In previous elections, I either gave a list of mistakes I wanted the next government to avoid, or policies they could follow. Some of the mistakes I flagged in 2007 were indeed made, and about half of a preferred policy was implemented, no doubt entirely unrelated to my advice. In this election I want to take the perspective of the incoming ministers of the various departments and briefly discuss the problems they could try to address and the essential barriers they will face.
The essential problem faced in the area of finance is the lack of competition, in part because of the demise of mortgage lenders in the GFC, and in part because the use of financial services (insurance, superannuation) goes via complicated decision procedures involving third parties (often employers) that open up avenues for anti-competitive cream-skimming. Some of the recent reforms are already trying to address that.
The barrier to solutions in general are not just the vested interests in the finance industry, which is incredibly rich and can thus buy up former prime ministers and others as its advocates, but also the sheer difficulties of maintaining a group of financial regulators who know what they are doing: good financial regulators will be poached by the finance industry. One would thus not merely want to look at how to reform regulation but also as to how to engender a group of good financial regulators that stay within the state system.
Two mayor problems in the health industry are that people don’t pay for their own health service consumption and thus naturally over-consume, whilst the other is that health providers co-opt the state into giving local monopolies to particular providers in order to increase their incomes. In turn, these two ultimately derive from huge agency problems in the health system in that consumers don’t know what is wrong with them and don’t know what will be wrong with them in the future (which gives rise to a role for intermediates and insurers), whilst providers will by design mostly be local monopolists (local hospitals, GPs, pharmaceuticals, professions, etc.) with an incentive and ability to organise themselves to grab more rents.
The barriers to solutions are again not merely the existing interest groups protecting their spoils vigorously, but also the complexity of the current system and the intellectual difficulties of figuring out alternative systems: unlike most other problems, where the ‘optimal policy’ is fairly easy to spot and one is ‘merely’ talking about the political difficulty of interest groups and societal beliefs in the way of that solution, the health system is so complex that no-one can honestly say they have a firm handle on what the optimal system would look like. In such situations, one basically wants experimentation at the local level and an ability to push through reforms at higher levels once local improvements have been found.
Besides encouraging and protecting experimentation, there are a couple of obviously dysfunctional interest groups that could be tackled by an incoming minister, to almost certain benefit of the community. The overpaid medical specialists protected by their unions (such as the Australian Medical Association), the too-expensive pharmaceutical benefit scheme protected by the media operations of the pharmaceutical companies, the barriers to entry to nurses to compete with GPs and medics inside hospitals, are three cases in point of obvious policy improvements waiting to be championed.
In general, the welfare system (subsidies for unemployment, disability, single parents, etc.) has been in a catch-22 for a long time now: be nicer to people in need and you will get more people in need, whilst being harsher to people in need means you are harsher to people in need. The balance we have had on this one for the last few decades seems fairly stable without any obvious improvement in sight.
The one thing I can see happening is that ministries and state bureaucracies might find ways to hand more welfare money to themselves rather than people in need, effectively by creating bogus jobs. There are many possibilities to do this. Futile training for the unemployed, ‘account managing’ for the disabled, ‘financial councelling’ for all and sundry, etc., should all be seen as activities in great danger of becoming sink holes for the hidden unemployed within bureaucracies. As far as I know, Australia seems to have avoided the worst excesses of this, but I fear for what the ‘National Disability Insurance Scheme’ (DisabilityCare) is going to mean in practise.
In general hence, I would see the main task for the new minister in this area to be to keep the numbers of hidden unemployed in the ministries and local councils as low as possible.
Primary and secondary school education
Here the main problem is the lack of quality education for the general population. As i have indicated before, I see this as essentially arising from the ability of Australia to just import highly-trained people from elsewhere, negating the pressure to educate ones own children to the same degree. I can’t really see any political support for changing that implicit choice and, indeed, on reflection it is just not a problem: Australia exports its great culture and imports people who have gone through the pain of high-quality education. Win-win on both sides, really. Hence the barriers to meaningful reform are just too formidable and institutionalised to even bother enumerating. The main task for the minister will be to try and guide the national curriculum into something sensible and otherwise keep the number of hidden unemployed in the ministries down, which will be a challenge given the directions the Gonski reforms could go into.
Tertiary education, research and development
Here the main issue is the cream-skimming of too many bureaucrats. The obvious answer is a few razor gangs and perhaps a cap on the maximum salaries in this sector. The barriers are almost entirely institutional, ie come from the separation of powers between the commonwealth and the states. Still, if the ministry in Canberra wanted to stop the cream-skimming, I think it could get quite far quite quickly. So there is something for a minister to achieve here.
Industry policy, NBN, Infrastructure, property rezoning, mining taxes, etc.
Here the problems are the usual: economic interest groups who manage in a large variety of ways to get more than their fair share out of the community. From an economic point of view, the ‘solutions’ are not too hard, as the barriers are almost entirely political. Depending on the issue, one can either just repeal bad legislation (like with mining taxes: just let the states ramp up the royalty rates), beef up the bureaucracy’s ability to think through major tax and spend plans (such as via the parliamentary budget office), scale down particular programs on some pretext (NBN? Particular subsidised industries?), or commission a few reports on areas where one would probably want some new institution to improve the operation of the government machinery (such as property rezoning where one should think of some way to auction off the discretionary element in rezoning and exceptions-to-planning-rules).
In my post on this two weeks ago, many commentators gave long lists of policy options, ranging from the decriminalization of drugs, to land taxes, to health rebates, to being nicer or nastier to boat arrivals. Some seem very sensible to me, particularly an end to the health insurance rebate and regulation rather than criminalization of drugs.