New Productivity Commission boss sets fresh agenda

Continuous reform: If you take the risk, we won’t hang you out to dry, says Peter Harris. | Photo: Damien Pleming

Peter Harris urges carefully considered policy development that engages unions and business.

This article is from the October 2013 issue of INTHEBLACK.

Regular readers of this magazine and followers of the policy focus of CPA Australia will be aware that Australia’s falling productivity, and the implications of that for the nation’s competitive place in the Asian Century economy, are keen areas of focus for the organisation.

On May 1 2013, CPA Australia released Australia’s Competitiveness: From Lucky Country to Competitive Country, a landmark research publication by Professor Michael Enright and Professor Richard Petty that draws on the insights of more than 6000 Australian and international business leaders.

And in September, former CPA Australia chief executive Alex Malley aired his concerns with the man tasked with watching over the area, the chairman of Australia’s Productivity Commission, Peter Harris.

Harris, a former adviser in the Hawke Labor government of the 1980s and early 1990s, took up the role in March and was obviously champing at the bit to get his teeth into it after the federal election of September 7.

Malley discovered that the career public servant likes to write his own speeches, has opened up his office to social media in a bid to improve communication and thinks the public service has become too risk-averse to serve the community as best it can.

Malley: Peter, since the mid-1970s when your career began to unfold, much of your work has been in the public sector. Was it a public debate family that you grew up in? Was there a direction in your childhood that led you that way?

Harris: Not at all. My father was a small businessman and had probably, in my judgement, one of the hardest jobs in small business because he was an exporter from small country towns at a time when we had fixed exchange rates and quotas.

He was a beef exporter, so he worked in the manufacturing industry and ran boning rooms and abattoirs. The only relevance for me was I learned a lot about international economics by hearing him on the phone at night because a lot of his business was done between 7 o’clock and 10 o’clock, organising overseas buyers and trade-related activity.

I learned a lot about the difficulties of running businesses effectively in international environments. Plus he had the standard industrial relations things, too – the [meat workers’ union] is not the easiest of unions to deal with, yet he had a lot of respect for people on the boning room floor and they had a lot of respect for him.

Malley: Having worked in the prime minister’s office and being part of his personal staff, I guess that gives you an understanding of how best to influence policy and execute good ideas?

Harris: Yes, I learned a lot in 2½ years in Parliament House. I worked with some very, very smart people, not just the prime minister but people like Sandy Hollway, who was chief of staff and went on to run the 2000 Sydney Olympics. I learned how to get things done in an effective and sustainable fashion, and things to avoid. When I came back to the bureaucracy I was a much better public servant, because I understood the art of government. It is an art; it’s not a science.

Malley: What appealed to you about this role? What did you want to achieve?

Harris:  I see this as being the leadership job in the micro-economy in the public sector. It should be the place from which we, the bureaucracy, can best provide dispassionate advice to a government that has chosen to go and get advice, rather than simply make up a policy prescription on its own and demand that it be implemented.

In that sense this job has the greatest capacity to influence how change is undertaken. A lot of people focus on the “what” – what changes should we undertake – and I see that as ultimately a decision for the government.

But in terms of how they go about it, can we embed this acceptance of the need for continuous change in the public sector as well as the private sector?

Malley: As far as your independence as chair of the commission is concerned, what’s the role it needs to play in developing this policy?

Harris: I can differentiate between my role and the commission because I’m not chief analyst for the Productivity Commission. That’s not me.

There is a series of super-qualified people in this organisation who are able to analyse any problem thrown at them, viewed through an economic lens for a government. It will be my job to ensure we continue to attract the kind of capability that can enable that work to be done.

The value-add for me is being able to explain and articulate and convince, particularly government – because they are for whom, ultimately, we do the work – how to proceed, and why the choices we might see as being of long-term economic value are the sort of things on which they can spend some political capital. And that’s a job to be done subtly, not aggressively, raising credibility over time.

Malley: You’ve talked of the pillars around commitment to innovation, the early adoption of technology, updating your business processes, removal of impediments to competition ... When you juxtapose that with the regulatory environment we have, some of the issues around taxation and trade policy, what’s your view on how we’re working with that backdrop?

Harris: These are the contributions government can best make to helping a country be more productive, but not every aspect of productivity belongs to government.
A lot belongs to management in individual firms and they need to address on a continuous basis their contribution to productivity. They have the natural incentive of a marketplace; government doesn’t.

Therefore the most important thing for government is to be far-sighted – “I need potentially to exercise options in those areas, because I can see this problem emerging”.

The current problem, obviously, from the Australian economy’s perspective is we’ve had a relatively poor productivity performance over the past decade, partially explained by heavy capital investment in mining and also by the drought and its impact on the provision of infrastructure, which is unrequited.

Now we’re facing those unrequited capital investment trends at a time when the terms of trade are falling and the impact on national income, across the entire economy, is going to be a negative.

So the question ultimately is, what replaces the positive terms of trade from the past decade or so? Logically the answer  is, enhanced productivity. If we want to grow our national income, we have to grow our national productivity.

Malley: Peter, with the Asian Century and what I like to refer to as the fire in the belly of the emerging markets, where their sense of improvement is much more evident than it is in our society, do you get a sense of the need to be more productive in your travels around the country, that it’s an urgent need?

Harris: There’s no doubt the focus is there and this is particularly true in mining. I was talking to the CEO of a major Australian company a couple of weeks ago.

His focus was on his firm’s productivity and mine was on what, generically, the government can do across the economy to enhance productivity.

The thing that remained with me from that 10-minute chat was when we came to find an overlap between what I thought were the most important issues in productivity and what he thought were the most important, there was only a limited space where we had similar focuses.

That’s not a criticism, it’s an explanation of why sometimes when we are out there pitching for productivity, the message doesn’t get through as clearly as it might.

The CEO of a firm is focused on his firm’s performance, you can’t expect them always to understand the government’s focus. I’ve been off to see the ACTU and others in these first few months, trying to get the message across that I’ve seen this done before.

We went through a sustained period of continuous reform from the mid-1980s through to the mid-1990s with both sides of politics, with unions and with business. We can do it again.

Malley: Do you think the country is winning the battle against impediments to competition, because it seems the longer an economy is in place, the greater the chance of regulation?

Harris: Are we winning the battle? It’s a continuous one. Victory can’t be declared, because a lot of regulation is put in place with the best of intentions and justifications, but subsequently becomes an impediment to adaptations or innovation and so has to be kept continuously under reform.

Impediments to entry to markets, created by accident or design – of all the things that bother me deeply about how an economy operates, those bother me most. They are areas where governments can add significant value.

We have, therefore, a responsibility to keep examining that area – not with the mindset of “there’s no justification at all for this”, but with one that says “this regulation has skewed this outcome, the outcome’s important to us, how can we adapt the regulation, how can we minimise its impact, how can we reform things?” – but not saying, “let’s remove entirely regulatory impact”.

Malley: Treasury has identified, as almost every Australian has identified, the need to boost productivity outside of the mining sector. What’s your view on that and how do we appear to be progressing?

Harris: The emphasis is on keeping it continuously under review. I have some ideas in regulation review that are a little adventurous, which I want to talk to the government about.

Most of good public policy is about getting the incentives right.

If you are going to try to have a continuous process of regulation review, you’ve got to have incentives in place that encourage those designing the regulation to do the best job they can, rather than just replicating what was done last time.

There’s a natural instinct, particularly when you are writing law, to look at precedent and adapt that for the next regulation.

I’m thinking through how to adapt that system to try to provide the incentive upfront, rather than wait for unintended consequences to emerge sufficiently for someone to say, “yes, OK, we should change this”.

Malley: How do you compare the political and bureaucratic environment today with the days when you were working with Bob Hawke as prime minister?

Harris: Reform was just as difficult back then. I get a little frustrated with people who think it was all so easy. It wasn’t. What is different is that risk-taking is not as encouraged today in public advising as it was then.

Whereas the balance needs to swing back towards people with good ideas. We, as public sector leaders, should encourage people to take a chance and put their ideas forward, and protect them where that proves necessary.

Call for change: Peter Harris. | Photo: Damien Pleming

Call for change: Peter Harris. | Photo: Damien Pleming

Malley: What has made the bureaucracy more risk-averse today?

Harris: There’s been a development in how politicians approach bureaucracy and the groups that scrutinise public service behaviour – the Audit Office, the Auditor-General, parliamentary committees and, most recently, development of a judicial enquiry into particular activities.

These processes are being added to all the time, in some ways undoubtedly positive, but in some undoubtedly with a negative intent of questioning whether someone “did the right thing” – and what that says to people working in the bureaucracy is, “well, it’s better to keep your head down”.

Now, the Auditor-General would say, “we don’t necessarily want you to keep your head down, we just want to know that you’ve followed a good, thorough process and could point to objectives that you were working towards”.

I’m a deep respecter of that. It is not so much what the Auditor-General or the parliamentary committee says, but the critical, often biased overlay added to it by subsequent public comment.

I consider that to be a bit sad, really, and it’s important for the leaders of the public sector to take on responsibility for giving people the ability to chance their arm, which is a finely judged task. This is not me trying to be endlessly critical.

It is fine judgement about how far you let somebody go in advancing an idea in front of a minister before, as the leader, you feel the need to pull them up. The pity there for me is that some good ideas are never going to see the light of day.

You need people with the leaders around them prepared to encourage them … “give us your best shot, give us your best thought-out idea for innovation and change”.

Senior leadership, we have to lift our game, we need to be more active in encouraging them to know that, if you take the risk, we won’t hang you out to dry.

This article is from the October 2013 issue of INTHEBLACK.