It’s been clear for a long while that we’ve picked a lot of the low-hanging fruit available in traditional economic reform. Once tariffs get below 10% not only are the gains from cutting them painfully slim compared with the gains from cutting 50% tariffs but there are also costs that may well outweigh them.
Anyway even mentioning this tends to get people very excited. Right now we’re turning the focus on education and health. As a new area of reform it’s not surprising that there’s a bit of low-hanging fruit around.
Getting better quality teachers in education and focusing systems more on preventative health and reducing cost shifting are good candidates in health.) Still in these areas, the preponderance of social and ethical considerations in how these services are consumed and produced means that we’ll never really know what’s ideal. Beyond the obvious, worthwhile reform will often be hard, uncertain work.
But there is still low-hanging fruit. Information is just one example. This government has taken hesitant steps to improve information flows in education. Meanwhile Paul Krugman bemoans the blatant conflicts of interest which undermined the integrity of ratings agencies.
Ladies and gentlemen, trust me when I say to you that a free market is not the best way of generating information about integrity. Why? Because it’s free to embrace conflicts of interest as Moody’s and Standard and Poors did costing the world economy the odd trillion dollars. That’s why governments have auditors general.
Markets free to embrace conflicts of interest are not and never have been the best way of getting information about the integrity of our financial markets — whether by way of ratings agencies or the general auditing function. And they’re not the best way of getting good data on whether drugs work. But it’s the model we use.
Trouble is, as in health and eduction, other than identifying some of the worst abuses, it’s not clear what the best possible system is. But removing basic conflicts of interest is basic to picking the low-hanging fruit.
With Australia’s government having taken the gutsy step of running corrupt investment (cough cough) ‘adviser’s’ commissions out of town, perhaps it can see its way clear to making this a general theme of reform.
Nicholas Gruen is CEO of Lateral Economics and Peach Financial Group.