Dec 17, 2012

Quiggin: OECD right on education to productivity

The OECD wants Australia to improve productivity -- but sees the solution as education, not a return to WorkChoices. Economist John Quiggan on the regulation, tax and industrial relations hints.

Surveys by the Organisation for Economic Co-operation and Development are, most of the time, a reflection of the views of the relevant national Treasury. So the recentĀ OECD report on the Australian economy is of interest primarily as a guide to the thinking of the Australian Treasury. First, if Treasury were seen by the international policy community to be seriously off-beam, the OECD would say so. The OECD's general endorsement of the Treasury line on macroeconomic policy, including the view that the surplus target should be abandoned if international conditions deteriorate further, is an indication that this is not the case. That's not to say the OECD and Treasury are necessarily right, of course: their shared world view was formed by the era of market liberalism that ended in the catastrophe of the global financial crisis, and has not really been revised since then. Nevertheless, the report undercuts the credibility of the Treasury's (and the federal government's) domestic opponents, mostly on the political right, who have sought to argue fiscal policy should be tighter rather than looser. Second, Treasury is constrained by its domestic role to avoid, as far as possible, getting entangled in political controversy. In particular, Treasury is averse to putting forward policy proposals that the government is likely to disavow, or that may be seen as taking sides between government and opposition. So, the discussion in the OECD report is likely to be frank and fearless, at least by bureaucratic standards. In this context, the most interesting part of the OECD survey is the discussion of productivity. At any given time in Australia, there are two productivity debates going on, though the relative amplitude may vary. One debate is concerned with measures that increase our productivity capacity in the long term, through improvements in education, innovation and infrastructure investment; in the other debate "productivity" is a code word, understood by all Australians to mean "working harder". The core demand is for renewed labour market "reform", of the kind epitomised by WorkChoices. Treasury Secretary Martin Parkinson ran into the associated contradictions a couple of years ago, when he gave a speech about the need to improve productivity, focusing mainly on the first debate, but touching on themes raised in the second. Both the ABC and News Limited media ran his speech under the headline "Australians must work harder", even though Parkinson had said nothing of the sort, at least explicitly. The OECD survey avoids any such ambiguity. The WorkChoices agenda is briskly dismissed, with the observation that:
"It is thus difficult to establish a clear causality between the industrial relations system and this weaker productivity performance, an assessment broadly consistent with the conclusions of the independent post-implementation review of the functioning of FW Act."
Instead, the focus is entirely on education, innovation and infrastructure. Unfortunately, the survey gives little sign that there has been any rethinking of the standard market liberal orthodoxy on these matters, despite the evidence that would suggest such a rethinking is needed. Rather, the focus is on market-responsive education, incentive-driven innovation and the expansion of public-private partnerships in infrastructure. The survey gives a glowing account of developments in the TAFE and vocational education sector, with no discussion of the fiasco that saw the Victorian system swamped with sham providers of bogus certificates and useless courses in personal training, not to mention the savage cuts that are now crippling the TAFE system in most states. More generally, the discussion takes no account of the comprehensive failure of for-profit education in the United States, often seen as the model for market-responsive provision. The failures of PPPs are discussed, but are assumed to be easily fixable, the result of such problems as over-optimistic traffic forecasts. But with realistic assessment of the risks, and the incapacity of confining those risks to individual projects, very few PPPs would get off the ground. The closest the survey comes to acknowledging this is in saying:
"As an additional option to attract private investment in completely new projects, IFWG (2012) recommends a more flexible approach to the allocation of risk between public and private sectors. The government could be involved, for example, in the initial development of the project and then transfers it to the private sector. However, it needs to make sure that such an approach is balanced and does not simply result in all project risks being ultimately transferred to taxpayers. "
On the other hand, there are points on which we need more market liberal orthodoxy rather than less, most notably in the pricing of road use, electricity and water. The survey is good on all of these points and particularly on the topic of congestion pricing for roads, a policy favoured by nearly all economists, but deemed too toxic to touch by nearly all politicians. The best that can be hoped for is that it will be kept on the agenda until the untenability of all the other approaches to road funding currently being tried is too obvious to ignore.

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