Rationalists should stop burying their mistakes

I'm not a great proposer of royal commissions, but maybe such a spotlight is the only way to oblige blinkered economic rationalists to face the many failures of their knee-jerk advocacy of outsourcing, privatisation and deregulation.

Economists aren't as scientific as they claim to be, being prone to what psychologists call "confirmation bias". Whereas the scientific method requires you to seek disproof of your theory, economists - like the rest of us - note all the occasions when it seems to work and quickly forget any times when it didn't.

But, as the troubles of the for-profit trainer Vocation remind us, the instances of ill-considered micro-economic reforms producing dubious outcomes just keep piling up.

One class of reform that sounds fine in theory but often performs badly in practice is the outsourcing of government services. The theory says that just because some service has public-goods characteristics - it can't be provided profitably by the private sector in adequate quantity - and so must be provided at taxpayer expense, that doesn't mean it has to be delivered by public servants.

Why not get the best of both worlds by contracting outsiders to deliver the service on the government's behalf? You can call tenders and so ensure the government discharges its obligations at the keenest price. Often it will be charities and community organisations that are most interested, but why exclude for-profit businesses if they can offer a better price than the not-for-profits?

There's little doubt governments - and businesses, for that matter - have made significant savings by outsourcing particular functions. Sometimes this is because the contractor has access to economies of scale or scope not available to the outsourcer.

But I doubt if many savings arise purely from greater efficiency - especially not when profit margins have to be accommodated. No, usually the savings arise from side-stepping existing staffing levels, wage rates and conditions.

Often, the service is now provided using fewer, less-well remunerated workers, maybe with more casuals.

In which case, the saving may well come at the cost of a loss of quality - one the advocates of outsourcing aren't anxious to know about. The risk is greater if the contractor is also making room for his profit.

The advocates tell you it's all a matter of writing watertight contracts, but sensible people know that's not possible. They also know motivations count for more than legalities.

Why can I think of no thorough-going evaluations of the costs and benefits arising from outsourcing? It's not hard to call to mind a lot of examples where outsourcing to the profit sector has come scandalously unstuck.

Consider all the stuff-ups we've had with public-private partnerships for the construction and operation of infrastructure. The cases where seemingly reputable private consultants have grossly overestimated the number of motorists who'll use a tunnel, bridge or highway.

Even when these partnerships don't blow up, you often find the government has agreed to tie its hands on future road and even public transport options to make the deal attractive to the private partner. A hidden cost.

Consider the disaster when the authorities who'd recommended that private firms be allowed to deliver heavily subsidised childcare sat back as the deluded principal of ABC Learning took over half the nation's childcare centres before everything collapsed.

Consider the many foreign students ripped off by shonky trainers permitted by lax regulators to, in effect, sell the right to become permanent settlers.

Broadening the focus, remember when the Hawke government handed control of the wool reserve price scheme over to the industry, which eventually sent it broke. Remember the trouble when the Kennett government thought it was smart selling power stations for far more than they were worth.

Remember the Keating government privatising our monopoly airports and now, we discover, sweetening the deal by giving the owner of Sydney airport first refusal should a second, potentially competitive airport ever be built.

Remember the way some states sold their monopoly electricity networks, but our price-regulation regime failed utterly to stop the private owners badly overcharging power users.

Note how often customers and taxpayers have had to pay to clean up the mess created by micro-economic reformers who know a lot about theory but far too little about how the profit motive works in practice.

And where's the rationalists' learning curve? Where's the evidence they've learnt from 30 years of cock-ups? When will they learn respect for the terrible power of profits?

When will they learn that when the public sector plays poker with the private sector in a commercial-in-confidence back room, it's almost always the pollies and econocrats who emerge without their shirts?

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Social and economic case for helping women work

Surely the most momentous social change of our times began sometime in the 1960s or '70s when parents decided their daughters were just as entitled to an education as their sons. Girls embraced this opportunity with such diligence that today they leave schools and universities better educated than boys.

Fine. But this has required much change to social and economic institutions, which we've found quite painful and is far from complete. It's changed the way marriages and families operate - changed even the demands made on grandparents - greatly increased public and private spending on education, led to the rise of new classes of education and childcare, changed professions and changed the workplace.

It has led to greater "assortative mating", where people are more likely to marry those not just of similar social background, but of a similar level of education.

For centuries the labour market was built around the needs of men. Changing it to accommodate the needs of the child-bearing sex has met much resistance, and we have a lot further to go. This is evident from last week's report of the Human Rights Commission, which found much evidence to show "discrimination towards pregnant employees and working parents remains a widespread and systemic issue which inhibits the full and equal participation of working parents, and in particular, women, in the labour force".

You can see this from a largely social perspective - accommodating the rising aspirations of women and ensuring they get equal treatment - or, as is the custom in this more materialist age, you can see it from an economic perspective.

By now we - the taxpayer, parents and the young women themselves - have made a hugely expensive investment in the education of women. It accounts for a little over half our annual investment in education.

If we fail to make it reasonably easy for women to use their education in the paid workforce, we'll waste a lot of that money. Our neglect will cause us to be a lot less prosperous than we could be.

Of late, economists are worried our material standard of living will rise more slowly than we're used to, partly because mineral export prices have fallen but also because, with the ageing of the baby boomers, a smaller proportion of the population will be working.

They see increased female participation in the labour force - more women with paid work, more working women with full-time jobs - as a big part of the answer to this looming catastrophe (not).

But how? One way would be to impose more requirements on employers, but in an era where the interests of business are paramount, politicians are reluctant to do that. Make employers provide childcare or paid parental leave? Unthinkable.

So, for the most part, taxpayers have picked up the tab. Government funding of childcare has reached about $7 billion a year, covering almost two-thirds of the total cost. The cost of government-provided paid parental leave is on top of that.

Governments' goals in childcare have evolved over time. In the '70s and '80s, the focus was on increasing the number of places provided. In the '90s, the focus shifted to improving the affordability of care, with the introduction of, first, the means-tested childcare benefit, and then the unmeans-tested childcare rebate. Under the Howard government, the rebate covered 30 per cent of net cost, but Labor increased it to 50 per cent.

More recently, increased evidence of the impact of the early years of a child's life on their future wellbeing has shifted governments' objectives towards child development and higher-quality, more educationally informed, childcare. This includes getting all children to attend pre-school. Linked with this has been a push to raise the pay of childcare workers.

The federal government asked the Productivity Commission to inquire into childcare and early childhood learning. Last week it produced a draft report. I suspect the pollies were hoping the commission would find a way to reduce regulation of what they kept calling the childcare "market"; thus improving workforce participation and "flexibility" while achieving "fiscal sustainability".

If so, they wouldn't have been pleased with the results. The main proposal was that the childcare benefit and rebate be combined into one, means-tested subsidy payment paid direct to childcare providers.

This would involve low-income families getting more help while high-income families get less. There would be a small additional cost to the government, but this could be covered by diverting money from Tony Abbott's proposed changes to paid parental leave. It was "unclear" his changes would bring significant additional benefits to the community.

The commission wasn't able to claim its proposals would do much to raise participation in the labour force, mainly because our system of means-testing benefits - which works well in keeping taxes low, something that seems to be this government's overriding goal - means women face almost prohibitively high effective tax rates as their incomes rise, particularly moving from part-time to full-time jobs.

Like the Henry tax review before it, the commission just threw up its hands at this problem. And even the commission couldn't bring itself to propose major reductions in the quality of education and care. Sorry, no easy answers on childcare.

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