Beyond productivity

Concurrent with The Power to Persuade 2016 Symposium, we are running some accompanying blog posts. In this post, to accompany his panel on who governs our policy ecosystems, Social Policy Whisperer Dr Ben Spies-Butcher takes us beyond productivity.

“There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy”

In an earlier piece for this series I discussed some of the limits of ‘productivity’ as a measure of economic outcomes. There I pointed to a Productivity Commission update that showed productivity fell while incomes grew during the mining boom, and that productivity also fell as the quality, health properties and employment opportunities in bread manufacturing rose. These issues do not make productivity irrelevant, but they do point to a serious flaw in its overuse in public policy.

Focusing our attention on productivity – or efficiency – obscures another question: what is the point of policy anyway? The examples above infer that productivity is problematic because the other measures I mention - incomes, health and employment - are implicitly put forward as more important than productivity itself. That is because productivity is not an end but a means.

Indeed, economics as a discipline has spent over a hundred years attempting to distance itself from any serious consideration of ends – although see Elise Klein’s discussion of some rare exceptions. Part of its self-identity as a ‘science’ is the claim that it does not make value judgments. Hence it is neutral as to ends; it only talks about means. But to have any policy application at all it must assume some end, otherwise there can be no policy ‘advice’, no evaluation of what policy options are better or worse.

The implicit assumption is that the question of ‘ends’ should be left to consumers, not to policy makers. It is unsurprising that assumption leads to recommendations in line with ‘consumer directed care’ and marketisation. A very insightful piece by Gemma Carey also shows that the Productivity Commission is somewhat trapped by its gaze into narrow, targeted forms of social policy.

The question of consumer power is not straightforward in social policy, as others have pointed out in healthcare and education. Unlike bread or minerals, most of the money spent in these areas is government money. That is even the case in highly marketised areas like childcare. And much more than in other consumer markets, which firms can produce and how they produce is strongly regulated by government. Providers need to be registered or licensed to operate. Often there is a cap on numbers, or a tender process where the government explicitly chooses the producers.

How governments fund services and how they regulate providers create big differences in results – even though all involve ‘consumer choice’ in some shape or form. Whether funding adds to the spending of consumers (as in child care), substitutes for it (as in bulk billed medical services) or is subsidized through concessional loans (as in higher education) changes both how consumers choose and how producers respond. Whether governments allow full or limited price competition, allow for-profits, relax rules on who is allowed in, allow advertising (or not) all substantially change the structure of provision, and thus the options available to consumers.

Some recent research by Bob Davidson and Jane Gingrich reveal how these policy choices create systematically different outcomes. Davidson points to price competition repeatedly leading to dualised provision – rich areas get better services than poor areas. Gingrich shows that social democracies consistently choose different market structures (usually where government retains more cost control over providers) than in liberal democracies. These differences reflect different ‘ends’; liberty and choice are emphasized in some models, equity and access in others. And all of this ignores questions of community building and governance (i.e. community control of services). The Productivity Commission acknowledges some of these issues, but serious discussion of the values and purpose of reform is rare.

If there are substantial differences in how markets can work, then it is important that any policy process make explicit the ‘ends’ it favours, and provide citizens with clear choices. Not only is that largely absent from the current policy research model, but often the exact opposite happens – policy bodies come to conclusions directly at odds with the values chosen by citizens.

Take a few examples. The Productivity Commission has found that class sizes do not deliver the outcomes necessary to justify the cost of hiring more teachers. That money, they suggest, might be better spent paying higher wages to ‘better’ teachers. Yet, as the Teachers Federation has claimed, ask parents whether they want smaller class sizes and they say yes every time – ask voters and you get a similar answer. Educators also tell us that rewarding ‘good teaching’ can led to narrow definitions of quality that significantly change the nature of education in the process.

Or let us look at recent debates over fees in care provision. The Productivity Commission has generally applied a combination of user payments for most services alongside caps, and subsidies for lower income earners to address equity. Yet when a similar proposal was recently put – to allow a co-payment for bulk billed medical services except for those with a healthcare card – it was roundly rejected, both by the parliament and voters.

Citizens, it seems, are not ‘neutral’ on who owns and runs services, and they do think charging fees changes the nature of a service. How can we take so seriously the wisdom and autonomy of consumers, but then dismiss – or more correctly not even engage with or understand – those very same people when they give voice to their concerns as citizens?  

The recent elections here and overseas suggest this misunderstanding is a serious issue for policy makers. Whether we interpret our own Senate or Brexit as a response to growing inequality, shoddy public services and poor quality jobs, or as xenophobia, it reflects a rejection of the core values of market reform. In that context, to fail to ask the bigger questions – what kind of society do we want, what do we think social services do – potentially undermines the political conditions for any reform.

Others have argued that Australia’s apparent policy paralysis is the product of political leaders failing to explain reform. It may be instead that it is the result of a set of policy institutions unable to connect research to a discussion, not only what makes a productive economy, but what makes a good society.