Making Australian bureaucrats more efficient
My dad wrote this article in The Times of India about reforming India’s bureaucracy. My only criticism is that he didn’t mention that attempts to ‘reform’ a government program are often worse than simply eliminating it. This is because any attempt to reform a government program usually ends up with politicians patting each other on the back, without any substantial achievements being made, e.g. troop surges in the war on Iraq.
In the article he praises Australian bureaucracy. But how can our bureaucracy be improved? Are we really that good compared with other developed nations?
There is less corruption in Australia largely because the government performs fewer functions directly. Hence, the scope of political/bureaucratic influence is sharply constricted. For example, many utilities have been privatised. However in India, because water & electricity are wholly owned and operated by the State, those involved are able to ask for bribes to provide any service. Government can exercise greater influence over the common man, and outcomes are poor.
Reforming the bureaucracy means keeping the minimum number of paper pushers required to perform core government functions. Ideally, these bureaucrats would reduce transaction costs for the wealth generators, not increase them. So how could Australia do this better? Is this about management practice more than economics or political science? How can we stop promotions based on political whim or seniority rather than performance?
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One way to improve services would be to delegate more powers to the smallest units of governance- So it’s easy to move to better areas if you don’t like the service you’re being offered. And you should allow private businesses to compete with public ones, if at all possible (Mount Franklin water, anyone?)
Yup, agree with those, but I was after more specific things…like, should we pay public servants more to attract the best brains?
Or would that distort the labour market and divert workers from more productive and economically beneficial jobs in the private sector?
Should we try tendering out the functions of entire departments?
Could ministers get their advice from the secretary of a privatised department of health? So private companies would bid for the chance to help implement the government’s agenda at the lowest cost to the taxpayer. The minister would retain ultimate control however budgeting and other decisions would be made internally by the company, and different companies would compete to be awarded this government contract.
And also, if we privatised some of our departments it is likely they would be less unionised.
I have a problem with the assumptions inherent in this statement:
There is less corruption in Australia largely because the government performs fewer functions directly. Hence, the scope of political/bureaucratic influence is sharply constricted. For example, many utilities have been privatised. However in India, because water & electricity are wholly owned and operated by the State, those involved are able to ask for bribes to provide any service.
It assumes government control is inherently corrupt, which I don’t believe is any more true than an assumption that corporate or other private ownership is inherently non corrupt.
At worst, corruption is somewhat more likely under government control because it is less motivated by the ‘invisible hand’.
As evidence, in prior years there have been quite a lot of Australian businesses owned by the government (think Qantas, CSL, Commonwealth Bank, Telstra, OTC, TAA, etc). There was no corruption to speak of. However, their performance post privatisation demonstrates they were quite inefficient. In NSW the utilities are still not privatised. Although their performance is inefficient, they are not corrupt.
I agree that privatisation would reduce corruption in countries where it is endemic. However, in a country where it is the exception, reducing the size of government would have mostly economic benefits.
The question is, what functions should the government retain? After that is settled, it is then a matter of the least number of bureaucrats needed to perform them.
Actually, this government doesn’t know what it does. The Australian Government Information Management Office tried to get the info but couldn’t. A post of mine
here was extended by Jacques Chester here, which together talk about how governments can make themselves more efficient and how citizens might be able to audit for waste and allow easy identification of duplicated efforts. This doesn’t make the role of government any smaller, it just increases efficacy.
Actually, the Economist did a study a while back that showed that red tape is GOOD when public servants are paid a living wage, and the red tape is purely to ensure governance and high standards. Red tape was found to be BAD when public servants are not paid a living wage and resort to using every little rule as a chance to ask for a brown paper bag.
David — Governments here don’t try and do absolutely everything. So government run enterprises here are better than their Third World counterparts, because the state can afford to spend the appropriate amount of money.
In developing countries they try and run things cheaply by paying government salaries well below market rates, because the state is so interventionist in all areas at once that they have budgetary shortfalls. Ownership & control is why India basically went bankrupt in 1991. Here, they can pay employees more. So there is less corruption.
And why can they pay employees more in Australia? Because the government is less interventionist. Government ownership & control therefore leads to corruption because there is an opportunity cost.
If the Australian government copied the Indian model and began doing all the things listed in this paper it would soon find itself stretched thin, and corruption would increase accordingly.
For example, we could reduce instances of police corruption if we sold every single government business enterprise and made the entry level police officer salary $100,000 (at the same repealing drug laws so police have less opportunities to be corrupt).
Government control is more likely to be corrupt because the employees often do not have their salaries linked to performance in the same way as the private sector. Often they are on fixed salaries. They are insulated from competition and market disapproval of corruption, and low-level employees report to a manager who knows the State will most likely subsidise their losses – because the government employees union is a powerful lobby group and puts job security above performance. Thus, there is not a single direct incentive to NOT be corrupt. You’d have to work through political channels (e.g. write a letter to your MP) and we all know how slow and ineffective that can be. In addition, very few voters have the time to investigate the profitability of government owned businesses.
I don’t think private companies are inherently non-corrupt. The difference is I have a choice to switch to another water company if my present one is demanding a bribe to install my water connection. But the fact that I can report an employee demanding bribes directly to a manager who cares about his bottom line makes a huge difference when it comes to getting something done about corruption.
A living wage?
Bottom rung Government employees get paid more than a “living wage” across all departments, but there is no guarantee of efficiency.
I think you are talking about efficiency wages?
The real question is which has higher efficiency ratios for all inputs (e.g, TFP) or which operator has a lower opportunity cost?
Isn’t corruption merely a market process whereby resources are allocated to the greatest need reflected in the size of the bribe. It is a market in rent seeking, but a market just the same. The bureaucrats are rent seeking off of their positions and access to authority.
To a cerain extent corruption is shifted up the chain in Australia, to political donations to and patronage of politicians rather than to bureaucrats. Since government functions are smaller, the executive has more power over the civil service.
One way to improve our bureaucracies would be by cuttiing the size of government by 80 percent.
Sukrit — I really can’t believe that government employees are inherintley less performance oriented than private sector due to performance evaluations. Performance depends on lots of on numerous factors, like, what the job is, what sort of model the government is using, the competence of the workforce (government employees are paid less than private sector ones), and so on.
Are you really saying that, say, your average middle manager in the maze of bureacracy in a big company like Microsoft is evaluated more thoroughly than someone in a similar position in government? At least in the semi-government university sector, it seems to me that the problem is actually the opposite — so much time is wasted evaluating this, that, and the next thing (and the next thing after the next thing), that the money saved on all this pointless bureacracy could have better been spent on things that actually make a difference.
Its also worth pointing out that for a lot of government stuff, its extremely difficult to evaluate people. For example, how do you evaluate someone who contributed to a huge project on policy X? These are really non-trivial questions. Its also worth pointing out that even in domains where it appears that it should be comparitively straightforward to evaluate people (e.g., teacher perforamnce in public schools cf. e.g., government educational policy for primary schools), the actual effect of the evaluations on performance is basically zero where it has been done.
Conrad, reality is reality, the pressure to deliver a good bottom line in commercial enterprise is greater than in the public service. You can mitigate your average performance in the public service through blaming such things as government enforced contracting methods, or equity, or claiming you’re under resourced etc. Industry wants you to manage these external issues but demands that you deliver the results, and does not care about your excuses unless they are clearly and logically justified. Hence the bad performers get moved on and the positions get filled by people who deliver. Believe me, people get evaluated on how much they contributed whether it’s formally or informally. It’s that simple.
The same evaluation system exists in the government sector; people know who the contributors and the slackers are, but it’s simply not considered as important.
I work in for government on projects worth, at a minimum, in the hundreds of millions. I personally consider the value we get from commercial industry to be pretty good. In order for them to make money they are very customer focussed and are generally willing to accept a high degree of technical risk, especially in developmental work. If they stuff it they often suffer the loss on good faith while still remaining committed to the project, and see it through while trying to make up the loss elsewhere. Government on the other hand simply gets given more taxpayers money or it’s accepted that the project won’t go ahead.
Sukrit, your father’s article argues that Indian bureaucracy would significantly improve if tenure at senior levels was abolished and there was open market recruitment for each position, contestability of policy advice to political leaders, market competitiveness of remuneration and extensive delegation of responsibility.
I believe that is right. Each of those things are found in the private sector. With the possible exception of contestability of policy advice, they are also present in the Australian public service.
However, your post goes further and suggests the public service is inherently corrupt. You say, “There is less corruption in Australia largely because the government performs fewer functions directly.
I suggest the reason there is less corruption in Australia is because of the presence of the kind of things your father is advocating for India.
I’m not disputing that we need far less bureaucracy. The economic benefits are unquestionable. I just don’t think it is accurate to also use corruption as a justification.
Michael,
I’d love to see some real numbers, rather than just rhetoric. I have a fair few friends working for some of the larger IT companies and a smaller number in government. One of the interesting things is actually how large the spread between companies and government organizations actually is. If you drew an efficiency graph with all the similar functions that public and private companies perform, I’m sure there would be a large amount of overlap.
The main difference I can see is at the extreme — there are extremely efficient private companies that allow a greater percentage of their workers to work hard and efficiently (vs. public sector organizations, where hard workers always seem to always run into other inefficiencies), and the least efficient services are generally provided by public companies.
Its also worthwhile comparing different government organizations around the world. There are private company services you get in some places that woeful, but exactly the same services provided in other countries are wonderful. I’d rather take a train in Singapore (public) for instance, than Melbourne (private), and there isn’t any obvious reason why one is aweful but the other wonderful. There are other examples I can think — people still get health insurance from Medicare, for example, so I assume it must be efficient enough to compete with all the other private organizations.
The idea that the public sevices have to aweful is wrong (particularly for monopolies like transport) — and people should should in fact demand good service (not that that is going to happen). Personally, I don’t doubt that the mean differs, but I very much doubt that performance measuring is accounting for a lot of those difference. I think other things like flexible wage structures (so good managers can be employed) are undoubtedly far more important.
The other thing you need to consider is that the government provides a whole gamut of services that no private companies do (whether you happen to like that or not). Often these are delivered poorly, but the extent that performance monitoring causes this, versus a whole lot of other things (e.g., employing idiots), is debateable.
You raise some good points, and I’m busy getting pissed so I don’t want to compose a proper argument! I’m in Defence so for some recent real numbers I’d say look at the Seasprite project.
I think this is correct: I think other things like flexible wage structures (so good managers can be employed) are undoubtedly far more important.
With regards to the trains, Singaporian government industries are run like the private ones with regards to economic efficiency, and it takes a long time for a once public service in Australia to truly operate like a private one without all the red tape etc, if ever.
David — more bureaucracy = more corruption because of the opportunity cost of government spending. “[M]arket competitiveness of remuneration” cannot be provided when government (i.e. bureaucracy) is large, because public finances are spread thinly.
I provided India as an example, where the government does everything from agricultural production to making condoms. I gave the example of India’s financial crisis in 1991 to show how socialism bankrupts the state & prevents this adequate market renumeration from happening. There are numerous studies on the link between market renumeration and corruption.
In Australia the government is a lesser degree of socialist (and the bureaucracy is not as sizable):
- Therefore, public spending is not spread as thinly.
- Thus bureaucrats are paid close to market rates.
- Hence there is less corruption.
There are other relevant factors, but salaries are a major one.
I then gave the example of police corruption. Australia could probably eliminate police corruption if all non-core government functions (ABC, water, health, education etc.) were sold off and police salaries were increased to $1 million. For the individual police officer, the cost/benefit analysis just wouldn’t make sense. Why risk your career on a bribe when you’re a millionare?
This is how more government/bureaucracy = more corruption. Better the government focus on core functions and pay the bureaucrats in these areas ridiculously well.
Brendan — Yes, it’s a market and the fact that bribes do lead to some productive work from bureaucrats is a short-term plus, but corruption is inefficient in the long-run. Businesses get frustrated and move overseas, people who need services don’t get them (creating political dramas that lead to the imposition of ‘cures’ worse than the disease), etc.
Conrad — What sort of ‘real numbers’ are you after? You could try and disprove Friedman’s law just for the fun of it:
Really you just have to think about what bureaucrats produce and who foots the bill of their inefficiency…
1. What do bureaucrats produce? Nothing. They shuffle papers around and implement or create regulations.
2. Who pays their salary? The government, with taxpayer funds.
3. Is there any practical constraint on the availability of these funds? Rarely. Governments use bracket creep to their advantage, and voters think that high tax rates are necessary to deliver ‘services’.
4. So is there an incentive to be efficient? Nope. All the decisions are political. Satisfaction cannot be registered by a consumer directly – I can’t tell a government department I’m unhappy with the quality of their service and expect a direct improvement. At the most, I can fill out a feedback survey. But refer to the practically unlimited funds point #3 above.
5. How is poor performance dealt with? The minister needs to intervene, and the incentive to do that only occurs after a delay, when the media eventually figures out that all this bureaucracy isn’t really producing much in terms of results (e.g. Aboriginal health).
Now compare the private sector…
1. What does the private sector produce? Practically everything. They make computers, chairs, food, clothes, etc.
2. Why do they produce these things? Because they get paid.
3. Who pays their salary? A business.
4. From where does the business get its money? From the consumer.
5. Why would the consumer voluntarily hand over money? Because they value the goods or services.
6. What happens if they aren’t satisfied? They ask for their money back, and tell all their friends that this business is crap, thus reducing community goodwill.
7. What happens if community goodwill drops? The business feels the pinch on its bottom line. It does not have access to practically unlimited taxpayer funds as a government department does.
8. Is there anything political about performance measurement in the private sector? Nope. Mostly done impersonally through a competitive market.
Like what? It’d be easier to talk about them on a case by case basis if you gave some examples to demonstrate your point.
Sukrit,
I don’t disagree there are lots of bad public models for running things. However there are models which seem to work reasonably efficiently over time (which comments “Singapore runs … like private companies” suggest), and these sorts of models are worth looking at since they could applied to either natural monopolies or at least things which politically are difficult for the government to get rid of.
Two obvious examples that you can bump into in Australia every day that work well enough to survive that are not monopolies and have quite healthy competitors include (I have no idea why people are against privatizing these incidentally):
Medibank Private
Australia Post
Internationally, a good example from this week are all the publically owned airlines in Europe that are evidentally doing a better job than BA
Another example which you won’t obviously bump into every day is the CSIRO.
Conrad, comments like “Singapore runs … like private companies” suggest that Singapore should just privatise. Isn’t the whole point of government control of public utilities to ensure an ‘equitable’ outcome, which seems to me to mean something other than what the market would deliver? Well, ‘like private companies’ means that the government controlled public utilities in Singappre pretty much deliver exactly what the market would anyway. Which is why they’re so good. So, basically, if you’re a Singaporean and putting a train line past your door does not make economic sense then you aren’t going to get one. Which to me seems to suggest that you might as well have the benefits of private industry if the government alternative doesn’t give anyone anything extra, except perhaps helping bureaucrats keep their jobs.
Sukrit
Internationally, a good example from this week are all the publically owned airlines in Europe that are evidentally doing a better job than BA
BA was a national disaster when publically owned. It now makes huge profits (fines excepted).
Alitalia is bust, so is SAS, and Lufthansa and Air France are kept alive by huge subsidies.
the most profitable airlines in Europe are privately owned such as BA, Virgin and Ryan Air.
Europe is entirely subsidised.. The Euro is a mega-state generated currency with no intrinsic value except for rolling up and snorting empsom salts through.
Same goes for the pound which is no longer worth a pound of gold, I will have you know.
The whole system relies on status, ie the state of existence.
As long as private business is publicly accountable then there is no fundamental problem with privatisation, but as soon as you make it publicly accountable it is no longer private. Private means deprived of public exposure which is not good for business that relies on the public as consumers.
I will give you a pound if anyone of you has anything smart to say, but I doubt I will be reaching for the bourse..
There may be less corruption in Australia, but Australia can hardly be called a Democracy either, because, why should a Premier of small Tasmania be paid $276,000 per annum, which is 10 times what a pensioner couple gets.
The Politicians around the World have hi-jacked Democracy for their own benefit and we are living in a “Plutocracy”, it was recently mentioned that the Plutocrats met in Davos for their annual gathering.
Does the Tasmaian premier really get paid $250K? That is a joke.