Soft power, hard decisions

Since the early 1990s, governments have spent billions on active labour market programs. More resources are being directed to early childhood learning, and demand for learning has soared right across our community.

In spite of the Howard Government’s cuts in some education funding categories, the proportion of the 2005-06 Budget devoted to education and training is still more than double that in the 1969-70 Budget. Implicitly, the role of government is shifting - building skills and capabilities is now more important than building things.

Public ownership is less important than it once was, because technology and production processes have changed. Regulation and competition can now contribute a great deal more to social outcomes than they could 50 years ago.

There is a continuing role for public ownership in some sectors, reflecting universality of use, monopoly characteristics, and externalities. While many still struggle to accept the shift in emphasis from public ownership to regulation, a new shift is already beginning. Regulation is being augmented by advocacy and exhortation.

The future state will rely more on persuasion and less on compulsion. The soft power of governments might be commonly used in international affairs but is still largely untapped in the domestic sphere. That’s now starting to change.

Government campaigns to reduce smoking and road accidents are early examples of this emerging role. You can’t legislate against all foolish behaviour, but you can educate against it. While regulation will remain an important weapon of government, exhortation is set to become much more prominent.

Changing attitudes is as vital to reducing obesity as banning junk food advertising. Instead of encumbering financial services providers with ridiculous disclosure obligations that generate mountains of paper that consumers don’t read, governments could get serious about tackling financial illiteracy. Why not increase their levels of understanding, so they can make informed decisions by themselves?

A more educated, skilled workforce is crucial to Australia’s future. Governments invest large sums in providing education and training services, but how much effort do they put into increasing the commitment to learning? Hardly any. Their investment is all supply side and no demand side.

The first step to a more educated population is people wanting to learn. The commitment to learning displayed by parents and children is a key factor in education outcomes, yet we do little to strengthen that commitment among those who don’t value education.

The state’s role in moderating risk has changed enormously. An endless web of complex interventions designed to protect and advantage particular groups of producers is being unwound. Intervening to protect particular producers at the expense of others is a recipe for economic stagnation. The Common Agriculture Policy, and Japanese over-investment in physical infrastructure, are outstanding examples of this principle. A dynamic economy requires dynamic producers.

Unwinding outdated regulatory arrangements is usually painful, but the results speak for themselves. Deregulation of the dairy industry has increased returns to producers, and reduced prices for consumers.

In unreformed sectors like broadcasting and telecommunications, Australia is falling behind other developed nations. Our appalling performance in broadband is a direct consequence of retaining outdated regulatory frameworks. Consumers pay excessive prices for inadequate products and limited choices.