There are lots of people scratching their heads trying to understand how publicly listed companies owned by savvy shareholders, could allow managers to take their money, use it recklessly, then pay themselves a greater return than shareholders get.
If this sounds familiar to anyone living in NSW, it should. The taxpayers of NSW, like the shareholders of Wall Street financial companies, have been taken for a ride.
If the state of NSW were a company, we would be its shareholders. It is the people of NSW, after all, who provide taxes and pay for the bureaucracy and government. The state government, like public companies, has an ‘agency problem’. Similar to the managers who run companies on the behalf of shareholders, politicians run the state on the behalf of its people. That’s ‘agency’. But like managers, they have an incentive to run it for their own benefit instead. That’s the problem.
Judging by the disastrous opinion polls, this is exactly what’s been happening. We are not happy with management. Trains, roads, hospitals, schools– all the goods that our company makes are broken. And if that were not bad enough, it emerges that management– the NSW politicians responsible for shoddy services- are getting their bonuses and then some.
Morris Iemma wants a car, driver and secretary for life as reward for three years of controversial premiership. Reba Meagher will get a handsome pension for life despite overseeing one hospital debacle after another.
Like some corporate managers who benefit from the upside of risk-taking but take no part in the downside, politicians accept the rewards of political office and even when they are kicked out by voters still have a lifetime of perks. Their performance plays no part in their compensation. And it doesn’t end with ministers. Support staff and political lackeys all consume taxpayer funded salaries and perks that bear no relationship with performance.
This is impossible to justify at the best of times, but especially when plum political positions are awarded on the basis of backroom deals and personal loyalty rather than merit.
Australia rails against exactly this sort of pork-barrelling internationally. We lecture our poorer Pacific neighbours for paying their politicians with slush funds and perks that cannot be justified by performance. In fact, about half our international aid effort goes into ‘governance’ programs to fight exactly this sort of featherbedding. Is this only worth opposing if it happens somewhere else?
Every day of every year, taxpayers spend millions of dollars supporting the personal activities of former politicians. It is money that individuals and families have worked hard for, saved and sacrificed for, and we are entitled to ask what value we get in return.
The public service in NSW has become a black hole into which 50% of government revenues – our taxes – are sunk. And yet the state government operates on management principles that would make most companies blush.
During the last election, inconvenient changes to Epping Road in Sydney were delayed until after the election so the effects would not be felt at the ballot box. Similarly, changes to the rail timetable at Ryde are being delayed until after the by-election. This is the cost of ‘agency’. And it is rife in both corporate and political life, except in politics people can’t just sell their shares. The only remedy is to move to another state.
How did it get this bad?
The extensive system of political perks was initially introduced to lure the best and brightest into politics by compensating talented individuals for income forgone in other areas. The idea was that people who accomplished something in their own lives would then move into politics.
But it has not turned out that way.
The current system rewards length in office rather than results in office. The incentives are structured to invite politicians to do little to rock the boat, stay in office as long as possible and then collect a lifetime of rewards. This is not the way governments are supposed to work.
The first thing that must change is the idea that the public should pay for former politicians who don’t provide any service. Every day of every year, taxpayers spend millions of dollars supporting the personal activities of former politicians. All out-of-office perks should end immediately.
In the corporate world, if a manager is sacked, they leave and find another job. The gravy train ends. The problem is that governments do not face such discipline. If they get sacked by the public, the gravy train rolls on for a lifetime. Individuals in government must be held to greater account for their performance in power.
Gaurav Sodhi is a researcher at the Centre for Independent Studies.