In New York this week Prime Minister Julia Gillard presented a speech to the Asia Society and Economic Club making, among other things, the obvious point that Australia possesses a diversified economic structure (who knew?!!). One point that Gillard made in the speech that I wish to emphasise was as follows:
In the next four years, we expect three times as many new jobs to be created in health care, social assistance, education and training as will be created in mining.
What Gillard was referring to was an expectation that employment in key activities which comprise the ‘new commanding heights’ of the modern economy would expand over the medium term. In an important paper published last year in the National Affairs journal, economists Arnold Kling and Nick Schulz described the new commanding heights and its significance:
The commanding heights of our economy today are not heavy manufacturing, energy, and transportation. They are, rather, education and health care. These are our foremost growth sectors ‑ the ones most central to employment and consumption; the ones that, increasingly, drive our economy. And it is precisely these two sectors that the case for extensive government intervention and planning, if not outright control, is dominant ‑ and becoming ever more so.
If there is to be any hope of reversing this trend, champions of market economics must come to see these two sectors as the front lines in the battle for capitalism. At stake is not only an ideological or theoretical point, but also … prosperity. The historical record makes this clear: In the nations where it was practiced, government control of the old commanding heights of the economy made those industries less efficient and less innovative ‑ bringing overall economic performance down with them.
Since the last quarter of the nineteenth century in Australia, if not earlier due to public sector subsidisation activities, the domains of education, health care and welfare (a sector which I add to Kling and Schulz’s classification) have been increasingly infiltrated, and now almost completely occupied in all meaningful senses, by those with an ideological or pecuniary interest in the perpetuation of governmental involvement.
The above graph ‑ plotting the total numbers of public sector employees in education, health and welfare, as well as the share of public sector education, health and welfare expenditure as a share of GDP ‑ shows that the process of creeping state consolidation within these fields of activity have not abated in recent decades. Employment has grown quite considerably since 1984; the increase in the expenditure-to-GDP ratio has been more gradual in its nature but it has ticked up in recent years with the promise (read: threat) of more expenditure (e.g., NDIS, Gonski) in the works.
As has been witnessed in this country and others, the chief mechanisms to institute and consolidate government involvement in education, health care and welfare include the ownership and conscripted tax‑subsidisation of facilities directly providing services, and the increasingly prescriptive regulation of non‑government alternative providers (i.e., the competitors of public sector providers).
The results of this project of state domination of the new commanding heights have been economically and socially tragic:
- State education has been largely captured by interests animated by social change enshrining growing conformism among our young regarding social and ecological issues whilst, at the same time, leaving them increasingly ill‑equipped with the requisite literacy and numeracy skills to enable them to navigate the world effectively and to think critically and freely for themselves. Employers and universities are increasingly picking up the slack for declining-quality literacy and numeracy education. The unsatisfactory standard of government schooling encourages thousands of parents to send their children to non‑government schools and after‑school tutoring services, and even educating them through homeschooling, but nonetheless remaining forced to fund government schools through taxation systems. Governments also enact regulations increasingly seeking to dilute the quality of differentiated educational services provided by the alternative providers, most perniciously in the areas of curriculum and assessment, gradually leading to lowest common denominator education.
- In health care, prospective public hospital patients languish uncomfortably, if not painfully, on waiting lists sometimes stretching years, as governments struggle (largely unsuccessfully) to control treatment costs and minimise their fiscal burdens in the absence of prices and profit and loss signals. Private hospitals, general practitioners and medical specialists are weighed down by prescriptive, and in some cases nonsensical, government regulations overthrowing, for example, sensible self‑regulatory standards to meet customer desires for quality health care. Innovation in Australian health care financing is stymied by outdated community rating regulations proscribing variations in private health insurance premiums on the basis of health status.
- In welfare, extended family cohesion and community social capital has been damaged, in some instances and in some locations severely, due to the destruction of non‑governmental welfare providers that formerly dotted the countryside. The persistence of largely passive forms of state welfare payment has reduced effective labour supply, in the process diluting the workplace relevance of endowed skills possessed by welfare recipients and compromising our national economic potential. Other economic and social pathologies, such as a dilution of pro‑savings habits, and the promotion of illegitimacy and community segregation, have been encouraged in some way by an extensive government welfare state.
The effective monopolisation of education, health and welfare by the state has, however, proven to be a bonanza for public sector employees as all three areas are ring‑fenced as their personal employment and remuneration fiefdoms, all at the expense, of course, of taxpayers economically situated within the private sector.
In such environments, frustrated customers with idiosyncratic needs often interface, sometimes in dehumanising fashions, with dispirited or nonchalant staff charged with authority to deliver standardised services. Further, all reasonable efforts by governments to encourage the unproductive in education, health and welfare to find other lines of work more suited to them leads to organised campaigns of confected outrage by trade unions.
There are many spotfires of socialism that need to be doused by classical liberals and libertarians, but I have argued for some time that theoretical and policy arguments supportive of the withdrawal of political involvement from education, health and welfare activities (in both financing and provision) should be pivotal in our efforts to residualise the overall size and scope of the public sector during this century.
I must say, however, a couple of my friends and colleagues (whom I shall not name!) have seemed somewhat sceptical of such a call; perhaps in the opinion that questions concerning the balance of liberty versus authority in education, health and welfare are ‘soft’ issues, and should be discounted compared to other matters such as fiscal and monetary reform, labour market reform and so on.
My belief that such attitudes are mistaken ‑ we shouldn’t take our eyes off education, health and welfare which represent growing repositories of economic and political power for the modern state and its key actors. Putting aside the beneficial social implications of securing greater freedom in education, health and welfare, if the prospect of substantially reducing taxation burdens and minimising economic wastage won’t animate classical liberals and libertarians to act, then what will?
So, I say to those who subscribe to freedom: roll up your sleeves, there is much work to be done to realise the separation of school/hospital/care and the state!
Postscript: Further discussion at my blog, Free Market Liberal, here and here, including discussion of some prospective Australian reforms.
Ah yes. The making ‘jobs’ in the public service industry.
C.L.
27 Sep 12 at 10:40 am
The problem you have here is one of ‘public image’.
The public image of for-profit education, healthcare or aged care is one of ‘snobs spending big money on kids/operations/retirement’.
At the same time, any for-profit but affordable (or non-profit, but non-government) venture is immediately classified as the sort of dangerous place where ones elderly relative is just as likely to be bathed in kerosene or left to die outside. Or where the kids are to be badly treated.
Alongside all of this, there is near-universal acceptance that government delivered services will always be sub-par – a child attending a government school is not expected to do as well as one from a private school, care given in a government hospital is expected to not be as good as one in a private hospital.
The issue here is to bridge the gap between these views – there is no reason that a local-controlled, non-profit hospital cannot give superior service to a canberra-controlled, remotely managed hospital. Of course, this would be achieved by locals getting involved in the management and operation of the hospital/school/aged care facility.
Until the general public is disabused of the ‘free’ notion of healthcare, education and aged care – of course everyone is paying for it – standards are unlikely to rise. People would rather accept sub-par performance/management/outcomes from local institutions if they think it’s ‘free’ from some magical canberra building, than if they could trace the money going from their earnings into the local institution.
In short, local boards, local control and voucher-style systems are what is needed. And the ability for independent, non-profit organisations to operate completely separate from the state. And for the casual use of ‘free’ to be abandoned.
brc
27 Sep 12 at 11:07 am
More public “service” jobs to be paid for by fewer tax payers working for fewer employers, subsidised by government grants. Where have I heard all this before? Must have been the last Labor government, or the one before that, or even the the one before that! Oh well, there will always be another Middle Eastern con man ready to lend us a couple of billion (trillion??) dollars out of the goodness of his heart.
Bruce J
27 Sep 12 at 11:14 am
Communism? Okay, on the face of it they don’t own the “means of production” outright, but they own it via regulatory restrictions. And in Gillard’s vision of the future, there will be no production anyway. Production as we know it is being replaced by government services, as she proclaims in her speech, which is owned by the government.
Gab
27 Sep 12 at 11:19 am
http://www.youtube.com/watch?v=0DIy-C4cQ-M
http://www.youtube.com/watch?v=En4lu_1bcsI&feature=related
Ivan Denisovich
27 Sep 12 at 11:22 am
Libertarians must sieze the meme and call “free” healthcare what it is – taxpayer funded or subsidised healthcare.
…and interject that it is most certainly not free when some zombie tries to object that it is “free”.
brc – I thought the ACT had more kids in private schools.
Subsidiarity is attractive to schools. Principals should have control over curricula, assessment, finances and personnel. Fund the schools with vouchers. Give anyone with an enrolled child or property within the school zones voting rights to elect a school board who oversees the principal – professionalise the P&C.
Towns could have their own common support staff such as accountants. The Catholic system more or less runs like this.
Basically education could be a lot better funded and cheaper if we sacked most of the public servants and split the difference with the taxpayer and the funding of students.
.
27 Sep 12 at 11:23 am
…had this conversation with a mate who is a jaded ex ALP voting ex teacher…he also reckons you could appoint a dean overseeing the principals who might be like a CEO for a school region…appointed by a regional board comprising of delegates from different school boards.
His objection to the US system is ever growing curricula and testing.
.
27 Sep 12 at 11:25 am
Libertarians must sieze the meme and call “free” healthcare what it is – taxpayer funded or subsidised healthcare.
Taxpayers know that, it’s what they want.
sdfc
27 Sep 12 at 11:29 am
Yes Gab
Control the means of production by regulation and redistribute the profits appropriated to supporters.
As I have suggested before, once half plus one of the electorate is dependent on the The State for succour it’s all over.
Pickles
27 Sep 12 at 11:29 am
Soon people will start to say why bother to try to create a business, work hard at it, build it up, produce something useful, and pay a heap of taxes, if all that comes from doing this is more and heavier taxation, more regulation, more worry and less reward. When that part of the economy tanks, well, hello, here we are in Greece.
Obviously, we are not there yet, and we shouldn’t cry wolf too often, but there is a trend here. As with everywhere, the public sector is inefficient and its growth is out of control, as are expectations about what it can do. As brc outlines, we need policy initiates to bring general perceptions back to the reality of how ‘free’ things get paid for.
Elizabeth (Lizzie) B.
27 Sep 12 at 11:29 am
Election 2013. Tears on your pillow.
.
27 Sep 12 at 11:32 am
oops – initiatives, not initiates
although come to think of it, initiating a few policy-makers into a new economic paradigm for them might not a bad idea either.
Elizabeth (Lizzie) B.
27 Sep 12 at 11:32 am
Gab, Pickles…
Isn’t that form of government (nominal private ownership, hamstrung by the tenticles of the state) knwon as fascism? Not suggesting that we are anywhere near Hitler’s Nazi Germany, Mussolini’s Italy or Franco’s Spain, but I reckon that the West is slowly drifting towards the fascist economic model.
Cue SfB and SteveC to come by shortly and falsely invoke Godwin’s law…
Skuter
27 Sep 12 at 11:41 am
So you think the Libs are going to gut medicare? Dream on.
sdfc
27 Sep 12 at 11:45 am
It’s a new pomo world, Skuter, wherein Communism, Fascism and Socialism all get thrown into the melting pot to make what we are seeing these days. A bit of this, a bit of that thrown into the pot which is set on a very low simmer, add the frogs (AKA the mere population) and wallah!, Gillard’s future for the SocfascComm Republic of Australya.
Gab
27 Sep 12 at 11:51 am
Gab, to me the only economic difference between Communists and Fascists is that Communists are honest about nationalisation…
Skuter
27 Sep 12 at 11:54 am
sdfc, it is not necessarily about gutting anything. What needs to be done as a first step, in the interests of transparency is for governments to get out of the business of directly providing services (and thereby subsidising producers and other rent-seekers like unions) and instead turn to giving subsidies to consumers. Access to, and provision of services are two different things. Governments just like the (supposed) control that direct provision brings. Notice however, when a scandal breaks out, the last person responsible is the minister…?
Skuter
27 Sep 12 at 11:59 am
I think I can see Nirvana just over the horizon. From the cradle to the grave the government will take full care and responsibility for its people. Everybody will work for everybody else and there will no longer be the need for ugly sweaty effort. There will be no more species extinctions. Everybody will be nice to everybody because the law will say so. Sweet!
Biota
27 Sep 12 at 12:01 pm
Yeah right, firing Federal public servants is “gutting” the subsidisation of poorer patients.
I suppose you think the Federal Dept of Education is also a wonderfully productive entity that leads the world in innovation. You dropkick.
.
27 Sep 12 at 12:07 pm
ABS 4221.0 – 2011
ACT Secondary (yr 7 to 12)
15,432 Government 54%
13,386 Non-Govt 46%
Lots of kids from surrounding NSW also attend ACT schools. I’ve heard that ACT private schools provide the best socialist indoctrination money can buy! We shouldn’t be surprised to find a company town educates their kids in the local industry.
Forester
27 Sep 12 at 12:25 pm
And the PM should know better than doing ATM whilst OS. You can’t know where they’ve been.
Pickles
27 Sep 12 at 1:10 pm
So your solution to the problem Skuter is subsidisation of private sector entities. The assumption of the free marketers always seems to be one of perfect competition, unfortunately the information asymmetries in the health services industry suggest a wholesale subsidisation of private sector health providers in the absence of a universal public health system will likely lead to even higher costs.
Dot
If by public servants you mean healthcare providers then yes I do mean gutted. Frontline health and education services are provided by the state, so no
I am not a fan of the Canberra bureaucracy . As I have said before Canberra is a parasite.
Leave out the dummy spits they just make you look foolish.
sdfc
27 Sep 12 at 1:15 pm
sdfc, I am talking about subsidisation of consumers. I suppose you could call individuals private sector entities, but I am reading as if you think I am calling for subsidising private hospitals and schools, which is not what I am advocating. Sure, the consumers might suffer from information asymmetries but people learn from past mistakes. If they or a family member has a bad experience they choose someone else. Your argument is that if information asymmetries are present, that public provision is the only way to overcome it. So I presume you are calling for a government motor mechanic service? Also, what on earth makes you think a government can overcome information asymmetries any better than individuals? The only thing that can overcome information asymmetries, ultimately, is knowledge. Where is the evidence that the government has better knowledge? Even when they compel people or firms to reveal their privately held information, they usually end producing perverse outcomes by providing incentives for people to reveal false information.
Skuter
27 Sep 12 at 1:35 pm
Let’s not even get started on the deadweight losses inherent in taxation. Has anyone actually designed a tax that can be implemented with zero deadweight losses? I know Swanny and Treasury claim to have invented one (MRRT), but let us not concern ourselves with liars and charlatans here…
Skuter
27 Sep 12 at 1:37 pm
I’m a free marketer and I believe entrepreneurs can only improve the efficiency of a process where they have asymmetric information that allows them to beat the other entrepreneurs.
What we want is a process where entrepreneurs compete to provide services the consumer* really wants at a price they can afford.
By consumer I mean the person who is actually sick, not his doctor, health insurance provider or HSU official. In socialised medicine the person handing over the money isn’t always the customer.
Forester
27 Sep 12 at 1:40 pm
Good point Forester…
Skuter
27 Sep 12 at 1:47 pm
Skuter
If you are subsidising consumers you are subsidising providers. You also make the mistake of equating health provision with motor mechanics. Enough said on that matter I think.
Forester the asymmetries in the healthcare system are not between entrepreneurs but between the consumer and the provider of health services. In other words such is the nature of healthcare the consumer does not have the knowledge to correctly evaluate the price or quality of the service.
Information is crucial to the efficient functioning of competitive markets.
sdfc
27 Sep 12 at 2:20 pm
Dickhead, this dishonesty and proclivity for duplicity you have is on you.
.
27 Sep 12 at 2:26 pm
Between which the asymmetry of information is what the entrepreneur uses to better satisfy the wants of the consumer.
Like my wife and her motor mechanic, they take the time to explain everything to her and hand the car back spotless. Costs a bit more money but she likes them.
Forester
27 Sep 12 at 3:08 pm
sdfc, if you are subsidising consumers, you are technically correct that you are subsidising producers. That is standard first year economics on incidence of a price change. However, what you’re missing is that when you are subsidising consumers, you are subsidising producers without directly altering the market structure. When the government becomes a player, markets become far more distorted than through mere subsidisation.
As for my motor mechanics example, I’m not equating the two sdfc. You are the one trying to make the case that if there are information asymmetries, that direct public provision is the way to overcome them.
In your response to Forester, you make the point that consumers don’t have the knowledge to correctly evaluate the price or quality of the service. What makes you think governments do have the knowledge to correctly evaluate these things? More precisely, what do you think it is about public provision that leads to better information being generated? Valuations are subjective. That is the point I am trying to make.
Skuter
27 Sep 12 at 3:10 pm
To elaborate on Forester’s point about entreprenuers, it is the entreprenuerial discovery process that leads to the generation of better information. Where is the comparable mechanism in public provision?
Skuter
27 Sep 12 at 3:23 pm
Slipper’s cabcharge dockets, HSU East’s ‘entertainment expenses’ and the backs of napkins on the PM’s airplane….
Forester
27 Sep 12 at 3:58 pm
It looks like a strong correlation between employment in education health care and welfare and female participation rate — coincidence?
manalive
27 Sep 12 at 4:17 pm
What is relevant to this thread is the difference between private and government entreprenuers.
Private entrepreneurs and their private customers both have ‘a dog in the fight’.
This does not happen in our current medical funding; the customer thinks they are getting it ‘free’ so they don’t feel they need to modify their lifestyle choices,
the multitude of government ‘entrepreneurs’ get paid when they fill out the next form and swipe the medicare card,
the conscripted taxpayers don’t even get a bill.
Not that I expect the Liberal(sic) Party to change any of it.
Forester
27 Sep 12 at 4:56 pm
What you say about information maybe fine for services such as motor mechanics.
For instance if I go to an auto-shop and am told my car is running a bit rough and need a new motor, if I don’t like the diagnosis I am free to shop around. When it comes to health however I am not afforded such a luxury given my limited knowledge of medicine. The theory that there is somehow something approaching a perfectly competitive market in health is a furphy.
sdfc
27 Sep 12 at 4:58 pm
You can’t do much for health care costs unless you really substantially reduce 3rd party payments. Given that won’t happen, we really have to talk about appropriate strategies to reduce long run impacts on the budget. It really is not very easy.
Even then I think the spiralling cost issue is substantially overblown. A big part of the reason more is spent is that more can be afforded. Expensive health treatments are luxury goods like big tvs.
Nobody should be surprised that employment growth will be in services as manufacturing, agriculture and mining are much more easily made efficient. That’s not to deny Julie’s point about productivity, just to make sure we don’t get too overexcited.
Pedro
27 Sep 12 at 5:00 pm
But it doesn’t have to be perfect sdfc, it just needs to be competitive. A bit of advertising would help a lot. The industry and snarl of conspiracies against the consumer.
Pedro
27 Sep 12 at 5:05 pm
Are we serious?
A free market has no information problems (and presumably no service professionals because they’d actually be redundant) and Medicare somehow alleviates asymmetric information?
What a steaming load of cock, sfdc.
.
27 Sep 12 at 5:13 pm
So you can’t seek a second medial opinion? And you’re also saying that most people know an alternator from an exhaust manifold? Idiot…
Of course a ‘perfectly competitive market’ is an artificial ‘ideal-type’ construct. Real world economics goes well beyond this by recognising that perfect competition is never the case. But you still have not and cannot make the case that real-world public provision is superior to real-world markets. Proving that a real, flawed human institution does not meet some ideal notion is not proof of anything really. The comparision must be between the outcomes of two (necessarily) flawed human institutions.
Forester is right. Having a ‘dog in the fight’ is crucial. Having an election every three or four years is a much poorer accountability mechanism than a profit and loss statement…get it now?
Skuter
27 Sep 12 at 5:19 pm
dot, I’m beginning to think sdfc is serious. He tends to have slightly more intelligent conversations about macro, but his knowledge of micro is farked…
Skuter
27 Sep 12 at 5:21 pm