Remaking Australia

Here’s an article for Crikey called ‘Remaking Australia’ – on the theme of broadening economic reform. Economic reform had become fairly formulaic by the early 1990s though a lot of things that were announced in the late 80s or early 1990s took another ten years to get implemented. Then there was Howard’s GST and two rounds of labour market liberalisation. I’m generally supportive of most of the deregulatory agenda with quibbles here and there. But I remain disappointed that we’ve not moved confidently beyond this.

Even health and education get only passing mention here – as important as they are – as I think that where the theme used to be competition, new themes, should be things like information, risk, complexity and the new possibilities opened up by peer production and the internet. Regular readers will notice themes I’ve dealt with before and a new name I’ve given that last item on the agenda above – wikinomic reform. I think there’s lots that can be done – of far more than just token value. I’ll expand on it further next week when the Fin publishes another op ed of mine.

In the meantime, the Crikey! piece is on their website . . . and over the fold.


Remaking Australia re-imagining economic reform

In 2002 a former cheerleader for New Zealands more ideological, crash through style of economic reform, the New Zealand Business Roundtables Roger Kerr was complementing Australia on its remarkably consistent, coherent and credible strategy.

Ironically the best was already behind us. Growing out of an unlikely but ultimately successful dynamic tension between the Treasury and the Accord in the 1980s, comprehensive economic reform saw Australia become a miracle economy and the only country in the Angloshere where policy leant against the wind of increasing market inequality.

But reform became formulaic focusing essentially on promoting competition and freer markets. By the time it lost office the previous ALP Government could have broadened this agenda. Its failure to do so and that of its successor means it now falls to the Rudd Government should it be so minded.

There are lots of things still barely part of the reform agenda that could not just make us richer, but directly improve the quality of our lives and even give expression to our more idealistic side.

And heres the key theyre not focused on vague yearnings for a better life more community for instance (how does policy deliver that?) but rather on that old chestnut of micro-economic reform, addressing market failure.

Better information

Economic theory and commonsense tell us that economic systems depend on good information for their efficiency. The sub-discipline of the economics of information has studied the costs of information failure, but remarkably little effort has been put into exploring ways of improving information flows.

Yet unlike the US and the UK, Australians still cant get good information on the quality of hospitals and the value schools add to their students scores (making allowance for their socio-economic backgrounds). Imagine how it could improve the schools and hospitals performance if we could get that information and/or if government funders used it to drive improvements.

Firms already survey their workers job satisfaction, and the better ones have an incentive to publish the results of those surveys to attract increasingly hard to recruit labour. Why dont they? Because no standard exists against which to report and so compare results. It might only take a little leadership from government (or an inspired opposition?) to get a voluntary standard going.

Though investment advisors are encrusted in regulation and investment products require elaborate disclosure, none of it helps us find an advisor whose track record demonstrates their expertise. Imagine how much more efficiently we might use capital if the mass of regulation actually assisted the market do its job rather than just weighed it down in (frequently nonsensical) compliance burdens.

Risk

Rationalising the number and type of entities Governments own and manage has been sensible with privatisation and contracting out. But this has shifted risk away from governments which can often bear it better than the firms or individuals onto which risk has been shifted. Governments can begin redressing the balance by borrowing to build assets for the future – like firms and families do. Remember Messers Rudd, Swan and Tanner, the board members of BHP Billiton are economic conservatives. That means theyre focused on growing their net worth at acceptable risk. They like debt they just dont want too much of it.

Robert Shiller disclosed a whole new agenda for governments in his recent book The New Financial Order. Governments should explore what informational infrastructure they can establish to assist risk markets to develop further. For instance new instruments for financing housing investment are emerging with better statistical information on the movement of house prices. By taking an active interest governments can assist this process of development.

The previous Governments creation of the Future Fund establishes the worthwhile principle that Governments should invest in a diversified portfolio equities managed at arms length. Such investment should also be done counter-cyclically that is with Governments seeking to increase holdings of asset classes that are depressed and decrease holdings where asset classes are booming as the Reserve Bank did in the foreign exchange market in the 1980s. It generates the double dividend of stabilising the relevant market while generating higher expected returns for governments.

And where weve shifted greater risk onto individuals, as for instance with superannuation, we should help people manage the transition. As in New Zealand Governments should encourage the establishment of default settings for the level of superannuation savings whereby employees contributions rise over time to some broadly acceptable level say 15 percent unless employees opt out.

And like Sweden there should be default investment strategies which people would be free to use if they were too confused, intimidated or suspicious to use investment advisors/salespeople.

Federalism and regulation

We need some real breakthroughs in our Federal arrangements on which to build reform in health, education and other areas so that increased funding isnt wasted. As well as being prepared to take over areas that are not working (courtesy of the precedent set by this Governments so called conservative predecessors), Labor should introduce national regulatory systems to operate alongside state ones for national firms in areas such as workers’ compensation, OHS and other technocratic areas like building codes for instance.

We should acknowledge that in its twenty year history for all its good intentions, regulation review has been a fizzer another unsuccessful piece of regulation this time of regulators. Complex systems like regulatory regimes require much more than regulatory impact statements at the outset. Like markets they require ongoing optimisation down to the minutest detail. So we need to develop a new regulatory jurisprudence providing those who are regulated with enforceable rights to alternative compliance. And why limit those rights to firms? They should extend to all citizens.

And while reform has focused on improving private incentives, something profound has been going on. Technology and globalisation have seen a new burgeoning of new global public goods and bads!

Just as theres a global interest in fighting new public bads terrorism and the pandemics that threaten to become global within weeks of initial infections so the internet has generated new and important classes of public goods.

Wikinomic reform

Open source software, Wikipedia and the ABC website are all global public goods available to all comers at zero marginal cost. Theres a whole reform agenda right there! Public goods are core government business.

The ABC has aggressively moved to the global forefront in the new medium of podcasting. Let’s do even better. Wouldnt it be exciting to lead the world here as we did with HECS, and the Child Support Agency and the targeting of social security? Let’s make the entire ABC archive available for download from the net a glowing global advertisement for Australian talent and curiosity.

Then let’s buy up some strategic intellectual property. Some copyrights of classic Australian culture, some patents of low value which might nevertheless be barriers to research. Let’s experiment with some public seed funding of some strategic open source software. How many schools and universities could use Linux, Firefox and Open Office, rather than the usual Microsoft stuff? Students might get involved in the global effort to continue improving these community programs.

None of this need cost much. Some of it will save money.

But whatever we do we should advertise the fact and invite other countries, and philanthropic people, and groups to join us, think of the impact we could have!

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Chris Lloyd
Chris Lloyd
13 years ago

On the interesting issue of better information, I have recently read SuperCrunchers which is a sequel to Freakonomics but applied to business and public policy rather that the freaky subject matter of drug pushing and Sumo. The author described an interesting accidental experiment in his US state where there is a government school that is way over0subscribed. The last X places are decided by lottery. So by comparing the outcomes of those who win/lose the lottery you find out how much value the high demand school actually adds educationally or otherwise. This requires full access to the educational records of both groups, which is apparently easier in the US than here.

How about the government makes it a condition of funding that X places at each funded school are provided by lottery? We could start the ball rolling with the over0subscribed government schools like Balwyn High in Melbourne.

On a completely different note you mention: …Governments seeking to increase holdings of asset classes that are depressed and decrease holdings where asset classes are booming. Sounds like the alchemy of picking winners to me, also known as perpetual motion in other domains.

Fred Argy
Fred Argy
13 years ago

Nicholas, your innovative ideas for reform (which I had seen you expound before) have always impressed me and may get more of a run under Rudd. They certainly deserve to!

I was particularly taken by your strong warnings against privatisation and contracting out where it involves shifting risks to firms and individuals that are less able than governments to bear and manage them. I like your reference to BHP and their focus on growing net worth.

This is precisely why I have been on a crusade for years to get governments (at the federal level) to rethink their embargo on structural net government borrowing. All to no avail: Rudd has embraced Costello’s promise of budget surpluses on average over the economic cycle (structural surpluses).

Hopefully you can make more impact on Rudd – for his second term at least.

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[…] entry recently received a run in the popular press care of Ross Gittin’s article in the Sydney […]

zeeclor
13 years ago

This entry recently received a run in the popular press care of Ross Gittin’s article in the Sydney Morning Herald last month. Its title perhaps suggested to Ross that Nick should be given a seat at 2020. Sounds like a good idea to me.

My own interest is in Health Informatics and open source software. Having followed government IT policy and procurement for fifteen years, I concur with Michael Duffy’s views. Failed IT projects abound in both business and government but the larger the organisation, the more likely its IT project is to fail. Examples of this can be found in all countries but in health Britain’s National Programme for IT (NPfIT) is the the biggest and best (?worst) example.

Australian primary health care software market is dominated by a handful of players with the market leader reportedly holding 85%. Their software is proprietary and closed, as is their competitors, thus ruling off any possibility of others adding improvements or other features. In essence the future of primary care health informatics is determined by only three people who are already over committed to simply running their companies and updating their core products.

Defining a structure for health information has been an ongoing project for 15 years for researchers around the world. It is unlikely that a workable format will be released any time soon. One hope is that Google will release their structure for their consumer “held” health record which is now in beta development. A health record in a movable format that could be run on an open source system opens up the possibility for private companies and academic units around the country to improve our health system at a fraction of the cost medical software development now takes.

I don’t know if any of this will get a run at 2020 but as my colleague Tony Lembke notes, “if you keep doing what you’re doing, you keep getting what you’re getting”.

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[…] That having been said there are many areas of potential micro-economic reform that have barely been spoken about.  To give just one example, our legal system is a ramshackle mess requiring people to bet their life savings on resolving disputes, many of which could be solved much more fairly, quickly and cheaply by a better designed system.  That would have huge benefits for many other areas of economic activity where a range of rigidities exist simply because the legal system is so dysfunctional.  Anyway I’ve set out some possible areas in the attached piece I did for Crikey a while back. […]