Dr Ken Henry.

Public policy in the Asian Century - Ken Henry

19 July 2012

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This is an edited version of a speech Dr Ken Henry AC gave to the Crawford School of Public Policy on 18 July as part of the week-long event, Policy public: ideas, insights and initiatives until 2020.

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In December 1983 the $A was floated.  On 1 July 2000 a broad-based goods and services tax replaced a plethora of highly inefficient, inequitable and unintelligible indirect taxes.  These events ‘bookended’ an extraordinary period of policy reform that ‘opened up’ the Australian economy, transforming just about every aspect of microeconomic and macroeconomic policy and institutions.

We are now twelve years on from the end of that particular reform period.  And I’m wondering how much of what was achieved then could be achieved today.

The Australia that was capable of delivering that policy transformation seems like a very different place from the Australia of today.

In the early 1980s, Australian policy makers, haunted by another deep recession attributable to policy failure over many decades, found themselves on a burning platform.  With high inflation and high unemployment, and another negative terms of trade shock that threatened a further hit to living standards, the imperative for action was broadly understood and accepted.

Today, Australians find themselves in an economy that has avoided three serious recessions affecting many other countries: one associated with the Asian Financial Crisis of the late 1990s; another associated with the ‘tech wreck’ stock market crash and subsequent developed world recession a few years later; and a third, more recently, as the so-called Global Financial Crisis paralysed the rest of the developed world.

Unlike most of the rest of the developed world, the Australian economy is experiencing low inflation, low unemployment, and rising average living standards.  And that has been the case for about 20 years now.

It must be tempting to conclude, as many people have, that because of our strong economic performance, Australians have simply become complacent.  And that complacency could provide a reason for Australians being so disinterested in economic reform.

But Australians are not complacent. The evidence seems to be that they are angry. And their anger is not finding expression in calls for more economic reform.  Quite the reverse really: some of the hard-won reforms of the past are at risk.

Today, there are loud, angry voices calling for substantial bits of the reform architecture to be torn down: for the $A to be managed to a lower, more ‘competitive’, level; for tariffs to be re-introduced; for workplace laws to be made more restrictive; for the Reserve Bank of Australia to be stripped of its independence, and for it to terminate its commitment to medium-term inflation targeting; and for fiscal policy to be liberated from its medium-term anchor.  By the way, not all of these calls are coming from the ‘political left’.

The anger has many explanations. One worth pondering is that Australians simply don’t understand what is going on.  It may be that policy matters have always generated confusion, but I have a sense that the confusion in public debate is getting worse.  At least, it seems to me to be a lot worse than at any other time over the past 25 years or so.  Indeed, and this is a gross generalisation, I can’t recall a poorer quality public debate – on almost any issue – than what we have in Australia at the moment.  Today, it is almost certain that, in almost any area, what people generally understand to be the case is, in fact, a myth.

‘Myth busting’ is the core business of scientists; indeed, it should be the core business of academics in general.  Scientists seek to discover truth, in large part by questioning what is ‘accepted’; subjecting it to close scrutiny; challenging and arguing; then revising and improving; and, in that way, enhancing our understanding of the world around us.

Not all of this plays well in public view. Some of it is too complex to be allowed outside of the lecture hall and the journals. Other bits are not too complex, but nevertheless at risk of being misunderstood.
Thus, there have been many public policy debates in Australia in recent years in which the media have not managed to facilitate a balanced discussion – for whatever reason.

On some issues, the media have appeared keen to report the views of almost anybody who has a view.  But the media appear to have no way of guiding readers, listeners and viewers as to the weight that should be put on the various views presented; whether it’s a 99:1, 80:20 or 50:50 proposition.
Among recent debates in Australia in which the ‘balance’ of the coverage was, at best, questionable, we find instances of: (1) a lot of qualified scientists holding a ‘consensus’ view that is challenged by only a very small number of other scientists; (2) views being coloured by big differences in ideology that are not revealed or explained; and (3) people, including academics, entering debates on matters in which they have no expertise.

The third set illustrates an important proposition not well understood by the media, or almost anyone else for that matter: expert opinion is not the same thing as the uninformed opinion of an expert.
This caution doesn’t argue against cross-disciplinary academic activity.  Quite the converse: it argues for ensuring that we do have just the right expertise in the room when we really need cross-disciplinary reflection; that we avoid relying on one person to take proper account of the considerations in which he or she has no expertise.

A lot of people have expertise. They may be described as experts. They can put themselves forward as playthings in media and political games if they want to – and a lot do.  It doesn’t take much effort; certainly, it takes no thought, research or moral reflection.

But there is an alternative. There are better things to be done. And it’s high time they were done.
The Institute of Public Policy that has been established at the Australian National University has grand vision.   Its vision is to change the public policy landscape.

We are going to do this by bringing together some of the best brains from across the campus, as Fellows of the Institute, to engage in a conversation, a number of conversations really, about public policy requirements.

The ANU Fellows will engage with public policy practitioners in the Australian Public Service (APS), some of whom will also be Fellows of the Institute.  I’ve been canvassing interest among people in the APS about the Fellows program.  All have responded enthusiastically.  There is a lot of support for the Institute of Pubic Policy among the APS leadership.  And that shouldn’t surprise anybody.

Together, we are going to establish a bridge between the ANU and the APS.  Some of you will be thinking that I should say ‘rebuild a bridge’ between the ANU and the APS.  And that’s right.  But it’s also worth making the point that the bridge was probably never as strong, and never carried as much traffic, as it should, and that it started crumbling, then collapsing, quite some time ago.

We are going to build a body of work – through conferences and workshops, through teaching and research supervision, and through publications in the printed form and in various electronic means.
We are also going to provide public service leaders with a confidential environment in which to explore, with academic experts drawn from several disciplines, the difficult policy challenges confronting Australia.  We are going to create a safe environment in which those topics can be thrashed out – away from the public gaze, initially, for reasons that I referred to earlier.

We are going to establish the ANU, with its strong links to ANZSOG and its unrivalled relationship with the APS in Canberra, as Australia’s centre of excellence in public policy thinking, research and teaching.  We are going to do this because all of us know that it needs to be done.

Today, Australia’s public policy makers are dealing with a mining boom unprecedented in our history.  It is a boom that has been much celebrated.  But we know that it will not last forever.

At present rates of extraction, Australia’s known reserves of iron ore will be exhausted within a human lifetime, and known reserves of black coal will be exhausted within a century.  Today, these two products make up more than a third of Australia’s total exports.  As a whole, mining contributes about 60 per cent of Australia’s total exports, and at present rates of extraction those exports will last, on average, about 75 years.

Of course, there will be further discoveries of mineral deposits in Australia.  And rates of extraction could fall as other producers expand capacity and importing countries transform their economies in ways that reduce reliance on raw materials.  But it is also possible that rates of extraction will increase, given that more than half the world’s population has not yet experienced industrialisation.

Even if rates of extraction slow somewhat, it is not fanciful to imagine that before the end of this century, Australia will be importing some of the raw materials it is presently exporting in volume.  And if that is not the case – that is, if it turns out that extraction slows at an appreciably faster rate – then there is a high probability that world commodity prices will also have fallen appreciably, even reverting to long-term trend decline.

In either event, future generations of Australians will identify the present generation as that which extracted unparalleled monetary reward from the continent’s non-renewable natural resources; a ‘monetisation’ of non-renewable resources unmatched by any previous generation of Australians, and unlikely to be matched by any that follows.  Those future generations – our children’s children – will have reason to examine whether we made the most of a mining boom that we knew could not last forever.

If our descendants are to award us a passing grade in that examination, there are some things we will have to do.  Most obviously, we will have to demonstrate that we converted minerals and energy wealth into enduring national capability through sustainably higher rates of national saving; through path breaking advances in science and technology; through more effective protection of vulnerable species and eco-systems; through high yielding investments in human and physical capital, including both economic and social infrastructure; and through the development of effective relationships in the region to support the pursuit of commercial and cultural exchange.

And we will have to demonstrate that we shared the benefits widely, so that all Australians had the opportunity to provide their descendants with a better life; notably, we will have to have dealt a mortal blow to indigenous disadvantage.

We have some work to do.

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