Laying the foundations

Michael Pascoe reckons, somewhat circuitously, that governments these days are not getting obviously good and simple policy changes done as well as they might. This is attributable, in his view, to the rise of "popularism" and political cowardice which encourages governments to stick exactly to what their constituents already think, thus avoiding electoral danger but also failing to lead.

I've written(/spoken) before about why the phenomenon of parties moulding to existing views is bad for politics, even if it seems to be democratic. It's not quite the leadership point Pascoe makes, but the upshot is the same - you shouldn't just base your policy on what the polls say people want at the moment. But whereas my prescription was to stand on values and policy, and let the people decide if they agree, his is just to ram through the policy that is "bleeding obvious" and ignore the polls in the name of leadership.

This is of course a technocrat's dream. It's also not a very good idea.

Let's be clear. I'm not going to defend the idea that a policy becomes bad because people don't support it, which would be the ultra-democratic angle. Working with his example, it is pretty obvious that putting a tax on owning insurance creates a disincentive which probably ends up contributing to adverse selection, apart from being unfair on the face of it. So we agree that this would be a good policy change which ultimately should be implemented.

Public policy, though, rarely presents a situation where nobody is harmed by a new approach. In this example, the proposal is to fund emergency services by broadening the base away from only people who buy their own insurance. Given this is a state-level problem, that would presumably be with some kind of levy; in the general case reducing a tax disincentive, or creating one, involves shifting the burden to other places by raising rates or creating new taxes. There will be losers.

The problem here is not that we should never implement policies that have losers. It's that you have to explain, outline, develop and put in place your policies in a way that is consistent and that makes sense, rather than simply ramming the technocratic medicine down the population's throat. Doing the latter creates enormous distrust and backlash which have twin consequences: the reform's chance of survival is diminished, and the government's ability to conduct any other reform is likewise reduced.

You can get extreme examples of that by looking at Europe right now - austerity packages in places like Greece, which by and large were never argued for or explained in the public sphere, are hated by the people who are doing their level best in elections to express their discontent and end the changes. The two effects I mentioned haven't really manifested themselves in Europe because the European response has been to clamp down more on democracy and force more technocratic, unpopular solutions on the country. This may work, or the whole thing may unravel in the medium- to long-term and all the rage will finally be vented.

But we can get less extreme and more pertinent examples from our own backyard. The reason that Kevin Rudd's Prime Ministership ran aground was that he was utterly frenetic in his policymaking - flitting between issues, cherry-picking parts of Ken Henry's tax reform package and bringing policy forward with confusing speed. Let's take the mining tax.

This is pretty uncontroversially good policy. The original super-profits tax, as pulled out of the Henry Review, was even better because of its even spread and lack of discrimination between resources. We could argue the toss about whether this is quite as "bleeding obvious" as the insurance tax Pascoe wants, but the point stands.

KRudd followed the Pascoe Prescription: pulled the resource super-profits tax straight out of the technocratic handbook that was the Henry Review, announced it was happening and headed straight for implementation. People didn't know what it was about. There was no lead-in - no explanation that coal miners would be profitable at a fraction of the current coal price, that the mining commodities boom could only be temporary, that the 10% of GDP that the mining industry represents is not in itself enough and more should be garnered from the opportunity presented by the boom. There was no Wayne Swan writing in The Monthly to explain why we shouldn't simply let the miners run wild. There was just, suddenly, the tax. Even then, there was no sustained explanation that the tax only involved profits that were economically unneeded, or that it actually encouraged investment by refunding losses in the early years of projects.

What was there? A $22 million dollar, five-week attack campaign from mining companies, some truly awful ads from the government in response, and then the deposal of Kevin Rudd.

So I lied; this is not really a much less extreme example. Barry O'Farrell probably won't lose power because of a change to insurance. But the mining tax example does demonstrate the double downside of this kind of Henry-knows-best, top-down reform. The mining tax that we do have is a vastly watered down version, and because of the backlash there's a strong change Tony Abbott will get elected and repeal the whole thing. That's the first consequence. The second is less direct, and has other causes as well: the carbon tax promise, the long-running leadership tensions, the PR missteps. But the ability of this government to get anything done - any kind of reform, no matter how technically perfect - has been drastically reduced by the destruction of public trust, which is caused at least in part by its tendency to enforce policy without the public discussion, consultation and foundation-laying that Pascoe so decries.

Comments