IAN McAULEY. Reclaiming the ideas of economics: Leadership

In dealing with economic problems requiring adaptive change we shouldn’t look to so-called “leaders”. We need leadership.  There is a profound difference.

Australia’s weak economic structure

Australia’s economy is underperforming.

Productivity is declining, wage growth is feeble, underemployment is high and rising, households are carrying huge burdens of debt, businesses are not investing.

These are not just passing cyclical phenomena to be rectified with a few tweaks to tax rates, incentives and subsidies. Nor will the cosmetic priority of a balanced budget do anything to bring the economy out of its doldrums.

These problems are symptoms of structural weaknesses, and without attention to these weaknesses our future prosperity is far from assured.

It is possible to identify at least six weaknesses in our economic structure.

  1. In spite of our natural endowments in wind and sun and early lead in renewable energy, and in spite of our rank as one of the world’s worst per capita contributors to greenhouse gases, we are not doing our part in averting destructive global warming and are years behind in re-structuring our energy sector.
  2. Our education standards are slipping, not only in comparison with other countries but also in absolute terms. We are wasting our human capital.
  3. Our export base is narrow, dominated by fossil fuels and iron ore exported to a small number of high-growth countries, de-stabilising our currency and aggravating our vulnerability to world economic cycles and changing policies on global warming.
  4. The benefits of economic growth have not been shared fairly. They have disproportionately accrued to rent-seekers, property speculators and financial intermediaries, rather than to those contributing through hard work and entrepreneurship to the real economy.
  5. In spite of our geographic vulnerability, we have been slow to adapt our food production and our settlement to a changing climate.
  6. Without population growth Australia would be in a deep recession, but we are not providing the infrastructure to cope with that growth. Our cities, once ranked as the world’s most liveable, are showing symptoms of urban dysfunction – congestion, unaffordable housing and social segregation.

I make no claim for this list to be comprehensive, but it is sufficient to illustrate a set of problems that call for adaptive change, to use the framework developed by Ron Heifetz of the Center for Public Leadership at Harvard’s Kennedy School.

Technical and adaptive problems

First, the distinction between technical and adaptive problems.

Governments, although discredited by right-wing detractors, are good at solving technical problems. Provided they are adequately funded and well-managed, governments do an excellent job keeping roads paved, controlling air traffic, protecting communities against petty crime and providing regulations and public goods to complement and support private markets.

In providing these services governments generally achieve what economists call “Pareto” solutions – “win-win” outcomes – where some or all benefit and no one suffers significant inconvenience. Perhaps a minor tax increase is involved, as with the National Disability Insurance Scheme, but if people can see the link between those taxes and government services they are generally satisfied.

But adaptive problems, such as those six listed above, present far more challenge. In a democracy they tend to go unaddressed, because they involve painful adjustment.

For example, if we are to deal with climate change in more than a tokenistic way, there are calls on all household budgets such as higher prices for electricity and gasoline (both significant in the budgets of those with low incomes), and for some, such as coal mining workers, there is loss of livelihood, loss of the dignity and recognition of work in a respected trade, and a loss of community in mining regions.

Similarly, if we are to lift our education standards in a world where competitiveness depends on the quality of our human capital, we cannot expect to go on with almost the lowest taxes of all prosperous countries. Education is expensive.

If we are to develop the industrial structure of a proper “developed” economy, rather than that of a resource-extraction one, we have to accept that the era of easy investment returns is over.

In Australia we have enjoyed 230 years of easy economic dividends in what economic historian Ian McLean calls a “settler economy” – an economy where returns have been made from appropriating land from its original owners, clearing trees, depleting stocks of water and soils, obtaining favours from government, finding and digging up minerals, and speculating on real-estate in fast-growing cities. As Donald Horne said in the 1960s while the postwar boom was in full flight “Australia is a lucky country, run mainly by second-rate people who share its luck”.

A half-century later that luck is running out, but the expectations of easy living live on.

We face the challenge of adaptive change, and adaptive change calls for leadership.

Adaptive leadership

A call for “leadership” generally results in a demand that those in authority – those we call “leaders” such as the prime minister – should shape up and do something, or, if we are dissatisfied with them, we hope other saviours will emerge.

Don’t look for a “leader”

But that’s a fundamental distraction, because as Heifetz stresses, leadership is not to be confused with the exercise of authority. To stay with Heifetz’s framework, adaptive leadership “is the practice of mobilizing people to tackle tough challenges and thrive”.  It’s about hard work – the work of leadership – and that work can be performed by anyone.

In fact in a democracy those occupying positions of political authority may face impediments thwarting them from exercising leadership, because even mentioning adaptive challenges, let alone suggesting ways to meet them, is fraught with real or perceived political danger. Consider the taboo Morrison imposed on use of the term “climate change”, and the frustrations Turnbull faced when he tried to raise the same issue when in office. Or consider the strident and immediate opposition to any hint of economic reform, such as road user charging, abolition of private health subsidies or deregulation of pharmacies.

Some may hope that events could galvanise a reluctant government into addressing our structural weaknesses. Won’t a bad PISA report on our failing education standards finally encourage the government to take education seriously?  Won’t severe bushfires force attention on climate change?

Unfortunately events don’t necessarily have that power, because as Heifetz points out, we are all adept at what he calls “work avoidance”. That is, pushing adaptive problems aside.  Governments have a huge armoury of work-avoidance mechanisms – holding an inquiry to report after the next election, shifting attention to another issue (terrorism is a proven winner), re-framing economic indicators in a favourable light, warning of the budgetary cost of any initiatives, raising the spectre of job losses, and falling back on bureaucratic variants of “she’ll be right mate” false assurances.

If we are looking to our present crop of political “leaders” for leadership, we are looking in the wrong place. Their authority, like all authority that attaches to an elected or appointed position, is conditional, and one of those conditions is that they maintain the equilibrium of the organisation. They don’t welcome disruption that’s likely to raise anxiety – the disruption of troublemakers who remind us of the need to deal with hard issues requiring adaptive change.

Some may point to the Hawke-Keating Government as a contradiction to this generalisation, because over their 13 years in office they achieved an unprecedented amount of structural reform, but they enjoyed a unique set of circumstances. They won office just after the country was hit with a severe recession. Hawke had been ACTU president, in which role he was a master in conflict resolution and negotiation, and was seen as someone from outside the establishment of elected government.

In the Hawke Government the task of removing tariff and related protection was achieved through the leadership of industry minister John Button, whose style was in line with Heifetz’s model: he acknowledged people’s possible loss and distress; he let others raise suggestions, never himself pushing a “solution” or “vision”; he paced the work, carefully steering a path between the destructive forces of complacency on one side and reform-blocking reaction on the other. Of course his reforms met with resistance, but Hawke (and later Keating) provided a heat shield to allow Button to get on with his hard work – the hard work of leadership. One of the tasks of the person in the top job is to provide a space for others to exercise leadership – Heifetz uses the example of President Johnston’s relationship with Martin Luther King.

The 2019 election campaign and the Coalition’s win illustrates how far we are now from the Heifetz-Hawke model of political leadership. Labor presented an impressive suite of solutions, but failed to acknowledge the pain of adjustment. The Coalition, using every known method of work avoidance, pushed hard issues off the agenda, and continues to do so in government, offering simple solutions to complex problems (carbon credits, a balanced budget, curbs on union power). Morrison presents himself as the “leader”, who will protect quiet Australians from the pain of economic adjustment.

But leadership is emerging from those who are unburdened with the constraints of executive authority or political expectations. Former senior politicians – Hewson, Keating, Turnbull – are raising hard issues to do with structural adjustment. Reserve Bank Governor Philip Lowe is stretching his mandate as far as it can go to talk about stresses on contemporary capitalism and the failure of traditional monetary policy. Independent politicians, free of the burden of party traditions and party structures, are raising hard issues—although they don’t always do eloquently. And way outside the formal structure of elected or appointed authority is a 17-year-old Swedish schoolgirl doing the hard work of “mobilizing people to tackle tough challenges and thrive”.

 

This is the fourteenth and last of a series of articles in Pearls and Irritations  on reclaiming the ideas of economics. Others have been:

General introduction (September 19)

Aspiration (September 26)

Jobs and Growth (October 3)

Society, economy and the environment (October 10)

Regulation and deregulation (October 17)

Taxes (October 24)

Globalisation (October 31)

Debt and deficits (November 7)

Wealth (November 14)

Competition (November 21)

Socialism (November 28)

Privatisation and prices (December 5)

Capitalism (December 12)

 

Ian McAuley  is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy development

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8 Responses to IAN McAULEY. Reclaiming the ideas of economics: Leadership

  1. Ian McAuley says:

    Thanks for these comments,

    Even if we set aside the failings of our present prime minister, I want to stress that in a democracy those with executive authority have only a small space within which they can move. They are always accountable to the electorate, and in our present situation they are accountable to their party room (one of the weaknesses of our “Westminster” conventions from which I hope we can unshackle ourselves, but that’s another story).

    The task of leadership is to get those with executive authority to act, or more correctly to react. Even a rational, liberal PM may be timid to act, say, on climate change: she or he will need de-facto permission to do something. (Think of Rudd’s timidness.) A recalcitrant and stubborn PM, lacking a moral framework, will need far more pressure.

    Mobilising resources to bring pressure on government is the task of leadership. Leadership is not the work of one person — the “leader”. That’s a vulnerable and dangerous model. Many can be involved.

    Those who have respect in the community and are not beholden to vested interests have a head start. The voice may be collective — as when churches and unions speak out. It may be a chorus, as when crowds mobilise on the street. Those who exercise leadership are often unsung — those with the capacity to mobilise others are probably not the people who want to jump up on a podium and say “I am your leader”: modesty is often the hallmark of leadership.

    And of course leadership may involve mobilising resources to bypass elective politics (as when communities and businesses decide to take an initiative on climate change), or to act through different systems of political authority (as when stats governments take it upon themselves to act on climate change).

    In view of the gravity of our present situation I suggest leadership is required on many fronts.

  2. Charles Lowe says:

    Ian – I, too, love your article (it offers some mellowing of my horror about Hawke/Keating’s neo-liberalism).

    But Ian, there’s no evidence that even if the contributors to this blog were to suggest relevant, realistic and resounding resolutions to ‘adaptive problems’, that this (or any other) Government would instigate them.

    Further – where’s the (narcissistic?) delight of attribution of (political) credit?

    My guess is that your ideal has a compulsory predicate: that “Leaders” need to be willing to engender this process.

    Presently, our Governmental “Leaders” are not. Nor would their Parties permit them to. Those “Leaders” indeed are instead compelled to play to their Parties’ neanderthal bases!

    Perhaps Albo might capitalise on your advocacy. A New Year’s Resolution in the making?

  3. John Doyle says:

    World wide Politics has evolved in conjunction with the neoliberal privatisation push. So competence in the relevant portfolio is not very important for them now. All they do is conjoin with privatisation forces to make the sector in question perform poorly usually by cutting funding and staffing so competence is compromised and arguments for privatisation fall on receptive ears. Once its done it soon enough shows the profit motive as a paramount decision, not the service itself.

    In reality Privatisation is the most expensive option for any sector. Profit is added to the cost mix and CEO salaries become big. They might decide on new premises and other changes at considerable upfront cost. All before they reduce staffing and slow down reaction time. Service retreats in the face of all this. This is a typical response.

  4. Neil hauxwell says:

    Thank you Ian, for this and the whole series, Ending on “leadership” at a time when party politics has degenerated to such a level of petty, idiotic, nasty gamesmanship that despair is in the air like a bushfire haze; it’s a 1600 word new pair of specs.
    The series will surely give a lot of us some “crap-free clarity” for next year and beyond.

  5. Wayne McMillan says:

    Thanks Ian. Australia needs real leadership from all our politicians and our business leaders, which is sadly missing at the moment. Australia looks towards only immediate short term gains in material living standards and short term profits. Our goals need to be more long-term in ensuring we have future sustainable development, equality in wealth/ income and decent employment for everyone that wants to work. The new renewable energy jobs, health jobs, new infrastucture and their accommpanying new services will require new research and development from beefed up organisations like the CSIRO. Australians need to be educated about macro-economic reality and this includes our politicians, business leaders and political/ financial commentators. A federal budget isn’t like a household budget and a sovereign currency issuer can never run out of money. It’s time for all Australians to wake up to macro-economic reality.

  6. Mary Tehan says:

    Brilliant article! Thank you Ian McAuley.

  7. Evan Hadkins says:

    I’m not sure it’s only work avoidance. I think it’s also ‘we should do what we have been doing – harder!’

    • Charles Lowe says:

      Ian – I, too, love your article (it offers some mellowing of my horror about Hawke/Keating’s neo-liberalism).

      But Ian, there’s no evidence that even if the contributors to this blog were to suggest relevant, realistic and resounding resolutions to ‘adaptive problems’, that this (or any other) Government would instigate them.

      Further – where’s the (narcissistic?) delight of attribution of (political) credit?

      My guess is that your ideal has a compulsory predicate: that “Leaders” need to be willing to engender this process.

      Presently, our Governmental “Leaders” are not. Nor would their Parties permit them to. Those “Leaders” indeed are instead compelled to play to their Parties’ neanderthal bases!

      Perhaps Albo might capitalise on your advocacy. A New Year’s Resolution in the making?

Comments are closed.