Richard Mackey on the public sector’s past, present and future

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Richard Mackey is the Director of Strategic Research in the Department of Immigration and Border Protection. He has held senior positions in central agencies, the Australian National Audit Office, state administration and the private sector. In this interview with Connect Intelligence, he reflects on the Australian public sector’s past and shares his thoughts on where Commonwealth administration needs to be to help Australia to have a prosperous future.

Please note that these are Richard’s personal views: they are not those of his employer. They ought not be construed as those of his employer or the Commonwealth Government.

Q: You state that the current era of reform to Commonwealth public administration is radically different to past eras, can you please elaborate?
There is a combination of circumstances that in aggregate are radically different to those which brought about past reform. In the past, the circumstances of reform required a reform agenda which was commensurate to those circumstances. Just as in the past, the Commonwealth requires a reform agenda commensurate with current circumstances: a radically transformative set of circumstances requires a radically transformative set of reforms.
Q: What is this radically transformative set of circumstances?
Digital disruption; e-government; e-commerce; e-service; data sharing and big data; and Australia’s financial, economic and geo-political circumstances.
On many scales, there is increasing uncertainty, complexity, connectivity, the pace of change and digital disruption. We are in an era of volatile and massively changing global power, economic and financial structures. At the same time, there is a marked decline in Australia’s terms of trade, an adverse structural imbalance in the Commonwealth Budget as well as the Budgets of the states and territories.
Q: What is the radically transformative set of reforms?
In a nutshell: digital administration for a digital community in a digital world. It can’t happen overnight! It requires a high-level co-ordinating strategy, a staged approach, significant investment, a sustained strategic commitment and oversight from Government, and a calibre of management from Commonwealth administration that has generally been missing-in-action in the past.

Q: You said that in the past, the circumstances of reform required a reform agenda which was commensurate to those circumstances: What were these circumstances?
The circumstances in the period 1974 to 1994 are detailed in the following:
• Royal Commission on Australian Government Administration 1974/76; chaired by Dr HC Coombs
• The report of the Administrative Review Committee, chaired by Sir Henry Bland, who was appointed by Prime Minister Fraser in December 1975 to examine and report to the Prime Minister on the programs, services and other activities of departments and agencies associated with departments.
• Senate Standing Committee on Finance and Government Operations 1981, The Australian Dairy Corporation and Its Asian Subsidiaries, AGPS, Canberra. NOTE: deals with a scandal known as the The Asia Dairy Affair which began in 1977 and came to an end in 1982, only to be overtaken by the meat substitution scandal.
• Royal Commission on the Activities of the Federated Ship Painters and Dockers Union 1980/84. NOTE: includes the Crown Solicitor scandal and bottom of the harbour schemes of 1974/82.
• The Royal Commission of Inquiry into Drug Trafficking (1981–1983), headed by Justice Donald Gerard Stewart.
• The Royal Commission of Inquiry into the Activities of the Nugan Hand Group, (1983-1985 (also headed by Justice Donald Gerard Stewart).
• Royal Commission into the Meat Industry 1981/82; Justice Albert Edward Woodward, O.B.E. was the Royal Commissioner.
• Review of Commonwealth Administration by John Boyd Reid AO Jan 1983.
• Problems in the Federal Narcotics Bureau and the Federal Police.
• 1987 Report of the Efficiency Scrutiny Unit headed by David Block, a Coopers and Lybrand strategic adviser.
• 325th Report of the JCPAA: Midford Paramount case and related matters – Customs and Midford shirts – The paramount case of a failure of Customs, tabled 18 December 1992. And
• The experience of Labour in government from 1972 to 1975.
The Financial Management Improvement Program and Program Budgeting, which were introduced in 1983 and managed by the Department of Finance and related systemic reforms, came out of the above.
In October 1997, the following three Acts replaced the Audit Act 1901:
• Auditor-General Act 1997 (which provided for the powers and functions of the Auditor-General)
• Financial Management and Accountability Act 1997
• Commonwealth Authorities and Companies Act 1997

Q: Was the reform agenda commensurate with them? What (if anything) was achieved?
No. The reform agenda adopted by the Commonwealth (based on the advice of the central agencies) was not commensurate with the circumstances. Very little strategic significance has been achieved.
What was required was valid, reliable, easy to understand performance information along with sound measures of efficiency, productivity, cost-effectiveness, high integrity administration and clear-cut, unambitious accountability. Responsiveness to government and being proactive was also needed along with basic cultural changes to Commonwealth administration to make sure that there would be no more scandals.
However, what did we get? In 1983 an overwhelming case was made for the publication of valid, reliable easy to understand performance information about Commonwealth administration to support the Commonwealth Budget. Now, some 34 years later, the Portfolio Budget Statements are as opaque as ever. In 2011, almost 30 years after an overwhelming case was made for all Commonwealth agencies to have sound measures of efficiency, productivity, cost-effectiveness, the Department of Finance announced:
It is difficult to measure efficiency in the public sector, particularly because of the problems associated with measuring changes in quality and outputs. The OECD has noted that ‘productivity gains in the public sector are very difficult if not impossible to measure’. This poses a major obstacle to developing a budget process that focuses on inefficiency.
Despite evidence that the integrity of Commonwealth administration was seriously impaired with evidence of widespread corruption, fraud, malfeasance, and the like, nothing was done to deal with these matters directly.
Most departments have confused and confusing charts of accounts. Throughout Commonwealth administration, make-work bureaucratic burdens displace real public service work. There is the generation of heaps of almost meaningless data on “outputs”, “outcomes”, “KPIs”, “program logic” and “productivity”, all in the name of performance management.
The Department of Finance is still issuing ‘enhancing’ guidelines. The JCPAA is still encouraging something better. Departments, especially the central agencies, are unable to recognise, accept negative feedback. Major failures in Commonwealth administration continued in the 1980/90s and to the present. Systemic problems continue to persist.

Q: What about Professor Peter Shergold’s recent report, Learning from Failure: Why large government policy initiatives have gone so badly wrong in the past and how the chances of success in the future can be improved. What does that tell us?
It is further dramatic evidence of the failure of central agencies to reform the APS.
In December 2014 the Government asked Professor Peter Shergold AC to lead an independent review of government processes for the development and implementation of large public programs and projects. He reported to Government in August 2015. The Public Service Commission published the report on Feb 5, 2016.
He reviewed several large scale failures of Commonwealth administration that took place between 2004 and 2013. These were:
• National Broadband Network
• Building the Education Revolution
• The Home Insulation Program
• The Australian Customs Service’s Cargo Management Re-engineering Strategy
He used the following first-rate reports of investigations into these failures:

NBN
Independent Audit NBN Public Policy Processes April 2008 – May 2010 by Bill Scales AO
BER
Auditor-General. ANAO Audit Report No.33 2009–10, Building the Education Revolution—Primary Schools for the 21st Century 5 May 2010.
Building the Education Revolution Implementation Taskforce led by Brad Orgill: interim report August 2010. First Report released on 15 December 2010 2011, Final Report July 2011.
Building the Education Revolution: Another Case of Australian Government Failure? By Chris Lewis, Brian Dollery, and Michael A. Kortt; International Journal of Public Administration Vol. 37 , Iss. 5, 2014
HIP
Senate Environment, Communications and the Arts References Committee, Parliament of Australia, Energy Efficient Homes Package (ceiling insulation), July 2010;
Dr Allen Hawke, Review of the Administration of the Home Insulation Program, April 2010;
Auditor-General ANAO Audit Report No.12, 2010-11, Home Insulation Program, Performance
Kortt, M. and Dollery, B. E. “The Home Insulation Program: An Example of Australian Government Failure”, Australian Journal of Public Administration, 71(1), 65-75, 2012.
Chris Lewis ‘A Recent Scandal: The Home Insulation Program’ in Keith Dowding and Chris Lewis (eds), Ministerial Careers and Accountability in the Australian Commonwealth Government, (Australian National University E-Press, (2012) 153-176.
Report of the Royal Commission into the Home Insulation Program Home Insulation Program; dated 29 August 2014. Royal Commissioner Mr RI Hanger, AM, QC.
The Australian Customs Service’s Cargo Management Re-engineering Strategy
Auditor-General ANAO Audit Report No.24 2006–07 Customs’ Cargo Management Re-engineering Project Australian Customs Service
Booz Allen Hamilton, Review of the Integrated Cargo System, 16 May 2006.

According to Professor Shergold, the manifold failures of NBN, HIP and BER; the implementation of the former Australian Customs Service’s Cargo Management Re-Engineering Strategy, which he states “was woeful”, mean that the Commonwealth Public Service, which he once led, has passed its ‘use-by’ date.
Professor Shergold’s thesis is that only by adaptive government can Commonwealth administration thrive in the complex, rapidly changing world of the 21st century.
Professor Shergold argues that to enable adaptive government, Commonwealth departments have to become learning organisations; they must stay agile, continuously learn and adapt.
Q: Does he explain how this might be achieved?
No. His report is unfortunately too shallow. He does not deal with the how of reform or explain why the APS has failed so seriously so often and why past reforms have had little impact.
He is enthusiastic about adaptive government and learning organisations but does not refer to the vast research literature on both.
The Noble Prize winning Economist, Douglass North, introduced the idea of adaptive efficiency over 30 years ago. There is now a substantial body of economic analysis and evidence about the idea. Professor Shergold ignored this.
He should have made use of the extensive social science research about learning organisations published since Chris Argyris and Donald Schön introduced the concept more than 40 years ago in 1974.
Q: You are critical of the Department of Finance for the poor quality of the Portfolio Budget Statements and for failing to make any progress in getting commonwealth agencies to have sound measures of efficiency, productivity, cost-effectiveness. Can you point to any comparable successes?
Yes, the Council of Australian Governments/Productivity Commission Reports on Government Services produced each year, every year for last 20 years. These reports contain useful measures of efficiency, productivity, and cost-effectiveness of the public sector. Last year these reports covered government services costing $192 billion of recurrent government expenditure, which was 2/3 of all recurrent government expenditure and constitutes 12% of Gross Domestic Product. In contrast, the total expense in the appropriation acts of 2015-16 about $96b ($81b in Appropriation Act No 1 2015-16 and $15b in Appropriation Act No 2 2015-16. The Portfolio Budget Statements are supposed to make the disbursement and evaluation of the $96b understandable.
The Reports on Government Services show what the Department of Finance could have done had it taken up the challenge over three decades ago. The Department of Finance ignores them.
Q: You seem to be saying that Commonwealth administration cannot reform itself in the way required if Australia is to thrive in this current era of high uncertainty, digital disruption and financially challenged governments. What are the consequences?
Yes, I am saying that but so are others.
Professor Shergold, a former Secretary of the Department of the Prime Minister and Cabinet, came to the same conclusion. He is not explicit about the consequences that follow if Commonwealth administration is not reformed as he recommends. But he does imply that in the absence of those reforms the dysfunctional administration he examined would continue.
Martin Parkinson, the current Secretary of the Department of the Prime Minister and Cabinet, also came to the same conclusion. He is more explicit about the consequences if Commonwealth administration is not reformed.

In his 2015 report, The Lucky Country: Has it Run out of Luck? (Griswold Center for Economic Policy Studies, Princeton University Working Paper No. 247, September 2015), he concluded:

 

By its nature, true disruption is hard to forecast. If it is not possible to predict what disruption will impact on a market or firm, or when, what form of business model is most likely to handle these shocks the best? Drawing on the work of American scholar, statistician and former hedge fund manager, Nassim Nicholas Taleb1, it seems plausible that entities which are inherently centrally organised – with rigid structures and modes of operation, and limited openness to new ideas – are less likely to be able to adapt quickly – as such, centralisation magnifies the impact of deviations from the norm. 

1Nassim Nicholas Taleb and Gregory F. Treverton,“The Calm Before The Storm”, Foreign Affairs, January/February 2015.

 

If Commonwealth administration cannot reform itself and if government cannot reform it, the consequences are serious.

In 2015/16 the Australian Public Service (APS) cost about $50 billion, had a workforce (excluding military and reserves) of about 167,000 and administered about $451 billion. The APS can have a positive or negative impact on Australia’s prosperity depending on the efficiency, productivity and the cost-effectiveness with which the services are provided. This is because the services are essential for Australia’s prosperity. The better the services, the greater the prosperity; conversely prosperity falls if the APS provides the services badly.
If high quality services could be provided at a significantly lower cost, the money saved could be used to improve the Commonwealth’s financial circumstances: a modest 10% improvement in efficiency would mean a reduction of about 14% in the expected 2017 deficit ($36.5 billion in the last Mid-Year Economic and Fiscal Outlook), reducing it to $31.5 billion. Because there aren’t any sound measures of efficiency, productivity and cost-effectiveness of the production by the APS of the goods and services that cost $50 billion annually the required analysis cannot be done.

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