Reforms need consultation and cabinet rigour, not budget secrecy

By Catherine Livingstone

April 29, 2015

It is time we decouple the process of major policy change from the federal Budget process, and addressed it through the rigour of cabinet analysis and debate, together with community consultation.

This is in no way intended to diminish the urgent need for the growth in expenditure to be reined in, but policy reform, tackled only through the lens of the budget process, is failing the community.

The Intergenerational Report tells us we need a new plan for the country, not just a process to improve our fiscal position. Unfortunately, while the IGR presented us with the challenges of expenditure, it did not confront the context for change — the extraordinary disruption that is now upon us.

As a soon-to-be-released publication from McKinsey states, this is no ordinary disruption. We have reached the point where a confluence of trends, digital disruption, shifts in the locus of economic power, globalisation and demographic change — each of which on their own would rank among the strongest economic forces the global economy has ever seen, are casting our world into a completely different reality.

At the heart of this disruption is mass connectivity. This connectivity has enabled human generated data, and now machine generated data, to flood through our global networks of fibre and copper. Combined with orders of magnitude increases in computing power, what and who is possible to know is almost limitless, and in real time.

So, why is connectivity so disruptive? Because innovation happens most powerfully at the interface. The more interfaces, the greater the potential for innovation; and the more connectivity the more interfaces. These interfaces can be human to human, human to machine, and now even machine to machine.

It is changing the nature of work and work places, and the shape of cities and urban environments. It is also opening up new possibilities and new frontiers of discovery.

My contention is that, given the disruption of a hyper-connected world, many of our policy settings are simply not fit for purpose. They have exceeded their design tolerance limits.

The Three P’s

If we are to adapt to these disruptive forces, we must do more than rely on the simplistic exhortations to focus on productivity, participation and population as the route to growth. The fact is that these are lag indicators and are not policy amenable in their own right.

Productivity, in this age of disruption, is achieved through innovation. Innovation requires the mobilisation of an entire ecosystem: the building of knowledge infrastructure, a skilled work force, creative workplaces, business models built around the customer and competition, engagement in global supply chains, a culture of experimentation and entrepreneurship, contestability of government services, and government acting as a demanding customer in its procurement activities.

It is time for government, the union movement and business to come to a meeting of the minds as to what improving productivity actually requires. Use the word, and it is incumbent on people to engage in the complexity and the detail of what it entails.

We talk endlessly about participation, but a precondition for participation is that the underlying jobs are there. While we are debating the minimum wage and penalty rates, jobs are moving to Airtasker or being replaced by machines.

If 47% of total US employment is at risk of being automated using artificial intelligence, we need to move urgently from a discussion about protecting the jobs of today, to creating the jobs of the future. Precision welders and robotics mechanics will be more useful in the growing advanced manufacturing sector than yet more law graduates for whom there are no jobs.

There is no more disturbing evidence of the potential dislocating effects of the disruptive forces than the fact that we now sit with around 400,000 young people neither in work nor full time study. This would suggest that it’s not a participation problem, but a jobs and skills match problem we have on our hands.

Australia’s population has grown the fastest among major OECD economies. It has grown by almost 25% since 2000, and its composition has changed dramatically. The population policy imperative underpinning growth can’t be confined to the level of population and migration quota settings. It must include the planning and prioritization of infrastructure, the design and liveability of our cities and regions, the affordability of our housing, and the preservation of our environment.

If these aspects are not integral to a discussion of population policy, an increasing population may result in a net cost and hence drag on growth.

The three Ps probably lend themselves to a speech in their own right, but they are an example of how our lack of nuance, lack of sophistication, lack of granularity and lack of context in policy design, are letting us down.

Health, education and retirement income

These three public policy areas exemplify the degree of change required, and addressing them will have a catalytic effect on our capacity to respond to the forces of disruption. If we manage these properly, with the required degree of policy granularity and design sophistication, our productivity, the contribution of population growth and our capacity to increase participation will dramatically improve.

It will take a decade of transition but it will mean that we will be designing policies that are fit for purpose for 2025 and beyond. Happily, they also represent 43% of total Commonwealth and state government expenditure. So getting them right will be the best way of securing a better fiscal position.

What we always tend to do is begin with a solution, like a price signal, or a fee change, or an eligibility change, and it’s the wrong place to start. We have to start by asking ourselves “what is the problem we are trying to solve, what outcomes are we seeking and what do we want to move from and to?”

If we do not adopt this architecture in our approach to the big policy issues, we will continue to have the community reject what they perceive to be disconnected and short sighted interventions.

In health, we need to change the mindset from one of fixing people when they are sick, to enabling them to stay healthy for as long as possible. Put bluntly, the focus needs to shift from the second 50 years of life, to the first 50 years; that is, preventing the things that are preventable and preserving constrained resources for those which are not.

For example, the emerging research into the microbiome — that 1.5 kilograms of flora (bugs) which reside predominantly in our gut — suggests that the first 1000 days of life are even more determinant than we realised in terms of genetic expression, a robust immune system, and lifetime avoidance of conditions such as arthritis and obesity. These huge advances in science will allow us to predict and prevent conditions, and can be applied in conjunction with technologies which empower consumers to take control of their health care from a very early age.

This means we need to move the system from a transactional fee for service model to a fee for outcome model that offers providers the incentives to keep people well as part of a more shared responsibility model for health. We must shift our philosophy from a provider and institution driven system, to a person or customer driven system.

As NIB’s Mark Fitzgibbon says, this will facilitate an explicit conversation, as a community, of what we are prepared to ‘trade off’ to accommodate increased spending on health. A customer driven system would also move us from an institutionalised setting for dying, to a more dignified end of life.

Why is it that 70% of people in Australia want to die at home but only 14% have this wish fulfilled?

We must move away from the notion that work is something we begin after a long period of study, to one where work is integrated with learning.

Here, the philosophical shift is to move from a system which has a rigid discontinuity between education and work, to one which is more of a continuum, enabling simultaneous engagement in education and work for all from Year 11.

The discontinuity between education and work was perhaps relevant when, for most, formal education ended at age 15, only 10% of students went on to university and degrees were three years in duration. It is not helpful now, with over 30% of students at university and degrees of four and five years.

Given that the late teens and early twenties is a period of very high innovative thinking capacity, not to have those young people participating in the workplace in some way is a waste of intellectual capital and a loss of productive capacity.

Coupled with this philosophical shift would be a more explicit recognition of the stock of skills intrinsic to employability. Given that an estimated 75% of the fastest growing occupations, including those in the creative industries and humanities, will require STEM related skills and knowledge, the imperative for introducing these foundational skills into the primary and pre-primary curricula should be unassailable. That includes computer coding, computational thinking, problem solving and design thinking.

Retirement has moved from being seen as the brief interregnum between finishing work and dying, usually a period of around five years given life expectancy at the time; then to a reward for a lifetime of hard work; to a point where now it is often planned as an entitlement to an extended phase of life marked by a focus on leisure, and underwritten by access to the aged pension.

Through entrenching the concept of retirement we have again created an artificial discontinuity, this time between work and the mature phase of life, and have compounded the problem by extending what was designed as a financial safety net, to a broader entitlement.

If we think the only task is scrimping and saving on eligibility and concessions, versus harnessing the potential and the very real wish people have to continue to contribute, we will have missed the point.

The role of government would be to provide an adequate safety net, but more importantly to assist people to become, and stay, independent by fully participating in the economy.

Leadership, not politics

The role of elected representatives is to provide leadership, not to be re-elected. It must be leadership characterised, not by positional power and, as Jennifer Hewitt notes “a preoccupation with the political present, but by strong personal values, consistency, respect and transparency.”

Instead of dealing in hollow assertions of certainty, this leadership must admit to doubt, while providing hope.

It is the role of political leaders to engage with the community, and to mobilise the aspirations we all have for ourselves, our children and our grandchildren.

These leaders must lead the conversation on why we need to adapt through a new social contract, and they must frame the transition path over the next decade. The community is absolutely ready for this conversation.

Research undertaken by the Business Council has revealed that the community knows we have had a privileged position, and 83% understand that the worsening situation will affect them. They want to know that the risks can be managed. The researchers noted that this level of concern is unprecedented in over 30 years of polling in Australia.

This loss of reputation and trust in our governance model has profound implications for our democracy. We are already experiencing the first order effects: one term governments, minority governments, poll to poll decision making, disruptive policy reversals, with newly elected governments claiming as ostensible mandates what is actually an expression of underlying frustration and cynicism.

Social media is amplifying the disconnect between the community’s expectations of leadership and the observed behaviour. So before we talk about new philosophical bases for major policy areas, and the negotiation of a new social contract, it is clear that confidence must be restored in the governance model for the country.

From the government of the day, there needs to be evidence of respect for process, particularly the cabinet process and of the rigorous review of, and community consultation over, policy changes, and then action within appropriate timeframes.

Ironically greater transparency reduces electoral vulnerability, and confidence in competence is a major driver of the national vote.

Leadership has to define the path between current reality and future aspiration, one that requires working through these core policy areas, approaching them from a different philosophical starting point and setting them on 10-year path. Because that’s how long it will take to make them fit for purpose to preserve our well being as a nation.

This is an extract from an address by Catherine Livingstone to the National Press Club on Wednesday, April 29.

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