Politics
Stop worrying about the size of government: think about what government should and shouldn’t do
We don’t need “big government” or “small government”: we need capable government.
The weirdest aspect of the Tasmanian election is that the two established political parties went into the campaign promising to build a sport stadium – a $945 million project in a state with high public debt and, as in the rest of Australia, a shortage of housing and of skilled construction labour.
It is hard to find any economic theory, outside Soviet-style communism, that can justify public investment in a sport stadium. If people enjoy watching sport enough, then the market should surely provide, as it does in the case of cinemas, which, although different in scale, are similar in terms of the economics of supply and demand. Congregations of religious believers are able to come together to finance megachurches; in view of the religious-type fervour characteristic of football fans, surely they can do the same.
It seems that the politicians in our two main parties, and the people who vote for them, do not have a coherent idea of what should be in the public sector and what should be left to the market. Rather they appear to be guided by the idea that people don’t like paying taxes, and by the idea that public spending is just a big wasteful overhead. Therefore public spending must be constrained, and allocation within that constraint should be determined by populist demand, often prompted by lobby groups. If people want a stadium more than they want a road or a hospital, that’s their business.
The result is underinvestment in goods and services which the government could provide at lower cost and with more social benefit than the private sector, and waste of taxpayers’ funds on things the market could provide.
By any measure that’s a bad allocation of resources.
Within mainstream economics there is an established and rigorous theory setting out the division between the private and the public sectors.[1] It’s an old theory: Abraham Lincoln (a Republican) articulated it 150 years ago:
The legitimate object of government is to do for a community of people whatever they need to have done, but cannot do at all, or cannot do so well for themselves, in their separate and individual capacities.
Policymakers of all political persuasions know that there are things the private sector cannot do at all, such as national defence, but they are inclined to forget the second part of Lincoln’s explanation, which is about the private sector doing things that the government can do better.
In Australia we have tried to get the private sector to do things which could be done in the public sector at lower cost, and generally with better outcomes. Examples of such costly and economically unjustified privatization include health insurance, toll roads and electricity transmission and distribution.
Tasmania’s stadium is an example in the other direction, but the general message from the stadium and from ill-considered privatization is that governments lack a disciplined way to decide what should be in the private and public sectors.
If we are to have a more rational private-public division making the best use of private and public investments, we need to change the way we think about government – not as some source of funding to satisfy our fantasies, and not as some big wasteful overhead. Rather we need to appreciate the value of public investment.
That is the essential message of a 45-minute podcast at the Kennedy School of Government: Forget smaller or bigger. If you want better government, invest, in which Kennedy School Professor Elizabeth Linos puts the case for effective government.
She points out that the idea that smaller government is better government has been driven not only by neoliberal propaganda, but also by mistrust in government, and by policies, some of which are well-meaning, that make it hard for governments to deliver. Our expectations of government are low, in part because conservatives want us to have low expectations, and in part because governments have not used their resources well.
She suggests that if the electorate had a positive view of government Elon Musk’s DOGE would never have been proposed in the first place. As it was Musk, while doig a lot of damage, didn’t find much fat to cut, but her main point is that there is a strong popular perception that government is bloated and that those on the public payroll are lazy and indifferent to the public interest. That perception drives the attraction of lower taxes and a cynical view that whatever government does it does badly.
Her discussion is mainly about the USA. In Australia we rejected Dutton’s Muskian-inspired idea that we should cut the Commonwealth public service by 41 000, but with the election and Peter Dutton behind us we still see the usual “efficiency” drives, based on a narrow interpretation of productivity, which result in no improvement in public services. In fact if they result in longer times people spend waiting for services, they may only reinforce the idea that government is intrinsically inefficient and indifferent to people’s interests.
Linos’s ideas for building government capability are not radical, or even “progressive”. They are pretty-well straight out of the business school textbooks. They are about re-building a capability lost over many decades of underinvestment in the resources, mainly human resources, which are directed to delivering good government.
As pointed out above there is a strong economic case for more spending on government services, but Linos’s message is also about governments making better use of the resources they already have at their disposal, and relating better to the taxpaying community. Improvements on these fronts won’t result from the usual efficiency drives: rather they require a cultural shift, in particular undoing some of the “reforms” that have weakened the capacity of government, particularly the Commonwealth.
The most destructive of these reforms, incorporated in the Howard government’s 1999 changes to the Public Service Act, prioritized public servants’ responsiveness to ministers’ political whims over providing a professional service to the public. To the Howard government the ideal public servant was a generalist, finally attuned to the government’s political ideology, rather than someone with professional expertise and deep knowledge of the programs they were administering – what in the private sector would be called “industry knowledge”.
We have seen the consequences of this administrative model. The Rudd government paid a political price for failures in the home insulation scheme, which was administered by public servants who didn’t know the basic laws of thermodynamics. The Morrison government – and the Australian community – paid a high price for the failure of Robodebt, a program whose administrators prioritized political responsiveness over service to the public. Re-building government capacity requires a professional public service that is more in touch with, and more responsive to, the community.
The only shortcoming in Linos’s advice is her assumption that those we elect are committed to providing good government. If current US experience is any guide, in that country the people seem to have elected a kleptocracy, whose mission is to help oligarchs plunder the country’s public assets.
More commonly, politicians may be well-intentioned but committed to naïve beliefs that work against the public interest, particularly the idea that those who amass financial fortunes, helped by accommodating policies on taxation and corporate regulation, will invest and provide jobs for the masses – an idea glorified with the term “supply side economics”, even though it is more about austerity than increasing supply.
In this belief system anything that favours the private sector is to be preferred, because it is inconceivable that the public sector could do anything better. That belief seems to be hard-wired into the Liberal Party’s statement of beliefs, notably in its assertion “that businesses and individuals – not government – are the true creators of wealth and employment”.
It's clear from that statement, and from the policies it took to the last election, that Linos’s ideas would be lost on the Liberal Party – that the whole idea of capable government is alien to them.
At least the Liberal Party is explicit about their contempt for the public service. We are still waiting to see if Labor, now firmly in government, can rebuild government trust and capability.
1. In all immodesty I point out that Miriam Lyons and I presented the theory in our 2015 book Governomics: can we afford small government?, which is simply a re-presentation of mainstream economic theory written in a form accessible to the general reader. ↩
Do we need electoral reform?
Our systems work well, but we need reform at the margin to enfranchise the least represented with the greatest stake in public policy.
Rusted-on Labor voters, looking at the results of this year’s election, would probably assert that we have the best of all electoral systems. It seems odd, however, that the party that won only 35 percent of the vote took 63 percent of the seats in the lower house, while the party that wasn’t too far behind, with 32 percent of the vote, took only 29 percent of the seats.
Such is the outcome of preferential voting, a system designed to offer voters their second, or even lower order choices if their favoured candidate does not win, and to ensure their vote isn’t wasted. It protects against people finishing up with someone they really didn’t want, when there are two or more acceptable candidates running.
Just after the election Julian Morrow interviewed Ben Raue, publisher of the Tally Room website, about the outcomes of elections under varying voting systems (16 minutes). In the interview he touched the surface of voting theory – a body of teaching and research that makes postgraduate pure mathematics look simple.
Raue is no enthusiast for first-past-the-post voting, the system in the USA and the UK, but he is an enthusiast for proportional representation, particularly systems of proportional representation that retain some regional representation, as in Tasmania (5 electorates each with 7 members) and the ACT (5 electorates each with 5 members). The ABC’s Casey Briggs has a very informative description of the Hare-Clark proportional representation system on his Tasmanian election website.
Proportional representation tends to protect against landslides precipitated by small changes in a party’s vote. In theory, under either first-past-the-post voting or preferential voting, a 51:49 vote for the Coalition could deliver it 100 percent of the seats, to be completely reversed by a 2 percent swing to 49:51, delivering Labor 100 percent of the seats. It is only the heterogeneity of electorates that protects against such extreme outcomes. By contrast, proportional representation tends to more centrist outcomes, as is evident in last week’s Tasmanian election. (It also puts politicians off moving frivolous motions of no-confidence.)
Australians observing the outcomes of the UK and US elections are probably content to stay with our present systems, particularly preferential voting, compulsory voting, and an independent electoral system. But one area for incremental reform, suggested by independent MP Monique Ryan, is to lower the voting age to 16. Such a shift is not unprecedented: until 1970 in the Commonwealth and all states the voting age was 21 years; by 1973 it had been lowered to18, with little fuss. A number of countries, including Germany, Austria and the UK, have recently lowered the voting age to 16.
In view of the catastrophically low support for the Coalition among younger voters, one may expect that the Albanese government will support Ryan, who promises to introduce her proposal in a private members’ bill. But Labor strategists may be wondering just who their rivals are among 16- to 17-year-olds – probably the Greens rather than the Coalition. They may also be concerned that in Germany and Austria the extreme right has strong support among the youngest voters, particularly young men.
Nevertheless the proposal has merit on two strong grounds. As we see in housing, tertiary education, health insurance and superannuation, the present political system delivers lousy outcomes for the young: lowering the voting age would surely go some way to improvement. The other relates to climate change, and other long-term developments influenced by current policy. A 16 year-old today will probably live until 2100, and possibly well beyond. There is a good argument for weighting people’s vote by their statistical life expectancy, for example giving a 70-year-old only around 20 percent of the weight of a 16-year-old.
We may not be quite ready for that reform but a lower voting age would be a step in that direction.
Tasmania’s election – it’s more consequential than it appears
The Tasmanian election hasn’t raised much public excitement, but it raises four important issues that the media have missed.
Elections in Tasmania and the ACT don’t attract a great deal of media attention. They are small jurisdictions (around 0.5 million) and their proportional representation systems tend not to produce dramatic political swings. At the time of writing (Thursday) it looks as if Liberal, Labor and Green representation in Tasmania’s 35 member House of Assembly will be exactly what it was before the election: Liberal 14, Labor 10, Green 5. Independents have won 4 seats, and 2 seats are to be decided, but they are unlikely to go to established parties. (The count can be monitored on the ABC election site or on William Bowe’s Poll Bludger.)
As is the usual outcome in Tasmania and the ACT, the next government will be in minority, with or without some coalition agreement. The Liberal Party argues that because it is the party with the largest number of seats in Parliament it should continue in office. That’s a weak ambit claim: if that were the criterion for forming government Labor could have laid claim to have won almost every federal election in recent history. It’s been the Liberals’ ability to govern in coalition that has given them legitimacy. But whoever forms government in Tasmania there is unlikely to be much shift in policy.
That’s the unexciting story, well-covered in the media. But the media seem to have missed four significant issues in the outcome of this election, detailed below.
1. Voters’ distinction between federal and state issues
The Liberal Party will no doubt be heartened by a 3 percent rise in its primary vote, matched by a similar fall in Labor’s primary vote. In fact by current standards the state Liberal Party has done rather well, if we compare the primary vote in this election with the way Tasmanians voted in the federal election, two months ago:
That’s a huge difference.
There is no evidence that national support for the Albanese government has fallen: in fact polling suggests it has risen and there is no reason to think Tasmania would be out of step. The explanation for this difference in voting surely indicates that Tasmanians (like voters in other states), distinguish between federal and state issues, or between federal and state political parties.
Martyn Goddard, on his Policy Post, writes that “Tasmania urgently needs a new government”, but that is not to suggest he sees either the Liberal or Labor parties as capable of providing that renewal. His article – A party without a purpose – is about the state Labor Party, a party that dominated Tasmanian politics last century but hasn't moved on with the times. That explains much of the difference in Tasmanians' support for state and federal Labor.
2. Premier Rockliffe has an easy path to majority government, but he isn’t taking it
A Liberal-Green coalition would easily secure majority government, but Rockliffe has ruled out such a coalition.
The fact that such an easy path to government should be beyond imagination says something about both the Liberal and Green parties in Australia.
Mainland Europe provides plenty of examples of Green parties in coalition, or in other forms of agreement, with centre-right parties. Long-standing and wide policy differences between the Liberal and National parties at the federal level have not ruled out coalition arrangements. If they can reconcile their differences with the Nationals surely they can work out something with the Greens.
3. The real policy differences weren’t between the Liberal and Labor parties
Both the Liberal and Labor parties are committed to construction of a stadium, in spite of the state’s high level of government debt. Both parties, in the past, have promised strong policies on gambling reform, but have gone to water in the face of well-organized campaigns by gambling lobby groups.
Polling by the Australia Institute finds that there is strong public opposition to construction of the stadium. According to press reports, among those who could help Labor or the Liberals provide the numbers for government, all but one are opposed to building the stadium.
On gambling reform the situation is broadly similar, according to the Alliance for Gambling Reform. Almost all candidates for the election, apart from those in the Labor and Liberal parties, are in favour of gambling reform– a stance in line with voters’ preferences.
There is a message here about the public’s disgust at the ways the old established parties cave in to bullying campaigns by enriched lobby groups who have contempt for the public interest.
4. This election has a message about our relationship with a foreign monarchy
Once again, the Tasmanian Governor has to make a difficult decision on whom she will appoint as premier. It is beyond imagination that she will consult with the British monarchy in making this decision.
Federally the Governor-general had it easier: she must surely be relieved that predictions of a “hung” parliament didn’t eventuate.
It is quite probable, however, that in the not-too-distant future our Governor-general will have to use her or his powers to make a hard choice in appointing the Prime Minister after an election. It should be beyond question that such a decision should not involve anyone whose clear loyalties are to anyone but the Australian people. In 1975 that condition was breached, and we have been kicking the problem down the road ever since.
We need to sever that relationship with the British monarchy, not out of any hostility, but out of concern that our elections are fair, are seen to be fair, and are strongly protected from any possibility of foreign interference.
In the present Parliament Bob Katter is the only person willing to state his loyalty to Australia rather than to a foreign monarch.