The loneliness of the long distance policy innovator

The column below the fold was published in the AFR two Thursdays ago while I was in Korea. It began as a post and then I decided that I felt strongly enough about the points – and wanted to do what I could to advertise them to others – that I’d write it as well as I could and see if I could place it in a national daily. The AFR cut about fifty words from what appears below the fold, but I can’t log into their system, and I was away when the piece appeared, so I don’t know what or how they cut it.

I’ve actually augmented it a little with some additional references for those who are interested.

Getting somewhere new

In policy as in business, innovation is one per cent inspiration and ninety nine per cent perspiration.

Misunderstandings abound. If youre not crystal clear, right wingers will impute to you the mélange they’ve come to expect from the left. Whatever your favourite beverage, theyll say its café latte. Meanwhile the left will write it off as the next manifestation of their bogyman – Neoliberalism (gasp!).

And if you are crystal clear things get worse! Clarity drives you to expound the logical conclusions of your ideas in some shining model. Then people think you’re advocating instant, revolutionary change.

Just before I arrived at the Business Council in 1997 it had launched a project called New Directions, alas with precious little concrete idea of what those new directions might be.

With monetary policy independence being one of the great macroeconomic achievements of the last two decades, I’d recently suggested (pdf) moving towards greater independence of fiscal policy.

To clarify, I sketched what a full blown system would involve – with an independent authority like the central bank given power to set a fiscal parameter which would produce across the board tax rises or falls.

This would enable the management of the fiscal stance in the way that we set the stance of monetary policy by targeting the cash rate. Meanwhile the distributional questions of who paid relatively more and less tax and on whom the revenue was spent remained, where they belonged, with elected politicians.

Attracting no interest when I first published it, the idea sparked a national debate when republished by the BCA in 1999 (pdf).  Indeed the proposal continues to be cited in both Europe and America to this day including by leading economic lights such as Alan Blinder (pdf) in the US and Lars Calmfors in Europe.

Back in 1999 a few BCA CEOs visited Canberra to put this particular New Direction to senior politicians on both sides. Entering each appointment with “Well what do you think?” in their eyes, they were nonplussed to learn of their hosts lack of enthusiasm for relinquishing their power. They left with a different, less naïve look in their eyes. “Whose idea was this anyway?”

All along I’d argued against revolutionary change and invited participants in the debate to ponder how they might serve their own and the public interest by cherry picking from the ideas to move gradually in the direction proposed.

An Opposition would be slaughtered if it went to an election campaign saying your tax rate will be set by unelected bureaucrats. But Oppositions have an interest in more independent analysis of fiscal policy issues and so have an interest in supporting the establishment of some independent expert advisory agency like Americas Congressional Budget Office. Their common interest with parties holding the balance of power in the Senate could create such an institution as governments negotiate their agenda through the Senate.

And in the context of their struggle to win public confidence in their economic bona fides, it makes sense for Oppositions to propose some independent (advisory) oversight of financial management in government as Steve Bracks did in his bid for Government in the same year the paper came out – 1999. The Auditor General has since reviewed the soundness of Victorias budget forecasts.

The Federal ALP could promise something similar. Like any other innovation, new policy ideas are rarely without their downsides. But a little perseverance enables them to be minimised.

Or better still new connections made.

Very soon the Opposition must navigate an electoral ambush by info-mander. The Charter of Budget Honesty (don’t laugh) provides for the official costing of Opposition policies. The Oppositions policies are submitted to the Prime Minister who (after taking a peek if he wants) submits them for official costing.

The Opposition can refuse to participate. But that confirms an impression of irresponsibility. What has it got to hide? If the policy is substantial or complex, officials must usually make contentious assumptions. But any official deviations from the Oppositions costings will be denounced by Government and reported in headlines as mistakes no matter what the fine print shows.

Against this trial by ambush for the Opposition, the Government gets all the time it needs to work iteratively with officials on costing and refining their policies for the election.

So what should the Opposition do?

It should be bold and principled (which happens also to be expedient) and refuse to participate in this charter of budget debauchery. But at the same time if it had a policy to establish some kind of independent fiscal advisory body, that wouldn’t just help sell its economic credentials. It could announce some respected figure had agreed to head the new authority and then ask them to run their own eyes over the costings of Government and Opposition policy.

It would level the playing field for itself before introducing an institution which would give it both the eyes and ears and the backbone to govern well, which is to say to increase its chances of governing for a long while.

This entry was posted in Economics and public policy. Bookmark the permalink.
Notify of

1 Comment
Newest Most Voted
Inline Feedbacks
View all comments

[…] A nice column from Nicholas Gruen on fiscal policy. […]