Archive for March, 2015

Why Governments Fail so often

March 3rd, 2015 | Uncategorized | 0 Comments

The $650 billion-plus that will be spent on welfare in the next four years would be a small sacrifice if we could be certain that the money was allocated according to need, that it relieved hardship rather than encouraged it, that it built resilience instead of eroding it and helped people bounce back, I write in The Australian today.

Yet the current system fails those basic tests, as government-run systems usually do. In Why Government Fails So Often: And How It Can Do Better, Peter H. Schuck concludes that most government programs are preloaded with a degree of failure.

Screenshot 2015-03-03 05.49.40

Illustration: Eric Lobbecke, The Australian

Since state welfare provision is, in essence, the socialisation of risk, moral hazard is unavoidable. Put bluntly, any means-tested welfare payment provides an incentive to be poor. Charles Murray called it the law of unintended rewards: “Any social transfer increases the net value of being in the condition that prompted the transfer.”

The first point to make about welfare reform is that it will never produce a perfect system. It is hard to strike a balance between assisting victims of brute bad luck and making victimhood a career choice. The best that can be hoped of any program is its benefits outweigh its perverse consequences.

Yet welfare providers are disinclined to own their mistakes. Those who make a living from conspicuous altruism are usually proud of their work; they prefer to attribute failure to inadequate funding rather than flawed programs.

The electoral cycle also plays a part, writes Schuck. “Officials have powerful incentives to provide voters and interest groups with short-term benefits and hide the long-term costs of paying for those benefits.”

Welfare, like all government services, is prone to “non-market failure”, a term coined by economist Charles Wolf. In a non-market, the “product” is hard to define and difficult to measure; quality control is lacking; services are usually provided by a single agency, depriving them of the benefits of competition.

Non-markets are compromised by “internalities”, the conflict between administrators’ private goals and the agency’s public purpose, sometimes diagnosed as provider capture.

The iron law of government intervention — that the first, and sometimes only, beneficiaries of programs are the people who administer them — applies to the caring professions as much as the tax office. In the abstruse world of modern welfare the needs of clients frequently come last.


The Age of meddling

March 3rd, 2015 | Uncategorized | 0 Comments

SO where did we get this ludicrous idea that governments can actually fix things? I inquired in The Australian last week.

Screenshot 2015-03-03 05.34.28From The Age, of course — or, to be precise, its erstwhile proprietor David Syme, a 19th-century pioneer of the meddlesome state.

A new book, yet to be reviewed in the Melbourne tabloid, traces the origins of paternalistic demo­cracy in Australia. It begins with the assumption that citizens and corporations cannot be trusted to do the right thing and that the government should order their lives for them.

Political historian Greg Melleuish highlights Syme’s role in spreading the dangerous notion that the state exists “to keep the excesses of human depravity in check”.  Syme used his newspaper to promote his theory of  “industrial science” that deeply influenced public policy in Victoria. It prepared the intellectual soil for Deakinite protectionism and laid the groundwork for the Harvester judgment.

Syme advocated a quite different form of democracy than the NSW model. The NSW system remained true to the English classical liberal tradition, trusting individuals to behave as responsible moral citizens. It followed Adam Smith’s theory that when individuals were left to pursue their own self-interest there was a net benefit for the common good.