Friday, July 29, 2011

Socrates, questions, management & public policy

Winton Bates began his post Do Australian political leaders lack vision? with this paragraph:

I ended my last post asking why the major political parties in Australia seem to be finding it more difficult to promote sensible policies. One possible explanation I hear quite frequently is that our political leaders lack vision. The argument seems to be that the policies of the major parties are too easily blown around by powerful interest groups because the leaders are no longer anchored to a set of values that their parties stand for.

Winton argue, correctly to my mind, that both the current Australian PM and Opposition Leader had articulated values. However, he also suggested that there was a gap between those values and the way policy seemed to work. He concluded:

What are the incentives for politicians to adopt small target strategies? What role does the media play in this? Why don’t journalists do more to hold political leaders to account for lack of consistency between their high ideals and the policies they adopt? Is there anything that ordinary people can do to raise the level of political debate in this country?

In a comment, I said in part:

While accepting that both the PM and Opposition Leader do in fact have values and principles, I would also argue that there is a core policy and political problem that I would simply describe as lack of ideas.

Policy has become so mechanistic that we have lost sight of the role played by ideas in developing new approaches. We talk a lot about efficiency and effectiveness, but for what purpose? We talk about standards or competencies, but fail to recognise the limitations built into those concepts. We talk about statistics and use them to set key performance indicators, but fail to ask what the statistics actually mean.

Winton and other regular readers will know that this comment reflects arguments often put on this blog. In this post I want to discuss one failure as I see it, the failure to ask basic questions.

Questioning, I used to call it the Socratic approach, will not make you popular. By their nature, most Australians are pragmatic, interested in acting or doing. They do not take kindly to approaches that force them to stop, to question. Why are you wasting our time?

Sometimes they are right to react in this way. We all know of people who exercise a negative pall, whose questions are designed to resist, detract, stop. However, questioning designed to amplify issues, to test, is central to the generation of new ideas. We don't do enough of that.

Let me illustrate with a few very basic examples.

Microeconomic reform, improvement in the way the economy operates, has been one of the key policy drivers over the last three decades. It is also one that I support, although my questions have led me to adopt different approaches to some of those currently espoused.

The first question to be asked of microeconomic reform is why it's important. If you ask that question, you will get an answer that generally combines two things: it increases national wealth and is also necessary for the country to survive in an increasingly competitive global environment. Now focus on the first.

Why do we want to increase national wealth? What do we mean by national wealth?

The answer to the first generally runs along the lines that it gives Australians a better standard of living, that it allows the country to do new things. The answer to the first question thus generally answers the second.

So far so good. There are obviously a number of questions that can be asked now. For example, what do we mean by a better standard of living? However, I want to focus on just one.

Accepting that Australia's national wealth has increased, who benefits from that?  It is a legitimate question, because we all know that the structural changes creates a pattern of winners and losers.

The usual answer is that all Australians benefit if differentially because the extra wealth (more jobs, better schools, better health care etc) flow throughout the economy. Okay, has this in fact happened? This is a purely factual question, one that is capable of measurement.

There is some evidence to suggest that the wealth gains have been concentrated in a small proportion of the population, that we have created a pattern in which a few have gained largely, others have suffered significant and permanent losses. Taxation, the normal redistributive measure, has been lowered as part of the reform process. 

If I summarise the discussion to this point, microeconomic reform raises two very different sets of issues: will it increase national national wealth however measured and how will those gains be distributed? You cannot blame large groups in the Australian population for being resistant to change if they know that they have or might lose from the change.

If you want an historical example, the last phase of the Byzantine Empire saw considerable growth in personal wealth concentrated in a few hands. At the same time, the state on which those individuals and families was atrophying because of lack of cash.

To extend the argument, consider another policy given, the need to increase productivity. Again, this is one that I support. But what do we mean by productivity?

In simple terms, productivity is a measure of output from a production process per unit of input. When we talk about improved productivity at an industry or national level, we mean that we can produce more with less. However, there are problems. 

Pretty obviously, the same type of questions come up as the broader microeconomic reform case because improved productivity is not an end in itself, but a means to an end.

A further problem lies in the way we measure productivity. Increased working hours, for example, may improve certain productivity measures. But is this a real measure of increased productivity? Do Australians actually want to work extra hours?  Another way of phrasing this is what, if any, are the costs that must be paid for increased productivity?

A further linked problem can be put this way: are the apparent productivity gains sustainable?  There is pretty clear evidence that some apparent productivity gains are in fact short to at best medium term.

In all this discussion on microeconomic reform and productivity, a further set of questions can be asked linked to a central question: why do you think that measures proposed will in fact deliver the desired outcomes? How will this in fact occur? Is there a better way of achieving the desired result?

I am sure that you can already see why people find this approach pretty boring and indeed there is a real difficulty in a purely professional sense in that people don't like it. They get locked into their way of thinking. Challenge makes them uncomfortable. Still, its actually quite powerful, nor does it necessarily take a lot of time.

To illustrate this, take two policy topics that I have written on, the Australian Government's bridging the gap approach in Aboriginal policy and its higher education participation targets. In both cases, I posed common questions:

  • Did I think that the broad policy objective was worthwhile? In the Aboriginal case, my answer was yes, in the higher education case probably not.
  • Were the targets actually achievable in statistical terms? My answer in both cases was probably not.
  • Ignoring the statistical problems, could the policy measures as proposed actually deliver the desired results? My answer was probably not.

My approach (and questions) then diverged.

In the Aboriginal disadvantage case, my focus has been on alternative ways of achieving the broad objective. In the higher education participation case I have gone a different route, using this as an example in a wider set of basic questions concerned with the total approach to education in general and higher education in particular.   

All for now.


Winton Bates said...

I think you are asking the right questions, Jim.

The support for productivity-enhancing reforms depends on the benefits being widely distributed. The tax-transfer system plays a role in this redistribution, but it is also part of the productivity problem because of the disincentives involved.

However, I think the big problem we have at the moment is in persuading people that productivity is still important even though favourable terms of trade are delivering high incomes. There might be more support for productivity enhancement if some of the higher income went into a sovereign wealth fund. That might help us to avoid some painful adjustments down the track if/when China stumbles.

Jim Belshaw said...

It's interesting, Winton. I used to think that the idea of a sovereign wealth fund was a gimmick. No more.

I am sure that you are absolutely right about the potential problems down track.

One of the difficulties with the terms of trade argument is that most people don't think that it is delivering high incomes, so that there's nothing to redistribute!

I accept that the mining superprofits tax can be put in these terms, but this carries a bit of a flavour of spending the golden egg even before it has arrived!

If you think as I do that the two long term economic problems are population aging and the inevitable end of the mining boom, then we should be talking about this more.

Winton Bates said...

I also have had difficulty in coming to terms with a sovereign wealth fund. Until recently I would have argued that the rents should be distributed to individuals so they could manage their own wealth as they pleased. However, recent events in Europe suggest to me that Peter Costello's idea of investing to ensure that governments can meet future obligations has a lot going for it.

Legal Eagle said...

Nice post, Jim. I agree with you that people don't like being asked questions. Sometimes I think we need to step back and ask ourselves: "Um, why are you actually doing that, and can you achieve what you want to achieve???" I'm glad someone's doing it.

Keep on questioning, guys...

Jim Belshaw said...

I hope that we will! Winton certainly will!

As a minor gripe on the impact of Twitter, it's distracting some of us withe expertise from thought into comment. This may sound a bit odd, but one of the real strengths of blogging has been the way that it allows us to access thought from people with different experiences.

Jim Belshaw said...

Belatedly, Winton, mu views shifted for similar reasons.

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