The big data, big benefits and big savings in digital

By Angus Taylor

Thursday April 21, 2016

Angus cover 4In October 2013 the Obama regime launched the centrepiece of its new healthcare program. The website, healthcare.gov, had cost hundreds of millions of dollars to build and was heralded as a hub that would offer seamless access to health insurance. Immediately after launch, however, the site started crashing. Users found themselves waiting so long that the site was essentially unusable and quickly became the butt of television talk show jokes.

“When you type in your age, it’s not clear if they want the age you are right now, or the age you’ll be when you finally log in,” mocked Jay Leno. President Barack Obama had no choice but to take it on the chin. “There’s no sugar-coating: the website has been too slow,” he said, “and I think it’s fair to say that nobody’s more frustrated by that than I am.”

Much has been written on the causes of the crashes, but central to the problem was the need to screen individual users according to their eligibility for healthcare subsidies so they would only see personalised prices. It meant verifying the identity of the user by linking to a range of different government databases. The ability to break down silos across government and provide an integrated customised picture for consumers or citizens is one of the key challenges to digitising government services, but it had failed its first serious test.

The failure was a political and public relations disaster for the Obama administration which had worked hard to build support for its controversial healthcare scheme. The signing of the Patient Protection and Affordable Care Act was the culmination of many years of negotiation with myriad interest groups, Congress and the Senate. The launch of healthcare.gov was to have been a symbol demonstrating that the scheme was up and running. Some of America’s top government officials had been deployed to work on the project and little expense had been spared in commissioning respected IT experts. So what had gone wrong and who was responsible?

An investigation by the Government Accountability Office attributed the blame almost entirely to the administration. Bureaucrats had failed to give contractors a coherent plan and forced them to work within compressed time frames. Bureaucrats kept changing the contractors’ marching orders creating confusion and adding tens of millions of dollars to the cost. Oversight procedures had been poor and lines of responsibility blurred. Even before the disastrous launch, an expert complained “the political people in the administration do not understand how far behind they are”.

The consequences of the crash echoed around the world. Digital failure had led to a political and policy disaster. The digitisation of services was regarded as the key to running an effective, modern government. The high-stakes failure of healthcare.gov cast serious doubt on the ability of governments to make progress.

The embrace of digital technology by the private sector has changed much of our lives for the better, increasing choice, speed, productivity and consumer satisfaction. By comparison governments appear clunky and unresponsive. It is little wonder that voters throughout the developed world are increasingly cynical about government. Expectations are high, but delivery is low and containment of spending growth seems like a pipe dream. Citizens are disengaged, cynical and fickle.

We shouldn’t be surprised. The private sector has spoilt consumers for choice, innovation, and downward pressure on prices. Apple has reshaped communications and music, Facebook social interactions, Ikea furniture and Aldi retail, just to name a few. In almost every category of goods and services we get far better value than only a few years ago. Customers have become brutal and ruthless in choosing products and services at the prices they want. They share information on their experiences and they learn quickly from each other.

Not so for public services. Choice is limited, costs blow out and the customer isn’t in charge. Politicians who promise more with less are treated with scepticism and understandably so. Citizens are conditioned to governments failing to deliver and spending more money in a vain attempt to fix the problem. If you want more from government, you need more money allocated to your cause. Innovation is rarely in the mix.

Public service innovation and productivity goes missing

In economic terms, the fundamental problem is a lack of productivity improvement in the provision of public services. Whether it is health, education, employment services or transport infrastructure — governments simply haven’t put enough emphasis on rapid improvement in the quality and cost of public services. These challenges will only get tougher. Rapid ageing of the population will put enormous pressure on budgets, as older populations work less and require more spending on health, welfare and aged care.

Meanwhile, pressure from unions and other vested interests is stymying labour productivity gains. Governments have given in to demands to fix or increase staffing ratios, such as the number of teachers per student and have ignored research or innovations that point in the opposite direction. So bad is the situation that even conservative policy leaders, who previously focused on lower taxes and spending, have started talking about higher taxes and spending.

Australian labour productivity 2001-2010 (Source: Oxford Economics/Haver Analytics)
Australian labour productivity 2001-2010 (Source: Oxford Economics/Haver Analytics)

In the seminal book, The Rise and Decline of Nations, Mancur Olsen observed that vested interests block structural change, threatening the very foundations on which successful civilisations are built. Increasingly, western democracies are struggling to get beyond vested interests to mainstream interests, to deliver innovation and productivity gains in the provision of public services. The left thinks that business interests are getting undue control of the political process. The right thinks unions, NGOs and left-wing activists look to create jobs for themselves on the back of “do-gooder” environmental, social and political objectives. Neither side argues with any conviction that mainstream interests are well represented.

Historically, a number of economists have argued that services don’t lend themselves to productivity gains, calling this problem Baumol’s cost disease. A study of the American performing arts sector in the 1960s by William J. Baumol and William G. Bowen had argued that it took the same number of musicians to play a Beethoven string quartet today as it did in the 19th century. Yet the study ignored the many other productivity gains that innovation offers. We can now listen to an orchestra on our iPhones at any time of the day or night with no musicians present, a breakthrough that like the gramophone before it, offers a substantial reduction in the ratio between the number of musicians and the size of the audience.

Even the left-wing economist JK Galbraith highlighted the relative failure of delivery on public versus private services, contrasting “private affluence” with “public squalor”:

“We worry about our schools. We worry about our public recreational facilities. We worry about our law enforcement and our public housing. All of the things that bear upon our standard of living are in the public sector. We don’t worry about the supply of automobiles. We don’t even worry about the supply of foods. Things that come from the private sector are in abundant supply; things that depend on the public sector are widely a problem.”

Galbraith wrongly claimed that the problem was insufficient spending on public goods relative to private investment. In fact the failure of the public sector to spend money efficiently and effectively is the bigger culprit.

Not only is the public sector failing to recognise the growing power of consumers, it is failing to recognise the growing power of citizenship. Citizenship was once characterised by a strong sense of duty and high levels of participation in volunteer organisations. There is reason to believe that many citizens are as enthusiastic about participation as they ever were, but the opportunity costs for busy two income families with large mortgages are high. As we shall see, simple, quick ways to participate in local communities are welcomed by many citizens.

Australia’s starting point in delivering public service is not hopeless. In some areas, Australia is already a world leader. Our health system fares reasonably well, and until recently our education performed well too. We have a tax and welfare system that is progressive and well targeted compared to others. The problem is more about the future than the past. In recent years, the dials have all started moving in the wrong direction and change is desperately needed.

So what’s the answer?

The rapid evolution of information technologies offers the potential to give power back to customers and citizens and away from inflexible governments and their chosen providers. We have already seen this happening in the private sector; the public sector now needs to play catch up. Customers of our public schools, health system and welfare system — even “customers’ of our taxation system — can be empowered like never before through web technologies. This will challenge vested interests and providers to focus more on customers and less on themselves.

There is, unfortunately, increasing cynicism about the ability of the political class to drive reforms to solve this problem. Political parties are fragmenting in many countries as small parties gain momentum, and media polarisation is rewarding populism on both the left and right. Legislative deadlock is endemic. The interests and views of mainstream voters are not cutting through.

All of this at a time when technology offers to radically transform delivery of public services — education, health, welfare, justice, infrastructure, national security and tax collection. At no time in the history of government have we been in a better position to deliver improved services in all of these areas, and technology is at the heart of the opportunity.

The promise of digital government

Two very simple ideas are central to this monograph.

First, technology offers the potential for substantially reduced costs alongside improved and better targeted government services. Disruption in the delivery of an increasingly complex array of government services is now possible in ways that were never previously anticipated. In defence, health, education, policing or food labelling, every aspect of government needs to be re-examined with an eye to what can and should be done differently to reduce costs and improve services.

Second, empowered consumers and citizens can drive reform in ways that traditional political processes can’t, particularly as we increase competition and contestability in the provision of services like aged care and disability. If public sector unions want to block innovations that voters understand and want, voters can apply political pressure. When vested interests get in the way of sensible reforms, transparency will help to shed light on their undue influence. Not only can we disrupt traditional lacklustre public service delivery, but we can redefine regulation and how citizens and customers regulate services for themselves.

“A great deal of work has been done in this area in recent years, but the results are still limited.”

These two powerful ideas put the citizen or the customer back at the centre of the work of the modern state, in line with fundamental liberal and conservative principles. Government has become a self-serving beast, and digital technology offers the potential to tame government and refocus it for the benefit of all. Many conservatives and traditional small government liberals have given up on the idea of smaller more effective government which empowers citizens to realise their own aspirations. Efficient government sharply focused on customers and citizens can make a major contribution to reasserting this possibility.

A great deal of work has been done in this area in recent years, but the results are still limited. At the federal level, the Government 2.0 initiative, AGIMO, the Digital Transformation Office and GovHack have all focused on dealing with aspects of this problem. Similar initiatives can be found within state governments.

That past work doesn’t need to be replicated, but we desperately need a clearer, more strategic and more focused picture of what is possible, and how we get there. This monograph doesn’t set out to provide a detailed blueprint of everything that has to be done to achieve digital nirvana. In fact, much is not knowable. We do need a strategic focus on how we can infuse digital thinking into our most important reforms in every part of government and beyond. We need to see more clearly the potential to deliver more with less, at a time when reform seems beyond reach.

This work is focused on the potential of digital government across all levels of Australian government. We can only realise digital technology’s full potential if it reaches all tiers of government, and all areas of government. However, the primary focus is on the federal government given its dominant role in modern Australia.

Digital technology offers the promise of containing growth in spending, vastly improved services and genuine reform. It is time for Australian governments to step up and embrace this extraordinary opportunity.

*This extract is the first chapter in Angus Taylor’s new monograph The Promise Of Digital Government: Transforming Public Services, Regulation and Citizenship, published by Connor Court by the Menzies Research Centre, edited by and with a forward from Nick Cater

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