The Power of Associations - in it for the long haul
Paper to accompany presentation to Australian Society of Association Executives Conference, Canberra, May 25, 2001.
Ian McAuley, School of Management and Policy, University of Canberra
The current economic downturn will probably be less severe than other downturns in the postwar era. But it is unlikely that the recovery will see a return to "business as usual", because there is also a significant political shift in progress.
Superficially, this shift looks like a rejection of globalization and competition policy, but it is more complex, more nuanced, and possibily more profound, for it reflects exhaustion of policies variously known as neoliberalism, economic rationalism, or market fundamentalism. These policies have achieved mixed results. A report card on Australia in 2001 would give high marks for economic growth, inflation, budgetary management, deregulation and competition, even though these reforms have stalled. It would draw attention to a number of deficits, however, in distribution (between regions and individuals), education, skills, physical infrastructure, environmental assets, and in the quality known as 'social capital'. Because the benefits of reform have not been widely shared, and because these deficits are becoming more evident there is mounting political resistance to neoliberalism.
The recent Budget does not address these wider issues. Rather, it continues the expedient approach of using welfare payments to compensate for the inability of the economy to provide adequate income to sustain our expected standard of living. These payments are at the expense of necessary public expenditure to strengthen long term economic performance.
If we are to escape the dismal dynamic of running down public investment to finance welfare, fundamental changes are needed - we need either to increase taxes, resisting the short-lived allure of tax cuts, or to decrease welfare. Such a choice is difficult, but it has to be made.
Associations can take leadership in this process. To do so they should:
(1) Beware of becoming co-opted into hort term, narrow political agendas, exemplified by the budget process, distracting attention from broader economic issues.
(2) Think carefully not only about their own interests, but also the collective interest. This is not a call for saintly sacrifice. Rather, it is a warning that the outcome of competitive self interest is often negative sum. As Mancur Olson points out, economic progress is retarded when there are powerful lobbies able to secure privileges for their constituencies.
(3) Focus on process, to ensure that change can be responsibly and intelligently handled.
If we do not address these issues rationally, however, we risk the agenda being captured by less reasonable, more strident voices.
Introduction - manufactured consent
Many people here would be recovering from the annual budget pilgrimage to Canberra. It's a regular ritual for many organizations, with set scripts and set responses. The lockup is carefully managed; everyone is amply supplied with documentation, press releases, publicity material (but rarely useful data such as time series). It's a process matched in presentational ritual only by Jerry Falwell and his fellow televangelists.
Once the congregation is released from the lockup there is a frantic rush back to the office, where there are computers, fax machines, photocopiers, coffee machines, television sets and radios. Around the early hours of the morning, press boxes are stuffed with press releases, e-mails are sent, web sites are updated, and a few fitful hours of sleep are grabbed before the Wednesday papers arrive and the radio commentators give their learned views. Then there are the post-mortems - "We did better than the Flat Earth Association", "We made three column centimeters on Page 6 of the Launceston Examiner", "They got it wrong again on AM", "We've been conned - we missed the clawback of the other benefits", or "The stupid journos completely ignored our carefully crafted insightful masterpiece." Scores will be tallied, and put away until the next budget round; by Friday it will be back to business as usual.
The process is unashamedly designed for short term impact. But it succeeds - too well - in distracting us from issues of economic management and focussing our attention on the much narrower process of short term fiscal management.
Tuesday's budget, a typical pre-election budget, was loaded with cash handouts for the aged who have proven less than loyal to the government in recent by-elections and opinion polls. Unsurprisingly, the older persons' lobbies generally expressed their satisfaction, but how many asked the more basic question of the sustainability of such generosity? Do older Australians want to leave to the next generation an impoverished education system, run down public hospitals, crumbling roads and a damaged natural environment? We are no more likely to see such detached, critical thinking on budget night than we are to see a serious discussion of theology at a televangelist gathering.
The 1998 introduction of the Government's tax reform package illustrates well the process of manipulation. The lockup had the atmosphere of a revivalist meeting. The voices of protest and caution were few, the voices of congratulation were many. So well was it handled that few asked what should have been the obvious questions - "how can everyone be made better off through a re-distribution" and "how can a major change be introduced without huge transaction costs". Consent and tacit compliance are easy to manufacture; it is hard for any individual to break through the overwhelming force of groupthink.
Jerry Harvey, professor of management science at George Washington University, warns that public shows of group agreement are often symptomatic of deep problems of failure to face up to fundamental problems.(1) In my experience as an academic, I have seen this often among association executives and researchers, manifest in private statements such "of course we think it's lousy public policy, but we have no option to go along with it publicly - everyone else is in favour of it".
This short term success in manufacturing consent has been at a cost, to government and to those who inhabit its periphery. If the process of tax reform had been managed as an information one, rather than as a marketing one, the government may have had a poorer press the next day, but they almost certainly would not be trailing by 19 percent in the polls six months before an election.(2) The lobbyists who so enthusiastically congratulated the government on the new tax system would not have had to backpedal so furiously had they been a little more cautious at the outset.
This is not new wisdom, crafted by some Californian management guru. Five hundred years ago Niccolo Machiavelli stressed that it's difficult to resist a mutually supportive relationship between princes and flattering courtesans. The court of Venice in the sixteenth century had its own versions of press spin doctors and dependence supported through grants in aid. Machiavelli saw in these institutions the danger for government:
There is one important subject I do not want to pass over, the mistake which princes can only with difficulty avoid making if they are not extremely prudent or do not choose their ministers well. I am referring to flatterers, who swarm in the courts. Men are so happily absorbed in their own affairs and indulge in such self-deception that it is difficult for them not to fall victim to this plague.(3)
The irony of modern propaganda is that it is highly effective, but only in the short term. The persuasion experts can command our credibility long enough to get us out to switch to another brand of yoghurt or to buy a Nissan. They can even have us believing a budgetary measure or a tax change is universally beneficial, for a few days, but over time the discordance between the message and people's experiences becomes too great to sustain credibility. The business of government is not like the business of selling yoghurt or cars, but in the obsession of adopting private sector models in public administration, the difference - between passive consumers in commercial markets and active citizens in the political agora - has been ignored.
The result over time has been an erosion of trust in government - opinion polling in the USA finds a constantly diminishing trust in the federal government over the last 50 years, from around 70 percent in the postwar era to around 30 percent now (percentages referring to people's perception that the government will do "what is right").(4) We do not have such a time series here, but there is an accumulation of anecdotal evidence, such as the recent warnings voiced by the Liberal Party Secretariat, to suggest we are not immune from it.
That same US research also shows that trust has endured better in state and local governments. There, as here, the federal government is perceived as remote - a remoteness I would suggest has been exacerbated by the trend over the last twenty years by its withdrawal from direct service provision. Purchaser/provider split, the philosophy which places government not as a provider of services but as a purchaser of services, increases this isolation. A state government knows fairly quickly when a serious problem arises in a school, and in local government councillors come to learn of every failed street light and new pothole.
The Commonwealth, by contrast, is much less in touch. Its contacts with the community are weak - the anecdotal impressions a minister gains during an electorate visit, the concerns of party branches, the flow of vexatious ministerial correspondence, the impressions of focus groups, and, in the current administration, the voices of the talkback radio callers. Compared with this discordant din, associations should be able to provide a much more reliable guide to public issues, provided they are in touch with their own members.
This role presents a strong opportunity for associations, but there are also dangers, for associations risk moving too close to governments themselves, thereby suffering the same separation and mistrust that is vested on government.
Also, in pursuing individual self-interest, they risk diminishing the very capacity of government to deliver.
These risks have always been present, but in times of political and economic change they become more pronounced. It is to this second risk that I now want to turn.
Political and economic change - neoliberalism and its consequences
There are deep undercurrents of political and economic change in Australia. I am not referring to the likely change in administration at the end of this year, nor to the current economic downturn. These are no more than normal manifestations of political and economic cycles. In the postwar era we have changed government every nine years, on average (six years if we leave the long Menzies reign out of the base), and the business cycle has been a little more regularly spaced at nine to eleven years.
More basically we may be seeing the exhaustion of an era - the era characterized by a public policy of neoliberalism prevailing in most developed countries, particularly in English-speaking countries. (In Australia the term economic rationalism is often used to describe this policy, but such a term is, at best, confusing, for it implies a degree of enlightened rational thinking behind what is actually an irrational set of ideas underpinned by a simplistic ideology.)
At last year's AUSAE conference I referred to two distinct eras in postwar Australia - the long postwar boom, from 1945 to 1972, and the neoliberal boom from 1980 to the present.(5) The distinct differences between the eras have centered on the role of government, though to suggest that the first period was one of big government while the second was one of small government would be wrong, for the size of government has not shrunk over that period - a point to which we return later. The significant difference lies not in the size of government, but in its scope in economic activity.
Neoliberalism has been characterized by a withdrawal of the state from economic activity. Labour markets and product markets have been liberalized, tariffs have been reduced, state owned enterprises have been privatized, competition policy has been imposed, many economic regulations have been eased.
The results, in headline terms, have been impressive. In Australia's case economic growth has been strong, inflation has been low, and the labour market, as measured by the unemployment rate, has generally improved. Growth in the neoliberal era has not been as strong as it was in the postwar boom, but that postwar growth was fed by many unique factors, such as a young population with skills supplemented by immigration, high commodity prices, and the short term benefits of high tariffs.
But cracks are starting to appear in the appeal of neoliberalism, in Australia and globally. One of the conscious policies of neoliberalism has been to dismantle those institutions which allowed capitalism to be socially sustainable - universal health care, free education and public housing to name three of those institutions. Another has been to run down public investments such as infrastructure, research and tertiary education.
The irony is that while public institutions have suffered, the burden of "big government" has not gone away; in fact neoliberalism has tended to require larger government to provide a safety net for those who have had to bear its cost - this week's budget is a case in point. Harvard economist, Dani Rodrik, has found, contrary to the conventional wisdom of neoliberalism, that countries driven by neoliberal policies tend also to have larger governments.(6) Examining the causes of this relationship he finds that government serves as a risk-reducing mechanism in such countries. Because economic openness results in internal structural change, government spending is necessary to help with the adjustment and to provide a safety net, even if its set at a low level. An associated development is that welfare expenditure crowds out other areas of government expenditure. Thus, while the tax burden does not change significantly, more public revenue is necessarily diverted to welfare, to cope with poverty arising from unemployment and, in many cases, to supplement the incomes of families whose wages are inadequate. From 1974-75 to 1999-00, Commonwealth outlays on social security and welfare have risen from 6.1 percent of GDP to 9.3 percent of GDP; in the latest budget it is forecast to rise to 9.7 percent of GDP, or 42 percent of budget expenses. The offsetting cuts in government expenditure have come in almost all other programs. Put simply, we use welfare expenditure to try to uphold living standards to compensate for poor economic performance. This is not sustainable.
Rising inequality has been one of the major costs of neoliberalism. By any measure Australia is a far less equal society than it was during the postwar boom. There is high and persistent unemployment and underemployment.(7) At the other end of the spectrum are the super rich, including executives drawing seven figure annual salaries. There are widening inequalities in income, wealth, the distribution of work and access to education and health care. (For an analysis of the dimensions of this inequality, see the paper I delivered to this same forum last year.(8))
While rising inequality is the source of much social discontent, there are also accumulating deficits in infrastructure - "hard" infrastructure such as highways, railroads, telecommunications (particularly in the country), and "soft" infrastructure, such as education, training and research. Environmental deficits are becoming more evident, particularly salination and the sustainability of water resources. And Australia is suffering a severe deficit on current account.
Governments of neoliberal persuasion came into office with great faith in the power of markets. They have paid - we have all have paid - for this blind ideology which overlooks the reality of market failure. Markets are good at providing many consumer goods and services, from toothbrushes to Toyotas, from fast foods to fashion designs. But they don't do a very good job at providing education, health care, transport infrastructure, environmental protection or a well governed insurance industry for that matter. We are learning again a hard lesson of economics forgotten in the exuberance of neoliberalism - if we want collective goods we have to pay for them collectively. And that leaves us with what may appear to be an unpalatable choice - decrease welfare or increase tax.
In short, the policy options facing Australian governments now and in the immediate future are:
(1) Business as usual, with growing pressures on public budgets from welfare payments, offset by continuing reductions in outlays for other programs.
(2) Heavy cuts in welfare to allow government spending to be re-directed to areas of economic need.
(3) Increased taxes, to allow welfare expenditure to be sustained and economic services to be provided.
The second and third options involve hard choices; the easiest option is the first, because, in the short term at least, it is the option of lowest short term political risk, and it is the easiest to sell, particularly through well orchestrated techniques such as the annual budget. In a famous paper on political economy, Charles Lindblom, in 1959, coined the term "muddling through" to describe such a process - characterized by incremental, often token changes, in response to short term issues, designed to keep all lobbies more or less satisfied - so as not to scare the horses.(9) He could have been describing Canberra in almost any time in the past twenty years. (I say "almost", for there have been some short-lived exceptions which we will mention further on.)
Attractive as it is, this is not a sustainable option, for at best it leads to economic stagnation, as our institutions and infrastructure crumble further, and at worst it leads to disruptive community discontent. If we are to redress these deficits, we need to choose options (2) or (3), and these are hard choices involving fundamental change.
In a later (and less read) work, Lindblom warned that failure to face up to the need for fundamental change is destructive, and part of the problem is the power of interest groups in modern democracies. Lindblom explains how we are impaired by the power of lobbies to resist change:
I have been saying some things and implying some others: that change is resisted, often more successfully than it is initiated; that it often comes out distorted; that it is sometimes impossible; that its opponents are many and powerful, even if they are sometimes defeated; that initiating change is not a tidy intellectual exercise but a profound struggle; that the fundamental barrier to change is systematically impaired minds; that these minds are not the consequence of accident or our apathy but the practices, some deliberate, some not, of the advantaged, whose struggle to resist disadvantaging change has no more effective method than to impair all of us.(10)
Mancur Olson, in a great empirical work, found that in those democracies with the most influential lobby groups it was easy to mobilize resources to resist change, to the detriment of the wider community's economic interests. He attributed the spectacular growth of postwar Germany and Japan, for example, in large part to the destruction of the forces of political influence surrounding their governments. To put Olson's thesis simply, he pointed out that when lobbies were well organized it was easy for them to capture a benefit for their members at the expense of the community at large, even though such a redistribution would lead to a reduction in economic welfare generally. He likened the process to a pair of wrestlers fighting over the contents of a china shop, or, more academically:
In short, the typical organization for collective action within a society will, at least if it represents only a narrow segment of the society, have little or no incentive to make any significant sacrifices in the interest of the society; it can best serve its members' interests by striving to seize a larger share of a society's production for them. This will be expedient, moreover, even if the social costs of the change in the distribution exceed the amount redistributed by a huge multiple .... The organizations for collective action within societies that we are considering are therefore overwhelmingly oriented to struggles over the distribution of income and wealth rather than to the production of additional output - they are "distributional coalitions" (or organizations that engage in what, in one valuable line of literature, is called "rent seeking").(11)
Can lobbies, protect themselves from what comes naturally to them? Are we bound to see the power of "distributional coalitions" triumph at the expense of the collective good? Is the best an association can hope for is to get a few more shards of broken china than its rivals?
A look at recent history in Australia would tend to confirm this dismal conclusion. As the polls worsen, as they inevitably do for a mature government, the zeal for economic reform lessens. "Successful" associations are those which can protect their members from the pain of economic reform, and which can gain a few token handouts. Pharmacists, newspaper shops, health insurers, car manufacturers, book publishers are just a few of the parties which have succeeded in securing privilege against the wider public interest. But have they paused to count the longer term cost in terms of lower economic growth than would otherwise have occurred. The children of pharmacists and newsagents are not necessarily going to grow up in the occupations of their parents. Similarly, the lobbies for older Australians may be pleased with their achievements in last Tuesday's Budget, and the bipartisan support for tax cuts and cash grants, but they have not warned of the cost of these handouts. In their retirement will the aged have access to decent public hospitals, or will they have to part with their tax cuts (and more) to pay for private health care and dental services?. When they take to the road in their retirement holiday will they add to the road toll on one of the nation's neglected highways? Will they feel safe in a neighbourhood where the state government has had to reduce the police presence? Do a few dollars in the pocket compensate for lost opportunities for one's children?
While some specific associations may be pleased with the outcome of the budget, and may draw comfort from the belief that the Labor Party won't dare oppose the handouts, a moment's reflection should raise the question "how long can we go on using welfare payments to compensate for a structurally weak economy?" The benefits of welfare expenditure are short-lived; unless government expenditure is re-directed to wealth creation, the capacity of future governments to provide even minimum welfare entitlements will be severely weakened.
I suggest that unless associations and lobbies can take this more detached view, and stop rewarding governments for pork barrelling, other, more overwhelming forces will take command. There is huge discontent abroad - not that there is anything new about political discontent and anger. This time, however, it is not coalescing around any one party or political issue. It is manifest in various forms - the S11 and M1 protests domestically and the protests at Seattle and Davos internationally, the large and increasing vote for single issue parties and the abysmal showing of the main parties at state elections and by-elections, votes for extreme right wing parties in some countries (Austria and Italy), and for the far left in other places (London and parts of the former Soviet Union), the strident voices of frustration and anger directed at the corporate sector following the HIH collapse and the BHP-Billiton merger with its outrageous executive payouts. There are elements of old fashioned xenophobia, romantic sentimentalism, revolutionary socialism and authoritarianism, with no uniting principle other than a feeling of disempowerment and anger. Scapegoats abound - government, big business, globalization (whatever that means). We are seeing in Australia the destructive power of what Ralph Dahrendorf calls a group of people on the outside - people without a stake in society. Young people who have dropped out of education, older people who have lost their jobs, people in the dying country towns. History teaches us that in times of unrest it is easy for a populist demagogue to excite those who have nothing to lose.
It is easy to stand on the sidelines and point out the fallacy of the views of those on the streets. It is easy to use Margaret Thatcher's dictum "there is no alternative" to neoliberalism. It is true that we cannot wind the clock back to the days of heavily protected manufacturing employment - but we don't have to use globalization as the excuse for abandoning national sovereignty over issues of environmental and labour standards. It is true that we would not be served well with large, labour intensive government business enterprises, like the old PMG or electricity utilities - but we are not served well by those private owners of utilities who have put immediate financial objectives ahead of long term investment in engineering and service standards. It is true that there have been benefits of economic de-regulation - but we have also seen the limits of deregulation in areas as diverse as airline safety and insurance services. There are alternatives, and unless the voices of reason can guide us to something more sustainable than neoliberalism, the more strident voices of reaction and discontent will take control.
I want to suggest that associations, rather than wrestling in the china shop, can actually take more leadership in the process of bringing on more rational and long term approaches to public policy problems. This is difficult, one may say, because associations have precious little authority. Executives are accountable to boards, boards to members, and the instruments of budgetary and regulatory power are in the hands of elected governments.
But Harvard Professor of Leadership, Ron Heifetz, stresses that we should not confuse leadership with "mere authority", particularly in the public sector. Leadership, according to Heifetz, is about mobilizing the resources of a people or a group to make progress on difficult problems involving adaptive change - difficult change such as raising taxes or cutting welfare.(12) It is quite separate from authority; indeed it can often be in conflict with authority. Associations, provided they keep perspective, have the asset of detachment. They have the freedom of political detachment rather than the burden of authority.
Those in authority generally seek to retain power and control; leadership, because it introduces hard issues, is often about upsetting that power and control. This is not to disparage the role of authority. The business of government is demanding. There is much technical work to be done - legislation to be drafted, parliamentary debates to be held, budgets to be prepared, legal processes to be observed, auditors and parliamentary committees to be satisfied - and, overwhelmingly, elections to be won. Public servants tire of hearing complaints about poor government policy; the discourse between public servants and associations is much more cordial if criticism can be kept to a few minor, technical matters.
Incremental change can be accommodated without too much disruption to these orderly processes of government. The last thing any hard working public administrators want, be they public servants or ministers, is someone coming along asking hard questions or presenting adaptive challenges. As a defence mechanism people have devised ingenious at of resisting adaptive change - "avoiding work" in Heifetz's terminology. We see them all used in public administration - deferring issues by calling inquiry after inquiry, blaming the previous administration, avoiding answering hard questions in Parliament, delivering bland and meaningless speeches, issuing more pamphlets and glossier websites in self-congratulation. Many forms of work avoidance are embedded in the budgetary process itself, the token funding for serious public problems (with the expectation of a flood of gratitude from the associations concerned), the huge emphasis on small changes while massive appropriations are made with single line entries, and the elevation of the annual budget to an undeserved prominence, because it can distract from longer term, underlying issues, and because it places financial management ahead of the more serious task of economic management.
Our failure to face up to the fundamental options of economic management is a strong example of how collectively we avoid working on hard issues. I have mentioned the fundamental problems in public revenue - others may add national security issues, discontent among our young leading to substance abuse, aboriginal reconciliation, the republic, environmental degradation, global warming and other issues. Lindblom lists a more general, global set of needs which encompass these more specific concerns, but at the top of his list is "increasing the responsiveness and competence of government and other institutions".(13)
What is telling about Lindblom's priority is that he starts with process - increasing competence and responsiveness. I want to incorporate Lindblom's advice into a general suggestion for all associations - focus on process.
Focus on process
The processes of public administration have become degraded. Populism has replaced policy deliberation - opinion pollsters have more authority in Canberra than disinterested public servants. Selling has replaced consultation. The senior ranks of the public service have become politicized - providing "frank and fearless advice" is not a path to survival. Policy research is no longer done by professional public servants; it is almost all contracted out to consultants (and associations) who know that their likelihood of securing future work depends not on the quality of their research, but on the acceptability of their recommendations within the prevailing ideology. This degradation has been in train for some years, dating roughly from the mid 1980s.(14)
Machiavelli would point out that such processes lead to collective delusion - a loss of consciousness of the real issues and the consequences of ill-conceived policies. Heifetz would describe it as collective work avoidance.
There are better models, and I would like to conclude with two contrasting case studies - tax reform and tariff reform.
I have already mentioned the processes surrounding the introduction of the GST. Here I simply want to cast it in a slightly wider context.
Tax reform shows the folly of traditional methods of major change. The inelegance of the process and its resulting economic and political damage puts it into the category of what would be called a "brave decision" in Yes Minister. Three politicians have tried it. One gave up (Keating in 1985), one was defeated by it (Hewson in 1993), and one succeeded (Howard in 1998). But that success has been at high cost - an unnecessarily high cost - for it has alienated many of the Coalition's core constituencies. Such experiences reinforce the notion that anything other than incremental change is too difficult.
The main problem, however, is that tax reform was presented as a complete package - "take it or leave it". To confuse the issue, a raft of other changes was bundled into the same process, such as the private health insurance rebate. Following the introduction of the GST another set of tax reforms was introduced, the Ralph reforms of company taxation. This was introduced almost by stealth, under the cover of the fuss of the GST.
These reforms have been political time bombs. Because the GST was introduced in haste, without attention to detail, its designers did not foresee the practical problems in the transition. There was no consideration of simpler options (for example a consumption tax rather than a value-added-tax). There was no shortage of effort to sell the package, but there was no attempt to listen to those who saw problems - problems which would cause the government to lose one of its key support bases. Similarly the private health insurance rebates were introduced without any benefit-cost analysis - not even an articulation of the policy problem they were supposed to address. And likewise with the Ralph reforms. Few people, at the time (or even now), realized what effect the changes in capital gains tax would have on investors with long life capital stable assets, such as farms and small businesses. In time, when people come to sell their long established businesses, and find they are taxed on fictitious inflationary "capital gains", there will be huge anger among farmers and small businesspeople. The Howard Government and its advisors will have long gone, but the associations which failed to anticipate these problems will still be around, and will be caught up in the maelstrom of discontent.
Most associations in the community sector completely missed the Ralph changes, focussed as they were on GST and related issues at the time. In terms of political distraction it was a coup for government, but in terms of elegantly handled change it was disastrous.
In both the GST and the Ralph reforms there seems to have been an absence of critical thinking on the part of associations, but it would be unfair to lay the blame on them, for the changes were cleverly orchestrated by government to preclude careful thought and analysis. (In the case of the GST many associations lost perspective by focussing on the effects of the new tax on the management costs of the associations themselves - a legitimate concern, but a distraction from the longer term issues of equity and compliance costs.)
There is a better path towards policy change, and it is well illustrated by the work of John Button as Minister for Industry in the Hawke Administration.
While there has always been a free trade lobby in Australia, the possibility of a systematic phasing out of tariffs didn't really come to be considered a political issue until Alf Rattigan, head of the Tariff Board, raised the possibility of a tariff review with the Gorton Government in 1970.
Tariff reform was indeed, in Heifetz's terms, a difficult problem involving adaptive change. The Labor Party had an eighty year tradition of protectionism, and, over the Menzies era, the governing Liberal and Country parties had learned the political appeal of tariff protection. Each Menzies election would be heralded by a new car plant and one or more clothing factories in sensitive seats in country Victoria.
Tariff reform drifted for many years. The Whitlam Administration, in 1973, made the grand Whitlamesque gesture of a 25 percent tariff cut - a move so bold that it stymied progress until the election of the Hawke Government in 1983. John Button, however, resurrected the issue, with considerable success. His success lay in his attention to process. At no stage did he push the process faster than those affected could adapt to the change. In fact he didn't "lead" the process - that was up to the industry associations and the trade unions. It was hardly necessary to convince the association executives and union bosses of the macroeconomic benefits of tariff reform - they knew enough economics to know of its costs and the futility of trying to build a Berlin Wall against imports in the late twentieth century. But the task was to bring along their constituents, and Button gave them the room to do that. There was a major program of research, discussion, consultation and education. Industry associations and trade unions provided vital links back to their constituencies, and were able to work on practical technical issues.(15) The process was genuinely two way; in retrospect no one could say who "sold" what proposals to whom.
The economic zealots in Treasury became impatient with Button; they wanted more progress, and they saw little point in going over ground which would reveal what every Economics I student knows - that tariffs retard economic growth and impose inequitable charges on consumers. But that wasn't the point; Button knew what the outcome of these deliberations would be, but he wanted people to learn for themselves.
Of course there were pleadings by special interest groups, able to point out how they should be exempted, but Button was resolute that the process should be across the board - if it became obvious that privilege could be bought, progress would be stymied. When they came across associations whose interests were too narrow, Button and his advisors helped them to see the bigger picture - to see the consequences which would occur if they succeeded in insulating their members from change. The issue is simple "yes, it may be in your interests, but what would happen if everyone secured such a privilege?" Those who have studied economics or philosophy will recognize this as the fallacy of composition, or the prisoners' dilemma. Securing privilege for my group may be a good idea in isolation, but what if everyone else secures privileges for their groups? We are all back behind where we started.
Heifetz uses the metaphor of the dance floor - we should be able to get up off the dance floor to the balcony occasionally to see the bigger pattern. (But, so often, the daily demands of dealing with government keep us down on the floor.) Button was able to keep the interest groups moving between the dance floor and the balcony.
The program was successful. There were big adjustment costs, and there were dissidents. But the Hawke-Keating Government survived this change, as did the industry associations. Neither main party proposes going back on tariff reduction; the change is secure and embedded. In Heifetz's model, Button would achieve top marks for leadership. He held back on his use of authority, he took care to pace the change, he let the vision of a manufacturing sector competing in a global market develop from those who had the greatest interests. He could have stated this vision in 1983, but he held off until it emerged from those who would be affected by the change. He didn't impose a solution, he let the industry plans emerge through the process.
In this process associations were vital intermediaries. They weren't there to do the bidding of the government, but equally, Button made it clear that they were to be engaged in the process as active agents of change. At no stage did Button pretend that change would be painless - there would be losers. But the most important understanding to emerge early in the process was that if every party was able to resist change the outcome collectively would be far worse than if change proceeded with shared pain and shared gain. Breaking the dismal dynamics of the prisoners' dilemma situation is difficult, but Button succeeded - with the help of industry associations and unions.
One of the main benefits of focussing on process is that it takes us away from the often bitter struggles over turf. Associations as diverse as welfare lobbies and industry groups can at least start on common ground.
Machiavelli, Olson, Lindblom and Heifetz have a consistent message for associations. It can be encapsulated in three general principles.
First, sustain enough objectivity and distance to retain your critical facilities. Understand the nature of hard sell techniques like the budget process, and don't be co-opted into an agenda of the government's making. Groupthink and passive agreement are a liability of government, as is isolation from the community. You are not burdened with these liabilities, unless you become co-opted yourself. Governments will try to intimidate you and co-opt you, but cooption and passivity do not serve your interests, and neither are they in the longer term interests of the government.
Second, think not just what is in the interest of your own association members, but also what is in the interests of the broader community. This is not to ask for saintly sacrifice - no association ever survived by selling its members' interests to others. But think through the question "what will others do?" What may initially look like a "win/lose" situation may turn out to be a "lose/lose" situation, as we think through the broader, system-wide consequences. A gridlocked economy, in which every interest group can marshal forces to secure privilege and resist change, serves no one's interests. A useful test of any policy proposal is "if this proposal succeeds, will it contribute to the sort of society I would like my children to inherit?" No one wants their legacy to be a wrecked china shop.
Third, focus on process. Demand consultation and involvement from the outset, when policies start to incubate. Demand independent research and cost benefit analysis of new proposals. Demand proper evaluations - not just budgetary evaluations, but proper economic evaluations - so that all costs and benefits can be brought into account.
To those of you who came to the AuSAE Conference following the budget, a final word of advice. Next year, wherever the conference is held, make just one trip, to the AuSAE Conference, go to bed early on Budget night, and spare a thought for these wider economic and social issues.
1. Jerry B Harvey The Abilene Paradox and Other Meditations on Management (Jossey Bass 1988).
2. For the current two party preferred vote, see the Roy Morgan web page - www.roymorgan.com.au. April 2001 polling showed a 19 percent two party gap after allocation of preferences - a figure which has shown little movement over late 2000 through to early 2001.
3. Niccolo Machiavelli The Prince 1514 Translated by George Bull (Penguin1975), p. 125.
4. Gary Orren "Fall from Grace: the Public's Loss of Faith in Government" inJoseph Nye, Philip Zelikow, David King (eds) Why People Don't Trust Government (Harvard University press 1997).
5. See From Menzies to the Millennium - paper presented to the 2000 AUSAE conference at: http://www.dmt.canberra.edu.au/staff/imcauley/ausae/econ.html
6. Alesina, Alberto and Rodrik, Dani "Distributive Politics and Economic Growth" The Quarterly Journal of Economics May 1994.
7. See, for example, Richard Denniss measuring Employment in the 21st Century - New measures of underemployment and overwork (The Australia Institure Discussion Paper 26 February 2001)
8. From Menzies to the Millenium, op.cit.
9. Charles E Lindblom "The Science of 'Muddling Through'" Public Administration Review Spring 1959.
10. Charles E Lindblom "Initiating Change: Modes of social inquiry" American Behavioral Scientist, Jan 1997 v40 n3 p264.
11. Mancur Olson The Rise and Decline of Nations - Economic growth, stagflation and social rigidities (Yale University Press 1982), P. 44.
12. See, for example, Ron Heifetz Leadership without easy answers (Harvard Belknap 1994).
13. Charles E Lindblom 1997, op. cit. The other elements in his list are: reducing many kinds of inequalities, including inequalities of income and wealth, and inequalities in political power; ameliorating the misery of the Third World; curbing crippling forms of class, ethnic, religious, and national conflict; conserving the planet; educating the young and continuously reeducating adults; changes toward diversity of opinion, cultural diversity, social processes that stimulate diversity of thought; finally amenity and beauty.
14. For a description of these changes, see the two part article "Dumbing down in Canberra - a guide to the Public Service reform industry" Dissent Autumn/Winter 2000 and Summer 2000/2001.
15. A process very similar to this is described by Robert Reich, former Secretary of Labor in the first Clinton Administration. See his essay "Policy Making in a Democracy" in Robert Reich (ed) The Power of Public Ideas (Ballinger 1988).