Thoughts on economics and liberty

Government failure #1

I've now worked inside Government for over 28 years, either in India or in Australia. That's a long time, long enough to understand how poorly performing (Indian) and better performing (Australian) governments work. On numerous occasions I've explained how good incentives can improve the quality of governance (e.g. see chapter 5 of BFN or my Times of India article), so I won't repeat the key points again.

But it remains a MAJOR ongoing challenge to get good governance. That is a basic fact of life which means the need for constant vigilance. Despite all the good incentives at work in the Australian public service system, it still fails on innumerable occasions. 

I will publish a long series of posts on the topic of government failure. Too often I find that economists talk about market failure while totally ignoring government failure. That blindness among economists needs to be overcome (see my comment here). Such blindness is found among at least half the so-called economists of this world. Keynesians top the list, but behavioural economists are not far behind! 

Most of these posts will be extracts from newspaper articles. Consider this article for an excellent discussion of government failure:

"High cost of something for nothing" by  Michael Stutchbury, The Australian October 05, 2010 

(Note: I'm not discussing the merits of this program, just citing the extensive public sector failure).

RUDD Labor's promised "green loans program" sounded like a good idea at the time of the 2007 election. It would spend $300 million on free "green assessments" to help hundreds of thousands of households cut their energy and water use and even get subsidised loans to install solar panels, rainwater tanks and the like.

Yet the five-year scheme collapsed barely a year after its mid-2009 launch.

The Department of Finance's Red Book notes that both schemes were plagued by "significant breaches of financial regulations, poor contract management, weak budgetary controls, conscious decisions to avoid purchasing policy requirements and poor lines of responsibility and accountability".

DEWHA claimed to have been burdened by 107 new policy initiatives after the 2007 election, including 10 renewable and energy efficiency programs.

The responsible branch head could only consider the green loans program "after hours" because the home insulation debacle dominated his work day. So the green loans program was delegated to a "sub-executive officer" with specialised knowledge but "little program delivery experience", the ANAO notes.

None of the low-level bureaucrats, their superiors, the minister's office, Garrett himself or anyone in the government appears to have foreseen the behavioural consequences.

In the four weeks to mid-February, only one-quarter of the 290,000 calls made the queue. Up to one-third of callers who got through hung up after holding for up to 2 1/2 hours.

While trying to stimulate jobs through home insulation and primary school construction, Canberra was dudding thousands of assessors who had invested their own money on a government promise of full-time work.

Nearly half of households surveyed by the ANAO reported that their green assessors took less than 60 minutes rather than the supposed 90-minute standard. And, in evidence of widespread fraud, 10 per cent of supposedly assessed households reported they had not been assessed at all.

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