Thursday, November 22, 2007

The Rudd Approach - Efficiency Dividends, Axe Wielding and Razor Gangs

Note to international readers: I am not sure to what extent the terms used in this post are just Australian, I would be interested to find out, so I have explained them.

All of a sudden Mr Rudd has given me a nasty feeling, a sense of deju vu.

Early on in the campaign there were references to Mr Rudd's razor gang. Now this flashed a bit of an amber light.

Razor gangs were criminal gangs that dominated the Sydney crime scene in the 1920s. The choice of razors as preferred weapons reflected laws imposing severe penalties for carrying concealed firearms, and the capacity of razors to inflict disfiguring scars.

In Australia, the term then transferred to politics to describe a group of Ministers charged with reducing expenditure.

Following the Federal elections in October 1980, Prime Minister Malcolm Fraser formed the Committee of Review of Government Functions chaired by Sir Phillip Lynch, a former Treasurer and now Minister for Industry and Commerce. This committee came to be known as the razor gang.

Over 1980 I had been working as Assistant Secretary, Economic Analysis Branch in Industry and Commerce. I think that Sir Phillip was still suffering from Treasury withdrawal symptoms, and I and my branch were kind of his Treasury in exile. So I knew Sir Phillip quite well in a professional, reporting, sense.

By the time that the Committee really began its work, I was back in Armidale working on my PhD, so I watched developments from afar. When the Committee's report was released, I concluded that it had managed to inflict the maximum political damage for the minimum economic gains. Here in my now role as student and local, I attended a huge protest meeting in the Armidale Town Hall called to protest the recommendations.

From the Lynch razor gang, the term morphed into a common tag attached to any group of ministers reviewing expenditure. The use of the term by Mr Rudd was only a mild flashing amber light simply because of the connotations attached to the term. Pretty obviously, any incoming Government needs to review the policies, systems and structures introduced by its predecessor.

Then came the use of the term "efficiency dividend". The flashing amber light stopped flashing, showing solid amber instead.

For the benefit of those who do not know the term, it comes from the world of what I have called the New Zealand model of public administration. The argument runs this way.

Many Government agencies are not subject to market competition and, consequently, have no market incentive to improve productivity. An efficiency dividend is therefore imposed to provide a proxy for competition. This involves reducing the agency's budget by a small fixed percentage each year equivalent to projected productivity gains, thus providing a direct pressure to improve productivity.

I knew Mr Rudd came from the world of the New Zealand model because of his role in Queensland after the election of the Goss Government. Of itself, that was not a problem. However, his pledge to introduce efficiency dividends across the Federal system was, because it suggested that he had not understood the actual effects of efficiency dividends.

Quite simply, I know of no solid evidence that efficiency dividends have worked. Further, they have had quite pernicious on-ground effects.

Then Mr Rudd promised to restore the independence of the Public Service and the Westminster system. This is something that I personally think is absolutely critical, so the amber light turned green. But then it turned decisively red.

The turning point was Mr Rudd's promise to take an axe to a Public Service 'bloated" by the Howard years. I am sure that there are ineficiencies. Labor will certainly want to alter programs and structures to better meet its priorities. But this is not what Mr Rudd is talking about.

As a now somewhat remote but still interested observer, I know that there are problems in the Commonwealth Public Service. Simply put, the capacity of the Service to deliver has declined.

Beyond his comments on the Westminster system, Mr Rudd has outlined no plans to address this. Those plans he has outlined are likely to further degrade, not improve, Service performance.

This does not mean that Mr Rudd should not be elected. Other issues come into play here. However, I am saddened.

I have an enormous respect for Australia's public servants at all levels. I see them struggling, trying to get things done, within systems that have become increasingly rigid.

I am biased, but I regard the early period of the Hawke Labor Government as a great Government.

I remember where I was when that Government was elected. As a reasonably senior public servant I saw no threat, just an opportunity. Then in the Government's early days there was the tremendous liberation of putting new ideas forward.

Initially I was slow to realise what an opportunity we had. I had to work out what my Minister and the broader Government thought. Yes, I had been through the policy material, but I still had to understand the value parameters. I also had to meld this with the past, the nature of programs and institutional structures.

We could then make things happen. And we did. But then things changed.

Part of the reason for this is that the central coordinating agencies began to reassert control. A more important reason is that corporatist ideas were beginning to enter the public service.

I remember in my own Department when we suddenly acquired a Departmental executive. The relatively informal FAS (First Assistant Secretary) meetings were essentially replaced by a triumverate of the Secretary and the two Dep Secs. Control was sucked upwards. Suddenly it became harder to do new things simply because of the more rigid clearance procedures involved.

This post is not a review of public administration. My point is that I regard Mr Rudd's recent statements as the first serious mistake of what will be the new Labor administration.

All new Governments depend upon their public servants to deliver the things they want. Good Governments recognise that those public servants are likely to have very good ideas of their own.

How could it be otherwise? Any public servant with a reasonable degree of competence and enthusiasm will not only know problems in the current systems, but have ideas for new directions. The challenge is how best to capture this.

There were tens of thousands of Commonwealth Public Servants looking forward to a change in adminstration. I wonder how many are now updating their CVs?


Friday's papers, and especially the Australian Financial Review, really picked up on the Public Service issue. When Mr Howard came in, he too took an an axe to the Public Service. Some thirty thousand jobs were cut. Now the Service is back to its pre-Howard levels.

I thought when Mr Howard came in that the nature of the cuts made by his Government represented their first major mistake, and it did come back to haunt them. The AWB and Immigration scandals were signs of systemic failure.

It seems quite clear that the Commonwealth Public Service has geared for change. It's interesting and probably worth a post at some point to talk about how power transfers in a Westminster democracy like ours. The capacity to transfer power smoothly is central to the survival of our system. Governed by conventions as much as laws, its roots go back deeply into our history.

Despite all the prevailing corporatist rhetoric, running a Government is not the same as running a corporation.

As I write, the sad inquiry into the Royal North Shore Hospital drags on. For the benefit of international readers, the Hospital was one of Sydney's great teaching hospitals. The sad case of a woman who ended up giving birth in a toilet in the emergency department - the baby died - has forced a Parliamentary inquiry.

Clinician after clinician have come forward to give evidence. They paint a picture of systemic decline, a decline that took place within a world of plans, performance indicators, budget cuts, administrative centralisation.

I will write a proper review once all the evidence is in. For the moment I simply note that the evidence has been both compelling and awful.

Finally, one correction: Mr Rudd is apparently proposing a single "efficiency dividend", an across the board cut of 4%.


Anonymous said...


You may not be aware from your Armidale fastness, but the efficiency dividend never left. Only Defence is immune from it, for reasons best left to the imagination. All Departments receive CPI indexation (more or less and then have an efficiency divdend applied - 1.5% from memory). This seems like real blunt instrument policy (and it is) but there are three things to bear in mind.

1. Most money going to departments is not targeted to schemes, but is in a big bucket at the Secretary's disposal - this forces the Secretary and the Minister to make decisions on priorities.

2. It frees up funds, now and into the future, to fund Government mandated schemes (i.e. it enables the targeting you were talking about.

3. Eventually, and it takes longer in some places than others, it separates organisational necessities from shibboleths.

You may recall I worked with you and Denise in the 80's. Regards to you, her and your lovely looking family.

Bob Quiggin
Solomon Islands
email quiggles AT solomon DOT com DOT sb

Jim Belshaw said...

Hi, Bob. How could we forget you?Dee sends her regards.

I will respond properly tonight.



Anonymous said...


The important thing about Jim's blog is the concern with policy and process rather than the individual facts of particular issues. As anyone who has been involved in policy, politics or law can point out, the truth may (not will) out, but even then often only long after the decisions are taken.

In this context, the only proper course to defend the interests of Australia, which those of us who are paid by taxpayer funds must do, is to make the decisions for the right reasons, in the right way, on the best information available.

None of these strictures can be ignored.

AWB was a case of decisions being made for the wrong reasons, Hicks was a decision made in the wrong way and Haneef was certainly a case where inferior information was used. Other examples are available, and each of them will end up costing all of us money, but more importantly, reputation.

Proper policy and process defend our citizens against Government, and this is not a trivial thing, nor a paranoid 1984-based dream.

I would like to see many of the anti-terrorism laws rolled back. In the recent Ul-Haque case, the head of ASIO has noted that his agents can't have been too wrong since they haven't been charged with the crimes which a judge has already stated they committed. It's a clear failure of process when agents of the Government breach legal process and requirements, and then are shielded on the basis that no-one has charged them.

Going back to process, where this is clear, so is responsibility. This in turn leads to accountability. Jim recounts the loss of both with the centralisation of power in his (our) old Department, but it is more than this. Centralisation leads to more power in fewer hands, but those hands are incapable of holding (beyond some limits) more information. Thus decisions become more at risk, as the relevant information becomes starved of necessary detail and the upper echelons become more ignorant of detailed process.

Note that this does not encompass corruption, toadying or politicisation, which are separate hazards but also more likely to flourish in the hothouse environment of a highly centralised system.

Like Jim, I yearn for the return of a more Westminister tradition, although I have no idea how that has survived in its native land post Thatcher and post Blair.

We will see. But I have hope that this Government will move with some decisiveness in proper ways. Rudd's experience in administration has been obviously and sorely lacking in some of his predecessors.

I think in fact that they are looking at the wrong public service. Howard cut too hard, but by the same token the Hawke/Keating/Howard reforms have left a far keener and more competitive PS that the one I joined. It's time several of the States did likewise.