Terry Moran: how economists captured the policy process

By Terry Moran

October 2, 2014

The traditional ideas about public service power — of the sort espoused by Sir Humphrey Appleby — was that it was related to the number of staff that you had and the size of your budget.

But over the last thirty years in Australia, public sector employment — the sum of all three levels of government — has declined in aggregate from 25% to 16% of the total Australian workforce. And the share of GDP for all public sector purposes at all levels is very modest when you compare it to virtually every other OECD country.

The story of this change is poorly told — but at its heart is the consistent and sometimes strident advocacy of economic reform by economists in government and elsewhere.

The impacts of most of the changes on our society and our national interest have arguably never been fully assessed or evaluated. The best we have done is to confine assessment to what economics itself makes possible — economic growth, better markets and pricing of goods and services.

There are many reasons why evaluation of broad reform is an orphan. Apart from economists, ministers also add to accretion of reform when they translate aspiration into policy decision and forget the prior step of policy analysis and planning. Sadly, whim and fancy at the ministerial level is all too common in recent times.

To open up the works of ministers to evaluation is to threaten them with a demonstration of the emperor having no clothes. Economists therefore get off lightly.

While political scientists have given us an acute understanding of the institutions of government and how they operate — and the lives of people in those institutions and what they do — we still don’t have a good understanding of what weighs on the minds of ministers when they go down the policy track of whim and fancy. And the consequences for Australia from decisions made while plodding down that track.

There is a second dimension of benign neglect — we have been weak at assessing who wins and loses out of reform proposals and, behind this, which interests have pressed for a given reform and how well have they been rewarded. The minerals tax is Exhibit A here.

Thus, I contend that political science/public administration and public policy is missing a remarkable opportunity. To examine the quality of policy decisions and the consequences for who wins and who loses is the single most important contribution to contemporary Australia the “study of power and its uses” disciplines could make.

This particular contribution could break through the primacy in public policy achieved in Australia by economists in the last 30 years. It might also be the hammer to break open the tough shell of community incomprehension surrounding our political system and thus help reduce the endemic community distrust of politicians.

There’s a paradox in government. The most respected and trusted occupations and professions work in it. The most trusted institutions are part of it. Politicians, though, who lead the system of government, aren’t part of the trusted occupations.

Indeed, the most trusted people are on the front line and part of the more than 95% of public sector workers engaged in service delivery, program management and regulation. Economists have advocated the privatisation, outsourcing and dismemberment of many of the organisations in which they work.

“The preoccupations of researchers have been framed within the economic paradigm and dominated by prevailing Commonwealth policy orthodoxy.”

There have been very few studies to examine alternatives to the preoccupations of economists and inadequate evaluation of their consequences. For example, the alternative strategy of system improvement and development of managers with the skills to lead innovation has been neglected and under resourced.

The preoccupations of researchers have been framed within the economic paradigm and dominated by prevailing Commonwealth policy orthodoxy.

For example, as the federal government wrestles with the consequences of having created an exaggerated urgency about the need for fiscal consolidation, it has resorted in the health domain to using co-payments as a way of limiting demand for primary care services. But there’s an entire alternative universe of policy solutions that could be better used and that would involve the Commonwealth addressing the systemic deficiencies of its own administration of the primary care system, as well as aged care, mental health and disability services.

It is these failings which are making a dramatic contribution to the escalation of costs of public hospitals and thus to the general increase in health costs — beyond extra services required by population growth or ageing.

This is classic example of the perils in pursuing a narrow economic focus over more strategic policy analysis.

For all their faults, Australia’s states do at least think of the healthcare system as a network. In contrast, the Commonwealth still does not see primary healthcare as a system — it sees it as an aggregation of fee-for-service traders in healthcare. It is therefore totally unco-ordinated at the local level and the price we all pay for that dysfunction emerges as cost drivers in the hospital system.

A new narrative is needed which should be part of the role of economists and political scientists. But the responsibility for that narrative and the linked analysis should also go beyond the ramparts of state and Commonwealth departments of Treasury.

I think we should look to the next generation of Australia’s researchers in public administration, political science and public policy to make that analysis and tell that story.

It is a story worth telling because it is a story of how Australia can continue to be a place that creates more opportunities for more citizens and achieves much greater national success than markets, pricing and competition alone will provide.

And these other dimensions, expressed through our civic and political cultures, help us avoid the sort of polarisation and inequality that is a feature of too many countries.

This is an edited transcript of a speech delivered by Terry Moran at the launch of Patrick Weller’s new book The Craft Of Governing in Sydney on September 30.

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7 years ago

To little avail, Michael Pusey warned us about this, 20 years ago.

Or, read Haring & Douglas, Economists and the Powerful. The title says it all.

Vin Martin
Vin Martin
7 years ago

Have economists acted alone and in so doing
had too much influence on the size of the public sector? Terry notes that ‘over the last thirty years in Australia, public sector
employment — the sum of all three levels of government — has declined in
aggregate from 25% to 16% of the total Australian workforce’. But is the labour
force the right comparator?

Between August 1984 and August 2014,
the Australian participation rate rose from 59.9% to 64.7%. Now one would
expect that most Government services would be skewed in delivery towards those
not in the labour force and their percentage fell from 40.1% to 35.3%. Moreover,
the population aged 0 to 14 years, key recipients of health and education
services, fell from 24% to 19% of the total population over a comparable period.
So isn’t at least half the narrative of government employment over the past 30
years related to sensible scaling of the public sector to community needs?

And what of more recent times? As a
percentage of the labour force, public sector employment stood at 15.7% in
2012-13 just down on 15.8% in 2007-08. In that five-year period public sector
employment grew by 140,000 or 8 per cent. Interestingly, employment growth of 4.8%
in Commonwealth government compares to 8.0% in State government and 12.1% in
local government. The narrative at work in this comparison isn’t immediately
obvious and maybe one for both economists and political scientists to ponder.

David Briggs
David Briggs
7 years ago

I don’t accept the proposition that economists have such a narrow frame of reference as your article suggests. Economics is first and foremost an analytical framework that is supported by propositions regarding human behaviour with market environments, such as we operate within. The data that economists rely on to populate their models can be drawn from a variety of sources. Engineers, agricultural scientists, the medical profession, even social scientist. Although economists may lead the development Of the models, they won’t have much to say without the support of other disciplines.

Perhaps economists do have a comparative advantage in framing policy options because they better understand key concepts such as opportunity cost, marginal analysis, the role of externalities and other market failures in providing an argument for intervention… And at the same time guiding the nature of intervention. It is therefore natural that public policy would be informed by economics… After all much of public policy is about determining the boundaries and the preferred firm of government intervention.. The stuff of economics.

I am at a loss to therefore understand your core proposition. In fact I would argue the fault in public policy lies elsewhere. Rather than too little economics, there has not been enough GOOD economics. That is economics that has been allowed to properly explore the nature of the policy problem, establish the facts informed by the relevant scientific data and analysis and for the policy recommendation to be framed as options to redress market failure where market solutions cannot be identified in the short to medium term… No whim and fancy here.

The problems you identified cannot be laid at the feet of economists. I believe recent history shows that tge public sector including public sector economists have struggled to be heard above the political opportunists in government, and vocal groups that have been given too much oxygen… The resource rent tax failure is an example of sound economic policy totally hijacked. Perhaps the economics profession, including those within government should have argued more forcefully for a meaningful rent tax than the neutered scheme agreed with the mining sector.

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