This post began as a comment on Paul’s last comment on my “Mainstream Radical Centrists: Where are they?” column. Paul boiled down his response to this:
If you want to have a serious debate about reforms, go to countries that are hurting and that see the need for it. Like the UK. Though even there, I think that the City of London is far too powerful to let a mere 8-year lull in growth upset the banking apple-cart.
I kind of agree with what he’s said – that is I can see the sense in it – yet I think it’s one dimensional. I also think it’s part of the problem I was trying to address.
First, what’s true. Where rent-seeking is the main driver of some problem and where community suffering leads it to greater intolerance of this rent seeking and where there’s sufficient leadership in the governing class (which includes the media), then the suffering might turn up worthwhile reform, or at least, remove roadblocks to it. Occasionally nations rise to extraordinarily worthwhile departures from the norm when faced with sufficient difficulties.
But, but, but …
This idea is also a major staple of Very Serious Person talk. Indeed, it has been for a literally centuries. “What we need is a really good war. What ho?” Really big problems sometimes get a community to gird its loins and do something difficult which turns out also to be something good. But during such periods, the rhetoric of ‘no-pain-no-gain’ usually acquires a life of its own – enough to beget lots of “all-pain-no-gain” reform – why I can almost imagine that that’s what’s going on right now with austerity busting budgets in the major developed countries producing more austerity. Problems sometimes just beget more and often bigger problems. Look at the Middle East or South America. The last prolonged depression we had (the 1930s) didn’t produce a noticeable uptick in the quality of governance. Right now one of the major political parties in the most powerful country in the world has well and truly jumped the shark. It began with Ronald Reagan who came to power in a recession and got a new shot in the arm as George W. Bush addressed the adversity of 2001. Now a big downturn with slow growth for the bottom 80% of incomes is amping up the freak show.
Further, though the VSPs go on about reform – how we need more of it – many of the ‘reforms’ we’re after are things we often don’t know how to do. They’re becoming more and more refined. We’ve done most of the important stroke of a pen reform. We’ve been pretty poor in many areas where ‘reform’ requires rebuilding institutions. While HECS, the Child Support Agency and some other areas (AIDS strategy) we were world leaders (and were stroke of the pen kind of reform in their own way – policies that could be dreamt up at head office and then implemented via legislation and computer programs), ‘reform’ has produced all sorts of snafus. Not just the occasional monumental ones like VET FEE-HELP, but some seriously bad ones that are large and go on and on – like PPPs and electricity reform for instance.
Tough times can sometimes reset the switch against rent seeking, but rent seeking is used too much as a cover all explanation for bad policy. VET FEE-HELP didn’t come about because of the heroic lobbying efforts of private education providers (though no doubt they provided some important resources and energy). It came about because of credulous, ideological policy making. Ditto electricity ‘reform’ though I’d agree that with PPPs rent seeking is a major part of the story. In each case the normal ‘antibodies’ of the system were slow to react because the gatekeepers of the orthodoxy of reform liked the look of such policies – after all, they were more ‘market friendly’ weren’t they?
Momentum: success begets success
I do know that there are times when, to paraphrase Heckman on social capital, success begets success. As we succeed it generates a social and economic dividend that is available to be reinvested and success also establishes a new culture – of not just making ‘tough’ decisions in the normal sense of that term but in also forging new frontiers of reform.
I last saw this in the last ten years of the ‘reform period’ – 1983-2001. I certainly remember working in the Keating Government in the early 1990s, that reform was just what governments did. Dream up and do reform, manage the politics, enjoy the self-importance and the VIP flights. That was pretty much it. When Howard got in, he looked like he didn’t know what he was doing and, in fact, panicked himself (on my reading) into the GST. It was gruelling politics but, at least, established him, after his lucky escape from the electoral consequences of reform roulette, as a ‘doer’. Then Howard’s dark side became more and more integral to his political success (even though I am at least as sympathetic to his side of the ‘culture wars’ as to his opponents) and the country has never recovered.
Reform requires finesse
Further, the ‘reforms’ we need to master are typically in areas that require a new kind of finesse as Conrad suggests in one of his comments on my last post. And going through a prolonged recession isn’t a particularly good preparation for such reform. Because that kind of reform must be built through the gradual development of skills and institutions. Look at the countries that are emerging – at least according to PISA as having the best education. Finland, Singapore, Shanghai, Canada? Did this come about through prolonged depression?
And I think it’s these kinds of reforms that are increasingly more important. As I argued in a Fin Review column a while back:
Economists have identified a “middle-income trap” into which many countries have fallen like most in South America. Industrialisation gives them the institutional ‘arteries’ of a functioning modern political economy, but not the ‘capillaries’ if you will – traditions of social trust, peaceable dispute resolution, property rights, competent, non-partisan officials and strong anti-corruption institutions. Perhaps we’re in our own trap in which we can’t escape the mental world of the glory days of 1980s reform.
In some cases, we have only glimmerings of the answers to some of the questions posed above. But that’s what finding one’s way to the future is always like. And building on those glimmerings is our only way to build on our proud legacy as a standard bearer for neoliberal reform – by moving beyond it. [With apologies to Hegel!]
The high road and the low road: discovering and building a place for the better angels of our nature
One pattern I think is discernible from history is that often, at least looking back, we might characterise progress as moving from a low – low trust, low morale, low cooperation – state to a higher state. The most compelling example is Adam Smith’s idea that slavery looks like the cheapest form of labour but is, in fact, the most expensive (because the slave has no interest in his or her own productivity).
Professional services likewise are best delivered in a high trust state because there are so many opportunities for asymmetric information to degrade efficacy if the professionals don’t buy into the mission – and low trust cultures encourage gaming and crowd out intrinsic motivation. (This goes some way to explaining how, beyond some point, larger medical and financial sectors tend not only not to improve financial or physical health but may actually harm them).
Recent discoveries in the same vein as Adam Smith’s discovery that slavery wasn’t even good for the slaveholders – the Toyota production system and peer production – introduced a new high trust state into more menial tasks to the great benefit of all – and the glory of God (in the hope – admittedly increasingly tenuous – that he exists).
And surely there are more discoveries to be made: More filling in of the ‘how’ when we’ve got some inklings of what we need to do. I think the methodologies we’re pursuing at The Australian Centre for Social Innovation (TACSI) offer such hope. And they too are built around the idea that there’s a high road. Of course, the ‘high road’ can be narrow. And we’re often put off the scent by moralising.
Of course, the ‘high road’ can be narrow. And we’re often put off the scent by moralising. Left-leaning moralising sentimentalises the whole issue. It keeps pointing to the unfairness of the system towards the poor and the powerless. And, true enough, the system is unfair. But simply pointing to unfairness and to inefficiencies therefrom can substitute self-righteous impatience for actually making things better. Systems that appeal to the better angels of our nature are a marvel when they come off. But who’s to say that just because an existing system has problems that there’s a better one.
But right-leaning rhetoric – in which I include the ‘no-pain-no-gain’ malarky – puts us off the scent more comprehensively – because it is predicated upon there being no such ‘high road’, or at least to the idea that that high road can be reached using the usual adversarial tactics. And if there is a high road (an important caveat) it’s unlikely to be found using the normal adversarial method. That’s not how Toyota developed its production system or Linus Torvalds or Jimmy Wales got their production revolutions going. It’s not how TACSI built Family by Family.
To illustrate these things by an example, I’m sure the government funded system of job-placement is too oriented for its own or anyone else’s sake around penalties for job seekers not meeting their obligations to search for jobs. But that doesn’t get us far in designing a scheme that appeals to the better angels of job-seekers’ natures which, I expect, at least until we sign on to guaranteed minimum incomes, will always contain sanctions for not complying with a requirement that unemployment benefits are only received by those actively seeking work.
Postscript: The interview below was intended to be a riff on this post, but I started talking about what I called in this column, the ‘high income trap’ and a fair bit of the interview developed that idea – which is OK.