Ken Farrell had a rather interesting post on Club Troppo, Deconstructing Rudd’s health plan. There he used the word subsidiarity, a word that I have not seen used for many years in Australian context. So, at the risk of being a bit dry, I thought I would comment.
The word itself is simple enough.The Oxford English Dictionary defines subsidiarity as the idea that a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level. As such, subsidiarity is an organising principle that matters ought to be handled by the smallest, lowest or least centralized competent authority.
This may sound simple enough. The difficulty is that the principle conflicts with the desire for central control. This problem has become more acute with the rise of modern communications and communications technologies since these both facilitate control and hold out the possibility of cost savings through centralised service delivery and the achievement of economies of scale.
We can see the tensions that can arise here by looking at the history of the Australian banking sector over the last thirty years.
During the 1980s and 1990s, all the major Australian financial institutions restructured. Service delivery was centralised, the power of managers was reduced, while branches were closed. The new financial institutions that emerged including the regional banks were acquired and then merged, losing their identity in the desire to capture economies and cost savings.
The problem is that the new strategic approach did not, in fact, work very well, although the effects were concealed for a time.
In the case of big NSW insurer GIO, for example, the previous corporate strategy that had focused on localisation, the sale of product through local branches that featured their local identity, was replaced by a centralised approach centred on cost efficiency. In many areas, the previously dominant GIO market position simply collapsed.
As a second example, in 1990 the ANZ Bank acquired the National Royal Mutual Bank.
The Royal had made a feature of its smallness and its difference from the big banks and had acquired a loyal customer base. I remember standing in a Canberra branch of the Royal listening to the local manager explaining to an older and very distressed customer that she could not help him because the ANZ Bank rules meant that she no longer had the delegation to do so. In the end she broke the rules by authorising the payment, telling the customer that she could not do so again.
By the early 2000s all the major banks were heavily on the nose. Survey after survey was commissioned to measure this, to find out why. A raft of new financial institutions emerged to fill the market gap left by the major banks. St George and Bendigo in particular grew by pointing to the fact that they were different.
Now track forward to today. The major banks are attempting to rebuild their branch networks. We are appointing 650 new branch managers, trumpets Westpac, just to look after you, the customer. The global financial crisis opened acquisition opportunities for the major banks. However, this time the newly acquired operations are (at least for the present) retaining their identity. Bank West (Commonwealth Bank) and St George (Westpac) still emphasise their customer responsiveness compared to the majors.
Whether this attempt to combine the virtues of subsidiarity with the gains from the continued centralisation of certain functions will work is still open to question, but it does at least make strategic sense. That cannot be said for the current Rudd Government approach to public policy.
An information point before proceeding further. The Council of Australian Governments is the formal structure governing cooperative arrangements between the Commonwealth and states. Its web site provides copies of various Commonwealth-State agreements. Some of these are mind-glazingly dull, yet they are important because they set out the policy and public administrative structures that determine service delivery for all Australians. Sadly, the implementation plans attached to some of those agreements are not included. Were they included, then policy failures would become more apparent and more quickly.
If you look at those agreements as a whole, they contain certain common features:
- there is an emphasis on a consistent national approach.
- they contain a range of indicators against which performance is to be measured. These are both national and state based.
- many agreements and especially the National Partnership Agreements contain a requirement for detailed implementation plans that the Commonwealth must approve.
- They include detailed reporting procedures.
I am sure that this sounds very reasonable. However, there are a few problems:
- the approach is quite dictatorial. You will agree or else. Sadly, and this goes to the heart of Ken Farrell's material on the realities of Commonwealth-State financial arrangements, the states are so keen to get money that they feel that they cannot say no even when they should.
- the use of national and state based indicators ignores the real variety across Australia. Further, the indicators are complicated, sometimes contradictory, sometimes ignore underlying factors.
- the approach breaches the fundamental principle of delegation, that authority and responsibility must be linked. The states are responsible for delivery, but are so constrained that they actually have very little authority. Without going into details, this gets to the point that Federal public servants actually have the final say on what house will be built in which town.
- the administrative overhead is high and rising. Just to take a hypothetical example. Say you want to build or buy a few hundred houses. For every person you need to handle the actual work, you need another person to handle the reporting requirements!
Many years ago when doing my Masters at ANU, we had two full units on public administration. One of these dealt at length with the theory and practice of Federalism. As part of this, we looked at the principle of subsidiarity. I was fascinated because this gave me a new analytical structure. I do wonder how far we have come since,
In the case of the banks, customer reaction provided a discipline that forced change. Our problem is that there is no equivalent discipline in the case of the public sector.