Social Service Futures Dialogue: From marketisation to inclusive governance: Victoria shows the way

By Professor Paul Smyth

Today we have a most curious policy context. The Federal Treasury has passed on the Harper Review’s radical liberal recommendations to a Productivity Commission itself constituted in the same ideological mode, ostensibly for ‘independent’ review. Meanwhile our Prime Minister’s ‘Fairness’ election agenda conspires with Labor’s ‘Tackling Inequality’ to ensure a new middle ground characterised by inclusive growth. It’s doubly intriguing that, according to Victoria’s Secretary of Premier and Cabinet Chris Eccles, Victoria will take a lead in the development of a new social governance model based not on the ‘consumer’ but the ‘citizen’, while leveraging the distinctive value-adds of the three sectors. This post reflects on what now seems the terminal decline of the Treasury-PC’s 1980s-90s governance model and invites speculation on where the Victorian initiative might lead.

Why public service and community sector reform needs a new beginning
Given the wide-ranging consultation of the Harper Review (almost a thousand submissions), it is important to note just how few there were from the Voluntary sector - a paltry half a dozen or so - which in itself indicates just how inappropriate it is to have an economic policy commission determining how best to organise our social services and community organisations. Though few in number, these very serious submissions revealed a profound concern and understanding of the potentially serious social consequences of any ill-considered expansion of competition. Thus the Jesuit Social Services concerns included:

  • Ensuring that competition policy does not erode the wider role of human services in building individual capabilities, cohesive communities, and a more civil society.
  • Recognising that community organisations should not be seen, nor should they view themselves, simply as government service delivery arms, but as co-producers of solutions and key participants in civic dialogue.
  • Recognising that the role of government must be greater than that of a service-purchasing agency. Indeed, in some circumstances government will be best placed to deliver services.
  • Promoting genuine choice as opposed to choice between different services offering the same thing. Within services there must also be a strong focus on promoting agency and empowering service users.
  • Taking greater account of the very mixed experience of competition and for-profit provision in human services, including that it has not necessarily improved the quality of human services, and promised gains in efficiency, quality, adaptability and innovation have not been realised.

It is this impasse that is reanimating long standing concerns about the capacity of economic agencies like the Harper Review panel and the Productivity Commission (PC) to lead inquiries into matters of social governance. This year the Power to Persuade Social Service Futures dialogue is attempting to kick-start a new conversation about governance with more appropriate starting points in social policy research and practice rather than neoclassical economics. Its convenor, Gemma Carey, has raised the critical question: is the Commission still ‘fit for purpose?’ Institutions, she observes, can be subject to forms of ‘path dependency’ which prevent them from adapting to new challenges. The Commission’s inquiries into childcare is such an example. Its preference for targeted over universal forms of welfare had nothing to do with global evidence on best practice evidence and everything to do with the ‘economic rationalist values’ of the 80s and 90s in which its approach had been forged. Its legitimacy as an independent advisory body’, she believes, has been undermined by the ways in which these values have “trumped evidence when it comes to social service provision”. 

While there has been no overall account yet of the ‘values’ informing the full corpus of inquiries undertaken by the PC, and while it is also true that the presence of a Social Policy Commissioner has meant some considerable documenting of alternative views, nonetheless when it comes to recommendations on social governance there has been a monotonous consistency of opinion – a consistency entirely adapted to the policy project Carey calls economic rationalism, and what I call here the ‘1980s-90s model’. I argue that the PC locates its work squarely within the ‘open market’, ‘pro-competition’ model associated with the Garnaut generation and also aligns itself with Paul Kelly’s interpretation of this as freeing Australia from a narrow, protectionist and anti-competitive tradition set in place by Deakin & Co. at the time of Federation.

Towards the Inclusive Governance agenda

The future of social governance is now at a cross roads in Australia. Decades ago at the height of economic rationalism, we had Hilmer’s radical or utopian promulgation that the public interest was best served by markets, to which the public services and community sector should become subordinate. Symbolised by the way questions of social governance have since been referred to commissions of neoclassical economists for adjudication, this order has not been seriously challenged until today when economic rationalism itself – or, if you like, the ‘Washington consensus’ – is being displaced by Inclusive Growth. 

At Power to Persuade we have not only been asking how can we reform the Harper model, but how can we replace it with ideas and processes which can reinstate the social services, community sector, and indeed individual citizens as actors in a new policy purpose. Here I highlight some of this thinking and end with a discussion of the Victorian Government’s new citizenship and co-design agenda as a vehicle for the new governance conversation we need to have. 

In my own contribution to the Social Services Futures dialogue, I have emphasised the wider political transition towards Inclusive Growth as creating the policy space for a new iteration of the public interest and its governance in Australia. While not everyone at PtP agrees with the growth component, it is important not to underestimate the radical break with neoliberalism that is occurring. Because the early impetus for the Inclusive Growth agenda came from the developing economies, its full impact for the developed world is not always fully appreciated. But don’t be mistaken: we are looking at a paradigm shift as radical as that produced by neoliberalism itself in the 1980s, which is why some have taken the language of ‘structural adjustment’ from the 1980s to signify the scope of the adjustment we are looking for today. 

Ortiz’s (2014) summary for UNCTAD gives the flavour:

While the new economic model is not easy to pigeonhole theoretically, it differs from both economic rationalism and its predecessor, ‘Keynesianism’ (more accurately labelled as the neoclassical synthesis). It shares an emphasis on full employment with the latter, but its case for state intervention is not so narrowly defined in macroeconomic terms – rather it seeks government intervention to improve on microeconomic outcomes in areas such as human capital investment, infrastructure, innovation and so on.

West and Bentley (2016), for example, talk of the need for active government that can lead strategies to create ‘comparative advantages’; and this not just in the traded sectors of the economy but “a similar capability building agenda is required for the successful redesign of social investment, health, education and welfare…rather than veering between incremental funding increases …and ineffective attempts to increase ‘efficiency’ by more ‘contracting out’” (see also Megalogenis, 2016). This emphasis on state cooperation with market actors around shared policy goals effectively ends the ‘market steward’ model of the 1980s and 90s.

But the new economics is even more important for social policy because of its emphasis on fairness and equality. The importance of inclusive growth and what distinguishes it from the social inclusion agenda of the Third Way lies in is its emphasis on tackling inequality for economic as much as social purposes. These arguments are now well known so here I simply point out that this changes entirely the old policy landscape of the 1980s and 90s when social policy and economic policy were seen as in opposition. It is this new complementarity which sets the scene for a reworking of the roles of state, market and civil society as collaborators in the pursuit of a new social purpose of an economy which can sustain an inclusive society and a sustainable environment.

PtP’s contributions to redefining social governance

So what does this policy paradigm change mean for the question of social governance? One of our aims at PtP has been to pull together some of the critical commentary on the experience of actually existing human service markets engineered by the economic rationalists. A glaring theme here is the mismatch between theory and reality. In an original piece on the VET system, the ANU’s Val Braithwaite shows how the choices to purchase and supply services are driven by factors which ensure that competition will never drive up service quality. Similar insights have recently led Melbourne University economists Lynette-Smith and McDonald (2016) to indicate why competition may not be the answer to reform in aged care as well. Late last year the Centre for Policy Development (2015) pulled together the now extensive evidence against marketisation in the employment services field, and why it’s time for no more alibis.

This sector-specific critique suggests that we are not looking here at teething problems with the model, but a problem with the model itself. Here McAuley and Lyons’ (2015) Governomics has led the way and gained influential support from Ross Gittins, who has lashed the ‘otherworldly’ thinking of bureaucrat economists who have introduced the profit motive into the social service and community sectors with no appreciation of the real world of business behaviour. He writes of the “money-madness [which] seems to happen every time the other-worldly econocrats persuade the government to ‘contract out’ the provision of some government service and invite private businesses in on the act”.

In her piece for PtP, Katherine Curchin highlights developments in behavioural economics, especially the new book Phishing for Phools by Nobel prize winners Akerloff and Schiller, who show why marketisation is inevitably a two edged sword. Yes, innovation on the one hand, but trickery and manipulation on the other. Here, the Hilmer-like assumption of government as the problem emerges itself “an example of trickery - a con”.

Thinking beyond critique of marketisation, Curchin also invites us to consider the work of Michael Sandel, notably his book What Money Can’t Buy. This puts squarely at the centre of the policy table the need to explicitly address the normative dimensions of the ‘public interest’ or common good, which was marginalised at the Productivity Commission. Like the centuries of thinking about the public interest which had preceded neoliberalism, Sandel rejects that full commodification of all aspects of human life. Importantly – as David Tennant shows so clearly in his PtP contribution on rural and regional social services – inappropriate commodification actually drives out the kinds of altruism and voluntary endeavour that are at the centre of any successful community making.

Curchin writes that we “have to articulate the ethical limits to the operation of markets” and recognise values such as “human dignity, democracy and justice”, which ought to “trump profitability”’. This central task of governance renewal is not one well left solely to economists but must involve sociologists, anthropologists, political scientists and moral psychologists as well. Even more importantly, she concludes, it “necessitates deliberation by the general public. We need a public conversation about what values we as a society care about, and what nonmarket norms are worth preserving”.

At PtP we see Australian society poised at an historic tuning point. On the one hand there is the dead weight of the 1980s-90s model manifest in the Harper review and its Productivity Commission response. On the other is the opportunity for a new beginning where a one-sided emphasis on markets is overcome by a new iteration of a centuries old common good or public interest test based on the view that in the economy, markets will do better in concert with the state. Further, this view holds that the wider society is best constructed on a triadic model maximising the very different contributions of the public service and civil society.

Eccles’ new governance model

In this context, DPC Secretary Chris Eccles’ recent speech on a new governance model for the state takes on a heightened significance. While many of its themes resonate with what progressive public policy scholars have been saying for over a decade about the need to transcend the market model, it is the first by a prominent government official to announce what he calls a ‘zeitgeist change’. Moreover, in truly Victorian style, he proposed that Victoria should aim to trigger a national reform movement in a similar manner to what occurred with the COAG human capital agenda.

Importantly for our purposes is the way he portrays the new model in the context of recent history. Thus he draws a firm line between a new agenda based on “citizen engagement in the public sphere” and the market based models of the 90s and 2000s. There, he says, “members of the public were encouraged to act as consumers. Now, increasingly, the public demands to be treated as citizens.” The model of social governance here is no longer one of rival businesses competing in markets policed by government stewards, but more a network model in which three distinct sectors co-design and co-produce the public good. The ‘public sector’ becomes rather a “public purpose sector comprising government, business, civil society and individual citizens” with a shared responsibility.

In this reform agenda the starting point is not (as with Harper and the PC) how do we further the role of markets, but rather how do we reconstruct the roles of each sector in ways which put active citizenship at the centre? Eccles is especially concerned with the renewal of public sector capacity after two decades of New Public Management leading to the loss of much of their institutional memory and much “direct intelligence into what is going on at the local community level”.

This emphasis on a positive role for government is matched by a reappraisal of the role of non-government agencies. Rather than being objects of regulation in quasi-markets, they are to be the co-designers of programs who can also bring communities behind them in effecting change. “These bodies are very often the best repositories of information, knowledge, understanding and experience of what specific problems need to be addressed and how”.

This redefinition of roles leads to a reform agenda addressing the new capabilities and culture required of the sectors. Notably for an active public sector, this will mean skills in listening to and engaging with different perspectives so that it will be able to bring a range of perspectives together into a cohesive outcome. For the non-government organisations, co-design will mean moving to the end of the ‘engagement continuum’, past networking, coordination, cooperation and collaboration, through to creating a shared responsibility and accountability for the performance and outcomes of the co-designed system. This will involve looking at things from a different angle and taking on a whole new set of responsibilities.


While Eccles’ triadic or mixed economy governance model stands in strong contrast with the dominant marketisation principles of the last few decades, it is not entirely new. Holmes (2011) has reviewed the extensive literature informing a strong counter agenda for citizens' engagement in policymaking in the design of Australian public services, noting how easily a citizen’s voice agenda can be co-opted by the consumer-led models.

I believe that the collapse of the old certainties about market freedoms being the priority mechanism for achieving the public interest, as illustrated in the proceedings of Power to Persuade, is leading to a new differentiation of the roles of political and market processes. In doing so it is throwing into stark relief the importance of century-old understandings of the distinctive roles of social services and voluntary organisations in achieving the common good. The Victorian initiative holds the possibility of inaugurating new governance forms which can maximise the best contributions of market, state and civil society.


Akerlof, G. and Shiller, R. (2015) Phishing for Phools. Princeton: Princeton Uni Press.

Australian Labor Party (2016) Growing Together: Labor’s agenda for tackling inequality. Canberra: ALP.

National Competition Policy (1993) (F. Hilmer, Chair), report of the Independent Committee of Inquiry into a National Competition Policy.

Eccles, Chris (2016) ‘Getting buy-in for family violence a moral duty’, The Mandarin, 29 April.

Holmes, B. (2011) ‘Citizens' engagement in policymaking and the design of public services’, Parliamentary Library Research Paper no. 1 2011–12.

Lynette-Smith, R. and McDonald, I. (2016) ‘More competition may not be the answer to reforming the aged care system’, The Conversation, 27 May.

McAuley, I. and Lyons, M. (2015) Governomics. Melbourne: MUP.

Ortiz I. (2014) ‘Tackling Inequality for Inclusive Development and Structural Transformation’, presentation UNCTAD Conference on Trade and Development.

Productivity Commission (2003) From industry assistance to productivity: 30 years of ‘the Commission’. Canberra: Productivity Commission.

Megalogenis, G. (2016) ‘Balancing Act’, Quarterly Essays, 61: 1-67.

West, J. and Bentley, T. (2016) ‘Time for a new consensus’, Griffith Review, 51: 4-51.

This post is based on Prof Paul Smyth's recent Research & Policy Lunchtime Seminar at the Brotherhood of St Laurence.