Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Back to the 70's?

Robert Carling

14 October 2016 | Ideas@TheCentre

RC ford 1970sThe recent flourishing of a populist, anti-establishment theme in many countries’ politics has been explained as a revolt against serial failures of mainstream parties’ government. Ordinary peoples’ concerns have been brushed aside for too long, the elites have rigged economies for their own benefit and the common man is on a democratic rampage to break the system — so goes the ‘revolt’ theory.

A rigorous explanation would be more nuanced and country-specific, but there are enough grains of universal truth in the ‘common man revolt’ theory for us to take it seriously. The question is: where is this revolt taking us? History has thrown up enough revolutions to tell us they don’t all end well. This revolt is not in the big league, but it still has the potential to bring major change. Will this be for the better?

Mainstream politics deserves to be taken to task, but for what exactly? Classical liberals and anti-establishment populists have very different answers to that question. The policy agenda of anti-establishment populists — more trade protection; less foreign investment; more social security and ‘free’ health and education services; greater forced equality of outcomes; and more taxation of business and rich individuals — is anathema to classical liberals, who see the failure of government as a failure to limit itself and to let markets work.

The current revolt is dragging public policy in populist directions. It doesn’t take victory by outsiders to produce that result, as the mainstream parties themselves perceive an electoral necessity to become more populist. Where will this end? There is never going to be a counter-revolution for free markets and economic openness, but we can dare hope for a quiet return to the pre-GFC consensus that such is the best way forward, with smaller government thrown into the mix also.

This shift may come about through an unexpected improvement in the global economy and average incomes or the emergence of centre-right leaders who are better defenders and advocates of free enterprise than the current crop (think more Margaret Thatcher and less Teresa May). But sadly, it is more likely to take a practical demonstration over a long period that the populist revolt is an economic dead-end. We may be condemned to relive the dismal economics of the 1970s.

Investment Tanking

Michael Potter

14 October 2016 | Ideas@TheCentre

MP money boat sinkingBusiness investment is plummeting in Australia. And it can’t be excused away by the end of the mining boom. Yes, mining investment is falling quickly; but non-mining investment isn’t recovering and remains at levels only previously seen before in the middle of the 1990s recession.

The weakness in investment could also be excused as a global phenomenon. Investment is falling everywhere, you might say. But this isn’t true. In fact, total business investment across OECD countries is growing faster than the total OECD economy. So investment is recovering in most of the rest of the developed world, just as it is tanking in Australia.

In fact, the small and exclusive club of developed countries with falling investment since 2009 includes Italy, Spain, Portugal and Greece. We are a member of this club, according to OECD data, whether or not you include mining investment. Doesn’t it make you proud?

If on the other hand this troubles you, then perhaps it might be a good idea to do something about the tax on investment — namely, company tax. While our investment levels are falling, company tax as a share of profits is

growing, and our tax rate is becoming less and less competitive over time, as detailed in the CIS research report Fix it or fail: Why we must cut company tax now.

It doesn’t take a genius to realise that falling investment levels and increasing investment taxes might be connected. But in case this isn’t obvious, the research report also details plenty of real-world evidence of this.

Fixing declining investment levels should be a priority. If business doesn’t invest in more capital, Australia risks failure: the economy won’t grow and there won’t be the funds to pay for our mounting economic challenges. Therefore, the proposal currently before parliament — to cut the company tax rate from 30% to 25% — deserves the support of all.

Competitive forces in school education

Jennifer Buckingham

14 October 2016 | Ideas@TheCentre

JB tug-of-war schools 1Funding changes are not the only threats non-government schools will need to have on their radars in the next decade. School enrolment data from the Australian Bureau of Statistics shows that after four decades of relentless growth, the proportion of students in independent schools has slowed substantially.

The number of students in the independent sector has continued to increase, but the other sectors have begun to regain some territory. The patterns are different for primary and secondary schools. At primary level, government schools have had an uptick in enrolment share for the first time since the 1970s, whereas secondary school growth has been greatest in Catholic schools.

This is arguably a good thing. For competition to be beneficial — either by raising quality or lowering costs, or both — it has to work in both directions. Growth in one sector alone over a long period of time creates stagnation; the waning sector is not responding effectively, and the prevailing sector becomes complacent.

Independent schools have been able to maintain their respected and valued position as educational leaders through a combination of strong and visible achievement and, for some schools, a large element of prestige.

But parents are becoming savvy consumers of education. Thanks to the My School website and various other sources of information about comparing schools, parents are able to weigh up school performance in NAPLAN versus the cost commitment of school fees. Of course, NAPLAN is not the only measure of school value, but it provides a hitherto missing piece of the puzzle.

There are also other potential disruptors. The success of free schools and academies in England is arousing the interest of policy makers, and the example of New Zealand’s Partnership Schools has been instructive. Free schools and Partnership Schools were inspired by charter schools in the US. They are privately-operated schools that are fully publicly funded. They cannot charge fees and are usually not selective. This combination of independent management (with a high level of accountability) and the absence of fees will be an appealing prospect for many parents.

A healthy and high quality non-government school sector is an important part of the education landscape. But it should not be assumed that the circumstances of the past will be continued into the future.