Economic Rationalism in Canberra Revisited – Evidence for a Principal-Agent Problem

Economic Rationalism in Canberra revisited – evidence for a principal-agent problem

Martin James Dunn

BSc, MDefStud, MA(IntlRlns), MBA(Exec)

This dissertation is submitted in fulfilment of the requirements of the degree of Doctor of Business Administration University of Newcastle Faculty of Business and Law Newcastle Business School

February 2015

I hereby certify that the work embodied in this Dissertation Project is the result of original research and has not been submitted for a higher degree to any other University or Institution.

(Signed) Martin Dunn

i Acknowledgements This work presents what the Senior Executive Service officers in the Treasury and the Department of Finance told me in interview. Their willingness to allow me to interview them and the frankness with which they shared their opinions was fundamental to being able to complete this research project.

Likewise, I must acknowledge the support of Dr Martin Parkinson PSM and Mr David Tune AO PSM, secretaries of the Treasury and the Department of Finance respectively during the time my research was conducted. Their willingness to allow this research to take place was also vital. I also wish to thank my managers during the period in which I completed this thesis for their encouragement and support.

My thesis supervisor, Dr John Tate, provided enormous assistance in navigating the intricacies of the academic process. I have relied greatly on his advice.

Finally, to my wife and daughters, for their tolerance when I have prioritised the thesis over other things.

ii Contents Acknowledgements ...... ii Contents ...... iii List of Tables ...... v Synopsis ...... vi 1. Introduction ...... 1 1.1 Introduction ...... 1

1.2 Key Concepts ...... 2

1.3 The Central Agency Personnel and Public Policy ...... 5

1.4 The Impact of Pusey ...... 7

1.5 The Principal-Agent Problem ...... 7

1.6 Pusey Revisited...... 9

1.7 The Enduring Significance of the Pusey Thesis ...... 12

1.8 The Structure of the Thesis ...... 14

2. Literature Review ...... 16 2.1 Introduction ...... 16

2.2 The Enduring Influence of Economic Rationalism in Canberra ...... 16

2.3 Treading in the Footsteps of Pusey ...... 18

2.3.1 Public sector staffing as an indicator of economic rationalism ...... 18

2.3.2 Surveying the attitudes of senior public servants ...... 20

2.3.3 Determining which elites were influential ...... 23

2.3.4 The views of Canberra economists ...... 26

2.4 The views of senior public servants ...... 28

2.5 The views of Ministers ...... 33

2.6 The Historical Context ...... 38

2.7 Powerful Actors ...... 40

3. Methodology, Research Design, Sample Selection and Interview Design ...... 42

iii 3.1 Introduction ...... 42

3.2 Departing from Pusey ...... 42

3.3 Research Design ...... 45

3.4 Interview Design...... 47

3.5 Sample Selection ...... 48

3.6 Organisational Units Represented in the Sample ...... 50

3.7 Question Design ...... 52

3.8 Analysis ...... 60

3.9 Ethical Implications ...... 62

3.10 Limitations ...... 64

4. Results ...... 65 4.1 Introduction ...... 65

4.2 Sample and Demographics ...... 65

4.2.1 Number and Classification ...... 65

4.2.2 Gender ...... 67

4.2.3 Response Rate ...... 68

4.2.4 Education ...... 68

4.2.5 Political Attitudes ...... 71

4.3 Economic Rationalism ...... 73

4.4 Power to Influence Policy...... 82

4.5 The Principal-Agent Problem ...... 89

4.6 The Role of the Central Agencies ...... 93

4.7 Conclusion ...... 98

5. Discussion ...... 100 5.1 Introduction ...... 100

5.2 Economic Rationalism in Canberra Today ...... 100

iv 5.2.1 Theme 1: Economic rationalism ...... 100

5.2.2 Theme 2: Power to Influence Policy ...... 101

5.2.3 Theme 3: The Principal-Agent Problem ...... 102

5.2.4 Theme 4: Central Agency Roles ...... 103

5.3 Implications for the Pusey Thesis ...... 104

5.4 Economics and Public Policy ...... 104

5.5 Potential for Further Research ...... 106

6. Conclusion ...... 107 Reference List ...... 109

List of Tables Table 4.1 Sample Classifications ...... 66 Table 4.2 Treasury and Finance Classifications ...... 67 Table 4.3 Sample Gender Composition ...... 68 Table 4.4 Sample Education Levels ...... 69 Table 4.5 Sample Economics Education ...... 70 Table 4.6 Sample Secondary Schooling ...... 71 Table 4.7 Sample Political Orientation ...... 72 Table 4.8 Sample Attitude to Role of Government...... 74 Table 4.9 Sample Perception of Policy Influence ...... 83 Table 4.10 Sample Perception of Ultimate Customer ...... 90

v Synopsis Michael Pusey’s Economic Rationalism in Canberra: A nation-building state changes its mind (1991) remains an influential account of Australian public policy-making. Pusey sought to understand the prevailing ideology that he labelled “economic rationalism”, and which he believed came to dominate the public policy process in the Australian government in the 1980s.

Pusey interviewed 215 Senior Executive Service (SES) officers in the Australian Public Service in 1985 and 1986, including 65 in the central agencies (the Department of the Prime Minister and Cabinet, the Treasury and the Department of Finance). He concluded that the central agencies, occupying a strategic position in the policy process, were particularly imbued with an economic rationalist outlook.

In the wake of the publication of Pusey’s account, politicians and senior public servants, as well as academic commentators, disputed its accuracy. Some criticised his approach and while others cast doubt on some findings.

My research seeks to re-test the validity of the Pusey thesis, concerning the dominance of economic rationalism among Canberra’s central agency personnel. It does so on the basis of interviews with 30 SES officers in Treasury and Finance. The analysis of the interview data seeks to investigate four “themes”. 1. whether these public servants are committed to the doctrine of “economic rationalism” as Pusey understood this term; 2. whether they saw themselves as able to influence policy development, choice and direction; 3. who they envisaged as their “principal” (and hence whether there is any evidence of conflicted loyalties or what is known as a “principal-agent problem”); and 4. what they perceived as the role of the central agencies within government.

The results showed little in common with those of Pusey. While many of these officers had studied economics and had a preference for market mechanisms, few saw smaller government desirable in all circumstances (a perspective which Pusey believed was definitive of economic rationalism). Rather than an ideological package of solutions, these staff believed that each circumstance needed analysis to determine the appropriate policy approach.

vi Moreover, they were well aware that they were serving the elected government, and individual ministers, as their “principal”, and that ministers had the capacity to access alternative sources of advice to theirs. Consequently, they understood that the influence they, and the central agencies as a whole, exercised within the policy process, rested not only on their institutional position within key government procedures such as the budget process, but also on their continuing ability to provide advice to ministers which was both valuable and relevant.

vii 1. Introduction 1.1 Introduction This thesis revisits the arguments made by Michael Pusey in his book, Economic Rationalism in Canberra: a nation building state changes its mind (1991), concerning the malign influence which, Pusey alleged, a small part of the public service had upon Australian federal government policy. This introduction addresses seven issues, each in a separate section.

First, it introduces the key concepts underpinning Pusey’s thesis and which will be re- examined in this Research. Most notably it specifies what Pusey meant by economic rationalism and the particular elements of the public service Pusey most associated with policies affected by economic rationalism: the central agencies and the Senior Executive Service (SES).

Second, it outlines Pusey’s thesis regarding the influence the central agencies had on the policy process and the factors he associated with the apparent level of adherence to economic rationalism within these agencies.

Third, it addresses the impact Pusey had, and the debate he provoke. This issue is explored later in chapter 2.

Fourth, it discusses the nature of the principal-agent relationships that exist under the Westminster form of government, and notes specifically that while Pusey had implied much about the relationship between the elected government and the public service, his account here is ambiguous.

Fifth, it outlines the approach that will be taken in this research, noting that while much of Pusey’s original research was quantitative, a qualitative approach will be adopted here. This section, therefore, provides an introduction to a complete discussion of the methodology adopted in this thesis within chapter 3.

Sixth, it explains why these issues are of relevance today, not least their implications for public policy practitioners and for academic understanding of the policy process.

1 The last part of this introduction outlines the structure of the thesis. It does so by providing a brief description of the content of each chapter.

1.2 Key Concepts Pusey’s writing reflected a period when Australia’s politics and public policy was being reshaped. Paul Kelly has argued that “the story of the 1980s is the attempt to remake Australian political tradition” (P. Kelly, 2008, p. 1). It was a time when a series of policies, which Kelly labels as the “Australian Settlement”, having enjoyed bipartisan support from the first decade after Federation, were finally replaced with a different policy framework, underpinned by a different set of assumptions. The key elements of Australian Settlement, identified by Kelly, were “White Australia”, “industry protection”, “wage arbitration”, “state paternalism” and “imperial benevolence” (P. Kelly, 2008, pp. 1-2). Throughout the 1980s, politicians from both the Labor and Liberal parties placed increased emphasis on competition and market forces with the corresponding shift from industry assistance and state paternalism (P. Kelly, 2008, pp. 11, 16, 20). Pusey argued that these changes in Australia also occurred, from the late 1970s onwards, in liberal democracies throughout the Western world (Pusey, 1991, p. 3). It was the set of economic policy prescriptions (and wider set of ideological assumptions) underpinning this shift that Pusey referred to as “economic rationalism” (Pusey, 1991, pp. 3-4, 10, 19-20).

While the term “economic rationalism” was left without a formal definition in Economic Rationalism in Canberra, Pusey later wrote that “‘economic rationalism’ is a doctrine that declares that markets and prices are the only reliable means of setting a value on anything, and, further, that markets and money can always, at least in principle, deliver better outcomes than states and bureaucracies” (Pusey, 1993, p. 14). This is used as the working definition of economic rationalism in this thesis.

It was within this framework of economic rationalism which, Pusey argued, economic reform took place under the Hawke Government in the 1980s (Pusey, 1991, pp. 31-33). Pusey was concerned about the wider social and economic impact of this economic reform and feared that Australian public policy, and Australia as a whole, was being

2 taken in the wrong direction. Others had similar views (cf. Aarons, Fehring, Rubinstein, Bulbeck, & Kirby, 1983; Davidson, 1984; Head, 1988).

Pusey’s distinctive contribution to this debate arose from the unique factor he associated with this policy shift towards what he called “economic rationalism”. A major force behind this change, in Pusey’s view, was the Australian public service and particularly the SES officers in the “central agencies” – the Departments of the Prime Minister and Cabinet, the Treasury and Finance. (Consistent with common usage in the public service, these are referred to as simply “PM&C”, “Treasury” and “Finance” in this thesis.) The central agencies are responsible for coordinating the work of other government agencies, providing policy guidance and managing the budget process, and hence have an important strategic position within the public service.

While Pusey identified central agency SES officers as important vehicles for the advancement of “economic rationalism” with the Australian government’s policy process, he was not always clear as to whether the public service, or the ministers they advised, were the primary agents for this process. . The first explanation, that the ministers are in charge, occurs periodically in Pusey’s writing. For example, commenting on the situation when the Hawke government came to office, he remarks “senior public servants faced tough ministers of a Party which had laid much of the blame for the 1975 Whitlam Labor government’s demise on the Public Service; tough ministers grimly determined that there should be no Yes, Minister games in Canberra” (Pusey, 1991, p. 64). Moreover, he remarks that “Indeed, the SES officers in the 13 departments covered in this study … left no room for doubt that all 13 ministers were seen to have strong and effective control of their departments” (Pusey, 1991, p. 65). This section concludes with the observation that “At the top level there is an intimate and symbiotic relation of cooperation between ministers and the SES: one which is now, it seems, quite firmly directed by ministers” (Pusey, 1991, p. 67).

While this explanation is based on what the senior public servants have told him in interviews, he seems willing to abandon it:

So, the point is that when our top bureaucrats say that the classical view of administration does prevail; that ‘values’ can be separated from ‘facts and means’; and that political factors win out

3 over all other social, legal-administrative, and even economic factors, they are telling us, in effect, that they have been very well brought to heel by the Hawke Labor Cabinet and that illusions about the autonomy and neutrality of experts and planners have taken a tremendous beating. They are also telling us that they have been thrust much more deeply into what is sometimes rather too anaemically called ‘the political process’. This means, as we shall see, that there is some scope to read the evidence the other way and thus as an indication of the measure in which the economic rationalists have brought their ministers to heel. (Pusey, 1991, p. 75)

At times Pusey suggests that the public service is acting to promote economic rationalism against the interests of the elected government – evoking the principal- agent problem – but falls just short of saying this directly:

By comparison with their counterparts in other departments, these central agency officers … are more oriented to private satisfactions of what all see as their superior political leverage over ministers and cabinet decisions. (Pusey, 1991, pp. 6-7)

It may be that the economists within the bureaucracy have corralled the reformist and economically oriented Hawke Labor government into a narrowing and increasingly exclusive commitment to an economic rationalism that is at odds with the broad thrust of the Australian Labor Party’s policies… (Pusey, 1991, p. 7)

Implicit in this explanation, is that the economic rationalists within the central agencies have access to sources of power that allow them to dominate the public service, and ultimately ministers. Pusey provides a few indications as to what these sources of power might be. The five most significant that he mentions are as follows – the coordinating role played by these central agencies in relation to the rest of the public service; the institutionalisation of power that occurs through the budget process, in which these central agencies play a central role; the power that comes from information and experience; and the power of arguments based on economics (Pusey, 1991, pp. 9, 108, 109, 134, 179). The result, he argues, is a hierarchical situation within the public service in which the central agencies exercise a process of intrusion, supervision and dominance over other public service departments:

However, it is clear that the legitimacy of these agencies derives not only from the necessity of their functions but also from the panoply of norms and prerogatives that are invoked with phrases such as ‘taking the broader view’, ‘seeing the facts’, and ‘the whole picture’. The central agency people were able to move over what might otherwise be other people’s 4 territory and to use these passports, visas, and search warrants because they embody a claim to ‘higher’ intellectual abilities. In short their superior ‘intellectual’ and more ‘hard nosed’, analytic skills offered, in the view of those who demurred to them, a capacity to resolve contradictions and to uncover flaws in the design and justifications of other people’s programs. (Pusey, 1991, pp. 108-109)

At other times, Pusey adopts neither of the positions articulated above. Instead of seeing public servants as being controlled by ministers, or ministers by public servants, he presents both as working in tandem, towards the same policy ends, and very much being of one mind on policy issues. On this last point, he declares that there is “an increasingly stable and symbiotic relationship between ministers and top bureaucrats which contrasts sharply with a past in which people on the two sides of this political- administrative relationship were likely to differ in age, life experience, education and social background.” (Pusey 1991, pp. 7-8).

Pusey makes the same point when, at the very beginning of his study, he refers to the question of who has ultimate power and influence – public servants or ministers – as the “unanswerable chestnut question”, and instead declares that “[s]ince 1982 the increasingly dominant pattern is one in which ministers and their top SES staff see the world very much as male age-mates through a shared and restricting formative training in economics.” (Pusey 1992, pp. 7-8). He makes the same point again as follows:

What [the] broader reading of the evidence as a whole suggests is that there is a new intimacy of mutual understanding and purpose in the relation between senior public servants and ministers. It is partly because positivist economics has, so quickly and without precent, become the most commonly shared educational experience of both ministers and top bureaucrats, an experience that probably transcends differences in social class backgrounds. The point is rather that the shared economics background has led to compatible assessments of Australia’s economic position….Accordingly, it has given them common ground on which to share, over and above all these differences, a similar understanding of their common mission as system managers and ‘strategic visionaries’. (Pusey, 1991, pp. 189-90)

1.3 The Central Agency Personnel and Public Policy Other authors, in their discussions of Australian public policy, had dealt extensively with other groups involved in the policy process, such as politicians, their parties,

5 lobbyists, special interest groups and the public, but have had relatively little to say about the public service. Given this absence, one could easily form the view that public service’s role in the policy process was merely mechanical and benign.

In contrast, Pusey’s research started with the premise that the public service played a significant role in the policy process. He interviewed 215 SES officers between May 1985 and October 1986. Based on their responses, he concluded that those in the central agencies favoured economic policies that sought to change the nature of the Australian economy – shifting power from labour to capital, pursuing deregulation and reducing the role of the state – and that it was these individuals within the central agencies that were driving policy change.

Pusey identified social and educational background as the primary factors explaining the propensity of the senior SES personnel he interviewed to embrace economic rationalism. Pusey notes that compared to the Australian population as a whole, disproportionately more senior executives come from families where the principal breadwinner is a professional or manager, have attended private schools and have university degrees (Pusey, 1991, pp. 50-52). Moreover, based on his survey, Pusey claims, “There is a direct relationship between social background and political orientations inasmuch as [those]…. Who come from the top of the social ladder are three times more likely to hold conservative [sic] ‘new right’ political attitudes as those from the bottom.” (Pusey, 1991, p. 4)

In contrast to other parts of the public service, Pusey finds that the SES personnel in the central agencies are “younger by some five years” than “their counterparts in other departments”, are “twice as likely to have come from elite expensive Protestant schools”, compared those in the other agencies included in Pusey’s sample, and “are the most likely to have a business oriented education in economics, accountancy or business administration” (Pusey, 1991, p. 77) Pusey argues that all of these factors explain the propensity of central agency SES staff to hold political, economic and social views which fall to the “right” of the Australian political spectrum (Pusey, 1991, p. 77). Further, Pusey declares that “[t]hese characteristics carry through into strongly patterned differences in basic orientation to public policy.” (Pusey, 1991, p. 78).

6 According to Pusey, it is the university economics education predominantly received by SES personnel in the central agencies that has promoted an ideological commitment to “economic rationalism” and explains, in part, their advocacy and support of policies arising from this perspective (Pusey, 1991, p. 60). In all these respects, Pusey sees SES officers as belonging to a “tiny upper-middle class fraction of the population”, who have little experience of the lives of ordinary working people and inclined to make moral judgements about what they see are the “failing work-ethic” of working people (Pusey, 1991, pp. 39-40).

1.4 The Impact of Pusey Pusey’s Economic Rationalism in Canberra attracted significant discussion at the time. Inevitably, much of that debate ended up focusing on the question of what economic policies were appropriate for Australia. Many of the protagonists sought to argue the merits of “economic rationalism” as each author interpreted that term. Some were opposed to the “economic rationalist” agenda that Pusey had identified within the central agencies (Adams, 1999; Ellis, 1998; Horne, 1992; Rees, Rodley, & Stilwell, 1993; Wright, 2003). However, some were supportive (Coleman & Hagger, 2001; James, Jones, & Norton, 1993; Moore, 1992). Echoes of that debate can still be found in more recent literature (for example Gates & Steane, 2007; Manne & McKnight, 2010; Pusey, 2008). The value of neo-classical economics in formulating government policy and the extent to which governments should rely on markets to deliver social outcomes is the primary concern among these protagonists. The debate on these topics is likely to be ongoing, even without Pusey’s contribution.

Pusey’s propositions about the public service were debated in a number of the review articles that followed in the immediate wake of the publication of Economic Rationalism in Canberra, and in a handful of studies over the following decade. These contributions on the role of the public service, which followed the publication of Pusey’s book, will be addressed in chapter 2.

1.5 The Principal-Agent Problem In any organisation, a key issue is ensuring that managers’ decision-making is aligned with the goals of the ultimate stakeholders. In a corporation, this would involve

7 ensuring that managers are responsive to the priorities of the Board, who in turn are responsible to the shareholders. Each of these steps represents a “principal-agent relationship” where the agent is meant to be acting on behalf of and in the best interests of the principal. Under the Westminster system, the party or coalition parties that can control the House of Representatives forms government. Members of parliament are appointed as ministers to administer departments and the public servants that work in them, and the more senior ministers sit in Cabinet as the government’s decision-making body. The government is, in turn, responsible to the public at large (Department of the Prime Minister and Cabinet, 2012, p. 8; Drum & Tate, 2012, p. 30). A misalignment of goals is known, in economics and organisational behaviour, as a “principal-agent problem” (Eisenhardt, 1989).

A key question, therefore, is whether Pusey’s account of the public service in Canberra, and the overriding philosophical commitment to “economic rationalism” which he claims is evident within the central agencies, gives rise to a principal-agent problem. The Westminster system embodies two sets of principal-agent relationships: firstly, the relationship between the elected government and the public, and secondly, the relationship between the public service and the elected government.

On the first of these relationships, Pusey sees economic rationalism acting against the interests of society (Pusey, 1991, p. 12). Concerning the reform agendas of both the Fraser (Liberal) and Hawke (Labor) governments, Pusey argued that each were in agreement on the direction of needed reform, meaning “the major directions of these changes enjoyed a bipartisan consensus without any electorally effective opposition” (Pusey, 1991, p. 3). In other words, these reform agendas did not arise from grass roots actions on the part of the public, with the government simply responding to these. The impetus was very much in the opposite direction. Consequently, the question arises as to whether this produced a “principal-agent” problem between the elected government and the public it was supposed to represent. One’s perception as to whether such a problem arose would depend very much on one’s judgments concerning the merits of these governments’ economic policies.

8 The second principal-agent relationship hinges on the responsibility of the public service to the elected government, and the extent to which the public service serves the needs of that government. The beliefs and motivations of individual public servants were the subject of Pusey’s research, and these are also the focus of this thesis. Specifically, this thesis will explore whether belief in economic rationalism, and the policy outcomes it produces, lead those within the central agencies (as agent) to act in ways that are at odds with the needs or wishes of the ministers (their principals). Should this be the case, it might then be the cause or a contributing factor to the elected government failing to act in the best interest of the public.

For the second type of principal-agent problem to occur, public servants would clearly have to have a significant amount of autonomy from, and perhaps even control over ministers. As we have seen above, Pusey’s argument leaves this critical issue ambiguous.

1.6 Pusey Revisited This paper will revisit the Pusey thesis and consider the role of the central agencies in government policy-making today, nearly thirty years after Pusey conducted his interviews. Based on a new set of interviews with the current generation of public servants, this thesis will seek to explain how senior executives in the central agencies see their role in providing policy advice, and whether there is evidence for a specific preference for policies that might be described as “economic rationalism”. Specifically, it will examine the evidence for the type of principal-agent problem Pusey alluded to, but did not sufficiently investigate.

While this thesis is based on interviews with senior public servants, the methodology is different from that adopted by Pusey in several respects. Most significantly, while Pusey’s interviews contained many closed questions, including the key ones from which he inferred that the central agencies adhered to economic rationalism, this research adopts a qualitative approach, with the result that the interview questions were all open. Inevitably, this meant that, at times, different questions to those of Pusey were being asked, but they were directed to eliciting the same sort of

9 information. In addition, a different approach to sampling was adopted. Chapter 3 explores the approach in more detail.

Two major factors underpin the methodology changes. Firstly, the context in which these interviews were conducted were, in some respects, very different to Pusey’s time, which meant that key terms, related to economic rationalism, potentially took on a different meaning. For instance, it would not be clear that support for financial deregulation or labour market deregulation would mean the same thing today as when Pusey originally asked these questions. What was considered a radical innovation nearly 30 years ago is now an established and longstanding policy, and hence an open commitment to such deregulation, in response to interview questions, may not, today, indicate the same propensity for economic rationalism, as an ideological agenda, as it did in Pusey’s time.

Secondly, while Pusey collected a significant volume of data, he also relied on his own judgement and assumptions for many of his conclusions. Significantly, he relied on his interpretation of whether responses to particular questions on policy issues amounted to a commitment to economic rationalism. For instance, he refused, at times, to accept at face value the declaration of some of his interviewees that they were committed to a “centre-left position.” Instead he declared that:

The point is, of course, that nearly half of our group of self-designated left-leaning respondents answer many of these questions in a way that would do credit to committed members of Australia’s (conservative) Liberal and National parties. Moreover, this impression is reinforced by the fact that these answers are quite closely interrelated. Clearly our respondents are much more conservative than they know or say. They are not ‘committed centrists’. Although the same people do not always line up in the same way on all questions, it is reasonable to suggest that no more than one in ten of our Senior Executive Service officers would fit even a fairly elastic profile of the contemporary Australian centre-left - and many of those would certainly stand out like sore thumbs in any left faction branch meetings of the now very moderate Australian Labor Party that is in government. (Pusey, 1991, p. 58)

Rather than make this sort of summary judgement concerning the inner “truths” of public servants, when such truths are perceived to be at odds with their outward statements, I have instead relied on a qualitative approach which allows me to elicit further information from interviewees when their response to interview questions 10 requires this. This allowed participants the maximum opportunity to explain in their own words their views on the role of the government in the economy. It also allowed exploration of issues that Pusey only touched on such as the opinion of SES personnel concerning the role of central agencies such as Treasury and Finance, their perceptions of their influence and power and the role of economics and the models it provides in their policy advice. Open questions were posed on each of these issues, with follow-up questions used to explore any apparent inconsistency or ambiguity. This approach allowed for a much richer source of data for analysis.

The sample for this research was smaller and more focused than that employed by Pusey. He had interviewed 215 public servants, of which 65 were working in central agencies (Pusey, 1991, p. 255). For this research project, a smaller sample set has been drawn from Treasury and Finance. However, the set was taken exclusively from those organisational groups within these departments most likely to exercise influence upon government policy making. For instance, the Treasury and Finance staff selected for interview were those most closely involved key decision-making processes notably in the budget process, and hence prima facie in a position to influence decisions on other departments’ proposals.

Pusey had used his interviews with other selected departments outside the central agencies to provide quantitative data which enabled him to draw contrasts between these other departments and the central agencies. He also asked personnel within these other departments for their views on those working within the central agencies.

While I had intended to include PM&C, I was unable to gain permission from the department secretary to interview the relevant public servants. However as I explain in chapter 3, I don’t believe this will affect the validity of the thesis’s findings, or the thoroughness with which it seeks to re-examine the Pusey thesis, because PM&C is an exceptional case within the group of central agencies. It has never been a clearly “economic agency” in the way Treasury and Finance clearly are – a point that will be discussed in greater depth in chapter 3. Even without considering PM&C, Treasury and Finance are substantial agencies in their own right, and are largely responsible for compiling the budget. If the current generation of SES staff in the Treasury and Finance

11 are not ideologically committed to economic rationalism, it is unlikely that those within PM&C would be as well. If, on the other hand, they are held in the sway of economic rationalism, as Pusey claimed was the case in the 1980s, then this by itself could have a significant impact on the policy process, irrespective of whether PM&C staff held similar views.

1.7 The Enduring Significance of the Pusey Thesis Two factors make Pusey’s arguments about the public policy process of continuing interest and relevance today. The first relates to the fact that a basic responsibility of government, in a liberal democratic system, is to ensure that policies that seek to serve the public interest and ensure the public good are implemented. Pusey had argued that the public service was pursuing an agenda that was misaligned with the needs of the Australian people. Should that be the case today, it should be of concern to politicians, the public service and the broader public.

The second factor that makes Pusey’s arguments of continuing interest today concerns Pusey’s contribution to the understanding the public policy process as a field of academic inquiry, and in particular the potential role that can be played by particular public service elites in that policy process. In the absence of new research on the role played by central agency senior executives, Pusey’s thesis remains the dominant model and one that continues to influence contemporary scholars. Revisiting Pusey’s thesis allows us to seek to acquire an updated knowledge of the role played by central agency senior executives in policy formulation.

The importance of such knowledge is indicated by Sydney Morning Herald columnist, Ross Gittins, who has argued that the Abbott Government was the victim of “poor advice from the econocrats of Treasury and Finance” (Gittins, 2014). Gittins declares that “We can never know exactly what advice passed between the bureaucrats and their masters, but it would be an unusual budget whose measures didn’t arise from options provided by the presumed experts” (Gittins, 2014). In this context, the importance of understanding the role of the central agencies in terms of this policy advice, and the policy formulation that arises from this, should be self-evident. After all, the Australian government’s public policy decisions affect all citizens. Spending and

12 revenue collection through the budget represents almost a quarter of all economic activity (Hockey & Cormann, 2014, p. 10-7). All of this points to the importance of revisiting and re-evaluating the Pusey thesis.

Another reason why re-visiting the Pusey thesis is worthwhile is that there appears a general ignorance of the public policy process, and the role of the central agencies within this process, even among otherwise informed members of the general public. James Button, in his account of working in PM&C, wrote:

‘What does the Prime Minister’s Department do, exactly?’ a woman asked me over dinner in Melbourne. I tried to explain how a public servant differed from a political adviser, how the Prime Minister’s Department was separate to the Prime Minister’s Office, and how in varying roles the three central agencies – PM&C, Treasury and Finance – co-ordinated, costed and commented on the work of what are called line agencies: Health, Education, Transport, Human Services and so on. As I gave my tentative sketch, it struck me that though three of the people at the table had worked at universities and cared about public life, they knew nothing about the public service. Very few of their academic colleagues studied it. Journalists mostly ignored it. Politicians’ memoirs rarely mentioned it. A friend in the Department told me that even most ministers and their advisers – people whose very survival depended on a good public service behind them – did not care much about it. A ministerial adviser told her: ‘We just need to know the car will get us from A to B. We don’t care what’s under the bonnet.’ (Button, 2012, pp. 112- 113)

Another reason for revisiting the Pusey thesis is that some later scholarly accounts assume that the model of powerful elites within the public service dominating the policy agenda remains valid since Pusey’s time despite the decades, and multiple federal governments, that have passed (Colic‐Peisker & Johnson, 2010, p. 354; Pusey, 2008, p. 21). This thesis, in seeking to interview current public servants in some of the central agencies, concerning their understanding of their role in the policy process and the factors and values which inform this, allows us to reflect on whether such a view is correct. In particular it allows us to evaluate whether the economic rationalism that Pusey identified continues to have the same hold and influence upon their intellectual and policy outlooks, thereby determining if Pusey, in fact, retains the relevance that many of the above academics assume. In so doing, the thesis attempts to gain some insight into the realities of the contemporary public policy process, as existing in

13 Treasury and Finance, and the factors that inform the intellectual and policy outlook of their key personnel.

1.8 The Structure of the Thesis This thesis is organised into chapters. This includes the present chapter which provides a short introduction to the topic of the thesis, the ongoing significance of this topic, and the organisation of the thesis as a whole.

Chapter 2 is the literature review chapter. It examines the debate sparked by Pusey about the role of the public service, and how this played out in the wider academic literature.

Chapter 3 explains the methodology used in this research project and the rationale underpinning it. As with Pusey, the data upon which this thesis is based is gathered by a series of interviews with senior public servants. However this research differs in important ways from that conducted by Pusey. These differences are mentioned earlier in this chapter and explained in greater detail in Chapter 3.

Chapter 4 presents the results from the interviews and shows how the senior public servants responded to the various questions. It particularly focusses on: 1. whether these public servants expressed views that could be seen as equating to “economic rationalism”; 2. whether they saw themselves as able to influence policy development, choice and direction; 3. who they envisaged as their “principal” (and hence whether there is any evidence of conflicted loyalties or what is known as a “principal-agent problem”); and 4. what they perceived as the role of the central agencies. These are referred to as the four “themes” upon which the analysis of the interview data is based.

Both chapters 4 and 5 seek to address whether the interview data confirms or departs from Pusey’s thesis. Chapter 5 seeks to sum up the results, presented in chapter 4, in a more summary and pointed form. It addresses whether the picture painted by Pusey, in the 1980s, of the central agency SES officers, matches the responses provided by the current generation of officers in Treasury and Finance. It attempts to find out whether the current generation could be described as believing in “economic rationalism”, as

14 Pusey claimed those in the 1980s did, and whether these beliefs affected processes of policy advice, choice and formulation with ultimate effects upon the citizenry. From this, it can again be seen whether there is a principal-agent problem, in the way the public service operates in Canberra.

Each chapter above seeks, in a sequenced manner, to evaluate the contemporary relevance of the Pusey thesis. In all these ways, therefore, in seeking to provide insight into and gain understanding of the contemporary public policy process, in key central agencies within Canberra, this thesis seeks to gather data, engage in analysis, and arrive at conclusions that will be of value to both government and the academic community.

15 2. Literature Review 2.1 Introduction This chapter examines how the debate sparked by Pusey about the role of the public service in advancing economic rationalism in Canberra played out in the wider literature. There is a large collection of literature referring to Pusey, and as some scholars have pointed out below, his work can genuinely be seen as one of the most influential examples of Australian scholarly writing. Word limits prevent a thorough and exhaustive account of this each contribution to this literature. However, I begin with a broad discussion of the enduring influence and significance of Pusey’s Economic Rationalism in Canberra, as affirmed by others. I then focus on four key academic responses to Pusey – Brian Dollery and Peter Hamburger (1996); Robert Gregory (1997); Shaun Goldfinch (1999) and Fred Argy (2001) – each of which sought to test the Pusey thesis using their own evidence base. I have also considered the response to Pusey that emerged from those (like Argy) with direct public service experience, as well as from politicians who had held ministerial office and therefore had direct experience of senior public servants, many during those years when Pusey argued their influence in shifting the direction of Australian public policy was paramount. Much of this writing found cause to criticise Pusey’s findings and approach. In this way, this part of the literature review seeks to give an idea of disagreement that Pusey evoked. Finally, the literature review discusses the views of those who sought to challenge Pusey’s account of the historical context in which economic rationalism arose in Australia, as well as those who pointed to a wider range of influential actors in the public policy process, thereby challenging Pusey’s emphasis on the power and influence of senior public servants in the central agencies.

2.2 The Enduring Influence of Economic Rationalism in Canberra Economic Rationalism in Canberra has had a significant influence on academic thinking about the public policy process. Economic Rationalism in Canberra was rated as the second most influential Australian sociology book in a period of forty years from 1963 to 2003 in a survey of members of the Australian Sociological Association (Skrbis & Germov, 2004, p. 292) – and the work with most Australian citations (Gläser, 2004, p. 271). Many commentators welcomed Economic Rationalism in Canberra, either on

16 its own merits or because it contributed to what they perceived to be an important debate. Stephen Bell described it as “an intellectual lightening rod… because it helps crystallise formerly diffuse notions and concerns about the intellectual cast and policy direction of national politics into a forceful and concrete form” (Bell, 1993, p. 387). Hugh Emy states that “This is an important book because, virtually for the first time, it identifies who and where the economic rationalists are, and how and why they have come to occupy such a strategic position in the policy-forming process” (Emy & Stone, 1992, p. 57). Writing recently, Raewyn Connell claimed that Economic Rationalism in Canberra “in retrospect seems important in world terms. It was one of the first empirical studies of neoliberalism as a social phenomenon, not just a political agenda or package of economic policies” (Connell, 2014, p. 128).

For some, Pusey has provided the preferred explanation of what happened to public policy across the Fraser and Hawke governments. Gates and Steane, for example, citing Pusey as evidence, accept that it was “senior Canberra bureaucrats … personal values [that] led them to adopt market fundamentalist policies” (Gates & Steane, 2009, p. 102). An introductory sociology textbook dates the end of what Paul Kelly called the Australian Settlement (the earlier policies of state paternalism, welfare and protectionism) from 1975, and notes that “Michael Pusey (1991) argues that this occurred because elite bureaucrats in Canberra adopted an ideology called economic rationalism” (Bessant & Watts, 2007, p. 295). Students are referred to a couple of other sources, beyond Pusey, for “more complex explanations” (Bessant & Watts, 2007, p. 295).

In addition to using Pusey as a source of insight into the practice of past governments, some academic commentators perceive Pusey’s thesis as still reflecting the present. In other words, some academic commentators still cite Pusey’s work as providing evidence that the central agencies are promoters of economic rationalism, even in a contemporary setting. Colic‐Peisker and Johnson state that “Australian public culture is firmly in the grip of ‘economic rationalism’ … that upholds economic growth (for societies) and economic prosperity (for individuals) as main criteria of success” (Colic‐Peisker & Johnson, 2010, p. 354). Former Greens Senator and Western Australian Member of the Legislative Council, Dee Margetts, cited Pusey in her recent

17 Submission to a Productivity Commission inquiry. According to Margetts, “Michael Pusey’s ‘Economic Rationalism in Canberra’ (Pusey 1991) … clearly showed that Senior Federal Executives played a major role in the push for major policy changes to introduced domestic corporate globalisation in Australia” (Margetts, 2011). In 2008, Pusey himself declared “The top Canberra public service has turned its back on nation- building… Now the neo-liberal economic rationalists dominate Canberra” (Pusey, 2008, p. 21), although still basing this on interviews conducted 22 years earlier.

What the more recent uses of Pusey, as a source of insight into present policy practice, indicates is that Pusey’s thesis, seeking to explain the influence of economic rationalism upon government, and finding this influence in public service opinions and advice, seems, with some exceptions, to have been uncritically repeated in recent literature. Further, such contemporary accounts, in upholding the continuing relevance of Pusey, assume that the public service remains unreformed since Pusey’s time despite the decades, and multiple federal governments, that have passed.

2.3 Treading in the Footsteps of Pusey As highlighted previously, four works sought to reassess aspects of Pusey’s thesis using their own evidence base. While these efforts raise doubts about whether Pusey retained validity at the time they wrote, for a number of reasons we shall see that each provided an incomplete assessment. Dollery and Hamburger (1996) tried to use changes in staffing levels in the various agencies as a measure of the power of economic rationalists in the public service. Gregory (1997) survey public service attitudes in both Canberra and Wellington. Goldfinch (1999) attempted to determine which elites were influential in shaping economic decisions during the Hawke and Keating governments. And Argy (2001) assessed the views of a sample of Canberra economist on policy issues. These works are dealt with in the following sections.

2.3.1 Public sector staffing as an indicator of economic rationalism In the first of our four works, Brian Dollery and Peter Hamburger (1996) note that “although Pusey’s thesis has drawn a good deal of criticism and has been attacked on a number of counts” the result has been unsatisfying because the criticisms to that point had been abstract and not based on the substance of the policy changes that were

18 happening in the 1980s (Dollery & Hamburger, 1996, p. 101). Consequently, they sought to provide an assessment based on empirical criteria, based on whether the staffing changes in public service agencies reflected the pattern that might have been expected had economic rationalism and central agency advice been the dominant influences – without having to rely on interviews or surveys.

Dollery and Hamburger note that Pusey had argued that the doctrine of economic rationalism holds, inter alia, that “the public sector is always too large and it is always a good idea to cut public expenditures and reduce the government share of GNP [Gross National Product]” (Pusey, 1994, p. 2). The authors note that Pusey had identified the program and service agencies as having suffered more than the others, having too few resources for what they were required to do (Pusey, 1991, p. 101). They thus form a hypothesis that “when Pusey’s economic rationalists support a smaller state, they mean, in part, a reduction in the level of employment in the public sector” (Dollery & Hamburger, 1996, p. 103). Moreover, they argue that Pusey’s “economic rationalists would wish to see lower levels of staffing in government agencies, especially those which provide services or support government interventions” (Dollery & Hamburger, 1996, p. 102). Consequently, Dollery and Hamburger conclude that one source of empirical evidence to test Pusey’s thesis concerning the influence of economic rationalism in Canberra is to determine whether the staffing of government departments was reduced in real terms during the period (and after) that Pusey was studying. To test this hypothesis, they examined the size of government agencies over the ten financial years from 1982-83 to 1991-92.

Pusey had described three sets of agencies that made up his sample: the central agencies, the market-oriented departments (Primary Industries, Resources and Energy, Industry Technology and Commerce) and the program and service departments (Social Security, Health and Education). This, however, proved an incomplete taxonomy, and the authors added five more categories: defence / international relations / trade, revenue collection agencies, machinery of government agencies, cultural / environment / science agencies, and legal and law enforcement agencies. The authors then looked at the change in staff levels for each set of agencies.

19 Overall, Australian public service numbers grew by 2.7 per cent over the ten-year period and, strikingly, the largest growth was found in the program and service agencies which expanded by 31.9 per cent (Dollery & Hamburger, 1996, p. 104). Dollery and Hamburger comment that “substantial growth in the types of agencies which economic rationalists have supposedly sought to undermine is unlikely to be indicative of a rationalist triumph” (Dollery & Hamburger, 1996, p. 105). The authors also point to the growth in new regulatory agencies (contradicting a supposed doctrine of deregulation) and the growth in political staffing (and hence the risk that advice from central agencies would be contested). Even for the commercialised agencies which lost staff – an outcome that might support the notion that economic rationalism was dominant – those agencies were largely providing internal services to government rather than engaged in “nation building” (Dollery & Hamburger, 1996, pp. 105-106). They conclude that Pusey has “drastically overstate[d] the power of public servants in the Australian political system” (Dollery & Hamburger, 1996, p. 109).

Of course, the staffing of public service agencies was not a specific focus of Pusey. Nevertheless, on the basis of their hypothesis, the authors claim that if Pusey’s thesis was correct, staffing should have fallen, rather than grown, in the program and service agencies. What the paper fails to question sufficiently is whether staffing numbers is an adequate reflection of the economic priorities and power of the economic rationalists in the public service. Smaller government is simply one dimension of economic rationalism identified by Pusey, and it could easily be argued that the goal of smaller government could be achieved by means other than those upon which Dollery and Hamburger focus – for instance by reductions in size of departmental expenditure or the scope of government activities, rather than staff numbers. Thus, it could be argued that economic rationalism is still a powerful and persuasive presence in Canberra despite staff increases in some government agencies to which Dollery and Hamburger refer.

2.3.2 Surveying the attitudes of senior public servants The second of our four works, Robert Gregory (1997) surveyed senior public servants in Canberra and Wellington during 1994 and 1995to assess their “tolerance for pluralistic politics, their programmatic commitment, democratic sensibilities and

20 identification with the conventions of ministerial responsibility” (Gregory, 1997, pp. 82-83). The study was therefore a broad survey of public service attitudes, ideas and opinions on a broad range of criteria. The survey provides a basis for comparing the attitudes measured by Gregory with the much more specific focus of Pusey concerning attitudes of public servants to specific public policy issues, and the evidence this provided concerning their commitment to economic rationalism. Gregory’s survey was intended to track changes in attitudes from an earlier survey conducted by Gregory in 1986-87 (Gregory, 1991). However, the earlier survey had not covered the central agencies – and these were now being included by Gregory for the first time. The explicit inclusion of SES officers in the central agencies in the new survey meant that it had come closer to replicating Pusey’s original study.

Gregory sought to classify his respondents into four groups, based on two dimensions. The first dimension related to the extent to which the respondents held positive attitudes towards politicians and politics; and the second related to the extent to which they have a proactive or reactive orientation towards their work. The anti- political and proactive quadrant was named the “technocrats”. The other quadrants were labelled classical bureaucrats or “classicals” (anti-political and reactive), traditional bureaucrats or “traditionals” (political and reactive); and political bureaucrats or “politicals” (political and proactive) (Gregory, 1997, pp. 84-85). Pusey’s claims concerning the rise of economic rationalism should equate to a prominent role for the technocrats (anti-political and proactive). Economic rationalists would be expected to be anti-political, preferring policy prescriptions arising from economic theory rather than lobby groups or the broader public. They would also be expected to be proactive, actively pursuing these policy goals – a combination that fits the “technocrat” category.

Of the four categories in Canberra, the technocrats represented the largest group in 1987 (at 32 per cent), but by 1995 it had fallen to equal lowest at 20 per cent, while the largest group were now the classicals (34 per cent). In all cases, about half of each group was classified as “marginal” (Gregory, 1997, p. 86). Gregory observed that this reflected a shift to a less proactive public service, but also to a less elite one – being

21 more willing to accept the role of politicians and interest groups. Gregory observes that:

This would seem to be at odds with the reformers’ managerialist aim of making central government bureaucracies less procedure-bound and more proactive. Perhaps this confirms the basic dilemma inherent in all large public organisations: you can have greater accountability (read control) or more proactivity, but you cannot have both simultaneously. (Gregory, 1997, p. 96)

In contrast, New Zealand public servants showed a much greater shift in attitudes, with less tolerance of political involvement. Gregory suggests that this might be due to “managerialism” taking greater hold in Wellington than Canberra (Gregory, 1997, pp. 82, 96). The doctrine of “managerialism” had sought to promote better management and efficiency within public sector agencies by providing agency heads with more autonomy for decision-making, but holding them accountable for results (Mascarenhas, 1993, p. 326). Broadly, managerialism could be cited as an example of economic rationalism.

Gregory found that that economics was a popular field of study for Australian public servants, with 65 per cent of respondents in the central agencies and 32 per cent in other agencies nominating it as their main field of tertiary study (Gregory, 1997, p. 90). Overall, there was not a strong difference between the responses of those educated in economics and those educated in arts or humanities. Those educated in economics were asked whether this education was in the Keynesian school or the economic rationalist / neo-classical school and which school they most identified with. While two-thirds of respondents did not associate their economics training with one particular school, most were prepared to identify their views with a school. Curiously, in central agencies, the largest response was for the Keynesian school while in other agencies the largest response was for the economic rationalist / neoclassical school. There was not a great variation in attitudes based on either categorisation, other than a tendency of Keynesians to be more positive towards political processes (Gregory, 1997, pp. 90-91).

The Australian central agency respondents were more likely to have studied economics and more likely to have higher degrees, less likely to have positive attitudes towards

22 political processes and were be more likely to be classified as technocrats – although there were no strong differences between the central agencies and other groups based on the average scores (Gregory, 1997, p. 91).

If we were seeing an ongoing rise of the influence of economic rationalists, we might expect to see an expansion in the proportion of public servants belonging to the technocrat category. Rather, between 1987 and 1995 it drops from 32 per cent to 20 per cent of the public service in Canberra (Gregory, 1997, p. 86). And while the proportion of technocrats in the central agencies in 1995, at 26 per cent, was higher than the overall Canberra sample, it was still lower than the 1987 proportion for the public service as a whole (Gregory, 1997, p. 91). Noting that Pusey’s interviews were conducted in 1985-86, this may mean that a peak of economic rationalism had already passed by the time Gregory conducted his follow-up interviews in 1995, but the results are far from conclusive.

There are limits to the extent to which Gregory’s study can be compared to Pusey’s. Specifically, Gregory had not sought to identify explicitly whether his respondents believed in economic rationalism, and the technocrat category may be an imperfect proxy for this. Nor does Gregory’s survey explore whether the observed attitudes influenced policy advice. In addition, Gregory only surveyed SES Band 2 and 3 officers, not the more numerous SES Band 1, and the sample only included 23 responses from the central agencies. Currently, the SES Band 1 officers- the most junior grade – make up three-quarters of the public service (Australian Public Service Commission, 2014). While Pusey does not provide a breakdown of his sample by classification, it would be reasonable to conclude that his data is dominated by the more junior SES officers. Gregory concludes that “research of this type can provide only indicative data, which can offer leads for fuller attitudinal research using other methods like open-ended interviews” (Gregory, 1997, p. 96).

2.3.3 Determining which elites were influential In contrast, in the third of our four works, Shaun Goldfinch (1999), sought to determine who within Australian society was considered most influential in the key economic policy decisions of the 1980s and 1990s. Goldfinch specifically looks at the

23 influence senior public servants in the central agencies had on these decision noting that Pusey believed that the central agencies “were necessarily the major influence on economic policy” (Goldfinch, 1999, p. 3): a claim which, as we saw in the previous chapter, Pusey was inconsistent in making.

Goldfinch identified a number of individuals he considered should be influential in determining the direction of Australian economic policy. The initial set included cabinet ministers, senior public servants, ministerial staffers, heads of business associations, unions and political parties, journalists and academics – and he added further names suggested by people in the original set. In the end, he solicited the views of 93 people, mostly through interview although 25 completed a questionnaire (Goldfinch, 1999, p. 6). These were asked which individuals were influential across a range of policy decisions in the Hawke and Keating governments, and which institutions and schools of thought contributed economic ideas.

While neo-classical economics was the most frequently nominated source of economic ideas, and Treasury the most frequently nominated institution contributing to ideas for economic policymaking, Goldfinch points out that these do not enjoy an exclusive position. A range of sources of economic ideas was nominated, including prominently “labourism” – the principles of the labour movement which support workers’ rights (Goldfinch does not provide definitions for his terms). While the Treasury, PM&C and Finance were nominated as contributing ideas, so was a range of other institutions. In the bureaucracy, these included the Reserve Bank, the Industry Commission and the Economic Planning Advisory Council. Other institutions outside the Australian public sector had a major influence. These included international bodies, such as the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF), and domestic stakeholders such as the Australian Council of Trade Unions (ACTU) and the Business Council of Australia (BCA).While a number of these were advocating policies Pusey would associate with economic rationalism, the ACTU was a notable exception. Goldfinch remarked:

In the Accord process, a central plank of Labor’s economic policy, the bureaucracy played a minimal role, with the process dominated by a few key ministers and union officials. As well,

24 the ACTU exercised a major influence on economic policy decision-making, beyond even the Accord process. (Goldfinch, 1999, p. 6)

Goldfinch sought to identify which individuals were influential in eight particular landmark decisions of Hawke and Keating governments. In this analysis, the pattern of influential personalities varied markedly from decision to decision. The Prime Minister and Treasurer were frequently nominated as the most influential, but so were other key ministers when the decision affected their portfolio (industrial relations, industry, trade, transport) (Goldfinch, 1999, pp. 8-14). Typically, there was a smattering of senior officials from central agencies nominated – often quite visible in budgets and economic statements. Certain ministerial advisers, such as Ross Garnaut and Don Russell, are seen as being at least as influential. For some key decisions, central agency officials were almost irrelevant. The decisions on the Accords were heavily influenced by the ACTU (Goldfinch, 1999, pp. 7-12). The privatisation of QANTAS was seen as predominantly a decision influenced by ministers (Goldfinch, 1999, p. 14). The floating of the dollar was a debate that featured the Treasury prominently, but was one in which the views of the Reserve Bank prevailed over their Treasury colleagues (Goldfinch, 1999, p. 8).

Based on this, Goldfinch rejects Pusey’s position that “the central agencies… were necessarily the major influence on economic policy” (Goldfinch, 1999, p. 3). Rather, he argues that “while Pusey’s study is useful in drawing attention to the role strategically located elites can play in influencing policy, it fails to adequately establish which of these elites did in fact influence economic policy decisions” (Goldfinch, 1999, p. 15).

Despite this conclusion, Goldfinch may still have understated the role played by public servants. His sample of interview subjects included a large number of public servants, but it was still short of a majority, and thus it is not clear whether the majority of those voting really knew where power resided. Typically, the advice provided by public servants is not visible to a larger range of stakeholders, or when it is visible it is simply issued under the name of the agency head. That anonymity may have meant that public servants’ influence is unrecognised by others outside of the public service or attributed by them to their ministers. A majority view may just reflect that, even with

25 the carefully picked sample of insiders, most remain ignorant of the true sources of influence on public policy making.

2.3.4 The views of Canberra economists The last of our four works is Fred Argy (2001), himself a former senior public servant, compiled the results of a survey of members of the Canberra Branch of the Economic Society of Australia on economic policy. Pusey had argued that the teaching of economics in Australian universities was a factor behind the rise of economic rationalism, and singled out Canberra’s Australian National University as the most extreme (Pusey, 1991, pp. 5, 60). Thus, this sample of Canberra economists is likely to be representative of those exposed to views promoting economic rationalism. At least some of the sample are likely to be central agency SES. Pusey includes the remark, presented as fact, “In relation to the top SES economists, one respondent commented ‘they all know each other: they are all members of the Canberra Economics Society’” (Pusey, 1991, p. 132). Of the 77 participants in Argy’s survey, 45 per cent were public servants, 32 per cent were academics and 15 per cent were in the private sector with the remainder retired. Argy notes that “with small exceptions, government economists did not respond to the questions very differently from academics or even private sector economists” (Argy, 2001, p. 1). Argy sought to deal with two popular views about economists: they never agree with each other, and they have “empty hearts” (that is, they oppose income distribution and social support policies – policy positions Pusey equated with economic rationalism).

Argy finds that there is broad agreement among the economists in his sample on microeconomic policy issues but a lack of consensus on macroeconomic policy issues. Moreover, he argues that despite a strong preference for market-based mechanisms, these economists also care about distributional outcomes (Argy, 2001, p. 6).

Argy’s sample of economists displayed high to moderate agreement on microeconomic issues – on lower tariffs, market deregulation, and market-neutral policies. However, there was less agreement on pro-active industry policy and further market deregulation (Argy, 2001, pp. 2-3).

26 On macroeconomic policy, a consensus only really existed on the desirability of a handful of uncontroversial issues: promoting economic growth, low unemployment and low inflation. The survey also appeared to show agreement on the desirability of keeping the budget balanced over the budget cycle (Argy, 2001, p. 3). However, Argy points out that it was not clear whether this was in cash terms or in operating terms (that is including capital investment or excluding it). Argy also noted that most respondents rejected the proposition that public expenditure should be reduced as portion of GDP (Argy, 2001, pp. 3-4). However interpreted, these arguments run against Pusey’s characterisation of economic rationalists as always wanting to cut government spending (Pusey, 1992, pp. 64-65).

Consensus fell apart on other issues. These included whether the government should focus on controlling inflation or unemployment, how appropriate is it to use government expenditure to create jobs, what is the importance of the current account deficit or the level of immigration (Argy, 2001, pp. 4-5). Argy explained that disagreement should be expected given the complexity of the issues and the need for value judgements (Argy, 2001, pp. 5-6).

Significantly, he found that his sample did not fit stereotyped views of economists. Rather, his data showed that they were concerned about distributional outcomes and environmental impacts, and the majority believed that government intervention was necessary (Argy, 2001, p. 6).

While Argy only mentions Pusey’s Economic Rationalism in Canberra in one paragraph in an appendix (Argy, 2001, p. 11), the selection of Canberra economists and the reference to “economic rationalism” in the title clearly position this article as a contribution to the debate. However, the article falls short of a conclusive rebuttal. While many respondents were public servants, it is unclear how many were employed in central agencies or whether they were influential in government policy formulation. Nor is it clear that a sample of members of the Economic Society is representative of the set of senior public servants that Pusey identifies with promoting economic rationalism. The self-selection involved in becoming a member and responding to the

27 survey may simply correspond to those with more nuanced views about economic policy.

2.4 The views of senior public servants We now consider the views of “insiders” within the public policy process, most notably senior public servants themselves. A few former senior public servants provided a substantive commentary on Pusey.

John Stone, Secretary of the Treasury (1979-1984) and later a National Party senator and Shadow Minister for Finance (1990-93), provided the most direct criticism of Pusey. Stone was unreserved in his opinion, stating that Pusey’s book was “an extremely flawed and, in places, highly distasteful work” (Stone, 1993, p. 96) and provides “a highly distorted view of the Canberra bureaucracy” (Emy & Stone, 1992, p. 61). Stone found little to admire in the book, ranging from its conclusion, the style in which it was written or the approach taken to the research. Stone criticised the lack of information on how Pusey’s sample was selected (Emy & Stone, 1992, p. 62) and the way Pusey chose to interpret responses to his closed questions (Emy & Stone, 1992, pp. 62-63).

Fred Argy, Director of the Economic Planning Advisory Commission (1986-1991) and a former senior Treasury officer, provides a more temperate set of views. As we saw earlier in this chapter conducted his own research on the topic (Argy, 2001), but in the wake of the Publication of Economic Rationalism in Canberra he provided a review containing assessments based on his direct experience. Argy wrote that “Pusey’s claim that the econocrats generally favour minimalist economic role for government has a core of truth but it is… a considerable over-simplification of what is a very varied and complex set of attitudes” (Argy, 1992, p. 152). In expanding on this “core of truth”, Argy explains that senior “econocrats” believe that the economy should be exposed to market pressures, with minimal government interference, because ultimately this exposure promotes the efficient allocation of resources (Argy, 1992, p. 152).This in turn, they believe, allows for better productivity growth and a higher standard of living on average. Thus, Argy finds it as unsurprising that central agency SES are “generally

28 unsympathetic to industry planning and picking winners, or any government action that unnecessarily restricts competition” (Argy, 1992, p. 152).

Beyond these core issues, Argy argued that the views of econocrats on economic policy are more pragmatic than Pusey supposes. Argy argues that they do not have a doctrinaire approach to deregulation. Instead, he sees that they are likely to support deregulation when it improves competition and market efficiency but are equally likely to support regulation when it corrects market failures such as caused by monopoly power or information asymmetries. Likewise, Argy argued that econocrats, while believing that government expenditure should be “well targeted and cost-effective” have no ideological preference for small government (Argy, 1992, pp. 152-153).

Other insiders offered distinctive contributions on particular issues raised by Pusey’s thesis. For example, Des Moore, a former deputy secretary in the Treasury, treated “economic rationalism” as synonymous with economic reform, and as such something desirable. Moore argued that Australia has gained significantly from economic reform. As he put it, there is “very strong evidence that in the 1990s economic rationalist policies produced very large economic benefits for the great majority of Australians and that governments protected the less advantaged through the social welfare system” (Moore, 2001, p. 83). However, he disputes that economic rationalists controlled the policy agenda. At the time Pusey wrote, he pointed to the regulation of the labour market and the high degree of government intervention in transport and utilities (Moore, 1992, p. 35). A decade later, Moore argued regulation of the labour market and the rise of “middle-class welfare” remained areas in need of economic reform (Moore, 2001, pp. 86-87). Moore claimed that while some level of “government intervention and regulation of the economy is needed, that needs to be reduced” (Moore, 2001, p. 89). The result, he concluded, is that, contrary to Pusey, “Australia is a considerable way from adopting economic rationalism” (Moore, 2001, p. 89).

John Fraser, then a deputy secretary in the Treasury and recently returning as the Secretary, was asked about the educational qualifications of Treasury officers as part of a Senate Estimates committee hearing. He remarked that:

29 I think Dr Pusey’s work just did not stand up to analysis in any way… Even if you look at the educational backgrounds, they are remarkably diverse. Unlike what Dr Pusey suggested, there is certainly not a preponderance of privately educated people. Of the Secretary and the three deputy secretaries, only one had private school education. If you go back through the secretaries over the last 20 years, I think the last Secretary to have a private school education was Sir Frederick Wheeler, who was a scholarship student at Scotts College. The backgrounds of John Stone, Bernie Fraser, Chris Higgins and Tony Cole are anything but the sort of privileged backgrounds Pusey was suggesting… I think we reacted rather fiercely to Dr Pusey because, as I said, not only did the data not stand up when you looked at the facts of educational background and training, but also the conclusions he drew ran counter to our experience. (Senate, 1992)

Michael Keating, Secretary of both the Department of Finance (1986-91) and the Department of the Prime Minister and Cabinet (1992-96) refers to Pusey’s portrayal of public service leaders prior to the onset of economic rationalism as guardians of the public interest as “highly romanticised” (M. Keating, 1999, p. 47). Rather, Keating sees the role of the public servant, both then and now, in classic Westminster terms, serving the elected government impartially notwithstanding any personal views. Keating sees that “critics of ‘economic rationalism’ [and he includes Pusey]… may not in fact oppose public servants imposing their views on ministers so long as those views are acceptable” (M. Keating, 1999, p. 46); implying a conflict between principal and agent. Keating considers the view that public servants could or should impose their views on ministers as “a caricature” (M. Keating, 1999, p. 46). “Even if one acknowledged that a situation might arise when in retrospect the public servant was proved right and the minister wrong, how do we know that in advance? The essential difficulty with this view of the public service being some sort of independent guardian of the public interest in good policy is that ‘these critics have failed to define the public interest in a manner which would provide a useful guide to action’” (M. Keating, 1999, p. 46).

The challenge, according to Keating is finding the right balance between independence and responsiveness. As he put it, “a public servant who was determined to independently pursue their own conception of the ‘public interest’ would [not] be capable of serving either side of politics loyally [while] a public servant who was too enthusiastic in supporting the minister’s policies is unlikely to provide the 30 dispassionate advice and judgement which ministers expect from the public service” (M. Keating, 1999, p. 44). Thus, in Keating’s analysis there is no place for ideological advocates – whether economic rationalist or proponents of nation-building.

Michael Keating also addressed governments’ increasing reliance on markets, and listed Pusey as one of those who criticised this trend. He noted that many observers believed that from 1983 “the leading role of the state in fostering national development through public investment and the direct provision of many services has apparently also been rolled back” (M. Keating, 2004, p. 2). Keating, however, argued that the increasing use of markets should not be read as diminishing the role of the state. Rather, he argues that what is happening is that the government is using markets to better achieve its social and economic objectives (M. Keating, 2004, p. 4).

Peter Shergold, Secretary of the Department of the Prime Minister and Cabinet 2003-08, argued that how senior public servants are portrayed has swung from extreme to extreme, both equally fanciful. He puts Pusey in the traditional camp of those who saw senior public servants as a powerful and secretive elite, controlling policy from behind a veil. However, this view was later replaced by another that saw senior public servants as timid and impotent, cowed by their ministers (Shergold, 2004, p. 4). Shergold rejects both of these views. He argues that the public service has a responsibility to serve the government of the day, and although they operate in a more complex environment, the contemporary public service leadership is just as professional as those of the “Canberra Camelot” 40, 50 or 60 years previously (Shergold, 2004, pp. 3, 11). While Shergold did not specifically address whether public servants might have a preference for economic rationalism, his portrayal of a public service that was loyal, professional and impartial, reflecting the values in the Public Service Act, left it clear that he did not see the organisation as infused with a specific ideology.

To this collection of comments made by senior public servants directly, we can add the assessment of Patrick Weller (2001) who interviewed numerous departmental secretaries and former departmental secretaries as part of his research concerning

31 their place in the Australian political system. According to Weller, Pusey was one who denied that the elected government controls the policy agenda. He writes:

[Pusey’s] argument was that, in the mid-1980s, a group of public servants, whom he described as economic rationalists, changed the way that policy was developed and in effect hijacked the national agenda. Implicit in his argument is the view that it was these public servants, not ministers, who drove the agenda, even in the 1980s when the new Labor government believed that ministers exerted more control than in earlier regimes. Thus ministers were captive to a doctrine held by the crucial departmental secretaries. (Weller, 2001, p. 7)

Weller found little to support this proposition, “Departmental secretaries have a responsibility to provide good advice… but, unelected, they do not have the right - and do not claim the right – to have a better understanding of the national interest than their political masters” (Weller, 2001, pp. 116-117). He concluded that the departmental secretaries “as a group … retain a high degree of skill and commitment and a preparedness in most cases to serve any elected government” (Weller, 2001, p. 239).

Likewise, he discounted the view that the public service might, in the past, have dominated the policy agenda in ways Pusey would have found favourable. Weller argues that:

It is a basic assumption of Pusey’s book on economic rationalism [that]… the public service was once full of giants and nation-builders…But there is a problem with this analysis. First, it is difficult to find any departmental secretary of that earlier period who would argue that they had the right to determine policy over the wishes of the minister because it was somehow in the national interest. Some frustration with the capacity of ministers, certainly, which might lead to the initiative for developing policy to senior officials, but no claim to superiority. (Weller, 2001, p. 115)

However, Weller interviewed secretaries rather than the SES officers that worked for them, so it is not clear the extent to which the views of the secretaries represented the views of the broader SES personnel within the central agencies. Secondly, it is not clear to what extent his interviews focussed on Pusey’s propositions – or whether the conclusions at which Weller arrives were drawn from a subset of the sample who chose to comment on these issues.

32 Despite this, Weller’s assessment aligns with the comments of the senior public servants themselves who, at best saw Pusey’s views as a caricature of reality. Instead, they were more inclined to see their role in terms of the Westminster conventions, offering their professional advice, experience and even insights from economic, but in the context of serving the elected government.

2.5 The views of Ministers The perspective of ministers is also important. As the “principal” for the public service “agents”, they have an interest in public service performance and direct knowledge of it. They were less likely to reflect on the philosophic underpinnings of Westminster, being more interested in the practicalities of implementing policy.

An insight into the thinking of ministers was provided in December 1991 when 203 academics made a public statement calling for “rejection of ‘economic rationalism’ as the dominant economic discourse” (“Academics say free market has failed,” 1991; Rees et al., 1993, p. 305). This statement was delivered initially to Bob Hawke and then to Paul Keating, who replaced Hawke as Prime Minister soon after the statement was made. The statement was also provided to their Treasurers: John Kerin, Ralph Willis and John Dawkins. This declaration of academic opinion evoked no response from any of these five individuals (Rees et al., 1993, p. 305). Implicit in this lack of response was the confidence these politicians had in the economic policies of the government, the advice they were getting from their central agencies, and the systems they had at their disposal to develop and implement those policies.

Those Australian politicians who have described their interactions with public servants have, on the whole, been complimentary about the qualities of the public servants that advised them. Given that each minister could have had thousands of interactions with public servants over the period they were in office, it is perhaps unsurprising that a few were not positive. Yet these did not amount to a general view that the public servants were able to control the system.

Paul Keating (Treasurer 1983-91 and Prime Minister 1991-96) commented:

I worked for over thirteen years as a Minister and as Prime Minister with men and women of the public service. I liked and admired Australian officials. I admired the integrity of their 33 efforts. Most of what we accomplished in those years could not have been done without their skill and commitment. They served the government loyally but understood that the highest manifestation of that loyalty was their ability to advise fearlessly without recrimination or rebuke. Michael Keating, for example, Mike Codd before him, or Chris Higgins, or Bernie Fraser, never did, and never would have regarded themselves as political strategists for the Prime Minister or the Treasurer. (P. J. Keating, 2011, pp. 17-18).

Wayne Swan (Treasurer 2007-13) found cause to “pay tribute to the dedicated public servants who served Australia magnificently through the Global Financial Crisis, but most particularly in Treasury, especially Ken Henry, Nigel Ray, Mike Callaghan, David Gruen and Martin Parkinson, who I worked most closely with on Budget, global and macroeconomic matters” (Swan, 2014, p. 393). As Swan argued, “Unlike the previous government, we were determined to listen to our public service advisers, particularly those from Treasury, even if we didn’t always agree with them. There is real merit in considering weighty questions carefully before taking action” (Swan, 2014, p. 10)

Lindsay Tanner (Minister for Finance and Deregulation 2007-10) simply described his department as the “the best public servants in the nation… [and] virtually uniformly outstanding” (Tanner, 2010, p. 6597).

The author has heard Julia Gillard (Prime Minister 2010-13), Wayne Swan (Treasurer 2007-13), Penny Wong (Minister for Finance and Deregulation 2010-13) and Mathias Cormann (Minister for Finance since 2013) make complimentary statements about the quality of public servants working for them.

As we saw in the introduction, Pusey had argued that while public servants had claimed to be left-leaning centrists, these claims could not be taken at face value and there in fact more sympathetic to the “right” than they either admitted or realized. However, an alternative view is that they are indeed politically left-leaning, at least for the public service as a whole. John Howard, reflecting on farewelling the staff of the Department of the Prime Minister and Cabinet after his defeat in the 2007 election, observed:

I suspect that approximately 60 to 70 per cent of them would have voted Labor three days earlier. They were not especially hostile to me, but Canberra is a Labor town. If the ALP still has a tribe, as distinct from supporters, it is the tertiary-educated salaried professionals of the

34 public service. They are thick on the ground in Canberra. That having been said, the employees of my department had, by and large, behaved in a truly professional fashion during my time. (Howard, 2010, p. 647)

These politicians were, however, more likely to see a malign public service working for ministers other than themselves. Malcolm Fraser (Prime Minister 1975-83) observed that the inexperienced John Howard as his Treasurer was dominated by the Treasury (Fraser & Simons, 2010, p. 351). Bob Hawke similarly saw Paul Keating as simply mirroring the Treasury line (Hawke, 1994, pp. 299, 490)

Peter Costello (Treasurer 1996-2007) claimed that departmental agendas had a momentum of their own and that “as time went by in [the Howard] Government, the department heads began to dominate the Ministers” (Costello & Coleman, 2008, p. 98). Costello suggested that the ministers did not always understand the issues, and new ministers promoted from the backbench often assumed that their predecessors had set the policy. These ministers were then bringing new policy proposals to the Expenditure Review Committee which reflected little more than a long-standing departmental wish list (Costello & Coleman, 2008, p. 98). However, Costello went on to damn the department secretaries for the same ignorance and gullibility. Costello claimed that they would often not know the history behind a budget spending proposal, and may not have been aware when a proposal had previously been considered and rejected (Costello & Coleman, 2008, p. 98). According to Costello, “long-held ambitions of the departments bubbled their way up and up, again and again, and would work their way onto the agenda of the new department head, just as they had bubbled their way up to the agenda of an old department head.” (Costello & Coleman, 2008, p. 98). Of course, Costello was referring to the line agencies who bring most of the spending proposals to the ERC (and he singled out the Department of Defence as the worst) – not the central agencies (PM&C and Finance have few spending proposals). He was, on his own account, always across the issues. Thus, on Costello’s account it was possible for agencies to dominate their ministers – as might be implied by Pusey’s argument. However, his point is that this domination of ministers was apparently happening in line agencies rather than in central agencies – in contrast to Pusey’s position.

35 While Costello saw departmental agendas emerging from the woodwork, his prime minister saw Treasury as being insufficiently activist. John Howard remarked that “for all its famed intellectual resources, and they were formidable, Treasury produced few really inspiring new policy ideas during our time in government [1996-2007], or certainly not ones of which I was made aware” (Howard, 2010, p. 629). Howard claims that the big policy ideas had been debated publically for some time and had been refined by the party in opposition (Howard, 2010, p. 629).This contrasts with Pusey’s view of an activist Treasury seeking to impose its policy ideas on a naïve government.

Pusey saw a number of changes to how the public service was run in the 1980s as consolidating the power of the economic rationalists (Pusey, 1991, pp. 121-122,146, 151-152). In 1984, these included changes to make the public service more responsive to the ministers and more open to lateral recruitment from outside the public service. In 1987, the number of separate departments of state were reduced, merged into so- called “mega departments” with a portfolio minister in Cabinet and the junior ministers in the outer ministry. At the same time, the Public Service Board was abolished and its functions moved to the Department of Finance, the Department of Industrial Relations and devolved to the departments. However, while Pusey perceived in these changes an increase in the influence of economic rationalists upon the policy process, Hawke defended these organisational changes as providing “better policy coordination, administrative efficiencies and improved budget processes” (Hawke, 1994, p. 416).

One area was on the apparent view that the central agencies were advancing a common set of policies based on economic rationalism. Peter Walsh, Minister for Finance 1984 to 1990 when Pusey was conducting his research, observed – in characteristically direct terms – that the central agencies do not have a uniform view on economic matters. “Contrary to the uninformed views of latter day half-baked half- professors of sociology, senior bureaucrats in Treasury and Finance, though very likely to have economics degrees, do not always have the same views about policy” (Walsh, 1995, p. 141). Taking this further, “the silly post-recession theory which became so popular among the chattering classes: that the economic rationalists of Treasury, Finance and PM&C are clones of each other always proffering identical economic

36 advice, and that the Government always accepted that advice, is wrong.” (Walsh, 1995, p. 214).

John Howard, reflecting on the period when he was Treasurer (1977-83), a period prior to Pusey’s research, also saw the central agencies as lacking unanimity. Howard notes “there were regular clashes between Treasury and the Department of [the] Prime Minister and Cabinet over economic policy. [Prime Minister] Fraser’s department mistrusted the Treasury, and Treasury elite were resentful that their advice should in any way be questioned or qualified” (Howard, 2010, pp. 113-114).

Disagreements between the central agencies, highlighted by Howard and Walsh, also become apparent in some academic research. Michael Di Francesco (2000) provides a case study highlighting the different positions the agencies had on evaluating policy advice. In principle, the three central agencies shared an interest in evaluating agency – and hence should be willing to subject their own policy processes to scrutiny. However, the three agencies took different approaches to a project to evaluate their policy work with PM&C most supportive and Treasury the most resistant (Di Francesco, 2000, pp. 39-40).

Political leaders were quite happy to claim responsibility for the policies that Pusey had labelled as exhibiting economic rationalism. Bob Hawke, Prime Minister 1983-91, claimed to have presided over the “most extensive micro-economic reform in Australian history” (Hawke, 1994, p. 587). Hawke, even claimed as one of his legacies that “Australians have become more economically literate and aware of the harsh competitive realities of the world in which they live” (Hawke, 1994, p. xv).

Paul Keating was also unapologetic on economic rationalism:

Economic rationalism has been turned into a fashionable bogey man. But as ogres go, it really doesn’t cut the mustard. If the claim is that Labor believed that markets can be an efficient mechanism for all sorts of economic and social purposes, then it is true, but isn’t saying much. If it is suggesting that Labor was in some sort of ideological, Thatcherite thrall to markets, then it is demonstrably false. In policies ranging from the Accord to Medicare to Better Cities to industry policies like the Car Plan to Creative Nation to Working Nation, Labor consistently believed in an active role for government in Australia. But a more focused role. Using the government to steer the boat, not row it. (P. J. Keating, 2011, pp. 201-202)

37 Peter Walsh endorsed economic reform but took the view that the reforms of this period had not gone far enough, as reflected in the title of his memoirs Confessions of a Failed Finance Minister (Walsh, 1995).The glass was half empty rather than half full. Rather than seeing the Hawke government reflecting an era where policy was dominated by economic rationalists, he saw it as one with too many missed opportunities, and so one where the economic rationalists were not exercising enough influence (for example Walsh, 1995, p. 169ff). Walsh wrote:

A protection phasedown policy was initiated in the 1980s, but had little impact before the 1990s. Partial transport deregulation was initiated in the late 1980s, but had little impact until the 1990s. In the 1990s also, some government business enterprises were partially or fully privatised. But, on the other side of the ledger, the volume of regulations pouring out from all governments was double that of any previous decade; business was lumbered with affirmative action, equal opportunity and anti-discrimination regulation by Federal and State governments; exploration and mining was prohibited (prohibition in the most extreme form of regulation) in several large mineral-rich areas; forestry operations were prohibited; labour market regulation was maintained and extended. And, in 1990, total government outlays accounted for 37.6 per cent of GDP, up from 33.8 a decade before. Federal and total government outlays, as a proportion of GDP, did come down in the late 1980s, but remained at a higher level than in any previous time. (Walsh, 1995, p. 265)

Peter Costello endorsed economic reform and the “liberal market model”. At the same time he was dismissive of Pusey, identifying him as one who must still be hoping vainly to prove that economic reform had “all been a great failure” (Costello, 2003).

Overall the ministers responsible for the central agencies were happy with the service given to them by their public servants, although they may have thought that other ministers were less well served. They were also happy to take credit for policies, which Pusey described as economic rationalist, introduced during their tenure. There was no sense that they had been railroaded by the public service, or even that there was a clear agenda promoting economic rationalism that stretched across the central agencies.

2.6 The Historical Context Some commentators take issue with how Pusey described the historical context in which economic rationalism arose. Bell contends that “Pusey’s historical

38 understanding of the Australian state is flawed [and provides] an inadequate account of the context and pressures which drive the Australian state, combined with his tendency to misunderstand and romanticise aspects of earlier state intervention…” (Bell, 1993, p. 392). While Bell agrees that “there is a good deal in Australia’s history which justifies the characterisation of Australia’s state as a one-time nation builder” (Bell, 1993, p. 394) he also notes that “there has also been a good deal of economic rationalism … in Australia’s history. In particular, Australia has always embraced relatively liberal notions of market freedom and management prerogative…”(Bell, 1993, p. 395).

In addition, the view that the public service was in some way different from earlier generations of public servants was challenged. According to John Wanna, the public service has always been run by an elite and these reflect the “oscillating vogues” at the time – there is no evidence for a state changing its mind. (Wanna, 1992, pp. 43-44).

Emy (Emy & Stone, 1992), while endorsing many of Pusey’s conclusions about the nature of the SES in central agencies, notes that there is “some implicit idealisation of the previous system” and “and that Pusey “does not acknowledge sufficiently either the context of, or reasons for, restructuring both economy and government in the 1980s (Emy & Stone, 1992, p. 59). Emy elaborates that the “there is little or no recognition that the nature and pace of change in the world economy had passed Australia by; that the Australian economy faced serious structural problems; that Australian’s expectation of a good life was out of kilter with the resources actually available; and that low productivity, excessive complacency and a range of restrictive work practices stood in the way of creating a more viable economy” (Emy & Stone, 1992, p. 59). Thus, Emy argues that the economic rationalists were motivated by sense of crisis. The old structures weren’t being dismantled simply because more bureaucrats had a privileged background or had studied economics – the old system was seen as failing and in desperate need to be replaced in order to save the nation.

However, while Emy saw economic crisis motivating the bureaucracy, Brian Head argued that there were important political changes. In particular, Hawke, Keating and other political leaders understood that in a period of weak economic performance,

39 rebuilding productivity had to be a priority and a necessary precursor to being able to deliver on their social agenda (Head, 1988, pp. 468-469).

Overall, these comments suggest that Pusey had provided a somewhat idealised view of the context in which economic rationalism arose. Thus, the three-way division of economic philosophy is drawn too sharply, and the transitions are too sudden. Likewise, the impact of broader historical forces shaping the Australian economy is overlooked.

2.7 Powerful Actors Another shortcoming in Pusey’s analysis is that Pusey starts his argument with an implicit assumption that public servants are powerful actors in the public policy process. In places, he makes them equal partners with the elected government while in other places he suggests that they might be able to control the ministers (Pusey, 1991, pp. 2, 7). Pusey had written “today everyone (on both the left and the right) agrees that top public servants are enormously powerful…” (Pusey, 1988, p. 109), but this argument does not appear to have been tested, and the potential role of other actors is not examined.

Others authors pointed to a range of actors that could be influential in the process. This was a theme explored by Goldfinch (1999) earlier in this chapter, where he listed a range of institutions and individuals – including politicians, public servants, and other thought leaders who were influential at different points of time. The most obvious were the ministers themselves. While Pusey grouped ministers together with senior public servants as the “switchmen of history”, they are largely absent from Pusey’s analysis (Pusey, 1991, p. 2). As Bell remarks “how ministers fit into, shape or respond to economic rationalism in the bureaucracy is never fully explored” (Bell, 1993, p. 390).

Maria Maley (2011) argues that ministerial advisers provide crucial networks that provided essential coordination and communication. “The networks… in which ministers and their advisers inhabit a single physical space from which departments are (largely) absent. This system was designed to ensure political control over decision making.” Key policy issues were often resolved between advisers. Central to the networks of advisers were the offices of the Prime Minister, the Treasurer and the

40 Finance Minister (Maley, 2011, p. 1475). While the Prime Minister’s office was the most important component in this system, it had little ability to control the advisers, who were all responsible to their own ministers (Maley, 2011, p. 1485).

Finally, Bell argues that “Pusey’s explanatory account of state action relies on a kind of Millsian power elitism which assumes that an analysis of the preferences and actions of powerful state elites amounts to an adequate explanatory theory of the state” (Bell, 1993, p. 392). These results in the neglect of “societal actors”, those various factions and interests within society that can be interacting and forming alliances with state elites.

41 3. Methodology, Research Design, Sample Selection and Interview Design 3.1 Introduction This chapter describes the methodology employed in this research project. It commences with a discussion of why Pusey’s methodology could not be replicated faithfully and why this research has chosen to adopt a qualitative approach. It then discusses the research design, expanding to discuss the interview design, the sample selection (including the organisational units the sample has been drawn from), and the question design. It then discusses the approach to analysis, the ethical implications of this research and, finally, some limitations to the research.

3.2 Departing from Pusey The basic intent of this project is to revisit Pusey’s study of the Canberra public service, conducted over a quarter of a century ago, to determine whether the contemporary public service yields the same sort of conclusions as did Pusey’s earlier study. Yet this study possesses two major differences from Pusey’s study of which we need to take account before engaging in any such comparison. Firstly, this study does not directly replicate Pusey’s study. Secondly, it adopts a qualitative rather than a quantitative research design. Both of these factors are discussed further below.

It might be thought that one possible way to engage in comparative analysis regarding the Pusey thesis is to adopt precisely the same research design and methodology as Pusey, and so seek to replicate his study directly. This approach, in theory, would permit the new results to be compared directly to those generated by Pusey. Any variation could be assessed for statistical significance. The extent and direction of change could then form the basis for concluding that economic rationalism has become more or less entrenched in the public service.

However, there are problems in directly replicating Pusey’s thesis over such a long period. At the very least, an altered historical context means that some of Pusey’s questions, as well as answers to them provided by respondents, may take on a very different meaning today than in Pusey’s time, not least due to shifts in government policy in the interim. For instance, Pusey had asked his participants if they supported

42 “deregulation of the labour market”. Such a question today, in the wake of John Howard’s WorkChoices, would have had different implications to that in Pusey’s time when public servants would have interpreted this term in the light of the Australian Labor Party’s Prices and Incomes Accord. The level and type of labour market deregulation were very different in each, and the responses of the interviewees would be coloured by this, making comparison of their responses to those of Pusey’s interview subjects, over such a long expanse of time, fraught with methodological difficulty. Equally, Pusey’s question on support for deregulation of financial and capital markets today would be understood in relation to the Murray Review rather than the Campbell Inquiry, giving rise to the same problems.

In all these ways, a different policy environment and, indeed, political culture, within Canberra today, compared to Pusey’s time, would affect the comparability of data results. Critically, Pusey used these questions as indicators of whether Senior Executive Service (SES) officers in particular groups were adherents of economic rationalism. In this study, it is the general support for smaller government which is principally used to identify economic rationalism, rather than questions that might be read as relating to specific contemporary policy initiatives.

Another difference from Pusey’s study concerns the study population itself. Pusey used a sample drawn from both the central agencies and the groups of departments he labelled as market-oriented and program and service. Pusey was able to use the larger sample to provide a basis to compare the responses of the central agency participants to his questions with those in the market-oriented and service departments. He also solicited the opinons of these two groups on the central agencies. This approach had two weaknesses. First, the selected departments still represented less than thirty per cent of the public service. Second, the typical department will have scores of SES officers, most of whom are focssed on the operational functions of the department. In contrast, the central agencies would typically have only one SES officer shadowing a department, or possibly several departments. Pusey did not determine the extent of contact his participants had with central agencies. Consequently, the market and service departments may not have had a thorough understanding of the central agencies for a consensus opinon to be valid.

43 Even if there was seen to be merit in interviewing staff from the market-oriented and program and service departments, the extensive reorganisation and restructuring of the public service since Pusey’s time would complicate the task of directly replicating Pusey’s study. For example, the market-oriented Department of Trade has merged with the Department of Foreign Affairs (which Pusey did not survey); the program and service Department of Aboriginal Affairs, after several restructures, is now part of the central agency the Department of the Prime Minister and Cabinet (PM&C). Consequently, given these changes, attempting to replicate Pusey’s study would involve identifying equivalent samples across the public service at odds with the actual structure of the public service as it exists today.

Given limits of time and opportunity, the present study was unable to replicate this broad cross-section of the public service within its own study population. It sought to include all three central agencies within the study – Finance, Treasury and PM&C – but only received permission from the relevant departmental secretaries to conduct interviews in the first two. Nevertheless, despite the criticisms of Pusey’s conclusions concerning the central agencies above, the fact that the present study includes two of the three central agencies upon which Pusey focused means that a significant level of comparability in results will be possible.

The other basic difference between this investigation and Pusey’s study concerns its adoption of a qualitative rather than quantitative research design. I decided to adopt a qualitative approach for this study primarily because of the better ability of this approach to explore the meaning behind the responses given by the participants. The qualitative approach allowed me to elicit far richer data, and far more nuanced responses, to the questions asked. This is because a qualitative approach, involving open-ended rather than survey questions, provides more room for the participants to explain the reasoning behind their answers. It also allows them greater scope to respond to the specifics of the Pusey thesis, not least whether their views match the perception of economic rationalism described by Pusey. One area of criticism of Pusey concerned the series of questions he used to identify a propensity towards economic rationalism. Many of these questions were asked in terms that were ambiguous and even ideologically loaded, some critics argued that the meaning Pusey imputed to the

44 term might not be the same as the meaning imputed to it by his respondents (Bell, 1993, p. 391; Blandy, 1992, p. 103; Coleman & Hagger, 2001, p. 64ff).

For the most part, I categorise Pusey’s approach as quantitative. Pusey states that his “interview comprises 44 ‘closed’ questions and 20 semi-structured or ‘open-ended’ questions” (Pusey, 1991, p. 254); however, half of the open questions are in the demographic section requesting short factual responses (e.g. age, father’s occupation, hours worked, principal educational qualification). Many of the remaining open questions are seeking short responses without further explanation, which are then tabulated (e.g, “the two main problems facing Australia today”, and “what are the two or three main differences between SES officers in this department and those in the other groups”). Significantly, all the questions used as indicators of economic rationalism are asked as closed questions. Pusey did not seek to have the participants explain their own views on policy issues or their relationship to the elected government.

3.3 Research Design The approach adopted in this study was a semi-structured interview with SES personnel within selected divisions within the Treasury and Finance. Thirty participants agreed to be interviewed, compared to Pusey’s 215 interviews. The interviews were structured around twelve basic questions and associated follow-up questions, and each took on average three-quarters of an hour to complete, roughly half the time Pusey’s interviews took. This interview approach was adopted in order to give interviewees maximum space to respond to inquiries – not least concerning their understanding of their role within the public service, their assessment of their own motivations, and how they see their relations with the elected government. It is in this context that they are asked to reflect on their own level of influence within the policy process, as well as demonstrate some level of awareness of the activities of other actors and visibility of the policy outcomes. It is in such contexts that they are also asked to respond in particular to questions concerning ‘economic rationalism’. Of course, we can never assume complete self-reflexive awareness or self-understanding on the part of any participant. No individual is ever likely to be in possession of complete knowledge, and wider frameworks of power and influence often impact on

45 individuals in ways in which these individuals are unaware (Lukes, 2005, pp. 28-29). In this respect, we must keep these limitations in mind when assessing the answers provided to interview questions by the participants. However, Pusey’s approach was to direct his inquiries to the public servant participants themselves and so this study replicates Pusey’s approach in this regard.

While it is possible that the subjects might want to present themselves in a more favourable light in answering the questions, nevertheless, as the responses were confidential there was no obvious personal gain from embellishing responses. Pusey himself had commented “my respondents were exceptionally open and trusting in all that they proffered to us in the interviews” (Pusey, 1991, p. vii). This was also my assessment for the current generation of public servants. The follow-up questions in the interview guide were designed to explore any logical inconsistencies in the answers provided as well as to elicit further information in those instances where initial responses were unclear or did not completely respond to the question, or where further information was required.

The sample of central agency SES staff was chosen on the grounds that these were those likely to have the most access to policy decisions within the budget process. The focus on the budget process arises from the assumption that it is the budget process that provides both the context in which economic considerations are likely to influence policy choices and where the central agencies are likely to be able to influence decisions on proposals from other departments, including any “nation building” proposals. Pusey himself identifies the importance of budgets (Pusey, 1991, p. 134) and one of his definitions of “economic rationalism” associates the term with its inevitable result in “the same budget prescriptions” (Pusey, 1992, pp. 64-65). The budget process is, in other words, the locus in which processes of power, influence and also ideological assumptions are likely to be most apparent, thereby allowing us to assess the influence or role of “economic rationalism” in this process. The sample of central agency SES staff chosen is also the group that most closely resembles the central agency staff Pusey concentrated on, close to the centre of power and immersed in economic considerations. The sample selection is explained further below.

46 3.4 Interview Design The questions asked in interviews aimed to directly address the key issues presented by Pusey’s analysis: who possessed power and influence, what was the relationship between principal and agent, how did the participants conceptualise their role, and what influence did economics and other simplifying models have on their approach to policy advice. The specific questions are discussed further below.

The interviews were semi-structured, using a brief interview guide to ensure that the key issues were covered (Bryman & Bell, 2007, pp. 474-476). While the question list was not as long or wide-ranging as that used by Pusey, it sought to concentrate on the most significant factors raised in Economic Rationalism in Canberra. The choice of questions and their rationale is explained in the section on the question set below.

The research design acknowledged the value of SES officers’ time and minimised the burdens imposed on them in volunteering their assistance. In order to use the researcher’s time and the participants’ most efficiently, the number of questions was kept to a minimum. Thus, the interviews were designed to be completed in half the time of Pusey’s, as well as focusing on a much narrower sample.

The interviews were conducted in Finance first and then Treasury. Generally, the interviews were conducted by division, and with the more junior SES officers interviewed before the more senior ones. The logic behind this approach was two-fold. Firstly it was easier to schedule meetings this way, particularly for Treasury where I was more reliant on administrative staff to schedule meetings and these were typically a shared resource across divisions. Secondly, it was my judgement that the SES staff might discuss the interviews amongst themselves, which occurred to some extent, and that scheduling this way could build confidence with the process, as the more time- poor SES officers could rely on reports from their colleagues on the nature of the process. In practice, scheduling meant this approach could not be followed strictly.

The interviews were conducted in the participants’ offices and conference rooms in the participants’ workplaces (the Treasury Building and the John Gorton Building in Canberra). The interviews were recorded, although in a few instances the participants offered further remarks after the recording had finished which have not been included

47 in the data for this study. Transcripts were made of the interviews and provide to participants. In a few instances, the participants amended the transcript and the revised transcripts have been used in this study. None of the participants withdrew from the study once they had agreed to participate.

3.5 Sample Selection Only SES Band 1 and 2 officers within Treasury and Finance were interviewed. There are four SES Band 3 officers in the relevant organisational units – one in Finance and three in Treasury – but these were omitted based on the author’s judgement that they would be too busy to easily access.

The Treasury and Finance SES personnel within the sample were not chosen randomly for interview. Rather, interviewees were elicited by explicit invitation. The invitations were directed to those who were, within these two central agencies, in the best position to influence policy decision-making across government. This focus on the strategic location of the interviewees is important. After all, senior executives may have views that equate to what Pusey described as economic rationalism, but if they are fulfilling a role that has little bearing on government policy more broadly, then those views do not equate to the type of policy influence Pusey had envisaged. By seeking to ensure that interviewees were placed, in their workplace environment, in a position where their views did have such influence, the research design sought to ensure that the data elicited would be significant and relevant in determining the extent to which economic rationalism was influential within key locations in these central agencies, and, by implication, within the wider system of government within Canberra.

Whole groups or divisions were selected for interview based on their apparent capacity to influence government policy as a whole – rather than areas that fulfilled service roles or provided advice on a narrow or technical subject. All SES officers in these groups or divisions were invited to participate. Again, the aim was to select those central agency policy advisers who were most likely to be in a position to influence the policy decisions across government, and hence exert the level of influence suggested by Pusey.

48 The sample is confined to two of the three central agencies, Treasury and Finance. Pusey had claimed that it was the central agencies that were the most powerful government agencies (Pusey, 1991, p. 76) and possessed “vehement economic rationalism” (Pusey, 1991, p. 78).

Concentrating on the central agencies in this research is appropriate for two reasons. Should these agencies still be both as powerful and as influenced by “economic rationalism” as Pusey suggests, this would inevitably have significance for the type of influence the public service could exert upon Australian politicians, and in particular, ministers of key departments. On paper, the role and strategic position of the central agencies is not markedly different to that at the time Pusey conducted his original research.

The sample omits one of the central agencies: PM&C. The reason for that omission was simple – the researcher had written to the secretaries of the three central agencies asking if they would support this study. The secretaries of Treasury and Finance responded positively, while PM&C declined to participate.

Undoubtedly, the inclusion of PM&C would have allowed for a complete assessment of central agency attitudes. Nevertheless, the research can still usefully address Pusey’s arguments based on two of the three central agencies, particularly as Treasury and Finance are far more directly focused on economic matters than PM&C. In this respect, PM&C was always an odd fit in an argument that the central agencies are motivated by economic dogma. This is because only parts of the PM&C structure are clearly focused on economic concerns (the Economic Division and, since being transferred from Finance in 2013, the Office of Best Practice Regulation and the Office of Deregulation). Most of PM&C’s traditional structures aim to either mirror the agencies in the rest of government, or focuses on particular processes such as the management of Cabinet or relations with the states. Hamburger, Stevens and Weller (2011, p. 389) remarked that the economic rationalist label does not fit PM&C, where economic priorities are dealt with in only parts of the organisation.

Pusey’s own research also indicates this outlier status of PM&C in relation to the other central agencies when it comes to inquiries regarding “economic rationalism”. While

49 the data presentations in Economic Rationalism in Canberra (1991) treated the three central agencies as a single group without identifying any differentiation, Pusey’s earlier article (Pusey, 1988) includes graphs which show the results for two of Pusey’s questions with the results for the three central agencies presented separately. These seem to show clearly that PM&C is the outlier amongst the central agencies when it comes to Pusey’s indicators of economic rationalism. Approval of labour market deregulation in PM&C was much lower than the other central agencies or the market- related departments, and similar to the level in the program and service departments (Pusey, 1988, p. 119). Likewise, PM&C was more likely to regard the distribution of GDP to be biased towards capital than any of the groupings other than the program and service departments (Pusey, 1988, p. 119).

Consequently, if there is a “nest” of economic rationalists in the public service, then the most obvious site of their location among the central agencies is not PM&C. Rather, it is likely to be the two “economic” agencies– the Department of Finance and the Treasury – which focus more directly on economic matters. Consequently, the fact that this study focuses on those two agencies ensures that the most obvious locations to test the Pusey thesis is incorporated into the research design.

3.6 Organisational Units Represented in the Sample As mentioned previously, the sample included all SES in organisational units with an apparent capacity to influence government policy as a whole. This section outlines the logic behind this selection.

The organisational structure of the central agencies changed over the period in which this research was conducted, with some organisational elements merged, and others separated. Unless otherwise indicated the discussion that follows relates to the structure as at 30 June 2014, the point close to when most of the interviews were conducted, as depicted in the annual reports of the organisation (Department of Finance, 2014; Treasury, 2014) and on the organisations’ websites.

The Department of Finance comprised four groups: Budget Group; Business, Procurement and Asset Management Group; Governance and Resource Management

50 Group and the Chief Operating Officer Group. Of these, the SES staff in Budget Group were selected for interview.

Budget Group provides policy and financial advice on government expenditure and non-taxation revenue policy issues – that is, the expenditure of all of the Government agencies. As such, it is in a position to involve itself in a broad range of policy decisions across government. Budget Group consists of four divisions, three of which are made up of branches and sections essentially mirroring all the portfolios and agencies within government (with the slightly Orwellian title of Agency Advice Units). The fourth division, Budget Policy and Coordination Division, is responsible for coordination of the budget process and the work of the other three divisions. This group provides the bulk of Finance’s policy advice for budget process – including briefs to the Expenditure Review Committee on all the budget bids made by ministers.

Business, Procurement and Asset Management Group also has the potential to provide policy advice on the specialist areas it deals with in procurement policy, management of information technology, assets and property, oversight of government business enterprises and the sale of government assets. Nevertheless, the weight of activity is more skewed towards ongoing management than is the case with Budget Group, and its policy role tends to be confined to specific niche issues. As a result, it was not included in the sample.

Similarly, Governance and Resource Management Group provides policy advice on financial management. A few areas are specifically responsible for promoting efficiency and for advice on information technology, but overall the group’s role is mainly technical, and hence was not included in the sample.

The Chief Operating Officer Group is mainly responsible for corporate services within Finance and the administration of some services for parliamentarians, and as a consequence was not included in the sample.

The Department of the Treasury comprises five groups: Macroeconomic Group, Fiscal Group, Markets Group, Revenue Group, and Corporate Strategy and Services Group. Within Treasury, the sample selected for interview consisted of the SES officers

51 within Fiscal Group and those within Macroeconomic Group except for the two divisions dealing with G20 issues.

Fiscal Group is the closest structure within Treasury to Finance’s Budget Group. Its Budget Policy Division serves a similar role to Finance’s Budget Policy and Coordination Division in managing the budget process, and the other three divisions of Fiscal Group provide advice to the Treasurer on most (but not all) of the government agencies. All four divisions of Fiscal Group were included in the sample.

Macroeconomic Group contains some disparate functions. Two divisions focus on the economy as a whole – Macroeconomic Conditions Division and Macroeconomic Modelling and Policy Division. Two divisions have a focus on the G20 – the G20 Policy Division and the G20 Operations and Logistics Division. The fifth division manages Treasury’s relations with international organisations such as with the International Monetary Fund, the World Bank, the Asian Development Bank, and manages Treasury’s overseas deployees working in Australian embassies and Treasury counterparts in neighbouring countries. But it also provides policy advice particularly in the budget process. The sample includes three of the divisions, omitting those with a focus on the G20 as these were seen as not having as large an impact on the work of other agencies.

Markets Group focuses on a range of traditional policy concerns, such as the financial system, competition and foreign investment. While this group is a significant policy generator, such policy affects specific niche areas rather than having an impact across government as a whole. Similarly, Revenue Group focuses on tax policy, an issue that is essentially the sole concern of Treasury (and the Australian Taxation Office, an agency in the Treasury portfolio). Corporate Strategy and Services Group has a largely internal administrative focus. As a result, these groups were not included in the sample.

3.7 Question Design The questions asked in this research project were open, allowing the participants to express their views in a way that was designed to be largely free of constraints imposed by the question design. Nevertheless the questions aimed to focus the participants on the key issues raised by Pusey.

52 Overall, each individual interview was intended to last no more than 60 minutes, with an average length of about 45 minutes. The interview guide provides for 12 main questions, although each of these had a number of follow-up questions depending on the initial response. The questions and their rationale are each explained below.

Question 1. Can you provide some background about yourself? a. What is your job title and organisational unit (if not already known)? b. What are your roles and responsibilities? c. How long have you worked in the agency? d. How long have you been an SES officer? e. Do you have particular experience in central agencies, line areas or outside government? f. What is your highest level of education? What economics training is included? g. Was your secondary education public, private or Catholic?

The first question sought to determine some basic background information on participants. Their organisational unit and classification was identifiable from the departmental organisation charts, which were publically available. While the demographic data was not as extensive as collected by Pusey, two areas seemed particularly important. The first was whether the participant had studied economics at the tertiary level, as Pusey argued that it was this influence that was one of the driving factors behind the rise of economic rationalism (Pusey, 1991, pp. 77-79). The second was the one Pusey used as a marker of social class – whether the participant had attended a private secondary school (Pusey, 1991, pp. 52-55).

Question 2. Do you see yourself as influencing Australian policy, and in what way?

The second question goes to the heart of whether SES officers in the Central agencies perceive themselves as influencing policy. This question allows them directly to say whether they influence policy and any limitations or caveats around the influence that they have. 53 Question 3. Who do you see as the ultimate customer for your policy work? a. If the answer to this question is the “Government”, confirm that this means the elected Government represented by Cabinet, ministers b. If the answer to this question is the Cabinet/ministers, ask “given that elected governments often take a short-term view of issues, how do you balance this with longer term issues?” c. If the answer to this question is the Australian people, “how do you determine the views of the Australian people?” d. Potential follow-up, “when is it appropriate for the public service to apply its own judgement on policy outcomes?”

The third question asked whom SES officers see as their primary “customer”. The Westminster conventions would imply that the customer is the elected government as represented by Cabinet or the minister; these in turn are representing the interests of the general public. It is possible that participants may choose to nominate the general public as their ultimate customer, in which case, the follow-up questions are designed to determine whether they are attempting to assess the interests and priorities the general public based on their own knowledge and experience or are relying on their minister, as a member of the elected government, to broadly represent the views of the general public. This question goes to the heart of whether there is a principal- agent problem inherent in the activities of the participants.

To tease out whether the participants believe they need to go beyond the views conveyed by the elected government, I ask a follow-up question for those who nominate ministers or the elected government as their ultimate customer. Specifically, I seek their view on policy issues that are likely to have an impact beyond the term of one government. It is almost a commonplace that elected governments will focus on short-term political priorities over longer term issues where the benefits may not be seen until after several terms of government, and where the ministers responsible for that policy are unlikely to be still in office. Balancing longer term and shorter term

54 issues presents the possibility that public servants have an incentive to substitute their own judgements on longer term interests for that of ministers when the latter seek to pursue short-term political priorities – and this then raises the question of whether there is a specific set of public service priorities that are being imposed alongside those of the elected government.

Question 4. Of the various stakeholders involved in policy formulation, which do you consider the most important? a. If not mentioned, prompt the following: cabinet/ministers, other central agencies, line agencies, public, external experts / lobbyists.

The fourth question asks about the importance of the various stakeholders within the policy formulation process. Here I would include stakeholders both external and internal to government. Initially, I allow the participant to answer the question unprompted, letting them explain their own concept of important stakeholders. Afterwards I prompt them using each of the stakeholders listed above if these were not mentioned in the initial response. This approach allows me the opportunity to determine the extent to which the interviewees perceive the relative importance of the general public versus the internal stakeholders in government, and in particular the elected government, Cabinet and the ministers, upon the policy process.

Question 5. Which stakeholder do you see as having the most power in influencing policy outcomes? a. Are these sources of power legitimacy, information, expertise, reward, referent/approval, or coercion? b. Specifically, do you / your agency influence policy outcomes? c. In your agency, is there a particular level of the hierarchy or organisational unit that has more influence on particular policy outcomes than any other?

55 The fifth question asks which of the stakeholders have the most power in influencing outcomes. It then seeks to elicit information as to what the interviewee means by “power” and how the participant perceives that power as manifested. Amongst other things, this question aims to tease out the relative power of the Central agencies compared to line agencies and the elected government. If the participants do not nominate a comment on the relative power of the central agencies, I ask if they can nominate a pecking order within government. Furthermore, I ask whether there is a specific organisational unit or level of the hierarchy within their agency that has more power than others. These questions are designed to tease out the participants’ perceptions of relative power across government. I also use this question to explore the sources of power the participants believe their own agency may be applying when it is successful in achieving particular policy outcomes (Pfeffer, 1993, p. 71ff).

Question 6. What do you see your role as being in the process of generating policy? a. Follow up, “do you see yourself as the advocate of a particular policy position?” b. If prompting is needed, ask if this includes refining other agency ideas, acting neutrally, being a devil’s advocate, or acting as gatekeepers to protect the Government purse.

Question six asked the participant about their role in the policy process. In particular it seeks to determine whether they perceive themselves as advocates of a particular policy position. If not, the question invites them to explain their role. The wider literature provides some indication of possible roles. One view is that government decisions that use resources should be the subject of an analysis of benefits, costs and distributional impacts (Mikesell, 1978, pp. 511-513), and that it is the role of central agencies to conduct this analysis (Blöndal, Bergvall, Hawkesworth, & Deighton-Smith, 2008, p. 60; Matheson, 1998, p. 64). In contrast, others suggest that the central agencies may be acting as the guardians of the public purse, attempting to ration resources while the spending agencies are attempting to maximise their budgets (J. Kelly & Wanna, 2001, p. 592). Alternatively, some see the role of central agencies as improving the quality of decision-making in general simply by providing a contrarian

56 perspective (Mackay, 2011, p. 1; Senate Standing Committee on Foreign Affairs Defence and Trade, 2012, pp. 159-160). One of Pusey’s participants suggested that the central agencies, when confronting the agendas of other departments, were trying to “play devil’s advocate” (Pusey, 1991, p. 84). The question above seeks to prompt interviewees to reflect along these lines, asking specifically if they perceive their role as refining other agency ideas, acting neutrally, being a devil’s advocate, acting as gatekeepers to protect the Government purse, or protecting the budget from unnecessary spending. These prompts are intended to explore how the participants view their role in the policy process.

Question 7. How did your experience and education contribute to being able to provide policy advice? a. What aspects of this background was most useful?

Question seven asks about the participant’s experience and education and how this assisted them with the policy advice they provided. Specifically, the question is looking to see what role economics education might have played in developing an individual’s ability to advise on policy. This follows Pusey’s claim that university economics curriculum played a major role in the emergence of economic rationalism.

Question 8. Presumably, a significant portion of the work involves quickly getting across new issues? How do you manage this? a. Do you need simplifying models to help deal with this? Which ones do you use? (examples, economic supply and demand, rational decision-making, Finance Budget Group Policy Framework, Treasury’s “productivity, participation and population” model) Why?

Question eight asked the participants about how they become familiar with and remain abreast of new issues. This is intended to reveal whether simplifying models derived from economics, as suggested by Lindy Edwards (2007, p. 24), play an important role. As a follow-up question, the participant is asked directly about the role 57 of simplifying models in assisting them to deal with new issues. Examples listed include the Budget Group Policy Framework (Department of Finance and Deregulation, 2011) which offers a model for screening decisions based on appropriateness and cost- effectiveness; Treasury’s “3 Ps” of economic growth – population, participation and productivity (Henry, 2004); or supply and demand curves from economic theory. The attitudes towards simplifying models can provide insights into whether Edwards’ version of economic rationalism might offer a better explanation of central agency behaviours.

Question 9. Do you think there is a distinctive set of attitudes or skills that differentiates your organisation from others? a. What are these attitudes and skills? b. How do they come about? c. Do you see them as self-reinforcing? d. How do you see them as having changed over time?

Question nine asked the participants about whether their organisation, as a whole, embodies a distinctive set of skills or attitudes. Attitudes are of particular interest, as it can reflect an underlying set of assumptions about the role of the organisation. A persistent pattern of behaviours could be driven by a shared set of assumptions within the organisation that affects decision making in the organisation – in other words an “organisational culture” (Schein, 2010, p. 18). The combination of beliefs and behaviours Pusey associates with economic rationalism in the central agencies could fit the model of organisational culture, which is reinforced over time as apparently successful behaviours reinforce belief in the underlying assumptions underwriting those behaviours (Schein, 2010, p. 73). The participants were asked what these attitudes and skills are, how they might come about, and whether they are seen as self-reinforcing or having changed over time. This question is designed to reveal whether there are characteristic patterns of behaviours and attitudes which it might be possible to associate with economic rationalism. The failure of participants to

58 identify specific aspects of organisational culture that align with Pusey’s description does not necessarily invalidate his model, as it may indicate this pattern of behaviours is not conscious. However, should the participants identify characteristics aligning with Pusey’s model this would indicate that his explanations are of continuing relevance.

Question 10. Should, as a matter of course, government’s role in the economy be minimised? a. If yes, why would you argue that? b. If no, what do you see as being the limits on government intervention in the economy?

Question 10 asks whether as a matter of course, the interviewee believes that the government’s role in the economy should be minimised. If the participant’s response is ‘no’, they were then asked whether they see there is some natural limit to government intervention in the economy. This series of questions is intended to reveal whether the participant could be categorised as having belief in economic rationalism, since Pusey himself identified belief in small government as an indicator of economic rationalism (Pusey, 1992, pp. 64-65; 1993, p. 14). This is asked towards the end of the interview when the preceding questions have already been dealt with.

Question 11. How would you categorise your political views? How do these influence your views towards policy issues? a. Follow up this with, “do you agree with the view that your agency is seen as ‘right wing’?” b. If yes, do you see this as significant for the policy outcomes?

In question 11, the participant is asked how they categorise their political views. Unlike in Pusey’s research model, this question is open-ended, allowing the participant to construct their answer freely rather than place themselves on a predetermined spectrum. They are also asked whether their agency could be seen as “right wing”, for 59 which they are able to address either the possibility that their agency has a particular political leaning or whether they consider that there is a perception that it has such a political leaning. Pusey asked his participants what their political views were, but came to the conclusion that they were more right-leaning than they said they were (Pusey, 1991, pp. 57-58). By asking this as an open question, more insight is obtained on what the participant’s views are. Again, this is asked towards the end of the interview when the preceding questions have already been dealt with.

Question 12. Do you have any other comments on Pusey’s proposition that central agency SES were promoting “economic rationalism”? a. Did this apply in the late 1980s? b. Is it a valid claim now?

The final question, question 12, asked the participants about Pusey’s view that the central agency SES were promoting economic rationalism and invites their opinion as to whether that was accurate historically when Pusey was conducting his research or might be accurate now. Many participants would not have been employed in the central agencies at the time Pusey did his original research, and even if employed, it is unlikely that any would have been SES officers at that time. Nevertheless, this provides an opportunity to explore what the common wisdom and myths of the organisation may be.

The intention of the interviews set is to provide a rich collection of responses that allow us to understand how Pusey’s thesis might apply in the contemporary central agencies.

3.8 Analysis The interviews were recorded and transcribed for later analysis. The interview transcripts were examined with a view to investigating four themes: whether the central agency staff hold views that could be categorised as economic rationalism, their perception of their power to influence policy outcomes, who they see as being their principal and hence whether there is evidence of a principal-agent problem, and

60 their understanding of their role in the policy process. In the following paragraphs I discuss how the questions above seek to elicit information regarding each of these four themes.

Belief in economic rationalism is the focus of question 10, but may be indicated in responses to other questions, notably questions six, seven, eight and nine. If the participants have a preference for economic rationalism, they may indicate that they advocate this policy when responding to questions six; they may also volunteer the economic rationalism model as a useful approach when responding to questions seven and eight; and when describing the organisation’s culture at question nine they may identify economic rationalism as one of its features. Question 11 may reveal whether the participant’s agency is seen as having a “right wing” bias and provides a basis for a discussion of what features of agency behaviour might prompt that view. On this basis I seek to determine whether general conclusions about the agency’s inclination towards economic rationalism are possible.

Capacity to influence policy is directly addressed in question two. It may also be revealed in questions four and five when discussing the importance of other stakeholders, their power and the sources of the participant’s agency’s power.

Whom the participant believes to be his or her principal is addressed at question three. Further information on the participants thinking on this issue would be revealed in questions four and five relating to the policy stakeholders in the process. Should the participant’s response be that they work for a minister, the Cabinet or the elected government – either as the ultimate customer or as the representative of the Australian people – then the participant’s views align broadly with the conventional Westminster model and there is not obviously a principal-agent problem. However, if the participant argues that he or she serves the public directly, without acknowledging the role of ministers in translating those views, there is potential for a principal-agent problem since the public servant would be then substituting their own judgements of what is appropriate for the public for those of their principal. In cases where the participant claimed to be serving the public directly, further questions aimed to

61 explore what role the individual believed he or she was performing, and how the views of the public are to be determined independently of ministerial direction.

The individual’s role in the policy process is addressed directly at question six. This seeks to explore in what manner the individual perceives themselves to be advising on policy and hence whether they advocate a set of views or prescriptions which align with economic rationalism. Other questions can throw light on this issue as well. In question three, many of the participants would be asked a follow-up question designed to assess what they believe to be the public services’ role is in providing policy advice and where their own judgements of their own role is consistent with this. In particular, the interview would seek to elicit information as to whether their own understanding of their own or the public service’s role in the policy process offers scope for ideologically based solutions or seeks to substitute for the judgement of ministers. This question provides a basis for a more nuanced understanding of the role of the central agencies – it seeks to understand how they might be contributing to policy development even if this contribution falls short of pursuing a particular ideology.

The demographic information collected in question one provides a basis for assessing whether there is significant variation in the responses based on organisation and seniority. Also, it will provide a basis for assessing whether the responses of those with tertiary education in economics or those with private secondary schooling (which Pusey associates with high social class) are notably different to the responses to others. (As it proved, this generated some small groups from which definitive conclusions could not be easily made.)

As a qualitative approach has been adopted for this research, and the “sample” contains all SES officers in the two agencies in a position to influence policy decisions, there will be few opportunities for statistical analysis beyond the production of descriptive statistics.

3.9 Ethical Implications Those working for the central agencies have greater contact with Cabinet and ministerial decisions than most public servants. In particular, the budget process is a

62 traditionally secretive one. The Australian Public Service Code of Conduct requires public servants to maintain the confidentiality of their dealings with ministers (Australian Public Service Commission, 2010). Moreover, Cabinet documents are exempt from freedom of information requests (Australian Government Solicitor, 2009). Much of the information dealt with in central agencies would requires a security clearance to access, and even then would be subject to the “need to know principle”.

In this environment, it would be difficult for the subjects of the research to freely provide information unless they could be confident that their information would be handled discreetly. They would be concerned that information they provide could embarrass the government or cast doubt on their ability to protect classified and sensitive information. In addition, some participants may have encountered difficult relationships with other stakeholders – staff in the other central agencies or in the spending departments – details of which they would not want to be widely known. Moreover, all staff are working in a hierarchy and are expected to show loyalty to both superiors and subordinates.

For all the reasons above, a key ethical issue is the need to avoid harm to the participants (Bryman & Bell, 2007, p. 133). Any action that reveals details of government decisions or relationships with other stakeholders, rather than simply the processes and principles that were used, could be seen by the participants as harming their standing with the elected government or with their colleagues. To minimise this, I have ensured that any participant cannot be identified by what they have said in an interview context. I have also allowed participants to review their interview transcripts and where they have provided amendments I have used the amended versions of the transcripts.

The researcher is an employee of the Department of Finance, sponsored by his agency, familiar with the public service confidentiality requirements and holding a government security clearance. This provides a further level of reassurance that any sensitive comments would be recognised and protected.

63 3.10 Limitations This study faces a number of limitations, which can broadly be grouped into three sets. Firstly, there is a practical time limit on the amount of research that can be performed in the context of a DBA thesis. To repeat Pusey’s 215 interviews would too demanding within the time limits allowed for the thesis. In part, this reduction in the number of interviews is compensated for by the richer data elicited by the greater number of open questions and follow-up questions asked, as well as the specific focus on the central agencies, and then only on those staff involved in key government decision- making, such as the budget process.

Time is also a constraint on the potential participants. In the months prior to the budget or prior to and after a federal election, many of the subjects will have little time to participate in discretionary activity such as academic research. This research extended across two budgets, two changes of government (Gillard to Rudd and then Abbott) and covered a period where there was significant public and parliamentary debate about budget measures.

Further, access to information is difficult. Pusey was able to gain access to public service decision-makers by his research being sponsored by the Public Service Board. For my research, endorsement of the department secretaries was sought, and only the secretaries of Treasury and Finance agreed to participate. Even then, useful information was not guaranteed, and was necessary to gain the confidence of the participants.

As mentioned in the section on ethical implications above, the participants are also likely to share the organisations’ concerns about confidentiality, and may not be as willing to share information. This risk was mitigated by assurances of confidentiality, allowing participants to review transcripts, as well as by the researcher being known to the participants.

64 4. Results 4.1 Introduction This chapter describes the results of the interviews with Senior Executive Service (SES) officers in the Department of Finance and the Treasury and relates them to the core issues posed by Pusey’s thesis. This chapter is divided into five sections. The first section provides information on the sample and its demographics. The other sections address the four “themes” referred to in chapter 3 and apply the interview data to those themes. To this end, the second section addresses the issue of whether the current generation of SES officers within the two central agencies studied hold views that could be categorised as economically rationalist. The third section addresses whether these staff perceive themselves as wielding significant power when it comes to influencing policy outcomes. The fourth section discusses whom these SES staff perceive as their principal, and therefore whether the power they perceive themselves wielding, as discussed in the third section, reveals evidence of a principal-agent problem. In particular, this focus on the principal-agent issue seeks to determine if this relationship, as it exists among the SES officers in the two central agencies, accords with the Westminster model. The final section then aims to explore their views on their role in contributing to the policy process.

4.2 Sample and Demographics 4.2.1 Number and Classification As discussed in Chapter 5, the sample comprised the SES Band 1 and 2 officers in Finance’s Budget Group, in Treasury’s Fiscal Group and some of the divisions in Treasury’s Macroeconomic Group. In total 30 SES officers were interviewed, 17 in Finance and 13 in Treasury. This sample included four of the more senior SES Band 2 officers in Finance and three SES Band 2 officers in Treasury (see Table 4.1).

65 Table 4.1 Sample Classifications

Classification Finance Treasury

SES Band 2 4 3

SES Band 1 13 10

Total 17 13

To put this sample in context, the titles used by the two agencies are shown in Table 4.2 with the total number of staff in each classification in brackets.

Finance is more typical of hierarchical organisation in departments, with deputy secretaries (SES Band 3) heading groups. Each group then consists of a number of divisions each managed by a first assistant secretary (SES Band 2). The divisions comprise a number of branches headed by assistant secretaries (SES Band 1). The branches in turn will have a number of sections headed by a director (an Executive Level 2 (EL2) officer).

Treasury structures are somewhat less hierarchical and employ different titles. Groups are headed by executive directors (SES Band 3) and consist of a number of divisions each headed by a general manager (SES Band 2). Unlike in Finance, the general manager will directly manage a number of EL2s who are each responsible for a unit. Treasury has many principal advisers (SES Band 1) and a few chief advisers (SES Band 2) who do not have direct management responsibilities.

66 Table 4.2 Treasury and Finance Classifications

Classification Finance Treasury

Secretary 1 1

SES Band 3 Deputy Secretary (4) Executive Director (7)

SES Band 2 First Assistant Secretary General Manager / (16) Chief Adviser (22)

SES Band 1 Assistant Secretary (55) Principal Adviser (61)

Total 76 91 (Australian Public Service Commission, 2014, p. 21; Treasury, 2014, p. 87)

4.2.2 Gender The sample was predominantly male, with only five female SES officers included (see Table 4.3). In addition, there were proportionately more male SES officers in the sample than in the agencies as a whole. For the whole of Treasury, there were 60 male SES officers as compared to 30 female as at 30 June 2014 (Treasury, 2014, p. 87); while in Finance, there were 49 male and 27 female SES officers at the same date (Department of Finance, 2014, p. 274).

While the sample was mostly male, this still represents a more diverse population than the one Pusey interviewed. At 30 June 1986, while Pusey was conducting his interviews, Treasury had 40 male and no female SES officers, while Finance had 34 male and one female officer (Public Service Board, 1986, p. 89).

I am not able to offer any conclusions as to why the sample is largely male. This is not necessarily an indication of a “glass ceiling” as some females hold high positions within the two central agencies under study. For instance, Finance, at the time of writing, had a female Secretary and three out of four deputy secretaries were female.

67 Table 4.3 Sample Gender Composition

Gender Finance Treasury

Male 14 11

Female 3 2

Total 17 13

4.2.3 Response Rate Overall, the response rate was good. In Finance, 19 staff were invited to participate, and only two declined. In contrast, in Treasury, 20 staff were invited to participate, one declined and six did not respond to the request. The relatively higher response rate for Finance reflects the researcher working in Finance and being known to most of the participants, whereas few Treasury officers in the sample previously knew the researcher. In contrast, Pusey reported that less than 5 per cent refused to participate in his interviews (Pusey, 1991, p. 255).

The three people in the sample who declined to participate gave different reasons for not participating: being new to the job, believing their job was not relevant to the thesis topic and acting in a different job at the time approached. The individuals who did not respond to the request to be interviewed were not randomly distributed, all were in Treasury with three coming from the one division. Nevertheless, it appeared after the interviews, that this division did not have as great an impact on policy decisions as I had expected. On this basis, the sample appears to be representative of those in the two agencies involved in policy decisions across government.

4.2.4 Education Overall, the sample showed that the interviewees were well qualified educationally. In Finance the median qualification level was a bachelor honours degree (Australian Qualifications Framework (AQF) Level 8) while in Treasury the median qualification level was a masters degree (AQF level 9). In Finance, six out of 17 staff had a higher degree (graduate certificate / graduate diploma or higher) while eight out of 13 Treasury staff had a higher degree.

68 Pusey reported that, in his sample, 37 per cent of the central agencies had higher degrees, although PM&C had the highest proportion (46 per cent)(Pusey, 1991, p. 132). Thus, the present sample represents an increase in the proportion holding postgraduate qualifications, particularly for Treasury. However, it should be noted that this increase occurred over a period where the population as a whole was more likely to acquire tertiary qualifications (Australian Bureau of Statistics, 2010, 2013).

Table 4.4 Sample Education Levels

AQF Level Finance Treasury

Level 10 – Doctoral Degree 1 1

Level 9 – Masters Degree 3 6

Level 8 – Graduate 2 1 Diploma

Level 8 – Bachelor Honours 5 4 Degree

Level 7 – Bachelor Degree 6 1

Total 17 13

The sample was notable for the high proportion who had studied economics, with four-fifths having an economics major or better (see Table 4.5). Economics was not necessarily the subject of the highest qualification in all these cases. Notably, three participants (all in Finance) nominated their highest qualifications in business studies or commerce but had also studied economics as a degree major and are included in that category in the table. Curiously, some participants remarked that their agencies had become more diverse with respect to educational qualifications over recent years.

Pusey remarked that 72 per cent of central agency SES had degrees in economics or business studies. However, as Pusey does not break down this data at specific agency level it is not possible to determine whether there has been an increase in the proportion of economics qualifications in Treasury and Finance. (We might expect that these agencies, focussed on economic and financial issues, would have had a greater

69 proportion of economists than PM&C which dealt with a broader range of policy concerns.)

Table 4.5 Sample Economics Education

Finance Treasury

Economics major or better 13 11

Some economics at 2 1 university

No economics 2 1

Total 17 13

Overall, the majority of SES officers in the sample had completed their secondary education in a government school. Only three SES officers had graduated from a private school (see Table 4.6) – and one of these was at an international school overseas. If anything, the data on the current generation of SES officers suggests that those finishing their schooling in government schools are over-represented.

Pusey had argued that elite private schools were disproportionately represented in the SES ranks, and particularly in the Treasury (Pusey, 1991, p. 4). In his paper, Our top Canberra public servants under Hawke, Pusey presents a graph that appears to show over 45 per cent of Treasury officers completed their secondary education in a private (independent) school and none attended a Catholic school, although the same chart shows that the number of private school graduates in Finance was the same or less than the average for the public service (Pusey, 1988, p. 111).

Over the period from the 1960s to the 1990s, enrolments in private schools have increased, but also retention rates improved more rapidly for government schools than private schools. While one in five government school students completed year 12 in the 1960s, this grew two-thirds by the 1990s (Burke & Spaull, 2001). In contrast, in the 1960s three-quarters of the private school students completed year 12 and by the 1990s it was close to 100 per cent (Burke & Spaull, 2001). Thus, students completing

70 government school were better represented amongst those with the educational background that would allow them to obtain employment as senior executives.

This, however, does not explain the marked change in Treasury results relative to Pusey’s time, when private school education was over-represented. Part of the explanation could lie in the relative small samples used by Pusey and this study. Smaller samples give rise to wider variations between samples. In addition, Pusey appears to have only collected schooling information in 176 of his 216 interviews (Pusey, 1991, p. 52). Pusey does not explain either his sampling methodology or why data on schooling was not collected for a fifth of his participants.

Table 4.6 Sample Secondary Schooling

Finance Treasury

Government 13 9

Catholic 2 3

Private 2 1

Total 17 13

4.2.5 Political Attitudes The participants were asked to identify their political orientation. Most of those interviewed (60 per cent) saw themselves as “centrists” of one form or another. The question was left open as to how they would respond, and most made reference to the concepts of “left” and “right” in describing their political orientation more frequently than the names of political parties. However, in doing this many rejected the classical left to right spectrum as being no longer appropriate – either to understand society generally or as a means for capturing their individual orientation. A significant group identified themselves as being inclined to the left on social issues but supporting market mechanisms. These views were scattered across the organisations. While those with private schooling were more likely to identify themselves as centre- right and those working on social policy less so, the numbers were too small to draw firm conclusions.

71 This pattern was not markedly different to the political orientations recorded by Pusey. The majority in Pusey’s study had identified themselves are centrists, some leaning to the left and others to the right. Pusey, however, rejected the self-reported orientations. He remarks that “nearly half of our group of self-designated left-leaning respondents answer many of these questions in a way that would do credit to Australia’s (conservative) Liberal and National parties” (Pusey, 1991, p. 58).

Given that I asked the question concerning political orientation as an open question, the participants often expanded on their response and gave thoughtful answers when trying to categorise their political views. Nothing in their answers indicated that their responses were anything but genuinely felt. The group that identified themselves as socially progressive but supporters of market economics was notable as this group could not be identified in terms of Pusey’s responses. Pusey, using closed questions and a traditional spectrum from left to right, would have forced any respondents with this view to choose from the traditional categories.

Table 4.7 Sample Political Orientation

Political Views Finance Treasury

Centre-Left 4 3

Centrist / Swinging 7 5

Social progressive / 4 2 free market

Centre-Right 2 3

Total 17 13

Typical comments regarding political beliefs and orientations were:

If you were to categorise my personal views, then I suppose I would be socially progressive and economically more free market. Now I’m a bit loathe to say that, the reason is that’s a far more nuanced view of Left and Right. One is about individual choice and the operation of markets and allocation of resources and the other is about social views and distributional outcomes and

72 they’re not incompatible, whereas I think the traditional left – right / conservative mixes up those two planes. (SES Band 1, Treasury)

I’m a swinging voter. I think public servants generally are inclined to be swinging voters because they see government warts-and-all close up and it’s hard to be too ideological in that space. You might lean a little this way or that way but I think you see how difficult the job is, you see so much of it is about personalities as much as anything else … and you get a bit more cynical about it. (SES Band 2, Treasury)

4.3 Economic Rationalism This section will provide the evidence relevant to determining whether the central agency staff interviewed hold views that could be described as “economic rationalist”. It will do so by considering their views on size of government and market mechanisms, the specific views on whether their agencies were economic rationalists, the way in which their economics training influenced their approach to decision making and their approach analysing public policy questions and the extent to which this might reflect economic rationalism.

Pusey had defined economic rationalism as a dogma that sees markets “always” providing better outcomes than governments (Pusey, 1993, p. 14). To test this proposition, the participants were asked in question 10 if, as a matter of course, the role of government should be minimised. Only three participants supported this proposition (see the table below). Even in these cases, it is not clear that this view was held as dogmatically as Pusey suggests would be the case with a “true” economic rationalist.

Some were prepared to a see a reduction in the size of government, although usually they believed that the size of government was about right – perhaps with a need for reductions in some areas and increases in others. In explaining their position, the participants gave a variety of responses. Some commented on distributional impacts, some mentioned market failures and others took a pragmatic view that in a democracy there will always be some level of government intervention that does not fit economic models.

73 Table 4.8 Sample Attitude to Role of Government

Finance Treasury

Always minimised 1 2

Disagree 16 11

Total 17 13

Typical of the comments on the scope of government’s role were.

I don’t think it’s a question of the government’s role being maximised or minimised. It’s really a question of the government’s role being appropriate to the economic conditions of the day. (SES Band 2, Finance)

There’s no hard and fast, we’re all about minimising the role of government because clearly we have a strong view that the government has a very large role in some areas and more minimal role in others. So if you’re asking me about industry assistance, I would probably tend to think that the government has a much lower role; if you’re asking me about the health, education and infrastructure, they would probably have a larger role. (SES Band 1, Treasury)

To be honest, most of the policy space we play in is ‘intervention’. That’s all we do, you can’t get away from it. Otherwise there probably wouldn’t be a government, to be honest. I know in economics they say ‘we should only intervene where there’s market failure or other such things.’ But most of our policies [intervene] – I know this government has a view around smaller footprints and smaller government and all that sort of thing, but even with that, the interpretation of that is really around the Commonwealth’s role… At the end of the day, everything you do is an interventionist approach. They might not describe it that way, but that’s what we do. (SES Band 2, Finance)

You can have a country without a government – it’s something like Somalia which is not seen as the ideal model, so really just depends on what you mean by minimised. (SES Band 1, Finance)

Far from indicating that the size of government was a matter of economic doctrine, as the economic rationalist model might suggest, many argued that the size of government was a political choice.

Governments can be more interventionist or less, more engaged in social policies in doing more for the community in aggregate way through government spending or less. The present

74 government, … its general philosophical position is to do for people what they can’t do efficiently or effectively for themselves, whereas other governments may in the past may have been far more inclined to do more to shape the society to help individuals to do things which are beyond just the things that people can’t do for themselves. (SES Band 1, Finance)

Even amongst the few SES officers that identified a preference for smaller government as a matter of course, there was acknowledgement that there were limits to this approach such as the need to address market failure or inequality:

So I’m very much [of the belief that] government should only be involved when there’s been identified market failure, and that’s a position where the governments of different colours have taken, not necessarily stuck to it... (SES Band 1, Finance)

I think the principle that well-functioning market leads to the best outcome is a reasonable one. That of course doesn’t mean to say that government doesn’t have any role because a lot of markets aren’t necessarily well-functioning, so I am very supportive of safety nets and everything like that. (SES Band 1, Treasury)

Pusey’s definition of economic rationalism included an unconditional faith that markets would deliver better outcomes than government (Pusey, 1993, p. 14). As a rule, the participants believed that market mechanisms were generally the most appropriate means for ensuring economic growth, but their confidence in markets was not unconditional. As we saw in the immediately preceding quotes, even SES officers who supported smaller government as a matter of course were aware that inequality and market failure could require government intervention. This was a common view:

The people are often better able to make decisions that they impact upon themselves and markets are better able to operate with less government involvement. But that comes down to questions of whether market failures or information asymmetries and so on stop that from happening. (SES Band 2, Finance)

The participants were asked whether they thought that the central agencies were promoting economic rationalism. This prompted some discussion of what the individual understood by the term; but those who defined economic rationalism much as Pusey had, rejected that this was an approach that they or their agencies followed.

I think that’s a very simplistic view of the world. I think that the complex public policy trade-offs and advice being clear about trade-offs between equity and efficiency and distributional

75 outcomes is vertical and horizontal and all those things, so if the proposition is that there is a simple less government is better, less welfare to people is better, less regulation is better, I think that that’s incorrect. I think that what Treasury and other places around this town are doing is making far more nuanced judgements about what is the degree of equity and efficiency and sufficiency and complexity to be at risk, taking into account our range of factors and views like the government’s view of the world, stakeholders’ views, sensitivities, our own analytical framework. So I think it’s highly simplistic to say somehow we come to an issue and say less is better. It really depends on the issue. (SES Band 1, Treasury)

Let’s say, economic practicalists rather than rationalists. I think, because the GFC proved not all public servants or departments all think alike in the economic terms; the Keynesians came out of the woodwork. (SES Band 1, Finance)

I think that [the Hawke government] was a very particular era and some of what might have been seen as rationalist then might be stock standard today. (SES Band 1, Treasury)

If you define [economic rationalism] to include the promotion of the micro-economic agenda under the Hawke-Keating period, well then yes. Thank goodness for that. Otherwise we wouldn’t have weathered the Asian and other financial crises as well as we did. But if it’s about having a strict model of homo economicus and nothing else, then that’s just nonsense. (SES Band 2, Finance)

I think you have to see these things in historical context. At that time, we were coming out of a period in which we had denied the Australian economy, the benefits of greater openness and dynamism and all the rest of it and so I think it was inevitable that there was a ground swell of debate and support for both the public service, but also at the political class for change which said “look, we’ve had Paul Kelly’s age of uncertainty, the unholy alliance between protection, centralised labour markets and white Australia, that’s got to go and we’ve got to move into a much more open world.” And that is going to change this place, and that’s what people were saying. So floating the dollar, financial market deregulation and pushing protection, pushing the line on industry assistance... I don’t think there’s the same sort of ideological issues now. (SES Band 2, Treasury)

So this notion of economic rationalism within the APS, I suspect the political contest, the grounds for debate would have narrowed quite dramatically in the 20 to 30 years, so that it is now a matter of degree to the extent to which markets are allowed to work, it’s a matter of degree to which governments decide to intervene where they either deceive this market failure or poor distribution or whatever. (SES Band 2, Finance)

76 Certainly people are concerned about value for money, lack of evidence of the effectiveness of programs, the efficiency of the delivery government, but I don’t think that’s particularly being an economic rationalist, I think that’s just what Finance does. (SES Band 2, Finance)

Well I think that the idea of economic rationalism, I think it depends on how on what you mean by that. In the same way that I talked about how Finance could and would be supportive of the set of policies with large nation-building and investment in social programs, health, education, disability and the like. We have by our track record supported the government of the day and different governments of the day over a lot of different sorts of things including a lot of very interventionist in the economy and social area programs. (SES Band 1, Finance)

Of course, as indicated before, SES officers in the sample had been trained in economics. Pusey had argued that economics education was a factor responsible for the rise of economic rationalism (Pusey, 1991, p. 60). Yet as has just been noted, these officers did not express views that matched Pusey’s definition of economic rationalism. In the interviews, the SES officers explained the use they made of economics education and their approach to policy issues. Overall, those who had completed economics degrees found it useful in their work analysing public policy. They explained:

I guess I got a theoretical grounding there with an economics degree and I find economics quite a useful framework in which to consider a lot of the things that we deal with. So in a sense it’s not so much the pure economics that you can do at university, that doesn’t set you up all that well. So IS-LM curves and all those sort of things really don’t set you up for these sort of policy advising roles. But as a framework of thinking, looking at things through the lens like do the benefits outweigh the costs, who benefits, who should pay, that sort of framework. (SES Band 2, Finance)

I did an economics degree, and the sort of concepts about trade-offs and opportunity costs, economics is well placed to deal with a lot of the public policy questions because it is about scarce resources, how you allocate them, how you drive higher living standards and what the role of the government is. (SES Band 1, Treasury)

I think the framework that I came equipped with, having being trained in economics, I found very useful, not necessarily from a finance perspective in terms of how you manage finances and the intricacies of that but from the point of view of the understanding the government budget constraints and the dynamics of budgets and the budgets through time. (SES Band 1, Finance)

77 In some cases, mostly in Macroeconomic Group in Treasury, participants were involved in the development and application of economic models. For these individuals, their economics training was directly relevant to this work, but usually they see themselves as providing technical advice without a significant impact on policy.

Certainly in my current role it isn’t direct, we are not directly involved in policy. In addition to doing the forecasts, as I outlined in the beginning, we also, I guess, are part of assessing what the outlook for the economy is, we also pay very close attention to current conditions and because of that, we are often called upon to provide our views on those conditions which form the backdrop to policy analysis. (SES Band 1, Treasury)

Frequently, the SES were assessing proposals for expenditure in the budget context. These cases for did not involve sophisticated economics. Certainly, there remained the underpinning concepts of resource scarcity, but the analysis was typically in terms of assessing the relative costs and benefits of the proposals. This was particularly the case in Finance, and even those who were not economists adopted this methodology.

I think the best way of summarising that is: it would be good if a proposal or any policy at all that people do their best to identify as clearly as possible the costs and the benefits and have some reasonably logical and rational attempt at weighing up those costs and benefits, including the indirect ones. (SES Band 1, Finance)

Finance is the key adviser on maximising efficiency - maximising the benefit of the scarce dollar - we take a much more hard-nosed look at policies to see whether or not they are necessary or whether there are in fact the best option the government may wish to consider. (SES Band 1, Finance)

When we’re successful it’s because we have considered all the risks, pros and cons. We’ve given government the full advice on things. So even to the point where we might say “this policy has merit” but you can’t afford it now. (SES Band 2, Finance)

Yes, mainly by trying to bring together thoughts on the merits of proposals as to whether they’re meeting the objectives that the government is seeking to meet. So whether there are net benefits in pursuing a particular policy objective and whether the most cost-effective way of meeting that objective is the one that the government is at least considering… pursuing. (SES Band 2, Finance)

78 This approach does not, of itself, imply a preference for economic rationalism. Even within a nation-building or social democratic approach to economic management, there will be some limit to available resources and a desire to achieve the best outcomes with those resources. Participants said:

It’s what’s worth measuring in those frameworks that might change and certainly as the government of the day changes, some intangibles like the weight put on values from natural environment and so on. It might have a greater place of importance under one government than another but the framework you bring to bear there is still the same. (SES Band 2, Finance)

If the government was elected on the platform of having a high level of tax and spending them in quite an expensive program of nation-building, capital works …We’d say the sort of things we thought were good value and that sort of things weren’t, but if that was the policy then we would actively and really constructively try and assist the government to try to construct something that was a value-for-money proposition as we have done in education, putting a lot more money into education and disability. (SES Band 1, Finance)

Treasury tends to focus more on the broader economic consequences of policy decisions, and include that in their policy advice. Pusey quotes the view of John Langmore (then a Labor Party backbencher) that Treasury’s approach is “pure theory” (Pusey, 1991, p. 179).

One risk of this is that Treasury advice might focus exclusively on promoting economic growth, without paying attention to how the benefits of growth are distributed. Treasury has developed a model called the “Wellbeing Framework” (shown in the following box) to counteract such tendencies. The Wellbeing Framework was originally designed in 2004 and updated in 2011 (Gorecki & Kelly, 2012, p. 28; Gruen & Wilkie, 2009, p. 1). Pusey’s definition of economic rationalism held that market prices were the ultimate arbiter of the value of anything. The Wellbeing Framework serves as a reminder that more is at stake.

79 The Treasury Wellbeing Framework

The wellbeing of the Australian people

In undertaking its mission Treasury takes a broad view of wellbeing as primarily reflecting a person’s substantive freedom to lead a life they have reason to value.

This view encompasses more than is directly captured by commonly used measures of economic activity. It gives prominence to respecting the informed preferences of individuals, while allowing scope for broader social actions and choices. It is open to both subjective and objective notions of wellbeing, and to concerns for outcomes and consequences as well as for rights and liberties.

Treasury brings a whole-of-economy approach to providing advice to government based on an objective and thorough analysis of options. To facilitate that analysis, we have identified five dimensions that directly or indirectly have important implications for wellbeing and are particularly relevant to Treasury. These dimensions are:

• The set of opportunities available to people. This includes not only the level of goods and services that can be consumed, but good health and environmental amenity, leisure and intangibles such as personal and social activities, community participation and political rights and freedoms.

• The distribution of those opportunities across the Australian people. In particular, that all Australians have the opportunity to lead a fulfilling life and participate meaningfully in society.

• The sustainability of those opportunities available over time. In particular, consideration of whether the productive base needed to generate opportunities (the total stock of capital, including human, physical, social and natural assets) is maintained or enhanced for current and future generations.

• The overall level and allocation of risk borne by individuals and the community. This includes a concern for the ability, and inability, of individuals to manage the level and nature of the risks they face.

• The complexity of the choices facing individuals and the community. Our concerns include the costs of dealing with unwanted complexity, the transparency of government and the ability of individuals and the community to make choices and trade-offs that better match their preferences.

These dimensions reinforce our conviction that trade-offs matter deeply, both between and within dimensions. The dimensions do not provide a simple checklist: rather their consideration provides the broad context for the use of the best available economic and other analytical frameworks, evidence and measures. (Treasury, 2012)

Treasury officers frequently made reference to the Wellbeing Framework in explaining their approach to policy issues, suggesting that this approach had been well-instituted in Treasury. Had Treasury officers been inclined towards economic rationalism prior to the introduction of the Wellbeing Framework, they are less so as a result of it.

If you’re seeking an articulation of ... an ideology or over-arching framework within which Treasury tries to give its advice, that would be the Wellbeing Framework, which to my mind is a pretty mainstream conventional public policy framework. (SES Band 1, Treasury)

Treasury will argue and sometimes I think we will argue more on broader wellbeing concepts than line agencies do. (SES Band 1, Treasury)

Many thought there was a place for such simplifying models – but many saw them as little better than an articulation of an instinctive way of thinking – most useful for communications or training new staff. Comments included:

I think [simplifying models are] very useful in articulating and systematising a process that the experienced policy officer pretty well goes through intuitively while he works. I think those kind of things are, I think the Budget Group Policy Framework was a really good exercise and it’s the kind of thing that is excellent to give to grads and New Starters and people new to the Budget Group, they understand … the thinking process. So it’s really that clarifying and making clear the kind of thinking process that I think is pretty well innate to people who are experienced in policy development. (SES Band 2, Finance)

I think it is quite a powerful way of thinking about issues and I admire people who are able to collapse ideas in that way because people like myself benefit from that. It shouldn’t become a dogma but it’s like any sort of model, there are some contrived set of relationships, some stylised set of relationships. (SES Band 2, Treasury)

In summary, the Treasury and Finance SES officers interviewed were not inclined to see the policy issues they faced in the simplistic terms that Pusey described, with a set of automatic policy prescriptions. While some advocated smaller government, they were aware that this choice was not independent of the circumstances in which policy decisions were made. The varying ability of markets to perform efficiently and the need to address inequality in society were seen as major limitations on such an approach. Rather, the participants tended to see policies as requiring assessment of a 81 number of factors that need to be balanced - cost, benefit and risk, or under the Wellbeing Framework – opportunities, distribution, sustainability, risk and complexity. Ultimately the evidence may lead to preference of one option over another, which mitigates against some pre-determined or ideological commitment to particular policy solutions.

The result, therefore, is that, based on Pusey’s definition, the SES officers in Treasury and Finance were not economic rationalists. Except for a few individuals, they did not endorse the view that government should always be smaller, and while they saw that markets had an important role, they did not endorse the view that markets could always produce the best outcomes independent of any government intervention. Nor did they see their agencies fitting the definition of economic rationalism. Equally, their use of models, though often including a significant economic element, led them to include within policy evaluations issues quite distinct from an economic rationalist agenda. In all these ways, therefore, the evidence of the interview data suggests that the Pusey thesis concerning the dominance of economic rationalism within the central agencies was not confirmed.

4.4 Power to Influence Policy This section amasses evidence to assess the second “theme” referred to in the previous chapter – the perception of agency staff concerning their capacity to influence policy outcomes. Central agency staff generally thought that they had some influence on policy, but they did not believe they were the dominant influence. Only two offered the view that they did not influence policy, reasoning that their role was technical or coordinating in nature. Overwhelmingly, agency staff saw the Cabinet room as the place where government decisions on policy options were made – and the capacity to influence policy came through advising the elected government. The following provides a breakdown of the sample concerning their perceived capacity to influence policy:

82 Table 4.9 Sample Perception of Policy Influence

Finance Treasury

Dominant influence on 0 0 policy

Some influence on policy 16 12

No Influence on policy 1 1

Total 17 13

Typical participant comments were:

Now when we provide our policy advice we draw on the Wellbeing Framework and our own views and judgements about trade-offs between efficiency and equity and simplicity and risk and complexity, what the best targeted instrument is to solve the policies. … but ultimately, we’re not elected, the government’s elected and they obviously perform the role of decision maker and then we have a role in the implementing [of those decisions]. (SES Band 1, Treasury)

Yes, I see myself as influencing policy basically by the framing of the advice that we provide to ministers, and to Cabinet and committees. The way we frame the advice to make sure that we, as I said before, give comprehensive advice to enable the government to make fully-informed choices and to give them enough options so that they can be the best they are capable of being. (SES Band 1, Finance)

[I influence policy] only at the margin, but I’m not sure how many people do more than that anyway.

So I think obviously the ultimate power here is up on the Hill [Capital Hill i.e. Parliament House]. (SES Band 1, Finance)

According to participants, much of the influence on policy came through the briefing of their minister – respectively the Treasurer and the Minister for Finance – and the impact of that influence on the final policy outcome depended on the standing of these ministers in the Cabinet.

Definitely the level of clout and influence that the Minister for Finance has around the table is, to some extent, going to reflect how much the Department of Finance can influence things. (SES Band 1, Finance)

83 I think Treasury has been quite influential for some time, but our influence depends, I think, in part on the standing of the Treasurer in the government. (SES Band 1, Treasury)

It’s always a balance, I think, between the policy departments and the central agencies. I think the power and influence of their ministers [has] been the final deciding factor in terms of which may have the upper hand in the long term. (SES Band 2, Finance)

I think it gets back to: it depends on who the government is, it depends on the ministry, it depends on who the ministers are. So giving an example of the previous government, I think that probably a lot of people would have said that Jenny Macklin [then Minister for Families, Community Services and Indigenous Affairs] had a lot of influence when sitting around the table when it comes to social policy issue, whether it was in her bailiwick or not they tended to turn to her for ‘what do you think?’ (SES Band 2, Finance)

For the Department of Finance, a significant avenue for the influence of the department on policy was the “Green brief”, provided directly to the Expenditure Review Committee (ERC). ERC is the sub-committee of Cabinet responsible for development of the budget. As such, it is highly influential, with its decisions typically put to Cabinet for endorsement and rarely overturned. As ministers put spending proposals to ERC (typically as a cabinet submission), Finance develops a Green brief that summarises the proposals and makes recommendations to ERC on whether to accept, reject, defer or modify each proposal. These recommendations usually reflect the Finance approach to policy discussed in the fourth theme: does the proposal clearly show value-for-money supported by evidence, and if not can the budget be protected by rejecting the proposal, requiring a lower cost approach or requiring the agency to make corresponding savings. Since the agency, rather than Finance, is usually considered the subject expert, Finance will often argue on the basis of internal consistency and the use of supporting evidence. (The other central agencies can include their own recommendations in the Green brief; and for tax revenue proposals the Treasury provides a Pink brief which serves a similar purpose.) The Green briefs are prepared within Finance without guidance from the Finance Minister’s office, and Finance has discretion as to whether it supports or opposes the proposals. This arrangement is unusual in Westminster terms, which would see most public servants operating under the guidance of their ministers. But while the Green brief is prepared

84 independently, this role is being performed in accordance with Cabinet decisions and under the guidance of the ERC.

Participants from Finance explained the expanded influence which the Green brief provides for their department, over the policy options of other departments, as follows:

Finance has a great deal of influence through the briefing process for expenditure decisions. Controlling the Green brief means that we draft on behalf of ministers summaries of their proposals and we assess and analyse them and provide alternative options where we think necessary for positions that we think Cabinet should take in relation to proposals being put forward. We are able to influence more when there is a greater focus on budget constraints. (SES Band 1, Finance)

The ERC process is very important, and in policy decision making, because Finance has such a big role in … advising the ERC on the green briefs, they have the ability to bring forward a lot of detail information, in particular on the finance side of things, which is a typically major consideration. Through that I think they exert a fair amount of power. (SES Band 1, Finance)

I actually reckon that Finance is quite influential… [It is] the last agency that would provide frank and fearless and independent advice. We don’t write in a Green Brief to suit the government and the Minister, we write Green Briefs to actually point out the pros and cons and a description of the policy and why support it. (SES Band 2, Finance)

A particular source of Finance’s knowledge of proposals came through the costing process whereby Finance verifies the accuracy of the costs of proposals being put to government for decision. In the process, Finance staff also gain a detailed understanding of the proposals, which it can use as part of developing its Green brief positions.

A lot of our ability to do that comes from costings. So as the policy comes forward Finance gets to consider it in great detail through the costing process. A new policy that would introduce cars that drive on the left-hand side of the highways, Finance would have to cost that and understand in detail how it would work. In doing so you can consider ways to make it more efficient and deliver the same outcome, whatever that is. So I think in particular the costing process gives us a very special insight into policies coming forward from line agencies. (SES Band 1, Finance)

85 Budget Group has a lot of influence on policy because we’re at the point here of distilling both the summarisation, costing and analysis of policy being put before Cabinet. (SES Band 1, Finance)

Participants were also quite aware that policy advice is increasingly contestable, with the result that their advice might not be the only opinion ministers listen to. They were also aware that this contestability, and alternative sources of available advice, potentially limited their policy influence:

I think what has become an increasing trend over time is the tendency for ministers to draw on a broader range of advice from stakeholders, from private sector consultants, from think tanks – there has been a proliferation of think tanks, your Grattan Institutes and the Australia Institute and CIS [Centre for Independent Studies] and the IPA [Institute of Public Affairs], with various views on different topics as well as subject-specific ones, the Climate Institute and things like that. So yes, we do have an influence but it’s a pretty full field, as they say. (SES Band 1, Treasury)

There is a contestable market for policy advice, so I know I’ve certainly never thought of it as we’re in a monopoly or monopsony arrangement by any stretch of the imagination. (SES Band 2, Treasury)

When asked why their agency might be influential, the credibility established with government by being able to analyse problems dispassionately was often mentioned.

In the longer term, Treasury’s ability to influence is related to its reputation for giving rigorous high quality advice that’s well informed, well-articulated and that meets the needs of the decision makers and that the decision makers trust. (SES Band 1, Treasury)

So it is really fundamentally building a relationship of trust. How do you do that? You do that through interaction that show that you provide advice when it’s needed, in a way that is needed, that addresses the issue, that provides options, that is solid and dependable and is free of errors… (SES Band 1, Finance)

The ability to see and put together the bigger picture is also seen as an important source of influence:

Traditionally central agencies, as you are aware, bring a whole of government and a whole of economy or society point of view. So we in Treasury, Finance and Prime Minister and Cabinet in

86 particular are trying to bring together the whole range of options available to the government so they can make those bigger trade-offs. (SES Band 1, Treasury)

The role of central agencies is to bring more of a whole-of-government perspective onto the policy, a broader range of considerations around the policy than what you would normally expect is going to be delivered by the line minister or the line agency. (SES Band 1, Finance)

Of course, Finance and Treasury are both large and hierarchical organisations. Consequently, if the agencies exercise influence on the policy process, not all bands within the SES are likely to exercise an equal amount of influence. When asked who was the most influential in their organisation, most participants pointed to more senior positions - the Secretary or Deputy Secretary. Some, however, indicated that influence could be more dispersed, with junior grades exercising some influence. In Treasury, authority is often delegated to the Executive Level 2 (EL2) classification, below the SES; however, even in Finance, the policy positions drafted by EL2s and lower levels can end up being the agency position. This is reflected in some of the participants’ comments:

I think, bear in mind that since from well over a decade, we’ve had a Treasury management model that has a couple of important features, one is that, unlike most other agencies we essentially have collapsed the band two / band one distinction … so people at those levels can be General Managers and Principal Advisors in a way [contrasting with the] traditional structure of AS [assistant secretary] and FAS [first assistant secretary] which tends to be evident in Finance, PM&C and most other departments. And related to that is that we have clear accountabilities for the sign off for minutes [briefings] down to the EL 2 level, so I think about in my Division, I might sign half the minutes that go out as General Manager and the other half would be signed off by EL 2 managers. … The influence is definitely from EL2 and above but it’s dispersed in a way. It doesn’t say ‘well ultimately the Deputy Secretary Level is more important.’ There would be a number of policy issues that I’ve been responsible for that have been signed off by an EL2 that I might have had a role in shaping but where somebody above me has only been peripherally involved. There’s very much that horses for courses. On other things there’s a more direct very senior influence, more engagement in policy issues, so it is that sense that depends a bit on the issue. (SES Band 2, Treasury)

I think these days when it’s the Secretary and the Deputy Secretary of Budget Group who are doing most of the appearances at meetings, like meetings with the minister or attending the ERC, they’re in the greatest position to have an influence. That said, I think in terms of the

87 arguments that are taken forward for discussion with the minister or for discussion at ERC, those arguments do tend to be developed by the staff in each team and probably the EL2 level, [SES] band one and FAS [first assistant secretary] level there is a significant degree of influence over the arguments that are run and the way those arguments are expressed in the briefs that we provide. In our area there’s very few significant changes in position that are made through the clearance process and very few changes generally once it gets past the FAS level. (SES Band 1, Finance)

I guess intuitively, you would expect the more senior people would have a stronger influence over policy, but in practice (I don’t know what it’s like in other areas) in practice when we think about the extent to which the policy position that an EL2, for example, might first draft in a Green Brief the extent to which those positions then get overturned, and as the Green Brief goes through the clearance process, it is actually relatively rare that there’ll be a fundamental change of position. There’ll be some nuancing, there’ll occasionally be a switch, but not at the point where EL2’s feel they’re wasting their time... Most of the time, I think those positions prevail or largely prevail for the final products, so while the most senior you are the more opportunity you have to change it, I’m not sure that there is a lot of change that happens or at least a whole style change, so you could plausibly argue that you think relatively junior staff in the Department of Finance have at least a material influence over certain policy positions. (SES Band 1, Finance)

Thus, while Pusey focussed on the SES as an elite group within the central agencies, their ability to influence policy decisions is tempered both by those above them, at the Secretary and Deputy Secretary level, and the staff below them providing drafts of positions. In this environment, it may not be the social and educational background of the SES officers, per se, that matters most if others have as much influence. Since broader cross-section of the agencies has not be studied.

So undoubtedly Treasury and Finance have the ability to influence policy, but that influence comes in the form of being able to place advice in front of ministers who are making critical budget and other policy decisions and the ministers trusting that advice, and respecting its departmental source, sufficiently to take notice. This includes the Treasurer and Minister for Finance, but also includes the Expenditure Review Committee ministers through the Green brief process. In this respect, SES officers recognized that ultimately their influence is entirely dependent on the willingness of ministers to accept that advice. As explained above, they were also

88 conscious that ministers had other sources of advice, and it was important that their advice be seen as being of high quality and relevant if it was to have influence.

In addition, as explained above, the SES were conscious that the standing of their ministers in Cabinet had a major bearing on their own influence, and that much of their power was directly related to this. We also saw that at an individual level, SES officers recognised that others within the department – at different grade levels above and below them – could also exert influence, often more effectively than themselves.

Pusey’s analysis of the SES had implicitly assumed that this cadre was the most influential in the policy process. The findings from the data in this study is that this was not what these officers thought themselves. They recognised that they had an opportunity to provide influence but were ultimately dependent for that influence upon ministers.

4.5 The Principal-Agent Problem In the preceding chapter it was mentioned that the principal-agent relationship potentially becomes a problem depending on whom the public service, as agent, perceives as its principal – i.e. the entity to which it is responsible, and accountable, as agent, and whose priorities it serves. Overwhelmingly, the participants were well attuned to the Westminster conventions of responsible government. When asked who their principal customer was, the majority would mention their minister, Cabinet or the elected government. A slightly smaller group mentioned both the elected government and the public in their answers, with the former the conduit to the views of the public. Only two respondents identified the public directly as their customer, but even in these cases it was clear from the remainder of their answers that they understood they were working for the elected government. This high level of recognition of the role of the elected government undoubtedly reflects a significant amount of direct contact between the SES officers and their minister, the Cabinet and Cabinet committees (ERC was frequently mentioned as a significant point of contact with ministers in the Finance responses).

89 Table 4.10 Sample Perception of Ultimate Customer

Finance Treasury

Government / Minister(s) 11 7

Government representing 6 4 the public

Australian Public 0 2

Total 17 13

The recognition among participants that the public service has a particular role within the Westminster system of responsible government, and this role is to provide impartial policy advice to governments, was evident in responses such as the following, all of which point to the responsibility of public servants to the minister and government of the day:

In practical terms, one works for a Department, who is run by Secretary, who is working for the government, who one can only assess is working for the people of Australia. That’s how the system is meant to work. (SES Band 1, Finance)

Well, the way the Constitution is set up, really it’s the minister. In the terms of our role, we have to do what the minister of the day would like us to do towards the government’s general goals. (SES Band 1, Finance)

So I guess the customer of our policy advice is the minister/the broader Cabinet. I see us as being accountable to them. Ministers are then accountable to the public for the decisions that they make based on our advice and advice from a multitude of competitors. (SES Band 2, Finance)

The Westminster model was also exemplified in the wide acceptance that it was ministers who were ultimately responsible for value judgements or choice when it came to policy issues, but the public service needed to position its advice so it was useful to ministers, or the elected government, when making these judgments or choices.

90 The ultimate customer is the Australian public and wellbeing, but there our system is set up such that that is judged by the Treasurer. The Treasurer is the person who has to decide what acts in the interests of the wellbeing of Australians. It’s not for me as a public servant to make that decision. I just give him some options. But our ultimate measure of success should not be that we just give advice and it gets ignored. Our real measure of success should be that we are effective in giving advice that is persuasive. (SES Band 2, Treasury)

As mentioned above, two participants from Treasury identified the general public, rather than the elected government, as their principal customer. This could potentially raise problems for the principal-agent relationship because if the public servant perceived themselves to be acting directly in the interests of the public, this might mean that they do not see themselves acting in the interests of the government when, in their view, the government departs from the public interest. Any such independent action on the part of public servants would be contrary to the Westminster principle of responsible government, which requires public servants to serve ministers and the elected government as their principal. However, as I have argued above, even these two Treasury officers who identified the public as their principal customer ultimately seemed to understand that they were serving the elected government as is evident from their statements:

I think the Australian public [is my ultimate customer]. They’re always in the forefront of my mind when I come to work… The ultimate stakeholder, I would think, taking the Australian people out of that, stakeholder discussion then are obviously the political stakeholders, the ministers, and there I see my role again as trying to give as accurate advice as is possible, but also I see there being a rather serious role in the client and stakeholder relationship, of making clear what we don’t know as well as what we do know. In fact I think it is most important thing to tell decision makers. (SES Band 1, Treasury)

Well I guess the ultimate customer is the Australian people, but more directly it is the government we are providing advice to. (SES Band 1, Treasury)

A point of some relevance when it came to the principal-agent problem concerns the fact that many policies, as well as policy outcomes, extend beyond the life of the current government or only manifest their outcomes at this later date. Do public servants see their role as trying to encourage the government to think beyond the short-term, in the longer term interests of Australians, or do they tailor their advice to

91 the political interests of the government of the day? This sort of issue caused some to reflect. Many denied that there was a problem with government “short-termism”, pointing out that the government can make decisions for the longer term.

I don’t think it’s entirely true. I think governments are concerned obviously for immediate outcomes and I think they also take a long term view. This budget certainly takes a long term view. The Intergenerational Report takes a long term view. I don’t think your proposition is quite right. (SES Band 2, Finance)

If you look at this budget, this is one which is very much focussed on the medium term and this budget reflects, I think, the views of the government, not necessarily the views of the Treasury, being what I mean by that is the government set out its framework for this budget rather than Treasury saying “well, we think you should be doing this or this or this.” So in many cases, this is, I think, we may be surprised about what they are prepared to put on the table, and if we were politically rationalist, we would have thought that some of the things would just never get up, so why raise them? (SES Band 1, Treasury)

Other participants – while acknowledging the problem that governments may adopt a short-term perspective concurrent with the electoral cycle – argued that they had a professional responsibility to point out longer term issues on policy matters, leaving the ultimate decision to government:

I’m not saying governments might get fixated on not taking advice, but I don’t think we advise in a way which, if we saw something as something that was very specific to a unique set of events that wasn’t going to be a policy that was sustainable over the long run or something, I think we’d always brief on that. (SES Band 1, Treasury)

It’s part of providing advice as a public servant. You do, I think, take the longer term view and you do have to set out a position for the government of the consequences, the potential consequence of the short-term versus the long-term. At the end of the day you put that advice forward. If the government chooses for short-termism or other reasons not to go down that path that’s their decision. But all you can do is provide advice on what you think is appropriate. (SES Band 1, Finance)

Even in policy areas, such as longer term fiscal sustainability, where public servants might perceive ministers as unduly influenced by the electoral cycle, views concerning the role of public servants were tempered. The public servant’s role was seen in the

92 context of advising ministers, with the ultimate decisions on policy still left to ministers themselves.

The views of the participants broadly aligned with the explanation made by Ken Henry, when Treasury Secretary. When asked in a radio interview whether the Treasury was independent, he replied:

Strictly of course we’re not. The Treasury Department is a department of state. It is part of the executive government. It works to the government of the day, whatever the political persuasion of the government of the day. And so in that sense of course the Treasury is not independent from government and it can never behave as if it is independent from government. But there’s another sense in which it does have a degree of independence and that is that the Treasury conducts its analysis without government interference. It’s up to the government of the day to decide whether to accept that analysis or whether to reject that analysis. (Henry, 2009).

The data from the interviews therefore provided strong indication that there was not a principal-agent problem when it came to the relationships of influence and power between SES staff and ministers. In every case, SES staff showed by their answers that they were aware that their role was to provide impartial advice to ministers, but to leave the ultimate decisions on policy-making to ministers themselves. In this respect, the Westminster system of responsible government was affirmed.

4.6 The Role of the Central Agencies This section deals with the last of our four themes, concerning the participants’ understanding of the role of the central agencies within which they work. As explained in the preceding chapter, the sample excluded areas of Treasury that were more in the nature of a line department, such as those areas concerned with managing policy on taxation or markets, as well as purely administrative and technical areas. Consequently, it focused on those areas where Treasury staff were more likely to be dealing with wider policy issues affecting government and other departments.

The question about the role of central agencies provoked a range of responses. A number of roles were identified by participants. Different participants, even in supposedly similar roles, saw themselves as fulfilling these roles in different

93 combinations. Some saw the role of the central agencies as simply providing information on policy proposals, analysing them from a neutral perspective, or applying to them a process of dispassionate analysis, and then, once policy is decided upon by government, implementing policy in an impartial manner:

Finance is most influential when it’s pragmatic, provides well-argued objective advice backed up by evidence, gets all its facts right and puts propositions which may be considered hard by the line agency but are doable. So I think Finance loses influence when it becomes too doctrinaire and puts forward propositions which are just really not politically doable. (SES Band 2, Finance)

I think my role is to put up the options, the evidence-based advice, even if it’s not what is, I guess, narrowly aligned to the government’s policy position, or if it’s more of an area of policy development. But often when a government states its policy, it’s pretty broad and when we’re providing advice in that space, I think that you can help to shape where the government might go. Once the government says no, we want to go in this direction, then our role is to help them implement it. So it’s an interesting line. (SES Band 1, Finance)

However, participants referring to their role in providing dispassionate advice recognised that this advice had to be compatible with the needs of the government. They recognised that ultimately, advice that the government will not use, no matter how logical, is useless.

We don’t work in a vacuum from the government’s stated policy priorities, so does that change our advice? Well it’s only being realistic about the government [which] has an agenda and wants to pursue, and you can always provide for full and frank advice, not supporting a particular policy that the government is in favour of. That’s part of our role, but at the end of the day the government is the government is the government. (SES Band 1, Treasury)

My experience is, and clearly advisors and ministers would reach a point where they’ve switched off, but when you’re switched off there’s a point where it is possible to keep beating your head against the wall. So there’s a judgement call about when you can’t influence a decision any further, we can’t provide the advice any further, so I think that’s the point where you would reach that point. (SES Band 1, Treasury)

Other participants saw the role of central agencies as applying a sceptical or even “devil’s advocate” perspective to policy proposals, particularly emanating from other departments:

94 Well it’s a sceptical eye … I don’t see that as … being some sort of government spending “bad” position or “there is no role for government” or “no legitimate role for government”. I don’t see it as extending anything like that far. I think it just is that role of being the healthy sceptic. (SES Band 2, Finance)

Participants showed they were aware that they were working in a budgetary context, which meant that they considered resource limitations a reality, irrespective of the individual merits of proposals. Inevitably, this meant quite a few saw the role of central agencies as enforcing fiscal strategy and discipline upon policy proposals, acting as guardians of the public purse:

I guess part of the role of the Department of Finance has always been, I think, as a bit of a defender of the public purse, so part of the role of an effective Finance is to provide an alternative argument for ministers or alternative, giving them things to ponder. There’s never any shortage of advocates for additional government spending. We can rustle them up any time you like, what I think ministers find useful is to hear an opposing argument, perhaps a sceptical argument. An agency that puts proponents of new spending through hoops a bit, test with them, prompts them, pokes them and I guess I see that is some of the gap in the market that we field, if you like, after all there are not that many people who are prepared to step up and play that role of the poker and the prodder and the tester of things, but we do it. (SES Band 2, Finance)

Finance staff were more likely to see themselves as guardians of the public purse, and Treasury staff were more likely to position themselves as a source of neutral analysis, but there was a range of views across both agencies. This appears to reflect the more direct role Finance has in reviewing spending proposals.

It was not unusual for staff to see themselves, and the agencies they work in, as having to fulfil multiple roles, depending on the context in which decisions were being made:

Well we’re called upon to do all of them to greater or lesser degrees through the political cycle. So some of the devil’s work would be turning to Finance to produce savings options that couldn’t be thought up by other agencies. That’s a skill set that Finance needs to be able to call upon from time to time. The neutral advocate, well I suppose at what you’re trying to do all the time, but can you really be neutral because the “gate keeper of the public purse” issue, that’s to be read as always of saying no and nothing else, then that’s a bit of a failing I think. (SES Band 2, Finance)

95 Generally, there was a tension between the view that the advice being provided by the central agencies was purely fact-based and the recognition that this advice involved the application of value judgements. Those who recognised that value judgments were involved in policy advice also recognised that the central agencies were engaging in evaluation of policy itself. This is evident in the following statements:

The public service should be applying judgement to policy propositions all the time based on evidence and the application of logic within the context of the policy outcomes of the government of the day. (SES Band 2, Finance)

I think you are always applying your own judgement. I think the question is how you balance that against the needs of what your minister wants or what senior people want i.e. they tell you what it is that they would like your views on and then you have to provide the advice that they’re seeking but you have to balance that against what you think in your judgement is appropriate. There is no such thing as objective advice. Everyone brings their biases and judgements to the thing, to what it is that you are providing but you’ve got a try to do it in a way that is not so purely subjective that it overrides the balance of what is you are trying to provide.... The point about being an SES … in the public service is that you are trying to provide something that is based on your wisdom and your knowledge of the way the system works and what it is that will help the minister and the government achieve its goals and in doing that you will definitely have your own call. (SES Band 1, Finance)

Few of those interviewed thought that there were particular Treasury or Finance “orthodox” positions on policy that they were obliged to advocate – unless that could be captured in the notion of their ensuring good policy process:

I think we do try and get back to what are the key principles and issued involved, which is not to say we go back to textbooks, but trying to work through things from first principles, and trying to see where the first policy is actually good and we are going to meet all these objectives or if there are better ways to meet the objective. (SES Band 1, Treasury)

I think it is an advocate of particular positions and they’re not the sexy positions. They are the ones about good thoughtful implementation, and I mean a small i implementation, I don’t mean ‘here’s a plan and this is how we are going to report back.’ I mean really nutting out the sort of how is this going to work, how is this going to be implemented, what the key deliverable is and what that really means longer term…(SES Band 1, Finance)

I think an application of logic and common sense, … If you get to the stage of people stating in plain English what it is they’re trying to achieve and how they intend to achieve it and what the 96 likelihood of their proposed solution actually meeting the objective is, if you could provide some sought of rational coherent description of those things you have normally gone quite a long way to providing the relevant framework for decision-making. (SES Band 1, Finance)

According to some participants, the absence of a particular policy agenda within the central agencies gave them more opportunity to think laterally and challenge what was being put forward by others.

We are an independent agency - we are not pushing a particular portfolio agenda. We tend to provide fairly impartial, if at times somewhat robust, advice. We can also play devil’s advocate in a way that other agencies can’t. Our briefing to [the Expenditure Review Committee of] Cabinet is our briefing. It doesn’t go through the minister or anybody else. And it is expected to be a little bit provocative at times. (SES Band 1, Finance)

So we have a lot of debate with the line agencies, what we do tend to find ... We have more freedom here to formulate our positions… Often … when you are engaged with line agencies [a policy position] becomes quickly cleared all the way up to there to their [minister’s] office before you ever [get the opportunity to influence it], so get caught in a [situation where] they can’t really move off any positions. So that’s the biggest thing we find, the main thing is you have to then try and get in early and have discussions with them before they get caught in the ‘everything’s been cleared through their office’ so they can’t even have a contrary view any more. (SES Band 1, Treasury)

Clearly, participants were aware of their need to support their ministers with policy ideas, and that this was the primary means by which they could remain “relevant” to their minister.

There are people that take the view that the government should lead and there are people take the view that agencies should lead, and there is something in the middle and I guess my view is “governments will come with a confused agenda”. Some of it will make sense, some of it won’t make sense, and some of it will just be gaps and in terms of the gaps I think it’s the role the public service to provide options to ministers on things that they think could be done better. (SES Band 1, Finance)

The central agencies are uniquely placed at the focal point of government decision- making, with unique access to ministers. Despite this, SES officers had a range of views on their roles. Across the agencies, these views included helping other departments with their policy proposals through to hindering those judged unaffordable. At the

97 centre of these concepts is the notion that there is a criterion of good policy based on evidence, that generates value-for-money outcomes, and this is the standard against which policy proposals are to be measured.

The above interview data shows that, in relation to the “theme” centred on the role of central agencies, a number of views were expressed. However none of these views reflected an understanding of the role of central agencies that conflicted with the Westminster principles evident in the earlier “themes”. Further, none of these views advanced a particular ideological conception of the role of central agencies – as the advocate of any particular policy or doctrine – such as might be expected from the Pusey thesis. Instead, there was a recognition that the role of central agencies is to ensure governments are able to achieve their ends in the most effective way possible. Although this at times involved an emphasis on budgetary issues such as expenditure control, the responses above show that this did not manifest itself as an overt or ideological commitment to smaller government.

4.7 Conclusion Economic Rationalism in Canberra presented a picture of SES officers in the central agencies acting under the influence of economic rationalism, manifested in a set of policy views and prescriptions. Pusey attributed this commitment to economic rationalism to their relatively privileged background and education in economics. Although we saw that Pusey at times prevaricated as to who had most influence – ministers or public servants – nevertheless he observed that these SES officers were powerful, even to the extent that they could have “corralled the … government into a narrowing and increasingly exclusive commitment to ... economic rationalism” (Pusey, 1991, p. 7).

The purpose of the four “themes”, discussed in chapter 3, were to test these claims of Pusey’s. The first theme explored whether the current generation of central agency SES could be categorised as economic rationalists. Few of the current participants endorsed the notion of smaller government unconditionally, as Pusey’s definition would require. While they had a preference for market mechanisms, they knew that markets could fail. In addition, they were well aware that economic efficiency could

98 adversely affect particular parts of society, and there was always a question as to what protections need to be put in place for the disadvantaged. While the majority had education in economics and they generally accepted that this preparation was relevant to helping them address public policy questions, this did not translate into a preference for a standard set of policy prescriptions centred on economic rationalist criteria. The notion that the central agencies are promoting economic rationalism was accepted by none of the participants and specifically rejected by many.

On the second theme, the notion that the central agencies wield great power elicited cautious responses. The SES were aware that they were in a position of influence policy, but that influence came about through the ability to put forward arguments that had influence upon senior ministers. SES staff knew that their advice could be contested, as ministers also had others willing to provide them with policy advice. Participants therefore acknowledged the existence of central agency power, but this was always qualified by the capacity of the agencies to translate that power into effective influence upon ministers, including those meeting as the Expenditure Review Committee.

The third theme sought to explore who these SES staff perceived as their principal. Considering the results in the second theme, which showed that SES staff recognised their dependent role in relation to ministers, it is hardly surprising that they saw their principal as being ministers or elected government. This complied with the role accorded the public service under the Westminster conventions of responsible government and so did not present evidence of a principal-agent problem.

The fourth theme concerned the role of the agencies themselves. This elicited a range of responses from participants, but none confirmed Pusey’s thesis that this role was in fact to advance a particular policy agenda. Rather, as the responses once again accorded with Westminster assumptions concerning the role of the public service in advising government, it was ministers who were perceived as having this policy agenda role.

99 5. Discussion 5.1 Introduction This chapter seeks to draw together the threads of argument from this research and put it in the context of Pusey’s thesis and the debate that surrounded it. This chapter revisits the main findings from the research as presented in the previous chapter under four “themes”. In particular, it considers the result that there is no obvious “economic rationalism” or principal-agent problem as indicated by the responses of participants to the interview questions. It raises the issue as to whether this implies conditions have changed since Pusey’s time or whether Pusey’s research had reached the wrong conclusion. It then discusses what this implies for economics in the realm of public policy as well the role of the central agencies. Finally, it identifies some potential areas for future research.

5.2 Economic Rationalism in Canberra Today In the previous chapter, the results appear to show convincingly that whatever the case was in the 1980s, many of Pusey’s key conclusions do not apply to the Senior Executive Service (SES) officers in the Treasury and Finance today. Broadly, the interviews did not show evidence for widespread belief in economic rationalism, and it did not show a principal-agent problem.

5.2.1 Theme 1: Economic rationalism Pusey had argued that economic rationalism was a doctrine that always prefers smaller government. When presented with such a stark option, most of those interviewed instinctively recoiled from this prescription. Some saw a case for smaller government, but always in the context of specific circumstances and conditions, and most saw the size of government as being about right with some adjustments. This was despite the fact that at the time of interviewing the elected government had a policy supporting a reduction in the size of government (Cormann, 2014).

Most of the Treasury and Finance SES had a preference for economic ways of thinking and for using market solutions to deal with policy problems, although they recognised that markets were not always the ideal solution and themselves had problems. The participants saw smaller government encountering two sets of problems. Firstly,

100 smaller market necessarily relies on markets to fill the gap, and markets are not always efficient. Economic theory suggests that market failures could occur due to externalities (such as pollution), public goods, natural monopolies and information asymmetries (Randall, 1983, pp. 131-132). Secondly, a smaller role for government may mean less of a social safety net and protection for the vulnerable. As we saw in the previous chapter, all of this was recognised by a number of participants. Thus, it was recognised by participants that the merits of substituting markets for government was something that needed to be addressed on a case by case basis.

If the public servants were not consciously advocating economic rationalism, maybe they were doing so unconsciously through their approach to public policy issues? The participants in this research provided a variety of views about their role in the policy process. Some saw it as involving a fact-based analysis of the issues, attempting to be value neutral as far as possible. Others saw it as imposing budgetary constraints and protecting the public purse from unnecessary spending. While, at face value, this may appear in line with economic rationalism, this was not the way the participants perceived it. Rather, they saw this as a necessary element of responsible government and, in particular, of the institutional role of the central agencies relative to the line agencies. Nothing in the approach to policy issues, as revealed by the participants, seemed to imply a preference for a standard set of policy solutions, buttressed by a wider ideological framework, such as suggested by Pusey. Rather, participants tended to argue that the merits of every proposal needed to be assessed in light of its unique circumstances.

5.2.2 Theme 2: Power to Influence Policy Pusey had depicted senior public servants as powerful actors, capable of influencing public policy: these were the “switchmen of history” (Pusey, 1991, p. 2). The power of the central agencies was such that their preferred doctrine, economic rationalism, could dominate outcomes for the line agencies. As a consequence, Pusey concluded that the nation-building policies and social democratic policies that once dominated the Australian political agenda had lost influence as a result of the ascendancy of the economic rationalist agenda, and the influential capacity of senior public servants

101 within the central agencies to advance it within the public policy process (Pusey, 1991, pp. 107-108).

Today’s central agency staff realised that they had some influence on policy processes and outcomes, but that this was a reflection of their access to and influence upon those ministers who themselves had influence in Cabinet. The mechanism, by which they were able to influence decisions, was through the strength of their arguments and the influence they built with ministers based on their perceived capacity to provide responsible and useful advice. Only when those ministers were prepared to accept and argue central agency positions in the Cabinet room were the central agency SES staff likely to be influential upon the policy process.

This influence was necessarily fragile. The participants were conscious that ministers had access to other sources of advice. Ministers would be advised by think tanks, lobby groups, party colleagues, their own private office staff, and the line ministers and their agencies whose spending proposals were under consideration.

In conclusion, therefore, the results of the interview data in the present study indicate that Pusey’s assumption concerning the policy dominance of the SES staff in the central agencies, reflected in their capacity to advance a particular policy framework within the policy process, was not confirmed by the participants. While the participants recognised that the central agencies do have some policy influence, this influence was circumstantial, being dependent on other factors, not least ministers, not always within the central agencies’ control.

5.2.3 Theme 3: The Principal-Agent Problem As we saw in chapter 1, Pusey was ambiguous as to whether it was ministers or public servants that dominated the public policy process. In places, he suggested it was the public service that had the upper hand and in others that ministers were in control. This is a significant public policy issue. Is the government, as elected, able to govern according to its own priorities; or is it necessarily dependent on the acceptance of its policies by public servants? In short is the principal really in charge, or is there a principal-agent problem?

102 The SES officers interviewed for this study clearly understood that they were working for individual ministers, and therefore for the elected government. There was a recognition that sometimes it would be necessary to provide the elected government with advice that would not be welcomed, as it challenged their political assumptions or interests, but it was also recognised that public servants had a responsibility to provide all relevant advice. The SES officers also realised that they needed to provide advice that allowed the government to implement their chosen policies. There was no thought that public servants could impose policies on the elected government, or even if they could that it would be appropriate to do so. The participants interviewed clearly understood their role in the Westminster model of responsible government and abide by its conventions – their influence could only be felt through a well-argued position that met the needs of the elected government. There was no room for imposing a particular policy agenda upon government as some aspects of Pusey’s account seemed to suggest was occurring in the 1980s.

5.2.4 Theme 4: Central Agency Roles Participants recognised that the central agencies are uniquely placed at the focal point of government decision-making, with unique access to ministers. They also recognised that the central agencies have a distinctive role to play in the policy process, quite distinct from the line agencies. However, there was much variety among participants concerning the role they believed that the central agencies actually did play. Participants referred to different roles, and at times, multiple roles, which they believed the central agencies were expected to fulfil within the policy process and in terms of their relationship with the elected government. While some participants recognised that the role of policy advice required value judgments to be made by public servants, few believed there was an “orthodoxy”, advanced by the central agencies, which they were expected to advance and affirm. Indeed, some argued that the absence of a specific policy agenda, within their central agencies, gave individual SES officers scope to think laterally about policy issues. In all these ways, the participants’ views about the role of the central agencies was in accord with the findings of the other “themes”. The data on the role of central agencies did not confirm the Pusey thesis concerning the advancement of a particular policy agenda,

103 nor did it provide evidence of a principal-agent problem at odds with the Westminster conception of responsible government.

5.3 Implications for the Pusey Thesis The SES officers from Treasury and Finance interviewed for this study painted a different picture of the role of the central agencies, and their personnel, from that of Pusey a quarter century ago. Together, these results lead to the conclusion that little of Economic Rationalism in Canberra applies to the central agencies today. This naturally invites the question as to why this would be the case? Did the public service go through significant change at some point over the last quarter century or was Pusey’s description of the public service in the 1980s never entirely accurate? The survey completed for this research paper cannot answer this question conclusively. Only a few of those interviewed were serving in a central agency at the time and then in relatively junior positions. As such, data for a comparative analysis, based on their experience of the central agencies during Pusey’s time and our own, is lacking.

As we saw in chapter 2, at the time Pusey’s arguments were largely rejected by senior public servants and ministers alike. Nevertheless, there does seem to have been some change within the public service between the time of Pusey’s study and our own. Those interviewed saw their agencies becoming more open and more diverse with time. In particular, Treasury officers pointed to the effect of the Wellbeing Framework, promoted under the Secretaries Ken Henry and Martin Parkinson, as encouraging that diversity, bringing into play a wider range of variables considered relevant to policy, and therefore encouraging broader thinking.

5.4 Economics and Public Policy What does this study tell us about economists and economics as a discipline? A good part of Pusey’s argument is a rejection of economics as a discipline. In his later writing Pusey argues that economists hijack policy debates:

They [public intellectuals] get very little time or space to develop a well contoured position on public policy matters before the economists and others – mainly the economists – move in, always prematurely, to demand answers as to how this will ‘work in practice’. And then they force all the arguments (e.g., Mabo, the future of our cities, or work/life collision) into a policy

104 framework. From that point onwards, as night follows day, extrinsic rather intrinsic moral and other criteria take over and the advantage quickly moves to those in the policy apparatus who will make themselves the arbiters of how well this or that proposal fits with their view of what is possible.(Pusey, 2010, p. 83)

It seems hardly likely that Pusey’s vision of a public policy debate without economists can ever be a reality. Nation-building programs cost money, and that needs to be funded through budgets. Resource constraints of some type will always exist – indeed it is an underlying assumption of policy-making and policy choice itself - and hence discussion of costs and benefits are inevitable. Members of society worry about their future standard of living, cost of living and job prospects. Economic modelling gives insights into all of these questions. Ultimately the success of economics is its predictive value. If today’s economics is to be displaced, it is likely it will be by a new type of economic thinking rather than non-economic thinking.

Of course, while economics has a place in this debate, there is no sense that economics has all the answers or that economic thinking is without problems. Lindy Edwards (2007) discusses at length the traps of simplistic economic thinking. She argues that “our leaders must challenge economic rationalists’ narrowly focussed policy prescriptions. They need to open up their thinking to how our approach to the economy impacts on our values, our culture and our quality of life.” (Edwards, 2007, p. 162). Insofar as the participants to this study recognised that other priorities as well as economic ones were relevant to policy debates, and that the validity of economic arguments were themselves dependent on wider circumstances and conditions, it could be said that they were aware of some of the issues that Edwards raises. Indeed, we saw that the Treasury Wellbeing Framework sought to apply a wider range of considerations to policy-making, and was recognised as such by participants. This, along with their recognition of the potential limits of economic arguments, shows the extent to which they depart from the image of the central agency public servant advanced by Pusey.

The participants were clear that ultimately it was ministers who were making decisions, and few politicians are economists. In the current Parliament, 186 politicians in both chambers held 386 qualifications. Only 35 of those were in economics or

105 commerce compared to 85 in law (Parliamentary Library, 2014, p. 262). Politicians, who have to face elections and explain themselves to the public, tend to be conscious of the public presentation of their policy decisions and so are unlikely to immerse them in economic logic. This, along with the other considerations above, shows that although in the context of some issues (such as budget deficits and surpluses) economic criteria plays a significant role, it does not dominate the public debate to the extent that Pusey suggested.

5.5 Potential for Further Research While the validity of the Westminster model of government remains broadly intact, and the economic rationalist agenda is not dominant, at least in the minds of the public servants interviewed for this research, this thesis nevertheless leaves room for further research. Most notably, there remains scope for similar research to be conducted within PM&C which, as discussed before, is not an economic agency like Treasury and Finance, but has a pivotal role in coordinating government policy.

As noted previously, there was a diversity of views on what role the central agencies fulfil. From a practical point of view, there remains a case for a better understanding of what that role (or roles) should be. Should the central agencies act as independent assessors of proposals, gatekeepers that make line agencies jump through compliance hoops, or a team able to inject a whole-of-government perspective to line agency proposals?

106 6. Conclusion This thesis has revisited the conclusions of Michael Pusey’s Economic Rationalism in Canberra (1991), a quarter-century after it was published, to determine if his characterisations of the central agency SES staff are still valid and accurate in today’s circumstances. Pusey had depicted the central agencies as having a strategic role in the policy process, and as being powerful adherents to a doctrine he labelled as “economic rationalism”. Significantly, Pusey left ambiguous the question of whether the central agencies were able to impose their preferences on ministers and the elected government. This is an important issue as our understanding of democracy, embodied in the Westminster conventions of responsible government, declares that it is the ministers that form the elected government who are the “principals” in the policy process and the public servants are their “agents”.

This research interviewed 30 SES officers in Treasury and Finance who are positioned to influence policy across government, specifically because of their involvement in the budget process. Their responses were assessed in terms of four themes: whether the current generation of SES officers can be categorised as economic rationalists; whether they perceive themselves as having significant influence within the policy process and over policy outcomes; whom they saw as their principal, and therefore whether there is evidence of a principal-agent problem; and what they understood as the role of the central agencies in government.

On the first theme, while the majority of the participants had a tertiary education in economics, identified by Pusey (1991, p. 60) as a factor responsible for economic rationalism, few provided views that endorsed economic rationalism, as Pusey had defined this term, as a doctrine they affirmed. Only three gave unqualified support for smaller government as a matter of course, and most identified market failures or distributional impacts as reasons why markets could not always substitute for government.

On the second theme, the participants recognised that they had some influence in the policy process, but that this had clear limits. They believed their influence was dependent on their capacity to provide policy advice that was valuable and relevant to

107 ministers. This was particularly so as they understood that ministers had access to alternative sources of advice.

On the third theme, the central agency SES understood their role was to support the elected government in line with Westminster conventions of responsible government. There was no notion that they had the capacity to promote an independent policy agenda and so no evidence of a principal-agent problem.

On the fourth theme, while views on agency roles varied, there was nothing that suggested that central agencies had a preferred set of policy solutions. Rather, their preference was to address each policy issue on the basis of the available evidence and the unique circumstances surrounding the decision. The central agency personnel interviewed saw this as a necessary element of responsible government and, in particular, of the institutional role of the central agencies relative to the line agencies. Nothing in the approach to policy issues, as revealed by the participants, seemed to imply a preference for a standard set of policy solutions, buttressed by a wider ideological framework, such as suggested by Pusey. Overall, therefore, Pusey’s argument that Australian public policy is dominated by “economic rationalist” senior managers in the central agencies is not an accurate depiction of the central agency personnel in Canberra today.

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