Five fundamentals for effective reform

By Stephen Sedgwick

The Australian Financial Review,
22 January 2008, p. 55

Adherence to firm principles must guide momentum towards effective federalism, writes Stephen Sedgwick

After the Council of Australian Governments meeting in December, premiers and Prime Minister proclaimed the reestablishment of cooperative federalism with a focus on outcomes. Interestingly, this also happened after the June 2005 COAG meeting, though the enthusiasm evaporated subsequently, as it so often does.

The future never exactly replicates the past - and political dynamics can be unpredictable but history suggests that attention to five things can help sustain cooperative reform.

First, significant change, especially complex reform to education, training and health services delivery, takes time and requires consistency. Many players are involved, some well removed from political decision making. The agenda needs to be well defined and consistently articulated. Frequent changes to the messages perceived at the coalface or too heavy an emphasis on achieving inconsequential announceables or deliverables for each ministerial meeting may cause confusion, induce cynicism and stifle incipient progress.

This requires real discipline from political leaders over time and as personalities change. Although each new minister is entitled to make their mark, the introduction of idiosyncratic agendas seemingly unrelated to agreed ultimate objectives can be destructive.

Second, activity responds to measurement. Clear performance standards need to be established, performance data collected and monitored. It is important to avoid goal displacement, however. Measurement needs to relate to ultimate objectives. This is especially important in relation to short term milestones. Process improvements or spending targets can be legitimate intermediate milestones.

However, accountability arrangements must focus on the ultimate objective and not simply on compliance with mandated processes. A compliance culture is not always performance enhancing. Targets need to be credible and genuinely stretching. No minister wants to appear to fail.

Nonetheless, success will be limited without taking risks. Soft targets not only sell potential beneficiaries short they may also induce cynicism, undermining progress that may otherwise have occurred.

Third, as the abundance of educational achievement statistics published in recent years illustrates, data is necessary but not sufficient. What you do with it matters even more. States reasonably argue that the commonwealth should not micro manage. Nonetheless, states must be accountable for their use of performance information to improve outcomes and not simply attempt to explain away or ignore underperformance.

Fourth, sustainability improves if a broad constituency for change has been built. Those adversely affected self identify and often articulately defend the status quo. Potential beneficiaries are usually less articulate, more diffused throughout the community and possibly ignorant that they are missing out.

Potential beneficiaries need accessible, good analysis and information about opportunities. So, too, do ministers and line officials, who may otherwise opt for the easily achievable rather than better, harder options which may involve costs upfront but delayed benefits. Insightful leadership, especially from ministers, is crucial to overcome inertia or timidity.

Obviously, change involves political risk. Political leaders, line ministers and senior officials need to own the agenda. Decembers COAG established cross-jurisdictional working groups of ministers and officials. These will help to promote ownership, though possibly at the risk of favouring change at the pace of the slowest in order to secure consensus.

Commonwealth chairs will need to be well informed, clear thinking and prepared to challenge mediocrity to avoid this.

Confidential cross-jurisdictional discussions amongst ministers and between political leaders can forge an informed consensus about desirable change and how best to achieve it. This can be especially empowering if there is perceived institutional or other stakeholder resistance. Advice from dispassionate agencies like Treasury, and reports from independent bodies or experts can help inform ministerial choices and, over time, build political constituencies for change bolder than those now available.

The role of the Tariff Board and its successors in slowly building the case for tariff reform is very instructive. Arguably the COAG Reform Council could play a similar role, though its own motion powers and resources for research would need strengthening.

Fifth, money matters, but is not everything. States argue that the Commonwealth is less resource-constrained and therefore well placed to help fund the increased investment needed to improve education and health outcomes. This is more defensible when states are transparent and accountable for outcomes performance should be assessed independently of politics and funding made conditional on progress.

This was the strength of the former National Competition Policy arrangements. It is to be hoped that the COAG Reform Council will perform its monitoring role forthrightly. Alternatively, the better-resourced Productivity Commission could be tasked to analyse the considerable performance data it already publishes. However, more than money is required to fix education, training and health. Resources also need to be applied more effectively, which is much harder.

In short, history suggests that goodwill needs to be buttressed by insightful political leadership, a willingness to take risks and improve the effectiveness of resources usage, good analytical work and a degree of transparency and accountability that practitioners often find uncomfortable.

Stephen Sedgwick is director of the Melbourne Institute of Applied Economic and Social Research and a former senior commonwealth public servant. He was secretary to several commonwealth departments between 1992 and 2002.