Reimagining reform

16 Nov 2005

It’s time to leave the comfort zone, writes Nicholas Gruen

AUSTRALIA is peculiar - the land where left-of-centre governments initiated and most vigorously pursued economic reform.

Whitlam kicked things off cutting tariffs by a quarter. Having implored us to embrace market forces, Fraser lacked the economic bottle for further change. A world weary bureaucracy marveled at the new Hawke Labor government’s response to the backlog of reform. A powerful reforming vision grew around deregulation, wage restraint, and helping those at the bottom of the heap.

Unlike in New Zealand, Britain and the United States, big tax and welfare changes here offset much of the inequality that markets were increasingly producing. Might this have something to do with the economic and political success of Australian reform?

Roger Kerr, CEO of New Zealand’s Business Roundtable supported that country’s zealous ‘crash through or crash’ reforming but more recently endorsed Australia’s approach as ‘remarkably consistent, coherent and credible’. But by the end of the ALP’s reign, reform had become formulaic deregulation. Even less imagination, and certainly less application, has been shown by the current government.

Most economists agree on three remaining agendas.

1. Some industries still need some old fashioned deregulation - post, pharmacies, newsagents, taxis. But just naming them demonstrates their relative unimportance.

2. We should address ‘poverty traps’ created as welfare is withdrawn and tax is paid as people move from welfare to work.

3. Health and education systems need reform. But though greater choice and competition between providers can help, it could do more harm than good if pursued too mindlessly. And it’s just one part of a large policy jig-saw which includes better accountability structures, and management for results.

These are all worthy enterprises but with returns now diminishing, there’s plenty of low hanging fruit on the tree of economic reform. If only we have the imagination to see it and the courage - sometimes we’ll need no more than a little curiosity and goodwill - to pick it. Here are some ideas to whet your appetite.

• How about improving employees’ knowledge of the quality of Australia’s workplaces as part of the IR agenda? We should measure and publish the job satisfaction and health and safety performance (workers compensation premiums) of all Australia’s larger workplaces so their competition for employees becomes competition to provide satisfying jobs.

• We can apply the same principles widely. Wouldn’t you like to know what students and parents think of their schools and patients of their hospitals and mightn’t it help them improve? Publishing the investment performance of investment advisors would do far more good than most of the regulation we put them through.

• Rationalising the management responsibilities of government has been sensible - with privatisation and contracting out for instance - but these policies have shifted risk away from governments which can often manage and bear it better than firms or individuals. We should begin redressing the balance by embracing the idea that governments should, like firms and families, borrow to build assets for the future.

• Our system of civil law is a scandal - available to the rich and those poor enough to access legal aid, but only otherwise to those willing to risk their life savings. Legal costs should be commensurate with the magnitude of disputes and this simple microeconomic principle should be reflected in all legal procedure. Either litigant to a dispute should be able to pre-emptively elect a low cost tribunal free from any threat of appeal, except upon their opponent bearing all resulting costs.

• In a world of increasing complexity what happens by ‘default’ matters. So we should engineer socially beneficial defaults. To bolster Australians’ inadequate savings we should ensure that employees’ salary sacrifice super contributions slowly rise above the nine percent compulsory rate by default - always subject to their right to opt out. Likewise the authorities already have enough information about Australians’ wage, interest and dividend earnings to relieve them of the burden of filling out their tax return - though of course we should them lodge a return to pick up additional tax deductions to which they are entitled. They’ve implemented both of these ‘sensible default’ ideas in New Zealand. Yet we’re hardly talking about them.

• In areas where simple deregulation is neither possible nor desirable - like occupational safety and consumer protection - we can build a less dysfunctional, more responsive approach. We must think of regulation less as the issuing of sovereign commands and more as the management of complex systems. Firms and individuals should have rights to challenge the way regulation has been designed, and rights to alternative means of complying with it.

Like other reforms none of these ideas are panaceas. But in their modest way they begin to take economics out of its current comfort zone. As well as helping us run ‘the economy’, these reforms would help us see economic reform as it was by its founder, Adam Smith, as a means of improving quality and security of our lives by improving the fairness and fitness for purpose of our social institutions. •

Nicholas Gruen is CEO of Lateral Economics. This is an abridged version of ‘The future of economics’, a presentation to the Australian Fabian’s Annual Policy Conference 2005.

Photo: Andrew Jeffrey

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