Too smart by half?

"Few people realise that if state governments increase their investment, Federal funding increases automatically". This was Prime Minister John Howard's acknowledgment, in his recent address to the Centre for Independent Studies [1], that those who can understand how schools funding works in our federal system are few and far between.

The split responsibility between the Commonwealth and states has helped to turn schools funding into one of the black arts, as the PM's own speech went on to confirm.

Governments spent around $31 billion on the recurrent operation of schools in 2004-2005. Of this, state governments spent $24 billion, more than three times the Commonwealth contribution of almost $7 billion [2].

Australia's federal system has enabled an asymmetrical split to develop between the Commonwealth and states as funding partners for public and private [3] schools. Seventy per cent of Commonwealth recurrent funding for schools in 2004-2005 went to the roughly one third of all students who attend Catholic and independent non-government schools. This compared with the states' 7 per cent. Put another way, government schools receive 9 per cent of their recurrent funds from the Commonwealth; while non-government schools, on average, depend on the Commonwealth for 73 per cent of their recurrent expenditure from public sources.

These funding arrangements are aggravating a growing maldistribution of the total workload of schooling among schools in Australia, within and between the public and private sectors. Many schools, mainly public schools, are having to deal with the educational challenges and costs that others can avoid and without a commensurate share of the resources. In poorer areas, students are being denied the supply and quality of teaching and the range and depth of curriculum that is taken for granted in better off communities.

If Australia had a healthy balance between revenue raising powers and spending responsibilities, it might not matter that public schools depend primarily on the states for their public funding while private schools depend primarily on the Commonwealth. But Australia's federal system has seen a growing concentration of financial power in the hands of the Commonwealth and a reduction in the States' capacity to meet their spending responsibilities. The Commonwealth now accounts for 80 per cent of taxation revenue raised by governments and 54 per cent of all government expenditure. The states raise 16 per cent of taxation revenue but spend around 40 per cent.

The Commonwealth can easily afford to increase grants to schools in the non-government sector, especially given it is only half the size of the public sector. It has been doing this at a rate that is far harder for states and territories to match for the much larger public sector, given competing claims on their tighter budgets from rising health costs and ageing transport infrastructure.

Current federal arrangements for schools funding are delivering increases to private schools in Australia at three times the rate of public funding to public schools [4].

In these circumstances, the Prime Minister, in his speech, felt the need to defend his government's funding of public schools over nearly four terms of office, with the claim that it had increased by around 70 per cent ‘in real terms'.

In normal parlance, ‘in real terms' means something. It means something like ‘after taking inflation into account'. And ‘indexation' is the tool normally and properly used in public finance to maintain the real value of government outlays, and therefore to prevent the erosion of policy intentions through inflation.

But when it comes to education funding in Australia, the usual rules don't apply.

In order to provide a ‘real terms' figure - that shows the increase in the value of Commonwealth grants to public schools above ‘inflation' - the calculation needs to use a ‘deflator': an index that measures changes in what these grants buy. Such as the price of teachers.

What to use? The PM appears to have used the Consumer Price Index (CPI). By calculating changes in the Commonwealth's outlays on schools since the 1995-96 Budget [5] and applying the CPI (an annual average increase of around 2.4 per cent as the ‘deflator' it is possible to produce the figure of a 70 per cent ‘real increase'.

However, reputable economists would object to the use of the CPI for this purpose since the bulk of schools expenditure is on teachers' and other salaries. If the Commonwealth had used the CPI to index its grants to schools, the effect would have been to inflict real cuts, since the CPI is well below annual increases in these salaries. The CPI appears to have entered the picture only for public relations purposes - to produce a figure for ‘real increases' for public schools almost double the true figure.

With the assistance of Australia's complex federal system, it is possible to fool many of the people most of the time. Here is how the conjuring works.

Three quarters of Commonwealth spending on schools is paid out in general recurrent grants. These grants are indexed each year by the Commonwealth through a measure known as average government school recurrent costs (AGSRC), which have been increasing annually by around 6 per cent on average.

The Commonwealth adds state and territory outlays on public schools, divides by enrolments and gets a per student average. It then uses this average to index its own grants to public and private schools annually.

There was a real problem for the Prime Minister, however, in applying his own AGSRC index, instead of the CPI, as the deflator to the changes in the Commonwealth's outlays on schools since the 1995-96 Budget. For this would produce an increase for public schools over those years not of 70 per cent, but ‘a real increase' of only of 17 per cent. To produce a 70 per cent increase in real terms, the PM had to tamper with his own index and to throw the AGSRC overboard.

The fact is that there have been real increases in Commonwealth funding for public schools. But the Prime Minister is guilty of selective use of figures to overstate these increases significantly. If he were to claim a ‘real increase' not of around 70 but of around half of that, 36 per cent, this would be defensible. This is what results from applying an index that the ABS produces, as part of its Labour Price Index series. It measures changes in education salaries and wages.

If ‘real increases' to public schools have been 70 per cent, 36 per cent or 17 per cent, depending on the deflator used for these calclulations, then the corresponding increases to private schools have been 142 per cent, 93.4 per cent and 65 per cent. A full breakdown of these figures can be downloaded here (Excel spreadsheet, 32KB). These were the increases the PM did not feel the need to mention.

The truth is that, over the Howard years, there has been a net increase in real terms of around $367 per student for the public school sector from the Commonwealth (based on the ABS Labour Price (education) index. And there has been a corresponding real increase of around $2089 per student on average for the private school sector. This huge disparity represents policy decisions to raise public spending on private schools through general recurrent grants and the fact that, for private schools, the AGSRC delivers real increases to the far higher proportion of the public funding of private schools which comes from the Commonwealth. The only increases for public schools above the AGSRC indexation have been outside the general recurrent program and for one-off increases such as capital works (Investing in our Schools program) and the Literacy Vouchers program. Increases to both sectors from the Commonwealth then need to be understood along with increases to both sectors from the states as well as increases in the private resources of private schools, largely through fee increases. Adding these factors only compounds the relative advantages of private schools; and, in particular, the independent private schools which are the fastest growing element of the Australian school system. Increased spending by states on public schools has largely arisen from the costs of lowering class sizes in the early years of schooling; maintaining a broad curriculum for the range of students now entering the senior years of high school; and providing support programs for students with behaviour difficulties and problems. In addition, there are unavoidable costs associated with the need to maintain services across all geographical areas.

The use of AGSRC to index the bulk of Commonwealth grants to schools might not matter so much if the following were the case:

• if the total resource levels of all or most private schools were well below the resources of public schools;
• if State spending increases were reflecting only real educational betterments in public schools; and not unavoidable costs associated with maintaining services in all areas to give effect to compulsory schooling;
• if the overall school population were growing significantly and leading to enrolment growth in both sectors;
• if funding increases to private schools had been accompanied by a corresponding increase in their public responsibilities for education planning and for student admissions or exclusions;
• if the Commonwealth, from 2001, had not severed the link between the private resources of private schools and the level of public funding to which they are entitled, thus removing downward pressure on their private fees;
• if the ongoing increases locked into recurrent grants through this device left room for governments to address genuine educational priorities, relieving the Commonwealth, in particular, of the need to engage in politically opportunistic strategies...

...but none of these conditions prevails in Australia.

Ours is the only democracy to make the provision of public funding for non-government schools the dominant educational function of its national government - the largest budgetary outlay for the Commonwealth education portfolio. Even more startling is that it would be very rare to find an Australian who understands or can explain how this has happened. Who remembers voting for the Commonwealth to spend more on private schools than on public universities - or for the gap between the two to continue widening in favour of the former?

But these facts did not feature in the Prime Minister's address. Instead, he offered the following menu:

Few people realise that if State governments increase their investment, Federal (ie Commonwealth) funding increases automatically. If his audience took this to mean that the Commonwealth's scope to provide funding increases was limited by what States spend, they would have been misled. The Commonwealth uses what states spend on public schools to set its minimum increases to general recurrent grants to schools. It can provide what it likes above this minimum through this or any other program to public as well as to private schools.

It remains the fact that government schools enrol 67 per cent of students and receive 75 per cent of total public funding for schools. True. So is the unstated corollary - the fact that one quarter of all the tax paid by Australians for their schools goes to the one-third of the total student population in private schools; and without any of the conditions that would apply to this level of funding in any other democracy in the world.

Contrary to the professional peddlers of misinformation, non-government schools still receive much less public funding than government schools - roughly $6,000 a student compared with $11,000 a student at government schools. But the audience may not have understood that this figure is an average, and that an average can be misleading given the huge resource disparities among private schools. These figures do not apply to the typical private schools, which are the Catholic systemic schools that make up almost two-thirds of all non-government schools and all others drawing similar public grants. Public grants now make up around three quarters of their total funding, with one quarter coming from private fees, charges and donations. Their public grants are sufficient to cover their teacher salaries. How many voters know that 90 to 95 per cent of all teachers in Australian schools now have their salaries covered by the public purse (assuming salaries equivalent to those in the public sector)? Meanwhile, it has become the norm to conveniently disregard the fact that private schools have private resources and to exclude them from calculations.

The states and territories have primary responsibility for government schools. This statement could easily have the effect of creating, in the minds of the Prime Minister's audience or of the broader public, the erroneous perception of a separation of powers between the Commonwealth and the states for public and for private schools, a separation for which there are no constitutional, educational or logical grounds.

These are not lies, but neither are they the whole truth. Their repeated use makes it hard to argue that our current federal funding arrangements have the informed consent of the Australian public.

In the interest of greater transparency and due process, two proposals for policy reform are advanced here.

What kind of school system do we want for this country? Do we want a stratified system where opportunities vary widely depending upon social and economic disparities among families and geographical communities? Or do we want a system where each student is equally entitled to opportunities to achieve her or his personal best?

The answer to these questions should drive our federal arrangements for schools.

We need to accept that the two levels of government now have a set of shared responsibilities; and to define their respective roles in managing these. To attempt to reassign the responsibilities would not be politically achievable, based on past experience.

One stimulus to informed public debate would be the development of draft complementary legislation, Commonwealth and state, to set down values and purposes, goals, priorities and strategies for advancing the quality of schooling for all Australians. Such legislation should bring transparency and due process into federal arrangements for schools; and provide a basis for interaction between the federal partners that can outlast the changes in governments and ministerial responsibilities over time.

There is also a need for funding arrangements to have educational integrity and political transparency rather than being based on political deals behind closed doors. The focus of federal arrangements for schools' recurrent funding should be to provide students with equality of access to able, well-educated teachers who can engage their students in learning.

We need a debate with less focus on the dollars governments provide, and more on the teachers whose salaries these dollars pay, if the citizens of this country hope to frame sensible questions about the respective responsibilities of the Commonwealth and the states and territories. These include questions from the standpoint of the children and young people schools exist to serve - about who should decide the conditions on which students gain access to those teachers and how those teachers should be allocated among their schools.

The policy trends of recent decades reflect prevailing political ideologies. But these forces are just as prevalent in other countries as in Australia. It is the veil created by flaws in Australia's federal system that has made it so easy for the entitlement of all our children to the highest quality education to be pushed quite so easily off the policy agenda. We now have a system where it is far too easy for politicians to confuse most of the people for much of the time.

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[1] Address entitled ‘Australia Rising to the Education Challenge' (14 May 2007)

[2] Productivity Commission, Report on government services 2007, table 3.1, p. 3.4. Note that these figures exclude expenditure on capital works, but include estimates for the ‘user cost of capital' in the government sector only.

[3] This paper uses an OECD definition to differentiate between government or public schools and non-government or private schools, as follows: "educational institutions are classified as either public or private according to whether a public agency or a private entity has the ultimate power to make decisions concerning the institution's affairs ... an institution is classified as private if it is controlled and managed by a non-governmental organisation (e.g. a church, a trade union or a business enterprise) or if its governing board consists mostly of members not selected by a public agency ..."

[4] Australian Bureau of Statistics report, Australian Social Trends 2006. Cat.No.4102.0.

[5] Note: not adjusted for changes to accrual accounting.

Economic efficiency – an ideal of the past?

Economic efficiency was the mantra of most of the 1990s, and still provides the backdrop to current political debates. Yet recent developments in the Australian social landscape suggest that it should be relegated to an ideal of the past.

Economic efficiency is one of the most commonly spouted bits of jargon in Australian politics. It makes an appearance on most evening news bulletins, it's dotted through our newspapers, and rolls easily off the tongues of our politicians. But not many of us know what it actually means.

Indeed, the fact that we hear it so often adds to the confusion. Efficiency is one of those words that has both a technical meaning and a popular meaning. The two are often blurred in political debates. Policies are developed using the technical concept. Politicians then hit the hustings invoking its popular meaning. Some welcome the rhetorical slippage.

In economic theory, the central question is how we target our resources to produce the houses, clothes, cars and other goodies that we value most. The challenge is how to divvy up a scarce set of resources to produce the things that will make the greatest contribution to human wellbeing.

Economic theory argues that the market offers the perfect solution to this problem. It argues the market acts like a democracy of consumption. The way you and I spend our hard earned cash drives the system. What we are prepared to pay for determines what gets made and which businesses survive. Through our spending we cast a vote about how our society's collective resources are used.

Economists argue that when a market is competitive, this is the best possible method for solving the problem. What we are prepared to splash out on is the best possible indicator of what we really value. When competition forces businesses to set prices to reflect what an item costs, you have a perfect match. Our spending patterns drive an economy that is fine tuned to producing the things that will boost our wellbeing most.

When economists talk about efficiency, this is what they are talking about most of the time. An efficient economy is one that matches up what people want to buy, with what actually gets made. It should optimise a community's wellbeing.

It is important to point out that despite the political rhetoric, efficiency in this technical sense is not a big driver of growth. There can be expected to be a one off improvement if an economy shifts from an inefficient distribution of goodies to an efficient one. But after that there is little that connects efficiency to the ongoing expansion of an economy. It is not able to explain why we are able to produce ever more iPods, g-strings and boutique beers.

Growth is the ability to produce more stuff. Some growth comes from being able to cut down more trees and dig more out of the ground. But the bulk of it comes from us getting much better at doing things.

One way of characterizing growth is to tell the story of industrialization. In the days of cottage industries people had to make almost everything for themselves. They needed skills in farming, carpentry, spinning fabrics and sewing, baking and metal working. They were ‘jacks of all trades' and masters of none. Industrialization has seen the ever increasing specialization of labour. We increasingly focused on producing a narrower range of items, and then trading them with others. As we each became more expert in our particular task we also became more productive at it. We were then able to trade with others who had also specialized. The total amount of goodies produced skyrocketed.

The economic theories that teach us about efficiency have only arm waving offerings to make in explaining growth. While efficiency is, in the jargon, all about allocative statics, growth is a dynamic phenomenon. The political rhetoric fudges the connection too. For all the talk that blurs them into the one concept, the two are markedly different.

It is not at all clear that technical efficiency necessarily leads to growth. While efficiency is underpinned by competition, growth is underpinned by trust that makes the growing chains of production possible. Efficiency assumes that the relative cost of services and comparative advantage is set, while growth highlights how skills and abilities and comparative advantage are acquired. While efficiency seeks to minimize any fat around the bottomline, growth is reliant on investment that may take long lead times. This is an argument to be expanded on. However, immediately at hand is a different challenge to the ideal of efficiency.

Efficiency & Economic Reform

The years of economic reform were squarely focused on ‘efficiency' in the government sector. Volume after volume of Productivity Commission reports pushed the same line. They strove for a shift away from universal services to user pays market principles. They aimed to strip away all the props that cushioned government activities from the customers' ultimatum. They dashed away government ownership, price controls and regulations. By forcing government services to face the test of profitability, they aimed to channel economic activity into making the things we value most.

This revolution on the service side was clearly aimed at achieving the objective of efficiency. However, there are developments afoot on the consumer side of the equation which bring the efficiency ideal into question.

While how much we value a particular goodie does affect how much we are prepared to pay, it is not the only factor at work. The total budget we have got to spend comes into the equation too. No matter how much I want a swanky new PDA - that will play a constant stream of 80s trash, take photos and tell me when I have forgotten my brother's birthday - it is just not within my budget's possibilities at the moment.

A democracy in which we cast our votes by what we spend, is inevitably a democracy on a sliding income scale. Those with fat wallets or gold credit cards have a big say, while those who skimp the last few days through to pay day have little say. The number of dollars in your wallet translates directly into how many votes you have.

An efficient economy will deliver quite different bundles of goods depending on the income distribution. For example, imagine a community with a total wealth of $500,000 that is made up of 10 people. Imagine one person earns $400,000 a year and the other 9 earn about $11,000 a year. An efficient economy will deliver one luxurious home, one person's worth of exquisite food, and one wardrobes worth of expensively tailored clothes. It will also provide survival accommodation, food and clothes for the other 9 people.

Thanks to trohaa

In contrast, if the same community divvies up its resources equally the economy will produce quite a different bundle of goods. In an equal society all 10 people would get $50,000 each. In that instance an efficient economy would provide moderate level housing, reasonable clothes, and decent quality food for all 10. The exact mix of things each person gets would reflect their personal priorities. Some will skimp on housing for feistier fashions, while others will go the gourmet foods. Yet it will all fall into a moderate range.

Generally speaking, what the economy produces will reflect a mix of what we value, and the income distribution. In a reasonably equal society, we would expect that the patterns of the economy would more strongly reflect our individual preferences . As the income divide stretches out, we would expect income effects to take over. As the gap between rich and poor balloons, the mix of goods will increasingly reflect the income distribution.

The challenge Australia faces is that we are facing such a yawning gap between rich and poor. Once upon a time we were indeed the egalitarian nation we like to believe we are. However, that has turned about in the last 25 years.

Fred Argy tells us we now have the third largest gap between rich and poor in the developed world. We come in only behind the US and the UK in our division between the haves and have nots.

Andrew Leigh points to the explosion in executive salaries as one of the drivers. His research found that while in 1980 the top 1 per cent received 5% of all personal income, by 2002 they were pocketing 9% of all personal income.

He also observes that in 1992 the typical executive in one of Australia's top 50 companies earned 27 times the wage of an average worker. By 2002, a top CEO earned 98 times the wage of an average worker.

The story at the bottom is equally disturbing. The poorest 40% of households only account for 6% of the nation's wealth. The bottom 20% only accounting for 1%.

As the divide between rich and poor continues to balloon, we will have to ask ourselves what the pursuit of "efficiency" offers us going into the future. How much will a person's preparedness to pay reflect the value of what was once a government service? And how much will it simply reflect who the service is provided to? When drought stricken farmers stop paying for broadband will it be because the connection to the wider world is not important to them? When inner city community health clinics go under will it be because the homeless and addicted didn't need healthcare? Will the planning of future roads include an assessment of the socio-economic status of the communities they are seeking to link up? Will the communities who can't pay tolls be less in need of being connected to the greater city?

Efficiency is quite distinct from growth. And one has to wonder what this centrepiece of the reform era will have to offer us in the future. Perhaps it should simply become a relic of a bygone era.

How equitable is our education system?

There is a long history of debate about whether Australian education is equitable. It is easy to see that the outcomes are not equally distributed. We know there are differences in test scores, completion of Year 12 and university enrolments, and that these differences are related to some characteristics, such as gender, language background, socioeconomic status, Indigenous background and geographic location.

The Longitudinal Surveys of Australian Youth (LSAY) is a series of studies of young people who have been surveyed from their mid-teens into their twenties and thirties, conducted annually since 1978. The first group in LSAY had participated in the Australian Studies in School Performance, which was developed as a survey into literacy and specific learning problems in schools and was conducted in October 1975. Since then, each successive LSAY cohort has commenced with measures of academic achievement at around age 14, allowing the inclusion of such measures in the examination of factors related to educational outcomes.

Differences in outcomes

Achievement in literacy and numeracy

Data from the initial tests used in LSAY have consistently shown that young women scored higher than young men in literacy, and that young men scored higher than young women in numeracy. These differences increased slightly between 1975 and 1998. In 2003, Australia's results in the OECD Programme for International Student Assessment (PISA) of 15 year-olds showed significant differences favouring young women in reading, but small, non-significant differences favouring young men in mathematics.

Differences in literacy and numeracy are also apparent when looking at language background. Young people from homes where English was not the main language spoken consistently scored lower than those raised in homes where English was the main language spoken. Over time, however, the differences in both literacy and numeracy have decreased significantly.

Socioeconomic status (SES) is also related to outcomes in literacy and numeracy. While there is much debate regarding measurement of SES, one measure - parent occupation - is available from the LSAY data. Once again there are differences apparent by group membership. Across the years young people in LSAY whose parents had professional occupations had higher scores in both literacy and numeracy than those whose parents were in labouring occupations.

Australia's PISA results were examined using a number of measures of SES. The Index of Economic, Social and Cultural Status, a measure constructed from the data collected in PISA, showed a statistically significant relationship with numeracy, but the strength of the relationship was relatively small. Many young people from low-SES families achieved high scores, and many from high-SES families achieved low scores.

The greatest difference in scores is between Indigenous Australian students and non-Indigenous students. In 1995 and 1998, literacy and numeracy scores for Indigenous Australians were significantly lower than scores for non-Indigenous Australians. These results were consistent with those reported for 15 year-olds in PISA, and remain even after other factors, such as SES, are considered.

Geographic location has little relationship with scores in literacy or numeracy.

Participation in and completion of Year 12

To have all school students complete Year 12 has been a goal of federal and state governments since the late twentieth century. In 1975, around three in ten young people completed Year 12; today, around eight in ten obtain a senior secondary certificate. Who participates in the senior secondary years and how they participate differs according to various background factors. In the 1970s, young men were more likely to complete Year 12. That changed around 1980, and in 2006 there was a 10 percentage point difference favouring young women over young men in the apparent retention rate, one measure of full-time Year 12 participation.

While language background may have had an effect on literacy and numeracy scores while in junior secondary years, the effect was different in relation to the completion of Year 12. Young people from language backgrounds other than English were more likely to remain at school and complete Year 12 throughout the 1980s and 1990s.

Differences by SES in Year 12 completion have changed since the 1970s, but differences between groups remain. As part of the general increase in young people remaining at school to the end of Year 12, the greatest growth has been among young people with parents in labouring occupations. In the early 1980s, around 44 per cent of young people completed Year 12. Around 72 per cent of those from professional families completed, compared to 30 per cent from labourer families. In the late 1990s, when close to 80 per cent completed Year 12, 86 per cent of those from professional families and 69 per cent from labourer families completed Year 12.

The increase in the proportion of young people entering and completing Year 12 has occurred among Indigenous young people as well, although their completion rates, at around 50 per cent, remain well below those of non-Indigenous young people.

In the early 1980s, there were small differences between metropolitan and non-metropolitan areas in young people's participation and completion of Year 12. While completion rates increased into the early twenty-first century regardless of location, the increase was lowest among young men from non-metropolitan areas, particularly those in remote locations.

University entry

Patterns for university entrance scores were not always similar to those noted above. Gender had a different influence, with little difference between scores for young men and young women. The relationship between language background and entrance scores was similar to that for Year 12 participation. Young people with language backgrounds other than English scored higher than those from homes where English was the main language.

The pattern for SES, however, reflected the patterns for achievement and Year 12 completion. Young people from professional families achieved higher tertiary entrance scores than those from labourer families. Similarly, Indigenous Australians had lower entrance scores than did non-Indigenous Australians.

Young people from metropolitan areas had entry scores slightly higher than those from non-metropolitan areas.

Discussion

These results from over 30 years of the LSAY program show that there are some consistencies in how some educational outcomes differ among groups of young people, and that some of these differences may have little influence on later outcomes. Two sets of findings are consistent: Indigenous Australians have lower outcomes than non-Indigenous Australians, and SES groups have different outcomes. The disagreement lies in how we interpret these findings.

The influence of SES on educational outcomes is an enduring question. Many of us who came through teacher education programs in the 1960s, 1970s and 1980s can recall the literature of the day, which suggested that schools reproduced the inequity in society, with schools acting as agents of the dominant classes. We saw the introduction of equity program funding, designed to overcome disadvantages in schooling related to socioeconomic circumstances. Today, many of us retain a belief that the education ‘system' still contributes to the reproduction of social inequity in Australian society.

Analyses of some of the later outcomes cited above - participation in and completion of Year 12, university entrance - have shown that while there are differences by SES, they can be understood as results of achievement in literacy and numeracy, and not SES. For example, McMillan and Marks (2003) concluded that ‘literacy and numeracy skills exerted a stronger influence on subsequent school non-completion', and that achievement was related to the timing of school leaving. When modelling the influences on university entrance scores, Marks, McMillan and Hillman (2001) stated, ‘It is clear that Year 9 achievement in literacy and numeracy has the strongest effect on tertiary entrance performance. Its effect is considerably stronger than socioeconomic background.'

The consistency in the use of measures of literacy and numeracy for the LSAY project has provided an opportunity to compare achievement in these areas between 1975 and 1998. Over this period, there were changes in the relationship between parent occupation - one measure of SES - and achievement. When looking at individual students, the influence of parent occupation on achievement scores has decreased, suggesting less inequality in outcomes. When looking at schools, however, the influence of average parent occupation on achievement scores has increased, suggesting more inequality in outcomes. These changes may be explained by increased enrolments in non-government schools, greater suburban segmentation and differential take-up of out-of-zone school attendance (Rothman, 2002).

That there are differences in educational outcomes for subgroups of the Australian population cannot be denied. It should be noted, however, that these differences have diminished over the past 30 years. The issue is not that there are differences, but the reasons for those differences, the effects of those differences and why they remain. Achievement in literacy and numeracy is fundamental to later success, but there are still links between group membership and achievement. This is particularly relevant for Indigenous Australians.

Fortunately, there are many options for young people when considering post-school options. They can choose vocational education and training programs or universities for post-school study. Indeed, LSAY research has shown that a young person's attitudes to school and intention to undertake further study are important influences on participation in such study (Khoo and Ainley, 2005). Many choose to enter the workforce directly, and a solid, direct start in the labour market has been shown to be beneficial.

The greatest opportunity to reduce the inequitable distribution of educational outcomes comes with the improvement of literacy and numeracy achievement among disadvantaged groups. Evidence over the past 30 years shows a consistency in achievement in these areas with changes between schools. What is now required is a much greater investment in teachers and schools with greater concentrations of disadvantaged young people to bring their outcomes to levels achieved by other groups.

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References

Khoo, S.T. and Ainley, J. (2005). Attitudes, Intentions and Participation. LSAY Research Report no 41. Melbourne: ACER.

Marks, G.N., McMillan, J. and Hillman, K. (2001). Tertiary Entrance Performance: The Role of Student Background and School Factors. LSAY Research Report no 22. Melbourne: ACER.

McMillan, J. and Marks, G.N. (2003). School Leavers in Australia: Profiles and Pathways. LSAY Research Report no 31. Melbourne: ACER.

Rothman, S. (2002). Achievement in Literacy and Numeracy by Australian 14 Year-olds, 1975-1988. LSAY Research Report no 29. Melbourne: ACER.

Improving our schools - an educated approach

One of the curious aspects of the debate on schools funding is that there is little recognition of the changing nature of the educational landscape and how this has affected, and will continue to affect the way parents and students regard schools and teachers. My generation, the baby boomers, was the recipient of a massive investment of education funding, a commitment by government to the future of the country that makes the Howard government look like the wimps they are. Australia is to a large extent still feasting on the results of the education investments made from the 1950s to the 1970s.

As Bruce Wilson has outlined, the notion of Australian children completing a full high school education only became popular in the years after World War II. Indeed as recently as 1968 only 22.7% of all children completed high school. 76.3% of completing students were from private non-catholic schools, 27.5% were from Catholic Schools and 20.4% were from state schools. (Gerald Burke and Andrew Spaull ‘Australian schools: participation and funding 1901 to 2000'). By 2004 ABS figures show that 62% of male students and 73% of female students completed Year 12 in 2004 (4102.0 - Australian Social Trends, 2006). The numbers describing the changes in Australia's education profile have been crunched to predict employment and training trends, tertiary education possibilities and other statistical somersaults, and even to comment on how much harder it is for schools to teach a diverse cohort, but no one seems to have understood the long term implications of these changes on the relationship between teachers, schools and the families of students. Yet this changing relationship lies at the very heart of why so many parents are dissatisfied with state schools. Many teachers and administrators in state schools have long continued to act as though the parents who try to speak with them on their concerns about their children's education are as poorly educated as my parents were in the 1960s. They assume that they should be regarded as all-knowing founts of wisdom, and are hurt or even angry when parents regard themselves as their intellectual equals. At the same time parents who are professionals in their fields are less than impressed with teachers who do not respond to emails concerning their children's welfare or who fob them off with clichés.

The one constant complaint I hear from state schoolteachers is how ‘awful' modern parents are in demanding that their children's needs are met. Most of the parents they object to are educated and are able to meet their children's teachers head on. But sometimes, as in Elizabeth Vale in South Australia, it is parents from the economic underclass who get organised and campaign with a great noise when schools don't meet their needs. They are then accused of harassment. The outrage by families as Elizabeth Vale has led to a South Australian Parliamentary Inquiry, partly because the children at that school had no where else to go. But when middle class parents are met with teacher hostility of school bullying they often just take their children and walk. More often than not they walk across the road to a private school with a more responsive administration. The teachers who failed to establish dialogue with the parents then sneer at them for their ‘snobbery'. This is hardly an appropriate response.

Rather than getting bogged down in an unproductive brawl about private schools poaching students, it is probably time school administrations started to reassess how to relate to their students and the families of students. Despite the huge shift in parents' educational levels, the system still finds it easy to brush aside their legitimate concerns. There is still a tendency to assume that education is something that happens to children, rather than with them.

Then there is the whole issue of accountability of schools to their communities. This is hardly radical stuff.

Most states now have different forms of parent and community representation. But many of these are confined to form rather than substance. The bureaucracy is usually able to ensure its survival. How then do parents and students cope when they have serious problems with their local school? Each state has different official procedures that pay some degree of lip service to complaints about schools. However as the recent case of Ben Cox's mother's long and heroic fight on her son's behalf against the NSW Education Department shows, the bureaucracy will fight to the bitter end to avoid accepting responsibility for children who are bullied.

The classroom photograph for the five year old Cox shows how badly the school dealt with the problem of bullying. Behind the group of five year olds is a message board with a poster saying "If I hit a bully it makes ME a bully". That is a classic cop-out, but typical of a system more adept at sweeping problems under the carpet than dealing with them. In Newcastle Cox's mother was told bullying was good for him. Some years earlier in Sydney I was told that my bullied child had to "learn to roll with the punches". Other parents (and children) have similar memories. In both cases the authorities, who had a duty of care for the child, put responsibility back onto the victim. Ben Cox's mother ultimately sued on her son's behalf and the amount awarded stands as an indictment of the system that allowed this. The use of the legal system or even the Ombudsman is no substitute for an open and transparent system of conflict resolution.

The university sector where I work has undergone a social revolution as great as any other in the last 50 years. In the middle of constantly being asked to do more with less, including achieving higher standards with fewer resources, we have also revolutionised our approach to students. When I was a student in the late 1960s no one ever even saw a course outline. Our classes were small (my first tutorial only had nine students), but no one saw a lecturer outside of class. Now students are in constant contact by email, course outlines are not only compulsory but every single course outline at my university contains details of the grievance procedure, including the name and contact details of the school's grievance officer. Oddly enough once this information became public, complaints were reduced.

There is no reason why schools cannot take a similar approach in informing students and parents of their rights. Some schools, notably those in the once troubled Catholic system, have a very open policy on dealing with complaints. Other independent schools work hard to create a community with their parents. They are only too aware that if complaints are not dealt with in an open and equitable manner, parents will resort to legal action.

In addition to an open and transparent complaints process, university courses are assessed for student feedback, and teaching staff are expected to reconsider their approach to teaching in line with student needs.

In Sydney one private school, SCEGGS Darlinghurst, regularly surveys its senior students on the quality of their teaching. The school doesn't assume that the students are necessarily right, but their opinions are taken into account. Listening to students builds mutual respect and helps to ensure quality control.

For years there have been complaints on quality control in schools, especially state schools, and now governments are beginning to act - but they seem to have lost the notion of ‘mutual respect' along the way. Last year NSW Parliament passed the Education Legislation Amendment (Staff) Bill that enables the state to ‘let go' those teachers who chronically under perform. In recent months Federal minister for Education, Julie Bishop, has come out with tough talk on performance pay where ‘under performing' teachers will be financially penalised in an education free for all. This dog eat dog approach to teachers' rewards was reinforced in the last Federal budget where a lucky few will be able to complete for further professional development, and be paid for it. And now the Prime Minister has put his two cents worth into the mix.

It is often under performing teachers who benefit most from professional development, not the high flyers. If governments were serious about supporting teacher quality, all teachers would be fully supported in paid professional development, and those who prove not capable of benefiting could then be let go. As Judith Wheeldon says: "Simply giving superior teachers more money does not remove or improve inadequate teachers".

There would be less need for intensive remedial professional development if young teachers were properly supported first in their studies, and later in the early years of their careers. Some state systems have instituted half-hearted scholarships where students are paid a pittance while they study. Western Australia pays a generous allowance for final year teaching students prepared to travel to rural and remote areas. The level of support offered to students in teaching is contrasted with the funds lavished on those who join the ADF. The Department of Defence is currently offering university students a stipend of $30,000 plus HECS and a generous allowance in return for their immortal souls (or five years service). If it is good enough to properly support those being trained to fight, then it should be good enough to properly support those dedicated to ensuring that the country is worth fighting for.

Greenhouse solutions: breaking down the barriers

The enhanced greenhouse effect is arguably the most dangerous environmental problem and the most difficult political issue to be faced by the world in the 21st century.

It is threatening biodiversity, human health, social equity, infrastructure and the economy. Over the past decade, there have been many signs that global climate change is occurring rapidly and may even be accelerating. The Arctic ice cap has been visibly shrinking, glaciers are melting and their flow rates are speeding up, permafrost is melting too, coral reefs are bleaching, strong hurricanes are more frequent, and heatwaves and wildfires are becoming fiercer. To bring these climate changes back under control, or at least to moderate them, some climate scientists are recommending a 50-60 percent reduction in global greenhouse gas emissions by 2050 and an 80-90 per cent reduction by 2100. The largest sources of global greenhouse gas emissions are electricity generation from coal, followed by transport based on oil. These are driven by economic structures and associated lifestyles that are intensive in their uses of resources, by population growth and by inappropriate choices of technologies.

As the saying goes, ‘the future is not somewhere we are going, but something we are creating'. To do this, we have to identify the barriers to change and then propose new policies, strategies and action plans to overcome these barriers. Thus barriers and policies are two halves of the same coin.

With such a wide range of formidable barriers, there is no single magic bullet to drive the transition to a sustainable energy and transport future. Rather, there is a need for several different types of policy instruments to overcome different types of barriers and to complement one another. The main types of policy instruments are economic, regulatory, educational, institutional and community participation.

Economic instruments

These involve both market-based instruments - such as a carbon tax and emissions trading - and non-market instruments - such as grants, fees, rebates and subsidies. For non-market instruments, the federal government should fund a new Cooperative Research Centre on renewable energy, expand R & D grants for renewable energy technologies and remove subsidies to the production and use of fossil fuels. State governments must also remove subsidies, for example, to the use of airconditioners. In practice, a sharp line cannot be drawn between market and regulatory instruments, since all market-based instruments exist in regulatory and institutional settings. Examples are the laws that establish limited liability for corporations, the National Electricity Code and rules, and the rules for the ‘market instrument' of tradable emission permits.

Laws, regulations and standards

Despite the modern tendency of governments of both wings, under the influence of neoliberal economics, to minimise the importance of laws, regulations and standards, law-making is still the prime task of parliaments. The real issue is to choose the circumstances under which regulatory approaches are the most effective instruments of change and can be readily implemented. Where markets fail or prices cannot modify behaviour sufficiently, it is feasible for governments to set energy performance standards and labelling requirements for buildings, equipment, appliances, industrial processes and motor vehicles. Governments can also legislate to require electricity utilities to pay specified prices for electricity fed into the grid from specified renewable sources, as in Germany.

Research, education, training and information

Research and teaching about efficient energy use, renewable energy and energy policy must be strengthened in schools, TAFEs, universities, Cooperative Research Centres and community information centres. This requires resources from federal and state governments and business.

Institutional change

To foster efficient energy use, a market for energy services is needed to replace the existing markets for energy supply. This means creating conditions under which energy service companies can flourish, dramatically shrinking transaction costs and making economic benefits real to consumers. Institutional change is also vital for restructuring our cities, in order to reduce automobile dependence. Particularly in the state government sphere, urban planning must be integrated with transport planning, and this combined portfolio must be given the power to create ‘subcities' that are ‘transit cities' within the whole city, and town centres and local centres within each ‘transit city'. In such vital restructuring, a strong and genuine program of community participation is needed, to increase public understanding of the reforms and to give the people a stake and a role in shaping the process.

Community participation

A key step in increasing community participation in decision-making, is to create a culture of openness and transparency and to expose the power of vested interests. This can be achieved by:

• implementing strong Freedom of Information legislation;
• requiring the publication of all political donations over, say, $1000 - unfortunately, recent legislation by the federal government increases the limit to $10 000;
• allowing public parliamentary enquiries;
• tightening constraints on concentrations of media ownership - legislation in 2006 weakens the constraints;
• fostering open debate and investigative reporting in the media, by giving sufficient funding to our national broadcaster, the Australian Broadcasting Corporation.

None of the above five types of instruments of change is very effective on its own. Education and information cannot create much change when prices give the opposite message. Price signals, regulations and standards only work when clean energy alternatives and infrastructure are available and consumers have the knowledge required to purchase them from appropriate institutions and use them. Market imperfection, and indeed market failure, is endemic in the energy sector, and so economic instruments, while necessary, are not sufficient for driving major changes. Businesses will not reduce greenhouse gas emissions unless there are clear price signals, while government departments will require regulations to make them act.

There are pathways forward towards a sustainable energy future, but first we must identify the barriers to change and then develop policies and strategies for all spheres of government and business for overcoming the barriers and implementing sustainable energy. However, we must also recognise the big gap between proposing a way forward and getting it implemented by those bodies that hold political and economic power. Closing that gap will require concerted action by socially responsible citizens.

 

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This is an edited extract from 'Greenhouse Solutions with Sustainable Energy', UNSW Press, May 2007, $49.95 RRP

 

Productivity – a dead end?

The word ‘efficiency', Lindy Edwards points out, has become disconnected from economic reality. And it has become a matter of nitpicking between the two major parties.

In the March quarter National Accounts, the Government took glee in finding a rise in productivity. After three years of flat performance, productivity finally showed a small rise in the latest two quarters. Thus was the Government's WorkChoices policy apparently vindicated.

It's a sign of our times that politicians should become excited by one statistical estimate, in a data series subject to noise and sampling error. In all probability the recent rise is simply a statistical return to the trend after two quarters of abnormally low returns.

Over the last thirty years, productivity, as measured by real GDP per hour worked, has risen at about 1.6 percent a year, but over the last three years it has risen at only 0.7 percent a year. As Figure 1 shows, productivity growth has had its ups and downs - its biggest spurt was in the mid 1990s, which most commentators put down to the effects of information technology and the economic reforms of the Hawke-Keating Government.

To attribute the recent rise to WorkChoices is not only spurious statistically; it also ignores the reality of economic activity. The effects of policy changes are slow to show up in statistical indicators. Businesses have inertia. They have planning and budget cycles. If they install new technology or change work practices there are lags in installing equipment and in learning new methods. If WorkChoices is to have an effect on productivity we are unlikely to see it for some years.

And that effect is likely to be negative.

To understand why, it is necessary to deconstruct the word ‘productivity' - in the same way that Lindy Edwards has deconstructed the related word ‘efficiency'.

There are many ways to construct the term, which is a ratio between two entities - a numerator signifying some output, and a denominator signifying some input. In the waterfront dispute in 1988, arguments on productivity were about containers moved per employee, or per crane. Human service organizations refer to caseload per staff. Indicators such as ratios of teachers to students or nurses to patients are sometimes claimed to be productivity indicators. With a wide range of numerators and denominators to choose from, it is hardly surprising that claims about ‘productivity' can become political battles.

The most common definition is ‘labour productivity', and the ABS uses GDP per hour worked as a national indicator of labour productivity.

This may seem reasonable, but it begs further questions. The numerator is GDP, but is GDP, even when adjusted for inflation, a reasonable measure of our economic well-being?

In particular, as Lindy Edwards points out, it ignores distribution. In the last eight years there has been a steep rise in the share of GDP going to profits, at the expense of wages, even as unemployment has fallen.¹ Some of this profit is distributed as dividends and realized capital gains, but these benefits are unlikely to accrue to the less well-off.

(The Government's response to a falling wages share of GDP is to point out that for most people real wages have risen, thus ignoring the social pain of widening inequality, and to point out, with pride, that it has extended welfare payments to more and more Australians. In other words, the Government is using the welfare system to compensate for the economy's inability to provide well-paid jobs.)

The denominator is even more problematic. What if we are not putting in as many hours worked? In an economy enjoying a minerals boom and lax government fiscal policy, we are enjoying low unemployment and reasonably high labour force participation, but what will be the effect as WorkChoices starts to bite, particularly once the boom ends?

Like most economic interventions WorkChoices can be expected to have demand and supply side effects.

On the demand side, lower wages will initially be welcomed by many employers (until they realize their competitors enjoy the same benefits, and until they realize that wages get recycled as consumer demand).

If labour is cheaper to employ there will be less incentive for firms to ensure workers are employed productively. Companies will revert to labour-intensive ways of operation. We can expect to see more bag packers in supermarkets, more driveway attendants in garages, more doormen in hotels, and more domestic servants or ‘nannies'. This will be the realization of John Howard's vision, articulated in 1992 when he suggested the Australian economy needed more ‘dead-end' jobs. He said:

We used to have a saying in Australia called the dead-end job. That referred to somebody who got a job that didn't involve any kind of training, but you could get those in the 50s and 60s, you can't get them anymore.²

This vision meshes with his vision for education - a basic 3Rs approach preparing young people for semi-skilled clerical and manufacturing jobs, or jobs as servants and flunkeys attending to the whims of an unproductive leisure class.

On the supply side we can expect a fall in labour force participation. Why work if wages and conditions are unattractive? Many will have no choice but to seek work and to take what's going, but many others, who can get by without working, will not bother. In particular we can expect to see a fall in female labour force participation, which is well below the levels in northern European democracies, where a far higher proportion of women are in the workforce and are therefore contributing. ‘Productivity' per employed person can be very different from ‘productivity' measured across all who could work.

Worse, because WorkChoices lessens the bargaining power of workers, people will have less incentive to invest in skills. Economic purists may retort that skills will be in high demand, and will therefore be well rewarded. But it is naive to believe that the labour market works in the same way as the market for pork bellies or Toyota Corollas. Apart from those with specific and well-recognized qualifications, such as a postgraduate degree in surgery or membership of a professional body, people lack the capacity to demonstrate their worth to potential employers, so wages for everyone tend to fall to the levels of the least-well equipped. (Economists know this phenomenon as ‘the market for lemons' - when a buyer cannot judge quality, quality in a market trends to fall to a low level.³)

Further, if WorkChoices erodes youth wages and makes unqualified young people more employable, it will have the effect of enticing young people out of education. At age 15 a $15 000 job sounds attractive - for many it beats school, particularly if the school has been the victim of government neglect. High youth wages may keep young people out of employment, but surely we want to get the message to young people that the only jobs going are good jobs, and they had better prepare themselves to take a good job. Or, do we want our children faced with no choice but a dismal future of pumping gasoline at a garage in Dulwich Hill?

WorkChoices needs to be seen in its proper context. It's the centrepiece of Howard's vision of a future where most Australians, rather than enjoying the dignity and independence of well-paid employment, will remain in low productivity dead-end jobs and ongoing welfare dependence, with meagre wages supplemented by government handouts.

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1. Some of the fall in the wages share in the 1980s was attributable to individuals in small businesses and professions becoming incorporated, so that what were previously ‘wages' became ‘profits'. But it is a long time since there has been any incentive to incorporate. People can no longer take out interest-free loans from their private companies, the corporate veil no longer offers a protection against personal liability, and the thresholds for personal tax rates to exceed the 30 percent company tax have been lifted.

2. Burke S Butcher ‘Dole Queue Riot Fears' Herald Sun 8 May 1992 p.1.

3. The consequences of buyers being unable to judge quality are described by George Akerlof ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism' Quarterly Journal of Economics Vol 84 May 1970. For an extension into labour markets, see James Galbraith Created Unequal - The crisis in American Pay (Free Press 1998).

Bedtime economics

During his long life John Kenneth Galbraith could be counted on to write about economics for the lay person - scholarly and well-written books, without those annoying freehand diagrams of supply and demand, and without pretentious equations designed to impress rather than inform.

But since his death two years ago there has been a dearth of economics books that make for good bedtime reading.

Ross Gittins' Gittinomics (Allen and Unwin 2007) fills that void, and it's Australian.

Gittins explains economic ideas which, when presented in undergraduate courses, students find difficult. But his work is lucid; it flows easily, with plenty of everyday illustrative examples.

By the time the reader puts this work down he or she will have covered macroeconomic concepts such as the construction of national accounts, and their exclusion of unpaid work (which would add another 80 percent or so to GDP). Gittins covers many topics in microeconomics, such as how firms use price discrimination for different classes of consumers, and his explanation of the labour market - how we trade off between work time and other time - is sharp and clear. In a few paragraphs Gittins explains how the tradeoff between work and ‘leisure' looks very different depending on one's starting point (a point which most economics texts present in incomprehensible prose and complex diagrams of ‘indifference-curves'). Contrary to conventional wisdom, higher pay may motivate those with low incomes to work harder or longer, but it can have the opposite effect on the well-off. That extra $200,000 for a medical specialist or business executive is most likely to bring forward the day of early retirement.

He explains the treadmill of ‘joyless consumption' - our addiction to working longer hours to buy things we don't need to impress friends and neighbours who are engaged in a similar race. ‘We live in an era where the material is crowding out the human' he says in his concluding chapter.

Those who want a deeper understanding of the relationship between material progress and happiness can go to a work such as Avner Offer's scholarly work 'The Challenge of Affluence: Self-Control and Well-Being in the United States and Britain since 1950' (Oxford 2006). In Offer's work they will find more than adequate evidence for Gittins' generalizations. But Offer is not bedtime reading, and most of us would do well to polish off the more digestible prose of Gittinomics instead.

Most importantly, particularly in an election year, Gittins covers public policy issues such as ageing (it won't send us broke), health care, housing, education and crime. Politicians generally simplify these issues to the point of banality, but Gittins demonstrates that it is possible to explain concepts such as public goods and the difference between financial wealth and real wealth. (Your house may have doubled in market price over the last five years, but you still have the same house, the same wealth.)

Those seeking to apply a ‘left' or ‘right' label to the author will have misunderstood his work. Gittins' task is to explain, rather than to advocate.

I commend it, however, for those people, generally described as on the political ‘left', who are disengaged with economics. If those on the left do not enter the economic debate, they can hardly complain when governments practice bad economic policy - such as under-investing in education and physical infrastructure, dismantling our health care system, ignoring our environmental problems, or retarding our labour productivity under the guise of labour market reform.

Media ownership: concentrate or perish

As Emma Dawson and Miriam Lyons point out in their article on this website, 'INTRODUCTION: Ideas for an Australian media policy': 'As citizens in a democracy we rely on the media to scrutinise the actions and decisions of those in power'.

A responsible, robust news media is an essential pillar of a healthy democracy. However, in Australia and around the world these pillars are being corroded by commerce. Market forces, left unchecked, will see our news services dominated by sound grabs, zealots, celebrities' opinions, gossip and funniest home videos.

According to a report in The Economist last year, most newspaper companies in the developed world still earn almost all of their profits from print, which is in decline.

While the long-term future of quality journalism is under real threat, the media debate in Australia is focusing far too much on issues of ownership.

We are too hung up on media concentration. Of course it would be wonderful to have a diverse range of media moguls all competing in this country. But the stark reality is Australia is not a big enough market to sustain this anymore than we can sustain diversity in our vehicle manufacturers.

We have to choose between diversity of ownership or commercial strength. I say we should choose commercial strength.

Dawson and Lyons go on to say, quite rightly, that we 'need media that is independent and diverse; capable of putting the public interest above the interests of media owners - whether those owners are governments or shareholders'.

But let's be clear about this - the only media owners capable of putting the public interest above their own are those who can afford to.

The most obvious example of this would have to be The Australian. This is our only national daily general newspaper - the other national daily being the business oriented Australian Financial Review.

Whether you read it or not, The Australian is one of our most important news outlets and it would be a catastrophe for journalism and democracy in this country if we were to lose it.

So let's not forget that we have The Australian because Rupert Murdoch (for all his faults) had vision and was 'capable of putting the public interest above‘ the financial interests of his company and shareholders.

The Australian ran at a loss for many years, in fact I believe it was more than a quarter of a century before it showed a profit. Even today The Australian manages to fill many column centimetres with news, features and analysis, and maintain a large stable of journalists on very low circulation numbers. In fact, Monday to Friday, it's out-sold by the regional daily, the Newcastle Herald.

Only a large company like News Corporation, that has deep pockets and more lucrative sources of income, could afford to launch and maintain The Australian.

If another large company were to launch a national daily in competition to The Australian, we would not have more diversity, because it would not be sustainable. One, or both, publications would go out of business.

As we make our way into the 21^st Century, I would argue that there are no more important institutions than the general newsrooms of our major daily newspapers - national, metropolitan and regional. These are the troughs that all other news outlets - radio, TV, Internet sites, blogs, magazines - feed from. They are also the main incubators for future generations of journalists.

The reason for this is resources. Only the major newspapers, and to a lesser extent the ABC, have the journalistic resources to seriously scrutinise the avalanche of information that flows every day from the wires, the internet, the courts, the councils, the parliaments, the politicians, the stock exchanges, the business community, the sporting community and the general public. Let alone still have resources to get involved in any meaningful, proactive investigative journalism.

Of course TV and radio and websites also break news stories. However, they do so in a more ad hoc fashion. They do not have the resources to provide the blanket community coverage that the newspapers do.

Most of the electronic and new media content involves responding to, interpreting, analysing, discussing, developing, displaying and investigating what the papers say.

Now I don't want to be seen to underestimate the importance of all these other outlets. Radio, TV and the Internet have taken public discourse to a whole new level. They facilitate vigorous and immediate community debate on the issues of the day. It's this dialogue that defines who we are and what we stand for.

Many media commentators have been predicting the end of newspapers.

Anton Harber, Caxton Professor of Journalism at the University of the Witwatersrand, suggested that many of the 1600 editors and publishers who attended this month's World Association of Newspapers international congress and World Editors Forum in Cape Town, were in a state of denial. "On the face of it, the patient is already in a coma, and they are just not prepared to turn off the life support".

Professor Harber says the figures in the US and most of Europe show clear trends - as internet audience and revenue grows, newspapers sales are plummeting, advertising is fleeing and the average age of readers is over 50 and getting older every year.

Surveys show that more and more people are getting their news from the telly. I say this is rubbish. They may well be hearing their news from the telly, but most of the news they get from the telly actually comes from newspapers.

Unfortunately the increasing popularity of the electronic media outlets are bleeding the market share away from the big newsrooms on which they rely.

This is one reason why ending cross-media ownership restrictions is a good thing. It may help to stem this erosion, but it won't put an end to the issue.

The fact is that as our communities expand in size and complexity, our major newsroom resources are being eroded. This is not unique to Australia, it's a worldwide trend. Many of the largest and most important newsrooms in the world are finding it difficult to merge onto the information superhighway.

In a May 24 memo to staff announcing that 57 journalists are to be made redundant, Los Angeles Times Editor Jim O'Shea pointed out that staff adjustments were "an unfortunate reality in nearly every paper in the nation".

Between 1990 and 2004 employment at US newspapers fell by more than 17.5 per cent while US employment overall rose by more than 20 per cent.

At the core of the problem is ROCE (pronounced Rocky) - Return on Capital Employed. ROCE has a variety of nom de plumes, however, if it was a person, he would have "Show me the money!" tattooed on his chest.

ROCE is the pure measure by which the share markets of the world can assess any business, no matter its size. And it's on this assessment that the big investment decisions are made. ROCE is the heart of the market system that has essentially delivered the free world as we know it today.

By and large it has had an overwhelmingly positive impact on living standards, life expectancy and quality of life. We got a graphic example of what the absence of these free-market mechanisms would be like when the Berlin Wall came down and the Trabant coughed its way through the Brandenburg Gate and parked between a Mercedes and a BMW.

But ROCE does not always deliver the best results. And news is a case in point.

Rupert had to lock ROCE in the bathroom until The Australian could learn to walk.

As far as ROCE is concerned, the big newsrooms will never cut it against their increasingly popular, low-cost competitors.

However, while our leading newspapers are publicly traded, many remain privately controlled and this, to a large extent, has kept ROCE at bay. But the tide is turning. We are now seeing the equity funds moving on our media assets. These funds are ruled by ROCE because they are essentially responsible for investing our superannuation dollars.

If we want to preserve the health of our modern democracy we must find a way not only to stem the market erosion of our newsrooms, but to reverse it. We don't just need to preserve our news services - we desperately need to improve them.

Considering that robust competition will always deliver the best outcomes, we can find a way to harness the power of the market rather than try to resist it.

I don't pretend to have all the answers, nevertheless here is one suggestion to start the discussion.

We dramatically expand the role and resources of the Australian Electoral Commission to oversee the news media in general, not just during election campaigns. This makes sense when you consider that most voters have made up their minds on how they will vote prior to the election campaign.

I would envisage the AEC providing incentives rather than regulations. This is where the resources come in. It would establish criteria that it would then use to rate news organisations according to the quality of their information - in the same way we apply credit ratings.

The criteria could, for example, include such things as number of journalists employed, accountability to audience members - publishing of corrections, readers' advocates, independent avenues for feedback, letters columns, online forums, chat rooms etc.

The AEC could then provide accreditation that would make news organisations eligible for financial incentives - tax breaks and/or subsidies.

In other words we would be putting a market signal on quality information in the same way we plan to put a price signal on CO₂ in order to curb greenhouse gas emissions.

We do this for political parties, and in a sense we even do it for religions. If we do it for our news organisations we will be helping our media owners to act in the best interests of the community as well as their shareholders.