An appreciation of ‘Director’s Law’ of public expenditure, coined by George Stigler in honour of Aaron Director and popularised by Milton Friedman, remains an important element within the intellectual repository of classical liberal/libertarian cautionary arguments against state expansionism.
The law relates to the implications of public sector action for the distribution of income. Specifically, the net effect of any government expenditure program will be to effectively redistribute income to the middle classes. As noted by Stigler, ‘public expenditures are made for the primary benefit of the middle class, and financed with taxes which are borne in considerable part by the poor and the rich.’
There are in effect numerous practical applications of Director’s Law, with an obvious one being the expansion of middle?class public sector employment to administer programs, provide advice and deliver services in the name of the poor and downtrodden.
Last year I examined trends in the growth of state and territory government bureaucracy in great detail. The time period for that analysis was, by and large, 2000 to 2008 and it showed that the total number of workers employed by the states jumped from 972,300 to 1.2 million, with the greatest increase in the area of government administration.
Well, having looked at an extra year of data, it is clear that the public employment mushrooms in the tax?financed fiscal commons continue to grow unabated. Of concern is that this growth is continuing in jurisdictions, such as Queensland and the ACT, that most urgently require fiscal consolidation to repair their parlous budgetary positions.
Using ABS data for total state public sector employment, and then adjusting for the number of tertiary education workers in each state and territory, I find that the number of state government workers has risen from 1.24 million in June 2008 to 1.28 million a year later. Numbers in the ACT grew by an obscene 13 per cent, followed by NT (9.3 per cent), Queensland (5.3 per cent), Victoria (five per cent), and WA (4.3 per cent).
I also retain archived data of public service numbers published by the jurisdictions through their various offices of public employment. This provides us with a different set of numbers to those provided by the ABS. According to this headcount data, there has been growth of about three per cent in the numbers of people employed within the state and territory public services over the twelve months to June 2009.
It is notable that no single jurisdiction cut public service numbers during the worst of the global financial crisis – if this is anything to go by, public servants are well and truly perceived by their state political sponsors to be protected species, while the more competitive and efficient private sector were forced to reduce labour numbers or labour hours for operational survivability (plus still paying taxes to fund public servants) from late 2008 onwards.
During the twelve to eighteen months after the onset of the global financial crisis, I would occasionally cast my eye over state government employment gazettes to check whether (at the time, likely debt?financed) federal fiscal transfers to the states and territories for the purposes of implementing stimulus programs were having any effect on state government employment intentions.
Sure enough, advertisements regularly appeared whereby state governments would call for internal and external expressions of interest in employment positions, on proposed comfortable salaries, created as a result of federal funding. New mushroom varieties invaded the field of the fiscal commons, mixing with those existing varieties that seemingly just can’t or won’t be removed.
Consider the case of the now?infamous ‘Building the Education Revolution’ (BER) capital works initiative for government schools, known more for its cost overruns and one?size?fits?all design solutions than for anything else.
The federal government justified the BER as a means to promote employment. Sure enough, some key winners from this initiative have been the new and existing (but reassigned) middle?class state bureaucrats who have been engaged to oversee the BER in government schools.
Every jurisdiction has established its own project team within their respective education departments to implement the BER program. These groups then liaise closely with central agencies, such as the Premiers Department and Treasury, to ensure whole?of?government coordination of the BER rollout.
The Queensland government has its own project team within the education department, and had even developed a ‘communication plan’ incorporating a target audience matrix, including principals’ associations, trade unions, the public and, of course, the need?to?please commonwealth government, for outlining the benefits of BER.
South Australia has crafted an elaborate network structure for overseeing the BER, including an executive taskforce, working party, business services unit, an operations team, and personnel involved in different facets of the program.
According to the Tasmanian Department of Education website, there are 13 staff overseeing the implementation of government schools’ BER in that state.
With glitches and systemic problems in the BER government school program element alike providing more make?work opportunities for the state government appointees, not to mention issues such as fees received by managing contractors involved in program delivery, it becomes clear that the BER in effect manages to support the interests of those largely (but not exclusively) in the middle to upper reaches of the income distribution.
When it is considered that every political commitment to tax, spend and regulate requires a public sector employee to implement the coercive deed, and they would tend to be paid handsomely, it becomes clear that Director’s Law is always and everywhere a symptom of modern government itself. Ensuring that Director’s Law becomes less prevalent will require the significant roll back of the state.