How governments made economic medicine less potent, more insipid

Sep 8, 2020

I expect the premiers will suffer little political pain if recovery doesn’t happen, is patchy or too slow. It will be Morrison and Frydenberg who are blamed.

The states and territories will share much of the glory of coming out of the pandemic with a remarkably low strike rate, compared with similar countries overseas. Morrison and federal ministers also deserve a lot of credit, but some of that is being diminished by the logical extensions of the lockdown regime as new cases emerge.

Although state and territory governments have themselves, with Commonwealth encouragement and support established job creation and stimulus plans to revive their local economies, it is likely that state administrations will not bear the brunt of any blame for failure. This is because the economy has been treated largely as a national problem.

But there are other reasons for the Morrison government to dread its task. Recession statistics this week showed that many people used money pumped in through the welfare system to pay off debt, rather than on immediate consumer spending. Indeed, private saving is at record levels. This is not good news for recovery, because it reflects pessimism about a quick revival, and continuing insecurity about jobs and job security. This is the usual paradox. On the one hand it is prudent for people to save and seek to reduce their debt. On the other hand, a speedy revival demands that people spend, spend and spend, sopping up excess supplies, creating new types of demand, and stimulating businesses to invest and to put on staff. If new higher levels of private savings do not translate into new investment, the growth could be further curtailed. All the more so when this uninspired government is not itself investing, buying new things, or creating new jobs. A quarter of the economy—the public sector— is not geared for recovery.

In the government’s strategy, job subsidies and higher unemployment benefits would taper off as government money flowed instead to the private sector in job-creating activities. But experience has shown two particular challenges that threaten this concept.

First, contracting out to the private sector is now known to be less effective than when the services come through the public sector. The most obvious examples are in aged care, in disability care, and in community-based public health programs. In many cases, privatised services were unable to adapt quickly to changing demands. This is not necessarily to say that public sector performance was always exemplary: indeed what we have seen has shown how hollowed out the public service has become. But with health care, education and welfare services, the public sector has shown a better capacity to mobilise resources quickly, to adapt to change and to respond to direction. This does not mean that recovery requires a bloated public sector— least of all at the administrative and managerial level. But it has become quite clear that contracting out public functions— in effect taking old public service jobs into the private sector, or the non-profit sector— has reduced the quality and quantity of service available to people in need. It has also reduced choice, and led to a reduced level of innovation, professionalism and respect for human rights and dignity.

As importantly, the Morrison government, and perhaps Treasury and the public service generally, seem to lack the imagination or experience in quickly building up and managing labour market programs. The more so when we want actual outputs rather than pretend activity thus giving the community extra goods and services as well as income for those out of work. It is now 30 years since the early 1990s recession caused the Keating government to develop and implement job-creating schemes such as Working Nation. The public service which devised it had the experience of similar schemes from the early 1970s; while many people in state and local government had bottom-drawers full of wish lists of considered and costed projects able to be quickly put into action when there was an economic downturn.

The public servants who led this 30 years ago are now all retired. Their expertise and experience were not replaced, and, in effect, there is hardly anyone at Commonwealth level with the ready background to take charge of such projects. That is why so many urgent action programs— bushfire or natural disaster recovery, for example, end up being put in the charge of military or police personnel. This is not necessarily because their prior experience has qualified them as such so much as they have the sort of significant background in logistics and project management the public service has let go. There will be some who will claim that the deskilling and hollowing out reflected the discovery that the private sector was more efficient and cheaper than the traditional public service. That was a fervent conviction never much based on evidence: most areas made the subject of wholesale contracting out ended up as expensive and inefficient cash cows run for the benefit of close government cronies. Thus, for example, government legal services are these days far more expensive, but of lower quality, than before; the sale of government owned buildings and rental from the private sector was a financial disaster costing the Commonwealth billions in the longer term. The closure of bodies such as the Commonwealth Employment Service proved to be integral to the modern mindless theory that welfare for those categorised as undeserving should become progressively more mechanical, grinding, coercive, arbitrary and punitive.

Can Morrison and Frydenberg get the Commonwealth’s act together to the point where a majority of the population will grudgingly accept, 18 months from now, that they did a fairly good job? They have unlimited sums at their disposal: will they restore prosperity, security and happiness to the economy? Or will their personal limitations and lack of imagination— not least their mean-minded, spiteful and penchant for discretionary systems— cruel all the chances for Australia to emerge as a better, more connected, society? Perhaps that is why the alibis and the scapegoats are being prepared in advance.

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