Real reform – how to do it

Reform is one of those Alice in Wonderland words which mean what the speaker wants them to mean. They are often shorthand for why something or other you believe ought to be done as soon as possible – irrespective of the evidence one way or the other.

Reform has a moderately recent history – a bit like the word progress which once just meant moving forward rather than carrying a more progressive subtext.  In the late 18th and 19th centuries it meant political and social reform around voting rights, anti-slavery and a host of other Whiggish and Chartist demands. By the middle of the 19th century it had been supplanted in some circles by the word revolution, although a quick modern day reading of Marx’s Communist Manifesto demands would probably not frighten many modern liberals even if Maurice Newman, or that former Maoist Keith Windschuttle, might have a problem with some of them.

One of the great 19th century reformers, when poets were aiming to be the world’s unacknowledged legislators, was Shelley and in his 1840 Defence he said: “The rich have become richer, the poor have become poorer; and the vessel of the State is driven between the Scylla and Charybdis of anarchy and despotism.”

Today Shelley’s comments have a remarkable resonance as inequality spreads; western governments spy on their citizens more effectively than they did in Shelley’s time; and bankers and others enjoy some anarchic lawlessness. If you are going to be unemployed, or a dissident from right wing governments, you can expect derision at best and punishment of some sort or other at worst. If you are a dodgy financial planner you can live for another day to take more money from more people while the banks that employ you second staff to the regulators who are allegedly supervising you.

But despite all this we do actually need reform – but reform based on hard evidence. In industrial relations the evidence now shows that minimum wages do not cause unemployment and Peter Harris at the Productivity Commission is demanding that submitters to their review produce evidence for their positions. With so called green tape we know from the OECD and the Grantham Research Institute that green regulation (particularly when it is market based) promotes efficiency and positive impacts and has no discernible negative impact on employment, productivity, trade and investment. Equally we know that support for energy efficiency and renewable energy is increasingly entering a virtuous circle. None of the evidence for this impinges on the ideological pre-conceptions of the current Australian Government which, instead, bleats that better communication is needed – a view which normally translates into spending millions of taxpayers’ dollars on ineffective TV and print advertising promoting their version of reform.

At the same time the new Australian Treasury Secretary, John Fraser, has told a parliamentary committee about how successful Reagan era tax cuts were while seemingly overlooking the massive deficits and the even more massive Keynesian spending under Reagan (well not under that name but more around national defence.) Equally he tells us austerity works citing the example of George Osborne in the UK apparently ignoring the facts that the UK economy is only just getting back to its pre-2009 size and that UK debt has spiralled out of control under the Tories to be much higher than it was under Gordon Brown – despite savage cuts to public spending over the five years of Tory rule. While the Fraser viewpoint is commonplace on Wall Street and the City of London it probably has the same robustness as the predictions that QE would lead to hyper-inflation when the reality has been exactly the opposite. However, while beginning to wonder if Mr Fraser was going to tell us all that the Laffer Curve is alive and relevant to Australia – despite the evidence of the structural problems inherited from Laffer’s Australian epigones – he made another speech which was much closer to reality. This time he spelt out that Australia didn’t have a debt crisis, which most people other than Joe Hockey and Tony Abbott already knew, and that it was time to end middle class welfare like superannuation rorts for high income earners.

The question remains though. In the real world, where most people live, how should you go about reform which benefits as many people as possible as fairly as possible? A useful starting point is probably recognising that it’s not easy. Rahm Emanuel’s experience as Chicago Mayor is an example. Whether he ended up in a run-off election because some of his reforms were perceived as unfair; or, whether it was his communication style, famously described by Obama when he said that if Emanuel lost his middle finger he would be “practically mute,” his mainly necessary reforms are a good case study of the degree of difficulty when big reform is undertaken.

The very next step absolutely has to be – as a mentor who  has been very important in the blog’s career said to him over lunch recently – to get the facts! Gather the evidence; appraise the probabilities; look at the costs and benefits and come to a conclusion – not just an ideological opinion – on what needs to be done. As much as possible the simple thing to do is to follow as much of the scientific method as possible. This probably means not listening too closely to many macroeconomists who have a track record of predictive error which, as J.K. Galbraith has said, makes astrologers look good.

After that, in generally agreed recipes for reform, is conviction. Once you have the evidence you need to have the confidence to push on and be prepared to test your conviction against the opinions of others. The ongoing debates in Paul Keating’s office between Keating and people such as John Edwards and Ross Garnaut plus some strong public servants are an exemplar of this.

Finally, communicate your conviction, the need for reform, how it works and what will result. This does not involve spending some $600,000 plus on market research and a communication strategy where the outcome is…….roll the drums….an advertising campaign. Reform is not about asymmetric communications like advertising but all about symmetric conversations, widespread consultation and influencing opinion leaders. Any number of communicators could come up with an effective strategy on this for far less than $600,000 and without employing former recent staffers who could just, despite their undoubted independence and professionalism, possibly be subtly and unconsciously influenced by their former employment and the ideological perspective of the Government.

Of course, there is a rub with communicating the conviction. The Economist (February 7 2015) in an article on reform in Latin America talking about communication and conviction reminded us that there is a need to mobilise the potential winners, “usually a more diffuse group than the losers.” For example the reform of financial planning benefits all Australians except vertically integrated wealth management entities and some of their employees. But it is hard to communicate this – even despite the appalling actions exposed so far. Equally the vast majority of Australians would benefit if the various forms of corporate welfare – either through subsidies or regulation – and middle class welfare were removed. Fixing the ludicrous pricing system for power distributors would produce huge benefits for consumers large and small although not quite as large as the billions of dollars provided to wealthy superannuants and super contributors and the subsidies to multinational mining companies.

And there is another rub. When such policies are proposed the cry of ‘class war’ raises its head bringing us back to Shelley and Marx. The reality is that the class war rhetoric in neo-liberal economies is almost as effective as blaming everything on foreigners and terrorists. And it is effective – how else could the majority of one of the USA’s poorest states, Kansas, become convinced that death duties (the so-called ‘death tax’) would hit them hard despite their incomes and total wealth lagging well behind the average let alone that of the 0.1%.

Sadly none of this is likely to happen with this government – particularly if in the next week or so the pundits are, as usual, proved wrong and the new leader of the government is not Malcolm Turnbull but some combination of Julie Bishop and Scott Morrison. Whether it would happen under Bill Shorten is also a moot point.

Meanwhile the blog is taking a short break and will be back with some long promised book reviews in a week or so.  Unless, of course, Abbott departs sooner than we all expect.