Social Service Futures Dialogue: Towards an inclusive governance reform agenda (Part Two)

Paul Smyth


Part One of this contribution to the SSF Dialogue proposed that we are currently in the midst of an economic policy model change from ‘market efficiency’ to ‘inclusive growth’ that will inevitably impact our thinking on social governance as equal weight is given to fairness and equality alongside market efficiency.  While others are providing much needed SSF discussion of marketization failure in the social services and community sector, I want to look ahead to the principles and practices which might shape up an inclusive governance model.  And it is not as though we have time to waste.  In a year when the Annual Report of the Council of Economic Advisers (2016) to the President of the United States begins with ‘Inclusive Growth in the United States’ the idea of an economic model change is not loose talk.  A policy window is opening and we need to be talking right now about the new inclusive governance agenda if we want to influence this policy transition.

As social policy scholars we should be trying to develop a new conversation about what constitutes fairness, equality and inclusion.  Fast becoming the Australian political question of the moment, it is one which the policy discourse of productivity and efficiency simply cannot address - as Spies Butcher comments in SSF.  Interestingly, this challenge is to be taken up in the 2016 UN Development Report with a major focus on what we mean by choice (there being a world of difference between Milton Friedman’s market constructed ‘Freedom to Choose’ and Amartya Sen’s understanding of ‘Development as Freedom’).  As UNDP Report Director, Selim Jahan writes, this discussion demands that we recapture the normative dimension of development: ‘social justice, fairness, equality, tolerance, cultural diversity, non-violence and democracy’.

This is, of course, the bread and butter of social policy.  And in this piece I ask what ever happened to this discourse on society and social policy during the Treasury-PC reign?  Did the latter have a view on these normative dimensions?  After all, in the post-war period of welfare state policy development, these dimensions were informed by fully fledged historical, social and political analyses.  While pushed to the margins by the 1980s-90s model, they could not be ignored entirely and in their key points of difference from the Treasury-PC approach we can see some starting points of the new governance conversation.


Demythologising the PC  

The idea of exploring the normative dimensions of the Treasury-PC governance line would no doubt bemuse if not repel many of its economist practitioners – rather like vegetarians reacting to the offer of a hearty meat pie.  Most whom I know earnestly believe that they have been engaged in some kind of positivist, scientific exercise in calculating the most efficient use of scarce government resources.  Indeed the PC, notably in its self portrait, ‘…Thirty Years of “the Commission”’, has assiduously cultivated an image of itself as objective and evidence based, fearlessly employing ‘the tools of economic analysis’ in an ‘independent’ and ‘transparent’ way to promote ‘community-wide’ wellbeing.

This self-understanding may have been a source of wry amusement in the wider social science community since the inception of the PC but it remains a real barrier to future dialogue.  As Carey and her colleague Corr (see SSF) have recently shown in the case of the childcare inquiries it is impossible not to conclude that these reflect what social policy scholarship would recognise as rather radical liberal (small government) assumptions about society and the role of government.  While the full corpus of the PC’s work on social policy might show some variations on these assumptions – after all there has been the presence of one social policy commissioner to instil some balance – on the whole I think that any fair reading would show a set of assumptions which derive from the wider 1980s-90s ‘economic rationalist’ model.     

While not seeking to turn the PC’s (2003) self portrait into a ‘Rogues’ Gallery’, it should remind us of Schumpeter’s point that economic theories ultimately reflect a particular ‘Vision’ of society.  And the PC’s own account shows how its ‘economic tools’ were entirely adapted to the policy project we are calling here, the ‘1980s-90s model’.  Thus in the long duree of Australian history 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.

These days, political scientists see the Kelly ‘vision’ as a political exercise in promoting economic rationalism (Fenna 2012) and by economic historians as a mistaken judgement of the Deakinite tradition.  For us it remains relevant for understanding the normative underpinnings of the Treasury-PC ‘s so consistent findings in favour of market over state and community forms of social governance.

Thus the Treasury-PC governance approach was forged first in the economic policy battles of the 1980s involving tariff reductions, financial deregulation and so on.  While some forms of state intervention in the economy certainly needed reform e.g. excessive tariffs had indeed become a problem from the 1960s – by the 1990s, all forms of state intervention had become the target of a full fledged neoliberal agenda.  From our governance perspective, we observe how this led also to an attack on the kinds of consultative economic planning which had been associated with the Accords and with Minister John Button’s industry plans.   Various industry based and community policy fora, such as the Economic Planning and Advisory Council (which also had a significant social policy agenda), were dismantled in the period prior to the launch of the reconstituted PC in move seen as concentrating power in the Treasury.  Good economic government in the now neoliberal economic model was to be no government at all in the sense of active intervention in consultation with industry players.  Rather it should operate as an upright market steward vigorously policing those economy wide laws of competition which knew no favourites but, if faithfully followed, ensured the optimum economic outcome for society as a whole.


The 1980s-90s model, Hilmer and the colonisation of social governance

Now until the mid 1990s, no one seriously imagined that this new approach to economic governance would be applied to our social institutions.  The PC predecessor institutions were by and large focussed on ‘economic issues’ mainly involving manufacturing but also rural industries.  The social sectors only began to find themselves being treated in the same way as ‘the economy’ with the government switch of emphasis towards ‘micro economic reform’ and the development of National Competition Policy.   Of critical importance to this transition, as David Wishart emphasises, was the the Hilmer (1993) inquiry.  In Wishart’s summary (p.6), Hilmer ‘axiomatically argued that competition was good and that it should displace other ways of doing government business to the extent possible given the public interest.  It threw doubt even on that concept, warning against “rent-seeking” in government.’  It is to this extraordinary assumption that governments should do nothing that could be done in a competitive process (with those claiming otherwise bearing the onus of proof) that we should trace the PC’s otherwise inexplicable agenda of marketising our education, health and welfare.   Moreover, social policy communities were to be marginalised in the policy making process.  As Wishart(p.7) also points out, the consultative type policy forums characteristic of the 1980s (such as EPAC) were subsumed into ‘expert bodies’ such as the PC.  Here ‘consultation was relegated to data gathering or theory testing, rather than consultation as a process generating policy imperatives’.

The reconstitution of the PC by the newly elected Howard government was certainly met with perceptions of radical liberal, or ‘economic rationalist’ bias compromising its independence (with the ALP promising to replace it with a more consultative commission if re-elected).  Attempts were made to address these criticisms through the appointment of one Commissioner with social policy credentials and a rather ad hoc elaboration of a ‘Public Interest’ test.  In the social policy inquiries which followed, submissions from the social sectors as well as some commissioned research revealed key differences between the welfare state legacy and the social model being pursued by the PC. As became the habit of the PC these were selectively noted but by and large ignored in the key findings but they comprise an instructive agenda of unfinished business for those embarking on the tasks of social policy renewal today.

The full story of just how Australia’s social governance agenda became colonised by an economic policy commission with a radical liberal political agenda will one day make a most curious chapter in the history of Australian public policy; and, as Carey suggests, one deserving now a comprehensive research study. For our purposes I offer some initial reflections on two aspects.  First, we look at the fate of the public interest test which for the social sectors was the key means to contest the normative social policy dimension being swept aside by the Hilmer test of market efficiency.  The second aspect follows on: if there is indeed a public interest, how did the PC understand the respective roles of state, market and civil society in achieving it?


How fairness and equality became marginalised

National competition policy implementation created significant political turbulence, with the One Nation Party a lightning rod of especially rural and regional discontent.  A Senate Committee Report, Riding the Waves of Change , as well as the PC’s own Report on The Impact of Competition Policy Reforms on Rural and Regional Australia of Inquiry,  are indicative of a wider debate raising the question as to whether the competition reforms were truly in the ‘Public Interest’.  The gulf in contemporary commentary between the PC approach and that of political and social scientists was so great that it is hard to imagine how it might be bridged.  Here we illustrate.

Responding to the political discontent, the PC’s Gary Banks (2001) observed how the NCP presumption in favour of competition had been a radical reversal of ‘the traditional onus of proof, turning on its head a long-standing approach in this country to policy formulation and reform’.  While acknowledging that this had ‘proven contentious’, Banks responded with the standard economic arguments as to why competition is in the ’public interest’.  Former public monopolies had been inefficient.  Opening them up to competition had created a productivity dividend leading to rising average incomes.  Sure there might be ‘winners and losers’ but on the whole there had been no bias against workers or regional areas.  If there were losers they could be targeted with compensation.  While confident of these positive economic and social outcomes in terms of the ‘public interest’, Banks did allow that the NCP public interest test which gave equal weight to ‘social welfare and equity considerations’ alongside efficiency, was difficult to operationalise.  In practice, he said, these are heavily normative considerations which ‘cannot be easily quantified or valued’.  Ultimately they were matters for ‘political accountability’.  In summary, for Banks, it appeared that while there would always be normative issues involving social equity requiring compensation these would be marginal to the new and overwhelming ‘presumption in favour of competition’.

When we turn to the political scientists we enter a conceptual world apart.  Michael Hess and David Adams (1999), for example, also thought the NCP presumption in favour of competition a radical step - but in the wrong direction.  While the public benefit test acknowledged the importance of social as well as economic aspects, in practice the PC was comfortable with the economic but could not handle the social.  Matters such as ‘social welfare’ and ‘equity’ had been ‘pushed to the background of decision-making’, a ‘wish list to be appended to policy documents’.  The root of the problem, according to Hess and Adams, was the attempt to substitute the ‘economic reasoning of market competition’ for what is the ‘essentially political phenomenon of public interest’.  This ‘ ‘conflation’ of the economic and the political was out of step with ‘centuries of reasoning about public interest’.

They note three general features of past understandings of the public interest.  The first arose from the need to address market failures and the second, ‘the social impacts of disadvantage’.  The third related to the role of the bureaucracy in liberal democracies whereby the public interest was identified with the public services.  Here Hess and Adams refer to the post war development of the welfare state as a time when ‘the public interest was seen to legitimately lie with politicians and bureaucrats who promised and provided “more”’.  The crisis of the welfare estate in the 1980s produced a new framework for the public interest expressed in the concept of citizenship and social justice although these were increasingly contested by the new emphases on economic efficiency. 

They conclude that to develop a new and effective public interest test the political dimension has to be disentangled from the NCP framing in the narrow economic terms of contestable markets.  Here they emphasised the process as much as the policy content; calling for ‘an iterative and learning policy process in which policymaking networks become the functional organisational form’.  It is through involving in the decision making those whose lives are most affected that the social dimension of the public interest can be realised.


The Public Interest: policy and practice before Hilmer

These two views on NCP and the public interest capture what was a truly radical shift in Australian thinking on how to govern in the public interest.  They tell us there should be no surprise in Carey and Corr’s  finding on the PC’s conclusions on child care embedded in a radical liberal ideology of welfare.  A combination of the 80s-90s economic model and public choice theory had emboldened a view of the free market mechanism as the best governance mechanism for optimising ‘community–wide’ welfare; with public intervention relegated to a residual, compensatory role after competition had done its work.  With the eclipse of that model it becomes important to reengage with what had been learned about the public interest in the ‘centuries which had preceded. Here I outline some broad starting points for a constructive re-engagement with this history to inform our Social Service Futures dialogue.

Let us assume with Hess and Adam that two of the lessons of history had been the role of the public sector in addressing ‘market failures’ and ‘inequality.’ Thus Australia’s ‘Fair Go’ in colonial times created what was then the largest public sector in the world in order to accelerate the pace of development and make the right to work available to all.  Contra Hilmer, markets and state were seen as having interdependent and complementary roles.  This mixed economy was refashioned in the Keynesian period again with the state’s macro economic management roles understood as complementing markets in order to ensure full employment.  In a pre-Hilmer Australia then we could safely conclude that in policy terms the social dimension of the ‘public interest’ was understood chiefly in terms of the ‘right to work’ and later, full employment and the institutions designed to achieve it.  It was the policy expression of middle ground social norms forged from liberalism and socialism. 

In terms of social policy, the public interest twin to this tradition of economic management in the lead up to Hilmer was the welfare state.  Its development also reaches back into the nineteenth century with initiatives such as public education and old age and invalid pensions.  However, the role of the welfare state became more important in the post-war period when the pursuit of equality switched emphasis from the now taken for granted foundation of full employment to the more ‘social’ agenda’ of avoiding ‘public squalor’ in the midst of ‘private affluence’.  The public interest question for social policy became how big could the new welfare state become before it was a problem for economic efficiency?   Comparative evidence showed that the scope for social choice was wide indeed with no simple ‘economic’ number determining where the limit should lie.

It was in this context that the ‘citizenship and social justice’ chapter in the post-war history of the public interest was written.  Compared to other countries Australia was a late developer in this regard.  Much of our thinking about the public interest in relation to welfare had been conditioned by the tradition of ‘wage earners’ welfare dating back to the Harvester judgement.  By the 1970s the inadequacy of leaving social development to the private decisions of individuals in the market had become demonstrable leading to a ‘dash’ for a social democratic style welfare state, notably in the Whitlam years.

This period brought a deep change in the social norms informing the way Australians thought about what was in the public interest.  This was typically expressed in terms of the shift from a charity to a rights based model.  In the former, poverty was thought to be a problem of individual failure or misfortune with charity the appropriate response.  In the latter poverty was thought to be more the failure of social systems with a reorganisation of society the necessary response.  This reorganisation required people to articulate an understanding of the social rights of citizenship and the concept of social justice and in ways which could be operationalised by policy makers and service providers.  The rich theoretical output of the period is associated with thinkers like T H Marshall and John Rawls and was notable for its diversification to cover issues of gender, race and ethnicity.

In terms of policy making, the social justice agenda was developed explicitly to combat social inequality between groups and, over two decades, give rise to a major body of legislation relating to racial, sex and disabilities discrimination and policies covering Access and Equity, Multiculturalism, Social Justice and Cultural Diversity.  Government departments had to report against criteria relating to Access; Equity; Equality; and Participation.  Non government organisations took a rapidly expanding role within the new social policy agenda.  The public service may have been responsible for the macro social planning but the micro politics of the new social governance rested very much with the NGOs and their ability to engage citizens and their communities in the pursuit of a society of equals.  Non-government organisations became key institutional sites for the exercise of the social rights of citizenship in a socially just society.

The Australian pursuit of the public interest in social policy during this period had one other very distinctive feature, namely the historical legacy of the Harvester Judgement (1907)).  The relatively later push for a universal welfare state is explained in part by the way in which the living or family wage had substituted for welfare.   The brake on welfare state development arising from the international economic crises of the late 1970s meant that the Australian system became something of a hybrid model with the award wage system remaining central along side a mix of more or less universal social services (e.g. education) and others simply residual e.g. unemployment benefits.  The residualisation of the award wage system in 1993 created pressures for an expansion and modernisation of the social policy system with new social norms to address the new social risks of late twentieth century.

From this short overview it is obvious that the public interest test – as Hess and Adams emphasised – simply cannot be conceived in terms of the few dot points attached as an afterthought to the presumption in favour of competition and with no institutional mechanism for its adjudication.   In the case of social policy it is woven through a range of key community, social and economic institutions usually reflecting historic policy settlements of one kind or another.   The sheer diversity of these institutions and the social aspirations they expressed highlights just how radical (not to say misguided) was the ideological reach of the 80s-90s policy model aimed at conforming all government activity to the logic of the market.  It is also obvious that there never was a time when the market economy was not valued.  Indeed our major social policies have been concerned either with making up for market failure (employment) or doing collectively what markets were not achieving unaided (development). 

While many social and community services have an economic function they also have a social function which had led them to being organised in quite different ways to the market economy itself.  Individuals participate in markets but they are also members of families, communities and the wider society which are organised differently to the market economy.  Thus the pre welfare state role of the voluntary sector in developing strong communities was organised around logics of mutuality, reciprocity, altruism and social justice in ways quite distinct from and sometimes in opposition to the competitive individualism of the market.  The welfare state itself (and the mixed economy) were built on the principles of citizenship and social justice aimed at ensuring a society wide solidarity.   Within the social justice framework, state and community sectors came together as the mechanism for citizens to have a voice over the decisions affecting their lives. In the post-war period these roles of the welfare state and community sector were understood to be necessary to balance the economic inequality generated by markets.  As T H Marshall himself wrote the tensions between state, market and society were something of a ‘stew of paradox’ but one to live with if it meant having the best of each world.  Doing away with this paradox in favour of the logic of the market was the truly radical departure of the competition agenda.


Towards the Inclusive Governance agenda

The terms of reference for the latest PC inquiry into the ‘Human Services’ indicate that little has changed in the Treasury-PC paradigm in the two decades from Hilmer to Harper.  In that inimitable Deloittian phase, social services two decades after Hilmer are still seen as poised in a state of ‘pre-marketization’.  The world still looks as it did when the 80s-90s model reigned supreme.   But as John Howard might say, “Hello?” isn’t there a need for a little reality check here?  Since Hilmer, we have had a GFC.  And we have had that global policy shift to inclusive growth which is not just a matter of ethical taste but also of economic efficiency. 

Market failure and inequality have cut the 80s-90s model down to size, effectively repealing that Hilmer writ which established the PC as arbiter of good governance in the social services and community sector.  From the outset, the practice from the mid 90s of referring social governance matters to what is basically an industry commission needs to be recognised as an historical anomaly.  Certainly social services are important for the economy but their contribution to society goes way beyond what economists might measure and they have to be governed appropriately.  Moreover as we have seen in the case of childcare, what the PC measures can too easily disguise a set of small government ideological preferences.  Social policy and social governance are disciplined fields of knowledge every bit as rigorous as economics.  The formulation of a new inclusive governance agenda must be led first and foremost by people with policy and practice expertise in the social services and community sector (including of course the appropriate social economics).

Social governance needs a new beginning in Australia.  As we have seen, ‘centuries’ of experience have shown the importance of the distinctive roles of the public services and community sector (along side of a market economy) in both articulating and governing in the public interest.  And as Hess and Adams showed these are political roles going to the heart of our democracy and cannot be conflated with preference making in a market economy.  A first priority for the new agenda must be an articulation of the distinctive roles of state, market and community sector in the achievement of an inclusive society.   Until this is done it will be hard to avoid the kind of colonisation of one sector by another we have been witnessing over the last two decades.   This must be fully informed by historical and comparative social policy as well as public policy and not appear as the half baked social policy asides in the Treasury-PC discourse to which we have become accustomed. 

A second priority for such a commission would be to establish a process for articulating the new fairness and equality policy imperative.  As the agenda for the UN Development Report 2016 shows, once values like ‘inclusive growth ’ or ‘shared prosperity’ are accepted they actually have to be articulated into robust theory which can be operationalized into policy.  Here the post-war welfare state agenda of citizenship and social justice shows us the kind of policy research challenge we face.   But our history also reminds us that developing such a policy imperative is not a one off theoretical exercise but an ongoing, iterative process across a range of economic and social institutions and the wider society.  A profoundly political process this will revalorise the roles of citizens and communities as co producers of the Public Interest. 

This might seem a large task but politically speaking Australia can no longer afford to have social policy as the ‘poor cousin’.  Just think of the scale of government effort over the last two decades to refashion the public and community sectors as markets and ask what might be achieved if the same effort is applied to those sectors promoting a society of equals.

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


Council of Economic Advisers (2016) The Annual Report, US Congress.

Wishart David ‘The Productivity Commission and the National Competition Policy’,

Committe of Inquiry into National Competition Policy (1993) (F Hilmer, Chair), Commonwealth, National Competition Policy, Canberra

Fenna, A (2012) ‘Putting the ‘Australian Settlement’ in Perspective’, Labour History, No. 102, pp. 99-118

Hess, M and Adams, D (1999) National Competition Policy and (the) public interest’, NCDS Briefing Paper

Jahan S (2016) Human Development The Way Ahead,

Banks G (2001) ‘Competition and the Public Interest’,  A paper prepared for the National Competition Council Workshop, The Public Interest Test Under National Competition Policy, Colonial Stadium, Melbourne.

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