Monday, April 09, 2007

Tuesday Column: The case for the states

The next time you’re up in Darwin, take a look at the Woden Valley Hospital. That’s right, Canberra’s Woden Valley Hospital. We call it the Canberra Hospital these days.

Back in the 1970s when the bureaucrats who ran the Northern Territory from Canberra decided that Darwin needed a new hospital they dusted off the plans for the recently-completed Woden Hospital. It seemed to work at Woden, so it would be good enough for Darwin.

It worked too well in some ways. Originally a Canadian design, the Woden Hosptial was built to withstand extreme cold, frost and snow. Snow shields were installed on the Darwin building, as in Woden, it was elevated to keep it above the snow, and a moat was dug around it to carry melted snow away...

A better building for the Top End would have blended the indoors with the outdoors, created places where patients and family could chat in the cool evenings, and have probably been low rise. Instead, according to the Royal Commission into Aboriginal Deaths in Custody, the multistory “alien” monstrosity gave patients no fresh air and frightened away their extended families.

I know this because in the lead up to this Friday’s Council of Australian Government’s meeting between the Prime Minister and Australia’s Premiers and Chief Ministers I’ve been reading the states manifesto – a document entitled Australia’s Federal Future produced by the ANU’s Professor Glenn Withers and Dr Anne Twomey of the University of Sydney.

When it was released two weeks ago you probably heard about it – Australia’s Treasurer Peter Costello shouted from the roofs about what it said was its revelation of a secret plan to increase the GST – but you may not have heard about what it actually said.

It said that contrary to what we are hearing from Mr Howard and Mr Costello these days, there is a case for increasing the autonomy of Australia’s states and territories rather than shrinking it as this government seems determined to do on everything from education to water to industrial relations.

Part of that case is that central agency bureaucrats are out of touch with needs on the ground. And not just in Darwin. Plans for a high-rise development where Canberra’s Commonwealth Avenue meets the water near the Hyatt and the Albert Hall might have seemed appropriate to national policymakers, but not to Canberra’s residents.

Western Australians don’t much like poker machines. And they are not keen about extended trading hours. Would anything be gained by a forcing them to adopt the same rules as the rest of the country?

Withers and Twomey believe a good deal would be lost. They say that one of the strengths of a federal system of government is competition.

It works like this. If one state charges too much for electricity or allows its transport or its health system to run down, people and businesses start to move to states that are doing it better.

It is much the same idea as competition in any other market – an idea John Howard and Peter Costello normally embrace.

States can experiment as well. Queensland went out on its own and abolished death duties in the 1970s. The other states followed. Western Australia tried out industrial relations reform before other states picked it up. South Australia gave women the right to vote and stand for office, Tasmania was a lone beacon for many years on daylight saving, Victoria first made seat belts and helmets for motor cyclists compulsory, NSW mandated the teaching of Australian history in high schools.

If any of these innovations hadn’t worked, Australia as a whole would have been little damaged. Withers and Twomey describe a federation as being like a ship with watertight compartments: “When a leak is sprung in one compartment, the cargo stowed there may be damaged, but the other compartments remain dry and keep the ship afloat”. Mistakes made in one state can be corrected and need not spread.

It is widely believed that these advantages come at a financial cost. Australia’s Education Minister Julie Bishop wants a single national curriculum to avoid “duplication”. She says the states and territories spend more than $180 million each year running their own separate boards of studies.

Access Economics has suggested that all up federalism costs Australians $9 billion each year in wasted resources.

But even if that figure is correct, that is only part of the story. Virgin Blue to some extent replicates what Qantas does. Woolworths to some extent replicates Coles. But we don’t normally decry the wasted resources. We rejoice in what we hope will be efficiencies and lower prices as a result of the extra competition.

Withers and Twomey compare the economic strength of federal nations such and the US, Canada and Germany with the economic weakness of unitary states such as France Italy and New Zealand and conclude that Australians are about 10 per cent better off than we would be had our had our nation been run completely from the centre. And they say that if Australia’s federation became more real and the Commonwealth stopped poking its oar in to education and so on Australians would be an extra 7 per cent better off.

If you think that estimate sounds excessive it is worth looking at how the Commonwealth handles itself in the one portfolio in which it faces no competition whatsoever – Defence. A damning review released late on the eve of Good Friday found the Department had “a built-in inability to comprehend” that resources are finite and cost money.

Australia’s Collins Class Submarines cost were $1 billion over budget. The Jindalee Over the Horizon Radar was 4 years late and $500m over budget. The Seasprite helicopters were over-budget antiques 6 to 10 years late and have been grounded for a year.

Away from Defence the Commonwealth is hardly covering itself in glory. Its $10 billion water plan was prepared without substantial input from Finance or the Treasury. The Finance Minister says the money is just “$1 billion a year, let's keep it in perspective". The Treasurer sledges his own department saying it is “no water expert”.

Australia’s states and territories may well be no experts at managing their own resources, but at the moment it is hard to escape the conclusion that they are better at it than is the Commonwealth, and that the competition and discipline built in to Australia’s federal system keeps them that way.

It would be nice if the Prime Minister shows some humility when he meets his opposite numbers this Friday. Compared to them he has much to be humble about.