Comment on The Common Wealth – Fred Argy

This is a very laudable project for the authors of the Common Wealth but one that is very challenging. While one could argue about the particular values chosen (e.g. why is economic efficiency, which is so crucial to the practical realisation of most social goals, left right out?), it is hard to disagree with them. While the document is a great starting point, I have some concerns – mainly about practicability.

The aim of this exercise, we are told, is to "articulate values that should underpin all policy development". The complexities are enormous.

First, whose values are we trying to define? If the exercise is to be useful for policy it must be based not on the social norms held by the authors or even the members of New Matilda but on broad community attitudes and aspirations. Sure, public opinion is responsive to good arguments (and it is part of New Matilda to educate Australians) but it is an up-hill battle for them to reach out to the populace at large and counter the on-going messages from brilliant or manipulative political leaders. So the starting point must be to understand how mainstream Australia thinks and capture its core values. They can be modified here and there and in our private capacity and through forums such as this we can continue to espouse our own values e.g. on asylum-seekers, even when they clash with community views. But if we want to guide government policy, it is a waste of time to suggest values and goals which are far out of touch with public opinion (I squirmed a little at the plea to resist ‘crass populism’).

Second, should the values be defined in general terms or in specific terms? In other words, should we simply outline broad goals or should we also put forward specific policy targets? The danger with the former is that we could end up with motherhoods. The danger with setting targets which are policy-friendly is that it becomes a huge exercise. Perhaps we should strive for a middle road. At present the draft may lean too much towards motherhoods.

Third, should the authors of the Common Wealth go further and propose policy means to achieve the goals/targets? As everyone involved in policy knows, whatever set of goals one defines, they will often conflict with each other (e.g. personal freedom v/s national security and efficiency v/s equity). To reconcile or minimise these conflicts, governments need to choose their instruments carefully. So one cannot divorce means from ends. If you propose a set of ends you must also propose broad instruments of implementation. This can make the task unmanageable but without some discussion of means we are left with the conflicts and contradictions.

Equality of opportunity
Let me illustrate some of the above concerns with one of the key goals listed in your document – equality of opportunity.

Defining the concept is not easy. There is a weak and the strong version. The weak one is formal equality of opportunity. It only requires equality before the law, some minimal anti-discrimination laws and impersonal and competitive markets which give equal weight to each consumer’s preferences.

The stronger version is ‘substantive equality of opportunity’. It refers to a situation where children’s economic prospects – their ability to develop their full potential – are determined overwhelmingly by their own ability and character. Inequality of market incomes (pre-government taxes and transfers) will persist but these will be due overwhelmingly to differences in genetic make-up, personal capacities, skills, attitudes to risk, motivation or luck. It should not be caused by:

– ethnic gender or age bias
– low parental family income,
– dysfunctional families,
– poor location (in terms of transport, social and physical environment, limited access to jobs and support services etc.), or
– inadequate (affordable) access to important public services such as education, health care, housing and employment.

I am not sure but, on my reading of opinion polls, the strong version comes closer to capturing the ‘fair go’ values of most Australians than the weak one. But it probably goes too far for most Australians.

What specific targets would one set? They would clearly have to include targets on employment, education, health and housing (as your draft already points out). But if the targets are too ambitious, the conflicts will not be resolved. It is difficult to determine when inequality of opportunity and income immobility are so "excessive" that it calls for government intervention. In my view, governments should start to worry about mobility if, when set against other comparable countries,

(a) inequality of earnings is high and hard to explain by differences in innate ability, values and inherited knowledge

(b) earnings inequality remains relatively high even when we move away from annual incomes and look at long run – or ‘permanent’ – incomes over say 10 to 15 years

(c) there is a relatively high correlation between the income and occupational status of sons or daughters and their fathers and

(d) the trend in income mobility is downwards whereas it is generally stable or rising elsewhere.

Many in the US and UK are starting to worry because they are falling markedly behind the Scandinavian and smaller European countries on the criterion of social mobility. I believe the same concerns will arise here when the full data is available.

The next difficult issue is to choose methods of government intervention which minimize conflicts. The conflicts are cultural, budgetary and economic. The economic conflicts can be overcome by following three golden rules

1) try wherever possible to supplement rather than replace markets;

2) pick revenue-raising instruments which are effective and efficient i.e. which do not unintentionally distort the economic choices of households and businesses and impair productivity, and hopefully even improve efficiency – such as base-broadening revenue measures, a contraction of tax shelters and taxes on activities with adverse economic spill-over effects such as on pollution, congestion and health;

3) give preference to ‘active’ social programs – i.e. which not only provide relief but also facilitate structural adjustment and invest in the capabilities of the people being assisted, so as to enhance their long term potential to participate autonomously in the labour market.

The document was only intended as a first tentative step and it certainly starts the ball rolling. The challenge is to now produce something of more direct value to policy, without compromising CPD’s own values and without requiring a huge effort. Good luck.

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