A NEW “fightback” is emerging in Australia. The publication of two books in Australia yesterday exemplify the trend.
Recall in 1992 John Hewson released Fightback!, his 650-page policy statement detailing massive cuts to public spending and huge cuts to income and company tax. It was called Fightback! as an expression of a sentiment that the public sector (and with it political correctness and so on) had grown too big.
It was part of a public-policy agenda stemming from Margaret Thatcher and Ronald Reagan that called for a smaller public sector, minimal regulation and privatisation of virtually everything. Once government was out of the way markets would provide the best result, they argued
The neo-conservatives and liberal economists hijacked the public debate demanding budgets be balanced or put into surplus by cutting public spending and selling public assets. And until recently that has been the new orthodoxy.
But they went too far. Broad public sentiment was probably never really with them, but the public had little chance against a collusion of big business interests and a cheering media. Politicians forsook the former out of fear of the latter.
More importantly, the broader public voice was squelched by the argument that economics meant that the neo-con way was the only way and that any other way amounted to discredited socialism or communism.
Yesterday, Ian McAuley and Miriam Lyons of the University of Canberra’s Centre for Policy Development published “Governomics”. It argued the economic case for readjusting the balance between the public and private sectors.
Bear in mind that McAuley was and engineer in a manufacturing company and a former trade commissioner, so the book should not be dismissed as another leftie academic treatise.
Far from it. The book is grounded in solid economics. It seeks a return to a more pragmatic Australia: what works best.
Also, published yesterday was “Snowy: The Making of Modern Australia” by Brad Collins. The importance of the Snowy Scheme was severalfold. It was done by the Government because the private sector could not do it or could not do it as well. Sectional coal interests were not allowed to veto the clean-energy scheme. The scheme put the broad national interest first in marshalling our scarce water resources to best use. The scheme brought together migrants from scores of countries and trained most of them to do good things.
It required long-term vision, courageous borrowings and leadership from our politicians, and it got them.
The book’s publication highlights the timidity, weakness and short attention spans of the present lot.
But let’s return to “Governomics”. McAuley and Lyons do not want an ideological left-right argument. Rather they say it is good economics to get the private-public balance right.
It is more than saying markets fail occasionally. Rather they are very rarely perfect. Governments are needed to stabilise the economy; to ensure a fairer distribution of wealth (much of whose creation was reliant on public infrastructure); and to do the things the private sector cannot do (defence, police, fire) or cannot do as well (health, education, roads). Markets should work within a society, not as Thatcher contended, be the be-all and end-all because “there is no such thing as society”.
McAuley and Lyons write: “Markets can be compared to high-performance European cars. When they work they are magnificent; when they break down the results are inconvenient, expensive and rarely amenable to simple fixes. They need a network of publicly funded roads and a set of road rules, and they should not be used off-road or in other situations for which they were not designed.”
They accept that the boundary between what is done by the public sector and what is done by the private sector is a fuzzy one.
But a critical point is that the size of the public sector as a portion of GDP does not of itself matter. An economy with no public sector is a failed state. A communist society in which the state owns all inevitably becomes dysfunctional.
It is not so much a matter of size, but a question of how well an organisation, public or private, works.
In the past 30 years a barrage of subtle and not-so-subtle propaganda has successfully engenered a widespread belief that the public sector of its nature does not perform as well as the private sector.
So even though people say in opinion polls that they want more government spending on health and education and are willing to pay higher taxes for it, they are concerned that governments will not do it well. But that concern is not evidence-based. The Productivity Commission, for example, has found that once you take into account that public hospitals do all the big, complicated stuff and do 24/7 accident and emergency, they perform just as well as private hospitals.
Similarly for public schools, when you take into account that private schools select the best students and boot out the disruptive ones.
Sadly, in areas where even the most ardent neo-con would not suggest privatisation – defence and police – there are few or no suggestions of spending cuts. Instead, the cuts are directed at areas such as education and health where there can be some privatisation, even if the public sector overall would do it better.
It seems those cuts are deliberately aimed at weakening public provision to give the private sector an easier run. Whereas, in areas such as health, health insurance, and education the nation would be better off with larger, properly funded public sectors.
It becomes a self-fulfilling prophesy that if you cut public spending so much in an area that people are forced to the private sector, that the private sector will look better and even more people will flee to it.
The sad consequence of that is growing inequality which has its own economic costs.
Overall though, the authors point out, specious, self-serving arguments put by big business that denigrate the public sector, particularly those parts of it that the less-well-off rely upon, must be countered. And a merely ideological or moral argument is not enough. Hence their book.
They say, “A sensible and evidence-based economic argument may not in itself be sufficient to combat the influence of a cashed-up lobby group, but it is enormously useful in an era when so much economic idiocy is allowed to go unchallenged.”
CRISPIN HULL
This article fist appeared in The Canberra Times and other Fairfax Media on 2 May 2014.
This is an extract from a book in process – “A bit over one hundred and forty years ago, a chap named Charles gathered together a team of good men, a team of good horses, some good wagons, good hand tools and quite a few rolls of wire. They crossed an inhospitable and largely unexplored continent from south to north in extremes of weather and connected Australia to the outside world. Now the senior management of Telstra can’t or more likely, won’t even give us mobile coverage between the towns on the same route that Charles Todd took.”
Sound like two “must read” books …. about time cohesive (and credible) counter-attacks were launched at the long-term damage being done by the Thatcher/Reagan legacy in our western societies. Thanks for putting this column together ….