Market Based Regulation: the Best Way to Regulate Community Services?

Paper to the Productivity Commission Conference,
Canberra, 26 June 2000

THE ISSUES

LIABILITY LAW AND REGULATION

Liability law and regulation are often thought of as alternatives.

Liability law is based on a notion of fairness in commercial dealings that is adapted and refined through judges deciding contested cases in commercial dealings.

Regulation often starts with the system of law based on fair exchange and, in a sense, codifies it.  Often regulation simply gives a statutory expression to what has been common practice.  But sometimes it tries to refashion the law by seeking out greater equity and it is here that distortions are created.  Regulation also suffers from having less flexibility than liability law, which is inherently organic, and adaptable to changing circumstances.

Liability law operates by penalising those who do not offer the value they promised.  Regulation often seeks to operate by preventing the unwanted from happening in the first place.

In many respects, the choice between the two approaches is a reflection of the choices we have in operating the economy.  The private enterprise system is based on people deciding for themselves how to spend their money and on producers competing for the consumer's dollar.  In order for the producers to be successful, competition forces them to bear down on costs and ensure their offerings are attractive.  The private enterprise system is based on atomised decision making.  This also allows the users to decide price/quality trade-offs without others imposing their, undoubtedly well considered, trade-offs on the rest of the community.

Intuitively, the regulatory approach has some merits:

• Its preventative rather than reactive approach appears to give bloodless benefits
• The experts, by definition appear to be better placed than the average decision maker
• There are economies in search activity where regulations bring minimum standards which allows consumers to avoid time-consuming reviews of different providers.

But, in practice, there are many deficiencies in the regulatory approach.  These include:

• its standards might not match the consumers' wishes and its uniformity might not be appropriate
• regulated supply of goods and services is susceptible to capture by producers, meaning excessive costs are introduced
• the standards often bring weak incentives to adapt to shifting demands
• the need, which is frequently the case in regulated systems, to have goods or services approved prior to being allowed to trade brings paper-burden costs and often either abuse or great inflexibilities.

Liability law performs better.  But liability law is not always the best approach.  Indeed, under the custodianship of liberal jurists in the US and elsewhere, it wandered from the traditional liability that sought to pursue efficiency by allocating responsibility to the party able to achieve it most cheaply.  Liability has been shifted onto the supplier and we have had the crazy lawsuits like the burglar who fell through a plate glass roof and successfully sued, or the motorist who inflated his tyres to several fold the pressure recommended on the rim and was able to collect after the inevitable mishap.

But this change was only partly because lawyers started to seek to impose their brand of justice rather than interpret the law.  It was also partly because modern life meant the old principles of caveat emptor could not be applied when the buyer could not easily examine goods prior to purchase.

OUTPUT VERSUS INPUT REGULATION

While liability law in principle represents the full market monty, output regulation allows a partial application of market mechanisms.  It specifies the outcomes and leaves the operators to seek out the lowest cost means of supplying these.

Like the dichotomy between liability law and regulation, the choice between output and input regulation is superficially straightforward but may be less so on reflection.

Many of us cut our teeth on some of the more egregious examples of input regulations:  laws which specified the size of fishing boats, their engine capacity, their net size and the times they might fish.  Some of us were around when building regulations specified the precise details of a door support and made it extremely difficult for anyone who developed a superior system to have it agreed to.  Having been pilloried as dreamers ideologically fastened to a free market, I think there are now very few who would deny the superiority and inherently greater flexibility of output controls.

That said, such controls are not always easy to devise.

THE COMMUNITY SERVICES TO BE ADDRESSED

While the concept of community services includes hospitals and police stations, the services I shall address are child and aged care.  These plumb the depths of the arena for market solutions because of the parties they operate with.  Children are not themselves capable of exercising informed choice, while the infirm may also have impaired faculties in these regards.

The lack of full information and capabilities on the part of the consumer does not rule out having a liability rather than a regulatory based system.  Whether we are talking car repairs, share purchase decisions, computers, or a great many other goods and services, markets work because the consumer either treats the supplier as his agent (and a poor reputation will starve the agent of business) or because an external agent is used.  This is because of the previously mentioned migration of onus for poor outcomes, under pressure of increased complexity of modern life, from buyer to seller.

In any event, these markets are generally agreed to be working efficiently with little regulatory control.

Similarly, the use of output based measurements is now generally seen to be superior in such areas as education and hospitals (with casemix).  Casemix, and the success of US HMOs, demonstrates that there is every reason to expect that health services work better under an output-based system rather than one regulated through inputs.  The HMO's demonstrate the benefits of moving still further along the true market path.

CHILDCARE

DEVELOPMENTS IN PROVISION AND COSTS

Childcare centres illustrate the deficiencies of controls, especially input controls.

Over the past dozen years, there have been three very significant directional changes in provision.

• The first of these has been a shift to have the Government pay a greater share of costs.  Commonwealth spending in dollar terms rose fourfold during the 1990's and children being cared for appear to have almost doubled.  The Commonwealth presently furnishes about 60% of centres' revenues.
• Secondly, there has been a remarkable shift from public (community) to private provision.  There are now about three times as many private as government or other non-profit places
• Thirdly we have seen an avalanche of new regulations.

As a result of the increased regulation, from 1991 to 1998 real costs increased by 37 per cent in the case of community centres, 34 per cent for private centres and 12 per cent in the case of family day care.  These costs are still increasing since the facilities are given time to have their workers trained up and some existing workers with no formal qualifications are "grandfathered".

The relatively low increase in family day care came about in spite of an administration levy being imposed for the first time in 1997.  Family day care started the decade costing almost exactly the same as the other systems but by 1998 was 26 per cent cheaper than community centres and 21 per cent cheaper than private centres.  The relatively faster increase in community centre fees is partly due to the discontinuance of centre specific subsidies and their replacement by subsidies to the parents.

These trends are tabled below.

Commonwealth funding has increased considerably over recent years and was over $1 billion in 1997/98.  About 42% of children are financed to the maximum degree by the government assistance (which provides some 70% of the costs) and about 33% receive partial support.  Hence government funding amounts to just over 60% of total revenues of the centres.

Government assistance has increased at twice the rate of the CPI but has failed to keep pace with the fee increases.  There is a growing gap in money terms between the maximum fee payable and average price for the services.  But the service is clearly competitive and there can be no suggestion of "market failure" in the observation that the fees have increased as much as they have.

In terms of provision, private centres had assumed the most important role by 1998 and have almost trebled in places;  community based centres had increased by only 31 per cent and family day care by 50%.

It might have been thought that, given the relatively stellar performance of the family day care sector, (recall that their cost increases were only one third of other centres') the authorities would wish to nurture it.  After all, the service was demonstrating consumer appeal by winning market share.

However, their increased market share can be attributed to lower costs resulting from a lesser obligation to have child-specific facilities and for training of the staff.  Hence, the regulatory authorities find themselves at odds with this class of service because it is proving itself more attractive to the market than the regulators think is good for the consumer.  As a result, the low cost of family day care, though the stats have not fully caught up with this, is largely a thing of the past.  As from mid 1999, NSW, Queensland, and WA have regulated these, and other States had also implemented some form of regulation (such as minimum standards, child-staff ratios).

A CLOSER LOOK AT COSTS

For the purposes we are discussing today, the most important of the three features I previously drew attention to is the cost increase.  The increase in fees can hardly be because of some natural increase in costs, the basic costs involve labour with skills which, since time immemorial, have come naturally.  And they involve facilities that most families have if they are bringing up children.

Impact of Credentialism

The increase in the costs that new regulations are causing must be sheeted home in large part to the credentialism that is being specified.  Rearing and caring for the young is something that requires no qualifications.  It is a natural function of all creatures.  Millions of generations have demonstrated that it requires no scholastic preparation.

But there has been a progressive extension in the requirements of having qualified staff employed in the centres.  Commonly, state regulations require a minimum of two such staff to be in attendance at all times children are present.

Some may argued that child care is part of education and that qualified staff are equally important in this service as in schools themselves.  If this is the case, the preferred approach is act directly and to lower the school attendance age.

The adverse impacts of credentialism can be crystalised under three headings:

• First, there is the needless cost of acquiring the qualifications.  If two years are taken to obtain the diploma, and the normal working period is twenty years, society incurs a front loaded cost increase of 10%.  That cost is paid for by the hapless consumer/taxpayer.
• Secondly, and related to this, the regulations will directly increase wage costs.  According to the Victorian RIS (p.31) credentialled workers are paid 29-50% more than other workers.  This must be reflected in fees.
• Thirdly, it denies some of the least-privileged members of society an opportunity to use their skills.  The qualifications will prove too onerous for many willing carers.  For others the need to obtain the credentials and forego paid employment will prove to be financially forbidding.  The impact is likely to be on people, especially women, from poor backgrounds, including indigenous Australians, and migrants.

Other Cost Increases:

Staff:Child Ratios

There have been progressive increases in required staffing in all centres.  A better approach is to abandon mandatory staffing levels and replace them by a requirement that all centres prominently display up-to-date information on the numbers of children and numbers (and qualifications) of all staff and their hours of operations.  This will give parents the opportunity to select the services that suit their situations.

Facilities

Commonly, the Regulations cover the facilities in great detail.  These specify space per child, require natural light outdoor areas, child-specific toilets and wash basins and an ability of staff to observe children at all times.  While these requirements are doubtless inspired by well-meaning considerations, a moment's reflection leads one to realize that a great many homes fall far short of these standards of appointment.

Should we not, therefore, require such facilities as a pre-condition of people having and bringing up their own children?  The logic of requiring such standards in child care centres is that they should be extended to all facilities where children are cared for.  Indeed, they are all the more necessary where the child is living in premises for 24 hours per day rather than the 40 hours per week in a centre.

The logic of current regulations could dictate:

• that children should not be brought up in tall apartment blocks, especially where there is little natural light;
• that nobody should be allowed to have children unless they have first completed the required tertiary qualification;
• that there should be at least two people present to supervise children at all times, especially where there are more than three infants in the family;
• that homes in which children reside should be remodelled to ensure the wash basins and toilets are appropriate for those of small stature and that those using the facilities can be observed at all times.

The child-care regulations represent a requirement that parents abandon to a bureaucracy their decision-taking with regard to their children.  The parents are the agents of their children.  They take decisions for them.  Interceding a government bureaucracy into this process both undermines this and has adverse cost implications.

Doubtless the increase in costs over the years has been moderated by the enlistment of the private sector into supplying an increasing share of child care.  But we can have lower costs -- reducing the burden on working families -- if we opt for a lesser role in prescriptive regulations.

DIFFERING APPROACHES TO CHILDCARE

In summary, the approaches to the provision of child care can follow one of two routes.  The first is having government specify in considerable detail:

• who may provide the service,
• the facilities in which it may be provided
• the staff who may support the provider
• the times that the facility may be open
• the age profile of each facility's group of children
• the proportion of staff to children and the nature of that proportion as between staff of different levels of credentialled expertise
• the prices at which the service should be provided.

The alternative is to insist on rigorous publication of information on the centre so that parents can choose the quality they consider appropriate to their needs, preferences and resources.

Child care is an important matter for parents.  By its nature, it is also a "repeat purchase" and dissatisfaction will lead to changing the supplier.  This places pressure on the centre to perform in order to gain and retain its customer base.  With open access to the provision of child care services, each centre must continuously strive to provide value.  This market-based approach allows needs and offerings to be matched without the intercession of a bureaucracy.

The usurping by the State of the need for the parent to exercise control may also lead to a form of "moral hazard".  Where a bureaucracy is vested with responsibility to ensure a standard is maintained, it is likely that users will be less vigilant in undertaking these tasks themselves.  Users will assume that others are undertaking the scrutiny role that they themselves would previously have performed.  This may lead to reduced resources being applied to the scrutiny.  It also may mean a less effective scrutiny where those undertaking it are focused on a rule.

The present regulatory tumescence is bringing high costs and denying capable carers without the skills or resources to pursue a university degree the possibility of offering the service.  Parents should be allowed to make choices about the class of childcare they wish to afford for their children just as they do about the nutritiousness of the food they serve or the quality of the housing they live in.

AGED CARE

While children are a relatively declining business, old folks are a growth industry.  Various estimates put the numbers of Australians with "profound or severe core activity restriction" at 800,000 in 1981, 1,210,000 in 2001 and growing to over 2 million thirty years from now.

While parents are properly the guardians and agents of their children, and the children can make their views readily known to the parents, this same link is present far less strongly with aged care.  Many older people are less articulate than children and the parental link with their own children is often weaker.  Moreover, current policy approaches mean a shortage of aged care places compared to a demand-driven number of child care places, where alternative providers need to operate on a highly competitive footing.

There are about 76,000 nursing home places and 64,000 hostel places.  The present system followed an explosive growth with the introduction of benefits in 1963 and policy since then has been designed to hold back public expenditure.  The Commonwealth subsidy to nursing homes is put at $30,000 per bed year, which accounts for roughly 80% of costs.  The Commonwealth also controls numbers of subsidised beds and requires accreditation and building code requirements.  State regulations usually specify staff ratios and other matters.

Most nursing homes are "for profit" with the remainder generally run by charitable bodies.  The proportions are reversed for hostels, which remain free to negotiate prices.

Aged Care Standards and an Accreditation Agency replaced the Outcome Standards Monitoring Program established 1987.  Inputs are, and were previously, the main controls used.  The Core Aggregated Module (CAM) determines the subsidy and homes themselves have to pay anything greater than 1.5% above this;  (they keep only the first 1% of savings below the CAM).  The inflexibilities have been subject to a number of criticisms, including by Gregory in 1994 and the PC in 1999.

Even so, the current scheme remains inflexible and perhaps inevitably so.  We have a confluence of:

• first, costs being largely picked up by the government with demand therefore well above a market-determined capacity to pay.  And, unlike child care, the government is not wedded to the idea of wishing to maximise the number of those being cared for;
• secondly, resident contributions are fixed by a series of caps, the most important being a contributions at 87.5% of the single income pension.  Some asset testing is in place but this is estimated to bring in only 2.5% of revenues even by 2007.  Some of the complexity emanated from the government's failed attempt to bring about greater user-pays in 1997.

The PC made several recommendations to increase greater flexibility.  These included sensible tidying up approaches to a system that they envisaged would remain input controlled, like:

• allowing people to pay for greater services and thereby allowing differentials and alternatives;  and
• avoiding incentives to use up all the subsidy available.

The PC saw the task as mainly continuing the focus on input controls.  There may be little option to this.  After all, we have a system where not only are the costs basically picked up by the government but inputs:  wages, facilities, treatment are also controlled.  Add to this the inability of many users to make their own decisions (or have a family member as their agent) and we are left to fall back on devising a better set of benchmarks on which the system might be managed.

One matter I don't think the PC addressed directly was the allocation system.  At present, to rein in costs, new beds are licensed according to a formula based on the needs in each region.  Applicants submit proposals and the Secretary of DHSS conducts a "beauty contest" based on these applications.  The allocation of the permits is valuable -- worth and estimated $27,000 per bed, hence a better approach from the public policy perspective would be to specify standards and allocate on price or bid.

An approach canvassed by the Victorian DHS offers a path to inject some greater efficiencies via enhancing competitive tensions in provision.  Victoria proposed a subsidy per person with the recipient able to purchase home based or institutional based care.  This approach shows some promise of allowing consumer choice and competition to have a role.

That said, as the AIHW maintains, outcome-based measures are not all that useful with chronic care.

SOSE Sells Jumbled Key Values

There can be little doubt that the creators of the Studies of Society and Environment syllabus find capitalism and consumerism very distasteful.  This much is clear from their presentation of the "key values" that form part of the "rationale" for the new syllabus for Years 1 to 10 in Queensland schools.

The SOSE syllabus stresses the need for "relationships between people and environments that have a regard for the spiritual dimension of life", and the importance of challenging "the inequalities inherent in social institutions and structures", to enable children to "deconstruct dominant views of society".  It says nothing about the value of creating and maintaining a vibrant and competitive economy.

Indeed, you can bet that the gentle souls from the Queensland School Curriculum Council who penned this unctuous prose become quite distressed when they contemplate the vast array of goods and services that a modern economy can produce and distribute.

They must shudder when they think of the damage all this economic activity does to the spiritual qualities of those who are involved in it, or the havoc that it wreaks on our fragile natural environment.  Instead of making people realise that true fulfilment comes from hugging trees in an old growth forest, or attending a branch meeting of the Greens or Australian Democrats, our capitalist culture distracts them from criticising the terrible wrongs of our society.

But the irony is that the SOSE syllabus is itself an expression of the supermarket mentality its creators seem to despise, the notion that all the things you want and that make you feel good can be jumbled up in the great shopping trolley of life without any rhyme or reason, and without any trade-offs.

Reading the syllabus materials, there is no indication that its designers realise that there might be any serious inconsistencies amongst the "key values" they have outlined -- such as attacking discrimination on the basis of gender, sexuality, religion, race, age and half a dozen other named grounds, while also celebrating cultural diversity in a world full of cultures whose "key values" involve just such discriminations.

It is a syllabus without a coherent and rigorous intellectual framework, just a series of disjointed dollops intended to keep the children amused as well as to indulge the muddled political and social beliefs of its designers.  Students will complete the SOSE "learning area" with a trolley full of mainly politically correct names and organisations -- a box of trade unions, an economy pack of Eddie Mabo, a barrel of Mao Zedong, a big stick of Greenpeace and a Michelangelo postcard.  But they will have little idea of how these might fit into the broader scheme of things.

And the documentation for the SOSE syllabus is a mixture of breathtakingly vacuous bumf -- "students bring to Studies of Society and Environment their understandings about what it means to be young at this time" -- and extravagant promises of the kind more commonly associated with the marketing of toiletries.  Just as Brand X toothpaste is supposed to transform your mouth into the human equivalent of a sparkling mountain spring, so 10 years of SOSE is designed to make children into "lifelong learners".

Such wonderful creatures are not just people with an interest in the world around them who are always keen to enhance their education.  That would be too ordinary;  a bit like buying the house-brand toothpaste.  In the brave new Queensland that is being engineered for your children a "lifelong learner" is all the following:

• a knowledgeable person with deep understanding;
• a complex thinker;
• a creative person;
• an active investigator;
• an effective communicator;
• a participant in an interdependent world;  and
• a reflective and self-directed learner. 

But if you think the new SOSE syllabus will actually create people with these marvellous qualities, then you probably believe that the supermarket's new $24.99 jar of beauty cream with the magical herbal ingredients will make you physically irresistible.

Of course, there is one major difference between the supermarket where you purchase your groceries and the kind that the Curriculum Council is running.  Your local merchant doesn't really care what goes into your shopping trolley;  macrobiotic tofu or a carton of cigarettes, it is all the same to him as long as he makes a profit.

Not so with the SOSE crowd.  They are selling only a carefully selected range of products, especially chosen to make children feel that their own society is pretty rotten.

But the soft leftist ideology that informs the SOSE syllabus is only part of the child abuse that the Education Department is inflicting on Queensland, and arguably even the lesser part.

After all, if children are given the sound intellectual grounding that seems necessary for instilling a love of learning, they can usually slough off their teachers' political propaganda as they grow up and come into contact with information and ideas that were not offered to them at school.  As they mature they also tend to look more critically at many of the things they were never encouraged to question.  If this was not the case, my own generation would all be monarchists calling for the restoration of the British Empire.

The real sin of the SOSE syllabus is that it will not provide students with the cumulative and properly structured intellectual frameworks and knowledge necessary for comprehending how the world works and how it developed into its present form.  And it makes no attempt to foster the shared common culture and basic understandings which are necessary for the continuing vitality of Australia's liberal democratic institutions.

So despite the impressive sounding "learning outcomes" it promises, it will not give rise to large numbers of well-informed and independently minded citizens.  Intentionally or otherwise, it is a syllabus for producing mentally apathetic consumers who will always be vulnerable to the gaudy marketing campaigns of political and cultural elites and their relish for rewriting history to suit contemporary agendas.  No wonder these elites are so keen on it.

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Free Shearers Don't Click with the Union

Walk into a shearing shed today and up to half the workers are women, many are degree educated, most well traveled and many talk of careers in the wool industry.  How far Australian society has shifted is starkly apparent in this new shearing industry now under attack by an aggressive labor movement.

The sun may still scorch the body on 45-degree days.  The shearing sheds may still provide a good movie set for a remake of Jack Thompson's famous film, Sunday Too Far Away, but little else remains the same.  The 1970's classic depicted the hard, violent and beer soaked life of the Australian outback shearer.  This rugged, matey and sexist environment gave birth to the Australian union movement and the images have long been ingrained in the romantic psyche of a nation eager to pinpoint its identity.

In the new shearing industry frequently all workers are staunchly independent contractors.  The shearing award in place since the 1920's is ignored because of its millstone like effect on shearers' incomes.  Sure, the beer is still there (something has to take the sting out of the heat) but the workers themselves do not tolerate drunken workers, as they destroy the productivity of the whole team.

Moera and Barry Hammonds' shearing operation based in Charleville Queensland, provides a colorful case study of this new Australian environment.  Of the 300 or so free contractors who work through their operation each year, large numbers are in their early 20's and many are women.  This is a big turnaround for an industry until recently dominated by ageing men and a looming workforce shortage.

Men may continue to do most of the shearing, but the days of rough handling and abusing the sheep being shorn are diminishing.  A shearer causing harm to a sheep is likely to receive verbal abuse from any one of the female wool classers, who are sensitive to the sheep's well being.

And it is in wool classing that the revolution is most stark.  Wool prices vary according to the quality of the wool.  Most baled wool leaving the farm gate averages 20 microns and fetches $3.  50 kg for the woolgrower.  In comparison 19 micron baled wool can be worth $7.  00 kg and 16 micron (relatively rare) $100 plus kg.  Through better people systems in the shed, more exacting baling and treatment of wool can occur.  The future of wool growing rests largely on higher prices through better quality.  This is the free contractors focus.

Moera Hammonds is a gun wool classer.  She came 4th at the prestigious International Golden Shears wool handling championships in New Zealand, the highest ever achieved by an Australian.  Her professionalism with wool classing is reflected in the training she gives new contractors, the standards she and her teams expect of themselves and the business mentality of the contractors toward doing a quality job.

The outcome according to farmers is a better wool clip and higher wool prices.  And for this the farmers pay more.  The contractors remuneration consistently outstrips that of the antiquated award which tends to "dumb down" both attitudes and pay.

Against this backdrop the free contractors working through the Hammonds are having their new life's values challenged by the doyens of the old economy.  The AWU have made application under Section 275 of the Queensland IR Act to force the free contractors to be bonded employees and required to work under the shearing award on less remuneration under inferior conditions.  In the IRC process the contractors are forced to make public their private tax returns.

This is the same, aggressive, anti-independent, anti-new economy type legislation that the NSW government tried to ram through parliament late last week.  The labor movement is obsessed with forcing people into award wage slavery.  They hate the tide of history in the swing to independence and the 20% of Australian working men and women who classify themselves as independently self employed.

In the shearing industry the AWU claim that nothing has changed and see no reason to change.  They hold to a view of society based on warring classes.  Yet the independent contractors working with the Hammonds see their future tied to commercial co-operation not disputation.

This Queensland case and the NSW Bill involve more than a battle of legal semantics.  On trial is the old verses the new;  new thinkers realising the challenge, satisfaction and financial rewards of being in charge of ones own future, verses those who hanker for class structures of the past.  On trial, are Australian values!

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Coffee Coups of the Café Set

The passage of thirteen years may have played tricks with my memory.  But it seems to me that the kind of people who delight in public displays of moral outrage have been less incensed by George Speight's recent coup in Fiji than they were by the two coups his countryman Lieutenant-Colonel Sitiveni Rabuka staged in 1987.

Perhaps it is simply a loss of innocence among the café latte set -- their belated realisation that idyllic Pacific island states are just as likely to degenerate into thuggery and corruption as any other Third World country.

After all, since 1987 we have seen an attempted coup in Vanuatu, the assassination of a government minister in Samoa and a plot to kill a number of other leaders, a long-running and murderous rebellion in Bougainville, a whole smorgasbord of political and military mayhem in the rest of Papua New Guinea, and the extensive criminalisation of politics throughout the region.  And earlier this week there was a coup in the Solomons, capping off eighteen months of gruesome ethnic violence which arose out of attempts by indigenous Guadalcanal islanders around Honiara to force settlers from neighbouring Malaita to return to their own island.

So while they still like to haul out the ragged banner of "colonialism" to excuse it all, even the most sentimental members of the "outraged" classes must be feeling drained of some of their righteousness in regards to the Pacific, just as they have become weary of thinking about African politics.

But I suspect there is more to it than a simple matter of coup fatigue.  I think there are two main differences between the situation in 1987 and today.

The government that Rabuka ousted in 1987 was a coalition between the Indian-dominated National Federation Party and the multiracial Fiji Labour Party.  It was led by Labour's Dr Timoci Bavadra, a rather naïve ethnic Fijian who readily adopted the soft Marxism and hostility to Western nuclear powers that our left-wingers expected of any genuine Third World politician.  Bavadra's party had come under the influence of Australian unionists and University of the South Pacific academics who believed that the real struggle in Fiji had to be between the Indian and Fijian working class on one side, and foreign capitalists and their local henchmen on the other.

Rabuka, on the other hand, was the kind of black man who filled the left with dismay.  Not only was he strongly anti-Communist and favourably disposed towards Western powers, he also spoke openly of his desire to convert all citizens of Fiji to Christianity -- a project which put him offside with most of the leaders of Australia's churches.

But this time round, the media-wise and articulate George Speight knows that there are certain buttons he can push to neutralise much of the hostility that might otherwise be directed against him.

He has cunningly phrased his attack on parliamentary democracy in terms that few progressive intellectuals can resist -- it is a "Western import", thus raising the hated spectre of cultural imperialism.  He also made a nice bow to the multiculturalists, saying that he would "like to encourage" the Indians "to continue to practise their cultures".  And he wants to restore the affirmative action programs for indigenous Fijians that the now-captive government of Mahendra Chaudhry had set aside.

But Speight's master stroke was to arrange a press conference for two Maori activists from Aotearoa (or New Zealand as some people still call it), who came to support his role in the common struggle of Fijians, Maoris and Aborigines for indigenous rights.  As an added bonus, they denounced every caring person's Great Satan, John Howard, as a "racist".  How dare he think that settlers -- whether Indians or Europeans -- should have equal rights with "first peoples"?

And that brings us to the second major difference between the 1987 coups and today.  Back then, the notion of special indigenous rights wasn't quite as attractive to the intelligentsia as it has become over the last decade.  The fine ideals of universal human rights and a colour-blind society still had their followers, and "racists" were those who believed that people's race or ethnic identity should play a part in determining their civic or legal rights and obligations.

Now of course, all that has been stood on its head.  I think that the crucial turnaround came when the socialist light finally petered out at the end of the 1980s.  All the tatty dreams of a revolutionary working class that would sweep away the oppressive structures of capitalism and create a wonderfully free and just society had to be abandoned, even in the most third-rate universities.

"Progressives" who once saw an emphasis on racial or ethnic identity as reactionary now celebrate "the politics of difference" as their major weapon against the liberal and democratic capitalist institutions they despise.  Indigenous peoples have an honoured place in the new pantheon, as their rhetorical commitment to strengthening their "traditional culture" against the hated forces of "economic rationalism" and "globalisation" meets many of the intelligentsia's own psychological and political needs.

So while they remain wrapped in the "first peoples" mantle, Speight and his thugs can urge Fijians to unite against "our common enemy the Indians", and the Isatabu savages on Guadalcanal can even parade the severed heads of Malaitan migrants without causing too many members of the café latte set to spill their coffee.  The dangerous notion of "indigenous rights" has become too precious to be challenged by any critical consideration of the real nastiness to which it can lead.

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Multicultural Blues

Book Reviews

After Multiculturalism
by Yasmin Alibhai-Brown
The Foreign Policy Centre, London, 2000;  ISBN:  0-9535598-8-2, 88 + x pages, £9.95

Multiculturalism has never achieved the same currency and salience in Britain as it has in countries of recent settlement such as Canada, Australia and the US, where large shares of the population are descendants of recent immigrants, if not immigrants themselves.  Nevertheless, Britain's ethnic Caribbean and Asian minorities are nowadays officially expected not to assimilate to the dominant culture but are encouraged to maintain their native cultures, and all are encouraged to welcome the consequent "diversity".

Yasmin Alibhai-Brown's thesis is that diversity so understood has become a source of social division and is hindering, rather than fostering, any comparative advantage that Britain might enjoy from its combination of established and immigrant communities.  She argues that globalisation is challenging everyone's sense of identity and no-one can expect to have any particular identity fixed and protected indefinitely.  She envisages a world of evolving and overlapping identities that offer opportunities from which everyone can benefit.

The author is particularly well qualified to argue in this way.  A member of the Asian community that was expelled from Uganda 30 years ago and resettled largely in the UK, she was born in Africa into an Indian culture and with a British passport.  Having grown up mainly in Britain, she insists that she is as British as anyone born in the UK.  But she is also acutely aware that the British identity is itself now being challenged by devolution (a response to the rise of Scottish nationalism) and by the British establishment's determination to involve Britain in the European Union's quest for "ever closer union".  These forces have sharpened the sense of "Britishness" among people like herself, who are not members of any of the four nations that make up the United Kingdom but whose identity is largely a product of the British Empire.

Yasmin Alibhai-Brown writes in a very lively, if rather breathless, way, and makes some devastating observations about "traditional multiculturalism".  Some immigrants have successfully invoked cultural relativism to defend brutal patriarchal practices that would not be tolerated in other contexts.  In education inspired by multiculturalism, "home cultures of black and Asian children are revered and those of white children ignored ... It does not focus on the need to extend the appeal of Shakespeare to enable black and Asian children to feel this is part of their heritage and cannot see that white children need to see Benjamin Zefaniah as their poet too" (page 70).  Her interviews with a selection of people aged between 15 and 24 suggest that multiculturalism will fade as the present generation of lobbyists and policy-makers retires.  Asked what the term "multiculturalism" meant to them, a black female aged 17 said, "I really don't use it.  I prefer to say British".  A black man aged 18 said, "I think it is a stupid word used for black people when white people think they want to be polite" (page 24).  A 20-year-old Muslim female said "I am a proud British Muslim ... We are developing a modern, cosmopolitan Islamic network across the world" (page 25).

People do seem to be able to envisage, without anxiety, multiple identities for themselves:  French and European, Australian and Asian, Muslim and British.  As international trade in goods, services and capital increases, and as pressure mounts for more freedom of international migration as well, identities will undoubtedly be challenged and evolve faster than in the past.  But it's not clear that anything needs to be done other than abandoning experiments in social engineering like multiculturalism.  The book's publisher, the Foreign Policy Centre (for which the author works), is a "New Labour" think-tank.  Reflecting this provenance, Yasmin Alibhai-Brown writes about "projects", "strategies", and "renegotiations":  the self-aggrandising rhetoric of Blairite hyper-activism that likes to think of itself as being in touch with, and shaping, all the emerging trends.  But, of all social phenomena, identities are quintessentially unintended and unforeseeable outcomes of human action, and can't be controlled by human design.  The real message of this book is that multiculturalism, as a set of policies for cultural maintenance, is finished.  Only the rent-seeking apparatus remains.

All Australian Children Deserve a Private Education

Also published on 3 June 2000 by Canberra Times as "Adding Reform to the Three Rs"

Why are Australian parents voting with their children's feet and fleeing to private schooling of all persuasions?  Since the Howard Government removed the restrictions on creating new private schools, the increase in the number of private schools students has been more than twice as much as the increase in government school enrolments, giving private schools an enrolment growth rate more than five times that of government schools.

That this is so represents a tragedy of several dimensions.  I speak with some feeling, being a child of public education trained as a teacher, the nephew of a teacher in the public school system, the son of a father who trained for the same and the grandson of a founder-member of the NSW Teacher's Federation.  My teacher Aunt epitomises this long-term trend, sending both her children to private schools to complete their secondary education.

It is not as if government does not spend enough money.  Back in 1972/73, Australian governments spent about $600 per Australian on education services, now they spend about $1100, not including the almost $5bn spent on [capital investment and on] income support for students (inclusion of which would raise expenditure to over $1300 per Australian).  Private spending has gone up much more, however.  In 1972/73, households spent about $90 per Australian on education services, now they spent almost $440 per Australian.  (All figures are adjusted for inflation).  Household spending on education services has increased from about 15% of total spending to 30%.

People are voting with their children's feet and their wallets.  Why this is so is a mixture of increased prosperity -- as people become more prosperous, they spend more on education -- as well as cultural and institutional factors.

There was a time when the public school system attracted as teachers people of serious intellect and cultural aspiration who were barred by mere accident of birth from university.  Alas, the cream of the working class has long since been replaced by the also-rans of the middle class (and please do not write in to say you are an honourable exception, as an Adelaide Review reader I am sure you are).

The rot is, apparently, nowhere near as bad in France and Germany as it is in the Anglomorph countries.  But in the former, concepts of cultural achievement, aspiration and preservation are in much healthier state than they are in the Anglo countries, where the sustained assault on any concept of possessing a Western culture worth preserving has had the predictable effects of a student body directed overwhelmingly to material achievement -- cultural achievement being largely denied them -- and governments with crassly utilitarian concepts of education, particularly higher education.  What other language of justification for expenditure is left to them?  Especially given the "social justice" propagandising that has mostly replaced cultural achievement rests largely on a rejection of the mainstream values most parents believe in.

With the collapse of a strong sense of providing access to a rich and invigorating culture, the inherent institutional failings of public education have come to the fore.

Who is the body responsible for setting the rules under which the education industry operates?  The State government, particularly the Minister for Education.  Who is the body responsible for ensuring those rules are enforced?  The same.  Who is the biggest producer of education?  The same.

Having the same person be rule-maker, rule-enforcer and most important player represents a colossal conflict of interest.  We certainly would not run the AFL like that -- imagine having the Collingwood Club board set the AFL's rules and the Collingwood coach being the chief umpire.  So why do we run our schools that way?

This conflict of interest is fatal both to proper accountability and to achieving quality education.  After all, is any Minister of Education or Ministry of Education going to get up and tell the public they are doing a bad job?  And are they likely to seriously set up and maintain systems that would provide information leading to that conclusion?

The conflict of interest is even greater if teacher unions and teachers are major participants in candidate preselection in a governing political party, as is the case with the ALP in Australia and the Democratic Party in the US.

A perfect example is provided by the "normalising" of tertiary-entrance (TER) scores, so that they form a nice neat bell-curve distribution.  This has two major effects.  First, it makes it impossible to use published TER scores to compare the performance of the public school system from year to year.  Second, because students' scores are adjusted for the ranking of their school, it penalises good students from low-rated schools (whose scores get "normalised" downwards) and rewards poor students from high-rated schools (whose scores get "normalised" upwards).  This process can become incredibly perverse -- for example, because non-English speaking background is a sign of "disadvantage", adjusting down the scores of students from migrant backgrounds because above-average success shows they have been "overmarked".

Normalising is allegedly done to allow easy ranking of students.  This is nonsense:  the raw scores would do just as well.  Indeed, the raw scores are the only information from each individual student the entire process uses.  Normalising is bureaucratic make-work which shields the system from effective accountability about its year-to-year performance.  It is also an unjust system because its penalises bright students from schools which are typically in low-income areas and rewards students typically from high-income suburbs.  But since the watchdog of the public interest is also the producer being protected, this unjust frustration of accountability marches on.

While, because of this conflict of interest, there is little systematic evidence about the year-to-year performance of the school system, get a group of people who teach in higher education together and it is not hard to turn the conversation to the quality of the students coming through.  The news is pretty depressing:  stories of declining knowledge and literacy, universities setting up disguised remedial English classes, the pattern of decline being so obvious that one can see it year by year.

The standard cry is more money is needed.  This, unfortunately, is nonsense.  It would be nice if education was a simple "black box" affair where one shoved money and intentions in one end and appropriate results poured out the other.  The black box theory is certainly one education bureaucrats and teaching unions are very fond of, as it means that the answer to every problem is more money, more teachers and smaller classes.

But education is not a simple black box.  There is a great deal of evidence that education outcomes are, at best, only weakly connected to expenditure.

The United States has provided the definitive proof that the solution is not money.  In Kansas City, over a 12 year period from 1985 to 1997, US Federal District Judge Clark took charge of the school district of 36,000 students, mandating the spending of almost $US2 billion.  A lot was bought with the money -- 15 new schools, student-teacher ratios of 12 or 13 to 1 (the lowest in the US) and opulent facilities.  The one thing which was not bought with all that money was improved educational outcomes.  The students' test scores did not improve, the black-white gap did not diminish and the schools became less, not more, racially integrated.  International comparison of student skills also show no clear connection between expenditure and achievement.

If the black box theory is wrong, then we have to look at the performance of education bureaucrats and teachers, at their accountability and the incentives they face -- something highly uncongenial for them.

At which point we are back to the besetting problem of public ownership -- having the person setting and enforcing the rules also being a major player.  Governments just can't help themselves, they give themselves free kicks.

The resistance to publishing test results by schools, to testing students for literacy and numeracy are further instances of how having the main producer set the rules creates a conflict of interest which fundamentally undermines accountability and any real pressure to perform.

Dissatisfaction with the public school system has been longstanding and has lead to wave after wave of "reforms" such that reform fatigue is now a real issue.  Yet none of the reforms has seriously tackled this conflict of interest.  (Apart from the Federal governments' freeing up of the ability to set up new private schools, which has seen a boom in private schooling despite it being more expensive for parents).  So the dissatisfaction continues, leading to endless reshuffling while schools and students remain trapped within the institutionalised conflict of interest.  Australian children do not deserve the public education most of them now get.

The first thing which needs to be done is to separate regulation of education from schooling provision.  The ideal way to do that is to turn public schools into individual corporations owned by the parents and completely separate from the Education Department and the Minister.

This is the direction education reform is heading in the US.  Over 500 "charter schools" -- autonomously run schools -- have been created in the last few years.  About 10% are run as for-profit operations, with the number growing.  Given that only about half all public school employees in the US are teachers (2.4 million out of 4.5 million), that public schools operate with five times more noninstructional personnel per student than parochial schools and that noninstructional and support activities consume 42 per cent of public education spending in the US, it is not surprising that there turns out to be considerable scope for improved efficiency.  Such figures are typical results of the "producer capture" that comes from government ownership with the consequent lack of an effective owner combined with the producer-as-regulator conflict of interest.

Soviet-style, centralised command-and-control methods of production have been thoroughly discredited.  Our school system should be liberated from them as well.

Instead of funding schools, funding should be directed to students and paid by Treasury Departments.  Education Departments should be corporatised and be required to offer their services on the open market to schools, who can choose to purchase them or not.  There should be a points system -- on a scale of, say, five to ten -- based purely on indicators of educational disadvantage.  The more "points", the higher the funding that student attracts.

There should be compulsory testing of literacy and numeracy, with the average results by school being published -- both the basic average and compared to the disadvantage profile of the school, with bonuses being paid if results are significantly better than the disadvantage profile would predict.  Tertiary entrance should be by an examination run by an independent body with a system which allows results to be compared from year to year.

Schools would become far more accountable, the body setting and enforcing the rules would no longer have a crippling conflict of interest, funding would be directed to where need was greatest, and schools would be given powerful incentives to do better.

Teacher unions -- who have turned defending mediocrity and failure into an art form -- and education bureaucrats would scream.  As would all those who value public education mainly as a way to propagandise at children.  But primary and secondary education would no longer be an expensive scandal and our children would get the educations they deserve.

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Toll roads are good policy

Toll roads may be unpopular with many motorist and taboo with the Bracks Government, but they play a part in any coherent transport strategy for Victoria.

The need for an integrated network of radial and orbital expressways in Melbourne has been recognised since the 1970s.  Until the early 1990s the idea did not progress due to resistance from interest groups and lack of government funding.  During its dying months, the Kirner Government, broke and desperate for economic development, did seek to its credit seek proposals from private parties to build and fund a western and southern bypass on a toll road basis.  However, no decision was made prior to the election of 1992.

The Kennett Government faced a stark choice;  either a toll road or no road.  They wisely choose toll option.  It also expanded the scope of the project and introduced a radical new electronic tolling system that lays the foundation for future road pricing.

The task now is to complete the Melbourne network.  This includes completing the eastern freeway to Ringwood and the Scoresby Freeway, thus linking the Frankston industrial belt to the City Link system, as well as addressing the remaining bottle necks in the orbital system;  the Hume Freeway from Craigieburn to the Metropolitan Ring Road, the Western Freeway from Rockbank to the Metropolitan Ring Road at Deer Park and the link between the Eastern Freeway to City Link.

In my column two weeks ago I accused the Bracks Government of lacking a commitment to completing this network.  Mr Batchelor -- the Transport Minister -- says otherwise.  However, despite being flush with funds and committing $1.5 billion to new transport infrastructure in the budget, the government has committed funding to only one part of the task;  the extension of the eastern freeway.  The other components have received no mention or funding in the budget.  The Government appears to support the construction of the other sections but only as long as the Commonwealth provides all the funds.

The fact is, the State and Commonwealth Governments could fund the completion of the entire network out of taxes or new borrowing but will not do so this decade because of higher priorities, particularly in rural areas.

Of course, tolls are not suitable for linking the western ring road to the Hume and Western Highways, as theses are relatively small add-ons to existing public funded freeways.  However, tolls are worth considering for the Scoresby Highway and a tunnel linking the Eastern Freeway to City Link.  The Scoresby Highway would be a new, large venture costing at least $1 billion and is unlikely to start this decade if it depends on government funding.  The tunnel linking Eastern Freeway to City Link would be extensions of the existing toll system.

The public quite rightly feels ripped-off by toll roads, forced to pay twice for roads:  once through fuel taxes and another via tolls.  The fact is, governments have long treated fuel taxes as just another tax and have collected far more in fuel taxes than they ever spend on roads.  This is unlikely to change.

If Victorians want Melbourne's radial and orbital road network -- which is essential to State competitiveness -- to be complete this decade then expansion of the existing toll system must considered.

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Who's Insecure

Facts

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The Gravy Train Ride

No critic can deny the Bracks Government strong marks in its first 200 days.  It has hastened slowly on the issues like the Snowy water while making sympathetic noises.  It has offered no comfort to the Save Albert park wowsers.  Above all, it has brought down a budget worthy of the State's best ever Treasurer, Alan Stockdale.

And in the budget, it produced a surplus while sterilising one billion dollars in the Infrastructure Reserve.  Though this may turn out to be a re-election slush fund, the appointment of Lynn Kosky as Finance Minister (by all accounts a hard nosed value-for-money taskmaster) offers the prospect of taxpayer benefit.

Some disturbing trends are however emerging.  The ban on smoking in restaurants is a typical "nanny state" action.  It forces people to do what the political elite thinks is good for them.  Similarly, the knee jerk reduction in speed limits on urban roads does not appear to have been taken with the benefit of a Regulation Impact Statement, which used to be an insurance against superficially attractive measures that turn out to be rotten.  And if moving from 60 kph to 50 saves lives (surely not 200 as some have suggested) then why not save more by moving to 40 or more still by moving to 30?

But it is in the company Labor Governments keep that have traditionally brought their downfall.  It was Paul Keating who noted that whenever Labor got elected to Government a whole set of people, with claims to have provided assistance, fell out of trees into lucrative taxpayer funded jobs.

The Bracks Government seems to be infected with this traditional Labor malady.  Its appointments of aiders and abettors and just plain sympathisers is already causing raised eyebrows.  While some like Bernie Fraser (the new head of the Superannuation Office) are well credentialled, and others like Tom Hogg have long experience, their appointments do not pass the probity test that the former Kennett Government had established.  They are clearly being rewarded as Labor mates.

Moreover, still other appointments are more blatant examples of political patronage.  These include public funding for some of Joan's boys:

• former planning minister Evan Walker received a handsome fee for his opinion on the City Square shards,
• former industrial relations minister Neil Pope was well rewarded for his failed attempted arbitration of the Yallourn Power dispute,
• and ex Cain staffer Terry Moran has been brought in to run the Premiers Department. 

These are only the most visible parts of the ice berg of panels, commissions and inquiries which are being staffed by political has-beens and activists.  These include ALP stalwart Lyndsay Connors appointed to chair a commission reviewing public education, and Jack Keating a former Victorian Teachers Association radical, appointed a member of the post-compulsory education review.

Moreover, we have yet to see the full extent of spoils being claimed by those who offered copious funding and helpers for the Bracks accession.  The teachers union, in particular will surely extract more of the favours that government can make available.  And those favours can cost us plenty in wage increases and/or a denial of access to information that will allow schools to be compared with each other.

Premier Bracks spent his university days watching social radicals cause the Whitlam Government's fall from grace.  He will surely have to remain alert to ensuring his government does not suffer a similar fate.  He might well have the big picture budget matters under control but he remains vulnerable in the host of appointments and minor decisions that can eat into such solid foundations.

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