September 2021


Dismembering government

By John Quiggin
Members of the Australian Defence Force patrol Melbourne, August 2020

Members of the Australian Defence Force patrol Melbourne, August 2020. © Darrian Traynor / Getty Image

New public management and why the Commonwealth government can’t do anything anymore

“I don’t hold a hose, mate.”

Prime Minister Scott Morrison’s notorious remark, made to radio 2GB from his hotel in Hawaii at the height of the bushfire disaster of 2019–20, was widely seen as an evasion of personal responsibility in a national emergency. But it could equally be regarded, as pointed out by historian Stuart Macintyre among others, as an expression of the federal government’s incapacity to undertake essential services. This has again been in full view during the COVID-19 pandemic.

Early on, it was widely predicted that the pandemic would bring national governments back to centre stage, reversing decades of globalisation. No one predicted that the impact in Australia would actually be to restore the role of state governments, to the point where the old (and seemingly long-forgotten) rivalry between Sydney and Melbourne is more significant, much of the time, than the partisan divide between Liberal and Labor.

So when the coronavirus crisis revealed at the federal level in Australia huge gaps in state capacity (that is, the set of tools available to government to achieve its policy goals – to avoid confusion with state governments, I’ll call it “nation-state capacity”), it was widely concluded that “the Commonwealth doesn’t do things”, and this was presented as being inherent in our federal structure. The former is true, but it is, in fact, a relatively recent development.

Suppose that a Commonwealth government such as the one we had 50 years ago was in place when the pandemic began. It’s highly unlikely that the crisis management would have been left to the states. In the 1970s, the Commonwealth still operated quarantine facilities and had its own department of works, capable of building new facilities or expanding old ones. In the previous decades it had managed both the repatriation of hundreds of thousands of troops from World War Two and the provision of housing to support an immigration program on an unparalleled scale.

The farcical situation today where Australians stranded abroad have to pay horrendous amounts for a handful of available seats on commercial flights would scarcely have occurred if, as in the 1970s, the Commonwealth owned its own airline (and, for that matter, rail and shipping businesses).

On the medical front, the Commonwealth ran its own network of repatriation hospitals and owned Commonwealth Serum Laboratories, now privatised as CSL. The question of vaccine passports would certainly not have been controversial, since the government required a range of vaccinations for travellers (indeed, the scar from smallpox inoculation, required before overseas travel, served as a kind of permanent passport).

Above all, the Commonwealth government had confidence in its own capacity, employing the best and brightest graduates of the universities that had expanded massively thanks to Commonwealth funding beginning in the 1960s. The Commonwealth government saw itself as both more competent and less subject to interest group pressure than the states. Under both conservative and Labor governments, the Commonwealth had steadily expanded the scope and scale of its operations, reducing the roles of both state governments and the business sector.

The Commonwealth government of those times would have been far better equipped to deal with a pandemic, and would have seen itself as having the obvious responsibility to do so. We might therefore have expected a national response, including requirements for Qantas to repatriate Australians from overseas, a rapid expansion of dedicated quarantine facilities, and a consistent national policy on lockdowns and movement restrictions.

Of course, we have seen nothing like this. At almost every stage in the process, the Commonwealth has sought to avoid responsibility, and transfer it either to the states or to private parties ranging from management consultants to hotel operators. To the extent that it has taken action of its own, the Commonwealth has relied almost entirely on the military (and, more opaquely, on the advice of the quasi-military Australian Border Force).

The above examples of how governance has changed didn’t happen through accident or incompetence. Rather, the reforms of the 1980s and 1990s, still viewed through a rosy haze of recollection by much of the political class, were designed to produce this outcome. The reforms reduced nation-state capacity in order to make room for market forces and to unleash the untapped dynamism of the business sector.

As far as pandemic policy is concerned, the most relevant aspect of the reform process was “new public management” (also described, in more pejorative terms, as “managerialism”). While much of the reform agenda was drawn from the policies of the Thatcher government in the United Kingdom, new public management drew more heavily on those of the United States.

The foundational text of this approach was Reinventing Government: How the entrepreneurial spirit is transforming the public sector, by consultants David Osborne and Ted Gaebler. The book’s chapter titles are a set of snappy slogans that encapsulate both the spirit of new public management and the reasons for its failure. The first of these is “Catalytic Government: Steering Rather Than Rowing”. The basic idea is that, rather than delivering services directly, governments should fund private (for-profit or non-profit) organisations to perform such tasks, while confining the public role to high-level policy management. It effectively foreshadowed the notion that “the government doesn’t do things, it pays other people to do them”. Privatisation takes this a step further.

The logic of steering not rowing comes to the fore when policy advice is contracted out to consulting firms and the like. By their nature, these firms are poorly placed to advise governments to reverse the process of which they are part.

Osborne and Gaebler themselves point to a crucial problem here:

When governments separate policy management from service delivery, they often find that they have no real policy management capacity. Their commerce departments, welfare departments, housing authorities – all are driven by service delivery.

The new public management solution is to bring in generic managerial skills, to formulate strategies that can then be specified in contractual forms. But the reality is that, for most public services, policy management can’t be separated from service delivery in the way Osborne and Gaebler imagine. Much of the knowledge required for policy management is tacit and shared by the professional and vocational employees who actually do the work.

The result is that, having adopted the “steering not rowing” approach, public sector organisations frequently find themselves incapable of steering. This task, in turn, is contracted out to consulting firms such as McKinsey & Company and Accenture, which provide policy advice that typically involves even more outsourcing.

A crucial cost of outsourcing policy advice is the loss of institutional memory. While the consulting companies have plenty of institutional memory, it concerns the process of consultancy, not the concerns of individual clients. Consultants need to develop the flexibility to move quickly from one contract, and one team, to another. Such flexibility inevitably involves an element of amnesia.

All of these failings have been in full view during the pandemic. According to internal leaks from the government, designed to show Scott Morrison as a decisive leader hampered by incompetent underlings, the disastrous advice to go slow on ordering vaccines came from McKinsey consultants. McKinsey rejects this version of events, but, as this exchange illustrates, one of the important motives for outsourcing policy advice is the potential for blame-shifting when things go wrong.

Reliance on external consultants for highly priced but apparently useless advice has been a consistent theme during the pandemic. Often this is taken to absurd extremes: recently, Guardian Australia revealed that the federal health department (which has its own media and communications team) has been paying a public relations firm to take a copy of its daily document of vaccination data (which is already on the department’s website), attach it to an email and send it to media outlets. The government’s 2019 decision to let an inquiry into its use of consultants lapse without issuing a report did nothing to allay concerns about the misuse of public funds, and the outsourcing bills have continued to balloon.

Further into Osborne and Gaebler’s book there’s “Customer-Driven Government: Meeting the Needs of the Customer, not Bureaucracy”. The crucial feature here is the idea that services such as health and education are provided not to patients and students but to “customers”. The implication is that the market relationship between sellers and buyers (or “customers”) is the archetype for the provision of services, and that any other relationship is an imperfect substitute.

If, as customers, people can assess the relative merits of alternative offerings of essential services, choosing the one that appears to meet their needs and switching to another if the first proves unsatisfactory, there is no obvious need for governments to get involved. This assumption, however, does not stand up to scrutiny. Patients and students aren’t customers. Patients want to get well and students want to learn, but they rely on the health and education professionals to judge the best options for them.

The idea of students as customers found its fullest expression in the disastrous VET FEE-HELP scheme, which provided a loan to pay for approved full fee-paying courses at a variety of institutions. The idea was that consumer choice, with the backing of government funds, would lead to the provision of the most appropriate educational offerings in the most efficient possible way. In practice, the “market” was dominated by education firms that offered up-front incentives such as free iPads to students, but delivered nothing in the way of value.

An echo of this thinking can be seen in the disastrous advice from the Australian Technical Advisory Group on Immunisation discouraging the use of the AstraZeneca COVID-19 vaccine. All of the calculations put forward were from the perspective of an individual judging what would be best for them personally, with no apparent concern about the need to restrict the spread of the pandemic. Even the qualification that the advice would change in the presence of an outbreak referred only to the change in the individual balance of risks, with no weight at all on the public-health need to control the outbreak.

Another chapter of Reinventing Government pushes the idea of “Market-Oriented Government”. In the early 1990s, the collapse of the Soviet Union and the strong performance of the US economy produced a wave of market triumphalism. No one wanted to be seen to support -bigger government, even in areas where existing market systems had clearly failed. As Osborne and Gaebler observed:

In health care, the debate about universal health care is really a debate about how to restructure the marketplace. No one recommends a British-style public health system in which government administers the entire system and doctors and nurses are public employees.

In the midst of the pandemic, no doubt many would question this assertion. Despite immense challenges, the UK’s National Health Service has stood up to the challenge of the pandemic much better than the (massively more costly) US system.

In the Australian context, the most striking contrast is between the private market in aged-care services, administered by the Commonwealth, and the public system in Victoria. During the difficult second-wave Melbourne COVID-19 outbreak, the inadequacy of the private aged-care system become horribly evident, as it accounted for the vast majority (82 per cent) of total COVID-related deaths. Understaffing and reliance on casuals working across several facilities were crucial factors. State-run facilities had only a handful of cases. While this outcome was partly due to geographical factors (the state-run facilities are more heavily concentrated in regional areas less exposed to the pandemic), the recent royal commission into aged care exposed systematic deficiencies, particularly in the for-profit sector.

Finally, and perhaps worst of all, has been Osborne and Gaebler’s idea of “Injecting Competition into Service Delivery”. The logic of new public management, interpreting public services in terms of customers and markets, leads inexorably to a focus on competition. The desire for competition in the provision of public services has been a constant theme in Australia since 1995’s National Competition Policy reform. The results have ranged from mediocre to disastrous. The replacement of the public Technical and Further Education (TAFE) system by private operators under the VET FEE-HELP scheme was the most spectacular failure, but there have been many others. The National Disability Insurance Scheme, for instance, a crucial initiative in expanding access to health services, has been pushed to the edge of failure by the insistence on framing policy in terms of a competitive market.

After decades of hollowing out, the nation-state capacity of the Commonwealth has largely been reduced to two elements: financial and military. In more vernacular terms, all the government does is sign cheques (preferably oversized, novelty ones) and send in the military. In many cases, even these functions have been reduced to theatre.

Section 96 of the Constitution states that “the Parliament [of the Commonwealth] may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit”. At the high point of national ambition, under the Whitlam government, the Commonwealth’s grants power was used as an instrument to bypass state governments seen as obstructing policy goals. It has gradually degenerated into the worst form of pork-barrel politics, enabling the handing out of carefully targeted bribes for projects that ought to be the realm of state or local government.

The first public exposure of this kind of malpractice was the original “sports rorts” affair, at the end of 1993, in which, according to the disarmingly candid evidence of then sports minister Ros Kelly, an office whiteboard was used to decide which marginal electorates should receive sports grants. Although Kelly took the rap for this process, resigning from the ministry and then parliament, it had been initiated by the apostle of “whatever it takes”, Labor powerbroker Graham Richardson. The whole episode was repeated on a larger scale in 2020, with Nationals MP Bridget McKenzie in the Ros Kelly role, and Scott Morrison’s office pulling the strings.

At least these episodes produced some level of scandal and forced resignations of junior ministers (although McKenzie was recently re-appointed to cabinet). By the time the utterly corrupt allocation of funds for railway station car parks came to light in recent months, Finance Minister Simon Birmingham (who would, in the past, have had the responsibility for defending fiscal integrity against pork-barrelling) simply asserted that the public had had the chance to reject the policy at the 2019 election and had chosen not to do so. Corruption of this kind is now open and routine.

Despite its regular abuse, the power to spend as much money as needed for public purposes turned out to be essential in the pandemic. The one big policy success of the Commonwealth (admittedly under plenty of pressure from unions and employers) was the rapid introduction of the JobKeeper and JobSeeker schemes in March 2020. More often, stimulus measures and disaster-style payments have been made in an ad-hoc manner, formulated and announced by the prime minister according to his immediate political requirements.

The misuse of the armed forces for exhibitionist display is another matter. In the absence of wartime operations, the Australian Defence Force is commonly seen by government as a convenient source of workers who can be directed to just about any goal imaginable, particularly those involving ill-defined policing tasks. This kind of thinking has always been common, but until relatively recently it was successfully resisted by military leaders who wanted to keep personnel focused on their traditional tasks, with limited exceptions such as for disaster relief, where the armed forces have useful special equipment and skills.

But as the capacity of the civilian arms of the Commonwealth has been hollowed out, the appeal of calling in the military has increased. The Howard government’s “Intervention” in the Northern Territory, which began in 2007 on the basis of dubious claims about the prevalence of sexual abuse in Indigenous communities, was an important step in this process. The fact that armed forces were ill-equipped to solve complex social problems quickly became apparent, and the ADF personnel were withdrawn a year later.

The militarisation of border security took the process a step further. The political success of “stopping the boats” was used as the basis for creating the Australian Border Force, which has turned the civilian functions of customs and immigration into a quasi-military outfit.

Unsurprisingly, Border Force proved almost entirely useless in keeping us safe against COVID-19 when it first struck our shores, allowing thousands of returning travellers to cram airports with no possibility of social distancing. Since the international border was closed, Border Force has acted as an unaccountable bureaucracy, making decisions that are essentially impossible to review. It is near impossible to determine who is responsible for a situation in which, after more than a year of the pandemic, tens of thousands of Australians are still stranded overseas. But clearly Border Force has not helped to solve the problem.

There was also debate, central to the Victorian inquiry into Melbourne’s second-wave outbreak last year, about using ADF personnel to provide security for hotel quarantine. In retrospect, the debate turned out to be a waste of effort, as hotel quarantine proved unsuccessful regardless of whether police, soldiers or private firms provided security.

In August, the federal government banned Australians who normally live overseas from returning to their overseas homes without special permission. The amendment was justified on the grounds it “will reduce the pressure on Australia’s quarantine capacity”, presumably by discouraging expat Australians from visiting for any reason. Australia is now alone in the world in banning its citizens, temporary visa holders, permanent residents and dual citizens from leaving the country – simply because it hasn’t built adequate quarantine facilities.

The reliance on military uniforms as props continued with Prime Minister Morrison eagerly offering to send troops to south-western Sydney to help control the outbreak that began in June. Given the small numbers involved (300 ADF soldiers compared to thousands of police deployed, and thousands more State Emergency Service and other workers who could be called upon), and the fact that the work mostly involved doorknocking to check on lockdown compliance, this exercise can only be understood as a piece of symbolism (or, less politely, street theatre).

The instinct to hide behind army uniforms, most notably that of Lieutenant General John Frewen, nominal head of the national vaccine rollout, reflects not just an unwelcome politicisation of the military but a lack of nation-state capacity. Sending in the troops, whether or not they serve any purpose, is the one way remaining for the Commonwealth government to show that it is doing something. And although their deployment makes the government look tough, soldiers have none of the enforcement powers available to state police, or even health officers. The troops have no more authority in such operations than would ordinary civilians dressed in camouflage gear.New South Wales Police Commissioner Mick Fuller put a brave face on matters, saying that the troops “come with an enormous amount of training”, but for the simple task they had been assigned, this training amounted to a hastily organised course held over a single weekend.

The disastrous impact of new public management has been felt throughout the developed world. In Australia, however, it has been much more evident at the national than at the state level. The nation-state capacity of the Commonwealth government is a shadow of what it was in the mid 20th century. By contrast, the states have maintained their core services, such as health and education, and have, if anything, upgraded their policy capacities.

What explains this outcome? The Australian federal system has long been characterised by vertical fiscal imbalance. The Commonwealth raises most of our tax revenue through income taxes and the GST. Some of this is returned to households through pensions and benefits. But the majority of actual expenditure on service provision is undertaken by state governments, largely financed by transfers from the Commonwealth.

The GST was supposed to “belong” to the states, thereby fixing this problem, but this has proved to be nothing but accounting cosmetics. Federal government treasurers, including Scott Morrison, have regularly threatened to change GST allocations to keep state governments in line on their tax policies, and even on issues only tangentially related to tax, such as fracking proposals and bank levies.

For most of our history, the Commonwealth’s control of revenue went hand in hand with an expansion in the scope and ambition of national government. But once government came to be seen as the problem rather than the solution, it was easier for the Commonwealth to shift tasks seen as peripheral back to the states, or hand them over to the private sector through privatisation and contracting. Given the focus of the political class on “big picture” issues such as foreign policy and macroeconomic management, the Commonwealth found relatively little difficulty in doing this.

By contrast, state governments have found it much more difficult to escape their responsibilities. Privatisation has proved politically toxic, bringing down a string of governments that have attempted or undertaken such deals. For a time, it seemed that public–private partnerships might represent a magic pudding, allowing governments to deliver schools, hospitals and other services at low cost and without taking on debt. But this hope proved illusory. Numerous deals of this kind failed, with hospitals, in particular, being returned to public operation in around half of all cases in Australia. Existing models, based on the now-abandoned private finance initiative in the UK, are widely seen as broken. As a result, whatever their inclinations, state governments have retained most of the core responsibilities they had before the advent of new public management.

The COVID-19 pandemic is just one of many difficult challenges facing Australia as a nation, including the pandemic’s economic aftermath, climate change, the crisis of democracy in the United States and the rise of a powerful authoritarian regime in China. A restoration of nation-state capacity is urgently needed.

Sadly, there is no sign that the current government recognises this. Even if it did, it’s hard to see anyone in its ranks with the ability and determination to pursue such a project: the same processes that have hollowed out the capacity of the public service have given us one of the weakest ministries in Australian history.

The Opposition looks marginally better. But, shellshocked by a narrow, unexpected defeat in 2019, Labor has tied its hands by promising to maintain the massive tax cuts for high income earners, which were originally supposed to be financed by a decade of strong economic growth. An Albanese government, if it comes to power, will have no financial capacity to do anything and a starting position of political cowardice.

Nature abhors a vacuum, it is said. So, as the national government has retreated, the states have stepped up their own activity, not just on the pandemic but also in areas such as energy and climate policy. This is better than nothing, but it forgoes many of the advantages that led our forebears to combine six fractious colonies into a federal nation 120 years ago. Perhaps some improved version of national cabinet will provide us with a way forward. Then again, perhaps not.

John Quiggin

John Quiggin is a Laureate Fellow in Economics at the University of Queensland.

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