Gittins: The balancing act of equity and efficiency
The individual or the system. Who's to blame for society's problems? Ross Gittins explains.PT0M0S 620 349
A lot of the problems the nation struggles with and argues over boil down to the considerable potential for conflict between what economists summarise as ''equity'' and ''efficiency''.
We act as though one is right and the other wrong but, in truth, sensible people want a mix of both. So, though we don't always realise it, the hard part is finding the best trade-off between the two.
''Efficiency'' means taking the scarce resources of land, labour and capital available to the community and employing them in such a way that they produce the combination of goods and services that maximises the satisfaction of the community's material wants.
Illustration: Kerrie Leishman
So it's about improving the productivity of our work effort - getting a bigger bang for our buck and minimising waste. But it's also about being flexible in our response to the change that comes along.
Technology is always improving, allowing us to achieve the things we want more efficiently or even allowing us to satisfy wants we didn't know we had. So we accept it as a force for good, but it can greatly disrupt the lives of people whose jobs have been geared to the old technology.
No one tends to argue against technological change, but we're often less willing to accept change coming from that other major source, change in how the rest of the world relates to us. Why should we change just because they've changed?
Let's say the economic development of China and India reaches the point where they need huge quantities of coal and iron ore to make steel. They're willing to pay much higher prices and their need for a lot of steel is likely to run for several decades.
Are we willing to take their money? Sure. Are we willing to build a lot more mines to accommodate their needs? Sure. Are we willing to pay the various prices that come with this good fortune: the high dollar that makes life a lot tougher for manufacturers and others, the need to shift workers and other resources to other parts of the country, the two-speed economy this will bring? Not so sure.
All this sounding familiar? The efficiency story is one we hear all the time from economists, business people and politicians.
Taken narrowly, ''equity'' refers to the fairness with which the proceeds from all this efficiency are distributed between individuals and households. Is income being shared more unequally between the top, middle and bottom, or less?
But I want to use the term more broadly to encompass all our non-efficiency objectives. Not just monetary fairness, but our need to preserve the natural environment, need for strong relationships with family and friends, need for recreation and our desire to live in a community that's free, democratic and subject to the rule of law, with harmony between the many groups that make it up.
You can see the scope for conflict between all these objectives. We don't want to be so efficient we're unfair, nor so fair we're inefficient.
Conflict arises partly because people tend to specialise in one objective or another. They bang on about the economy or the environment or social concerns as though their speciality was all that mattered. Business people and economists are particularly prone to having one-track minds, but they're by no means the only super-specialists.
An even bigger problem arises because so many people tend to conceal pursuit of their own interests behind the banner of a larger, worthier cause. Cutting my taxes would be great for the economy. If you care about People not Profit, you'll protect my job from change (what this implies for other people's jobs is not my concern; they can look after themselves).
I have doubts about the sincerity of business groups demanding reforms to correct our supposed weak productivity performance. Why? Because the ''reforms'' they choose to advocate would benefit themselves in the first instance and the rest of us only indirectly.
But, similarly, unions fight to preserve a status quo that's been overtaken by events and to protect their (surviving) members' interests at the expense of other workers.
Perhaps many of these urgers aren't knowingly dishonest in the way they frame their case, just so conscious of their own interests that they're unable to see how self-serving their arguments are.
Maybe I'm just getting old, but it seems to me the public debate about government policies is getting more self-seeking, strident and polarised.
It also seems the people who worry most about money have more of the stuff and are able to use it to buy a bigger say in the debate. We're always hearing how much money we'll lose if we fail to improve our productivity performance, but we rarely hear about what we have to give up to preserve and enhance our material affluence.
The people reminding us there's more to life than money and the things it buys don't get much of a hearing. Are we being asked to work longer hours (including at the end of a mobile phone)? Will we be required to work on weekends and public holidays? Will that mean we see less of our spouse, kids, extended family and friends? If so, how exactly will we be better off?
Will the hastening pace of modern life make us more stressed and damage our health? Will more people succumb to depression? Will greater efficiency make our jobs less secure and less permanent? Will we continue destroying the environment and losing species? If so, how exactly will we be better off?
We need a more balanced approach to progress. One that weighs the pros and cons of ''reforms'' more carefully and doesn't go overboard in one direction or another.
Ross Gittins is the Sydney Morning Herald's economics editor.