Engaging the enemy

Editors routinely hand out assignments such as interviewing rebel leaders in Iraq, or hang-gliding over minefields in Cambodia, as if issuing an invitation to a barbecue. So I sensed danger when one editor began a briefing with an apology. Joining a US patrol in Baghdad, perhaps? No, worse. A four-day economics conference. It would take Hunter S. Thompson to make a story from this.

The Window On Economics  conference was designed to give policy advocates and social service employees a better understanding of economics. The introductory material failed to mention that economists and policy advocates are not typically fond of each other. All the economists who spoke were male, while 32 of the 40 policy advocates were female. (Apparently social services are ‘staffed by women but run by men’, in part because women often lack the training in finance that boards of not-for-profit organisations now require.) I was about to witness a clash of cultures not seen since Nino Culotta arrived in Australia.

Participants indicated that they were attending the conference to learn the language of economics. There was an implicit assumption that economists speak a distinct language, presumably to exclude the outside world from their evil cult. From the outset the battle lines were drawn.

Conference convenor Tim Moore, from economic consultancy firm ACIL Tasman, began by defining economics as the allocation of scarce resources. Economic rationalism, he added, was a divisive term, best avoided, since this rather slippery, non-technical phrase perpetuated the stereotype of economists as heartless conservatives. The phrase was little more than a term of abuse, and the participants needed to engage in real economic debate.

Sitting beside me at the introductory session was Bryan Lipmann, CEO of the residential aged care provider Wintringham. Bryan’s facilities cater to the homeless aged, with the majority of residents in his care having less than $1,000 in assets. He confided his view that many of the participants in the room who provided aged care should have their not-for-profit status revoked, with the resulting savings to be channeled into facilities like Wintringham.

Three days later, at the closing session of the conference, I questioned participants about Bryan’s comments on aged care funding, particularly in the light of the Salvation Army’s announcement, made that same day, that it was selling most of its residential aged care facilities. The response was radically different to what I imagine it would have been prior to the conference. If the standard of care is guaranteed and ‘the numbers make sense’, then several policy advocates said it sounded sensible. If the private sector could be left to run most aged care facilities, then charities and the government could use their resources for those in greatest need.

Drawing on the lessons of the past week, other participants mounted a case for continued government subsidies. It was observed that increased funding for aged care reduces the cost of acute medical care. It costs more to treat an elderly person who breaks a hip than to put them into residential care at an earlier stage to avoid such injuries. The policy advocates now seemed ready to critique the Federal Government’s soon to be released Review of Pricing Arrangements
in Residential Aged Care, prepared by Warren Hogan.

Interestingly, the lower reliance on aged health care facilities due to informal care in ethnic communities, was cited as a positive economic benefit of multiculturalism. The greater cultural pressure to take care of elderly relatives in many ethnic communities was seen to result in a lower usage of aged care facilities. Although this benefit of multiculturalism has not been examined by any empirical studies in Australia, studies do confirm the positive economic impact of informal care.

Of great concern to some, it was revealed that economists must determine the price of a life, or perhaps the amount the government will spend to prevent the loss of a life. The amount of funding allocated to such areas as health and road safety implicitly includes this calculation and is a decision that must be made.

The survival rate of the conference itself was high, about three quarters making it through to the final day, and some even chose to forego lunch to continue an economics lecture! A group that had initially gathered to understand the language of the enemy had discovered that economics is not only jargon but a valuable, though limited, tool. Used honestly, economics can provide a framework for productive debate. The participants were now better placed to battle cost-benefit analyses that fully costed social programs but neglected their wider benefits.
 
Participants also discovered that economists aren’t necessarily the enemy. Most academic economists at the conference were more ideologically in line with the participants than with the boffins in Treasury. The presenters argued that economic analysis is often hijacked by politicians and over-simplified by journalists. A good analysis takes into account the wider impact of social policy, even if only in a monetary sense. Reducing unemployment, for example, indirectly saves costs in
the provision of healthcare and law enforcement.

While policy advocates must engage in economic debate, in so doing they risk conceding that economic arguments are pre-eminent, and that we must become a cost-effective society. Using economic cost-benefit analyses to secure funding may make it more likely that such analyses will become mandatory for all social programs. This might not always be appropriate. Given a limited budget for drug enforcement, it might be sensible to establish the most cost-effective way to spend it, however cost-benefit analysis also shows that the treatment of drug addicts is economically inefficient—more lives would be saved by foregoing all drug rehabilitation and redirecting these resources to other areas of healthcare. Most in our community would consider this unacceptable.

Policy advocates must also be aware that economics is the traditional home ground of conservatives, who often have the financial resources to produce costly reports that support their point of view. (Witness the $7.2 million being spent on the Hogan report into aged care.)

Anyone serious about having an impact on the nation’s policy debates cannot afford to put economics in the ‘too hard’ basket. Economics has ruled politics since well before the Howard government. As far back as the 18th century Edmund Burke lamented ‘The age of chivalry is gone. That of sophisters, economists and calculators has succeeded and the glory of Europe is extinguished forever.’

Policy advocates must learn the language and the concepts. A wealthy country such as Australia should be able to care for its aged, but economic analysis is required to determine exactly how much we can afford to spend. Governments must behave in an economically responsible fashion. Maintaining a healthy economy is the only way to create jobs and pay for education and healthcare, and it is an underrated achievement of the dismal science that we have learnt to prevent recessions becoming 1930s style depressions.

Economists often sound as though they have just walked off the set of an episode of Yes, Minister. I recall a wonderful episode in which the Minister is excited to find that spending a relatively small amount of money to reduce smoking would result in huge savings to the health system. Then, in magnificent bureaucratic mumbo-jumbo, he is persuaded not to do so because the government couldn’t afford to pay the pension to all those people living for so much longer.

Economic terms are not just used to hide unpalatable decisions. They are used to deal with complex matters in the most convenient way, and to make definitions precise, even if precisely wrong. The accepted definition of unemployment, for example, is to have looked for work during the past week but to have worked for less than two hours. Economists are quite aware this understates the true level of unemployment, and are equally concerned about under-employment, where people work in jobs that do not make use of their education. Yet economists must draw an arbitrary line in order to measure unemployment. All professional groups, from doctors to social services employees, have a language particular to their discipline.

As I departed the conference, confident that the social policy analysts were now better equipped to deal with economic issues, I discovered a parking fine lodged under my windscreen wiper. Don’t parking officers realise the cost of enforcement results in a negative net impact to society? Or do the behavioural incentives and the increase in employment offset the costs of this highly regressive form of taxation? Where is an economically astute policy advocate when you need one?  

Peter Hartnett is an investment banker with a social conscience.

 

 

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