The trickle-down ravages of neoliberalism

Dr Evan Jones examines the deep-rooted and devastating effects of neoliberal economic policies.

VOLUMES HAVE BEEN WRITTEN about this thing called “neoliberalism”. However, much of this literature, supportive or critical, has been pitched at a general level of abstraction.

A book edited by political economists Damien Cahill and Phil Toner, Wrong Way: How privatisation and economic reform backfired, outlines in detail the impact of neoliberalism in many key areas. 

The 19 chapters (gathered in three parts) highlight the breadth of coverage in the book:  

• The Contract State — early childhood education and childcare,  Medicare and private health insurance, aged care, employment services, vocational education and training, prisons, loss of public sector engineering competence;
• Privatisation and Deregulation — the electricity sector, labour market policy, banking (written by yours truly), housing provision, the development of the NBN, the university sector; and
• Macro-economic Dimensions — monetary policy and unemployment, the weakness in productivity growth, the unrealism of orthodox economic models behind deregulation, the imposition of so-called Free Trade Agreements, foreign investment, the entrenchment of inequality.

It is instructive to selectively summarise the contents of five chapters to expose the nature of the beast. (Apologies to the other authors for neglecting their equally sterling contributions.)

Health insurance

Stephen Duckett has neatly summarised the evolution of health insurance policy since Whitlam’s introduction of the universality of Medibank in 1975. Gutted by the Fraser Government, the principles were re-introduced as Medicare in 1984 by the Hawke Government.

Health insurance policy long involved deep conflict between Labor and the Liberals (with the AMA in tandem). That warfare moved into different territory during the Howard Government years with Dr Michael Wooldridge as Health Minister, given their belated acknowledgement that universal health insurance was Labor’s vote-winner. The frontal attack on Medicare ceased.

The Liberal agenda shifted to an application of “carrot and stick” incentives to push people into the private health insurance sector (and the private hospital sector), involving public subsidy (rebate) coupled with a propaganda claim that pressure would be taken off the beleaguered public hospital system. Medicare would be undermined more subtly from the rear.

The claimed benefits to the public system proved to be illusory. Premiums have blown out. As background, private health insurers had been transformed from relatively benign mutuals to for-profits (with Bupa transferring its profits to its British parent).

Increasingly, packages are including more deductibles. Having been forced into the system, some people are now rationally opting out of private health insurance entirely.

The publicly-owned private insurer Medibank was privatised by the Abbott-Hockey Government in 2014. However, Duckett points out that the decisive moment for system integrity occurred earlier when the Howard-Costello Government corporatised Medibank in 1998, requiring Medibank to deliver annual dividends to Treasury.

As with many policy arenas, the Rudd-Gillard Labor governments opted to live with dramatic changes under Howard, deciding to modify the Howard inheritance in this instance by attempting to rein in the budgetary cost of the rebate.

Although the budgetary costs of the Liberal’s agenda have stabilised, the waste is now entrenched. Duckett estimates that there is now (p.55):

'… a subsidy to the industry of more than $10 billion each year through the private health insurance rebate [$6 billion] and the Medicare in-hospital rebate — which is larger than the current subsidies to agriculture, mining and manufacturing combined.'

Engineering competence in the public sector

Paul Davies documents the loss of engineering competence in the public sector as a consequence of privatisation, public-private partnerships and contracting out. It has been dramatic. From 1996 to 2016, government-employed engineers went from over 100,000 to less than 20,000.

There has been no comparable take-up in private sector employment. Moreover, 'there has been a deterioration in the quality of engineering employment across the board' (p.118).

The major adverse effect is that the public sector is now an uninformed purchaser, with private construction projects lacking external accountability through the entire sequence of their operation. Engineers Australia noted in 2016 (p.120):

… the public sector’s ability to manage engineering contracts and capacity to adequately assess the engineering competencies of contractors and sub-contractors has been several compromised. The consequences manifest themselves in higher costs and in a growing list of failures by auditors-general.

The perennial enthusiasts for very fast inter-city trains haven’t confronted that the vision is now even more utopian for lack of public engineering capacity.

Private sector-led projects lack accountability, are prone to cost blowouts, contract pricing upwards push with cost shifting, delays, disputes and cost-cutting lowering of essential standards.

Contracting governments will collude with the private contractors to block scrutiny of the contracts and of performance. The massive Sydney Westconnex road project is exemplary in this regard.

The public sector and the taxpayer always pick up the tab.

There has also been a significant decline in engineering on-the-job training, inhibiting regeneration of capacity and a move from full-time employment, with significant skill levels to fragmented employment and at lower levels of skill.

Relevant is the rise of the ideology of “managerialism” in the 1980s. A generic managerial capacity purportedly replaced the dependence on specific skills. This absurdity is now entrenched, without reflection as to its associated costs.

Engineering is not a sexy domain and it suffers from neglect in the media, yet it is fundamental to our existence. Paradoxically, increasing sophistication brings enhanced dependence — a dependence normally taken for granted.

The collapse of the Genoa Bridge in August 2018 is a wakeup call. Here is a crucial piece of public infrastructure, neglected while under the control of a private company. Of course, public infrastructure is not automatically well managed under public authority control. However, under private control, the incentives are intrinsically conducive to neglect.

Sound engineering is thus essential to public safety and health. The current structures that Davies describes have abandoned that fundamental concern.

Relevant is consultant engineer John Maconochie’s concern for the potential dangers in the cutdown tunnel design for the Sydney Metro Northwest — one of NSW Premier Gladys Berejiklian’s signature infrastructure projects. It involves a very narrow tunnel, driverless trains every four minutes, with no emergency strategies in place. Nobody in authority or managing the project has seen this safety dimension as an integral component of the project. I’ll never be taking that train ride.

Vocational education and training

The Technical and Further Education (TAFE) system for over a century has provided vocational education and an opportunity for the educational advancement of those coming from behind. The achievements of this essential cog in the wheel have mostly gone under the radar.

It certainly has its problems. But the relevant powers at state and federal levels haven’t been interested in examining and remedying them. An ex-student of mine, in the NSW Premier’s Department, claimed that TAFE didn’t deserve support because “it was inefficient”. Well; of course — this hydra-headed institution is naturally prone to inefficiency. But the then government policy of cancelling many popular course options and dramatically raising fees appeared to be more directed to dismantling TAFE than to enhancing efficiency.

Phil Toner, in his Wrong Way chapter on VET, notes (p.61):

… the introduction of the training market into Australia was based neither on evidence regarding the performance and efficiency of the status quo ante, nor on a detailed analysis of the economics of the training market. Rather, its introduction relied solely on the kind of a priori reasoning that is the foundation of neoclassical economics: that allocating public funds through a market-based system and introducing competition between providers would by definition create a better system.

The stance was that one should make a good part of the funds going to TAFE “contestable”. Contracting-out and marketisation was a key part of the push.

The other was a radical vision of what constitutes a functional vocational education. Out goes the curriculum, presuming the standardisation of training needs, for which TAFE was the depository. In would come Competency-based Training (CBT). CBT was supposed to tailor training to individual needs, and those needs would be determined by the presumed needs of a particular company or organisation.

All this requiring public subsidisation. Registered training organisations (RTOs) were licensed overnight, granting them a valuable commodity that is the gateway to employment for many occupations.

The number of students in RTOs receiving government funds increased from 23,000 (2 per cent of publicly funded VET students) in 1996 to 575,000 (45 per cent) in 2016. The number of RTOs registered to deliver publicly funded VET went from around 400 in 1995 to 1930 in 2016.

With low barriers to RTOs of entry and exit, the opportunity for rorting the system was built in. And so it transpired — and on a grand scale. Instances of the de-licensing or failure of specific RTOs have been highlighted in the media, with the attendant defrauding of the public purse and of enrolled students.

The system is also open to gaming by both RTO and the enrolled student in conjunction. Some enrollees may be only interested in access to a job or to a visa, so it is the ticket that counts, regardless of the content behind it.

The system is intrinsically flawed. There are no rankings of RTOs that would allow potential enrollees to make rational choices of provider (the essence of the claimed merits of the market that caters to the sovereign consumer). A significant majority of RTOs fail the quality audits.

Moreover, the concept of CBT is operationally intrinsically flawed. One simply can’t deliver personalised training externally at an organisational level. The contracts between the public authorities and the RTO are inevitably inadequately specified, so it is difficult to hold an RTO to account for failing to operate according to the contract.

Employer associations themselves have lost faith in the structure and assessment by regulators or external bodies is now damning.

Governments have responded pragmatically by merely cutting the VET budget, leaving the sector with unpredictable instability.

There is no adequate solution to this quagmire in sight, aside from a return to a mostly public delivery of publicly funded VET.

Dr Evan Jones is a retired political economist.