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Federalism and the corporate governance analogy

By Ken Parish - posted Wednesday, 30 January 2008

Australians have a marked lack of interest in our federal constitutional system. One suspects this is largely because it’s difficult to get passionate about defending or attacking a political system characterised by competent but uninspiring state governments, chronically under-funded and seemingly incapable of tackling major improvements to health and education or renewing crumbling transport and other public infrastructure.

Instead, we’re subjected to continual blame-games designed to evade or confuse accountability, with state governments crying poor, federal government blaming the states for failing in their constitutional responsibilities, and media-savvy (though now retired) Premiers like Carr and Beattie elevating the strategic mea culpa to a performance art form. More recently, John Howard’s cynical, selective and electorally-driven interventionist stunts (for example, Mersey Hospital in Tasmania; plebiscites on local government amalgamations in Queensland) make the picture even more depressing.

Nevertheless, the problems of Australian federalism are overstated and relatively easily fixed given the requisite political will. Australia will have a rare opportunity for constructive “root and branch” federalism reform if a Rudd Labor government can be persuaded by the eight State and Territory Labor governments to implement some relatively simple but far-reaching fiscal and structural changes.


The formal model

As Curtin University academic Alan Fenna explains:

Like the American system on which it was closely modelled and which likewise does not grant a list of exclusive powers to the national government, Australian federalism was created on the presumption that the national government could be restricted to responsibilities of a specifically “national” character. Almost the full range of internal domestic responsibilities previously exercised by the constituent units would continue to be controlled at the sub-national level.

National powers were essentially of two kinds: those concerning external affairs, and those concerning the integrity of the common market. Australia’s constitutional architects were still operating in a world where the limited role of government made it quite possible to envisage a division of powers where two levels of government could operate in their own discrete policy realms. “Generally, the Commonwealth and the states were seen by many delegates as independent entities, each carrying out its governmental functions within its own territory.” Accordingly they saw little need to build intergovernmental relations into the system.

Our federal system is a good one

Despite this inauspicious formal model for achieving the sort of co-operative governance structures needed in a complex, inter-connected 21st century world, Australia’s federal system has evolved into a remarkably co-operative one. Indeed, despite the picture of conflict and stubborn state government obstruction and neglect that John Howard desperately sought to create for cynical electoral purposes, only a year or so ago both he and the state premiers were hailing the healthy, co-operative state of federal relations.

The Commonwealth and states have co-operated to positive effect in areas as diverse as corporate law reform; national competition policy; national professional accreditation standards; defamation law reform; a national secondary schools curriculum (albeit a work in progress); literacy and numeracy testing at years 3, 5 and 7; and a variety of anti-terrorism laws.

There has even been co-operation over solving the problems of the Murray-Darling basin (except for Victoria) despite a deliberately provocative attempt on Howard’s part to create a “wedge”; and in achieving environmental flows in the Snowy River. Australian co-operative federalism actually has an impressive record over the last decade, despite the fact that most State governments have been Labor ones dealing with a Coalition federal government.

The Council of Australian Governments (COAG) system, with the various Ministerial Councils operating under its auspices and its National Reform Agenda, is an impressive if imperfect structure. It makes sense for the levels of Australian government to co-operate to mutual advantage, especially given the complex international commercial and environmental situations we all face. It also makes sense in governance terms. As Michael Keating and John Wanna argue:


The evolution of Australian federalism has encouraged an administrative paradigm whereby the Commonwealth, in consultation with the states, accepts responsibility for consistent policy frameworks while the states are largely responsible for implementation.

The modern system of Australian co-operative federalism is in some ways analogous to the functional division in corporate governance between a Board of Directors which exercises policy oversight and the company’s management which runs the day-to-day operations. The dividing line between policy and management is a blurry but useful one, and readily transferrable to the public governance arena. It’s a dichotomy which also ties in neatly with notions of subsidiarity often associated with federalism (that matters ought generally to be handled by the competent authority which is smallest, lowest or closest to the people).

But not without its problems …

The major problem with Australian federalism, partly evident from its inception, is the eye-glazingly titled phenomenon “vertical fiscal imbalance”. This and other related trends are explained in a Sydney Morning Herald article by Steve Burrell:

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This is an edited version of the third and last in a series of posts exploring Australian federalism (the first part is here and the second is here) published at Club Troppo.

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About the Author

Ken Parish is a Darwin-based lawyer and former Labor member of the Northern Territory Legislative Assembly. He now teaches (mostly public law subjects) at Charles Darwin University, where he founded Australia's first fully online external law degree program. Ken is no longer associated with any political party, describing himself as a "committed sceptic".

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