Wednesday, May 2, 2012

The Budget, The Promise, The Dividend

Australia is about to pass a pivotal milestone:
 the last Federal ALP budget to run full-term for perhaps a decade.

It is already notorious because of the commitment Kevin Rudd made in 2008 that this budget would be in Surplus and the Coalition's constant carping and criticism about the ALP's "incompetence" in every area, including financial management. The clamour from economics commentators that it is not just unnecessary, but unwise, is just part of the lead-up to this event.

So, my comments on why we are getting, The Surplus We Had to Have.

The Budget

With the Australian Federal Budget under a week away, the ALP is attempting to bring down a Surplus, seemingly only for Political reasons.

We'll only know the result in 18 months, at which point, believing current trends, the Coalition will be in power and will pick a figure that:
a) makes their case that the ALP were "incompetent at everything" and
b) uses the usual rhetoric of "the situation was much worse than we were led to believe, we have to make much deeper cuts and reduce or defer some or all of our promises".

I can't add to the debate over the economic pros and cons of "The Surplus we had to have", but can point to a deeper set of concerns.

The Promise

The Rudd/Gillard governments backed themselves into a corner a number of times by making unwarranted unequivocal statements (e.g. "there will be no tax on carbon" and "we will have a surplus in 2012/13").

But leaders before have done exactly this, or made outrageous gaffs, and not felt the same need to Keep The Promise. The current ALP leaders are holding themselves to their statements and in this, having the Opposition pursue them on their promises.
  • Hawke: "No child (need/will) live in poverty by 1990".
  • Keating: "The recession we had to have" and "Banana Republic".
  • Howard: "That wasn't a 'core' promise".
This could be the result of a generational change. All Prime Ministers up to and including Howard (e.g. Whitlam, Fraser, Hawke, Keating) literally had to have "town hall meetings" and learn to deal with hecklers without the assistance of microphones, effectively what every stand-up comedian has to learn.

Younger ALP leaders, Latham, Rudd and Gillard, differ in two important ways:
  • they've had limited experience dealing with hecklers and antagonistic crowds (think of the difference between TV-only comedians and stand-ups), and
  • they joined the Party Machine (or the Union movement) almost straight from school. Unlike Ben Chifley, who had a career as an engine driver before moving into paid politics.
There are other effects, such as the logical/absurdist extension of Sampling Theory and Statistical analysis of surveys invented by Gallup and used in 1936 to predict FDR's upset election.

This 'surplus', head-line or underlying, real or faked, is entirely for Political reasons, and as such is an "own goal" for the ALP. At the very least, they've shown they are inflexibly wed to any and all their policy statements and can't see a way around themselves to "adapt, improvise, overcome" in response to changing circumstances and needs.

But the real concern for every elector/taxpayer is the overwhelming message from both major parties:
Politics trumps Public Good. They don't care what harm they cause in the pursuit of a short-term political advantage or goal.
This is our future, our jobs, our money they're playing with so cavalierly. There is no "Government Money" to spend, only taxpayers wages.

The (Efficiency) Dividend

[My previous piece on the "Triple Whammy" effects of waste in I.T. is useful background for this.]

Keating introduced the Efficiency Dividend, or really Automatic Budget Reduction, to Federal Government in 1986. Notionally, it was a systematic attempt for Departments and Agencies to be forced to realise, and hand back, the productivity gains due to Technology, I.T./I.C.T. particularly.

Which is fine sounding until you pick apart the assumptions and implementation.

I was caught up in the first I.T. Recession in Australia, at the end of 1990. Westpac laid off 500 contractors (for the abandoned project CS90) at Christmas. It was 1994 before Computing and I.T. graduates were back to 100% employment. For a while, a Chemistry or Geology graduate had a better chance of finding work in their field - very different to the industry cries beforehand of "we have a staff shortage crisis" and "I.T. it's a job for life".

That first I.T. Recession was because all the low-hanging fruit was picked: all Australian businesses and Government Agencies had hired more I.T. staff to automate their back-office functions and replace (low-level) clerical staff.

In 1990/1, I.T. staff were cut, just like all other staff.

Why is this problematic? Consider these three related points:
  • If this was 1965 and government Agencies had to supply all now current services, would we ever have an unemployment problem? [How many people would it take for Centrelink, ATO, Medicare, etc to do their work and handle 800,000 unemployed?]
  • I.T., like Marketing, is an intangible and an indirect cost. We do them both for a Business Benefit. But we don't measure, report or analyse I.T. benefits.
  • I.T. is a Cognitive Amplifier. We use it to automate business processes and increase staff productivity. Rough estimates suggest a 10-100 times 'amplification'.
The Keating Efficiency Dividend is recognising all three points:  from all the money invested in Federal Government I.T. Systems, rather large savings should have been realised.

The workload, and notionally the workforce, of many or most Federal Government Agencies should scale with population size - growing at a long-term average of 1.5%. [18M in 1996, five times the 1901 size]

But after 30+ years of I.T. Automation, for the Public Service to have only achieved a 1% total savings either suggests:
  • gross incompetence in either failed or unproductive/irrelevant projects,
  • management fakery in reallocating savings to increasing empires, or
  • an increased level of service, either numbers served or complexity and number of services provided.
But we don't know what's happened: what staff productivity or organisational efficiencies have been realised?

This is a massive management and reporting failure on behalf of the permanent Public Service, but an even greater failure of governance and insight on behalf of the Parliament they report to.

This leads to another set of points:
  • Not all Government Agencies can achieve the same efficiencies as their workload and workforce are dependant on different factors,
  • Different areas within Agencies cannot be expected to yield the same "efficiency gains" for the same reasons, their inherent workload scales from different factors, and
  • "Percent maximum potential efficiency" is not calculated nor taken into account. The past improvement by individual Agencies, and the future savings possible, are seen as irrelevant.
The Productivity Commission [2004] reported that ICT was still the single largest factor driving (staff) productivity growth, yet there appears no intensive study of the APS (Australian Public Service) to which it has special access and interest, nor does there seem to be a recognition or refutation of this is Agency management practice.

If investing in I.T./I.C.T. is still the most cost-effective way of improving productivity, and hence of meeting the Efficiency Dividend, why are any Government Agencies apply the full 4% 'dividend' across all their organisational units?

If I.T./I.C.T investment is judged as not improving productivity, where is the evidence?
Pointing to a glaring omission of all Government Agency Annual Reports. Although they all have detailed reporting against "Key Outcome Areas", there are no output metrics.

Productivity is a measure of Output per unit of Input. Within the APS reporting schemes and managerial system/requirements, only Inputs (staff numbers and on-costs) are measured. Failing to even notice this gap, let alone address it, seems to me to be another monumental failure of the APS's management and culture.

Politicians, as managers of the APS, make decisions/directions are unpredictable, capricious and irrational. This is simply the nature of the beast. Politics is the Art of the Possible.

Which means senior managers in the APS have to deal with this insane world.

Down the organisation structures, staff never learn to relate their time input into economic value output. The simple cost/benefit equation at the heart of every business transaction that any 16-yo at MacDonald's learns is missing: wages have to be paid for.

This has led to an incredible blind-spot within the Public Service, resulting in systemic management and reporting failures such as not defining and collecting/reporting staff output data so year-on-year Productivity can be tracked.

What we can absolutely say about the 4% (1.5%+2.5%) Swan/Gillard Efficiency Dividend:
  • it should not be evenly applied across all Agencies, but has to be because the necessary management data is missing.
  • it should not be evenly applied within Agencies because the necessary data is missing.
  • without evidence, APS managers are blindly acting. Should they be investing in more I.T./I.C.T. or reducing I.T. staff/budgets more than 4%?
  • There will be uneven and disproportionate effects on the delivery of Government services.
Just because Politicians live in an extreme world is no excuse that they don't properly fulfil their Fiduciary Duty towards their constituents - the people who've entrusted to them their future livelihoods and living standard.

We, as taxpayers and electors, need to be demanding a much higher standard of management and governance from the Politicians representing us.

Is there any reason that the Public Service is not the best organised, best managed and provably most productive and efficient/effective organisation in the country? Why should the Public Service be less than the definitive model of good management and good governance? The standard that every organisation is judged by.

The only reason is that we haven't held our Politicians accountable for their performance.

We have let them get away with putting their interests ahead of what they are elected and paid to do:  husband the public purse, the taxpayer dollar, for the best possible outcomes and sustained benefits to the citizenry.

No comments:

Post a Comment