Time to expand public service employment

Back in 2010, in the early days of the GFC, the then Australian Labor government was weathering a conservative storm for daring to introduce a large-scale (and rapid) fiscal stimulus. The package had several components but the most controversial were the decision to introduce a homeinsulation program to create jobs quickly but leave a residual of green benefits (lower energy use in the future). The program had problems but still produced fantastic macroeconomic benefits. It was little wonder that the program stumbled operationally given its complexity and the degraded capacity of the Federal public service, which has been degraded by several decades of employment cuts and restructures under the neo-liberal guise of improving ‘efficiency’. However, that mantra might be finally turning. An article in the right-wing Australian Financial Review (June 14, 2015) – Time to end outsourcing and rebuild the public service – made the extraordinary argument for that publication that public service employment had to increase to allow the government to do what the Federal Communications Minister calls “the legitimate work of the public service”. Wonders never cease.

High and persistent unemployment has pervaded almost every OECD country since the mid-1970s. The rising unemployment began with the rapid inflation of the mid- 1970s. The inflation left an indelible impression on policy-makers who became captives of the resurgent new labour economics and its macroeconomic counterpart, Monetarism.

The goal of low inflation led to excessively restrictive fiscal and monetary policy stances by most OECD governments driven by the now-entrenched ‘budget deficit fetishism’.

The combined effects of tight monetary policy and restricted fiscal policy led to GDP growth in most OECD countries being generally below that necessary to absorb the growth in the labor force in combination with rising labor productivity.

In the fifty years since the end of World War II, most OECD economies have gone from a situation where the respective governments ensured there were enough jobs to maintain full employment to a state where the same governments use unemployment to control inflation.

A major aspect of the abandonment of full employment in these economies has been the changes that have occurred in public sector employment. Many economies have undergone substantial restructuring of their public sectors with significant employment losses being endured.

The Australian experience exemplifies this.

A Royal Commission on Australian Government Administration was announced in 1974 and delivered its – Final Report (Caution – big file).

It was commissioned by a Labor federal government and completed after they had lost office. The conservatives who took power in 1975 largely disregarded the intent of the report, which was to improve the deliver of public services. Instead, they used it to change the emphasis of the service away from “administration” towards “management” (Source).

This government was part of the neo-liberal resurgence, which attacked the notion of public activity and the concept of public service.

The first volleys were about ‘efficiency’ and ‘waste’ and as this agenda gathered pace, there was an increased hollowing out of the public service employment structure (towards executives), decreased permanency and increased contract employment, functions outsourced to private providers (mostly with disastrous consequences), increased political control over the key departmental staff, and the rise of a new breed of private consultants who do the government’s dirty work by producing on demand (for very lucrative rewards) reports that seemed to ratify what the neo-liberals wanted.

The big shifts started with the massive privatisations that occurred, particularly in the 1980s and 1990s. Some of the declines in public sector employment were in fact transfers to the private sector.

Politicians at the time claimed there would be no net job losses as a result but those claims were proven to be lies almost immediately. The privatised services shed labour and failed, in general, to offer more effective service delivery.

The second wave of attacks came just after the 1991 recession, which was the largest downturn in Australia since the 1930s Great Depression.

Even previously progressive ‘Labor-type’ parties got behind this agenda. In Britain, we saw the rise of the ‘Third Way’, which soon became part of the Australian narrative too.

This approach was a loose array of proposals bundled together into a ‘solution package’ that purported to be able to steer a route through what is positioned as the extremes of Keynesianism (regulation) and neo-liberal (free market) economics.

It was argued that government fiscal and monetary policy was impotent, and that individuals have to be empowered with appropriate market-based incentives. Accordingly, the third way solution package locates the key to the ‘problem’ of dependency within the aspirations of individuals in local communities, largely detached from the state and certainly detached from the macroeconomy.

In doing so, and by default, microeconomic market solutions were proposed to what were and will always be macroeconomic problems. Mass unemployment is never a micro issue – it is always an inadequacy of spending.

But in taking this route, the Third Way assumptions were indistinguishable from the neo-liberal approach and were soon bundled up within it with Labor-type Parties arguing for fiscal surpluses and austerity – just milder and allegedly fairer.

But there can never be anything fair about unemployment or depriving the disadvantaged of essential public services.

The result was that a promotion of both corporate and not-for-profit commercial behaviour to achieve social objectives that were previously the responsibility of the public service.

A whole host of shonky ideas came under the innovative sounding banner of social entrepreneurship. Please read my blog – Social entrepreneurship … another neo-liberal denial – for more discussion on this point.

The essential point was that Third way exponents accepted the neo-liberal notion (based on the erroneous fiscal austerity view) that welfare and other services need to be delivered more ‘efficiently’, and from this premise advanced another, that entrepreneurially generated profits via full-blown business activities were required to cross-subsidise welfare provision in an era where budget allocations are highly constrained.

The Third Way literature introduced the concept of the ‘overloaded government’ which was a central neo-liberal idea – that government was too big, weakened by the burgeoning requirements of policy incrementalism, and experiencing crises of legitimacy because of its apparent inability to effectively manage and fund these responsibilities.

It was largely an agenda based on lies and deceptions but it was marketed very effectively by the burgeoning number of ‘think tanks’ which were being funded by conservative corporations and individuals to advance the narrow agenda of these entities.

As the public service was attacked and diminished in size with essential services being out-sourced or privatised, its function shifted to contract management. It was argued that public accountability would be maintained through the contract mechanism to control contract agent behaviour.

So the public service became dominated by ‘contract managers’ rather than experts in program delivery.

An extensive literature has emerged since then to reveal significant imperfections in Australian accountability regimes between public sector funding bodies and funded private organisations.

The decline in public service employment

The following graph shows the evolution of Australian public service employment since 1989 indexed at 100 in 1989 (blue line). The red line is total employment in the economy as a whole which has grown about the same pace as the Labour Force (with cyclical deviations).

The Labor government was in power from 1983 to 1996, and it was this regime that accelerated the degradation of the public service. When the conservatives (Howard) was elected in 1996, he initially hacked into public service employment but reversed the decline.

The next Labor government, elected in 2007 moderated the growth rate in public service employment but when they lost office, the new Conservative Abbott government has returned to its DNA and started to savagely cut again.

Over this time, public service employment has gone from 2.2 per cent of total employment in 1989 to 1.4 per cent in 2014 (and declining). To put that in perspective, total Commonwealth employment in 1970 was 6.1 per cent of total employment.

The other aspect worth noting is the change in the internal structure of public sector employment in Australia over this time.

The following graph shows the proportions of the different hierarchical divisions in total public service employment. The date prior to 1997 is not commensurate with the later data given changes in classifications and presentation. But the trends shown in the graph were present from the late 1980s as the neo-liberal shift to managerial control and administration of outsourced contracted began in earnest.

These trends were consistent with the shift in functions towards contract management noted above.

Why does this matter?

There were clearly issues with the implementation of the two big stimulus packages that the Australian government introduced.

Some parts of the stimulus intervention (a relatively minor proportion of total funds spent) were problematic in terms of administrative issues.

The – Energy Efficient Homes Package – was highly problematic in a number of ways notwithstanding the macroeconomic benefits it brought – income and employment growth etc.

Remember that Australia did not have an official recession during the GFC, which set it apart from most advanced nations.

The program was delivered by private contractors and a spate of rather dubious operators entered the field to cash in on the contracts on offer.

However, the latest estimates are that it “covered 1.2 million homes and it has been estimated that by 2015 it will have produced savings of approximately 20,000 gigawatt-hours (72,000 TJ) of electricity and 25 petajoules (6.9×109 kWh) of natural gas savings”.

But, four workers died installing the insulation while the program ran, which raised questions of whether the Government was cogniscant of the risks involved and did enough to prevent the deaths.

The Australian National Audit Office investigated the implementation of the program and in its – Performance Audit Report – published in October 2010, it concluded that:

1. The program “was designed to generate economic stimulus and jobs for lower skilled workers in the housing and construction industry, which was expected to be adversely affected by an economic downturn flowing from the global financial crisis.”

2. “The program was developed in a very short period of time between 3 February 2009 and 30 June 2009 as a stimulus measure to respond to the global financial crisis.”

3. “The focus by the department on the stimulus objective overrode risk management practices that should have been expected given the inherent program risks. Rather, the department intended to rely heavily on its compliance and audit program to address some of the risks identified, but the significant delay in implementing this element of the program meant that these risks were not adequately addressed.”

4. Most importantly:

There were insufficient measures to deliver quality installations and, when the volume of issues requiring attention by the department increased, the department had neither the systems nor capacity to deal with this effectively. The lack of experience within DEWHA in project management and in implementing a program of this kind were contributing factors …

The fallout from the program has … harmed the reputation of the Australian Public Service for effective service delivery. This experience underlines very starkly just how critical sound program design and implementation practices are to achieving policy outcomes. There are important lessons here for those agencies with policy implementation responsibilities but also those responsible for policy development.

So despite the clear macroeconomic benefits including many thousands of jobs saved the program highlighted major deficiencies in the capacity of the public service to deliver complex stimulus programs without significant problems.

However, we also have to remember that large-scale stimulus interventions of the type taken by the Australian Government – which in international terms was early and large relative to GDP – are very complicated and you can expect some administrative inefficiencies.

Imagine if the private sector had to ramp up investment spending within a quarter or so to the levels that saved the economy from the GFC – what do you think would be the outcome of those projects.

But we also have to understand the context that the program was introduced. As noted above, the neo-liberal era has been marked by a major reduction in Departmental capacity to design and implement fiscal policy – given the obsession with monetary policy and the major outsourcing of ‘fiscal-type’ government services to the private sector.

Many of the major Federal government policy departments are now just contract managers for outsourced service delivery. So with the voluntary reduction in ‘fiscal space’ (defined as capacity to use real resources productively) within the federal government over the last 20 years or more it is no surprise that the overall capacity of the government machine to implement efficiently and speedily complicated nation-wide infrastructure programs has been diminished.

At the time, I gave several media interviews noting that these shortcomings were a lesson for the future.

The GFC taught us that we can no longer deny that fiscal policy is required to address serious swings in private spending which if left to their own will cause major recessions.

Monetary policy has been proven – categorically – to be ineffective in dealing with aggregate demand failures of the sort we have witnessed in the current crisis.

Modern Monetary Theory (MMT) teaches us that the currency-issuing government has an infinite capacity to purchase resources that are for sale in its own currency. There are no financial constraints.

But to be effective, the same government must be able to bring those resources into productive use to the benefit of all, especially at times when the private sector demand for productive resources is weak.

In that context, governments must develop forward-looking capacity to ensure that it has project implementation skills when they are required.

Clearly, if we had left the GFC to the Chicago school (or the Harvard school) line – which means government would have sat back and left it to the private market to sort the mess out, then we would have been facing a repeat of the Great Depression such was the damage to the financial system and the plunge in real output in the major economies.

At the time the stimulus packages were designed and announced, the Australian Labor government believed we were on the precipice of another Great Depression. The international events demonstrate that the crisis has been very severe. So the government rightly assumed that there would be major idle labour skills available to be brought back into productive work. That was a reasonable assumption and the fact that the downturn hasn’t been as bad as that demonstrates that the fiscal stimulus has been very effective.

However, the lesson from the home insulation package is that forward-planning is necessary and the public service cannot just be a contract manager. It has to have in-house skills in project evaluation and design and operational capacity to deliver these programs.

Which means it has to return to the past practice and stop outsourcing everything to consultants etc.

Which brings me to the article in the Financial Review that I cited in the introduction.

It argues that the neo-liberal period has led us to believe that the answer to maintaining a productive economy :

… was to bring business and its practices into the public sector: by contracting out jobs, from road construction to the provision of highly skilled advice and other services; by opening departments to modern management practices and accountability; and by “corporatising” or, better still, privatising government businesses.

But now we realise that this has been myopic thinking and the damage it has cause the public service needs to be reversed immediately.

The author (not known for progressive views) notes the Federal “Communications Minister … lamented last week the brain drain from the federal bureaucracy as governments have turned increasingly to private consultants.”

The Minister said last week that:

There has been a practice for government to outsource what should be the legitimate work of the public service to consultants … So the public service departments just become, you know, mail boxes for sending out tenders and then receiving the reports and paying for them.

The public service has been so attacked and downgraded that it now lacks staff “with the necessary quantitative and analytical skills” and that the host of consultants now relied on by governments are of “varied quality” and may not have “motives” that align with government ambitions.

Certainly, there are countless cases where consultant reports propose solutions that are not at all in the interests of the general society but feather the nest for one elite group or another.

The author notes that there are “consultants who cut corners, provided superficial reports and second-guessed what ministers wanted to hear.”

In other words, government programs are being captured by a narrow group of private consultants whose interests often are only their own advancement and wealth generation.

A familiar tale across the advanced and less developed world.

The Minister of Communications said in this regard that:

… there has been a practice for government in particular to outsource what should be the legitimate work of the public service to consultants.

What we have to do in government in my view is stop panning public servants and do more to ensure that they do their job better. And one of the ways to do that is to make sure they do the work that is their core responsibility, as opposed to outsourcing everything …

The talent is the real asset of the Australian Public Service, so we have got to have a focus on the APS, a respect for the quality and seek to promote and improve the quality of that workforce all the time.

And it will require the Government investing some serious funds in rebuilding the employment base of the Australian Public Service. It should start by rebalancing the occupational structure away from these senior managers who take more than they are worth by far out of the system at the expense of recruiting skilled operatives that can actually design and implement government programs.

It will require the Government to abandon its competitive education model and refund public training and skills development within the public sector.

It will require the Government to once again become a more significant employer in its own right.

Conclusion

The thing that was surprising was that these ideas were rehearsed by a journalist who usually promotes an anti-government line. Some of the article continued that theme but the message was clear – it is time to restore some expertise in a the public service in Australia to ensure that big programs that are essential for Australia’s well-being are not put in the hands of second-rate and greedy private consultants.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.