at it, and can do so through:

1. Creating spaces for long-term thinking in the architecture of government, with examples of the Strategy Unit, Foresight and so on
2. Using independent reviews and more independent analysis to create public value and consensus on long-term issues, such as through the Nick Stern Review of the Economics of Climate Change
3. Designing systems, rules and incentives for long-termism through reform to national accounting rules and performance management approaches
4. Developing a culture and practice of long-termism in the public service workforce
5. Aligning strategic policy analysis to a level most appropriate to taking the long-term view

Interestingly, in so far as these are the right components, I think the UK is ahead of other countries. In discussion I also tried to emphasise that different combinations of these will be approporate in different circumstances. So, for example, simple accounting rules is unlikely to be much use in addressing the long-term threat of climate change, but the public value approach through honest and open debate might be more so.

An argument for consumption taxes

Australia’s Treasury has recently kicked off a fundamental review of the tax and transfer system, with publication of a discussion paper and creation of a review panel.

It’s got a pretty immense scope. On the tax side, Australia’s three big taxes are - like most OECD countries - income tax, corporation tax and consumption tax (in that order). Together these make up about 85% of total revenue, with a further 122 taxes making up the rest.

For my part I’ve long thought the left needs to get over its fear of consumption taxes and shift this up the revenue hierarchy. Why?

Here’s a quick list of 10 for starters…

1. Easy to administer: unlike many other taxes a consumption tax doesn’t need such a level of bureaucracy and administration to run.
   


2. Hard for the rich to avoid: let’s face it – it’s pretty easy to avoid many taxes if you’re wealthy enough to pay for a decent accountant or smart enough to know how to shift money into different forms or between different countries. Consumption – paid at source – is almost impossible to avoid.
   


3. Consumption is a better tracker of long-term income: while incomes used to be relatively stable over the life course, today many people’s incomes will fluctuate considerably (e.g. as people take career breaks or move between different sectors). Taxing consumption is actually a lot fairer way to pay your share over the long term.
   


4. Earned income less correlated with wealth than consumption: again, while in the past earned income formed a sizable proportion of total wealth, today unearned income (like from share investment) rising and difficult to tax. So income tax becoming relatively unfairly burdenous on middle and low-middle income earners. Consumption more closely linked to total income.
   


5. Income and corporation taxes are not the tax bases that they once were: Income tax is less useful these days as unearned income rises in proportion of wealth. In any case income taxes always a drag on productivity through their labour supply effect. And there’s strong downward pressure on corporation taxes in a global economy. Meanwhile the revenue side needs to come from somewhere.
   


6. Link between consumption and happiness weak: the line from classical economists has always been that people know best how to spend their money. I’d broadly agree but at the margins the evidence looking clearer that that marginal DVD really doesn’t matter that much to us anymore.
   


7. We need to save more anyway: Anglo-Saxon economies have long been over-consuming and under-saving. Indeed I’d argue that’s one of the causal factors driving the current downturn. A marginal shift to consumption taxes will raise the savings rate.
   


8. Possible to exempt goods for social objectives: the left always been afraid of effect of consumption taxes on the poor. But easy to exempt for things like babies clothes (which we do already).
   


9. And vice versa on ‘sins’: good evidence that price (as part of a wider package of behaviour drivers) can reduce unhealthy smoking and drinking.
   


10. There are other economic benefits to consumption taxes like their neutrality on differential investments (unlike corporation and income taxes).

Making the news in Queensland ...

Two Queensland news stories have dominated for over a month now. Together I think they show how difficult it is running a government in today’s media world. The first is about a sex offender, Dennis Ferguson. A repeat offender, Ferguson was released in July after the judge decided he wouldn’t receive a fair trial for his latest offense. Since then he’s spent the last month being hounded by the media and public from one safe house to another.

The second story is about a surgeon nicknamed “Dr Death” who is accused of gross incompetence while practicing in Queensland. Jayant Patel arrived in Australia several years ago, seemingly after various counts of professional misconduct in America. Employed without full checks, Patel was subsequently linked with the deaths of up to 87 patients. Fleeing back to America he was extradited back a few weeks ago and is awaiting trial. Again, there’s a good chance it’ll be thrown out because he won’t get a fair trial.

Both these stories have severely damaged the Government’s reputation in recent weeks, with them unable to gain any control. They are the sort of things that hit governments from time to time; I guess Queensland has been particularly unlucky to have both running together.

What to do? Like most others I’m pretty stumped...

• Distract with other announcements? Hard to see what would sufficiently grab the attention and in any case risks being accused of doing such would hardly win favours.
  


• Tackle head on? Difficult to see what government can actually do in these sort of situations. Any sign of interference with due process and they’ll surely get slapped down by the judiciary.
  


• Put your hands up and admit there’s nothing to be done? Yes, but the man on the street demands that something must be done.
  


• Tough it out with hard rhetoric and little action? Hmmm, maybe that’s the one.

Australian politicians (4): Bob Brown

An Australian hero of tree-huggers world-over, bête noire of tycoon and industrialist, this week's Australian politician is none other than Senator and Leader of the Australian Greens, Bob Brown. To say he represents minorities would be something of an understatement:

• He represents the State of Tasmania, a small and largely irrelevant power when sitting around the negotiating table with the likes of New South Wales, Victoria and Queensland
  
• He leads the Australia Greens, which in a country blessed with some of world's richest abundance of natural resources is always going to be a bit like pissing in the wind
  
• He was also the first openly gay member of the Australian Parliament, again probably not something to naturally endear him to a nature of rugged, beer swilling Australian males

Anyhow, Bob Brown has a CV brimming with campaigning experience. Arrested nine times, he actually spent 16 days in jail following a famous, and ultimately successful, campaign to block the damming of the Franklin River. Bob’s anti-logging efforts managed to get him shot at and his car burned; his interruption of President George Bush’s Parliamentary address in 2003 earned him a suspension from the institution (ironically, it was a speech on the importance of Free Speech that he interrupted and was barred for).

Importantly, it turns out that Bob Brown’s Greens may now hold the key to Rudd pushing through Labor’s emission trading scheme. That’s come about because the Opposition Coalition are looking likely to withdraw their support – requiring Labor to turn to the Greens as the party holding the power balance in the Senate.

Will make for a very interesting few months, with the hysterics over petrol prices pushing for a watered down scheme negotiated with the Opposition. The politically smart move from the Greens would clearly be to head this off and move early and with open arms to Labor (and take a hit on some of the purity of things). Something that fortunately doesn’t seem to have escaped Senator Bob Brown.