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!