A Question of Leadership

“I have become convinced that the biggest challenge we face in public policy today is no longer knowing what to do (which can be difficult enough), but how to get it done. The obstacles in contemporary politics and media have undoubtedly increased, but these are reflective of underlying changes in Australian society and are unlikely to change. The only path to the policy high ground lies within executive government itself, and the restoration of capabilities that served us so well in the past. I’m sure we’d all agree that this is ultimately a matter of leadership.”

These comments were made recently by Gary Banks, the former chairman of the Productivity Commission and Professorial Fellow at the Melbourne Institute. Delivering the Infrastructure Oration for 2017, Mr Banks reflected on the current debate about energy policy.

Reflecting on the energy debate, Mr Banks noted: “The inconvenient truth is that the increasingly high prices for increasingly unreliable electricity are a direct consequence of the increasingly high utilization of renewable energy required by government regulation.

“Energy markets are admittedly complicated things. However the logic is unassailable that if a cheap and reliable product is penalised, while expensive and less reliable substitutes are subsidized, the latter will inevitably displace the former. No amount of sophistry, wishful thinking or political denial can change that basic economic reality.

“Changing the mix of energy use away from low-cost but emissions-heavy fossil fuels has of course been the whole point. While Australia’s own actions can have no discernible impact on global carbon emissions, let alone on Australia’s climate, there is broad support for the idea that playing our part is a precondition for a joint international endeavour that could. This requires a leap of faith, but it is a legitimate policy objective, even if a particularly costly one for this country given its resource endowments.

“In blaming the private sector for Australia’s energy problems (and I note the new ACCC inquiry into alleged misdemeanours by electricity retailers) there is a real risk that the policy mistakes that led to it will be compounded by further policy mistakes, rather than leading to corrective actions that acknowledge regulatory error. We seem destined to end up in a third or fourth best world, as economists express it, when the first or second best were well within reach.

“Thus we observe at the Federal level the threat of regulatory intervention to withhold gas exports for domestic use – while at the same time state and territory governments ban or curtail exploration and production. We even see governments re-entering the energy business.

“To add to the irony, we are seeing a new wave of interventions to help the very firms which emission reduction policies were intended to drive out of business.”

The former head of the Productivity Commission asked rhetorically, what has happened in Australia, asking if there is a broader anti-productivity trend.

“There are countries for which policy dysfunction is pretty much the normal state of affairs. Think Africa, Latin America, or countries in Europe like Greece or, dare I say it, France. But that has not been the Australian experience; at least not since the program of structural reforms commenced some three decades ago – reforms that contributed greatly to the prosperity that we have since enjoyed.

“Before then, as many can hopefully still recall, Australia’s policy experience was not too different from those other countries, with sectional interests trumping the public interest, turning bad policies into good politics. (Keating’s famous remark about the ‘banana republic’ resonated so strongly for a reason!)

“The transformation of Australia’s economic performance from the 1980s did not occur by accident or good luck. It involved a deliberate strategy based on an understanding by political leaders that good process, sound public administration and effective political advocacy were essential in making a case for reform that would gain broad support.

“These pre-requisites for good policy – and its acceptance as such – have been manifestly lacking more recently and the public’s trust in government, any government, has sunk to all-time lows. For example, only 31 per cent of 6000 respondents to the respected ‘Mapping Social Cohesion’ Survey last year agreed that one could ‘trust government to do the right thing most of the time’. And in a separate and earlier poll, 62 per cent of respondents said they ‘would not trust government to manage tax reform’.

“A loss of public trust in government is hardly surprising when citizens have witnessed major policy initiatives appearing out of the blue, programs announced before they are agreed (or even fully thought through), key stakeholders not being consulted, and reversals to previous policy positions occurring without justification or explanation.”

“So why has this happened,” asked Mr Banks. “More importantly, what can be done about it? One thing seems certain, maintaining the current policy trajectory is not an option; at least not if we wish to sustain high living standards for our burgeoning and ageing population.”

The answer, he suggests, is a return to the principles of good government and rigorous policy development.

This would include better interface with the public service, a mix of both policy and political advisors in ministerial offices and for Departments to re-establish a culture of ideas and respect for evidence.