Social Service Futures: Is the Productivity Commission still fit-for-purpose?

Dr Gemma Carey, NHMRC Fellow & Senior Lecturer UNSW Canberra

The Productivity Commission is an interesting body that warrants a great deal more scrutiny and attention that it has historically been given. Nationally, its place as a premier advisory body to government that is non-democratically elected should invite regular scrutiny. Internationally, it is worthy of study because of its unprecedented nature. With the exception of New Zealand’s newly established Productivity Commission, no other country has a body in the tradition of the Australian Productivity Commission [1]. The Productivity Commission was established in the late 1990s, born out of the Industry Commission within the Bureau of Industry Economics and the Economic Planning Advisory Commission in the 1980s[1]. Since this time its activities have expanded greatly. The Productivity Commission is now routinely asked to conduct research, and provide policy recommendations, on matters related to social policy – both on specific policy areas, and how social services are structured. This means an economic advisory body is now providing advice to government on the scope, scale and structure of our welfare state.

While other contributors to the Social Service Futures dialogue has focused closely on specific policy areas, I will examine whether The Commission is ‘fit-for-purpose’ as our chief advisory body to government on matters of social policy.

The norms and values of The Productivity Commission

 A recent article published by my colleague and I in the Australian Journal of Public Administration demonstrated that the economic roots of The Commission continue to have a strong bearing on the way social problems, and their proposed solutions, are conceived of in the work of The Commission [2]. We know, from studies in political science to organizational psychology, that organisations have their own memories, cultures and ways of working [3–5]. To sum up this expansive body of work very bluntly, organisations tend to be good at doing what they have done in the past. They are far less effective in taking on new tasks, particularly if these require fundamentally new approaches. This is sometimes referred to as ‘path-dependency’ – how organisations operate, the rules and norms that govern the behavior of individuals who comprise them, is determined by what came before [6]. The shift from economic advisory body to social policy advisory body is not a simple transition.

Our recent research took advantage of an unusual occurrence in the history of The Commission. In 2011 and 2015 The Commission was asked to undertake inquiries into childcare. Never before in the history of The Commission have two inquiries been called on very similar issues by successive Labor and Liberal governments. While these inquiries were obviously not identical, it does provide a window into what the norms and values of the Productivity Commission are. Our research found that The Commission’s strong economic rationalist position meant that recommendations to government were, at times, based more on the cultural norms and values of The Commission than international evidence [2].

In particular, our research showed that The Commission strongly favours targeted approaches to social support and welfare provision [2]. This is not uncommon in Australia. We use more means-testing in policy than any other OECD country [7]. However, even where governments asked for recommendations on the basis of a universal service The Commission made recommendations to target service and supports [2].


What’s wrong with targeting?

Australia has, and has always had, a strongly targeted welfare system. Rather than the comprehensive social democratic welfare states of the Nordic countries Australia is what’s referred to as a liberal welfare state[8]. Liberal welfare states take a residualised approach to welfare – providing support only to ‘the poor’. Some have argued that Australia occupies a unique category of welfare state, with Castles famously referring to it as ‘the wage earners welfare state’ unpinned by egalitarian wage distribution and a progressive tax and transfer system[9]. Despite this, Australia lacks the strong universal services of social democratic welfare states. While we have made the odd flourish in the direction of universalism (such as Medicare), universal policies that are implemented come under almost constant political attack [8,10]. Again, Medicare is an apt example. Other policies that we claim are universal are in fact a form of ‘false universalism’ [11]. The National Disability Insurance Scheme, for example, has funding streams and eligibility criteria.  The Paid Parental Leave Scheme is only available under particular conditions. In the truest sense, these are not universal supports.

Targeting is carried out on the basis that it is a fair way to distribute finite resources and will address inequity by helping those who need it most: “'Means testing is an important tool for targeting government payments to those with most need and for managing the sustainability of the transfer system” (Treasury 2016). But how does this position stack up against the evidence?

In reality, targeting, and in particular means testing, are expensive and often counterproductive. This is because:

  • Countries who use more means testing have more social inequalities than countries that use less or do not means test at all [12]
  • Universal policies often have a greater uptake amongst those experiencing the greatest need [12]
  • The administrative costs associated with means testing is often more expensive than not means testing and offering a universal service [13,14].

The following graph shows very strikingly that the more we target the ‘poor’, the less resources actually reach them.

‘How redistribution varies with degree of targeting, for a group of OECD welfare states from the late 1970s to the late 1990s. Source: The Fabians 2012 [10]

While counterintuitive, the best international evidence clearly shows that the economic rationalist belief that targeting saves money and helps those in need the most does not ring true. More importantly, we are finding that it is a harmful way to structure social policy.


Targeting, markets and the role of The Productivity Commission

The issue of targeting and questions over the use of markets in social services are in fact closely linked. When policies and programs are targeted markets are considered a more appropriate vehicle for delivery. It is, after all, very difficult to ‘outsource’ a service or support for the entire population. But if services and supports are only given to particular ‘eligible’ groups, they can be more easily packaged for outsourcing within a market context.

Pragmatically speaking, we always have had and likely always will have a mixed economy of welfare [15,16]. Welfare and social supports have always been offered by a combination of government, community and private providers using a different of levels of market-type approaches. The question then become one of emphasis, and who makes decisions about where this emphasis is placed.

The Productivity Commission has gained much of its status and position through claims of objectivity. It is protected by its own Act, which means it is not subject to the will of particular governments or other actors and can provide independent advice [1]. But independent is not the same as value free. This is especially important to realize when dealing with issues that are ideologically contested, such as social service provision. Our research on The Commission shows that it has very strong values. What can be broadly considered an ‘economic rationalist’ position means that The Commission favours policy targeting and, in turn, means it is more likely to emphasise market solutions.

Markets do have a place in social service provision. The importance of empowerment, choice and control and the ability of individuals to exercise these through a market model should not be underestimated [17]. But we do need to exercise caution in the use of markets. Not all services can or should be delivered through these mechanisms.

More importantly, at the moment we do not know how to ‘get markets right’. Australia has a poor track record when it comes to using market models. The ill-fated Job Network provides many valuable lessons about the ways in which government-created markets can become rigid and compliance driven, leading to poor quality services and poor outcomes for individuals [18].

Returning to the question I posed at the outset of this piece, we ought to deeply consider whether The Productivity Commission is fit-for-purpose. Can it deliver social policy advice that guarantees the best outcomes for individuals and society? Sadly, the answer appears thus far appears to be ‘no’. An economic body, rooted in economic rationalist values, is not well placed to offer government robust advice in this area. Moreover, our research has shown that the Commission’s values trump evidence when it comes to social service provision – undermining its legitimacy as an independent advisory body.

Dr. Gemma Carey is an NHMRC Fellow & Senior Lecturer at UNSW Canberra.

This piece has been written as part of the Power to Persuade Social Service Futures Dialogue


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