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Australia’s mixed economy — why health and education reform matters

If the most significant aspect of the current shape of our workforce is the rapid expansion of the health sector, what it also reveals is how the state is the dominant economic force in Australia.

Where health services are not directly funded by government, they’re heavily reliant on government subsidies through private health insurance or the Pharmaceutical Benefits Scheme or other mechanisms designed to cap individuals’ exposure to health costs. Even outside the state-run hospital system, the health sector is dependent on government support. It’s a hybrid industry, operated by the private sector but controlled by¬† government.

Education is the fifth-largest sector in employment terms in the economy. Currently it provides jobs for 877,000 people, and over the past two years has been growing rapidly. While it is dominated by the public sector, there’s a substantial private education sector, but it too is dependent on extensive government funding. Even education providers who receive no government funding, such as those providing education services to foreign students, are heavily dependent on government regulation, leaving them vulnerable to policy changes around immigration.

Public administration employs just under 700,000 people. As a proportion of the workforce, public servants actually declined in the 1990s, but increased rapidly in the early part of the past decade — one suspects partly because of the rapid expansion of the Commonwealth Public Service under the Coalition — so that it now employs over 6% of the workforce.

Between health, education and the public service, that’s 25% of the working population who have jobs provided directly by the public sector or are indirectly reliant on government funding.

There are more state-funded jobs, scattered through other employment categories — Australia Post’s 35,000-odd staff are in the transport category. Government subsidies support tens of thousands of manufacturing jobs. Much of the energy and water sector remains in government hands. Much demand for professional services is driven by governments. If you want to go further you could have a stab at calculating how many jobs the maybe $10 billion worth of fossil fuel subsidies embedded into our tax system support.

When it comes to employment, Australia’s is a very different economy to the one you normally read about, which focuses on industries dominated by the private sector. We’re a very mixed economy, with a very strong role for the public sector, one that is going to get much bigger as the health sector grows in response to an ageing population. By 2020, it’s possible nearly a third of all workers will be directly or indirectly paid by the state.

It’s also why reform in health and education, which not merely are large employers themselves but play key roles in economy-wide productivity, socio-economic outcomes and quality of life, should be a government priority. You get the impression from some commentary that health and education are soft sectors, where reform doesn’t mean as much as tax reform, or productivity improvement, or IR reform. But the biggest reform gains are to be made within the economy’s dominant economic force — governments.

2
  • 1
    Posted Wednesday, 23 March 2011 at 8:33 am | Permalink

    I would be interested in what ‘reforms’ Keane thinks education needs.

  • 2
    Michael
    Posted Wednesday, 23 March 2011 at 12:37 pm | Permalink

    By 2020, it’s possible nearly a third of all workers will be directly or indirectly paid by the state.”
    And I wonder how we will pay the wages bill?
    I like your analysis, Bernard. And I like the direction you’re heading.
    I do look forward to the discussion on how we will be able to afford a 2020 Australia that is merely extrapolated from today. Cheers, M

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