One particularly significant aspect of the report is its attack on how the merit principle is applied in public service appointments. The report recognises that this principle is important "to guard against patronage, bias and any other influence, through competitive entry". But it is very critical of how the principle is implemented. In particular, the report refers to a number of "myths" about the merit principle – for example, that it requires complex selection criteria, mandatory interviews and references criteria, and specification of classification levels.

These criticisms are hardly novel and carry some weight. Few would disagree that the merit principle has often been used to justify cumbersome and time-consuming procedures. There may well be room for further simplification and flexibility in the application of the principle.

But what is most striking is the rationale given for such simplification. It is based on the statement that "merit in recruitment is also an underlying principle in the private sector". By implication, the public service need only apply merit procedures that are found in the private sector and should not see itself as significantly different in this respect from the private sector. The report recognises that private sector companies apply a general interpretation of merit while, for the APS, the meaning of merit is spelled out in the Public Service Act and the Australian public service commissioner's directions. But it treats this difference as largely accidental and rejects it as a reason for treating the APS as distinctly committed to merit. "A complicated merit process should not be justified by a perception that it is a requirement particular to the APS. Merit is also an underlying principle in the private sector."

The first sentence in this statement could be taken to mean only that a complicated merit process should not be seen as a requirement particular to the APS. This could leave the way open for a less complicated, but equally distinctive, application of the merit principle in the public service. But the immediate repetition of the argument that merit is also a private sector principle suggests that no distinctive application is required for the public service. When the relevant sections of the act and instructions are amended and simplified, as the report recommends, private sector versions of merit are presumably to be taken as models.

The claim that the public sector should follow the private sector in the application of merit is radically mistaken and should not be allowed to pass unchallenged.

In the first place, large swathes of the private sector are untouched by anything like the public service merit principle. Small businesses, for instance, run almost entirely on nepotism and cronyism. Many larger firms are still family-owned and family-influenced. Private businesses often operate through networks based on common ethnicity, locality or religion, which also function as avenues of recruitment. Such links of kinship and shared identity are natural and normal. They are often a source of great efficiency (and also agility, etc) in the private sector economy. But they have little to do with the merit principle as normally understood.

When McPhee talks of merit being "an underlying principle in the private sector", she probably has in mind certain segments of the private sector – for example, the large public companies like Qantas, Fairfax Media and AGL Energy with which she has been associated. Such corporations certainly adopt merit-based appointment and promotion processes as means of securing and retaining the best people. So do many of the high-end legal and financial partnerships that need to employ the best talent to maintain a competitive edge.

Even so, there is an important difference between the two sectors in how merit is applied. In the private sector, it is the prerogative of senior management to determine the selection criteria and appointment processes, having an eye to the company's best interests as they see them. Apart from some basic requirements set by employment law, senior managers are free to make their own decisions about both general procedures and particular individuals. Any adherence to merit principles is therefore at the discretion of the company and its management.

Merit in the public service, however, is significantly different. Certainly, the emphasis on open competition and the ban on nepotism and other forms of favouritism are aimed at securing the best people in the interests of good government. But there is another equally important purpose: to act as a constraint on officials who may be tempted to abuse the power to appoint and promote for their own interest rather than the public interest. The merit principle was founded on opposition to what, in the 19th century, was known as "jobbery": the peddling of public offices for personal gain. It assumes that excluding a well-qualified but poorly connected applicant is not just damaging to the public service but also inherently unfair to that individual. Every member of the public should have an equal chance to compete for public employment on their own merits. It also assumes that those making government employment decisions are not always reliable judges of the public interest and need to be subject to oversight and appeal.

The fact that employment is public makes a crucial difference. The same contrast appears in attitudes to the letting of contracts. Private companies will typically try to get the best value for money when engaging contractors. But, in the end, they are free to choose whom they like and are not answerable to well-qualified applicants who are overlooked. With government contracts, however, public funding is at stake and government agencies are obliged to give all eligible contractors the opportunity to bid in a transparent process. Time-consuming and tedious? Yes. But demanded by equity.

The merit principle is therefore not just about merit as normally understood. It is also about equity. The first clause of the relevant section in the Public Service Act makes this clear; a decision is based on merit "if all eligible members of the community were given a reasonable opportunity to apply to perform the relevant duties".

McPhee's report, now endorsed by Lloyd and the secretaries board, tries to remove one of the pillars of public service employment by falsely suggesting that the public service merit principle can be equated with merit in the private sector. One can see why the secretaries would welcome such an approach. Private sector practice is based on the assumption that managers (read secretaries and deputy secretaries) are the best judges of merit and how it should be assessed. But the public service principle has been based on a healthy scepticism about the impartiality of those making appointment and promotion decisions. Giving the commissioner and secretaries responsibility for revising the relevant sections of the act is to place a group of wily foxes in charge of redesigning the chicken coop.

This is not to argue against all revision and simplification of merit procedures. Still less is it intended as an argument in support of those who use merit processes as a way of protecting incompetent performers. Balances need to be struck between the demands of effective management and individual fairness and there may be cases where fairness has been allowed too much weight. The main point is simply that the public sector is different because different considerations apply. Public service appointments will always be more cumbersome (and, yes, less agile) than in the private sector. Rightly so.

The McPhee report is not the first move by senior secretaries against the merit principle. In 2009, they successfully engineered a revision of the APS values in the 1999 act, which removed merit from its position as one of the core public service values and relegated it to a separate subsection of "employment practices".

These changes represent a deliberate rewriting of public service history. Merit appointment was the founding principle in our Westminster public service tradition, dating back to the Northcote-Trevelyan report of the 1850s. Its significance extends beyond mere employment processes to the wider administrative culture. Officials who owe their position to fair and transparent processes are more likely to respect due process in their daily dealings with politicians and the public. Conversely, those who know that corners were cut in getting them appointed or promoted will be more willing to bend the rules to help a friend or relation.

Reading McPhee, and other private sector critics of the public service such as the commission of audit, makes one wonder whether the business community has any appreciation of an honest and law-abiding bureaucracy. Perhaps they prefer to deal with governments in countries to our north, where it is more a matter of hiring a facilitating agent who knows which networks to plug into and whose palms to cross. By contrast, Australian bureaucracy must appear annoyingly pedantic and rule-bound. Well-paid lobbyists may help but only so far.

Do our business leaders really want to live in societies where motorists must carry money in case they are stopped by a policeman threatening a false traffic violation? Or where under-the-counter payments or personal connections are required for most government services, from getting a passport to hospital admission?

Government corruption is an international scourge, on which billions of aid dollars have been spent and largely wasted. The only sure recipe for honest government is to be blessed, like Australia, with a long-standing historical tradition of public service integrity and respect for the rule of law.

Historical traditions are not self-sustaining. They need to be regularly affirmed and replenished. By all means, make changes and adjustments to meet new needs and challenges. Indeed, exercise some agility and innovation along the way. But do so within an open and explicit endorsement of the core values that underpin our system and which distinguish the public sector, in certain crucial respects, from the private sector.

Richard Mulgan is an emeritus professor at the ANU's Crawford School of Public Policy. richard.mulgan@anu.edu.au