Tuesday, April 15, 2008

Do we need more command and control?

Economic reform in Australia (and some other countries) has involved a mixture of command and control and free market approaches. It seems to me that the command and control approach is appropriate within military organisations and some corporations, but it is a bad approach to public policy because it makes the individual interests of citizens subordinate to the interests of the central government. Furthermore it doesn’t work very well. If Benito Mussolini wasn’t able to get the trains to run on time using a command and control approach why would anyone expect NSW transport ministers to do any better?

Advocates of the command and control approach to economic reform tend to stress five points.

First, the reform agenda needs to be well-defined and consistently articulated. There is nothing wrong with that except that the kind of objectives that advocates of this approach have in mind tend to be whatever seems like a good idea at the time to the people in control of policy development. Thus we tend to get objectives like increasing the proportion of children who complete secondary education, without much thought being given to whether it is actually a good idea for more children to stay longer at school and whether this is a decision that governments should be making in any case.

Second, clear performance standards need to be established. The kinds of performance standards that advocates have in mind include specific, measurable targets relating to things like improving literacy and numeracy standards in schools, reducing waiting times for surgery in public hospitals and, of course, getting the trains to run on time. This all sounds desirable but the problem in setting targets, as any business manager knows, is that the people responsible for meeting them often find ways to do so that are inimical to the broader quality and efficiency objectives that the targets are intended to advance. Managers of firms are well-placed to deal with such problems, but it is more convenient for political leaders to pretend they don’t exist.

Third, those responsible for the implementation of policy must be accountable for their use of performance data to improve outcomes. This is the nasty part of command and control because accountability necessarily involves penalties for failure to meet performance objectives. It seems to me that such accountability is entirely appropriate within organisations (and particularly so in corporations in which I own shares) but it is not appropriate for state governments to be accountable to the federal government as though they were merely its agents. Rather than seeking to enable the federation to work effectively by aligning revenue raising and policy responsibilities, the advocates of command and control seek to make the central government responsible for everything and the state governments accountable to the central government. State governments should be accountable to the citizens who elect them to office.

Fourth, a broad constituency for change must be built. I have no problems with efforts to promote more widespread understanding of the benefits of free market approaches that will enhance individual freedom to choose and enable people to flourish. But I do not find the idea of building a broad constituency for greater centralisation of power and greater use of command and control approaches in public policy to be appealing.

Fifth, performance of those responsible for implementation of policy should be assessed independently of politics and funding made conditional on progress. Am I alone in thinking that there is something peculiar about the idea of making assessment of public policy independent of politics in a democracy? The advocates of this position seem to be saying that we want the government to have responsibility for command and control, but we do not want the elected representatives of the people to influence the process.

I have a great deal of sympathy with the idea that responsibility for things like education and health services should be independent of politics and that funding should be conditional on outcomes. This could be achieved by an approach to reform that involves greater reliance on the incentives and disciples of a free market in these services.

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