Memo to a Progressive Prime Minister: Australia: The Investing Society

November 24, 2007

Progressive Economics

September 2010

By David Hetherington and Tim Soutphommasane

Memo to a Progressive Prime Minister

Australia: The Investing Society

Dear Prime Minister

As a think tank dedicated to building a new progressive vision for Australia, we take the moment of your election to propose a new progressive governing project.

We call this project the Investing Society: a renewed investment in sustaining our prosperity and in strengthening our communities. Politicians of all parties share this rhetoric, but the basis on which past governments have applied that rhetoric through policy has been fundamentally flawed. Our most pressing problems can’t be solved through the doctrines of individual responsibility or Big Brother statism – their resolution needs an entire community.

The Investing Society offers a different way of doing politics, not just the old way of politics with more money attached. You already know that government is a different challenge. Winning the election required tactical nous, policy coherence, minimisation of error and management of message. Successful government demands strategic vision, policy experimentation, embrace of risk and most importantly, an articulation of values.

Your career has been inspired by progressive values, and you now possess a rare opportunity to reshape the country in line with those values. You recognise the virtuous circle of prosperity and fairness. You understand the importance of community in Australian life. You look forward not back, and appreciate that the opportunities of reform offer more than the safety of status quo.

Your campaign offered progressive reform wrapped in fiscal conservatism and it is critical that you observe the campaign commitments. This plan will be the minimum threshold by which you are judged. It is necessary but not sufficient for your governing success. We believe you can go further and re-engage government with people’s lives by delivering a big project, grounded in a firm understanding of individual and community needs.

Prime Minister, your role is to lead not only your government, but our nation. So the Investing Society is a national vision, not just one more call for government to spend its way out of our big problems. The era of multi-billion dollar “headline” packages must end. Instead, your leadership should focus on the means through which we can increase overall investment, and the innovations that will make that investment work harder for returns. To do this, we argue that government must move towards economic incentives and away from social controls.

The five key features of the Investing Society are:

– Full-cost economics: a holistic understanding of private and social costs/benefits, capturing externalities, options, and risk, plus market design which correctly allocates costs/benefits between private sector, citizen and the state.
– Debt for investment, not consumption: a step-change in value-creating investment relative to debt-funded consumption, with an acknowledgement that debt is no bad thing when invested in productive capacity.
– A national investment effort, public and private: recruitment of private capital alongside government funds to create new infrastructure, enhance workforce skills and motivation, and widen the circle of social inclusion and participation.
– An intergenerational investment horizon: a long-term approach to value which captures the enduring returns of today’s investments for future generations. If government isn’t in for the long haul, who will be?
– New measurement systems: a comprehensive accounting of outcomes and returns based on empirical evidence. An Investing Society is meaningless unless competing investment decisions can be evaluated and prioritised in a systematic manner.

Your government can build the Investing Society by focusing on the two big policy themes of market design and human capital investment. Designing markets and investing in people brings together the economic and social roles of government in a new fusion.

Market design is about setting the “rules of the game” to get the right outcomes – in new markets like carbon, water and broadband, and in old markets where existing provision has failed, like infrastructure and housing. With good market design, governments harness market forces by setting incentives and accounting for risk.

Human capital is Australia’s most valuable asset and you have rightly made it the centrepiece of your education revolution. In addition to building human capital, your government should focus on protecting this precious asset: damaged human capital means opportunities lost and lives destroyed. Human capital investment not only makes economic sense, it’s morally right.

Our memo proposes four “aerodynamic” policy strokes, offering powerful lift with minimal drag, to launch the project over the next twelve months:

– a carbon price, ASAP, to deliver certainty to consumers, producers and investors alike;
– individual learning accounts to stimulate new streams of public and private human capital investment;
– a Kids’ Day holiday to replace the Queen’s Birthday, with prizes for kids, teachers and schools – a holiday celebrating the future rather than the past.

We also enclose four examples of “one-pagers” that you could write and keep. What it is you actually do; what you want people to say you achieved; what the big risks to your project are; and even how you should manage your in tray and your daily folder.

Prime Minister, every time you are presented with a hard decision, ask yourself: which response is consistent with my progressive values? These values are the passions which animate the Investing Society, these are the logic behind the bold strokes and they are what will underpin your success in the eyes of the Australian people.