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2 How to reform and be re-elected By PROFESSOR ALLAN FELS, AO Dean The Australia and New Zealand School of Government Friday, 26 th November 2010 Making Reform Happen OECD, Paris

INTRODUCTION How to reform? – lessons from Australia’s successful microeconomic reform. How to be re-elected? How to sustain reform? 3

4 Trade liberalisation Capital markets Infrastructure deregulation Competition policy Labour market reform (partial) Tax reform Macroeconomic policy MAJOR AUSTRALIAN REFORMS SINCE 1980s

UNFINISHED BUSINESS Not all sectors covered Untouched sectors include: –education, health, public services, planning, intellectual property, infrastructure, labour markets, some small business areas, pharmacies Reform fatigue? Recent loss of political interest? China as source of productivity growth – and complacency? Interest in “nation building” and infrastructure projects rather than market reform 5

LESSONS ON HOW TO REFORM A crisis helped A mandate Clear, sound reform goals and strategy A committed, educated, political leadership Bi-partisan support Union, business support 6

LESSONS ON HOW TO REFORM A clear narrative to the public Strong institutions and supportive bureaucracy Good sequencing “big bang” or “gradual” reform? Adjustment assistance/compensation Major financial payments to state government 7

HOW TO BE RE-ELECTED? Elections are lost for many reasons. Little evidence of link between reforms and loss of the elections. However, this is consistent with governments not making reforms that harm them electorally. But governments often lose elections if they do not reform – they are seen as “tired” and not generally productive. Electors often prefer “conviction” politicians. 8

HOW TO BE RE-ELECTED? Governments are in a strong position to educate the public and publish information about the benefits of change. Reform may initially get media support. Reform may create fresh interest groups and fresh sources of constituency support. Reform may break up old opposition groups. Reform can bring significant public benefits. Once reform has occurred public attitudes may change towards acceptance. 9

HOW TO BE RE-ELECTED? Do not reform everything at once. Have a narrative. Use crises to justify policy changes. Attack the status quo. Cultivate interest group support. Nothing guarantees re-election! 10

HOW TO SUSTAIN REFORMS Reform sustainability cannot be taken for granted Politics does not cease once reform is introduced Sustaining reform is not just an administrative implementation problem 11

SUSTAINING REFORM More emphasis is needed on what happens politically after reform is proclaimed. This is not a reference to practical, administrative implementation problems that arise after a reform is proclaimed. Rather, the fact is that politics continues usually unabated after a reform and that needs recognition. 12

SUSTAINING REFORM The continuing process of politics after reform is enacted may lead to: –Sustained reform –Gradual erosion of reform –Reversal –Major change in the nature of reform After a reform there can be key political changes that make or break the reform. They may include: –Governance changes –Old supporting institutions may be closed down and new ones created 13

SUSTAINABILITY OF REFORMS Reform may affect the nature of politics –Identities, political opportunities and alignment of relevant group actors –Post reform investments may affect long term political outcome –Attitudes of people may change with experience of the reforms – for better or for worse 14

SUSTAINING REFORM The reforms may have a major economic impact. They may even wipe out old opponents of change (although they may also create new sources of opposition). Interest groups may change radically after reform. They may become more or less powerful. They may also have to cope with the advent of new interest groups. Public attitudes may change in the light of experience of the reforms. Market participants may invest in the new regime. This makes it difficult to change the new regime once it is established. 15

SUSTAINABILITY OF REFORMS Sustainability of reform depends on political reconfiguration after reform –Interests opposed to reform must not have power to reassert themselves –Government and reform supporters have ongoing role to ward off “reactionary” pressures To sustain reform: –Strengthen governing capacity of reform side –Break up pre-existing structures if they resist reform –Create new constituencies –Create political cohesion –Alter pre-existing mindset 16