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Reform is a delicate act of balance

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Gittins: The balancing act of equity and efficiency

The individual or the system. Who's to blame for society's problems? Ross Gittins explains.

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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.

<em>Illustration: Kerrie Leishman</em>

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.

Follow the National Times on Twitter

64 comments

  • Reform in Queensland is happening after the LNP spent 20 years in the desert and the only commandments they came out with were the following 3 ..... sack, pillage and share the spoils amongst themselves.

    Commenter
    J. Fraser
    Location
    Queensland
    Date and time
    August 29, 2012, 9:14AM
    • The school kids from Kinder through to Year 12 keep building on basic knowledge and finding their talents. Those needing extra help are acknowledged by receiving extra help.
      All on a continuum to a basic common goal.
      Come the real world of ups and downs, good times and bad, Left and Right, none of which was taught in school. No school debate could teach them about the crap going on in politics.
      Peace and harmony, brothers and sisters.

      Commenter
      majortom
      Location
      north coast
      Date and time
      August 29, 2012, 10:06AM
    • A few excellent points as per usual. Firstly the economy is part of society and not the other way around and this is mentioned plenty by Ross but not muchin this article but productivity IS NOT FALLING. The growth in productivity is. That is productivity is still rising but at a slower rate. And dont forget that is due to massive mines being built that are not producing anything yet. If you strip that out productivity is just fine thank you

      Commenter
      Franky
      Location
      Sydney
      Date and time
      August 29, 2012, 11:25AM
    • Franky - You can spin as much as you like about "productivity" in Australia. At the end of the day, you still have to face the harsh realities. 1) Australia has a huge import bill. 2) Australia also needs capital as it does not save enough to fund its investment needs. 3) Foreign investors will put money in countries where they will get the required return. Lastly, the world does not owe Australians a living, let alone a very high standard of living.

      J. Fraser - How is getting rid of unproductive public employees "sack, pillage"? You would rather the government keep on borrowing like Labor and leave it to future Queenslanders to pay the bill?

      Commenter
      hbloz
      Date and time
      August 29, 2012, 1:01PM
    • Ross have a question for you.

      Are you considering this question from a very nationalistic point of view. Is it not true that Western lifestyles are presently being supported by people in developing countries that have to work in alot worse conditions than the average Australian worker. ie. sweatshops support our level of wealth and lifestyles. Every time you answer your iphone did you ever think of the poor worker that hasn't been allowed to have a pee in the last 12 hours. Almost every Australia drives around in a new car or has a plasma TV due to workers in these countries and they have alot less time with their families than we do.
      I am sure you would not want your lifestyle and time with family subsidised by workers in other countries. Yet that's what your article seems to suggest. Productivity in australia and therefore wellbeing will be determined on an international stage.

      So my question to you is are you not one of those urgers/ selfinterested in keeping our cossy lifestyles and letting other people pay for this ? Isn't equity a universal right not just an Australian one ? If we have to do a bit more so those poor makes of iphones can take a piss then I say bring it on.

      Commenter
      gd
      Date and time
      August 29, 2012, 1:31PM
    • @"hbloz"

      Which debt would that be ?

      Would it be the "debt" identified by former Federal Liberal Treasurer for current State Liberal Treasurer Nicholls that failed to find Queensland's assets ?

      Or would it be the "debt" that 3 LNP Ministers apologised to the Queensland parliament for exaggerating ?

      Would it be the $38 billion "debt" when Queensland has $123 billion in assets that was amassed after 2 floods and Cyclone Yasi , necessitated repairs over three quarters of the State ?

      Stop sucking up the LNP newman government poison and putting down Queensland.

      Just as the Queensland Treasury Corporation said in it's June 2012 booklet Queensland is ideally placed fiscally, have a read here :

      http://www.qtc.com.au/qtc/wcm/connect/1ac2d9004fee846892ccfb140bc6de40/QTC+Investor+Book+30+June+2012-Complete.pdf?MOD=AJPERES&CACHEID=1ac2d9004fee846892ccfb140bc6de40

      Commenter
      J. Fraser
      Location
      Queensland
      Date and time
      August 29, 2012, 3:34PM
  • Yet another excellent article by Ross Gittins. If only we had politicians who could see the balance required between GDP and happiness and express it so clearly.

    Commenter
    born again greenie
    Location
    Sydney
    Date and time
    August 29, 2012, 9:18AM
    • I'd say "run for Parliament" Ross but that might blunt your edge. Keep telling us the facts and your wise evaluations

      Commenter
      sangela@internode.on.net
      Date and time
      August 29, 2012, 10:13AM
    • We did have a pollie like Ross but he was too unpopular because he was too smart - Barry Jones. I am only 35 but wish he was still there

      Commenter
      Franky
      Location
      Sydney
      Date and time
      August 29, 2012, 1:09PM
  • "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."

    couldn't have said it better myself. The problem with reform in Australia is that we have a media focused on winners and losers, hence all those $150,000 a year couples who the government is just trying to bring down.

    You know the question that gets asked: Can you guarantee Prime Minister, that no Australian will be worse off under these changes?

    Commenter
    rhm
    Date and time
    August 29, 2012, 9:30AM

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