The legacy of neoliberal policy failure in Victoria

By Dr Geoff Edwards
The Royal Society of Queensland/Griffith University

The miasma of diesel fumes enveloping Spencer Street railway station (now Southern Cross station) was immediately obvious when I first entered the precinct after its roofing in 2004.

It is remarkable that it is only a workers’ compensation claim from one individual some 20 years later that is forcing those responsible to face up to the medical lemon that has been suffered by Melburnians ever since.¹

But who are “those responsible”?

Who is actually responsible for the health and comfort of patrons and employees at this major transport interchange? Is it the station operator, Civic Nexus, or its contractor Infranexus? Their owner, IFM Investors, a finance company? Is it V/Line, who run the non-electrified diesel hydraulic train sets and parks them under the canopy, belching smoke for hours?

Or is it Public Transport Victoria? The Department of Transport and Planning? The Minister? Of course, under our system of government, the Minister is accountable for everything in their portfolio, but that is a non-answer, when there is a network of contractors, corporatised entities, and commercial firms sharing powers and hand-balling accountability to each other.

Silos in academia cause silos in government

The dispersal of responsibility for Southern Cross station is a signature consequence of the economic rationalist (~neoliberal) restructures imposed on Australia’s public institutions by both major political parties since 1983. 

The core neoliberal processes of deregulation, outsourcing, and privatisation have been derived from single-minded economic theory, inadequately informed by multidisciplinary knowledge – notably scientific knowledge.

Central to mainstream economic theory is the principle that free competition between rational, self-interested contenders in a market will deliver the most efficient outcome – with ‘efficiency’ in economic jargon measured by price. Through this, competition is engineered. However, complex networked systems like public transport, telecommunications, and electricity necessarily require cooperation towards a shared purpose, not competition.

The foundational concepts of these economic ‘reforms’ are shallow in contrast to the depth of insights that science provides. Current knowledge of ‘systems’ phenomena – such as thresholds, feedback loops, nodes/links, and necessary/sufficient conditions – can offer valuable insights into public affairs. Further insights are provided by medicine and psychology, which explain that human behaviour is not always self-interested and not always rational, as modelling in economics assumes.

We can’t expect administrators of public authorities to be experts in emerging specialist branches of science. But even a basic application of the scientific method would require policy officials to consult widely across professional disciplines, jurisdictional boundaries, and with civil society. This is not only to tap into their distinctive knowledge banks, but to model interactions and potential scenarios.

Throughout Australia, decades of budget cuts and downsizing have depleted expertise within government departments, with outsourcing being both a cause and a consequence. Given the post-Whitlam Government (1972-1975) prevalence of tertiary education, peak expertise on any conceivable subject is now as likely to lie with the public as with the relevant departments.

In particular, learned societies can muster impressive fields of content-rich experts, but they are depressingly rarely called upon to advise governments on complex public affairs.

Given that much scientific knowledge is curiosity-led and publicly funded, there is an intrinsic mismatch with a policy agenda focused on reducing financial costs through commercial forces. However, ignoring scientific information in commercial entities is just one of the negative consequences of competition.

Fragmentation, increased complexity, and the atomisation of accountability are common consequences of introducing competition to previously unified systems.

Southern Cross station is undoubtedly an example of a complex system, but one hesitates to argue that it is unusually complex. Nearly every significant public enterprise these days is beset with complex interactions and these require strong central coordination to operate successfully.

Dispersing the levers of government

Take telecommunications, for example. The current Minister for Communications, Michelle Rowland, has recently written: “Crucially, the sale [of Telstra] also deprived the government of strategic levers to drive the investment necessary for Australians to fully access reliable high-speed broadband…”.²

What strategic levers, exactly? The primary role of a government is to coordinate, and the strength of their authority to do so comes from the consent of the people they govern. This coordination allows governments to use various resources effectively, including:

• Legal powers, such as the ability to regulate and collect taxes;
• Tenure powers, which involve creating, owning, and transferring property;
• Contract powers, including spending money and carrying out projects; and
• Suasion (the ability to persuade others), which relies on their status as ‘government’, and their ability to gather scientific and other knowledge.

The power of tenure (ownership) is direct and simple, when compared with the power to regulate (to restrict some other body’s ownership). Outsourcing and privatisation surrender the power of ownership.

The hidden costs of Victoria’s energy privatisation

If a panel of economists was asked to provide an example of a successful privatisation in Australia, they would likely nominate the breakup and sale of parts of Victoria’s electricity system in 1994. It earned that reputation because of the unexpectedly high price received by the Kennett Coalition government for the sale at the time. Now, 30 years later, it’s easy to conclude on several grounds that the fragmentation was a colossal mistake.

Dissipation of proceeds

The proceeds from disbanding the former State Electricity Commission (SEC) have long been spent. Whatever financial benefits were gained by selling public assets have been minuscule given the scale of the Victorian government’s capital and recurrent expenditure ever since. The perceived value of the proceeds should also be offset by the cost of subsequent industry adjustments in the Latrobe Valley, that come as a consequence of the closure of coal-fired power stations – which should have been foreseeable.

Economics’ short-sightedness on scarcity

Most basic economics textbooks define the discipline as the study of how to allocate scarce resources. But ‘scarcity’ has an idiosyncratic meaning, confined to the arena being modelled. The natural resources of the planet – which include the capacity to absorb CO₂ waste – are assumed to be unlimited until commodified. Science textbooks however explain that the laws of thermodynamics reign supreme. The scene is set for a policy regime based upon market forces, such as the national electricity regime, to fail to manage decarbonisation successfully.

Loss of system coherence

Economics textbooks emphasise how markets coordinate buyers and sellers, but this ability is overstated. Markets can balance the competing needs of buyers and sellers throughout supply chains of specific goods or services. However, they cannot effectively coordinate at a societal scale – between governments, academia, business, and civil society. It’s a common feature of privatisation: relying upon piecemeal markets to resolve complex, fuzzy, evolving, and conflicting policy objectives. Markets are simply not equal to that role.

Impediment to the carbon transition

Splitting a function between corporate providers and residual public authorities makes steering collective efforts towards a common future more difficult. The architects of privatisation in the early 1990s should not be forgiven for focusing on ‘potential sale price’, and failing to foresee that coal-fired generation was on borrowed time, given the scientific modelling of climate change that was coming to light.

Complexity can increase in unexpected ways. For example, the selling of a core utility to private corporations inevitably invokes the national foreign investment regime, which for a long time has been free-for-all. The alignment of the interests of a foreign profit-seeking investor with the public interest of Victorians in decarbonising electricity supply is likely to be tenuous. Further, the leaching of dividends, franchise fees and untaxed profits overseas erodes the claimed economic benefits of the sale.

Contracts with private providers that spread over a decade or more ossify the worldview of the government of the day for the length of the contract. This contrasts with the flexibility that a government has to change its own policy as circumstances change.

Under government ownership, coal-fired power stations could be phased down and something better phased in with a minimum of fuss. It is difficult for governments to force the write-down of assets owned by influential private investors who paid top money and will find willing supporters in the political opposition and the conservative press. It is plausible to argue that privatisation has impeded the transition by a decade or two, with huge opportunity costs and no end of painful disruption.

Implications for public policy

In a perceptive opinion piece in 2016,³ Professor Emma Johnston argued that four characteristics of scientists are essential skills for making a difference in our changing world: vision, a love of structure – “processes of experimentation, observation and testing”, ability to form cooperative teams across disciplinary boundaries and systems-based thinking – which is “problem solving and decision making based on analyses of the data, not hasty conclusions based on values or beliefs”. Yes, an understanding of causation and a capacity to trace cause and consequence would seem to be a skill essential for politicians and policy analysts.

She argued that more people trained in science, technology, engineering, mathematics and medicine should aspire to positions of leadership in society, certainly a worthy objective, but one that butts up against atomisation in academe (reductionism). Policy leadership would oblige aspiring scientist-leaders to pursue further education in the arts of leadership, including public administration, corporate governance, comparative economics or law. It would probably be better to include a compulsory course in policy analysis in every science degree at undergraduate level.

However, there must surely also be a parallel obligation upon politicians, analysts and commentators in the policy community to become more scientifically literate. It’s not as though scientific knowledge is concealed in scholarly journals: there are many competent brokers and translators such as the ABC, let alone the environmental movement.⁴ The scientific evidence that numerous current policy settings are unconducive to a sustainable, peaceful, and prosperous Australian society is overwhelming and in plain view.

Dr Geoff Edwards is Policy Coordinator of the Royal Society of Queensland and Adjunct Professor in the School of Government and International Relations at Griffith University. He was educated in science at Monash University.

References:

1. Longbottom, J. (2024, 30 August). Medical report links former worker’s liver damage to diesel fumes at Melbourne’s Southern Cross Station. abc.net.au/news/southern-cross-station-workers-compensation/104285048
2. Rowland, M. (2024, October 12). Why the NBN is not for sale under the Labor government. thenewdaily.com.au/news/politics/australian-politics/2024/10/12/michelle-rowland-nbn-sale
3. Johnston, E. (2016, October 17). We need more scientists to take the leap into politics. smh.com.au/opinion/we-need-to-see-more-scientists-take-the-leap-into-politics-20161017-gs3u5z.html
4. ABC Science. abc.net.au/news/science