Monday, August 15, 2011

Gittins great again

It is hard to understand accusations of a left-wing bias in the press when Fairfax still provide weekly columns by Paul Sheehan and Gerard Henderson.

It is interesting though that it is their economics editor who has a consistent "market sceptic" view. This month he has already once this month written a column explaining that more reform designed to get Government out of the action isn't necessarily good.

Having jumped into praise for that contribution I need to do it today for another great contribution.

He develops the theme of understanding the decline in the rate of productivity improvement and posits that the decline may well be the consequence of a market failure than a government failure. After all, it is the market that has failed to deliver the productivity improvement.

He does so by focussing on the question of public infrastructure - primarily through education - and also analyses how various competition reforms have also weakened human capital.

Gittins asserts;

As part of our abstemiousness, we've gone for several decades underspending on all levels of education and training: early childhood development, schools, vocational training and universities.

I'm not going to subject this view to critical analysis. I happen to agree with it, especially in relation to secondary schooling (see note) and Universities.

In the area of competition policy Gittins sees the very real issue that by lauding competition we under-value co-operation;

But the human animal has achieved the great things it has not only as a result of competition between us but also as a result of our heightened ability to co-operate in the achievement of common objectives. The economists' conventional model is big on competition, but sets little store by co-operation, since it assumes we're all rugged individualists. Could it be that, by greatly increasing the competition most firms face in their markets, micro reform has reduced the amount of productivity enhancing co-operation?

A further possibility is that, in turning up the heat of competition in so many markets, and in spreading market forces into areas formerly outside the market, micro reform has diminished our ''social capital'' in ways that adversely affect economic performance.

There's no place for trust, feelings of reciprocity or norms of socially acceptable behaviour in the economists' model, so they tend to under-recognise their importance. But you only have to observe a loss of trust within the community to realise the high cost that loss imposes on the economy as well as society.

The less we feel we can trust each other, the more avoidable costs we impose on the economy in spending on supervision and monitoring, security devices and security people.

I could add that the "market model" as applied to human resources has seen an under-investment of in-firm people development. he solution to a skills shortage (or worse change in skill requirements) is to simply "go to the market".

To remind us of what Gittins is arguing against let's consider this rant in The Punch. The person asserts they've lost faith in Labor because it isn't economically rationalist but is instead "a party of protectionism, intrusive government, wealth redistribution and union power."

I won't repeat my comments from The Punch. Here I want to merely note the incredibly productive role Unions have made over time in insisting on the development of human resources, not least in requiring firms to train and re-train employees.

Contrast this with the bellowing of the still new Member for Bennelong. John Alexander reckons we need to review penalty rates because they impeded economic activity. His example?

We have many examples in our region of coffee shops and the like not trading on weekends because of penalty rates. It is something that must be addressed and it must be addressed without the position of the worker is king and must be given these rights. There's no benefit in having the right but not having the job. The consumer loses, business loses and the employer loses.

I live and work in Bennelong. No coffee shop that I wish to use on a weekend is not open on a weekend. But since when were we going to have a "coffee shop led" economy? (Don't get me wrong, the service sector is large and important, it is shop? And why not cafe?)

"Reform" is a much more complex concept than merely "less government".

(More generally the role of government is to make markets that work).

Note: I've written previously about the issue of maths and science education in high schools. I asked a casual maths teacher about it - what would they do. His simple answer was pay Maths teachers more. Because it is a compulsory subject maths masters always have full classes and have a higher ratio of kids not interested in being there.

Novae Meridianae Demetae Dexter delenda est

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