A New Progressive Consensus?

Miriam Lyons

So You Think You Can Think?

Suddenly ideas are sexy. The Australia 2020 Summit has done for Deep Thought what Australian Idol did for karaoke - what was once a mildly embarrassing hobby best practised under cover of drunkenness is now played live to a national audience.

Like music professors asked to comment on the success of Idol, most of the wonks who went through the last two days can't quite decide whether to be pleased that so many people are paying attention to ideas or annoyed that serious attempts to grapple with complex, long-term policy problems were sometimes lost amidst the all-singing, all-dancing Summit show.

In the governance group Marcia Hines was played by Maxine McKew, who, after listening to report-backs from groups with ideas ranging from FOI reform to a new Federation Commission, entreated us to put a little soul into it. Kudos to youth summit delegate Owen Wareham who read between the lines, said something like "here's a sound bite, if that's what you're looking for" and delivered a punchy straight-to-camera pitch for automatic enrolment.

I had a lot of sympathy with Ms McKew's call for more ideas that would capture people's imagination. True originality is rare - especially when it comes to workable ways to run a country - but with so little time to jam ideas, it was inevitable that we sometimes ended up singing covers. In hindsight it's pretty obvious that asking a group of clever and opinionated people to decide amongst themselves whose idea was the "biggest" was a recipe for mayhem. We probably would have been better off if the hard-working scribes had whacked our ideas straight on to ABC2's ticker, and a mobile-wielding audience had texted their favourite policy to the top.

But although many people felt uncomfortable at the amount of detail lost in the translation of hours of feisty debate and carefully crafted compromise into "ambitions" and "priority themes", there was still an incredible amount of light on that hill.

The constitution group, after quickly establishing that the divine right of kings wasn't likely to be a feature of Australia's governance in 2020, moved straight on to ways of ensuring that the process of taking the last steps towards independence works better this time around. Their conclusion? A plebiscite on the principle of severing Australia's ties with the Crown, followed by a referendum on the model after extensive consultation (with Lyn Carson, Janette Hartz-Karp and others arguing for the use of some of the more representative devices in the consultation toolkit like citizens juries or assemblies).

My "open governance and media" group, which included some very sharp FOI thinkers, came up with a pretty detailed list of ways to protect citizens' right to find out what their governments are up to. There was general support for reforming media law in the interests of consumers rather than producers of media, but Allan Fels' recommendation that we "deregulate the electronic media" was sidelined due to a lack of time to debate the details of the Productivity Commission report. Paul Chadwick, ABC editorial policy director, came up with the excellent idea of abolishing Crown copyright (I'd explain why it's excellent but I'm on deadline and over the word limit - feels like the Summit all over again).

My favourite idea from the weekend goes to the heart of why I think the Summit, for all its flaws, was a great idea - Collaborative Governance. Whether it's through a hand-picked bunch of self-proclaimed ideas people, a "community cabinet", or the random selection of a citizens jury, we need to upgrade democracy's 19th Century plant and equipment if we're going to make the right decisions on some of this century's thorniest problems. To this end, one of the "big ideas" that came out of the governance stream, was ourgov.au - a cross between Get Involved, theyworkforyou.com and a whole bunch of other experiments in making it easier for citizens to access government information and participate in decision-making.

As the beleaguered staff at PM&C start sorting through the transcripts and deciding which ideas will get signed to the Kevin 24/7 label, most of the really interesting conversations started by the summit will be continuing elsewhere. Apparently the website that Summit delegates have been using to discuss each others' ideas is going to be made public soon - so if you're interested in helping to create a blueprint for a better federal government website, drop by sometime and join the conversation.

This piece was first published in Crikey and cross-posted at Larvatus Prodeo.

 

Professor Stephen Leeder

The Best Yakfest and Hullabaloo in Town

John Ralston Saul, in his The Unconscious Civilization, writes of the great contribution of town hall meetings, discussion and exploration of political matters, and vigorous conversations among citizens towards the maintenance of a vibrant democracy. The seemingly inefficient chattering and reassessment that goes on in conversation contrasts with the corporate drive that excludes debate in its quest for technical resolution and fast forward profitable movement. If you want to keep a democracy, keep talking, Saul argues.

The 2020 Summit was the culmination of many town hall meetings - 500 school meetings and thousands of on line conversations, a Youth Summit and a Jewish Summit - and it was full of chatter. It fitted with Garrison Keillor's description of poetry (as opposed to managerial prose) as:

being on the side of exhilaration and the stupendous vision, the sight of the stars through the barred window, the perfection of small birds, the democracy of their chattering language and of our own yakfest and hullabaloo.

The media coverage of the Summit has been vintage colour-me-cynical Australian-beige. Virtually none has addressed the Summit as instrument of democratic life. Instead, the dull uniformity of articles and clips asserting that no good thing can come from the Summit has been depressing. That we have a prime minister capable of scholarly reflection and grasp, at ease discussing ideas rather than sending them off-shore to an island quarantine station, has largely escaped their attention. Only a fragment of the Summit material has thus far been published and it will be weeks before it all becomes available, but most media have already closed the books.

The single most interesting idea in the Health Strategy Stream for me related to prevention. I learned from the CEO of Woolworths, Michael Luscombe, that Coke Zero and Diet Coke cost one third less to produce than sugar laden Coke. An interesting possibility exists for a conversation with Amatil, of tobacco fame and that now runs Coca Cola, for preferential pricing for the less health damaging Zero.

This, we agreed, was the kind of conversation that the prime minister could lead with benefit with major urban developers, food manufacturers and retailers in order to make it easier for people to choose goods that do not screw up their health. He could convene such a meeting as a follow-up to the Summit, in the spirit of the Summit. Seated around the table seating the CEOs of companies that build our cities, design our parks and cycle ways, determine the style of new buildings, decide upon the walkability of a new suburbs, choose what food will be retailed, advertise it, run our commercial gyms and more, the PM could say "Ladies and Gentlemen: we have a problem and its called obesity. What are we going to do about it?" Small changes by CEOs ripple into waves - slowly reducing salt, fat and sugar in processed foods, designing mandatory park spaces so that people use them rather than avoid them, developing coherent walkability plans for cities and so forth could all be done at low cost through the combination of commercial, community and political will. Such a forum was recommended.

Fears that the Summit attendees would be a ‘white bread' congregation were allayed by the diversity of those present. Parliament House felt less like the headquarters of a major accounting and management consulting corporation. Instead, its major assembly point was more like the packed, grand entrance to New York's Metropolitan Museum of Art, milling with enthusiastic patrons on a winter Sunday afternoon. It felt like the Sydney Olympics, with volunteer ushers, scribes, and facilitators, crowds, chatter, laughter, youthfulness, optimism and anticipation, and a touch of tinsel. I felt pleased to be alive and delighted to be there.

 

Associate Professor Lyn Carson

Flying home from 2020 Summit

I write this on the flight from Canberra to Sydney. The 2020 Summit is only an hour old. Already I have a printed report outlining the ideas from Australia's "best and brightest" and feel pleased to have rubbed shoulders with some very inspiring thinkers.

We gathered as a group of 100 in the Governance stream, a sub-set of the total 1000 delegates. That 100 delegates were split into four groups of 25 and I found myself in the Constitutional Rights & Responsibility group, among fellow academics, politicians, advocates, concerned citizens and students. For me, the republic, a bill of rights, reformed federalism are all ‘no brainers'-boxes to be ticked so we can move onto new ideas like reinvigorating governance by putting people at the forefront. I began to feel isolated as I mouthed enthusiasm for my key interests: inviting randomly-selected citizens to deliberate in mini-publics (like newDemocracy's forthcoming Citizens' Parliament), in order to give Australians a stronger voice in political decision making. The constitutional lawyers would interrupt any mention of citizens' juries or citizens' assemblies to insist on a precise definition for the term citizen. It was going to be a long weekend.

My wildest ideas were clearly not going to be embraced by this group, for example a group of 1000 randomly-selected citizens to consider the ideas from the 2020 Summit or - heaven forbid - a randomly-selected legislature. I began to note the way in which specialists censor themselves, speaking only of incremental change or not daring to flirt with anything seen as unrealistic. The conversation was too often about what was achievable in the short-term. The co-chair, Maxine McKew, expressed her disappointment when we regrouped amongst the 100 to report back. Only three people thought we had offered a big idea yet the sub-heading for the 2020 Summit was "Thinking Big".

I noticed that we were following the stages of group development: forming and norming and we had begun to experience the storming phase: frustration with the process and each other. Lobbying occurred. People were negotiating a way forward and process designers were working behind the scenes. I hungered to work with a group that shared my concern for the voiceless.

The next day we entered the performing stage as we coalesced around the idea that enthused each of us: the republic, a charter/bill of rights, open and accountable government and civic engagement. I was able to switch groups and, in the latter group, we worked frenetically to extract the essence of our collective dreams, to accurately express our combined aspirations and goals. We were pleased to offer several wonderful ambitions and big ideas although the detail was eventually lost in the final presentation and written report. Democracy day disappeared and participatory budgets and citizens' assemblies and juries simply went missing.

However, what surfaced in the final presentation was the top ambition of the civic engagement group and it appeared in a slightly different form in the final document:

... the need to strengthen the participation of Australians in their governance: a revolution in community and government interaction through grassroots and non-traditional community engagement...

The Prime Minister in his closing remarks noted that the idea of collaborative governance (the phraseology we had preferred and put forward), was a new one which could involve "rolling dialogues in relation to policies and programs."

As the plane descends I'm left with the feeling that we worked well together, that we shared many wonderful ideas across ten wide streams and that this navigation, indeed, may really be in the hands of an unusual government. This one seems to be daring enough to dare us to imagine a very different future from that which we thought awaited us. One delegate from a resource-strapped welfare organisation told me that he did not know how to relate to this new government. He'd been trying for so long to get inside the doors, only to find them slammed shut, that he wasn't sure what to make of one that warmly invited him in. Let's hope that the doors remain as widely open and the air as cool and fresh as that which we experienced these past two days.

 

 

Professor Jon Altman

What Dividends for Indigenous Australia from 2020?

The Options for the Future of Indigenous Australia stream had the unenviable task of grappling with what is the most intractable issue facing the nation: how to achieve some symbolic accommodation between Australia's First Peoples and the settler majority that is acceptable to both, while simultaneously closing the unacceptable socioeconomic gaps.

In the stream's deliberations these two issues were viewed quite correctly as parallel challenges. Despite mischievous reports to the contrary in the national media reflecting the views of some, there was no erroneous slippage in stream discussions into the false practical/symbolic binary. There was an overarching sense of urgency permeating deliberations, it was not about gazing to 2020: the future begins now and many participants felt accountable to their home communities to emphasise this message.

One concern I had prior to 2020 was that the Indigenous stream would be ghetto-ised, but this possibility was addressed by having Indigenous participants judiciously distributed throughout the other nine 2020 streams. There were probably 100 Indigenous participants at 2020, significant and appropriate over-representation historically unmatched in an Australian occasion of such profile. And many good ideas came from these other streams.

The big ideas that emerged from the Indigenous stream were crucially important rather than new: find an instrument for the formal recognition of Aboriginal and Torres Strait Islander peoples; develop an Indigenous Futures Fund to assist meeting backlogs; and establish an Indigenous Productivity Commission to hold governments accountable for levels of fiscal commitments and actual expenditure to address Indigenous disadvantage.

There was a big idea that the national lexicon that either pathologises or else seeks to assimilate Indigenous peoples needs to change. The means to such an end saw the call for a revived national dialogue, one that arguably was well underway during the Reconciliation Decade 1991-2000. Sometimes one needs to revisit past good ideas and their practical implementation.

The Options for the Future of Indigenous Australia stream highlighted three paradoxes for me.

First, some complained that there were no new ideas being articulated which is surprising given the dominant discourse of policy failure: perhaps the last 35 years have not been all failure after all?

Second, it is difficult to reconcile the recent call for fresh new ideas with the equally recent call for an evidence base to guide policy making: ideas often have no evidence, just cogent argument.

Third, and unsurprisingly given the neglect of the last ten years and the unilateral NT National Emergency Intervention of 2007, there is a deep distrust of the state and yet a call for the state to set up a statutory commission with teeth to hold it accountable to its Indigenous citizens. I am sceptical that any state is open to such transparent scrutiny.

In my view there is an urgent need for a national Indigenous representative body so that the debate in the national media is not hijacked in future by an articulate handful with domineering views that may not reflect those of the Indigenous polity.

Overall, I observed a strong call for a new policy framework, one that at once sought to advance Indigenous socioeconomic status to parity, while at the same time actively facilitating options for Indigenous people to pursue distinct and diverse cultural priorities of value to a heterogeneous Australia. There was little discussion at 2020 about trade-offs that might be inherent in such a framework, perhaps because both its key strands are some considerable way off.

 

Bill Bowtell

One thousand and two notable Australians camped out in the national parliament for two days. As Maxine McKew observed, they looked a lot more like contemporary Australia than the members of the current Parliament. They occupied every space except, revealingly, the two vacant Parliamentary chambers. Under the indulgent gaze of a remarkable Prime Minster, they consigned to history's ashcan the shibboleths and icons of Australia's past - the monarchy, the sovereign states, the dysfunctional health system and much else besides. By acclamation, the modern version of a constituent national assembly adopted and endorsed the republic, a new constitutional order of things explicitly recognising the place of the first peoples (details to be worked out), a "seamless" national economy, a modern national curriculum and a single unified health system. On the way through, the Summit reasserted Australia's commitment to multilateralism and the primacy of international law and global good governance as cornerstones of our foreign and security policies. New visions and grand plans for education, transport, culture and the arts, family and social policy, indigenous affairs, governance and rural and regional Australia might have looked as if they were conjured up in a weekend, but in reality they have been years and decades in the making.

Rapidly, methodically and confidently, the Summit adapted and renovated our national structures, priorities and politics to cope with the vast forces that are remaking our world. The Summit of course built this new progressive consensus upon the foundation of certain ineradicable core values -- the idea of a fair go for all, the belief that the national interest is more than just the aggregated demands of 20 million individuals and the view that we can and should plan for the future rather than become passive victims of it. With great good humour, the 2020 Summit endorsed the national consensus that has emerged over the last three decades or so that our decrepit constitutional and political structures are no longer fit for purpose. On Sunday 20 April 2008, the old Australian order of things ended. It was consigned to history without rancour, revolution or bloodshed. The new order came into being in an atmosphere of joy and celebration, cheap wine and boxed lunches. What could be more daggily and happily Australian than that? We need shed no tears as we finally close the book on twentieth century Australia. The future has arrived.

Carbon Markets in the Laboratory

Markets are a powerful policy tool. The market mechanism allocates scarce resources to their highest value users, so enabling a policy objective such as a cap on overall water use or carbon emissions to be met at the lowest possible cost to society. By their very nature, markets will follow their own path. A well functioning market will find the genuinely efficient price for a scarce good - and will allocate resources optimally in the process. The attraction to the policy maker is that there is less need to know the internal (and hence basically unknowable) circumstances of the regulated parties in order to create efficient policy. However, this also means that market outcomes (prices achieved, innovations brought forward) cannot be predicted with certainty, and are likely to differ from the outcomes that would be reached by non-market regulatory policies.

 

 

 

 

Image: Thomas Hawk

There is currently great interest in the process of designing and implementing markets for public policy due to the forthcoming Australian Emissions Trading Scheme (AETS) for greenhouse gas emissions. There is much debate and lobbying around designing a set of market rules which will work ‘best'. As the latest discussion paper from the Garnaut Review points out, these rules should be simple and consistent. A growing body of evidence from existing environmental markets, as well as laboratory market simulations, shows that the details of market design can have a very significant impact on market outcomes. Not all markets work equally well. The more complex the rules, the harder it is to predict exactly how a market will work, and the greater the chances of it failing in its task of efficiently allocating scarce resources. Therefore for any market-based policy, and particularly one of such scope and impact as the AETS, great attention must be paid to the details.

Economic theory provides a starting point for market design. However people frequently do not conform to the narrow assumptions of economic models, which can lead to unanticipated consequences. Sound market design therefore requires real human behaviour to be incorporated into economics. One approach to doing this is experimental economics (pioneered by Nobel laureate Vernon Smith), which observes economic decision-making under controlled laboratory conditions. In a typical economic experiment, participants trade in a simulated market through computer terminals. To increase the realism there is real money at stake - participants are paid based on their success in the market.

While experiments are by no means the final word on economic behaviour, they provide many insights which can guide policy design. The first and most crucial is confirmation that, when exposed to the vagaries of human behaviour, the details of market design really matter. For example, the ‘irrational exuberance' which leads to asset price bubbles and subsequent crashes is readily observed even in simple laboratory markets in which people are trading artificial assets with clearly defined values. Modifying the rules of the market to improve availability of information about supply and demand, for instance by incorporating a simple forward (futures) market, can dramatically reduce this volatility (1). In a forward market participants can agree on prices for future trades, which effectively provides advance warning of future market conditions.

In terms of an AETS, the Garnaut Review recognises the importance of forward markets in providing sound price signals and hence guiding medium and long term investments in alternative technologies. To some extent forward markets emerge spontaneously - in fact, some market participants (particularly companies involved in electricity generation and retailing) are already trading forward against the anticipated compliance units, even though they have yet to be defined (or even named). For a forward market to function well, information about future permit availability must be made available as openly and accurately as possible. Dysfunctional forward markets will distort spot (current) markets and lead to poor investment decisions.

A similar issue arises with the creation of offsets and the banking and borrowing of permits proposed by Garnaut. The number of permits in the market, needs to be publicly known to guide future investment. Experimental simulations of the Mandatory Renewable Energy Target (MRET) market suggest that a lack of transparency in the number of permits created is likely to have impaired market performance (2). When market participants were able to secretly hoard permits, many did so, resulting in low supply and rising prices early on, followed by a price collapse as it became evident there was an oversupply. Similar patterns have been seen in the EU ETS and the NSW Greenhouse Gas Abatement Scheme (GGAS) markets, in part due to uncertainties around the number of permits actually in the market.

Another key market design question is the initial allocation of permits. Garnaut indicates that there is no case for freely allocating permits, so they should therefore be auctioned (with compensation for trade-exposed industries and adversely affected regions and households). In addition to its public finance merits, this proposal also works from a behavioural economics perspective. Experiments show that people tend to place a higher value on items they hold than on those they do not (3) - in behavioural economics, it appears a bird in the hand really is worth two in the bush. As a result people prove poor at trading items which they have been given for free. Running an initial auction forces all market participants to consider their optimal position and place a reasoned value on permits, and is likely to lead to more ‘rational' and efficient subsequent trading activity.

Psychologically people relate very differently to losses and gains (4). The prospect of incurring a loss has a far greater mental impact than the prospect of an equivalent profit. Whether an outcome is considered as a loss or a gain depends on the way the decision is framed. In laboratory experiments on simulated emissions trading schemes, people will go to far greater lengths to avoid paying a penalty for being non-compliant than to make a profit from being compliant, even though the financial consequences are identical. Paying a ‘penalty' is not only seen as a loss, it also implies bad behaviour, which has reputational consequences. This may explain the apparently irrational behaviour seen in the NSW GGAS market in which some market participants were actually prepared to pay slightly above the penalty rate in order to avoid being non-compliant (which also created a significant problem in the forward market - see 5). Therefore the way in which any sanctioning mechanism is labelled (e.g. penalty, levy, make-good provision) is likely to impact on market behaviour.

Great care should be taken around the design of any initial permit auction within an AETS. There are parallels here with the auctions run by governments around the world for 3G mobile phone licences in 2000-2001. Each government opted for a slightly different auction design, which contributed to the vast differences in revenue raised. Once again the details really matter, and the dividends from thorough design and testing can be huge. The economics laboratory provides a ‘policy wind tunnel' in which proposed market mechanisms can be tested and refined, reducing the risk of costly policy failures. There will certainly be surprises in store in terms of how people and firms, individually and collectively respond to the new market signals arising from an AETS.

A final thought concerns the future of voluntary abatement activities and carbon markets as we move into a statutory AETS. Simple economic theory would suggest that introducing additional incentives through an AETS can only increase people's abatement activities. However quite the opposite may be the case, and there is evidence to suggest that introducing regulations or financial incentives can lead people to stop doing things voluntarily (6). If voluntary carbon markets are to have a future they will need to be very clearly delineated from an AETS, perhaps by focussing on sectors or activities which fall beyond the scope of the statutory market. While many people donate to medical charities, no one donates to Medicare. Why should carbon be any different?

1) See Porter, D & Smith, VL (1995) Futures contracting and dividend uncertainty in experimental asset markets, Journal of Business 68, 509-541 and Kluger, BD & Wyatt, SB (1995) Options and efficiency: Some experimental evidence, Review of Quantitative Finance and Accounting 5, 179-201.

2) Nolles, K (2006) The impact of the delay between energy generation and REC creation in MRET: A laboratory investigation on the performance of the Australian Renewable Energy Market. Aton Experimental Economics Laboratory.

3) Kahneman, D, Knetsch, JL & Thaler, RH (1990) Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy 98, 1325-1348

4) Kahneman, D & Tversky, A (1979) Prospect theory: An analysis of decision under risk. Econometrica 47, 263-291

5) Nolles, K (2006) How the forward market has raised the penalty rate for MRET, GGAS and GES by 20%. Aton Experimental Economics Laboratory.

6) Frey, BS (1997) Not Just For the Money: An Economic Theory of Personal Motivation and Reeson, AF & Tisdell, J (2006) When good incentives go bad: An experimental study of institutions, motivations and crowding out.

Obstacles to Social Investment

A strong case can be made that, if we as a society invest in sustained, co-ordinated programs to assist the disadvantaged to overcome problems they face and to develop their capacities, this will not only benefit those so assisted but will also generate net benefits for society as a whole.

But of course a lot more than simply making the general case is needed to get a social investment approach adopted as the public policy norm. In this article I consider some further tasks to be undertaken and obstacles to be overcome.

Firstly, one major obstacle relates to the fragmentation of government, divided as it is into multiple departments and agencies and multiple levels in our federal system. This leads to the often-noted ‘silo' approach, in which departments only deal with one aspect of a person's life - such as their health, housing or education - in isolation from interventions (or non-interventions) by other agencies or parts of government, even though all these aspects are causally connected. Fortunately governments are increasingly recognising this problem and committing to a whole-of-government approach, although, as on other matters, practice usually lags far behind intent.

But this fragmentation also means that the part of government that incurs the costs of a particular investment in the disadvantaged is not likely to be the part that reaps the benefits. For example, money spent on education does not generate financial returns for education departments, and officials and teachers responsible for successful educational programs won't be recognised for all the benefits generated. In fact, they're unlikely to even know themselves the range and extent of these benefits.

On top of this there are the problems that stem from changes of government, which not only cause further policy fragmentation and discontinuity, but also lead to situations in which governments inappropriately take credit for the policies of their predecessors, or avoid the blame for the consequences of their own policies once they are out of office. This reduces the motivation of governments to pay the financial and political costs of investing in the disadvantaged if the returns are not likely to be immediate, because there's an even chance that their opponents will be in power when these benefits are realised and will naturally take credit for them. AA Alternatively, there's an even chance that the adverse consequences of the failure of a government to so invest are blamed on its opponents when they are in government.

Secondly, there's a great need for further research into the benefits of social investment, particularly in Australia. While there's a not insignificant body of research from Australia and overseas that supports the social investment case (1), in total it still falls short of what is necessary. For a start, more longitudinal studies are needed. The fact that the Perry Preschool Project is the most celebrated case demonstrating returns on investment in the disadvantaged is probably not a result of an exceptionally different or efficacious project, but rather of a very long study that recorded the benefits accruing until project beneficiaries were forty years old (2). So we clearly need more such studies.

Image: Merebearlandon

But longitudinal research is expensive, and it also delays action, because a long time elapses before there are research results to act on. In many cases we could achieve similar results by simply ‘joining up the research dots'. For example, if we are researching the whole of life benefits to wards of state from continuing government support beyond the age of eighteen, we can study the extent of early benefits (such as improved educational retention or more stable housing) and then look at other research examining causal relationships between these milestones and others for similar populations. This may not give quite the same degree of research certainty, but it would be a decided improvement on the knowledge base that currently informs most policy decisions.

Research is also very unevenly distributed across different issue areas. For example, there is reportedly no Australian research into the longer -term benefits of interventions in early childhood education. Furthermore, studies of programs addressing disadvantage usually focus on one kind of intervention only, whereas there would be much to be gained from analysing the benefits of multi-pronged interventions, particularly as these are usually necessary.

For example, research analysing the most effective ways of re-engaging in education or employment young people who have dropped out of school might look at young people's engagement in any number or combination of in-school or out-of-school programs, alternative school or TAFE programs, mentoring, counselling, whole family approaches, programs addressing specific issues like anger management, intermediate labour market programs, those combining education and employment, and so on.

Thirdly, we need to go beyond just generating research results and communicating them to the usual audiences. We need to be telling the broader Australian community the story of what can be gained from more substantial social investment in the disadvantaged. While it's good for citizens to be informed about all areas of public policy, there are some areas of policy where it matters more than others, and this is one. A substantial increase in spending on the disadvantaged would be something that - until it started to pay off financially - would need to be funded from somewhere, so it couldn't happen behind people's backs. Rather, it would need broad support from Australian voters.

So research results would need to be communicated broadly, as would journalistic accounts of projects that really make a difference to people's lives. For example, there are some inspiring stories of interventions in demoralised public housing estates that have brought about dramatic individual and community change - for example, estates like Claymore in New South Wales, Bridgewater in Tasmania and Long Gully in Victoria. The story of the difference we can make to Australia by investing properly in the currently disadvantaged should be as prominent in the public mind as is the issue of climate change and the actions it requires.

Finally, there needs to be more public debate about ways of raising the necessary funds, particularly examining the case for taxes increases and government borrowing. While some economists - such as Fred Argy and John Langmore (3) - advocate such measures, there seems to be a near consensus among politicians, journalists and most economists that such measures are undesirable either politically or economically. But it's never explained how other developed countries can manage to have healthy, growing economies and very sound social indicators while at the same time having government debt and higher taxes than Australia has (4), or why it's sound practice for business to borrow to invest, but unsound for governments to do the same.

So as a result of all of the above - the fragmentation of government and the resulting lack of policy coordination or motivation to invest, the insufficient level of research and of community awareness of the benefits of investment in the disadvantaged, and the impasse over how such investment might be funded - government spending on the disadvantaged has just muddled along. It reflects the limited resources that the community sector can devote to campaigning, and it is just enough to spare governments the embarrassment of too high a level of obvious social malaise. This is a recipe for half-measures, for the recycling of people through the system, for the continuation of problems and incapacity.

We can do better.

 

1) See:

• Lynn A Karoly, M Rebecca Kiburn & Jill S Cannon, Early Childhood Interventions: Proven Results, Future Promise, the Rand Corporation, Santa Monica, 2005.
• John Chisholm, Benefit-Cost Analysis and Crime Prevention, Trends and Issues Paper No. 147, Australian Institute of Criminology, 2000.
• Access Economics, The Economic Benefit of Increased Participation in Education and Training, Business Council of Australia & Dusseldorp Skills Forum, 2005.
• Sunitha Raman, Brett Inder & Catherine Forbes, Investing for Success: The economics of supporting young people leaving care, Centre for Excellence in Child and Family Welfare, 2005.
• Social returns on investment: Valuing what matters, Findings and recommendations of a pilot study, New Economic Foundation, London, 2004.

 

2) The 17 to 1 benefit-cost ratio for the Perry Project cited in the first article was based on results prior to a minor recalculation of this figure included in the link provided here."

3) Fred Argy, Where to From Here? Australian egalitarianism under threat, Allen & Unwin, Crows Nest NSW, 2003, Ch 2; John Langmore, To Firmer Ground: Restoring hope in Australia, University of NSW Press, Sydney, 2007, Ch 5.

4) As is clear from the data in Rodney Tiffen & Ross Gittins, How Australia Compares, Cambridge University Press, Cambridge, 2004.

Mean tests: middle class welfare or redistributive fairness?

There is a current pre-budget flurry of name calling about certain types of payments which involves elements of gender bias and of moral panic. The term ‘middle class welfare' is being hurled at a comparatively small range of payments such as the baby bonus and some family payments, while much bigger concessional tax treatments on super payments or certain types of investment income are rarely targeted. This topic makes odd bedfellows: Tony Abbott's recent defence of differing purposes for such payments was headlined 'even the rich need some handouts'! and shows that these are arguments that need to be advanced carefully. The debates about the public sphere and public payments need to be connected as many people who support universal public services may also not see universal payments as part of the same arguments. There is a logic in making universal payments to some to achieve social and equity ends that is rarely explored.

Image: Thomas Hawk.

It was an email from a journalist asking me why John Howard had given baby bonuses to rich mothers that started my thinking through how to explain income testing problems in the present policy climate. I rang him back to explain that the baby bonus payment was a bit different to other payments because it was a substitute maternity leave. It had been introduced to stymie pressure from women's group to implement a HREOC proposal that the government fund 14 weeks paid maternity leave at the minimum wage as we were one of only two OECD countries without this type of universal paid leave.

The journalist accepted the argument that as this was not welfare but a work related entitlement, it shouldn't be means tested on family income. I didn't explain one of our concerns had been that as it was a universal birth payment, it was not therefore work related nor did it carry leave entitlements, so could be deemed to be welfare.

His next question showed up the ideological base of that decision: did Howard take on the universal baby payment because it would be cheaper than funding maternity leave? Not so. I explained that the baby payment last year cost nearly $1.2 billion, more than twice as much as the proposed paid maternity leave option. This made it clear that the basis of the decision was the reluctance of the Howard Government to recognise some mothers had both babies and paid jobs. Therefore it is not a leave payment but a costs offsetting one.

Much of the policy on government payments, concessions and means testing is based on ideological assumptions about public entitlements and payments. There is little real difference in financial terms between direct payments to people and tax concessions, rebates and other ways of reducing income tax liabilities. The latter group of indirect payments are seen by most as legitimate and different from payments made to people. Yet the net results to the budget are the same (except maybe for some administrative costs).

If much of the present public fuss were focused on the concessional taxation on super and earnings for those in top and middle tax brackets, which is upper class welfare, I would support the calls for change. Why do we need to contribute extra public money to high income earners who save anyhow, while we do not compensate low income earners for excessive tax on their compulsory super and its earnings? Few of the higher income earners who benefit will, however, publicly acknowledge this type of tax expenditure as a waste of public money.

In the tax literature there are two ways of explaining tax liabilities: one is horizontal equity and the other, vertical equity. In the first case, taxation and payment levels are assessed on comparative capacity to pay. For instance, a family with children on a certain income has more demand on their income than one on a similar income but without children. Therefore, a tax reduction or direct payment that offsets some of the extra costs of children creates equity between those with and without children and recognises that child rearing is generally seen as having public benefits as well as private ones. In the case of vertical equity, there are justifications for redistribution of income from those assumed to have an excess to those who may need more to achieve an acceptable living standard -  often as direct payments. This type of payment triggers public questions about defining levels of need and worthiness for support, as well as claims that it encourages sloth or dependence.

There is a wider question: who should be entitled to diverse forms of government financial support, regardless of its form of delivery? What support should businesses be able to claim? What are the justifications for rebates, concessions and payments for certain types of approved activities, such as saving for retirement, mobility costs or rearing children? Should eligibility in such cases be regardless of other income? Or should people only be entitled to public financial support when they cannot, for good reasons, pay their own way? What is the role of progressive tax to even out incomes versus income testing particular payments? What are the relative costs of churning ( i.e. retrieving universal payments from the better off via tax) versus income testing with high effective marginal tax rates on extra income? Which creates better long term equity when paid work disincentives are also costed?

De facto, our system mixes up all types of redistributions of public monies, sometimes deliberately to buy favours (e.g. self funded retirees) and sometimes to encourage certain types of behaviours such as the health insurance rebate or first home ownership. Via sumptuary taxes, we tax some spending heavily - such as gambling, cigarettes, alcohol and petrol - and exempt fresh food from consumption taxes. Do the taxes deter certain behaviours or just make more money and penalise the addicted poor?

The massive impact of means testing on low and middle income families, on second income earners in families and on those moving into paid work is too often accepted as an unfortunate given but may be a cause of additional problems. Some recent work on sole parents moving off welfare shows that net gains of income and living standards are often impossible because of loss of income support and attached benefits. Should we not recognise that sole parents need more substantial access to non-income tested payments to encourage workforce participation?

Further, we need to ask what is the appropriate use of the tax pool? We accept the collection of taxation and other forms of government income on the assumption that it will be spent for the public good - and sometimes our own benefit. Governments know that withdrawing payments and other benefits is always hard and elections are sometimes won by bribery. This is often based on wrong assumptions: despite many surveys indicating voters would prefer good services over tax cuts, politicians assume that voters are venal and try to buy votes.

This encourages auctions for favours with groups pushing for their own concessions and benefits and, in the process, undermining other claims. The easiest targets are those who receive open and obvious payments - for example welfare recipients such as sole parents. These groups have already copped many cuts, as have payments for children that mainly go to mothers. The frequency of attacks on these payments, under the label of 'middle class welfare', makes me suspicious that some of it is gender driven as males protect their privileges in higher income areas.

It is interesting to contrast the public fuss over the baby bonus with the lack of questioning of other payments, such as the private health rebate. Should tax-payers be entitled to access to public monies if they choose not to use universal public services? What are the justifications for both the health insurance rebate and the basic funding for wealthy private schools? Such payments pose an increasing problem as they encourage two tier systems in education and health and fuel demands for further subsidising of private choices.

This in turn leads to quality diminution and queuing for public services - and/or more complex eligibility testing to ensure that all pay what they can afford. Yet other services like public transport fares are not varied. The public benefits of trains are seen as good enough to be subsidised for all. Maybe the root and branch inquiry into tax promised after the 2020 summit will be able to examine not only what we collect but who is entitled to relief and why. If our payment system is to be a tax-funded form of equitable public pooling of risks and support payments, it should be able to define the eligibility for payments for particular life events. Child bearing, rearing, illness, caring for others, ageing and disability involve additional costs, so payments to cover these could be seen as entitlements and not dependent on other income, compliance in behaviours or access to other resources.

The costs of means testing payments also tend to be overlooked. Apart from the bureaucratic tangles and time taken to process, there are many other consequences that need to be measured against any perceived cash savings. Where the payment is a replacement for other payments, such as income support, there are obvious arguments that forms of income testing are legitimate. However, wider use creates myriad other problems for both those who dispense payments and for recipients. Few can understand the complexity of estimating income - which leads to avoidance of extra income and behaviour changes.

Payments which are means tested raise questions on the impact of effective marginal tax rates (EMTR). The EMTR is total clawback that occurs at certain income points when recipients of income tested benefits add in extra earned income. Its components include the withdrawal of income support payments (30 to 100%), the normal tax at certain levels, the withdrawal of other benefits like state concessions, health care cards, and public housing rental levels. These result in ‘traps' at various points where extra money earned may actually reduce net income or make it not worthwhile to earn income at all - once additional costs like work costs, fares and child care are added on.

These high effective tax rates operate on low and middle income earners as a disincentive for further workforce participation. This is particularly problematic for those with care responsibilities who have also to balance conflicting time demands, and are often the second income earner. Recent figures from the Australian Fair Pay Commission estimated how much of each extra dollar earned would be retained by someone on the minimum wage moving off income support. It showed that single people would retain 38c in each dollar, those sole parents on parenting payments (child under eight or grandfathered) would keep 50c and a couple with children (one worker) 40c - and presumably other sole parents the same. Add in some costs for going to work: clothes, child care, fares etc and it is clear that the incentive to find paid work is very limited. The Welfare to Work criterion for forced acceptance of a job is netting $25 for 15 hours of work, less than $2 per hour!

Policy makers also often omit to take into account the psychological effects of means testing. Many recipients of benefits avoid earning because they are scared of losing the security of the payment and don't understand how it works. Others, particularly the aged, engage advisers and buy products designed to assist people in claiming some pension so they can get the fringe benefits. The result is a system seen as unfair and very mean at its lower levels, but offering quite well off people benefits by using unethical, if not illegal, means of diminishing property and income.

Universal payments for some benefits can mitigate the problem by reducing the effect of other payment withdrawals. In the 1970s both major political parties supported the concept of a universal aged pension. The process was started when the Whitlam Government abolished the means test for those over 70 - a move supported, verbally at least, by Malcolm Fraser in 1975. At that time we also had a universal child payment which had been introduced as a child endowment in the 1940s to supplement the basic wage during war time austerity. This payment continued and was improved until well into the 1980s. However, since the late 1970s, there has been a major shift in the way we see government and how it should assist people. With the rise of neo-liberalism, pressure to lower expectations of collective, public support has increased. This in turn has led to more targeting of payments on the basis of need - which in welfare policy terms is referred to as means testing. Because of the moral panic around welfare as a waste of public money and the unfair scapegoating of recipients as lacking moral fibre, I prefer to call it mean testing.

Choice – too much of a good thing?

Have you ever felt a twinge of panic in Starbucks when confronted with a huge menu of options? Have you ever looked at all those wonderful holiday destinations, and then decided to go to the same resort as last year? Have you ever thought of moving to a new plan for your mobile phone, gone to the website, and found it all too hard?

"Choice overload" was hardly a problem for our grandparents for whom there was one generic product called "milk", one brand of beer in each state (Swan in WA, West End in SA etc), and one telephone company, the government-owned PMG. And it's still not a problem for Cubans and North Koreans.

But is not choice one of the great gifts of market liberalization? Economists have generally assumed that the more choice we have the more likely we are to find a product that meets our needs.

Sheena Iyengar of Columbia Business School and Mark Lepper of Stanford University decided to test the assumption. They conducted experiments in supermarkets in which they had tables displaying a number of varieties of jam. Shoppers who stopped by the tables were given a sample and a discount voucher which they could use towards buying jam. When they displayed thirty types of jam, only 3% of shoppers actually used their vouchers and bought jam, but when they had only six types on display, although fewer people took samples, 30% of shoppers bought jam.

Perhaps it doesn't matter if we depart from the economists' model of rational behaviour when it comes to jam or Starbucks coffee. But Sheena Iyengar and her colleagues found similar results when she looked at choice of 401(K) pension plans - the US equivalent of our superannuation plans. The more plans offered, even when simply described, the lower was the probability of people making any choice; they would walk away without any pension plan.

There is no hard and fast explanation of this behaviour. Psychologists point out that making a choice involves rejecting one or more options; the more on offer the more we have to reject. Whenever we reject a jam (or a coffee, holiday destination, or potential life partner) there is a feeling of regret. "Perhaps I would have enjoyed the Java Chip Frappuccino more." The greater our field of options, the greater our regret. Also, when people are presented with more options they need more time to search and compare - think of those times when you've reached the front of the line and are asked to choose, conscious that you are holding up five people behind you.

Economists may think that the most joyous activity in our lives is shopping. In reality, we have many demands on our time, and, rationally, we allocate our shopping time to those areas where we can gain most benefits. I may actually enjoy browsing through a book or music store, but searching the websites of phone companies hardly comes into the category of "enjoyment." UK research, presented to the OECD in 2006, showed that most electricity consumers did not take up beneficial switching opportunities, and of those who did, a third switched to worse plans.

For some products, such as health insurance or banking, there may be a range of suppliers, but between those suppliers there is no significant variation in terms of price or quality. And the most banal "choice" we are called to make is between electricity, gas and water suppliers where the products are not only identical but they are delivered through the very same pipes and wires. The notion that we may be better off if those simple undifferentiated products could be best delivered by a well-regulated public monopoly is heresy for the policymakers, because "choice" is an unmitigated good.

In fact, the word "choice" has been appropriated as an ideological weapon. "Choice" of school, "choice" of health insurer, "choice" of superannuation fund. Those who present a more complex argument, qualifying this enthusiasm, are condemned as relics of a bygone age of Soviet Central Planning.

It is quite rational, however, to choose to have our choice constrained, for there are many situations where exercising my choice makes it harder for you to exercise your choice. Consider, for example, a society where almost all of us would like to send our children to high quality public schools where there would be mixing of ethnicities and social classes. But when some, in the name of "choice", are encouraged to set up their own schools, all schools become segregated by religion, ethnicity or income, and we no longer have the option of mixed schooling.

When there is a flight of the elites from public education or public health care, people who would prefer shared systems are denied their choice. In 1978 Thomas Schelling, later to win the Nobel Prize in Economics, spelled out this phenomenon in his description of "tipping". Ten years earlier Garrett Hardin, in his seminal essay "The Tragedy of the Commons", pointed out that we freely choose collective means to limit our own freedoms when they impinge on the freedoms of others. (See the editorial by Ken Davidson in the Autumn 2008 edition of D!ssent for an outline of the relevance of Hardin's work in broader public policy domains.) That's why we restrict our "choice" of carrying a handgun, using leaded gasoline, or watering our lawn during a drought.

Yet our policymakers persist with their simplistic notion of choice. Paternalistically they deny us the freedom to make collective choices, because they know, better than we do, that individual choice is good. And it's because, in public policy, there is an obsession with competition as a solution to all economic problems; that obsession will be covered in next month's InSight.

5 ideas in 5 minutes

 

Republicanism

The idea is Australia becoming a republic sometime before 2020. It emerged as a central issue in the recent 2020 Summit.

It's interesting because since the Australia Act in 1986, Australia has had no practical judicial or legislative connection to the United Kingdom yet remains a member of the Commonwealth.

It is the symbolism of Australia remaining a constitutional monarchy or becoming a republic that can really be considered the primary issue. For those in favour of the preservation of the current system, the constitutional monarchy is an acknowledgement of Australia's British history and inheritance, and also an affirmation of national values and traditions.

Similarly those who want Australia to be a republic argue that having an Australian as the head of state and removing the last vestiges of British colonial rule would symbolically mark Australia's maturity and better reflect the practical reality of contemporary Australia.

Far from being a question of serious practical or legal concern, it is an issue essentially based around how one would like to think about Australia as a society and the image and values that it projects to the wider world.

They tried it in France followed by others.

Read more at Oz Politics.

 

 

Australian federalism

The idea is improving government efficiency and service delivery, another issue raised in the 2020 Summit. It denotes greater inter-governmental harmonisation and cooperation between federal and state governments in order to improve efficiency and service delivery.

It's interesting because it implicitly acknowledges that the Australian federal system, with its three-tiers, often duplicates regulatory and legal regimes. It also recognises that harmonising policies among the states, for which there is ample scope (See the Model Criminal Code), will reduce costs - for business and government - and generally improve the efficiency and quality of public services.

Intertwined with the goal of improving government efficiency is the composition of the federal structure in Australia. Some have argued that the abolition of the states is needed to create parity between Australia's low and very urbanised population, and the ‘quantity' of regulation. Others say that removing the states in favour of regional governments would isolate those people not living in, or near, a major population centre.

Whether through increased cooperation or restructuring it seems clear that something needs to be done in improving efficiency and delivery across all levels of government.

They tried it in Canada, for example, with their Criminal Code that was adopted in 1892.

Read more here.

 

 

Indigenous representation in cultural institutions

The idea is having an Indigenous person on the board of major cultural institutions across Australia. The aim is to generate greater appreciation of Indigenous culture. The idea was raised at the recent 2020 Summit and reflects the strong emphasis placed on arts and creativity.

It's interesting because by exposing non-Indigenous Australians to Indigenous cultural heritage it is hoped that they will take greater pride in diverse and ancient culture of Aboriginal and Torres Straight Islander people. At the same time it gives Indigenous people representation in shaping cultural works that are so crucial in constructing our national identity.

While it is certainly not going to fix the significant social, health and economic problems that exist among Indigenous people, if the idea functions as intended it could help to draw Indigenous people into the mainstream cultural psyche from which they are now predominantly sidelined. This could become an immense source of pride and hopefully improve self-confidence.

They tried it - nowhere it seems.

Read more at smh.com.au

 

Collaborative governance

The idea is collaborative governance, a term used to describe the perceived need for governments to work with the private sector (both for-profit and not-for-profit) in achieving collective goals.

It's interesting because it seeks to align the mutual interests of governments and private organisations for the benefit of society through solving collective problems using all the capacity available. The idea is to refrain from enacting legislative requirements or distributing artificial inducements to get the private sector involved. Rather, partnerships should be forged where they genuinely meet the interests of all stakeholders.

At what point do government, private sector and public interests intersect? And more importantly, how many collective problems lie at such crossroads?

The idea of drawing upon un-utilised capacity is certainly a worthwhile aim but promoting ‘collaborative governance' should not come at the expense of the best possible decision - all too often these are unpopular and leave little room for the private sector to benefit.

They tried it in UN Global Compact.

Read more at Harvard Kennedy School of Government.

 

 

Indigenous governance

The idea is the Indigenous Governance Awards, an initiative of Reconciliation Australia (in partnership with BHP Billiton) that promotes and rewards effective governance in Indigenous organisations.

It's interesting because it provides incentives to Indigenous organisations to assess, learn about and improve governance issues.

The fact that so many Indigenous policies consume disproportionate amounts of funding in comparison to their success leads to the conclusion leadership, strategy and implementation of policies are among the key factors in the failure of prior policies.

The Awards not only promote effective governance in Indigenous organisations but also foster Indigenous generally by equipping people with the skills to solve their own problems in a way best suited to them.

They tried it in Australia from 2005 with what appears to be growing success.

Read more at Reconciliation Australia. For more information on Indigenous governance generally see the Centre for Aboriginal Economic Policy Research at ANU.