Focusing on the public sector

Christopher Sheil

'The inherent tendency', wrote J K Galbraith in his classic work, The Affluent Society, 'will always be for public services to fall behind private production.' The State of the States 2006 is dedicated to the memory of the late great American economist and features four invited essays on the Australian public sector, each of which supplies fresh evidence in support of Galbraith's dictum, along with the Evatt Foundation's 13th annual assessment of the performance of the nation's state governments.

In the first of the special essays, John Quiggin revisits the debate over the appropriate size of the public sector and canvasses the issues associated with the distribution of government responsibilities within the Australian federation. Quiggin's most striking finding is that, after dominating the public policy debate around the world over recent decades, neoliberals have failed to reduce public expenditure as a proportion of economic activity. Not only that, but government regulatory capacity has probably increased. Australia is no exception to the international trends, despite having endured one of the world's most extensive privatisation programs and harbouring a structural propensity for the Commonwealth government to prefer reductions in taxation over investing in services. Today, Australia's public expenditure and taxation revenue are as high as they have ever been.

Importantly, as tempting as it might be to press home the failure of conservative governments and their supporters against their own standard, indulging such political opportunism can only be counter-productive. The resilience of the public sector supplies no evidence of its adequacy. As Quiggin observes, and as Galbraith always maintained, countries with 'high income levels resulting from past economic growth tend to have higher levels of government expenditure, reflecting greater demand for services that are commonly provided by governments, such as health, education and income security.' More specifically, Quiggin concludes that the growth of state capacity has been outpaced by the growth in demand for basic public services, as corporatisation and privatisation are meanwhile leading to inadequate investment in infrastructure and higher capital costs.

"These directions would do much to resolve problems related to the inequitable access to and outcomes from health care that is so troublesome in contemporary Australia."

Each of the three other chapters dovetails with aspects of John Quiggin's sweeping perspective. Fred Argy directly revisits the debate over fiscal policy, where a legacy of the arid argument over the size of the public sector is the lingering notion that governments should aim to be debt free. This is an almost exclusively Australian idea, or superstition, that has not been embraced by governments around the rest of the world. Nor has the policy ever found substantive support within economic theory, for the stance fails to distinguish between public investment and other forms of public expenditure. In ignoring the returns from investment, the policy amounts to an unnecessary constraint on improving future economic growth and social wellbeing. Argy notes that the investment now 'required to rehabilitate our social and environmental infrastructure appears considerable' and he argues for the general adoption of a fiscal policy that will at least maintain if not increase the net worth of the Australian public sector. Happily, at the state level, there is now evidence of an official rethink.

In the third of our invited essays, John Dwyer focuses specifically on health care, which is unquestionably the most vexed of Australia's public services. In a powerful chapter, he argues for the comprehensive overhaul of the nation's health care system. Dwyer details four closely related problems in urgent need of simultaneous resolution - the overcoming of workforce shortages, the promotion of prevention and early diagnosis, the networking and integration of hospitals with primary care, the integration of health programs across jurisdictions - and he maps directions that hold out the promise of finally ending the cost-shifting and perverse outcome measures that have long plagued the present services. Most importantly, these directions, concludes Dwyer, 'would do much to resolve problems related to the inequitable access to and outcomes from health care that is so troublesome in contemporary Australia'.

The concluding chapter by Linda Scott surveys the often neglected third tier of Australian government. Local government is a uniquely accessible public avenue for citizens to participate in the provision of community services, but is presently struggling under the impact of cost-shifting from the federal and state governments, together with a rapidly growing demand for additional investment in infrastructure. Echoing Galbraith's argument in favour of 'a system of taxation which automatically makes a pro rata share of increasing income available to public authority for public purposes', Scott suggests that a solution lies in the Commonwealth funding local government according to either a fixed proportion of gross domestic product or taxation.

The four essays contain a wealth of information and insight in relation to major issues that concern all Australia's jurisdictions, but they scarcely cover every aspect of the current state of the nation's public sector. In particular, none of them directly addresses the many concerns that have been raised in recent years about the integrity and independence of the public service and the accountability of executive government. It is as a contribution toward the latter that the Evatt Foundation supplies its annual comparative performance assessment of the state of the states.


This is the editor's introduction from the Evatt Foundation's new book, The State of the States 2006, which was launched by Professor Frank Stilwell at the Sydney Mechanics' School of Arts on 8 November 2006.


Also on the Evatt site: