What makes good public policy? Professor the Hon. Stephen Martin

Thursday, 16 October 2014
Australian Government Leadership Network Conference 2014

This is an extended version of the speech delivered. The actual delivered speech differs from this version.

Thank you for the opportunity to speak to you today.

In the current uncertain policy environment, whether domestically-based with political wrangling over contentious Budget issues still unresolved or international dimensions as measured by security concerns in the wake of terrorist insurgency in far off lands, burqa bans in arliament House, or the Prime Minister’s new diplomatic policy of ‘shirt-fronting’, the community seeks solace and comfort from leaders who can demonstrate strength and purpose.

Leadership will therefore be a recurring theme in my presentation.

My former background tempts me to launch into something of a critique of all sides of the current political divide. My current role would permit me to do so from the independent perspective CEDA always brings to these matters. Perhaps a little of both will come through in my comments today.

Any examination of what makes good policy also requires consideration of how to make good policy. Hopefully this contribution will give some insight into both concepts. And I hope to demonstrate both are inexorably linked.

In the lead up to last year’s Federal election, CEDA produced a policy perspective entitled Setting Public Policy. Its aim was fundamentally to be a ‘how to’ manual to guide the incoming government on setting good public policy – very much the theme of your conference. We were able to draw on the insights of a number of significant figures – former prime ministers, premiers and senior public servants – in developing what we believe was a prescription for success.

So let me draw on its findings in making some important points. But bear in mind CEDA is an organisation that seeks to promote informed debate on the critical economic and social issues facing Australia, so my comments will be framed through that point of reference.
Australia’s two-decade economic expansion has not been simply a function of chance or benefiting from the nation’s rich natural endowments. Success has been enabled by public policy settings that have encouraged flexibility, efficient resource allocation and innovation in the economy.

There is widespread belief that Australia’s recent policy making has not been at a best practice standard. Some reasons that have been given for the presumed decline in quality of public policy debate and execution are:

• A heightened emphasis within governments on opinion polls and responding to perceived popular opinion; 
• Changes in the media landscape and its influence on public information; and
• Issues in the relationship between the public service and politicians.

I will expand on these themes shortly.

While these issues have not stopped important policy development, such as the Henry Tax Review, Australia in the Asian Century White Paper, proposed white papers on energy and financial sector reform, the National Disability Insurance Scheme and reforming the Federation, many reforms and implementable policies put forward have been considered too difficult or politically unpalatable for government to pursue.

Real policy work goes beyond the slogans – Kevin Rudd’s “working families” and Tony Abbott’s “Team Australia” treat the public as mugs.

Real policy work should not be measured by the number of broken promises our political parties are judged on. There may be valid reasons why a proposed policy or reform is not proceeded with. Equally, there may be cynical exploitation of broken promises. But there should also not be major surprises, dressed up as fiscal crises, for which no groundwork has been laid with the public.

For these same reasons it is also true that political parties should not get trapped in ‘the mandate fetish’. It should not be seen as a badge of dishonour if a government has to implement policy changes because of changed economic circumstances. Although there can be legitimate arguments about the size, nature and duration – Rudd’s response to the Global Financial Crisis comes to mind.

In a democracy you get the quality of government you deserve (or vote for) not what you might (subsequently) desire. Of course that view might now be challenged with the emergence of the black art of preference wrangling that has provided a current Senate composition with so many agendas never previously encountered.

Notwithstanding it is vital that Australia rediscovers its ability to clearly identify and implement challenging economic and social reforms through good public policy.

So drawing on the past but applying lessons learned to the future, how can good public policy be again at the centre of Australia’s sustainable future? In my view it requires model leadership, a bold reform agenda that the public is prepared to sign up to or at least except and strategies to communicate the objectives and benefits of these policies.

Model leadership

Past successful economic reform in Australia has been aided substantially by strong political leadership. While the changing media landscape – social media, 24/7 news cycles and the like – is making it more difficult to develop and promote a policy reform agenda, current failings in the public policy debate are increasingly attributable to the failure of individual political skills that inhibit true leadership.

What are the characteristics of leadership that most influence economic reform and therefore good policy?

The failure on both sides of politics to lead rather than to follow public opinion is a major character flaw in modern Australian politics with an increasing tendency to, if not be governed, certainly for their approaches to be influenced by opinion polls.

The best leaders like to be just in front of where they believe public opinion could be moved. The principal role is for the leader to identify where the challenges are for the country, to articulate a strategic approach to addressing those challenges, and to put that to the public, and to convince the public that is indeed the way that the country should move, rather than simply sit back and attend to issues on a day to day basis. 

A key element of successful leadership is having a very strong set of cohesive values or an overriding philosophy that determines the overall direction that they want to take the state or nation. In contrast, politicians focused simply on winning and retaining power fail to achieve the consistency required to introduce and successfully prosecute meaningful economic reforms.

“In politics, you need to be in government to implement things. The phrase I used often is ‘it is better to be 80 per cent pure in government than 125 per cent pure in opposition.’ I used 80 per cent very deliberately. You had to maintain the central features of good policy. You have to compromise at the edges to get it through. There’s a tension between values and ideology on the one hand, and political advantage on the other. It’s always been there and the successful government achieves both.” 
The Hon. John Howard AC

Another characteristic of successful leadership is the requirement for careful preparation by government for introducing reforms. This approach contrasts with “policies introduced as thought bubbles on the run, to give the impression of activism or to resolve a short-term political problem”.

The term ‘announceables’ comes to mind.

A further requirement for effective leadership involves meaningful communication and consultation, although stakeholder significance can differ according to the view of the individual leader.

“It comes from political leaders who know what they're doing. Australia's actually had a number of really effective political leaders in the last 20 years, both at a national level and in a number of the states. They all did it differently and they all did it towards different ends, in a sense.

But they all knew the art of governing, which is partly about what public policy is, how you develop it and how you make it work. But it's also partly about how you lead in the context of community and media understanding, set direction for the government and how you make it all come together to deliver results on the day. That's the art of governing.”
Terry Moran AC

Process of effective reform management – the how of good public policy

The reforms and policies that Australia will need to introduce to sustain its economic fundamentals in a global environment will involve major change, transforming or even replacing existing ways of doing things and finding completely new solutions to old problems. Anything less will not position the country to optimise its prosperity in the highly competitive global economy.

There are five key stages that are vital for governments to manage if a policy is to be successfully introduced and survive. They are:

• Creating a sense of urgency about the need to introduce the change. This includes developing the internal political will to introduce and support reform as well as the broad-based community acknowledgement of the need to change. As an example, Bob Hawke credited the Economic Summit as a successful mechanism for developing widespread community understanding of Australia’s need for change.
• Forming a coalition of interests that support the change. This was noted by a number of interviewees (in Setting Public Policy) as being the critical ingredient of almost all successful reforms. For instance, John Howard acknowledged the support of the business community and the Australian Council of Social Services for a GST as beneficial in introducing the new tax system.
• Develop the change vision. This involves more than describing the outcomes of the reform but also why the reform is necessary. For instance, tax reform is important not just for the extra dollars it may provide to someone’s pay packet, but because it will help develop a dynamic and vibrant economy. 
• Communicating the change vision. This involves establishing key narratives that link to a cohesive vision for Australia. This skill is one of the fundamental capabilities of a government and important for bringing people along with any change.
• Empower others to act. Any change will result in winners and losers, with those that miss out often being easily identifiable and more vocal in their opposition than the beneficiaries of the change. The public service provides a critical bridging role between political decision making and the wider engagement in reforms by the community. For instance, the Australian Tax Office made large capacity investments in systems and guidance provision to make sure the private sector could introduce the GST. After all, every economic reform is ultimately enacted by the private sector. 

As noted, a common characteristic of effective reformist politicians has been good internal process management to develop and prosecute proposals. This will either be through effective use of cabinet protocols, to get internal support for proposals or to test ideas, or through successfully marshalling the professional capabilities of the public service.

Recent political trends have seen quality public sector advisors available in ministerial offices replaced by political apparatchiks, often unskilled in policy development, and more concerned with staying in government than governing or getting a seat in Parliament themselves.

“Until the end of the Howard Government, a minister's office would be a mixture of seconded senior public servants who knew about the business of government and also public policy, as well as experienced political and media advisors. In the last five years we have come to accept, without comment, a system with hardly any senior public servants in ministerial offices. Thus ministers often lack, close at hand, compatible professional people with the background to help them deal with the business of government and public policy. This means a lot of the load has often fallen to people with no experience or insufficient experience of actually being in government, rather than handling media relations or managing stakeholders in a political sense. There have been a lot of miscalculations along the way.”
Terry Moran AC

Government is now so complex that no minister can have the technical ability or insight to, for instance, by themselves come up with a big policy reform package. These things are so complex that they need the professional advice of the public service.

Successfully introducing economic and social reformist policies requires an effective management model and an engaged public service.This could be challenging given the changing nature of the relationship between the government and the public service.

A changing media landscape

The final issue that impacts on the development of, and what actually makes, good public policy is the media.
While not a consensus view, it can be argued that the majority of politicians and public servants consider a change in the nature of the media, in particular its pervasiveness and capacity to harness opposition to proposals, the major reason for the decline in the public debate n significant policy reforms.

“Everything’s more immediate, so you tend to get issues cut off. Because of the nature of the media cycle, the advice of media minders is, you’ve got to kill it immediately… So whether it’s a debate on nuclear power in Australia, or an airport, or any number of issues, like raising the GST. The normal media advice is, in Australia, don’t give it any oxygen, don’t encourage or allow a debate, just kill it, and that’s what tends to happen. And that’s driven by the fact that if you don’t kill it quickly, it can run away from you, both by the media cycle and by the social media world.” 
The Hon. Nick Greiner AC

“Many of our politicians appear in front of the media several times a day. It's very unlikely that they're going to have had the time between interviews to develop well-constructed thoughts about issues, even the issues of the day. Where is the time that is left to them, to construct well-developed thoughts about the issues of tomorrow, the longer term issues?”
Dr Ken Henry AC

In part, the failure of some of the current political leaders is the ability to successfully utilise the media and adapt policy proposals to the changed media landscape.

“They need to learn that they do not have to respond to the constant media cycle. You do not have to be a commentator on every issue of the day. You can be out and commenting when you have something to say which is about the real policy direction you want to pursue or there is an announcement that you want to make. This is an evolving issue and I think the new generation of people will come in and work through this.”
The Hon. Steve Bracks AO

Public policy – development, implementation and outcomes

Let me now turn to some concrete examples of the development, implementation and outcomes that perhaps illustrate both the how and what dimensions of public policy.

There is currently a fascinating discussion being played out between leading economic thinkers such as Dr Ken Henry, Dr John Edwards, Professor Ross Garnaut, Peter Harris and others on what is the right approach to policy to guide Australia’s future.

Picking winners, anathema to the policy championed in the 1980s and 90s and somewhat akin to the Abbott Government’s five economic areas of emphasis, is now being championed as the only way for Australia to become economically competitive and to drive productivity.

Dr Henry has criticised the obsession with an outdated concept of international competitiveness pervading Australia's policymaking circles. He claims an outdated narrative, that he terms "Australian mercantilism" – which has been used to support Australia's major economic policy reforms for the past 30 years – is now crippling serious attempts to deal with some of our biggest challenges.

He highlighted three major policy areas – all politically charged – where a one-eyed focus on the real exchange rate and ‘international competitiveness’ prohibited serious policy reform: the Rudd Government's mining tax, Gillard’s attempt to put a price on carbon; and the attempt to maintain labour and regulatory standards in the face of economic pressures from Asia.

Peter Harris, Chairman of the Productivity Commission, has taken a different, some would say more traditionalist, view. He states it is hard at any time to interest decision makers in taking the risks associated with quality policy reform, made particularly hard when 23 years of continuous economic growth has persisted even in the face of various financial or political shocks.

Part of the process of getting governments and the community to accept that reform at the micro-economy level must be continuously embraced requires analysis and in-depth public review. But the appetite to seek and accept reform options is, for any political leadership, quite rationally dependent on something more than analysis, no matter how strong that analysis might be.

It is dependent on a strategy – and moreover a strategy that can be translated to convincingly link to the interests of the many – in order to overcome the objections of the powerful few.

Harris argues that the apparently ‘old hat’ reform agenda had such a strategy, which emerged in fits and starts into the public arena over more than a decade, and eventually become part of a widely accepted economic and social reform story.

That strategy was and still is about removing barriers to competition, in both the internationally traded sector and in the domestic sector, to provide as comprehensively as possible an ability for firms – foreign or domestic – to efficiently meet the needs of Australian consumers, including businesses in their role as consumers of intermediate goods. For decades since, incomes have risen, social reforms have been funded and opportunities for Australians have increased.

Harris concedes that some effort in this sustained period of reform did indeed go into identifying potential winners, but to their great credit governments put much less effort than in previous decades into selecting them. Identifying winners was about populating the reform story with examples of opportunity, not skewing policy to support them.

In the light of this discourse, it was interesting that the Federal Government this week announced an Industry, Innovation and Competitiveness Agenda – a business-focused element of its Economic Action Strategy – saying the policy was designed to lower business costs and encourage entrepreneurship while boosting skills and infrastructure.

Key initiatives include:

• Creating five new not-for-profit Industry Growth Centres to promote Australia’s expertise and competitiveness in: food and agribusiness; mining, equipment and technology services; oil, gas and energy resources; medical technology and pharmaceuticals; and advanced manufacturing sectors.
• Establishing a Commonwealth Science Council to improve engagement between industry, the public sector and research institutions.
• Improving support for students in training and apprenticeships.
• Reforming the tax treatment of Employee Share Schemes to support start-up companies.
• Streamlining Australia’s skilled migration program.
• Introducing a new Premium Investor Visa (PIV) for foreign nationals investing more than $15 million in Australia annually (subject to other requirements).
• Examining opportunities to implement and adopt international standards and risk assessments into Australia’s regulatory framework.

In my view this is a comprehensive policy approach that tackles the very issues that are inhibiting Australia’s international competitiveness and future prosperity. It is comprehensive in outlook and direction; recognises current deficiencies in STEM and vocational education and training; encourages innovation, research and development; and seeks to reduce the regulatory burden on business.

Notwithstanding the announcement of this agenda (policy), there is no doubt that Australia’s prosperity will become increasingly subject to the pressures of the international marketplace. This will occur in an environment of heightened human and financial capital mobility and fast paced technological advances that can rapidly undermine sources of traditional comparative advantage.

The good, the bad and the ugly

So then, bearing all this in mind, are there examples of public policy development and implementation from which lessons may be learned? I like to think of this in terms of the good, the bad and the downright awful ugly.

Good

• Float of the Australian dollar
• Sale of the Commonwealth Bank and Qantas
• Guns Buy-Back Scheme
• Implementation of the GST
• Gonski school proposals
• Disabilities Australia
• Curriculum review

Good idea, bad design

• Mining tax
• Industrial relations reform
• Immigration
• Probably good, poor communication, political bastardry
• Carbon tax
• Renewable Energy Target
• Bad but could be made better
• Higher education reforms
• Paid Parental Leave
• Budgets/honesty/broken promises
• Two per cent tax levy
• Increase in the Medicare levy
• Job seekers: applying for 40 jobs per month 

Conclusion

Good public policy is about what and how. It requires strong and engaged leadership, the ability to guide public opinion to a required outcome and importantly a close engagement with all stakeholders. 

While the specifics may vary, convictions, internal and external engagement, good internal process management and effective communication skills are prerequisites for model leadership in Australia.

Good public policy should not result in absolute winners and losers. Australia’s future economic and social structure must be underpinned by policy that is for the greater good, is transparent, sustains productivity and enhances our international competitiveness.

References

Committee for Economic Development of Australia 2013 Setting Public Policy, Melbourne

Hutchens, Gareth 2014 ‘Ken Henry slams Australian economic 'mercantilism'’, The Sydney Morning Herald, published 16 September 2014

Greber, Jacob 2014 ‘No return to favouritism, says Productivity Commission chairman’, The Australian Financial Review, p.37, 29 September

Moran, Terry 2014 ‘Populist policies decried’, The Australian Financial Review, 2 October 2014