Good economic decisions the next government should take.


We are in the middle of the electoral cycle, which seems a good time to give advice on which policies make good economics in the sense of being in the interest of the long-run welfare of Australia. My top 5 of do-able economic policies, some big and some small, that a government from either side could implement:

  1. Have an independent Medicine Procurement Authority. We should pay much less for our medicines, both patented and generic medicine, by increasing the distance between politics and medicine pricing. As my colleague Philip Clarke keeps pointing out, Australia pays way too much for its medicine. Whilst we spend about 1% of our GDP on subsidised medicine, we should probably spend no more than half that. And the main reason we spend too much is political, i.e. the minister for health is put under direct pressure to hand out favours to big Pharmaceutical companies (such as via this fairly scandalous Memorandum of Understanding that commits Australia to uncompetitively high prices for generic medicines). An independent medicine procurement authority would have a budget fixed by parliament, revised every so often, with the single task of deciding what to buy for the allocated money. That fixed-budget constraint would force us to constantly review which medicines we still subsidise and what price we pay for them, getting us out of the lazy equilibrium whereby Pharmaceutical companies (invariably foreign) are getting rich because politicians are kept under direct pressure not to put the screws on the pharmaceuticals.
  2. Set up a Long-term Leasing Office charged with auctioning off the right to run public services, coupled with an ex-post regulation regime. I am here for instance thinking of inviting foreign universities to bid for the right to run existing inner-city universities, whereby the foreign bidders would get a long-term lease (say, 30 years) on the community land on which a current university stands, together with a regulatory requirement to deliver certain services (i.e. the land cant be used for other purposes) whilst also guaranteeing regular access to government student subsidy schemes and the like. Long-term leases are also a possibility for things like primary and secondary schools, hospitals, airports, prisons, and residential care. In all cases, we would be talking about outside organisations getting access to existing land and facilities with associated obligations to provide services and access to subsidies and the like. Whilst implementing this wholesale would be fairly revolutionary and difficult, any government could experiment with setting this up for a smaller set of current public service providers. It would not merely be a question of private providers taking over public tasks from public providers: public providers could bid to take over other public providers too. It is primarily a means to reduce overhead and encourage real competition.
  3. (One of Nick Gruen’s favourites) Set up an independent national budget office with the statutory obligation to calculate the long-run effects of major changes in the tax and spending plans of the government, including the vetting of major infrastructure projects like the National Broadband Network. Such institutions already exist in many major economies, witness the Congressional Budget Office in the US or the Rekenkamer in the Netherlands. The great advantage of such an institution is that it gives much greater confidence in projections of major changes and would replace the fairly dodgy current practise of having private consultancy firms give dubious projections on the impact of major changes in taxes. Such a budget office is a fairly low-cost institution and would partially serve as a training ground for fiscally-knowledgeable politicians and civil servants.
  4. A real mining tax. There is little doubt that Ken Henry’s long-run tax reform advice is basically sound: as a country we should reduce taxes on activities with close economic substitutes (such as small business incomes) and increase taxes on things that cannot run away, most notably the minerals we own in the ground. The companies that mine it currently are 85% foreign owned meaning the huge price increases in the international mineral markets are lining the coffers of New York and London stock traders, not Australian households. And yet, minerals cant run away and taxes on their profits have little (if any) deadweight loss, particularly given how few Australians actually work in the mining industry anyway. A 50% or higher profit tax on resources would clearly be in our interest. I would personally also favour putting the proceeds in a future fund that invests the revenue in the world stock markets, which reduces the impact of the mining boom on our exchange rate and thus doesn’t kill off other industries. As an aside, the mining tax we have now is clearly worse than nothing since it indirectly entails the duty of the federal government to prevent the states from increasing their royalties, co-opting our commonwealth government into doing the bidding of foreign-owned companies. One estimate is that this deal cost us 6 billion a year, but complicated tax-offset rules probably mean it is much more. A more realistic figure is that Gillard’s deal cost the country in the order of 50 million a day in lost revenue.
  5. (in the category small) Reduce the budget of the Australian Bureau of Statistics by about 90%, reducing it to merely being in charge of running the Census, and instead commission private providers of statistics to generate surveys of Australian businesses and the population. This would involve a quick reduction of around 300 million a year in expenses and would immediately improve the data available for economic decision making. The rational for cutting off the ABS is that it is completely secretive about the data it gathers: only ABS officials are trusted with using the full data by the ABS, not other government departments or Australian researchers. We are thus in the fairly ridiculous situation that those who devise the Australian budget in the Treasury do not have access to all the data gathered on the finances of individual industries. The ABS hides behind laws promising confidentiality to prevent anyone else from using its data, but similar laws on secrecy exist in other countries that have not been interpreted as ‘only people in our statistics organisation can be trusted’. Quite simply, the ABS has turned into a secretive rent-seeking organisation that draws huge subsidies but does not feel obliged to share its products with its paymasters. Why then should the Australian public pay for data that is not used to improve our knowledge of Australia? It might as well not exist and if it didn’t exist, the community would be free to buy data from other sources that are more consumer-friendly.

There are many other policies that have clear benefits, but the most obvious ones would take a long time to implement: the huge hidden unemployment in the bloated health ministries, defense department, and education administrations, are clear drains on the national purse but getting rid of them is very hard because they are so entrenched. Getting rid of waste in the bureaucracy of education and health is hard since the people you could ask to get rid of it would usually be the ones you would want to get rid of first. On defense, one can talk about major changes like setting up army units based abroad made up of foreigners that would be much cheaper than domestic soldiers (mainly because you bypass the existing bureaucracy), but such things cannot be set up overnight as the institutions one could charge with doing this have every incentive to stuff it up and have no expertise to do it. One would have to build up new institutions that take away part of the competencies of existing ones, which is not easy or quickly done.

Interesting other ideas I would be sympathetic to are the buying of foreign health services in bulk to by-pass local cartels; life-long public monitoring via the Tax Office of the wealth of any politician involved in major public spending decisions (like procuring big contracts or property re-zoning) to improve the incentives of politicians; and setting up Australian PhD institutes to stop the brain drain.

36 Responses to "Good economic decisions the next government should take."
  1. The warnings about “foreign companies” in many of these points seems strange given the love shown to them in point 2.
    Enacting point 2 would likely lead to consolidation in many fields rather than greater diversity.
    The biggest problem with contracted complex government services is typically the contracts. Things like schooling can be difficult to effectively reduce to KPIs.
    I’m not sure what you have against Australia’s universities. I’m not sure that the “worlds best practice” institutions with their typically enforced small enrolments would want to offer the same quality of education to mass numbers of people. And if they did, they would be unlikely to charge fees most Australians would find amiable.
    A better step would be to remove universities’ power to be self-acredited. Doing this would increase the equivalency of the various pieces of paper on offer from different institutions.

  2. So you oppose the outsourcing of budget analysis and cost benefit analysis to private sector firms, but are OK with the collection of statistics being outsourced to (presumably) the same firms?

    The ABS may not be perfect, but they are much better at sharing the information they have than almost any other government agency and are getting better at a faster rate than any other agency (ABS betaworks for example).

    I would prefer to support the ABS to change faster rather than taking the role away from them. Treasury could also seek to have the laws changed that prevent the ABS sharing the data  – don’t presume the ABS likes these laws, they could be just adhering to them.

    I don’t think definitive analysis of major infrastructure projects can be produced with any confidence by anybody. An independent budget office is not going to be able to say definitively this project is good or this project is bad. They will be able to say a project may or may not be worth investing in depending on which assumptions you use. That is, they will just be more honest that they have had to make assumptions unlike infrastructure departments and consultants.

  3. Sounds like the kind of program that would mostly appeal to middle-aged white collar professionals working with statistics, whose grown up children are attending university.

  4. Sam,
    of course a budget office wont give final answers. Simply more authoritative and unbiased answers than consultants paid by people with a stake in a particular answer.  As to the ABS, I have heard their line about the laws often, but dont believe it. Nowhere in that law does it say that only ABS people can be trusted, but that is how it is being interpreted. The ABS hierarchy hides behind laws, true, but unfairly so IMO. An unhealthy culture of secrecy has developed at the top there, where the secrecy only protects that top but not the Australian public.


    in 10 years time what you describe would be me. 

    its the bloated administrations that are the problem with many of our services (not just unis) which ultimately is about governance. The current governance model is not addressing this issue but adding to it. I agree that self-accreditation in unis is an issue, but its not the fundamental one.    

  5. Point 2 has already been experimented with – the examples of airports, immigration detention centres and public transport come to mind.  None of these with particularly pleasing results.
    (Most of the areas you list are state responsibilities, anyway).

  6. kme,
    yes, point 2 has been cooking for a while with mixed success. One of the issues that would be important to experiment with is to have whole layers up for grabs: why not have whole state health administrations open for tender in stead of individual hospitals? You cant really get much worse than Queensland Health so I would be all for putting its tasks up for tender.

  7. Point 2 has been tried many times in many industries. The privatised public services haven’t done any better than the public ones and there’s no reason to think they would do so in education. On the other hand the deal would generate a lot of money for the lawyers, stockbrokers, merchant bankers etc commissioned to run the privatisation and “regulate” the industry, and they in turn would give more money to academic economists who advocate privatisation. So this recommendation seems like a clear example of Academic Choice Theory in action.

  8. James,  
    you take a very narrow and pessimistic view of outsourcing of public services. In many areas, outsourcing has been a success and is now considered normal: cable tv is long-licensed in many places without much trouble; passports and banknotes are usually printed by commercial companies; armies and politicians now regularly use private security firms; telecom businesses have done better privatised than public; and private schools/hospitals are normal in many countries where they are still integrated into the overall governance of the state (such as via a national curriculum or even where the teachers in private schools are still paid by the state, such as many confessional schools).
    It is basically silly to say that we know the definitive answer to the ideal bounds between public and private. When there is a clear problem in many public services, and the current tendency to hidden unemployment in bloated administrations certainly counts as one, it makes sense to search for ways to introduce more market competition in those areas.
    Australia has a long and successful history of trying various things and many forms are no longer even recognised as such, take for example the outsourcing of the job search function for unemployed individuals which used to be done by the state and is now explicitly outsourced to private organisations under complicated licensing agreements.

  9. Paul, I think outsourcing the entire health bureacracy would run into exactly the same problem as privatised airports: private monopolies don’t deliver better outcomes than government monopolies – indeed usually they are worse.  It is only when there is constant, ongoing and sustained competition – and not just every few years at tender time – that the private sector has the incentives to excel.  The conclusion is that the industries selected should be those where the consumer can have a real, meaningful day-to-day choice of provider.

  10. 1. Reform super along Diamond’s proposal, which has been more-or less used as the basis of the Thrift Savings Plan in the US. You choose the combination of index/government bonds that suits your risk profile, then the plan runs an open tender for managing funds. the TSP has management fees of 2.5 basis points, our cheapest funds (for large accounts) are an order of magnitude more expensive; the more expensive funds are two orders or magnitude more expensive. It adds up!

    2. Automatically-expiring zoning restrictions. Too much land in inner Melbourne is locked into being industrially zoned by daft local councils who want to “keep manufacturing in Moreland”, whatever that means. I’m sure it’s more or less the same in other cities, though I have no knowledge. 

    3.  Probably less feasible politically, but as my lawyer friends tell me, the federal government is the only government that can collect income taxes. This means that state governments can’t implement their own resource rent taxes, and need instead to raise taxes by pricing inputs via royalties. This decreases economic activity. Allowing local and state governments to levy income taxes hasn’t destroyed the US. 

    4. A charter city. 

    5. Retirement villages in the Philippines and Indonesia?

  11. The Census and Statistics Act (1905) says: “Information of a personal or domestic nature relating to a person shall not be disclosed in accordance with a determination in a manner that is likely to enable the identification of that person…” and is specific to the ABS.

    Other departments are only subject to general privacy legislation. Which could be an argument for outsourcing non-census data collection to other departments. But a better solution would be to change the census act.

  12. Chris,
    I disagree entirely. As already argued at ClubTroppo, its all about the interpretation of this act. If you take a liberal interpretation, there is little to prevent the ABS having much more open access to its data as long as it takes reasonable precautions o uphold the world ‘likely’.
    Indeed, according to The 1975 Act, the ABS has the duty to achieve ” the maximum possible utilization, for statistical purposes, of information” (section 6, c, iii).
    Additionally, take Section 16.2 of the 1975 Act:
    “Nothing in sub-section (1) prevents the engaging, in accordance with regulations in force under the Census and Statistics Act 1905-1973, of persons, not being persons referred to in that sub-section, to assist in the carrying out of the functions of the Statistician.”
    Now, having read the 1905 Act, it turns out this includes helping ‘The Statistician’ to analyse data: there is nothing that says this person should be employed at the ABS. Since the duties of ‘The Statistician’ include maximum use of the data, the ‘assisting’ can in fact include data analysis subject to the constraint that information should not be disseminated to enable identification.
    These parts of the Act, hence, give the ABS quite a bit of leeway, even the duty, to stretch the ability to share information to the maximum. So I put it to you that there is the practice and the reality and that in the reality the law is deliberately interpreted in a particular way to suit the position of particular people, not the well-being of Australia. With the 1905 and 1975 Act it is perfectly possible to mimic the practice of other countries.
    Take, as a comparison, the US, which is far more liberal with the data collected by the statistical agencies there (even of the census). What does the Confidential Information Protection and Statistical Efficiency Act say? It uses the phrase identifiable form of data of which the act says
    “The term ‘‘identifiable form’’ means any representation
    of information that permits the identity of the respondent to
    whom the information applies to be reasonably inferred by
    either direct or indirect means.”
    And then the US act goes on to say that data acquired under  a pledge of confidentiality can only be used for statistical purposes, but that does not preclude them from having a whole horde of researchers have fairly liberal access to the data.
    The law is hence not the reason, but the fig-leaf.

  13. I put up a long response, but it seems to have been dumped in the ether.
    Paul, you pick peculiar examples to defend privatisation. Cable TV and telecommunications: I think we all remember the mess made by double & triple rollouts of mobile phone towers and cables in densely populated areas, while services to rural, regional and remote have been allowed to decay. Bank notes: perhaps you haven’t noticed the current bribery and corruption scandals at the Mint. Private security firms: like Blackwater, Kellogg Brown Root, Serco and Wackenhut? The international increase in the use of mercenaries is a legal minefield and ethical disgrace, a blatant fig leaf for states to abandon their legal obligations.
    Private schools and hospitals: I am not advocating in favour of nationalising existing private services, for much the same reason that I oppose privatising existing public ones. I will note the current subsidies to these institutions are neither efficient nor equitable.
    More generally, the private sector is not well equipped to undertake high initial capital, long-term, public and semi-public good provision (eg roads, infrastructure, education systems, health systems). They have too much pressure to produce short term returns (and overpay their executives) and to try to dump the difficult bits back on the state. In addition, states can raise the capital for these enterprises significantly more cheaply, as John Quiggin pointed out in Zombie Economics. Look at the mess made by the UK or Victorian privatisations of public transport, especially rail, or the Sydney harbour tunnel, for example.

  14. Jim,
    fully agreed on your no 1, though it will be hard to change the current system we have so fundamentally;  but the over-riding point that the real thing to worry about with pensions is overhead, is something I completely agree with. This is also why in Australia we are starting to worry about compulsory default-option supers.
    On your no 2, I am just starting to get into that issue and it goes to the question of whether zoning is avoidable. Nearly all countries have some form of zoning and it has a strong rationale on its own, which is that lots of services are cheaper when delivered at the same place. These services are government services. Also, there is the phenomenon of unpriced advantages of public goods like parks, pretty monuments, and quiet. It may not be priced, but it makes a lot of difference in tourism dollars and livability. So my gut answer on your no 2 is that we are stuck with some form of zoning and have to make the best of zoning policy, not ditch it entirely.
    3, I dont have a strong feeling about. I can see the appeal but am not sure it would make all that of a difference. In effect, states now tax mobility via the stamp duties. That actually has a couple of hidden advantages which I would not want to lose.
    4, You’d have to sell me on the advantages.
    5. The market is perfectly capable of doing this so no need for government involvement here.

  15. James,
    Its clear we should run a workshop on this, so let me suffice by some quick rejoinders:
    There is a great reason to use mercenaries, which is that they are much cheaper. Ministries of Defense are no so inept and bloated, that it costs well over a million dollars per soldier on the ground. That’s a lot of money. So if you really want to stop mercenaries (and I actually see quite a few advantages to them) then you should tell me how you intend to reform the military, which is really a spectacularly poorly run place.
    I agree that there are things the public sector does well and that it makes sense to keep things public that run well. But public institutions get captured and bureaucracies do have a tendency to become as big as you will let them, so it is naive to go for a simplistic ‘public good, private bad’ dichotomy. You have to look case by case whether public is delivering and whether there is a private alternative.

  16. The military is expensive because generally speaking you can’t outsource most of it’s labour intensive functions. We’re not the Roman Empire. Yes, the US military has outsourced some of it’s duties to PSFs eg. guarding buildings, convoys, and VIPs and civilians etc., but that’s not due to costs but more to do with manpower constraints. I don’t know of any country except those run by despotic dictators that has the majority of their combat forces made up of mercs and often that’s because they’re using them to suppress their own people! France has the Foreign Legion and the UK the Gurkha regiment but you’re kidding yourself if they’re significantly cheaper to run then native troops. Like it or not the military and cost inefficiencies come hand in hand, it’s the nature of the beast.

  17. The capital-S Statistician referred to in the Act is the Australian Statistician, an appointed official who isn’t just employed at the ABS, they’re it’s head.

  18. kme,

    I dont know why you feel the need to clarify this but yes, the entity of ‘The Statistician’ is a central part of the 1975 Act. It strikes me as a very peculiar way of writing the law. A singular legal entity with all kinds of responsibilities and options. Half the law is about when he should retire and whether he can appoint someone as his replacement when he is on leave. Its a little bizarre. When you read the law, its almost Orwellian in its description of ‘The Statistician’.

    Nevertheless, my point above was written with the legal reality in mind; the ‘The Statistician’ has a legal duty to be more open with the data than ‘He’ is at present and, since I expect no change, ‘His funding’ should be cut by ‘His paymasters’, i.e. us. 


    I would say you are too fatalistic about the inevitable incompetence of the military bureaucracy. Some of the most successful empires outsourced most of their military, but my point is less about soldiers and more about the bloated bureaucracy that makes those soldiers so expensive. If you want a link to some sobering examples, see here. The Oxfam director claims that delivering basic aid via ‘the military is about eight times more expensive in providing basic services’. Australian Council for International Development executive director Marc Purcell blames this on the lack of scrutiny for spending by the military compared to others. In other words, avoidable incompetence.

  19. As was observed a long time ago about mercenaries, first you have to pay them to start fighting, and then you have to pay them even more to stop.
    The fact that the principal uses of mercenary security services in the current era are a) to support dictators e.g. Gaddafi b) to occupy Iraq & Afghanistan without being covered by either Iraqi, Afghani or US law, but for great profit to politically-well-connected companies c) to brutalise the US’s black prison population e.g. Wackenhut and d) to brutalise refugees eg Serco would tell most people something about the inherent values and desirability of mercenary armies. It certainly informed the UN, who passed the International Convention against the Recruitment, Use, Financing and Training of Mercenaries in 2001. But I guess such considerations don’t show up in your version of economic analysis.

  20. Paul,

    I’m not terribly surprised with your example. I will make the following the points.

    Firstly, you’ve changed arguments. Originally you were referring to using PSFs and mercs and now you’re talking about development.

    Second, PSFs are no operational substitutes for a nationally recruited military to fight wars. Having said that their are ancillary military duties e.g. guarding buildings, logistics convoys, VIPs, civilians that have been provided by PSFs. I’ve already made this point, but this outsourcing is driven by manpower constraints, not costs. The US military only has so many soldiers and they rather use them in more critical duties, i.e. frontline combat, even if it means they are replaced by lower quality soldiers that cost more (variable cost not average total cost). They’ve also taken the same approach with ancillary civilian functions e.g. cleaning, cooking. Though I don’t know if that would be more expensive or less expensive provided by national soldiers.

    Third, if I was to hazard a guess the one million dollar per soldier is an average total cost. I don’t know how much we pay our soldiers on overseas deployment but let’s conservatively say it’s AUD100k (it probably is a lot lot more). If I was to hazard a guess the rest goes to healthcare, ammunition, fuel, weapons and equipment etc. Unless you how much each of those components the military needs to use and a base cost to compare against you cannot possibly know whether the one million figure is high or low. Alternatively, you may think the wage we pay our soldiers could be replaced by mercs with cheaper labour costs in which case I refer you to the first part of point 2.

    Fourth, this is in reference to the development example you cite, getting the military to provide civilians functions is never a good idea, e.g. know of any contemporary military dictatorships that’ve actually resulted in positive outcomes for their country? The opposite has plentiful examples, recent ones that come to mind are Bangladesh (though their civilian govt. is bad as well), Thailand, Pakistan (again civilian govt. terrible), Fiji, North Korea, Burma etc. etc. etc. And this is not even accounting for the quality of institutions that exist in Afghanistan and Iraq. Corruption and patronage systems is the name of the game over there. I don’t think it matters whether it’s the military or specialist aid agencies that are providing development, no one is going to provide aid in an efficient manner over there (though you may be arguing the aid agency will provide it cheaper than the military even if it isn’t the cheapest way of doing so).

    Fifth, it may very well be the military bureaucracy is a lot more inefficient than an civilian party providing the equivalent non-military function, I tend to agree with you here, but given you are someone whose written in political economy I would’ve thought you would bring in institutions somewhere along the lines in the discussion and not resort to something so superficial as outsourcing as a solution! 

  21. I 100% agree with that point. I think and very strongly think that government should do this accurately. Thanks Paul for you good allocation.

  22. james,

    we are going in circles here. I keep saying (see my reply to DavidN) that a primary reason to use mercenaries is the incompetency of the mlitary bureaucracy that makes regular soldiers so expensive, and you keep telling me your views about the current use of mercenaries. This is not the place to discuss the pros and cons of mercenaries, but it should tell you something that we (yes, our governments that we elect) keep using them.

  23. My comment on the 23rd March is still awaiting moderation. Please delete this comment when appropriate.

  24. Alright. I will try not to go in circles. Perhaps I should state my point in economic terms as being that
    a) What we pay for with regular troops is the full array of military justice and support services that ensure troops are properly trained, legally accountable, properly cared for pre- during and post-conflict, and ultimately under civilian control. The use of mercenaries makes savings by cutting those components. It is a false economy – the ultimate cost of allowing rogue, inadequately controlled and supervised armed men free reign is defeat and the collapse of the rule of law. Private Military Companies are the George Zimmermans of international law.
    b) Judging from this note on PMCs on Wikipedia, “According to a 2008 study by the Office of the Director of National Intelligence, private contractors make up 29% of the workforce in the United States Intelligence Community and cost the equivalent of 49% of their personnel budgets.”, it isn’t even an economic false economy. If you’re paying 49% of your budget for 29% of your staff, then those staff are more expensive than average.

  25. David,  
    to respond to your points of the 23rd:
    Firstly, you are naive if you think we are not already using mercenaries to fight our wars. For instance, the toppling of the Taliban and Al-Quaida in Afhanistan was almost entirely done by checkbook, a classic in the genre of paying existing armies to do what you want to them to do. We didnt call that army of ‘Northern Alliance’ fighters and many local militias mercenaries, but that is what they were. Indeed, its been hailed as one of the CIA’s proudest moments. You are hence a little ignorant about how real conflicts are fought and too easily buy into how we pretend to run them. There is nothing unusual about mercenaries in the modern day and they have many obvious advantages, chief amongst which that you don’t have to explain to local mums why their sons died.
    Then onto the cost of the military. The salaries of the military are small-fry in their total cost. The US congressional budget office has this publication that breaks down costs into components for you, chief amongst which are pensions and administration. If you are looking for quicker links though, look here for a headline and here for a more detailed blog on the million a year. Mercenaries are cheaper, particularly if they come from poor countries. Besides, the 1 million a year is an estimate of the cost of a US soldier.
    Australian soldiers are far more expensive because our military is much less efficient than the larger American military. Ian McPhedran has estimated the costs per year of an Australian soldier to be at least 1.3 million a year and probably quite a bit beyond that if we include flow-on costs. Again, mercenaries are way cheaper, which is of course why we use them more often than we admit.
    Now, as to political economy matters, outsourcing IS a political economy solution to administrative excesses. Yes, you can try to reform an existing ministry but that is quite a bit harder and more fraught with political difficulties than outsourcing. It is notoriously hard to prevent a military bureaucracy from becoming bloated in peace time.
    In summary, not only do i indeed advocate outsourcing a lot of the actual activities of the military to private organizations, but there are also clear advantages to outsourcing military roles. The real question is whether we can do it even more efficiently then at present.

  26. Paul,

    Your original response to James regarding outsourcing specifically referred to PSFs.

    Now if you want to clarify your position by expanding your definition of PSFs and mercs to include use of proxy forces who for tactical/strategic reasons find it convenient to ally with Aus/US then that’s your perogative.

    You’re quite correct it would be cheaper for Aus. to use proxies but then economically speaking it would make sense not to ever send any military forces to fight overseas or for that matter have a military at all but then it becomes clear money is not the sole reason driving the use of proxies or for that matter sending military forces overseas or having a military at all, as these decisions are driven by political/social/economic/foreign relations considerations.

    Now if we are to have a standing army and at times we decide to send them to fight overseas then the economic questions becomes how do we minimise costs given our political/social/economic/foreign relations commitments. I’m saying we don’t have a lot of flexibility there apart from limited use of PSFs and civilians for ancillary functions as I’ve commented above.

    Expanding the discussion to include use of proxies requires expanding purely economic considerations to include political/social/foreign relations ones. 

  27. New study of the effects of extensive privatisation on the Eastern Bloc:
    ” A new analysis showing how the radical policies advocated by western economists helped to bankrupt Russia and other former Soviet countries after the Cold War has been released by researchers. Authored by sociologists at the University of Cambridge and Harvard University, the study, which appears in the April issue of the American Sociological Review, is the first to trace a direct link between the mass privatization programs adopted by several former Soviet states, and the economic failure and corruption that followed… The more faithfully countries adopted the policy, the more they endured economic crime, corruption, and economic failure. This happened, the study argues, because the policy itself undermined the state’s functioning and exposed swathes of the economy to corruption.”

  28. and what is your point James? That one should never privatise something? That state ownership works better than private ownership and these countries should have stayed communist? Or that one needs to be careful about how one privatises?
    Btw, what a completely useless study by these sociologists.

  29. I suppose my point would be that rushed, mass privatisations of things normally considered core government functions leads to disaster more often than not.
    Did I touch a nerve? Why is the study “completely useless”? Or is this just another “our field is the only real social science” reflex from an economist?

  30. no James, you did not touch a nerve. I did my Phd on the transition in Eastern Europe and simply didn’t think that study by sociologists was worth the time to comment on. The whole idea of meek Eastern Europeans blindly following Western advise, where some due to entirely accidental circumstances just happen to implement the reforms slightly less diligently, turning out to be luckier, is just too idiotic to bother with. The typical kind of stuff you get from ideologues. I wouldn’t taint the whole of sociology with this criticism, just that study.

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