Dumbing Down in Canberra - A Guide to the Public Service Reform Industry (Part 1)
Cyril Pearl's 1959 guidebook to Australia So you want to be an Australian commences with a page of vital statistics with counts of people, sheep, rabbits and public servants. Both rabbits and public servants are unproductive overheads, consuming useful resources. Occasionally, Pearl points out, a public servant will eat a rabbit, relieving part of the problem, but, he concludes, "..rabbits never eat public servants, and no way has yet been discovered of keeping the public servant menace in check."
Public servants do not have a good image. They are as derided now as they were in 1959. But there has been a change. Successive governments have found it easy to pursue the eradication of public servants with the same vigor as scientists have pursued new strains of myxomatosis and calici virus.
Few Australians feel much sympathy when they hear that government departments are to contract out their computer services, or that Centrelink is to lose 6000 staff. When whole regions have been devastated by job losses in the automobile and clothing industries, and by depressed commodity markets, there is generally a feeling that it's about time for public servants to share the pain of change. In a context of widespread change and upheaval, the advocates for public servants, mainly the Community and Public Sector Union, sound precious when they protest about job cuts. When Australians were asked in a survey in 1992 how they would like to see public expenditure adjusted, most respondents showed a strong preference for more expenditure on government services - education, roads, health care. Only 8 percent, however, opted for more expenditure on general government administration.(1)
This image of lazy and unproductive productive public servants has made it easy for successive governments, Labor and Coalition, to make overwhelming changes in the public service, all in the name of "reform". Job losses are described by the neologism "efficiency dividend" or by the term "consolidation". Cutbacks in government services are sold by appeal to the need for "smaller government", without the need for further justification.
In the public mind, therefore, the struggle has become one between governments trying to improve efficiency, and public sector mandarins and their followers trying to defend their taxpayer-funded courtly privileges - tenured employment, generous pension schemes and short working hours. By contrast, the private sector is extolled as a paragon of efficiency, responsiveness and innovation.
This portrayal of the situation, like most simplifications of complex public policy issues, is convenient for governments. It saves them from too much scrutiny, and from difficult debates about the role of the public sector. But it has meant that changes to the public service have taken place without any clear notion of what it is the sector and therefore the public service should be doing. Are public servants simply a bureaucratic overhead on society, analogous to rabbits in the pastoral industries, or does the public sector have a clear and well-defined social and economic function? If the former then any process of eradication is justified; if the latter then it is possible that the "reforms" are resulting in social and economic damage.
In these two articles I will suggest that there have been two basic problems with recent public service "reforms". In the first of these articles, I will show that they have not been guided by any consistent vision of the role of government and its agencies. Rather, they have become intertwined with the process of reducing the size of "government" as an end in its own right. While the rhetoric of the reforms is dominated by references to "efficiency", they are really about cutting back on government services, without regard to the economic consequences. The reforms are not about efficiency of reducing society's overheads - all that's happening is that public sector bureaucracies are being replaced by even larger and more costly private sector bureaucracies.
In the second article, I will show how these reforms are
based on private sector models, without acknowledgement of some of the necessarily
distinct features of public administration. In fact, some of the reforms, particularly the
over-reliance on financial accounting systems and the fad of contracting out, are no more
than parodies of private sector practice.
There is nothing new about reform
It is wrong to suggest that it is only in recent times that governments have become concerned with the efficiency of public administration. Like the totalitarian régime in Orwell's Nineteen Eighty Four, each successive administration in Australia would like the public to believe that before its watch the world of public administration was engulfed in darkness and waste, and that its "reforms" represent the pinnacle of sound public management.
In fact the process of administrative reform has been long and ongoing. Only six years after the passage of the first Commonwealth Public Service Act in 1902, a set of service-wide administrative reforms was set in place as a result of a Royal Commission into Postal Services.(2) A typical example of reform is in the 1952 Report of the Department of Social Services which lists with pride a number of productivity improvements, "resulting in a saving of many man hours", including changing the register of bank payments from a book register to a card system.(3) Such productivity improvements have been incremental and unsung.
What has changed, however, is that government reports these days rarely mention anything so tangible or concrete as the organization of data bases. We are more likely to be told that the organization has hired a firm of international consultants to undertake a "strategic review of the organizational objectives and structure". The public institutions of 2000 we are told are "high performing" and "strategically oriented", and are dedicated to "continuous improvement" and a "client focus". There is copious use of vague, undefined words drawn from the lexicon of management texts. Substance has given way to form, concrete expressions of achievement have given way to management Newspeak, and past reforms have become belittled.
One of the more important of these past reforms was the 1975 Royal Commission on Australian Government Administration (The Coombs Commission). Although the Coombs Report in 1976 reported that public administration was not as efficient as it could have been, it did not suggest that public sector managers were unconcerned with efficiency.(4) It focused on the institutional constraints which frustrated attempts at efficiency improvement. Its main contribution was that it was comprehensive and wide ranging, and it identified system-wide rigidities, particularly to do with recruitment and promotion, which constrained public servants from achieving their full potential. Public servants wanted to work more efficiently, and they generally knew how to, but they were shackled by centrally imposed restraints.
Another service-wide report was the Review of Commonwealth Administration (The Reid Report).(5) This report, presented in January 1983, recommended a number of financial reforms, such as a phasing out of line item appropriation for administrative expenditure, relaxation of centralised controls on overseas travel and consultancies, and early development of a "new financial management improvement program." As a result the Hawke Government instituted a comprehensive Financial Management Improvement Program (FMIP).(6)
The FMIP led to a number of budgetary and administrative reforms, the main one being a change away from an input-based line item budgeting towards program budgeting, concerned with outputs and outcomes.
The main theme of these earlier reforms was to improve the
efficiency and flexibility of the public service. As for as any wider notion of the role
of government, they were neutral. That was to change in the mid eighties.
From reform to retreat
In 1986 the reform process became intertwined with an emerging government priority - a desire not just to reform administration, but also to reduce the size of government.
By 1985 government outlays had reached a new high (see Figure 1). To an extent a cutback was inevitable, for the high level of expenditure was an overshoot from the fiscal stimulus to counter the 1982-83 recession. But there was also a longer term policy, for the level of government expenditure had become a political issue; there was a feeling that it was somehow "too high". Expenditure restraint became an overriding objective of government policy. Two prominent public servants - Michael Keating and Malcolm Holmes - described the policy priorities from then on as "two prong":
Up to that point most reforms in public administration had been introduced with the intention of making government more efficient - that is, better at doing its job within its resources. In economists' terms this relates mainly to technical efficiency - a ratio of output to input. The 1952 reforms in the Department of Social Services provides a typical example of such a technical improvement.
Expenditure restraint is a different issue, however. It is about reducing the size of government. In some cases cutting government outlays can improve what economists know as allocative efficiency - a measure of the extent to which all the resources in the economy are applied to their most valued use. An improvement in allocative efficiency occurs when the private sector can do the same task with fewer resources, or when the community would prefer some other goods and services provided through private markets to those provided through the taxation and budgetary system. For example, if the community prefers housing to defence, then it makes allocative sense to cut defence spending, to cut taxes, and to let people direct the income so saved into housing, which is well provided in private markets.
It is far from axiomatic, however, that reducing government expenditure always leads to greater allocative efficiency. For example, a decision to reduce government health care funding through encouraging private health insurance will certainly reduce budgetary outlays, but if private insurers have higher administrative costs than the government health scheme, or if they have less control over service providers' prices, then constraining public expenditure actually results in a reduction in allocative efficiency.(7)
There are cases where functions are better performed in
the private sector, but there are also cases where functions are better performed in the
public sector. The optimum boundary between the public and private sectors should shift
over time. Technological changes, for example, which allow for cellular wireless telephone
technology reduces the justification for a publicly owned "natural monopoly" in
telephones. In such cases, allocative efficiency may be improved by opening up services to
private sector contestability. But over the last fifteen years successive administrations,
Labor and Coalition, seem to have forgotten that allocative efficiency is the desirable
end of economic policy. Rather, cutting the size of government has become an end in its
own right, regardless of the consequences.
The fashion of "smaller government"
In general, therefore, the case for reducing government expenditure is not made; it is axiomatic. When it is articulated it incorporates a logical fallacy. Governments are reducing expenditure; therefore it is the only logical policy to pursue. Such self-referential circularity avoids the burden of analysis or justification. An example of such a circular argument is the work of the influential consultant Gary Sturgess, who argues that because governments are reducing expenditure they should reduce expenditure.(8) It is fashionable to cut government; one would no more argue against it than one would argue against the latest clothing fashions from Paris. Such a mode of argument is similar to the Marxists' view on history - policies need no justification other than reference to their inevitability.
This fashion has been world-wide, particularly in English-speaking countries. It has been variously called "neo-liberalism", or, more confusingly in Australia, "economic rationalism". Michael Pusey has used this term to describe the anti-government phenomenon, and the term has become widespread in Australia.(9) While Pusey's work accurately exposes the barren philosophy of cutting government as an end in itself, the term "economic rationalism" suggests that somehow the process is rooted in the rational ideas of Enlightenment thinking. In fact, it stems from a grossly simplistic view of economics which ignores the limitations of markets and the well-accepted economic theory of market failure. The confusion is unfortunate; obviously Pusey did not set out to confuse, but the term "economic rationalism" leaves the critics of the current fashion open to the charge to being anti-rationalist, or, by default, irrationalist.
In fact, the irrationalism is on the other side, for there
is a perfectly rational justification for the public sector, most soundly articulated by
Paul Samuelson, the doyen of orthodox economists, in 1954, in his theory of public
The rational view of the state
To put Samuelson's theory simply, an economy needs some mix of public and private goods, because private markets do not always work well. They are often subject to market failure. The economic theory of market failure rests on the fact that there are certain desirable activities, which, when left to the private sector, will either not occur at all or will occur only with high waste and inefficiency. The private sector does a good job at producing clothing and theme parks, but there is no way it will provide defence, public parks or country roads. The private sector may be able to provide urban trunk roads, health care and secondary education, but often at high cost and with severe inefficiencies and injustices.
A notion of using the public sector to compensate for such
shortfalls and inefficiencies in private markets has long been the prime justification for
government activity in specific areas of the economy, such as defence, transport,
education, culture, basic research and health care. Advising on and administering such
programs, of course, was the role of the public servant.
The public servant - from counsellor to administrator
The public service had a role not only in administration, but also in analyzing these causes of market failure, and in recommending appropriate policies ranging from regulation through to public sector provision, generally in the interests of economic efficiency. That is why there arose in Australia, as in other democracies, a professional bureaucracy dedicated to giving objective policy advice - not only in the core policy departments, but also in specialized bureaus removed from Executive Government - agencies such as the Bureau of Transport Economics, the Bureau of Industry Economics and the Secretariat of the Economic Planning Advisory Council.
While some of these agencies have been retained (often
through consolidations), their importance and influence has been reduced severely. Policy
advice is more likely to come from private consultants, ministerial staffers and private
lobby groups than from professional public servants. The public servant's role has been
changed from one of policy advice to unquestioning implementation of policy made
elsewhere. It has become a technical, administrative task, governed by narrow descriptions
of policy objectives and by consideration not of community costs and benefits, but by the
Commonwealth's fiscal bottom line - the effect on the budgetary aggregates . The resulting
dumbing down of the bureaucracy I describe in the second of these articles.
Public choice theory - the underlying dogma
The economic theory which has given a thin cloak of academic respectability to cutting the size of government is known as "public choice" - an abstract theory which rests on the proposition that government agencies are intrinsically bloated and wasteful. Public choice theorists and politicians see no need to establish the truth of this proposition. It is to be taken de fide - as an article of faith. Starting from that proposition, the main task of government is to make itself small. Its main role in improving allocative efficiency is to control and reduce the total level of government expenditure.(11) It doesn't matter how this done - by cutting infrastructure, education or defence expenditure - all are wasteful, and economic performance will inevitably be improved by freeing up more resources from the dead hand of government bureaucracy. Under the current government, transfer of functions to the private sector ("private sector primacy") is desirable in its own right, without reference to any notion of market failure or public good theory.(12)
Public choice theory, under which such open-ended transfer of activity to the private sector is justified, is hollow and flawed. Like so many abstract economic models it rests on dismal and untested assumptions about human behavior - man is a greedy, self-seeking animal, with no concern for the collective purpose. Bureaucratic man is even worse, a creature who is dedicated not to providing for society (there is no such thing as society), but to empire-building and bureaucratic expansion. An excellent and rigorous critique of this theory is provided by Hugh Stretton and Lionel Orchard in their work Public Goods, Public Enterprise, Public Choice.(13) A more homely dismissal is in Galbraith's 1954 work The Affluent Society, in which he contrasts public squalor with private affluence.(14) Why, might Galbraith ask, does the economist see the public highway as waste, while seeing the billboard overshadowing it as valuable? Why is a teacher in a government school a wasteful overhead, while the corporate motivational training consultant a useful contributor to society? Why is a nurse in a public hospital of less value to the community than a nurse in a private hospital doing the same work?
Unfortunately, the public sector unions sometimes lend weight to public choice theory. When services are cut their response, understandably, is usually concerned with the interests of their members. But to the public that comes across as narrow self-interest. There are too few voices pointing out that when university faculties or hospital wards are closed the greater losers are the public at large.
A related argument for cutting the size of government is that it will improve economic health. But there is no observable relationship between the size of the public sector and economic growth.(15) Proponents of "smaller government" generally argue from assumption, illustrated with selected anecdotes, pointing to the abysmal performance of the centrally planned economies, and, until recently, contrasting this with the high growth of the South East Asian "tigers". In their anecdotes they conveniently overlook the Central American countries such as Peru and Guatemala, with small government and low growth, or the European countries such as Germany, Portugal and Ireland, with big government and high growth. Empirical research on the relationship between the size of government and growth finds a complex relationship; government waste impedes growth, but well-directed government expenditure, particularly on infrastructure, is a vital contributor to growth.(16),(17),(18),(19) But it is in infrastructure where Australia has taken some of the heaviest cuts in public expenditure.
Even if the proponents of smaller government cannot point to evidence of a correlation with economic growth, they often argue on the basis of the need to contain government deficits. They argue from an unstated assumption that any policy of deficit reduction necessarily implies constraining budgetary expenditure.(20) But deficit reductions can be achieved in other ways, including raising taxes. There is no indication that the community is seeking to trade off consumption of public goods for an increased consumption of private goods. In fact, when surveys are conducted on public attitudes to government expenditure, they indicate a clear preference for sustaining public expenditure over cutting taxes.(21)
For example, in acknowledging the need to boost defence expenditure in light of the Timor commitment, the Treasurer suggested that there will have to be cuts elsewhere in government expenditure, because cutting into the surplus is not acceptable. The Minister for Education acknowledges that universities are underfunded, but he says the shortfall cannot be met from public funds; rather he has proposed an expensive and inequitable student loan scheme.
Keeping the budget in surplus at a time of high private sector growth is quite reasonable, but there is also the option of increasing taxes, or of cancelling the generous middle-class handouts in the Ralph recommendations. This seems to be unthinkable in Canberra; the inertia of the "smaller government" philosophy is so strong that the Treasurer doesn't even feel he needs to argue the case for raising revenue. Most journalists meekly assume that expenditure has to be cut, and that the community prefers tax cuts to public goods. The juggernaut of "smaller government" has swept aside any vestiges of critical thinking.
This objective to "cut government" has little
basis in logic or empirical study. Rather, it is an outgrowth of an idea which sees the
public sector as a value-depleting burden on the value-creating private sector.(22) While many other countries are questioning the benefits
of stripping away the state, Australia is still beset with the dogma that somehow smaller
government will bring economic benefits. The still-dominant philosophy in Canberra is that
if there is a role for the Commonwealth Government it lies not in providing public goods
and services, but merely in making certain transfer payments to cushion the hard blows of
changing demographics and of an economy which is leaving many people in poverty. The only
task of the public service is to provide a mechanism for welfare payments (a largely
automated process) and to administer those few residual programs which the government has
not yet found a way to privatize.
The outcome - continuing contraction
In spite of now having one of the developed world's smallest public sectors, Australia is still reducing the size of government. (The neologism for contraction is "consolidation", a word introduced into administrative Newspeak by the Coalition Government in 1996.(23)) The Budget forward projections, combined with the Coalition's taxation changes, would see Commonwealth outlays reduced to 21 percent of GDP over the next three years, from a peak close to 30 percent in 1985. This plunge is illustrated in Figure 1.
When we examine the composition of outlays we notice even more fundamental shifts in government expenditure, reflecting this reduced role of government. Increasingly, Commonwealth expenditure is being dominated by transfer and near-transfer payments (such as health care in which the Commonwealth is a relatively passive purchaser of services). Over the period 1974-75 to 2001-02, Commonwealth outlays on these programs - specifically health, social security and welfare - will have increased from 8 percent of GDP to14 percent of GDP, while expenditure on direct services - education, transport, defence, research, industry assistance, general purpose payments to the states and a large number of smaller programs - will have fallen from 20 percent of GDP to 10 percent of GDP. Almost all the cuts in expenditure are focussed on these direct public services which bring general public benefits.
In short, the Commonwealth is withdrawing from providing,
or even funding, public services. It is becoming merely a mechanism of re-distribution,
with less and less expenditure in its own right.
What this means for the public service
Changes in public service staffing have reflected these
changes in Commonwealth expenditure. There was little change in the central bureaucracies
serving Executive Government, a rise in staffing in agencies concerned with social
security and health (including Centrelink), and a 42 percent decline in staffing in the
other agencies. As with public expenditure, staffing cuts are being focussed on areas of
government service provision, as opposed to transfer payments. This trend is shown in
One may welcome public service staff reductions as a reduction in society's bureaucratic overheads. Before drawing such a conclusion, however, it is worthwhile to examine what is happening in other bureaucratic sectors of the economy.
There has been no shrinkage of total bureaucratic sector, however. Losses in public service numbers have been more than replaced in the private sector bureaucracies. In 1983 Australia's bureaucratic sector (public administration, finance, property, business services, insurance) accounted for around 18 percent of wages paid in the economy, split evenly between the public and private sectors. The figure now is around 25 percent; losses in the public sector bureaucracies have more than been made up by gains in the private sector bureaucracies. Figure 3 (which includes Commonwealth, state and local government public sector employment) shows this trend over the last 15 years. Australia is carrying an ever-increasing bureaucratic overhead.
A desire to improve economic performance by reducing the size of the paper economy is understandable, but that has not happened. We have a smaller public bureaucracy, but a runaway private bureaucracy. The notion that somehow private bureaucracies are preferable to government bureaucracies has no more appeal to logic than Orwell's Animal Farm mantra "four legs good, two legs bad".
Many functions once done in the public service are now
carried out by private agencies, often at much higher cost, and without the benefits of
specialization, professional disinterest or an understanding of differences between public
and private goods.
In the second of these articles, I will show that the visions of the earlier reformers have not been realized. While public servants have enjoyed removal of some of the old administrative shackles, new shackles have taken their place. It is as if the government, in loading heavy administrative burdens on the public service, wants to make sure it can never be efficient, so that transfer of functions to the private sector is justified. Some old inefficiencies, such as line item budgeting, have gone, but there are new bureaucratic burdens, such as meaningless activity in the name of performance management - generation of heaps of almost meaningless data on "outputs", "outcomes", "unit cost" and "productivity". Many well-qualified public servants, who once ran programs competently and efficiently, have become little more than well-paid clerks, concerned with the administration of contracts let to private companies. The notion of "service" has given way to the much narrower notion of "performance". In spite of the rhetoric there is less accountability to the community, offset by more responsiveness to the whims of Executive Government. The public servant no longer need be concerned with the economic consequences of government programs; rather he or she is guided only by the narrow metrics of financial accounting. The traditions of the public service - disinterest, professionalism, a broad community perspective, distance from Executive Government - have given way to what has ominously come to be called "The New Public Management", which reduces the role of the public servant to something akin to that of the manager in a fast-food chain. The skills once valued in the public service - wide experience, historical perspectives, analytical skills, interest in public policy - all count for nothing in this new mechanistic, dumbded down environment.
There is a sound, rational, set of economic theory that defines a role for the public sector in a market economy, but that theory is not within the guiding principles of the new public service. That omission is costly, for the result is ultimately impoverished economic and social policy. And in losing a professional, disinterested public service, we are losing a resource which has taken more than a century to establish but only fifteen years to demolish. If Australia does get a government with a more responsible economic philosophy it may be able to renew our run down roads and railroads, and it may be able to push more funds into health care and education, but it will not have a professional public service to help it.
1. Glenn Withers, David Throsby and Kaye Johnstone for the Economic Planning Advisory Commission Public Expenditure in Australia - EPAC Commission Paper No 3. (AGPS 1994).
2. D I McDonald "The Founding Years of Commonwealth Public Administration, 1901-1910" in J J Eddy and J R Nethercote (eds) Towards national Administration - Studies in Australian Administrative History (Hale & Ironmonger 1994).
3. Department of Social Services 11th Report 1952.
4. Royal Commission on Australian Government Administration (Coombs) (AGPS 1976).
5. Review of Commonwealth Administration Report January 1983. (AGPS 1983).
6. The two main official reports are the Public Service Board/Department of Finance FMIP Report (AGPS June 1986) and the House of Representatives Standing Committee on Finance and Public Administration Not Dollars Alone: Review of the financial Management Improvement Program (AGPS 1990)
7. For a development of this argument see Ian McAuley "Private health Insurance - Redefining the Issues" Australian Rationalist September 1998.
8. Foe example, see Gary Sturgess (Principal, Sturgess Australia, NSW) "Virtual Government: What Will Remain Inside the Public Sector?"" Australian Journal of Public Administration 55(3): 59-73, September 1996
9. Michael Pusey Economic Rationalism in Canberra (Canbridge University press 1991).
10. Paul Samuelson "The pure theory of public expenditure" The Review of Economics and Statistics Vol 36, 1954.
11. See public choice models, for example "The Pure Theory of Public Expenditure" in Peter Groenewegen Public Finance in Australia (Prentice Hall 1990).
12. John Halligan "Implications for the Public Service of the Emerging Australian Model" Working Group III, Public Service Reform Annual Conference of the International Association of Schools and Institutes of Administration International Institute of Public Administration, Paris, 14-17 September 1998.
13. Hugh Stretton and Lionel Orchard Public goods, public enterprise, public choice (St Martin's Press 1994).
14. John Kenneth Galbraith The Affluent Society (Pelican 1958).
15. Economic Planning Advisory Council The Size and Efficiency of the Public Sector EPAC Council Paper #44 (EPAC, Canberra 1990).
16. Francis Castles and Steve Dowrick The impact of government spending levels on medium term economic growth in the OECD, 1960-1985 (Australian National University, Centre for Economic Policy Research 1988)
17. Robert J Barro "Government spending in a simple model of endogenous growth" Journal of Political Economy Vol 98 #5, Part 2, October 1990.
18. David Aschauer "Is Public Expenditure Productive?" Journal of Monetary Economics 23 (1989).
19. Isabel Argimon Does public spending crowd out private investment?: Evidence from a panel of 14 OECD countries (Banco de Espana, Servicio de Estudios, 1995 )
20. See, for example, Stephen Sedgewick ,Secretary of Department of Finance The State of the Service IPAA Annual Oration 28 October 1993.
21. On health care, see Newspoll 22 September 1998 National Coalition for Public Hospitals and Medicare. On education, see AGB-McNair 5 June 1996, reported in The Age and the Sydney Morning Herald. On attitudes in the UK, The Economist May 3, 1997. On general attitudes see Withers et al, op.cit.
22. John Alford "Towards a New Management Model: Beyond 'Managerialism' and Its Critics" Australian Journal of Public Administration Vol 52 #2 June 1993.
23. National Commission of Audit Report to the Commonwealth Government (AGPS 1996)
24. The source for budgetary data is the 1998-1999 Commonwealth budgetary documentation. Budgetary documentation for 1999-2000, has suppressed the detail which would allow such analysis.