Policymakers must do their homework, Sydney Morning Herald, 16 May 2005

Quiz time. How much do you think the literacy and numeracy standards of Australian 14-year-olds improved from 1975 to 1998? Those who answered "a little" or "a lot", stay back after class. The correct answer is: they fell. A report by Sheldon Rothman of the Australian Council of Educational Research shows the literacy and numeracy standards of 14-year-old Australians in year 9 were lower at the end of the 1990s than in the mid-1970s.*

The study used questions from a special longitudinal survey in which identical questions were asked in each year, and the results of these questions used to standardise the results (due to a change in the survey design, the most recent results are not comparable, so the latest data we have is from 1998).

These literacy and numeracy scores affect students' life outcomes. Several other studies have shown those with better literacy and numeracy scores were more likely to have finished school, more likely to be employed, and tended to have higher hourly wages. Literacy and numeracy scores clearly do not measure everything that is important about education, but neither can they be dismissed as meaningless. Schools also teach students a wide variety of other skills - from science to socialising - that are not measured by literacy and numeracy tests. And we cannot know from these results whether schools are doing better or worse on these other measures. What we do know is that on the criteria we can measure, Australian schools are not doing as well as they did in the 1970s.

The answer is more complex than "schools need more money". In today's dollars, government schools spent $3141 per pupil in 1975. By 1998, real spending per pupil had more than doubled, to $6770. Much of this new spending was in reducing student:teacher ratios. Over this period, the number of students per teacher fell from 25 to 17 in primary schools, and from 16 to 13 in secondary schools. Australian schools have more money, but their literacy and numeracy standards are lower. In economic jargon, the productivity of Australian schools has fallen.

If resources have risen and class sizes have fallen, what else might have changed? One possibility is that the number of high-ability people entering the teaching profession has declined since the 1970s. In the US, where we have richer data on teacher quality, such an effect can be readily observed. Measuring quality either by teachers' standardised tests, or by the selectivity of the university that the teacher attended, there has been a sharp decline in the number of highly talented American women entering the teaching profession. It seems plausible that that same phenomenon may have occurred in Australia.

Given these troubling facts, it seems surprising that many Australian policymakers are so resistant to even modest reforms. In Britain and the US, annual publication of school-level test score information (adjusted for socioeconomic status) is supported by all major political parties. Yet Australian governments often oppose the release of information that would allow parents to compare schools' performance.

A logical corollary of releasing more information on school performance is that students should be allowed more flexibility to move between schools. Competition is not only about ensuring that students can move from low-performing to high-performing schools; it is about creating a set of incentives for all schools to perform at their best.

If it is indeed the case that teacher quality has declined in Australia, then we should be open to unconventional solutions to attract and retain the best teachers. Faced with a similar crisis, New York City recently embarked on a campaign to encourage professionals in other occupations to retrain as teachers, using slogans such as "You remember your first-grade teacher's name. Who will remember yours?" Streamlining mid-career entry into teaching might help improve the quality of the profession.

Finally, Australian governments should also consider whether the structure of teacher pay could be improved. Average salaries for Australian teachers are generally above the developed country mean, but teacher salaries flatten out much more quickly than in most other rich countries. In NSW, a starting teacher receives $36,000, while the best and most experienced teachers receive $66,000. It is difficult to think of another profession where the rewards for performance and experience are so low.

Dr Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University.

* Note: The text of the first paragraph has been corrected - the published version referred to 15 year olds instead of 14 year olds in year 9.


A simple solution to those annoying water restrictions, Sydney Morning Herald, 23 March 2005


As the demands on our water supply have steadily increased, Australian governments have imposed ever more stringent rules on water usage.


Recently, the Victorian Government announced that Melbourne will follow Adelaide in making its water restrictions permanent. It seems only a matter of time before Sydney follows suit. Yet if we are to make the best use of our water resources, we could do no better than to abandon arcane restrictions across all Australian cities - and raise the price of water.

Under Sydney's present level two water restrictions, gardeners are banned from using sprinklers, and may water with hand-held hoses only between certain hours on certain days. Car owners may not use hoses to wash their vehicles.


And if you spot your neighbours doing the wrong thing, Sydney Water invites you to call its "dob in a gardener" hotline, so it can hit them with a $220 fine.


Water restrictions impose a social cost - chiefly on ardent gardeners and car enthusiasts, but also on the rest of us. Juggling our chores to water the garden on the right day can be a hassle. Being forced to water by hand rather than using a sprinkler system uses time that could be spent with family or friends.


Individually, these costs are small - but collectively and over time, they add up.


There is only one reason for such restrictions: the price of water is too low. Plenty of other goods in society are both important and scarce.

Almost every household consumes bread, milk and electricity daily, but without government restrictions on when and how they can be used. The trick with bread, milk and electricity is that the people who supply them charge a price that reflects the cost of production.


Presumably because it fears political backlash, governments prefer to set a price for water that is too low, and then employs a plethora of regulations to keep consumption down.

A better approach would be to raise the price of water, and let individuals choose precisely how they want to save on consumption.

Some might choose to put a brick in the toilet cistern, while hosing the car down once a fortnight. Others might be happy to pay a higher price for water so that they might have the freedom to hose the occasional dog dropping off the driveway.


In international terms, Australian water prices are relatively low. A UNESCO report in 2003 found that water was cheaper in Australia than in the US or anywhere in Europe. The British and French pay more than twice as much for water as we do, the Germans more than triple.


Can raising the water price reduce water usage? The evidence seems to suggest that consumers and businesses respond to price signals with water, just as they do with other commodities. Reviewing 50 studies from various countries on the effect of water prices on demand, the Dutch researcher Jasper Dalhuisen and his co-authors found that on average, a 10 per cent increase in water prices led to a 4 per cent drop in consumption.


Higher water prices have another advantage: they create incentives for the market to discover new ways of increasing supply. If we allowed the price to rise to an appropriate level, and permitted competition in the market for supply, alternatives such as recycling sewage into water for industrial use might flourish.


The most common objection to raising the price of water is that it may hurt the poor. This is an important consideration, but one which is easily addressed by a direct rebate to low-income households. Some of these households will use the money to cover the price rise, while others will reduce their usage, and put the money towards something else.


Low-income households should be compensated for a rise in the price of water, but we should not forget that the rich use more water than the poor. As a result, artificially low water prices primarily benefit the affluent. Maintaining water restrictions to help low-income Australian households is about as efficient as sending your bank details to a Nigerian scam-emailer to reduce poverty in Africa.


Sydney Water recycles only a small amount of the city's water supply at present, with demand for it constrained by the low price for fresh water. This makes it difficult for the utility to justify the outlay involved in getting more recycled water into the market. Perhaps not surprisingly, half of Sydney Water's recycled water is used in-house.


Scrapping water restrictions comes down to one simple insight: when it comes to managing demand, individuals are smarter than governments. Setting the right price for water will force consumers to decide how best to conserve water, empower us to use water when and how we choose, and create incentives for suppliers to find new ways of increasing the amount of water available. Ultimately, this is the best way to manage Australia's scarce water resources.


Dr Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University.




Program paved the road to re-election, Australian Financial Review, 10 March 2005


Who really benefited from the Roads to Recovery program? Responding to research by the AFR showing that spending from the $2.7 billion fund was overwhelmingly directed towards coalition-held electorates, Deputy Prime Minister John Anderson defended the program on the basis it had a high benefit-cost ratio.


The basis for Mr Anderson's claim was a report jointly prepared by the Commonwealth Department of Transport and Regional Services and the Australian Local Government Association, which found that Roads to Recovery produced a benefit (safety and transport efficiency) of $1.80 for every $1 invested.


Yet there is reason to doubt this finding. Most of the data underlying the report was provided by local councils, who surely had a strong incentive to exaggerate the benefits. A benefit-cost ratio of $1.80 is unusually high for a road-building project, yet councils claimed that even their own regular road programs had an equivalent benefit.


To measure the political rate of return on the Roads to Recovery program, I calculated the swing towards the coalition by comparing its share of the two-party preferred vote in the 2001 and 2004 elections. Nationally, the swing towards the coalition in 2004 was 1.8 per cent.


I compared the swing in the electorates that benefited most and least from the program. In the 20 electorates that received the largest allocations (averaging $28 million apiece), the typical swing towards the coalition was 2.8 per cent. In the 20 electorates that got least from Roads to Recovery (averaging just $2 million), the typical swing was just 0.6 per cent.


A more rigorous way of testing the relationship is to run a regression of the relationship between the swing to the coalition and Roads to Recovery funding. I obtained data for nearly all of the 150 federal electorates and found a statistically significant relationship between road funding and the coalition swing.


On average, each additional $10 million in road funding was associated with an extra 0.4 per cent swing towards the coalition. For each additional $28,000 in funding, the coalition won an extra vote.


Of course, it is entirely possible that the relationship is coincidental. Perhaps the Howard government's policies in 2004 were particularly appealing to voters in electorates that did well out of Roads to Recovery. But the correlation suggests that the program was largely targeted towards coalition-held seats, and voters in these favoured seats responded by voting for John Howard in larger numbers than in 2001.


US President Calvin Coolidge once remarked: "Nothing is easier than spending the public money. It does not appear to belong to anybody. The temptation is overwhelming to bestow it on somebody." Without independent analysis or a transparent allocation system, it's difficult to avoid the conclusion that Roads to Recovery was simply a means of paving the way back to the Lodge.


Andrew Leigh is an economist in the Research School of Social Sciences at the ANU. He was an adviser to the federal ALP from 1998 to 2000.




P-plater training is useless, The Australian, 15 December 2004


The NSW, Victorian and Federal governments will today announce a compulsory driver education program for P-Platers. According to early reports, the scheme will require all new drivers to undergo eight one-hour training sessions. Unfortunately, international evidence suggests that it is unlikely to make any impact on the road toll.


Over the past decade, Australia has steadily reduced the fraction of young people killed in road accidents. Yet because other causes of death have fallen too, motor accidents remain the leading cause of death for those aged 15-24. Each year, 1 in 6250 youngsters is killed in a motor vehicle crash, with males three times as likely as females to perish.


Surely then, we should celebrate any attempt to reduce the problem? Sadly, no. While they may sound appealing, driver education programs have been subject to a multitude of rigorous studies over the past two decades, with little to recommend them.


Reviewing these studies last year, the Cochrane Collaboration, an international non-government organisation that systematically evaluates policy interventions, sought out all the randomised trials they could find that assessed post-licence driver education. Combining 19 separate studies, with a total of 300,000 participants, the researchers concluded that there was “no evidence that post-licence driver education is effective in preventing road traffic injuries or crashes”.


The same researchers also looked at pre-licence driver education (typically conducted in high schools), and arrived at an identical conclusion: driver education didn’t work. Indeed, the evidence on these programs is so poor that it prompted the Cochrane Collaboration researchers to write an article in the Lancet, arguing that driver education was “a waste of the scarce resources for road safety”, and publicly calling on the Blair Government to abandon its programs.


Why, then, are Australian governments so keen to try a program that has done so poorly elsewhere? Personal experience, it seems, has played a part. Ironically for a government that recently criticised Opposition Leader Mark Latham for drawing too heavily on his personal story during the election campaign, Deputy Prime Minister John Anderson justifies driver education on the basis that he thinks driver training helped him when he was a young driver. He also notes that car manufacturers support the approach: not surprising, given that one of the mooted alternatives has been to install speed-limiters in new cars.


To give the governments some credit, the driver education program to be announced today will not be fully implemented immediately. Instead, it will be evaluated through a randomised trial, with the results to be known by 2007. But given the weight of international evidence suggesting that driver education makes no difference to accident rates, it would be surprising if this trial proved a success.


Rather than conducting yet another trial of driver education, state and federal governments would be better to experiment with other ways of cutting the youth road toll. And there is no shortage of alternatives. Several studies have shown that traffic calming devices can work to reduce fatalities, and it would be valuable to know more about what sorts of devices work best. A paper recently published in the Journal of Political Economy showed that across US states, lower speed limits save lives. And natural experiments in New South Wales, Victoria and Queensland have demonstrated that the use of speed cameras reduces accident rates considerably. If we really want to save lives on the road, then evidence, not anecdotes, should drive policy.


The NSW, Victorian and federal governments are to be applauded for using a randomised trial to test an approach for reducing the road toll. It’s just a pity that their proposed solution has failed in just about every other randomised trial so far. As every good driver knows, it doesn’t hurt to occasionally check the rear vision mirror.


Dr Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University. His paper on randomised policy trials is available here.




Betting experts know a slow horse, Sydney Morning Herald, 11 October 2004

The art of prophecy, Mark Twain once said, is very difficult, especially with respect to the future. Yet after months of pre-poll speculation, it’s worth spending a sober moment asking the question: who got it right, and who got it wrong?

First, how did the election-eve polls perform? With the Electoral Commission now estimating the Coalition's two-party preferred vote at 52.5 per cent, the best-performing poll appears to have been the Galaxy poll (52), followed by ACNielsen (54), Newspoll (50) and Roy Morgan (49). The wooden spoon goes to the ANU Online Poll (46), suggesting that we have some time to go before internet polls are as accurate as phone polling.

One curious fact is that three of the pollsters - Newspoll, Morgan and the ANU Online Poll - were further away from the eventual election result than their reported margin of error. One possible explanation for this is that voters simply changed their minds at the last moment. But recent work by Simon Jackman, an Australian political scientist at Stanford University, indicates that the problem may be that polling margins of error are bigger than we think not the 2-3 per cent that pollsters typically report, but potentially as large as 5-6 per cent. Jackman argues that the best way to deal with this is to pool the polls, combining multiple opinion polls together to determine the true mood of the electorate.

What if we assess the pollsters not on their predicted two-party preferred vote, but simply on whether they picked the winner? Thumbs up to Galaxy and ACNielsen. Thumbs down to Morgan and the ANU Online Poll. Thumbs sideways to Newspoll. Comparing the pollsters' track records over recent elections, newcomer Galaxy now has a perfect record (1/1), as does ACNielsen (2/2). Based on elections since 1987, Morgan is now 3/7, while Newspoll's fence-sitting makes them 4/6 with one no-ball.

What of the betting markets? Since election betting opened in mid-2003, the Coalition has always been firm favourite. Even throughout the first half of 2004, with Latham ahead in many of the polls, the betting markets remained confident that Howard would be returned. By election eve, the betting market was paying $1.20 for a Coalition win, and $4 for a Labor win, suggesting that they thought the Coalition had a 77 per cent chance of victory.

How about the betting odds in the marginals? Writing in the Australian Journal of Political Science after the 2001 election, Justin Wolfers and I noted that the favourites had won in 43 of the 47 seats where Centrebet had allowed punters to place a bet. This time, Centrebet offered betting in 33 marginal seats, and on current returns, the favourite appears to have won in 27/33 instances - somewhat down from the stellar predictive power of the betting market in the 2001 election. Yet among the 33 seats, the betting markets did correctly predict a net gain to the Coalition. Overall, the betting markets seem to have again performed at least as well as the polls.

Because betting odds change daily, we can also use them to track the performance of the parties over the course of the campaign. While Labor was rated a 40 per cent chance to win on the day Howard called the election, it steadily slipped behind during the six-week campaign. Although Latham's stock rose on the day of the ALP campaign launch, it fell sharply after the Jakarta bombing on September 9, and again in the wake of Howard's speech to Tasmanian timber workers last Wednesday.

How did the pundits go? While most forecast a Coalition victory, few foresaw that Howard would increase his majority.

A Sunday Telegraph survey of 10 experts on October 3 found that three thought Latham would win, while seven thought Howard would win, but with a smaller majority than in 2001.

Writing in the Herald on polling day, Alan Ramsey stated firmly: "At the very least Labor will eat into the Government's majority."

Mike Carlton wrote: "This time the Coalition will get back, but it will be trudge and plod." The strong swing to Howard surprised most pollsters and virtually all pundits, though not the betting markets.

Election tragics might turn their eye to the November 2 US presidential election. Since the US election coincides with the Melbourne Cup, it seems only appropriate to look to the bookies. According to the Iowa Electronic Markets, George Bush is favourite. But John Kerry is closing fast, and is now a 45 per cent chance.

Dr Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University, and a member of the ALP.


Pollsters at odds with simple probabilities (with Justin Wolfers), Australian Financial Review, 7 October 2004

With the federal election almost upon us, the most important number in Australian politics today must surely be the probability that Prime Minister John Howard is re-elected. So is this the number that the polls report?


Unfortunately not. Instead of calculating the simple probability of victory for each candidate, pollsters report to us just what we tell them: the proportion who say they plan to vote for each candidate.


It is left to the rest of us to work out what to make of a 3 percent lead in a poll with a 2 percent margin of sampling error.


Yet by using simple statistics, pollsters should be able to take the results of their poll and the margin of error, and tell us how confident they are that each candidate will win.

Suppose two polls each find that 52 percent of their respondents plan to vote for Howard, and 48 percent plan to vote for Opposition Leader Mark Latham, but one has a sample size of 500, while the other has a sample size of 2000.


Obviously, the pollster with the larger sample is more confident that Howard will win. But by how much?


According to standard statistical tables, the smaller poll would make one 81 percent sure that Howard would win, while the larger poll suggests confidence in the forecast as high as 96 percent.


Combining the two polls would make one even more certain - giving a 98 percent likelihood that Howard would be re-elected.


Turning polls into probabilities is akin to what meteorologists do every day. Rather than tell us about what their instruments are recording, and how accurate they think they are, weather forecasters produce a single number - the percentage chance that it will rain on any given day.


What do the latest polls tell us? ACNielsen says Labor is a 7 percent chance, Galaxy rates Labor a 10 percent chance, Morgan indicates that Labor is an 83 percent chance and Newspoll gives Labor a 34 percent chance. Weighting the four polls by their sample sizes, they together suggest Labor has only a 12 percent chance of winning.


Of course, this requires us to believe that the polls are as precise as the pollsters say; if not, Labor is probably a better chance than 12 percent (indeed, Centrebet rates it a 23 percent chance).


While these numbers take the pollster's estimates of their errors at face value, there are other types of polling error that go beyond random statistical error. Poll samples may be skewed towards a particular kind of voter. "Don't knows" may not be representative of all other respondents.


And, as Kim Beazley can testify from 1998, our electoral system makes it possible to win 51 percent of the two-party vote but lose the election.


Yet even with these other problems, existing poll results can still be better presented. It's time for the pollsters to follow the meteorologists, and start talking probabilities.


Andrew Leigh is in the research school of social sciences at the Australian National University. Justin Wolfers is an assistant professor at the Wharton School, University of Pennsylvania.



Blind trusts for political gifts are a surer bet than trusting blindly, Sydney Morning Herald, 7 October 2004


In the 2001 federal election, advertising spending by the major political parties topped $30 million. This time, the figure is sure to be higher, raising questions such as: do donations buy favours? And how might we reform the system?


Politicians routinely deny that money influences the way they vote; money buys access, not outcomes. Yet as Kim Beazley admitted: "It is simply naive to believe that no big donor is ever likely to want his cut some time."


Do political donations affect policy outcomes? In the absence of persuasive local research on the topic, two recent US studies use a simple insight: if donations do not buy results, then a company's share prices should be unaffected by its political donations. But if donations shift policy outcomes, then firms who give a lot of money should find their share price affected by which way the political wind is blowing.


Brian Knight, of Brown University, looked at the relationship between party donations and share prices during the 2000 presidential election campaign. He found that when the probability of a Bush victory rose, firms that had given more money to the Republican Party increased in value. Conversely, when the probability of a Gore victory was higher, the share prices of Democratic Party donors rose.


Seema Jayachandran, of the University of California, Los Angeles, takes a somewhat different tack, focusing on a single event: the unexpected resignation of Senator Jim Jeffords from the Republican Party in May 2001, tipping control of the US Senate to the Democrats. In the week following the switch, firms lost 0.25 per cent of their sharemarket value for every $100,000 they gave to the Republicans in the previous election cycle.


While US politicians and firms may say that donations don't buy influence, the sharemarket disagrees. Is this true in Australia? Some clues might be offered by sorting through Australia's political donations system, using data from an election donations database (www.democracy4sale.org) and pooling donations over the past five years.


Looking not at total donations, but where the gap between donations to the federal Coalition and federal Labor was largest, the biggest advantages for the Coalition were in the finance sector (ANZ, JP Morgan), food and pastoral (Inghams, Manildra), industrial and manufacturing (Pratt, Amcor) and resource companies.


Sectors that most strongly favoured the ALP were professional firms (accounting, law), clubs and hotels (the Australian Hotels Association) and the union movement.


Based on US evidence, it might not be surprising to see some degree of favouritism towards the sectors most generous in donating money towards each party. Is there any better way of structuring the system? Perhaps. One option would be to adopt a system of blind trusts for political donations.


An individual or company who wished to donate to a party would not be permitted to give directly, but would deposit the money into a blind trust. The donor would get a receipt showing the amount, but not the recipient. For their part, the party would know their net receipts for the previous month, but not the particular amounts, nor the donors. Variants of this scheme have been successfully implemented in Chile and South Korea.


The advantage of blind trusts over reforms such as pure public funding or strict ceilings on donations is that they encourage people to put money into politics. Large political donations should not be troubling in themselves. Indeed, with Telstra's advertising spending this year likely to exceed that of all political parties combined, there is a good argument that there is too little money in Australian politics, not too much. The challenge is to break the link between donations and favours.


Making all political donations anonymous would prevent corruption without impoverishing the system. Better, such an innovation may serve as an example to the world. Just as Australia quashed vote-buying by inventing the secret ballot, so a system of blind trusts could allow effective fundraising to continue, but without the risks of influence-peddling inherent in the present system.


Dr Andrew Leigh is an economist at the Australian National University, and the co-author of Imagining Australia: Ideas for Our Future (Allen & Unwin, 2004). He is also a member of the ALP.




Where have all the optimists gone? New Matilda, 29 September 2004


Does the scope of the current election campaign really span the gamut of what matters for the future of our nation? Is there nothing more to the once great Australian project than Medicare reform, tax breaks for the middle class, payments for mature aged workers, and reallocation of private school funding?


Australia is bigger than many of the current debates taking place in the political arena. In our recently released book, Imagining Australia: Ideas for Our Future, Macgregor Duncan, David Madden, Peter Tynan and I argue that reinvigorating the Australian project today means expanding the political agenda: tackling new challenges that affect more than the hip pocket nerve.


The first challenge is to renew Australia’s national identity, an issue untouched in the current election campaign. While the ANZAC story has come to serve as a surrogate national legend, it cannot speak to our democratic traditions, maturity, or self-confidence. If Gallipoli represents our biblical Exodus, we are still searching for our Genesis.


One way of renewing our national identity would be to claim the story of the Eureka uprising as our central national legend. A movement against oppressive taxation and arbitrary colonial rule, the Eureka miners fought for justice against an unjust regime. In this sense, Eureka is Australia's equivalent of the Boston Tea Party. Described by Sir Robert Menzies as 'an earnest attempt at democratic governance', Ballarat marks the spiritual birthplace of Australian democracy. December 3 this year will be the 150th anniversary of Eureka. What better moment to revive a legend that speaks to our core values: democracy, egalitarianism, mateship and multiculturalism?


The second challenge is to achieve a lasting reconciliation with the nation's original inhabitants. Perhaps the toughest problem facing Australia today, achieving reconciliation has eluded political leaders for a generation. In the current campaign, Labor has committed itself to reconciliation, but has said little about how it might be achieved, while the Coalition's indigenous policy spends more time attacking Labor than discussing new ways of advancing reconciliation.


To succeed, reconciliation should be made more celebratory, improving understanding of indigenous stories and languages, rather than focusing exclusively on past injustices. Simple symbolic changes can help too. We ought to celebrate the handing down of the Mabo judgment as a national holiday, assign dual names to capital cities as the New Zealanders do (Melbourne might be known also as Narloke or Narrm), and pursue a treaty between indigenous and non-indigenous Australia.


The third challenge is to begin a real debate about inequality. During the 1990s, average incomes rose rapidly, boosting living standards for most Australians. But the fraction of income going to the richest one per cent rose too – from six and a half to nine per cent. Will the widening gulf between rich and poor in Australia ultimately strain our social fabric?


Rather than ignoring inequality, or pretending that it does not matter, it is time for Australian politicians to engage in an open and honest discussion about how much inequality we wish to bear. Then, if we decide as a society to devote a larger share of our national pie towards the poorest, we must engage in what Franklin D. Roosevelt once called 'bold, persistent experimentation', testing antipoverty programs in randomised trials just as we test new pharmaceuticals. Put to the test, many of the programs favoured by both sides of politics might well be found to be ineffective, and have to be abandoned. This would be a good thing. What matters most is not whether antipoverty programs accord with the ideological flavour of the day, but whether they actually deliver results.


The fourth and final challenge is to commit Australia to become the exemplary international citizen, using our middle-power status and our strong international standing to find solutions to some of the world's most intractable problems. This means going beyond the issues of Iraq and terrorism that dominate today's agenda. Australia should revive the Canberra Commission on nuclear weapons, broadening its mandate to take in the global trade in guns and other small arms. We should draw on our experience in East Timor to create a new strategic recovery facility, coordinating experts and money in the wake of tragedies like Rwanda, the Balkans and Darfur. And we ought to also use our middle-power status to replace the Kyoto Treaty on global warming with a better alternative; one that might win agreement across the developed world.


National identity, reconciliation, inequality, and international citizenship tend to have one thing in common: they require a leader who will ask the Australian people to focus on a goal larger than self-interest. This requires no more and no less than the rebirth of the great Australian project – born of altruism and reared on optimism. As Victoria's greatest son, Alfred Deakin, told the second constitutional convention: 'There is no process of accretion by which a weak political body becomes a strong body ... You will find that you cannot creep the chasm; you must leap it'.


A century on, can Deakin's vision and passion inspire us anew?


Dr Andrew Leigh is an economist at the Australian National University. He has worked as a lawyer and political adviser in both Britain and Australia and is a former research fellow with the Progressive Policy Institute, a Washington DC thinktank. Andrew is co-author of Imagining Australia: Ideas for Our Future (Allen & Unwin, 2004). This is an edited version of a public lecture delivered at the State Library of Victoria on 21 September 2004.




Matched on mojo, powers to persuade, Sydney Morning Herald, 16 September 2004 (Blueprint Article)

Howard and Latham have different strong points in selling conflicting visions, writes Andrew Leigh.

Leadership. One of the most important words in Australian politics is also one of the most misused. What does it mean to exercise leadership? And how does understanding leadership help us to gauge John Howard and Mark Latham?

According to the typical business text, leadership is about influencing, persuading and mobilising others to follow your goals. Successful leadership requires a modicum of strategy, and a pinch of charisma, or what Austin Powers would call "mojo". Leadership of this type is value-free. Bill Clinton and Adolf Hitler had vastly different philosophies, but both were highly charismatic, and succeeded in influencing others to follow them.

John Howard's critics have often sneered at his lack of charisma. Working a room, Howard lacks the magnetism that characterised Bob Hawke's prime ministership, or the soaring oratory that Alfred Deakin, Robert Menzies and Paul Keating so relished. Yet if we are to measure Howard solely on his ability to influence the electorate, he must be counted as a success.

As political scientist Murray Goot has pointed out, the characterisation of Howard as a poll-follower is mistaken. On issues that mattered to him - the privatisation of Telstra in 1996, the GST in 1998, the republic in 1999, and the war in Iraq in 2003 - Howard took a stance at odds with public opinion, and set about persuading the electorate.

Howard's persuasive skill is reflected in results from the Australian Election Study. When first elected in 1996, 54 per cent of the population thought that Howard provided strong leadership. By 2001, this figure had risen to 72 per cent. Yet persuasive prowess is not synonymous with honesty: over the same period, the fraction of people who agreed that Howard was honest fell from 74 per cent to 55 per cent. It seems that the more people believe Howard is a strong leader, the fewer believe that he is honest.

What do we know about Latham's skills of persuasion and influence? While it is more difficult to judge an Opposition leader than a prime minister, three pieces of evidence are relevant. First, despite most pundits predicting that the Labor caucus would select Kim Beazley as leader on December 2, 2003, Latham was able to persuade a majority of his colleagues that he would do a better job. Second, he then managed to dominate the political news agenda for several months - presenting Labor's policies in a compellingly straightforward manner. Yet against this should be set the published views of how a Latham cabinet might operate. When Latham biographer Barry Donovan asked Simon Crean whether it was true that Latham sometimes turned up to shadow cabinet 10 minutes late, saying "I'm going to do this", Crean agreed. It appears that Latham's powers of persuasion may not extend to all members of his shadow cabinet.

The bottom line? On the traditional definition of leadership - influencing others to follow you - Howard is probably the better leader, with a proven track record of moulding his party in his own image and convincing the nation to support him at several critical moments. Yet in Sunday night's debate, Latham wormed his way to victory - indicating that if he is to win on October 9, he too may be able to transform his party and persuade the nation to adopt his agenda for change.

A more challenging form of leadership is creating the conditions in which people can come up with their own solutions to difficult problems. Harvard University's Ronald Heifetz argues that leadership should not be viewed as influence at all, but rather as providing an opportunity for a group to tackle a difficult problem. What Heifetz calls "adaptive leadership" can only take place when people delve down to the root of a problem, rather than merely dealing with its symptoms. Eschewing easy answers, adaptive leadership requires that people take ownership of a problem, and devise a solution themselves.

So far, the 2004 election campaign has been narrowly focused - fought over a suite of hip-pocket issues that would have been familiar to voters 20 years ago: Medicare and taxation, welfare and private school funding.

This has left precious little space for the parties to debate fundamental questions of national identity. Aboriginal reconciliation, for example, is one of the most difficult issues facing the nation today, and a natural opportunity for a leader to put adaptive leadership into practice. Seven years after the Reconciliation Convention, and four years after the Sydney Harbour Bridge walk, reconciliation seems to have lost its way. Part of the reason for this was Howard's preference for "practical reconciliation", with its emphasis on improving the living standards of indigenous Australians; and the downplaying of interpersonal reconciliation, which seeks to change the relationships between indigenous and non-indigenous people.

At certain moments of his prime ministership, Howard has displayed adaptive leadership. His 1999 Regional Australia Summit encouraged local leaders to find local solutions to reinvigorate the bush, rather than looking to Canberra for additional assistance. As the Deputy Prime Minister said in his closing address, securing the future of the bush should be guided by the philosophy "that we do things best when we do things from the bottom up and from the inside out". Likewise, Howard's Stronger Families and Communities Strategy is aimed at giving communities "the power to develop their own solutions to local problems and helps them help themselves". Yet in other areas, the Howard Government has tended to operate from the centre, instead of turning difficult problems back to the communities themselves.

We know less of Latham's ability to employ adaptive leadership, but his emphasis on community-driven solutions offers some reason to believe that he might be willing to encourage local groups to solve their own problems. In his 1998 book Civilising Global Capital, he wrote that "social democracy needs to give closer consideration to the relations between citizens rather than simply working from the assumption that all social issues can be resolved in the state-to-citizen relationship".

A third form of leadership is policy entrepreneurship - the willingness to engage the public in debate about where the nation should be in 20 years, and pursue new and innovative solutions to policy problems. In Looking for Leadership: Australia in the Howard Years (2001), Donald Horne argues that over the past 30 years, Australia has never had a leader who can communicate on matters of economic policy as effectively as Franklin Roosevelt did with Americans during the Great Depression. If the people running Australia rust up, Horne argues, Australia will rust up.

In past decades, Australia has been fortunate to have policy wonks on both sides of politics. In 1972 Gough Whitlam's policy manifesto included 140 specific promises - the most comprehensive election platform ever seen in Australia at the time. In 1982, Labor - largely driven by the intellectual energy of Gareth Evans - produced a series of policy monographs around the theme of "Preparing for Government". And the record for policy entrepreneurship must surely go to John Hewson, who oversaw the production in 1991 of Fightback! - a 650-page policy platform whose executive summary alone ran to 70 pages. Whether one agrees or disagrees with the contents of Fightback!, Hewson's loss at the subsequent election was a body blow for ambitious party platforms. Since 1993, the political wisdom has been that oppositions should present "small targets", offering not bold visions of the future, but small increments on the status quo. It is difficult to imagine that this philosophy does not carry through to the way in which a successful opposition goes on to govern the nation.

There has been less sense of Australia as a bold policy entrepreneur in recent years, even though Howard's eight years have been marked by some strong policy initiatives. In the early days of federation, there was a sense that Australia was the "social laboratory of the world". Social reforms (the minimum wage and the aged pension) and democratic reforms (the secret ballot and the right for women to vote) were implemented in Australia decades before they were put in place in other developed nations. In the 1980s, there were flashes of this: the Higher Education Contribution Scheme and our child support scheme are two policies now being copied. The GST was radical for Australia, and in a broader context it brought us in line with the rest of the developed world. Other initiatives - such as work for the dole, the offshore processing of asylum seekers, or the free trade agreement with America - are more in the nature of incremental amendments to our existing policy infrastructure than bold reforms to bring the rest of the world knocking at our door, asking for policy advice.

Some have also argued that the Howard Government should have done more to engage with voters on matters of economic reform. As Rod Cameron, one of Australia's most prominent pollsters, noted in 1999: "There were a few brief years in the late 1980s and early 1990s, when ... concerns about the debt, the deficit and the balance of payments really did reach ordinary voters. Times have changed. Macro-economic issues are off the agenda of the general public. And they are off the agenda largely because the Government has stopped forcing them on to that agenda. With the exception of the goods and services tax, the Government is no longer trying to educate the Australian people about the need for continuing reform."

Would a Latham prime ministership be different? It is true that no other federal politician has published so many books, articles and speeches, on so many different topics. Over the campaign, we will discover how many of these ideas have found their way into ALP policies. Latham's other challenge is to weave his many ideas into a consistent story. For the campaign, the "ladder of opportunity" may be sufficient. But if he finds himself in the Lodge, Latham will need to paint on a larger canvas. A committed economic liberal, he will also need to find new ways of engaging with the public on economic matters. From free trade to competition policy, having the right policies will mean little if Latham is unable to articulate the case for economic reform.

So who would make the better leader? If leadership is defined traditionally, as an ability to influence and persuade, then Howard is the better leader. If leadership is providing a crucible for communities to address challenges by themselves, there is little to choose between the two. If leadership means policy entrepreneurship, Latham is likely to be ranked ahead of Howard.

The next three weeks will determine not only who will run the nation, but also how history will remember the two who would be prime minister. Will Howard be remembered as he would like - as the Robert Menzies of his age, carrying his party to repeated electoral success before a graceful mid-term retirement? Or will future generations think of him as Stanley Bruce, prime minister from 1923 until 1929, swept aside because of his uncompromising stance on industrial relations, credited with little by way of policy innovation, and largely forgotten?

And will Latham be remembered as a latter-day Gough Whitlam, his political mentor - a political leader who inspired his own adjective (Whitlamesque) and retains a dedicated following nearly 30 years after leaving office? Or is he destined to become the next H.V. Evatt, the most brilliant Opposition leader never to become prime minister?

Dr Andrew Leigh is a Fellow in the Research School of Social Sciences at the Australian National University. He is co-editor of The Prince's New Clothes: Why do Australians Dislike Their Politicians? and co-author of Imagining Australia: Ideas for Our Future. From 1998 to 2000, he served as an adviser to the federal ALP.


Politicians have us thinking 'used car salesman' again, Sydney Morning Herald, 16 September 2004

Paul Keating went to the 1996 election with a one-word slogan: leadership. For John Howard, the 2004 election is about trust. But why? With the "children overboard" affair merely the latest scandal to come to light, surely the standing of federal politicians is lower than ever?

The story is more complex. In 1976 Roy Morgan began asking people to rate various professions, including politicians, for their ethics and honesty. Until six years ago, as the graph at right shows, the Morgan poll showed a steady decline in the proportion of people who gave federal politicians a high or very high rating for ethics and honesty, from 19 per cent in 1976 to a nadir of 7 per cent in 1998.


Briefly it looked like times had changed. Last year 17 per cent of the public gave federal politicians a high or very high rating for ethics and honesty. Even more surprising, unpublished data from Morgan indicated that the rise was greatest for young voters. In 1998, just 9 per cent of those aged under 25 rated politicians ethical and honest, but in 2003, 29 per cent did so.


Yet it now appears that the trust in politicians has again plummeted. In the survey released today only 9 per cent of the public gave federal politicians a high or very high rating for ethics and honesty. Trust in politicians is again in decline.


Three factors help explain this trend: media reporting that is overly focused on personalities over substance; a long-time decline in social capital (membership of organisations such as unions and bowling clubs); and the rise of issues outside the left-right spectrum of party politics.


While last year's figures might have given hope for a turnaround, the latest numbers indicate the decline in trust in politicians continues.


The so-called trust election seems to be taking place in an atmosphere of distinct distrust. Less than one in 10 Australians thinks their politicians are ethical and honest. Whoever is prime minister after October, regaining trust in politicians should be high on the agenda.




Bookies are a better bet than pollsters, Sydney Morning Herald, 1 September 2004


With Athens behind us, a new sport has burst into the limelight: poll-watching. If you thought Olympic commentators could be predictable, stand by for four weeks of “How should we interpret the latest poll figures, Minister?” and “Do you feel you’re the underdog in this race?”, and the hoary reply: “At the end of the day, there’s only one poll that matters”. But do the polls lie? And if so, how often?


In an Australian Journal of Political Science article following the last federal election, Justin Wolfers and I noted that the two grand dames of election polling – Morgan and Newspoll – had similar success rates in forecasting the election winner. In its election-eve polls, Morgan got it wrong on three of the past six elections (1990, 1993, 2001), while Newspoll did only marginally better, incorrectly calling two of the six (1993, 1998). As for relative newcomer AC Nielsen, they correctly forecast the 2001 election, but are yet to demonstrate a long track record. Indeed, we found that in 2001, election betting markets run by the Northern Territory  bookmaker Centrebet were a better guide than the pollsters (as in horse-racing, when there’s money on the line, bookies have a strong incentive to get the odds right).


It is hardly surprising that pollsters don’t do a perfect job of predicting elections. One problem is that voting patterns are never stable: on average, my research shows that about 10% of us change our vote from one election to the next. But a bigger issue is that since a typical poll samples only 1000-2000 voters, we can’t be confident that the poll result is an accurate reflection on the whole electorate.  


What is the right margin of error to employ? The most common approach is to use a margin of error such that in 19 polls out of 20, the gap between the real figure and the poll estimate will be smaller than the sampling error. If the poll samples 1000 people, its sampling error will be 3% either way. With a sample of 2000, the sampling error falls to plus or minus 2.2%. Sample sizes for recent polls have been Newspoll 1100, AC Nielsen 1400, Roy Morgan 1900.


But although the sampling error is sometimes noted in small print at the foot of an article, it rarely makes its way into the text. By contrast, the best US papers take a much more careful approach; explicitly using the statistical margin of error in discussing the results. This better informs the reader, and can be done without needless jargon. For example, the New York Times last week said of the US Presidential contest: “the Times poll and several others released on Thursday showed the race to be deadlocked, with neither candidate holding a lead beyond the margin of sampling error.”


Taking into account sampling error, what do the polls tell us about the Australian race? In their latest polls, AC Nielsen and Roy Morgan have Labor with a lead that exceeds the margin of error. However, according to a Newspoll released yesterday, the gap between the two parties is smaller than the sampling error.


Another factor to remember is that the sampling error when comparing two polls is larger still, since both polls have their own margins of error. For example, while the usual sampling error for a single AC Nielsen poll is plus or minus 2.6%, the standard error of a movement from one AC Nielsen poll to the next is plus or minus 3.6%. The bottom line? Changes in polls from one week to another are even more error-prone than the polls themselves. So statements like: “since the last poll, Labor’s vote share is up 2%”, should betaken with a pinch of salt.


Accurate reporting of the polls may make for less reading of the tea-leaves by the nation’s amateur psephologists. But if this clears more space for journalism about the parties’ vision for the future, that’s no bad thing.


Dr Andrew Leigh is an economist in the Research School of Social Sciences at the Australian National University, and co-author of Imagining Australia: Ideas for Our Future (Allen & Unwin 2004).


[This is the original version - the version as published contained some minor differences]



Our Games heroes owe something, The Age, 30 August 2004 (with Bruce Chapman)


Australia has plundered Athens gold faster than the Spartans. Once again, our elite sportspeople have done the nation proud. And the Australian Institute of Sport, home to many Olympians, is sure to bask in the reflected glory. But like our best athletes, the AIS should not be resting on its laurels. Instead we should be asking: how could the AIS do better?


At Athens 2004, more than half the nearly 500 athletes in the Australian team were present or former AIS scholarship-holders, receiving an amount that The Australia Institute's Richard Denniss estimates to average about $23,000 a year. Thanks in part to the AIS, some of its alumni, such as Lleyton Hewitt, Mark Viduka and Shane Warne, go on to earn seven-figure salaries.


If Hewitt, Viduka and Warne had been stockbrokers, lawyers or doctors, their education would also have been essential to their success. But as their earnings rose, they would have repaid a proportion of the cost of their education to the community that provided it to them, through the Higher Education Contribution Scheme.


Our proposal is a modest one. We suggest that those AIS scholarship recipients whose earnings exceed a certain threshold be required to repay the cost of the scholarships.

To ensure that only the most successful sportspeople are taxed, we suggest fixing the threshold at an annual income of $60,000 - earnings that place them in the top 25 per cent of Australian full-time employees. The threshold would, of course, be indexed to rise with average earnings.


Those sportsmen and women who don't earn enough to place them in the top 25 per cent would not be required to repay a cent of their AIS scholarships, just as those former students who do poorly won't pay any HECS. And like HECS, those doing very well would be asked to pay back their scholarships, through the tax system, so others might have the same opportunities.


How much money would this generate? While it is difficult to forecast precisely, the back of our envelope suggests it would provide enough to expand the size of the AIS by about one-quarter. This would allow the number of AIS scholarship holders to be boosted from about 700 today to nearly 900.


Requiring our most successful athletes to pay back their AIS scholarships to help the next generation is consistent with the values of egalitarianism and fairness that are fundamental to Australia. And it wouldn't hurt our chances in Beijing and beyond either.


Professor Bruce Chapman and Dr Andrew Leigh are in the economics program of the Research School of Social Sciences at the Australian National University.



Nelson takes a leaf out of Bush reform plan, The Australian, June 28, 2004

A suite of school reforms released by a conservative government have prompted substantial debate among educators and parents. The mantra of the package is testing, accountability and choice.

Teacher unions are critical, while the Left seems to be split on whether to bury or praise the reforms.

The story of federal Education Minister Brendan Nelson's school reform package over the past six months? Yes, but also the tale of another controversial education reform package: President George W. Bush's No Child Left Behind legislation of 2002.

The two reforms are so uncannily similar that the Nelson proposals might be better described as NCLB II.

At the core of both packages is regular student testing.

NCLB mandates annual student testing of US children from years 3 to 8, while Mr Nelson has persuaded state and territory education ministers to agree to test all Australian children in years 3, 5 and 7.

Testing underlies accountability, and test score measures can be used to create smarter incentive structures for schools and teachers.

Accountability is another key aspect of NCLB and Mr Nelson's reforms – requiring that all parents be informed of how well their children and their child's school are performing.

Many US states publish detailed information on their websites about the academic performance and socio-economic composition of every school in the state, and NCLB will require this to become universal across the US.

In Australia, the changes are happening more slowly, but with a modicum of resistance, states and territory governments seem to have agreed that parents have a basic right to information about their children's schools.

Research by Harvard University's Caroline Hoxby has demonstrated clear benefits from greater accountability: those US states that gave parents detailed information about the performance of their schools experienced larger test score gains than those states that did not.

Perhaps the most controversial aspect of both countries' plans is their emphasis on choice.

NCLB requires that students in underperforming schools be given free tutoring and assistance in transferring to another school in their neighbourhood.

Likewise, under the Nelson proposals, struggling students would be provided with a $700 voucher to spend on private tutoring (oddly, the voucher will not be means-tested).

Moreover, the Howard Government's reforms to the private school funding formula over recent years appear to have been aimed at making the system as close to a de facto school voucher system as possible. How has the Left responded to testing, accountability and choice?

In the US, NCLB was co-sponsored by Senator Edward Kennedy, an icon of the left-wing of the Democratic Party. And while the package has come under fire from some Democrats (such as Governor Howard Dean), the party is aware that it needs to tread carefully.

NCLB commands significant support among inner-city African-Americans, who have long been frustrated at the state of their children's schools. In a curious parallel, Nelson claims that Aboriginal parents have been among the strongest supporters of his proposed reforms.

The Australian Labor Party is right to support Nelson's proposals, creating a bipartisan consensus for schools policy that is driven by research and results, not stymied by inertia and ideology.

Labor should also remember that the reforms represent a shift in the thinking of their political opponents.

Just as US Republicans argued in 1994 that the federal government had no place in schools policy, so the Coalition's 1993 Fightback! manifesto contained little of the activist educational policymaking now evident in Nelson's reforms.

This is not to say that either NCLB or the Nelson reforms represents more than a starting point for reforming education.

Testing, accountability and choice are all important, but other reforms should be on the agenda too: improving teacher incentives through a carefully designed system of performance pay; raising the school leaving age (as Queensland has done); exploring options for a longer school day; and targeting resources to the neediest schools.


 More police mean fewer mean streets, The Australian, May 11, 2004


With the federal Government unveiling a new community crime prevention program in the budget today, and Labor emphasising community policing, it looks likely that crime may soon become a major federal issue. That well-known state candidate, Laura Norder, may soon appear on the federal ballot too.


While some see politicians talking about crime as a sure sign that good policy is headed for the slammer, a serious debate about tackling crime is long overdue in Australia. In the midst of an era of steady economic growth, an international survey of crime victimisation found that Australia had the highest rate of crime victimisation in the developed world.


According to a survey of 17 developed nations, we came top of the list for assault, burglary, personal theft and sexual assault. One in five people in other developed nations said that they had been the victim of a major crime in the previous year. The figure for Australia was nearly one in three.


Yet while crime in Australia is high and rising, the US has seen the opposite trend. During the past decade, crime in the US has plunged, with violent crime and property crime rates down by one-third during the 1990s. And according to a recent article by the University of Chicago's Steve Levitt, several oft-cited explanations were in fact pretty irrelevant to the reduction in crime.


So-called "zero-tolerance policing" tactics seem to have had minimal impact on crime rates. Strong economic growth might have had a small impact on property crime, but is unlikely to account for any of the change in violent crime. And Levitt dismisses the notion that gun laws mattered much - either in the form of laws allowing citizens to carry concealed handguns, or gun buy-backs carried out by local jurisdictions (since criminals are pretty good at trading guns from one city to another).


So what does explain the fall in crime? The first factor that Levitt credits is the increase in police numbers. Using quasi-experimental evidence, Levitt finds that a 10per cent rise in police numbers cuts crime by about 4per cent. So thanks to several major state and federal initiatives during the past decade, more police on America's streets meant less crime.


Second, the growing prison population has had a major effect. With longer and stricter sentences, the US presently has more than 2million of its citizens behind bars. This lowers crime both by incapacitating existing prisoners and by deterring would-be criminals from committing crimes. But while building more jails cuts crime, Levitt warns that incarceration has its own risks. Imprisoning a large fraction of young African-American men may keep crime down today, but at the cost of rising social problems tomorrow.


Third, a fall in drug-driven crime played a notable part in the overall crime drop. As any fan of Miami Vice or Beverly Hills Cop will know, the crack cocaine epidemic of the late-1980s was responsible for a large portion of the rise in inner-city violent crime in the US. But since the mid-'90s, stiffer penalties for crack use have deterred existing users and turf battles between drug gangs have become less common.


Lastly, Levitt argues that the legalisation of abortion in the early '70s helped reduce crime two decades later. This controversial theory rests on two premises - that unwanted children are more likely to grow up and commit crime, and that abortion reduced the number of unwanted births. Using variation in abortion rates across US states, Levitt concludes that nearly one-quarter of the total decline in crime during the past decade can be attributed to the legalisation of abortion. My own research (with Stanford University's Justin Wolfers) suggests that the same may be true for Australia.


So according to Levitt, America's crime success comes down to more police, more prisons, less crack and legalised abortion. On prisons and abortion, there is little for Australian policymakers to learn. Abortion is de-facto legal throughout the nation, and we are probably at the point where the social gain from increasing the jail population would be outweighed by the scarring effect of incarceration.


But on police and drugs, US criminologists may have something to teach us. Innovative policing, it seems, matters less than the pure number of police on the streets. And while crack-related crime was falling in the US, heroin and amphetamine-related crime was rising in Australia. Finding new ways to restrict the prevalence of hard drugs may help Australia bring crime down in the future.




Add a year abroad, for a richer education, Sydney Morning Herald, 11 May 2004


Our focus on short vocational degrees means Australians are missing out on studying overseas, writes Andrew Leigh.


As anyone who's travelled knows, Australians are famously peripatetic. From Kensington to Kabul, Seoul to San Francisco, you're sure to come across a friendly accent if you stay in town for a few days.


But as yesterday's Herald revealed, a surprising feature of our overseas population is how few Australians go abroad to study. With only about three in 1000 undergraduates on overseas exchange programs in any semester, it seems likely that only about 1 per cent of Australian students end up having the chance to enjoy an overseas study experience during the course of their degree. And while a few of us later leave the country for postgraduate study, this is far from the norm.


So why are young Australians intrepid backpackers, yet reluctant overseas scholars? Part of the explanation surely lies in our reluctance to move far to attend university - nine out of 10 students attend a university in their home state or territory. Another factor is the strongly vocational nature of Australian university degrees, in which students are channelled into highly focused courses from the start.


This stands in contrast to the Canadian and US system in which students apply to universities, not particular degrees, and choose their major only at the end of the first year. This system provides greater flexibility for students to take a semester studying abroad, without fearing that they will fail to graduate on time.


How might Australia boost the number of students on exchange programs? One option would be for universities to follow the lead of the University of Technology, Sydney, which offers a bachelor of international studies that incorporates a full year at an overseas university (disclosure: my mother works with this program).


Students in the UTS program add an international studies year on to their regular degree in arts, science, engineering or nursing. With tens of thousands of foreign students paying full fees to study in Australia, shouldn't other universities consider tapping these resources to allow domestic students the opportunity to spend a semester overseas?


A second solution would be to allow students whose parents are unable to assist them with overseas study to use the Higher Education Contribution scheme (HECS) to pay for the tuition, travel and living expenses associated with time abroad. Just as HECS has recently been extended to those who wish to complete a master's degree, so we should expand it to cover those who wish to deepen their undergraduate education.


We might even consider whether Australia's systems of narrowly vocational three-year degrees is appropriate for the rapidly changing job market of the 21st century. Four-year degrees, with students given the flexibility to choose their specialty at the end of their first year, might give them the breathing space to consider overseas study, as well as the time to gain a more rounded education.


Study abroad can deepen and enrich the university experience in many disciplines. A semester studying in Beijing may equip a business student to negotiate across cultural lines. A stint in Florence could enable a budding history teacher to bring the past to life for his class. And a semester in San Francisco might help a computer science student realise how to transform her ideas into reality.


International study provides an opportunity to form lasting overseas friendships, breeding tolerance and trust across national borders. Australian universities have a mission to create global citizens; giving students the chance to study overseas is one way they can fulfil it.




Assistance to industry needs new strategies, Australian Financial Review, 3 March 2004 (with Richard Holden)


The fallout over sugar’s exclusion from the Australia-US free trade agreement has once again put the spotlight on the question of how much money the federal government should devote to industry assistance. An honest and open debate over industry subsidies – including sugar – will be healthy for Australia. But it should not be restricted to federal aid. In our view, the most serious flaw in our system of corporate welfare is the interstate bidding war among states and territories.


To see how industry policy now works, imagine if states and territories offered the same incentives to people that they now offer to firms. Bored with your current address? Perhaps you’d like to consider Queensland’s tempting offer of an $11,000 property tax rebate? Or Victoria’s offer of $11,000 in theatre subscriptions? Or the Northern Territory’s unique offer to pay your first $11,000 in speeding fines?


If this sounds crazy, it shouldn’t. If the total amount of state and territory government money given as incentives to firms was instead divvied up among those who move interstate each year, it would amount to about $11,000 per person. And despite the tenuous truce signed last August, there is every reason to think that state industry assistance will continue apace. After all, the most aggressive provider of corporate welfare, Queensland, refused to sign up to the deal.


Total industry assistance by state and territory governments amounts to $3.3 billion annually – nearly as much as is spent on policing. As Productivity Commissioner Gary Banks has pointed out, the rationale for much industry assistance is rather muddy thinking: “investment is beneficial, so subsiding investment must also be beneficial!”. Instead of paying high-profile companies to relocate, states and territories should concentrate on improving the business environment for all firms, regardless of whether they are as sexy as the biotech industry, or rich enough to hire as many lobbyists as Richard Branson.


Troublingly, our research suggests that there is a political cycle in industry assistance. Comparing Productivity Commission figures for industry assistance in 2000-01 and 2001-02 (the latest figures available), we found that in an election year, state governments raised corporate welfare by an average of 33 percent. By contrast, in non-election years, industry assistance seems to be basically unchanged. Governments seem to be hoping that splashing around a little extra pre-poll cash will help endear them to the punters.


While corporate welfare may provide a clear benefit to politicians, it is far from clear that the benefits that taxpayers receive from industry assistance outweigh the cost. Industry assistance is typically designed for maximum media coverage, and minimum transparency. Watching the behaviour of some state Premiers, it’s hard not to feel like they’re buying you a lavish birthday present with your own credit card… and then hiding the bill.


One valid rationale for assistance is to mitigate the potentially devastating effects of structural unemployment when large employers shut down operations, affecting large numbers of people in particular cities (BHP and Newcastle quickly come to mind). Providing assistance for retraining and relocation of redundant workers is extremely important. In limited circumstances, it may even be preferable to provide assistance directly to the firm so that they remain viable. But this assistance should be provided by the federal government, ensuring coordination, and preventing a race-to-the-bottom competition between states.


We propose two alternatives to the current industry policy. First, we should demand transparent, quantifiable statements of the benefit that an industry assistance package is expected to bring to the taxpayer. Voters deserve better than the lazy claim that “Thanks to our help, Pete’s Pork will create 100 new jobs”. The media has an obligation to probe further. How many jobs would have been created if the government gave nothing? How many will simply be diverted from surrounding firms? And how much will each job cost the taxpayer? With public expenditure comes public accountability, and commercial-in-confidence should not be a smokescreen for governments. We should make sure that politicians make quantifiable claims, so our state auditors-general can follow up on them in years to come.


A second alternative would be for states and territories to replace industry assistance programs with more direct forms of job creation. Here, the best strategy would be for states to create an earned income tax credit – a work subsidy to make employment more attractive for low-wage workers.


Like the Five Economists’ plan put forward in 1998, state-based income tax credits would have the advantage of bringing down long-term unemployment, while transferring money to the working poor. The money could either be paid as a direct state wage subsidy, or administered by the federal government through the income tax system.


Wage subsidies have been proven to be effective in the US. About one-third of US states currently offer some form of tax credit to low-wage workers, and state income tax credits have been shown to lower poverty and unemployment. With Labor governments now in power in every state and territory, the heirs to Ben Chifley might consider which approach he would have preferred: selective tax breaks to large corporations, or wage subsidies for all low-paid workers?


In its current form, industry assistance is clearly good for politicians, but is it really in the interests of voters? With a bit more hard thinking from policymarkers, and scrutiny from journalists, we might well find that there are smarter ways of creating jobs for those who need them most.


[This is an unedited version of the op-ed published in the AFR]


Count the cost of higher minimum wage, Australian Financial Review, 14 January 2004


Setting the federal minimum wage is a balancing act. On the one hand, a higher minimum wage improves the living standards of thousands of working Australians. At the same time, raising the minimum wage may cost jobs. To get the balance right, we need to know whether a higher minimum wage causes employment losses that are large, small or non-existent.


To date, much of the Australian debate over minimum wages has centred on findings from a controversial US study. Comparing employment rates in New Jersey and Pennsylvania after a 1992 rise in the New Jersey minimum wage, economists David Card and Alan Krueger found that there the minimum wage rise had zero impact on low-wage workers.


Even those who criticise this study tend to agree that the employment cost of boosting the US minimum wage is fairly small. Most US labour economists believe that a 1 per cent rise in the minimum wage would decrease employment by between zero and 0.25 per cent.


Given that Australian minimum wages are higher (compared with median earnings) than US minimum wages, translating this research into the Australian context is not straightforward. In recent years, the Australian Industrial Relations Commission has borne witness in its annual minimum wage case to polarised arguments from both sides.


While the Australian Council of Trade Unions contends that raising the minimum wage has zero effect on unemployment, employer groups and the federal government argue that the cost could be much higher, citing a 1998 Productivity Commission study that found that a 1 per cent rise in the minimum wage causes youth employment to fall by up to 5 percentage points (a figure so high as to be scarcely believable).


In an effort to more precisely estimate the employment effect of Australian minimum wages, I adopted an approach similar to Card and Krueger, exploiting what is known as a “natural experiment”. While minimum wages in most states move in concert, Western Australia under the Liberal government of Richard Court was unique in setting its own statutory minimum wage, meaning that increases in the WA statutory minimum wage did not coincide with increases in the rest of Australia. In experimental terms, WA was the “treatment” group, while the rest of the nation served as the “control”.


This allowed me to ask the question: do we see a difference in employment rates between WA and the rest of Australia when WA raises its minimum wage? Aggregating the results from six increases in the minimum wage, it appeared that a 1 per cent rise in the WA statutory minimum wage was associated with a 0.13 percentage point fall in employment. This suggests that the employment effects of Australian minimum wages are around the midpoint of estimates for the US.


Though some may be disappointed to discover that the employment cost of raising the minimum wage is not zero, they should instead be heartened to learn that the cost is relatively low. These findings indicate that modest increases are not likely to cause significant employment losses.


What does this mean for both sides’ claims in the 2004 minimum wage case? While the ACTU is calling for a 6 per cent increase in the federal wage floor, the federal government is likely (based on its submissions in recent years) to call for about a 2 to 3 per cent rise. My findings suggest the ACTU’s claim would result in a 0.8 percentage point fall in employment, while the government’s would cause a 0.3 percentage point drop.


Only half a percentage point separates the employment effect of the two claims a relatively small amount, given that the employment rate often moves by this amount from one month to the next due to seasonal variation. The employment costs of raising the minimum wage appear relatively small, while the chance to provide a boost to the incomes of the working poor is real.


The evidence from the West Australian minimum wage experiment appears to provide support for regular, moderate increases in the federal minimum wage.


Lies and Statistics, Australian Financial Review, 20 December 2003 (with Justin Wolfers)

How likely is Mark Latham to win the next election? Early polls point to a real chance of success; various pundits describe him as a risk.

To parse out honeymoon effects from real effects, we need a more reliable indicator than the polls - one that helps reveal Latham's true potential in the 2004 election.

In an article published in the Australian Journal of Political Science last year, we argued that betting markets provide such an indicator. In the 2001 federal election, the daily odds posted by Centrebet, Australia's largest private bookmaker, predicted voting patterns far better than any pollster.

By forcing punters to put their money where their mouth is, we learn their true feelings. And with powerful financial incentives in play, the betting market aggregates information across the nation's political pundits, insiders and informed gamblers.

According to the betting market, Latham was a sound choice for the ALP. That Simon Crean's number was up was clearly reflected in the odds: he had drifted in the betting, with the probability of a Labor victory in the next election falling to 28 per cent just before his resignation.

These odds remained unchanged when Crean announced his resignation, indicating that the ABC slogan ("Anybody But Crean") was not supported by the betting market.

Following Latham's elevation to the leadership, many press pundits initially thought that the ALP caucus had pulled the wrong rein - so too did the bookies, letting Labor's odds drift further to a 25 per cent chance of winning.

But it seems that the punters disagreed, and there has been nearly $20,000 bet on Labor since, with the latest odds of a Latham prime ministership improving to 33per cent (about the same as John Howard's odds six months before the 2001 election).

Centrebet's Gerard Daffy admitted that "we got it wrong", suggesting that Latham "has been fairly impressive to date".

The betting odds can also suggest what would have happened under Kim Beazley. If the pre-ballot probability of a Labor win (28 per cent) reflected an average of the election-winning abilities of candidates Beazley and Latham, we can infer from the fact that, with Latham as leader, Labor is a 33 per cent chance, and that Beazley would have been about a 23 per cent shot.

According to the punters, the Labor caucus backed the more likely winner.

As for opinion polls, our research suggests that long-range polls are generally so inaccurate that they are best ignored.

While polls taken a year before an election have predicted vote shares with an average error of about 5 percentage points, simply guessing that previous election's results will recur is about as accurate, and guessing that the election will be close actually yields more accurate predictions.

So if you want to predict the outcome of the next federal election, remember, the current favourite in the election forecasting stakes isn't the polls - it's the bookies.


Nelson effort needs more creative grip, Canberra Times, 26 November 2003


The recent entry by Federal Education Minister Brendan Nelson into the school-quality debate has shown that he is willing to wrestle with his state colleagues over issues traditionally outside the ambit of the Federal Government.


In a carefully researched speech, Nelson touched on issues of closing failing schools, implementing nationwide standards and publishing more data on schools.


But what we've seen so far can only be described as a "half-Nelson", a collection of ideas that may make some small difference, but are unlikely to really boost the quality of our schools.


If Nelson is serious about being remembered as one of Australia's great reformers, he should use his position as the nation's most senior education policy-maker to present some truly radical ideas about education.


He should tackle the issue of low school completion rates. Today, only six out of 10 Australians have completed high school, compared with eight out of 10 Canadians, Germans and Americans.


The school leaving age in most Australian states is 15, unchanged since the 1960s, and below the leaving age in most other developed countries. Researchers have shown that teenagers often make short-sighted decisions to drop out of school. Where compulsory schooling laws bind, an extra year of school boosts lifetime earnings by 10-15 per cent. Australia should follow the lead of several other developed countries and raise the school leaving age to 17.


Next he should improve school quality by engendering a culture of policy experimentation. Australia has never conducted a randomised trial of a serious education policy initiative. Forced to choose between inaction and full-scale implementation, many promising policies are simply scrapped. Yet finding out what works, and what does not, allows us to better direct scarce educational resources where they can do most good. The Federal Government should provide fiscal incentives to state governments to test creative policies and assess them through randomised evaluations.


Politicians should also speak the truth on class-size reductions. Nelson ought to encourage Australian politicians of all stripes - particularly his NSW Liberal colleagues - to read the research on class sizes. Although intuitively appealing to voters, careful studies have shown that once class sizes drop below 30, there is little benefit from further reductions.


To see how this might be the case, imagine an analogous situation in the medical world. If we reduced the doctor:patient ratio in a ward from 1:25 to 1:20, we might improve patient care, but we could merely increase doctors' leisure time.


Likewise, research suggests that lower class sizes make teachers happier, but do little to improve student learning. In one of the leading class-size studies, Harvard's Caroline Hoxby looked at variation in student achievement from natural fluctuations in Connecticut class sizes and found that the impact of smaller classes was precisely nil.


Another prominent study, by Princeton's Alan Krueger, looked at a randomised trial in Tennessee. While Krueger found that smaller classes improved student achievement, the magnitude of the effect was minimal. Reducing class sizes by 25 per cent brought about a tiny gain in test scores - only one-fifth as large as replacing a low-performing teacher with a high- performing one. It is time Australian politicians climbed off the class-size- cutting bandwagon.


A more effective reform would be to make teaching more rewarding - by raising pay rates for our best- performing teachers. Each of us remembers the teacher who inspired us to read a new author, helped us understand calculus or made history come alive.


Yet it is difficult to think of another profession in Australia with less of a link between pay and performance. Australia's teachers face a flatter pay schedule than in most other developed countries, creating a perverse incentive for the best teachers to leave the profession after their first 10 years. And while principals are required to assess their teachers annually, a report by the NSW Auditor-General in May found that 99.6 per cent of teachers were given the highest possible rating.


A good performance-pay system should be based on multiple criteria. These could include the increase in students' test scores from one year to the next, an annual knowledge exam, classroom observation by an independent expert, an interview with the teacher, and separate questionnaires from parents, peers and principals. Rewards need not only be financial - they could also include higher status and responsibilities.


For all the talk of clever countries and knowledge nations, Australia has been remarkably timid on the issue of school reforms. It is time we moved on from class-size cuts to consider raising the school leaving age, rigorously testing new policies, and implementing performance-based teacher pay.


Brendan Nelson's report card so far reads: "Promising effort. Not afraid to speak in class. More creativity required."




Costello's call on social capital, Canberra Times, 24 July 2003


Peter Costello’s musings last week signal his engagement with the critical issue of social capital. And not before time. Researchers know that neighbourhoods with higher levels of trust and civic participation tend to have more effective governments, lower crime rates, better education systems, and more rapid economic growth. Every serious policymaker should be a social capitalist.


Today, Australia’s social fabric is in need of repair. Since the 1960s, unions, political parties, and churches have suffered declining membership. Trust in politicians has also fallen, with one in five Australians saying that politicians had high levels of ethics and honesty in the 1970s, and only one in ten agreeing by 2000. And particular challenges exist in some parts of Australia – my own research suggests that people are less likely to trust one another in poorer and more ethnically heterogenous communities.


But the real challenge is what governments can do to boost social capital. If Mr Costello wants to make his mark on this debate, he needs to move from talking about the problem, to actually proposing some solutions.


First, the Mr Costello should consider the effect that workplace reforms have on our ability to spend time with others. In a recent article directed at policymakers in Britain and America, Professor Robert Putnam and I argued that the work-family balance is one of the most important factors behind creating strong communities. In Australia, 30 percent of our workforce hold part-time jobs – the second-highest proportion in the OECD. While part-time work provides flexibility to employees and efficiencies for firms, it comes at a cost for social interactions. Non-standard work hours can prevent families from sitting down to dinner together. And when working hours are unpredictable, it becomes harder for people to get involved in parent-teacher organisations, neighbourhood watch, or join a political party.


Second, the federal government should create a domestic version of the highly successful Australian Volunteers International program. Founded in 1963 by Herb Feith and others, AVI has since sent thousands of young volunteers to work in communities throughout the Asia-Pacific. A domestic counterpart – call it AustraliaCorps – could help revitalise flagging community groups throughout the nation. To really boost civic engagement, AustraliaCorps should create positions for 5000 young Australians to volunteer for a year in a needy community, in return for an education credit. Volunteers could work with local bodies implementing after-school programs, refurbishing community facilities, and assisting indigenous communities.


Third, Mr Costello might turn his browser to craigslist.org and meetup.com, two websites that help community groups to get organised. Anyone from political activists to dog lovers can find like-minded souls who live in their local area, and hire a suitable venue in which to hold their meetings. Unlike internet chat groups – which are content to stay in the virtual world – these sites use the web as a tool to facilitate face-to-face interactions. With only modest seed funding from the government, Australian versions could provide new recruits for struggling civic organisations, and foster hundreds of new groups.


Fourth, federal politicians should tackle declining trust by reforming question time. For ordinary voters, it is the main window into how politicians behave on the job – and many are appalled. And reasonably so: no citizen should have to look at their political leaders and say “I wouldn’t let my children behave like that”. By contrast, in the British parliament, the questioning is equally rigorous, but interjections and catcalls are rare – proving that parliamentary accountability does not necessitate a daily slanging match. Indeed, Australian voters are so sick of question time that the party which makes a clear statement that it intends to transform its behaviour in question time (and sticks to its word) could reap a substantial electoral windfall. More importantly, the long-run result would be to increase trust in politicians, an important element of building civic engagement.


Mr Costello should not be derided as a late entrant to the social capital debate, and he is right to tread carefully. Using the public sector to boost civic engagement is a delicate balance. Government needs to create the conditions for families to spend more time together, without unduly limiting the freedom of workers and firms to make arrangements that suit them best. It needs to facilitate community groups, without establishing a cycle of dependence. And reforming question time is no easy task. Yet the decline of social capital is one area where Mr Costello should not be tolerant – it’s time to do something about it.




Safer for owners, not for others, Canberra Times, 4 July 2003 (also published as "Beware the arms race on our roads", The Age, 9 July 2003)


The rise in numbers of suburban four-wheel-drive utility vehicles has fuelled a fiery debate over road safety. Supporters say that one of the biggest attractions of these cars is their safety. Opponents say they make the roads more dangerous for other drivers. Who is right?

The answer, it seems, is both. According to a new report from the Monash Accident Research Centre, which analysed data from over a million Australian crashes, four-wheel-drives both reduce injury to their owners, and raise the risk to everyone else.


The researchers considered a range of factors, including the speed of the crash, when and where it occurred, and the age and sex of the drivers. The study did not take into account the risk to pedestrians.


From the perspective of their occupants, four-wheel-drives helped save lives. For every 1000 crashes they were involved in, 32 drivers of four-wheel drives were killed or hospitalised. For every 1000 crashes drivers of medium-sized cars were involved in, 36 suffered the same fate.


So by buying a four-wheel-drive instead of a medium-sized car, your risk of death or serious injury in a crash falls by four in 1000.


Next, the researchers looked at "aggressivity" - the damage different types of vehicles inflicted on other road-users.


For every 1000 crashes involving four-wheel-drives, 32 drivers of other vehicles were killed or put in hospital. By contrast, only 21 other drivers were killed in or hospitalised after an accident with a medium-sized car.


So if you crash after trading in your modest medium-sized car for a chunky four-wheel-drive, the chance that you will kill or hospitalise the other driver increases by 11 in 1000.

The net result? Four-wheel-drive buyers are making themselves safer, but the cost is being borne by other road-users. For every serious injury or death that is saved by buying a four-wheel-drive vehicle, nearly three more result.


This simple statistic explains much of the rise in sales of four-wheel-drives. In 1980, one in 50 new cars sold was a four-wheel- drive utility vehicle. Today the figure is one in seven, and most new sales are in urban areas. With more four-wheel-drives there are on the road, the more other drivers begin to wonder whether they should buy one too.


In the United States, this has led to the proliferation of larger and larger vehicles, in what University of California, San Diego, researcher Michelle White has dubbed "the arms race on American roads".


At the core of the problem is that four-wheel-drive owners do not internalise the full costs that their vehicles impose on society. Our publicly funded health-care system spreads the costs of hospital care across taxpayers, while in Victoria, Tasmania and the Northern Territory, no-fault or part-no-fault insurance spreads the cost of accidents across all drivers.


An anomaly in Australia's tariff regime means that four-wheel-drive buyers also benefit from a tariff rate 10 per cent lower than the import duty on passenger cars - effectively a tax break for those who buy more dangerous vehicles.


One solution would be, until all vehicle tariffs are reduced to zero, for new four-wheel-drives to bear a tax equal to the difference between the tariffs on cars and four-wheel-drives.

And state governments should adjust registration charges so that four-wheel-drive owners pay the full cost that their vehicles impose upon others. If it can be shown that four-wheel-drives cost fewer lives in sparsely populated rural areas, the impost should be lower in these places.


One of the great successes in Australian public policy has been our ability to bring down the road toll.


Thanks to random breath-testing, seat-belt laws, airbags, and tough enforcement of speed limits, the fraction of the population killed on our roads each year is half of what it was in 1985.


By stemming the four-wheel-drive arms race, we can keep this deathly figure from rising again.




Slim hopes for a culture that lacks self-control, Sydney Morning Herald, 15 May 2003


With everyone from fashion models to cricket stars worrying about their waistlines, battling the bulge is a national obsession. Open the pages of any women's magazine, and you're sure to be bombarded with suggestions on how to lose a few kilos. And yet, researchers still disagree over the most basic question - why are Australians getting fatter?


The two contending explanations are energy intake and energy use. While some argue that the biggest change of the past few decades has been in diets, others claim that the major shift has been in how we exercise.


Now, a study from the United States - the world's podgiest country - provides an answer. Three Harvard economists - David Cutler, Ed Glaeser and Jesse Shapiro - say most of the rise in obesity is due to higher food consumption, largely caused by changes in food technology.


Over the past few decades, obesity (defined as having a body mass index over 30, as compared with the healthy range of 20 to 25) has become as American as apple pie. In the 1970s, 16 per cent of Americans were classified as obese. Today, the figure has risen to 30 per cent.


But Australia is up there on the fat league tables. With a hefty 19 per cent of adults classified as obese, the OECD ranks us fourth among developed countries (behind the US, Britain, and Germany). And although we lack good data for the 1970s, we do know that obesity in Australia has risen steadily since the start of the 1980s. So a theory that explains the increase in US obesity may well have some insights Down Under.


Until Cutler, Glaeser and Shapiro came along, one of the leading theories on American obesity had been that of the University of Chicago's Thomas Philipson and Richard Posner, who argued that changes in the amount of energy spent on the job and commuting to work accounted for the rise in obesity. Yet as the Harvard trio point out, most of the changes into physically passive occupations had taken place by 1970.


Using detailed evidence from "time diaries", they then go on to show that changes in exercise patterns over the past 30 years have been fairly minimal. Over the past 25 years, the average American has gained about five kilograms. For this to be explained by exercise, Americans would have to have reduced their energy usage by the equivalent of two kilometres of walking per day. No such shift has occurred.


Other popular theories, such as television-watching, rising incomes, increasing rates of eating out, and rising female labour force participation are also rejected.


The big news comes when the Harvard researchers look at changes in energy intake. While the amount of kilojoules consumed at dinner has fallen, breakfasts and lunches have more kilojoules, and the amount of energy consumed through snacks has nearly doubled. Overall, the amount of available food per person in the US has risen markedly over the past few decades (adjusting for exports and wastage). On a kilojoules-per-day basis, the average American is guzzling the equivalent of a can of Coke more than in the 1970s.


Why are Americans consuming more? Because kilojoules are tastier, cheaper, and available more quickly than ever before. Since 1970, a dazzling array of food technologies have helped to reduce the time between when we want a snack, and when we can eat it. Stretch-wrap films, controlled atmosphere processing, advances in artificial flavouring and the widespread availability of microwave ovens have cut preparation times dramatically over the past 30 years. Cream-filled cakes - once the product only of ambitious cooks - are now available for only a few dollars. Tasty biscuits can be kept fresh enough to sell through a vending machine.


For most of us, these advances in food technology have been a boon, allowing us to spend less time preparing food, and more time on work or leisure activities. But for those with lower levels of self-control, or people with addiction problems, the changes have come at a cost. As Cutler, Glaeser and Shapiro argue, if the vending machine is 10 metres away, a person on a diet might have a mid-afternoon snack. But they are much less likely to have the snack if it requires a 10-minute walk to the corner store.


Across the developed world, countries that have restricted the availability of new food technologies tend to have lower levels of obesity. But it is unlikely that Australia would want to turn the clock back on microwaves, vending machines and tastier foods. Shapiro argues instead for a carefully targeted awareness campaign, focused on those who are most vulnerable.


With medical researchers now linking obesity to higher rates of heart disease and cancer, understanding its causes has more than cosmetic implications. And it may also affect our society in other fundamental ways. Amid rising weights across the developed world, both men and women say that their ideal partner is thinner than 30 years ago. Food technology and fashion, it seems, are pulling us in different directions. Eventually, something may have to give.




Health's price must be right, Sydney Morning Herald, 14 April 2003 (with Richard Holden)


Earlier this month, the Howard government announced a plan to reform Medicare. At the core of its proposals was the suggestion that doctor's visits should no longer be free. In our view, the government is right to try to tackle this problem. But its prescription is flawed. The snake-oil it is selling could spell disaster for a large number of Australians, and will have highly counterproductive effects on public health in general.


At the heart of the problem is that in healthcare, as with other goods and services, free provision leads to over-consumption. As health researchers have shown, costless medical care means that people go to the doctor even when they don't need to, driving up the cost for all of us.


But there's a better way of operating a health system, and the change should hardly hurt at all. As economists have shown, the ideal model involves a small co-payment - not enough to put a dent in your weekly budget, but enough to make you think twice before you call the doc. And the idea is hardly radical. Countries with a co-paying public health system include Austria, Belgium, Finland, France, Germany, Greece, Iceland, Ireland, Italy, the Netherlands, Norway, Portugal, and Sweden.


So if a co-payment is a good thing, why not applaud the government's plan? The problem is that, as it currently stands, the government's proposal is to allow GPs to charge any co-payment amount. It is therefore likely that the co-payment amount will end up as the difference between the current bulk-billing rate, and the average non-bulk-billing rate: $12. In Sydney and Melbourne, the co-payment may be $20 or more.


The Howard government argues that the benefit of such a scheme are that it will help pay to raise the wages of rural doctors - but it is unclear why urban battlers should bear the brunt of this change. Although pensioners are exempted, low-income workers will be most likely to cut back on visits to the doctor. For them, $12 is a reasonable chunk of change - about one-seventh of a day's earnings for a minimum wage worker. And since 71 percent of Australians currently go to bulk-billing GPs, this is a drastic reduction in equity.


What is the right co-payment rate? The key with any co-payment system is to set it at a level that deters frivolous visits, but doesn't run down preventive healthcare. Catching diseases such as cancer and heart disease at an early stage dramatically improves the likelihood of survival, and is far less costly than treating patients when the disease has become more advanced.


The Howard government should learn from the successes and failures of its predecessors. In 1991, Australia introduced the perfect co-payment system - $2.50, with exemptions for certain groups. This scheme was widely recognised as effective in keeping down excess visits. Yet it was scrapped in 1992, an unlikely casualty of the Hawke-Keating leadership battle.


Converting the 1991-92 scheme into today's money would be equivalent to $3.50 - substantially less than the current Howard plan. It would be enough to deter frivolous GP visits, but not enough to limit genuine preventive care. Everyone, including pensioners, should pay it, with welfare benefits and pensions increased to compensate for the extra burden. Those who are chronically ill could receive an exemption from the co-payment altogether.


Finally, the government should indeed provide its $18,500 incentives for GPs in regional areas. But this should be funded by an increase in the Medicare Levy, rather than a dangerous and unfair cross-subsidy from battlers.


The government has correctly diagnosed two of our health system's ailments - the lack of a co-payment, and the lack of incentives for doctors to move to the bush. But the medicine it has prescribed may do more harm than good. It's time we asked them for a second opinion.




Policy Improves by Putting Rhetoric on Trial, Sydney Morning Herald, 5 March 2003 (with Justin Wolfers)


One of the new mantras among policy wonks has been "evidence based policymaking" - the notion that policy ideas should stand or fall on the basis of research and trials, rather than opinion polling and supposition.


Overseas, this has led to some startling discoveries. Young driver education programs, once thought to reduce road deaths, actually turned out to increase them - by encouraging high school students to drive at a younger age. Moving to Opportunity, a US program that provided housing vouchers for poor people to move out of ghettos, dramatically improved the health of children and their parents. And studies on class sizes have cast doubt on earlier assertions that across-the-board reductions boost students' test scores - as a recent report by the Centre for Independent Studies has shown.


The lesson is that policies, like medical interventions, can be put to the test - saving millions of taxpayer dollars, and improving the quality of government. To be effective, evidence-based policymaking relies on policy trials, which simulate the randomised conditions of a laboratory experiment, and access to high quality data. Unfortunately, both are largely absent in Australia.


As the NSW election campaign has demonstrated, politicians are about as ready to engage with policy trials as with redheaded fishmongers migrating in from the north. The parties, it seems, are big on rhetoric, but not on putting their ideas to the test. If the Coalition believes that Parenting Partnerships will reduce conflict in schools, they should propose a one-year experiment - randomly implementing them in 100 schools, and reporting on whether schools with partnerships have better test scores and retention rates. If the Greens believe that dispensing heroin is the way to go, they should suggest comparing the outcomes of a group of addicts who are eligible for it with a group who are not. And instead of watching incarceration rates skyrocket, Labor could trial and test training and rehabilitation policies in different jails, to see which does best at helping ex-cons find jobs.


The only example of evidence-based policymaking that we are aware of in NSW was last year's Drug Court evaluation. Carefully administered, the research has provided powerful evidence that the court provides a more cost-effective solution than the traditional judicial system. At least it's a start.


Why don't we see more randomised trials in Australia? One impediment is a cultural attitude that government services are an entitlement, and therefore must not be rationed. Yet it is time that this conventional wisdom was balanced against the benefits that can flow from careful pre-testing of government programs.


Even as Australians have started to embrace testing, our institutions have failed to follow, denying access to data, or imposing hefty fees. By contrast, the United States statistics bureaus apply a simple rule to their data: if the public answered the questions, the public have the right to analyse the data. And these inputs sustain a proliferation of thinktanks that debate policies based on outcomes, rather than conjecture.


But in Australia, the picture is transformed. The Australian Bureau of Statistics makes virtually no data of any complexity freely available. Vast stores of intriguing data are aggregated into bland facts for publication in the yearbook, rather than released for primary analysis. When researchers cannot track individual education, health, crime and labour market experiences, we lose the ability to make subtle judgements about policy effectiveness.


Charging for statistical data is a policy that is hard to rationalize. Simple economics tells us the price that should be charged for "public goods" - such as clean air, street lighting, or national defence - is zero, otherwise these public resources will be underused. In the case of data, there is an extra public benefit: good research leads to better public policy.


As much as it pains two economists to say it, we are talking about a free lunch. Leading researchers from around the world are naturally drawn to the best and most detailed data.


The ABS currently collect the best data - the problem is that they will not release it. It is a sure bet that if the ABS starts to release these data, then top researchers - including our colleagues at Harvard and Stanford - will start to analyse them, providing free insights to Australian policymakers.


Hence we offer this twin challenge: First, Australia's federal politicians - of all political persuasions - should commit to providing the ABS with the extra $7 million required to abolish data access fees, and commit to opening up the databanks. Second, new policy proposals should be subject to random trials before being funded. The cost of policy mistakes is surely greater than that of small-scale random trials. And NSW should take the lead.


To those who don't sign on, we say: "chicken". One can barely disagree on cost grounds. Rather, the fear must be that with real evidence, voters might discover that reality does not match political rhetoric.


[This is an unedited version of the op-ed published in the SMH]




Bushfire toll shows need for compulsory home cover, Sydney Morning Herald, 4 February 2003 (with Richard Holden)


As the cost of another summer's bushfires rapidly rises, the effect is being felt most strongly among the uninsured. With a quarter of Australians lacking home insurance, some have begun to ask whether everyone should be required to protect themselves against such losses.


John Howard has been quick to argue against any such scheme. Asked recently whether, in light of the tragedies in Canberra, the time had come for compulsory home insurance, he replied, "No, I don't. I think it's always a danger when something like this happens, to irretrievably embrace a new level of compulsion, and I'm not certain that I'd pick that up."


According to Howardnomics, the principle is clear. Just as the government shouldn't intervene to prop up faltering companies like Ansett and HIH, it shouldn't force people to buy insurance. Yet unlike saving failed companies, there is a very sound economic case for government intervention in the market for home insurance.


In Sydney, the most expensive city in the nation, the median home is valued at $388,000. The cost of home and contents insurance is about one quarter of 1 per cent of this - less than $1000 a year. Compared with other developed countries, Australians have a very high proportion of their wealth in real estate (64 per cent on average), making uninsured individuals particularly vulnerable to natural disasters.


Yet in making the decision on whether to buy insurance, home owners take into account the fact that if their house is destroyed, the government will help them out. And for the government, it is politically (and perhaps morally) impossible not to do so.

So why buy insurance if the government will give it to you free? Admittedly the government assistance might not fully replace one's home and you are unlikely to get much if you are the victim of random arson rather than part of a large natural disaster. This is presumably why most people buy insurance. But for the quarter who do not, the prospect of government assistance, even if it is incomplete, may be enough to tip the scale in favour of no insurance.


What most of us think of as compassion towards victims of tragedy also leads to what economists call a "market failure". And when the market has a glitch in it, the Howardesque anti-compulsion argument no longer applies. Government intervention can improve things, rather than make them worse.


The same effect can be seen in other situations too. Because society knows it will have to take care of victims of motor accidents, we require everyone driving a car to take out insurance against the damage they may do to others. Because we know that we will have to pay a pension to those who lose their savings, we stop them accessing their superannuation until retirement. And because the government knows it will have to bail out failing banks, we all pay what amounts to compulsory deposit insurance through government taxes on bank transactions.


Two solutions would help tackle this problem. In the short term, state governments which impose an emergency services levy on home insurance should replace it with a universal levy. There is no logical reason why only those with insurance should bear the cost of paying for emergency services, driving up premiums, and reducing the number of insured still further. In December, Western Australia took this step. It is time for other states to follow suit.


In the long term, states should implement compulsory home insurance. The procedure would be quite straightforward. Thanks to the Torrens system all property titles must be registered - somewhat like cars are. Owners could easily be required to provide evidence of insurance on an annual basis, just like they do for car registration renewals.


When markets fail, the government has an obligation to get involved. The market for home insurance is clearly broken - and made worse by special taxes on those who take out insurance. Compulsory home insurance is government intervention, that's for sure. But in this case it is good economics as well.



US model for policy academy, The Australian, 15 January 2003 (with Allan Fels)


The Australia and New Zealand School of Government, to open at the University of Melbourne, demonstrates the commitment of Australia's political and academic leaders to improving the quality of public policy and public debate.


One of the criticisms that has been raised is that the school, established by a consortium of governments and universities, risks becoming like the leading French public policy school, the Ecole nationale d'administration, which has become a virtual prerequisite for success in French public life.


Whatever the merits of the ENA for France, it is clear that training elite technocrats is the wrong model for Australia. Indeed, in the egalitarian traditions of Australia and New Zealand, ANZSOG should serve to open up public service. The notion of the lifelong bureaucrat is rapidly declining, as young people increasingly opt for careers that allow them to move between business, community organisations and the public sector.


Not only is this process unstoppable, but it benefits all sectors.


More people in business and the community sector today understand how government works, and government has become increasingly responsive and accountable to those outside.


A business leader who has served as a diplomat is more likely to encourage her company to sell its products overseas. A bureaucrat who once started his own company is more likely to understand what government can do to foster innovation. A community activist who has spent time as a state public servant knows how to press for reform. All three make for a healthier, more robust democracy.


To foster mobility and encourage cross-disciplinary learning, the best models for ANZSOG are the innovative graduate programs in public policy offered in some leading US universities. During the past 20 years, top public policy schools, such as Harvard's Kennedy School of Government, have rapidly expanded -- just as business schools did in an earlier era.


A typical one or two-year masters degree at the Kennedy School has three core elements: policy analysis, public sector management and leadership. Around this, courses are offered in policy areas from health policy to urban politics; from defence to international development. Students are encouraged to develop broad skills, but also to combine them with a deep understanding of a particular set of issues.


The faculty of these US policy schools is not made up of traditional academics alone. Professors with expertise in economics and political science have their offices next to other faculty members who have worked as politicians, bureaucrats, in business, or as community activists.


The student body is equally diverse. This year, for example, the Kennedy School draws students from 70 countries.


The Kennedy School provides learning in traditional and not-so-traditional ways. During the past few months it has hosted seminars, forums, and speeches featuring people as diverse as Noam Chomsky, Barbara Bush, Mary Robinson and Pervez Musharraf. Recently, newly elected representatives to the US Congress attended the school for three days of policy discussions with academics.


In the same way, ANZSOG will aim to become a centre for public policy excellence in the Asia-Pacific, offering ideas for federal, state and local politicians, and training students for public service, broadly defined. It should draw on the best talent teaching in our universities and provide an opportunity for students to learn from retired politicians, senior journalists, union leaders and retired chief executive officers. It should excel academically, but never lose touch with the real world.


Most important, we believe, is to foster the notion that public service is a noble calling. In the past 25 years, the fraction of Australians who think that their politicians are ethical and honest has halved, with young people the most distrusting. One of ANZSOG's aims ought to be to encourage young people to consider careers that contribute to public life. By providing fresh policy ideas and training future public sector leaders, we hope that it will help achieve that goal.



Oil prices may make US voters swing, Canberra Times, 5 November 2002 (with Justin Wolfers)   


The United States of America goes to the polls today, and while most attention has focused on the mid-term Congressional elections, another important set of polls are also taking place. Thirty-six of the 50 US states are due to choose their governors, and speculation has mounted that some major changes are on the horizon. According to the political insider magazine Congressional Quarterly, up to one-third of the governorships held by one of the major parties could change hands. This is not an ideal time to be running a state.


Why are so many incumbent governors on the ropes? Most analysts have focused on two main factors. First, the Republicans hold more governorships, so the traditional midterm backlash is likely to hit them hard. And secondly, the current economic downturn looks bad for those governors elected four years ago - at the height of the long boom.

The belief that economic factors are crucially important in elections has been proven in hundreds of elections throughout the world. This is also true in Australia, as research by ourselves and other academics has shown.


However the view that the current US downturn might even lead to unemployment among incumbent governors does not sit well with current intellectual fashions within political science, and particularly with the so-called rational choice school who argue that voters are a pretty smart bunch. Put simply, it cannot be rational for voters to boot out governors for a crime they didn't commit.


When a country's national economy is booming, it may make sense for voters to re-elect their Prime Minister or President. By and large, voters tend to reward good economic performance when casting their votes, and punish poor performance.


But at a state level, voters should make a more subtle judgment. The question ought to be not "How well is my state doing?", but "How well is my state doing, relative to the nation as a whole?". Just as the long boom in America owed more to Federal Reserve Chairman Alan Greenspan and President Bill Clinton than any particular statehouse, the end of the boom surely reflects national rather than local factors.


If voters do not separate out the effect of the national economy from their state economy, they risk kicking out a few good governors during this downturn.

How smart is the American electorate? In an attempt to shed light on the forthcoming gubernatorial elections, we looked at every state contest held since World War II. And the results are intriguing.


Voters appear pretty sharp, and there appears to be no tendency to punish incumbent state governors during a national downturn. So it seems that voters blame Washington DC, not their statehouse, for national economic problems. This research suggests that the current downturn is unlikely to spell the end for a disproportionately large share of current governors.


However, lest incumbents feel too relieved, our results also pointed to subtle ways in which voters blame them for swings in the economy that are not in their control.


For instance, when oil prices rise, the oil producing states boom, while oil-dependent manufacturing states dip towards recession. And voting tends to follow a similar pattern, with oil-price led recessions causing incumbents to be ousted in the rustbelt, while oil-price led booms boost the chances of incumbents being re-elected in mining states.


And as oil prices have soared with the threat of war in the Middle East, these old economic truths have reasserted themselves. Manufacturing states in the Midwest and south are suffering, while oil-rich states are barely feeling the current recession. While the last election produced blue and red maps that traced the coasts and the centre of the country respectively, the effect of oil prices on the ballot box may well lead to a map shaped around the nation's oil producing and manufacturing centres.


Why do voters sometimes punish governors for factors outside their control? According to psychologists, the process is one known as "fundamental attribution error". In trying to explain a phenomenon, we often fail to take sufficient account of the broader environment in which it occurred. This helps explain why corporate boards are notoriously poor at ensuring that CEO incentive pay is linked to good management, rather than good luck. Naturally enough, voters make similar errors.


All of this may bring little cheer to the Democrats who look as though they may lose the governorships of South Carolina and Alabama, nor to the Republicans who could well see Illinois, Michigan and Tennessee slip from their grasp. But then, what goes around in a boom comes around in a bust.



To banish hatred, we must understand it, Australian Financial Review, 1 November 2002 (with Justin Wolfers) 


In the wake of the Bali bombing, Australians have confronted the difficult question: “Why do they hate us so much?” while politicians have asked, “What can we do to stop this happening again?” Yet these questions are two sides of the same coin: to determine how to respond to October 12, we must first understand its causes.


While intellectuals have often claimed that hatred defies comprehension, a recent study by Harvard economist Edward Glaeser argues just the opposite – contending that the market for hate is amenable to economic analysis.


Hatred, Glaeser argues, is supplied by political entrepreneurs to satisfy demand from citizens. Extremist political figures sow hatred against minority groups as a means of gaining political support. Why? Because redistributive policies help one group, but harm others, politics usually requires tradeoffs. Yet by fostering hate, politicians can get credit for both those they help and those they hurt.


The supply of hate can be directed not merely against minority groups, but also against powerful outsiders. As Glaeser points out, there was very little anti-Americanism in the Middle East in the 1950s and 1960s. But following the US-backed coup in Iran, and subsequent support for the Shah, opposition politicians were able to exploit anti-Americanism to undermine their more moderate opponents.


How can hatred be tackled? Economics tells us that raising costs can lower demand. Glaeser notes that hatred usually involves extreme characterisations of the hated, and as such, repeated social interactions can make the beliefs of haters both more costly and harder to sustain.


Another effective way of reducing hatred is by turning the very same emotional mechanisms against the haters themselves - Glaeser terms this “hating the haters”. The images of Ghandi’s supporters being clubbed by British troops in India, or of Martin Luther King’s followers being attacked by hoses and police dogs, fuelled hatred against the perpetrators of such violence. When these self-correcting forces are absent, hatred is likely to prosper. Australia is an outsider in Indonesian politics, and as Glaeser’s analysis predicted, hatred has prospered.


Since it appears likely that some element of anti-Australianism was behind the attack in Bali, we believe that there are three lessons that our policymakers can draw from Glaeser’s research.


The first is that we should raise the “cost” of hating Australians by increasing the number of interactions between ordinary Indonesians and ourselves. While it may be prudent for some Australians to leave now, it is in our long-term interest to foster closer social and cultural ties between our two nations. This may also be an opportune time to expand Radio Australia’s Indonesian language services.


Second, by eliminating arbitrary redistribution between groups and requiring equal treatment, the rule of law reduces the scope for policies that profit from hate. As the International Crisis Group pointed out in a report released two days before the Bali bombing, rivalries between the Indonesian army and police are rife. Australia should consider providing resources to help build the troubled Indonesian police force, with the aim of re-establishing the rule of law, and thereby reducing the scope for hateful policies.


The third lesson is perhaps the most counter-intuitive. Because of the way in which hatred is fostered, Australia should avoid being seen to publicly oppose fundamentalist Islaamists. Doing so only makes it more profitable for fundamentalists to exploit anti-Australian sentiment, instead of seriously engaging the issues.


When we contacted him this week, Glaeser argued that Australia faced the same challenge in Indonesia as the US does in the Middle East: “I think that the worst thing that the US can do, from a hatred point of view, is to embrace the moderate Iranians. As much as we in our hearts applaud what they are doing, by publicly supporting them, we doom them.” For Australia, Glaeser’s view was that this meant that we should be perceived as “supporting both sides”. He suggested that Australia might want to “publicly appear to radical Muslims and talk about how while you condemn violence, you support their rights”.


Thinking about the factors underpinning the supply and demand of hatred is a complex and uncomfortable exercise. But we are now in a year of living dangerously, and Australian policymakers must understand the factors that produce hatred before they decide how to respond.


Coverage of Bali tragedy shows how Australia misses the bus in America, Sydney Morning Herald, 1 November 2002 (with Justin Wolfers)


According to John Howard, Australia stands “shoulder to shoulder” with the United States in the war on terrorism. But do the Americans know we’re there?

Despite the hubris sometimes exhibited by our Prime Minister, the recent tragedy in Bali has provided a painful demonstration of how little attention Australia currently garners in the US public debate.


It’s not that the Bali tragedy was ignored by the American media – merely that it was quickly buried. In the week following the Bali bombing, the top media stories in the US were the Washington sniper and the baseball playoffs. While Bali made the front page for a day or two, the coverage quickly tailed off. Since October 12, the New York Times has run 234 stories mentioning the sniper, while Bali rated only 94 mentions. And the Times is easily the most outward-looking of all American newspapers – the Washington Post gave events in Bali only about half as much attention.


On television, coverage of Bali was even more limited. Today, most Americans probably know that the sniper has been caught and the Anaheim Angels beat the San Francisco Giants. But our conversations at the water cooler indicate that many are unaware that anything happened in Bali.


Why has Bali largely been ignored by the American press? In our view, there are four explanations.


The first is distance: the Asia-Pacific is sometimes just a little too far over the horizon. When foreign affairs are covered by the US press, top billing tends to go to Britain and Israel, followed by the Americas and Europe. Asia, Africa and Australia trail well behind. Indeed, stories on the “global” war on terrorism frequently ignore Australia’s position entirely. It is not unusual to read reports like that in the New York Times on September 4: “Prime Minister Tony Blair of Britain, virtually alone among world leaders, came out today in strong support of the administration's position”.


Second, size matters. With 20 million people, Australia has about half a percent of the world’s population. As a consequence, few American reporters are stationed in Australia, and much of the reporting comes from wire services. While scores of Australian journalists rushed to Bali after the bombing, few US reporters followed suit – as indicated by the fact that many stories were filed from Washington or New York.


Next, only a handful of Americans were among the nearly two hundred killed in Bali. While it is unfair to suggest that media outlets should cover foreign and domestic tragedies equally, it is worth noting the magnitude of the trade-off. Substantially more US column inches were devoted to a sniper who killed ten people in America than a team of bombers who murdered nearly twenty times as many in Indonesia. Moreover, this is not a reciprocal feeling – Australian newspapers devoted almost as much attention to September 11 as all but their New York counterparts.


The axiom “If it bleeds, it leads” does not apply equally to all victims. Our guess is that a tragedy that takes place outside America is likely to receive somewhere between one-tenth and one-hundredth of the coverage that it would if it happened inside the US.


Finally, it isn't just the print media is not supplying stories about Bali – there also appears to be little demand. Internet search engine data can give us some insight into what people want to know more about. According to Yahoo!, the bombing ranked among the three most common Australian searches in each week since October 12. Yet it has not ranked in their top twenty US searches in any week. Instead, Halloween, Kazaa and Eminem continue to dominate the American mind.


No news isn’t good news. But it does suggest that a little more independence, and a little less Deputy Sheriffing in our foreign policy, is unlikely to do us much harm.




Train the Politicians First, Canberra Times, 10 September 2002 (with Justin Wolfers)


Last week we learned that compulsory parenting training is about as popular with parents as brussels sprouts are with children. Following a barrage of criticism, Children and Youth Affairs Minister Larry Anthony took less than a day to back off his proposal that parenting training be linked to welfare payments.


But the debate will not end there. Later this month, Mr Anthony is due to bring a proposal before Cabinet to put more resources into parenting training. And while most of the earlier furore concerned civil liberties, the basic questions remain: is parenting training likely to be effective, and when is it likely to work?


For researchers, the challenge in testing whether parenting interventions work is overcoming the “selection problem”.  Just as ill people are more likely to receive medication than healthy people, attempts at parenting intervention have generally been targeted at families most in need.  And just as a comparison of those who took medicine and those who did not might lead to the conclusion that medication make you sick, naïve comparisons of those who are selected for parenting help tell us little about the efficacy of the programs themselves. We might simply find out why some people received this help, rather than what this help achieves.


Medical researchers, of course, are no stranger to this problem, which is why they have long known the solution – randomised trials, in which some applicants are randomly assigned to receive treatment, while others do not.


While such trials are uncommon in social policy, particularly in Australia, they are incredibly useful, and American policy wonks have been particularly industrious on this front.


The leading study on the effectiveness of parenting training is a long-term study carried out in Elmira, a poor semi-rural community in the Appalachian region of New York state.


The Elmira trial followed 315 children born to first-time parents in the late-1970s. Parents in the treatment group received an average of 32 home visits from trained nurses before and after the birth of their child. Usually, each visit lasted for an hour and a half. In today’s money, the total cost for each family was around $12,000 Australian dollars. The control group received no home visits.


When they revisited the children 15 years later, the researchers found that the intervention had been successful. Those whose parents had received home visits had lower rates of substance abuse, fewer behavioural problems, and were less likely to have been in trouble with the law. Because the families also had lower rates of welfare usage, the researchers calculated that the program more than paid for itself.


So parenting programs work, right?


Not so fast. According to the Elmira research team, the reason that their intervention worked was threefold – it focused on extremely disadvantaged families; began during pregnancy; and used a comprehensive service strategy, including trained nurses. They point out that several piecemeal programs have failed over the past two decades, and these tend to be those that least resembled Elmira. A parent’s time is the main input to child-rearing, and programs need to complement a parent’s effort, not divert it into climbing bureaucratic barriers.


Which takes us back to the Coalition’s proposals. According to one report, Mr Anthony’s proposals for parenting intervention involve requiring parents to attend seminars and watch parenting videos in order to receive welfare. Such measures smack of short-term political gimmicks, and we know of no evidence in their favour.


Rather than toying with low-level, untargeted initiatives, the Federal Government would be better to heed the advice of the Elmira research team, who warn: “There is considerable enthusiasm these days about the promise of early preventive intervention programs that current evidence, unfortunately, cannot support. Public hope and confidence in the promise of such programs is a scarce commodity that we dare not squander on approaches that are not likely to work.”


Thanks to careful studies in the social sciences, we are beginning to understand what forms of assistance are likely to help at-risk families. If the Howard Government wants to get serious about parenting programs, it’s time it grew up and started looking at the research.




Baseball Could Learn a Few Things From Australia, The New York Times, 1 September 2002 (with Justin Wolfers)


With the threatened baseball strike averted in the bottom of the ninth, fans are relieved but somewhat disillusioned with the national pastime. Is the fierce competition that we enjoy in the ballpark likely to always spill over to negotiations over pay? Or is it simply a reflection of players paying more attention to dollars than sense?


A major sports scandal in Australia last week provides an interesting benchmark against which to judge the motivations of American baseball players.


Rugby league fans Down Under also had a gut-wrenching week, following revelations that the Sydney-based Bulldogs, a team picked by many to win this year's rugby league championship, had systematically violated the salary cap. The team had funneled player payments through third-party entities and club boosters. It emerged that the club spent nearly a fifth more on player payments than the system allows.


The players appear to know nothing about these violations, and there is no suggestion of impropriety beyond the team's management. Yet "Doggiegate," as the Australians are calling it, has resulted in the Bulldogs' being stripped of any credit for their successful season to date, and they have been relegated to the bottom of the league. With the finals series only two weeks away, this has also robbed the Bulldogs of any chance of postseason glory.


The reaction of Australia's rugby league players stands in stark contrast to the position adopted by Major League Baseball players. Bulldogs players, led by their captain, Steve Price, pleaded to take a pay cut to comply with the salary cap, in the hope that it offers them a chance to compete in the postseason.


"It's a shock to us like it is to everybody else," Price said on Aug. 21, claiming ignorance of the player-pay scandal. "Players will take pay cuts if we have to."


The 21-year-old Mark O'Meley agreed. "I just love footy," he said. "I'd be devastated not to play in the finals." He added, "I'd be prepared to take a pay cut to play in the finals."


By contrast, the threatened baseball strike was intended by the players union to maximize only their bargaining power. By waiting until the pennant races and ultimately the World Series were on the line, the players managed to boost their bargaining power at the possible expense of the postseason.


In effect, baseball's stars bet that their fans, who ultimately provide the owners with their profits, care more about the postseason than they do. Having forced the abandonment of the 1994 World Series, we all knew this was no empty threat. And the fact that the owners worked furiously to resolve this dispute by Friday shows that they also understood this.


The response from sports fans in Australia and the United States reveals the very different effects that the two scandals — player overpayments and the threatened strike — have had on supporters of the two sports. Bulldogs fans are clearly shocked at the way in which the team's management behaved, but it says something about the innate sense of fair play among Australians that an online poll at the club's Web site found that nearly half of Bulldogs fans surveyed believed that the punishment meted out to the club was fair.


By contrast, baseball's work stoppages seem to have wearied American baseball fans, and although there was a small anti-stoppage protest movement, fans seem resigned to the possibility of further labor strife, and regarded its resolution as an unexpected surprise. While the overpayment scandal led the Bulldogs board to resign en masse, both Bud Selig and Donald Fehr, the two main protagonists from the 1994 baseball strike, continue to lead their respective organizations.


The current Australian scandal also raises some very practical issues for baseball's negotiators.


A primary stumbling block in the baseball negotiations has been the issue of the so-called luxury tax. This tax is in many respects similar to the rugby league salary cap, except that rather than simply banning spending above a certain level, these higher payments are to be taxed so that rich clubs can buy less talent for their dollar.


The overpayment scandal in Australia points to the likelihood of similar infractions in baseball's future. The tough question for those who propose to regulate payments to baseball players is: How would a luxury tax in baseball be enforced? Will Bud Selig be willing to go as far as Australian rugby league officials and ban transgressors from the postseason? Would the players union support his decision, or could enforcing the rules potentially lead to more labor strife?


Even in its darkest hour, Australian rugby league players are showing the sort of sporting passion that American baseball fans yearn for. As Bulldogs Coach Steve Folkes said of his team: "They want to play football. It's not about money. It's about success."


For all its "Field of Dreams" mythology, the mighty dollar remains central to much of modern baseball.


Few have echoed the recent sentiment of one sportsman: "The money, I can deal without. Baseball, I can't." The player? Baseball's $252 million dollar man, Alex Rodriguez.




Numbers crunch salary cap's logic, Sydney Morning Herald, 26 August 2002 (with Justin Wolfers)


With the news that the Canterbury Bulldogs' fortunes have dived quicker than Enron stocks, anger is understandably mounting at the team's management.


But in discussions among football fans, another target is fast emerging - the salary cap itself. The question looms large: has the cap rule served its purpose, or should it be abolished?


First, a little background. For most of its 107-year history, no salary cap has applied in rugby league. In 1988, four years after the AFL put its own cap in place, a league salary cap was introduced. The move towards salary caps occurred not only in Australia, but also in the United States, with the National Basketball Association implementing a cap in 1984 and the National Football League in 1993. A baseball strike is looming as the team owners are discussing schemes similar to a cap.


In league, the salary cap was progressively implemented from 1988-90. By 1995, all teams faced an equal cap, set at $1.5 million. Over the next seven years, the cap has more than doubled to $3.25 million, presumably reflecting competitive pressures from both the failed Super League experiment and the increasing crossover appeal of rugby union.


Yet while any cap is in place, a fundamental question remains: why should those who employ football players - unlike all other employers - be allowed to collectively restrict payments to workers?


Advocates of a cap state their case simply. The reason for a salary cap is to ensure the financial and on-field viability of all rugby league clubs. As Steve Mascord put it in the Herald last Saturday, "if there was no salary cap, Andrew Johns would be playing for a rich Sydney club and the Knights would be broke".


Sports economists have noted that salary caps can have other effects - such as reducing the proportion of revenues spent on player salaries, ensuring a more equitable distribution of pay among players and perhaps even encouraging veteran players to retire early.


Yet surely the argument that appeals most to rugby league fans is that the salary cap makes for a closer competition.


But has the salary cap really made league more competitive? To test the theory, we compared the league results for the 13 seasons since the introduction of the salary cap with those for the same period beforehand.


Superficially, the evidence seems to favour the cap: from 1976-88, only four teams held the premiership shield aloft. By contrast, from 1990-2001 (Super League operated in 1997, so that year contained two "seasons"), seven teams have been champions, including relative newcomers such as the Melbourne Storm. However, the fact that the number of teams in the competition rose from 12 teams in the 1970s to a peak of 20 in the mid-1990s explains much of this difference.


Rather than focus simply on the grand final, we turned instead to examining regular season games. If the salary cap worked, we reasoned, then we should expect to see more close games. The answer? In the 13 seasons before the salary cap, 3.3 per cent of all games ended in a draw. Since the implementation of the cap, this has actually fallen slightly, to 3 per cent.


We also looked at the distribution of offensive and defensive talent, comparing how well the top teams performed relative to those at the bottom. Before the salary cap, teams finishing in the top half of the competition scored 56 per cent of the points. After the cap, this concentration of point-scoring actually rose slightly, to 57 per cent.


In terms of defence, the top teams conceded only 42 per cent of all points scored before the cap was introduced, and 41 per cent following the cap. So there seems to be no evidence whatsoever that the salary cap narrowed the skewed distribution of skill across clubs.


An alternative test looks for evidence of less stability in the league ladder and more "churning". In other words, there should be a better chance that teams which finished in the bottom half of the ladder one year finished in the top half the next year.


Again, we found no improvement in the post-salary cap era.


In sum, it appears that the effect of the salary cap was precisely nothing. Unless you believe that the tournament would otherwise have become more lopsided during the 1990s, it is difficult to see that the salary cap made league any fairer at all.


In considering whether to keep the cap, we need to consider other factors as well. Some say that abolishing the salary cap could cause bidding wars to break out, placing a burden on financially strapped clubs. Yet this must be balanced with the fact that by increasing the fraction of league earnings that go back to the players, the game may also find itself better able to attract - and keep - sportsmen who would otherwise have gone elsewhere.


Importantly, whether the salary cap makes league more competitive is not merely a matter for the fans - it may also turn out to be of considerable interest to the courts.


The leading case on the legality of salary caps is the 1991 Federal Court decision of Adamson v NSWRL. Because the case centred around a challenge to the system of trading players, the plaintiffs agreed that they would not challenge the validity of the salary cap.


But the Federal Court did note in passing that a salary cap could only be legal if it could be shown that it was in the interests of the players and the general public. If not, it would be an unfair restraint of trade, and hence illegal.


Now that we have some evidence that rugby league did not become more competitive after the salary cap was introduced, would a court still hold that salary caps are in the public interest?



Hardly family friendly, The West Australian, 20 June 2002 (with Justin Wolfers) 

(Full version of an abridged piece published in the West Australian)


When politics is dressed up as economics, the result is generally bad policy. Worse, John Howard's $1.2 billion "baby bonus" is likely to make for bad obstetrics.


Put simply, Howard wants to pay mum to stay at home to look after the kids. However, because conservative gender roles are out of step with the views of most young voters, the policy is not marketed as social engineering, but rather as a pragmatic response to an economic problem.


Many commentators have pointed to the inequities of such a system. The baby bonus is not uniform: a child born into a poor household is apparently worth only $500 annually, while children from high-earning households are worth $2,500. Single mothers - who have no other way to support their children - will go back to work, and hence miss out on most of the benefit. The biggest payout will go to couples where he earns enough to support the family for five years, and she made over $50,000 in the year before they had the baby.


Beyond equity, the details begin to reveal what a wayward policy this really is.


According to the Coalition, families suffer because "the arrival of a child generally leads to a large fluctuation in the family's income." Fluctuating income, in turn, leads to higher taxes because the tax-free threshold may not be fully utilized in the leaner years. In each of the five years after childbirth, Howard's new policy allows women to claim back up to $2,500 of the taxes they paid in the year of their pregnancy - ensuring that their tax-free threshold is not "wasted" when looking after the kids.


In practice, this means that the way in which women will maximise their benefit is by boosting their earnings in the year prior to childbirth, and then not working for the next five years.


Such a policy creates some quite bizarre incentives. When deciding how hard to work, people typically consider how much of each extra dollar that is earned will be pocketed by the tax office. For most of us, this is about one-third. By contrast, during the year leading up to childbirth, these women will be facing potential tax rates of zero.


What would you do if John Howard offered you one year of tax-free earnings? If you're like most people, you'd probably work more overtime, put in extra hours in the hope of getting a promotion, or perhaps even take a second job. Many would sacrifice some sleep, and those doing piece-work might even take a few more risks on the job.


For pregnant women, this is a recipe for disaster. Countless studies show that work stress raises rates of premature birth, foetal anxiety, and infant illness.


Do we really want to be using the tax system to encourage 60 hour work weeks, second jobs, and greater exposure to workplace hazards among women who will soon give birth?


But this is only part of the story. After junior enters the world, Howard's baby bonus acts as a disincentive to work. Not only would these women have to pay tax, but they would also be missing out on up to $2500 of baby bonus annually. In effect, they are faced with a double disincentive preventing them from returning to the workforce.


As a result, some couples will likely respond to this double disincentive by cramming their child-bearing into this five-year window. Not surprisingly, decisions on the timing of pregnancies depend on individual circumstances and are best informed by a trusted doctor rather than tax incentives. Indeed, medical research shows that the tight child spacing induced by this policy may increase the incidence of problems ranging from low birth weight to schizophrenia.


While the law of unintended consequences is no stranger to economics and politics, in this instance political expediency comes full circle, transforming family-friendly intentions into pregnancy-unfriendly consequences. This is not a policy for which the babies of the future are likely to thank the Coalition.



Smaller classes become big issue, The Australian, 1 June 2002 (with Justin Wolfers)


Student-teacher ratios are going to be a major issue in 2003, especially in NSW, where the Primary Principals Association and Teachers Federation have launched campaigns for reduced class sizes. But are the would-be reformers right that ``Twenty is Plenty''?


It is almost certainly true that smaller class sizes will make classroom life more pleasant for teachers, and probably also our children. But the more important question is whether there will be any educational benefit. Unfortunately, research on this question is scantier than most advocates seem willing to admit.


This arises because small classes tend to appear in two contexts -- in rural Australia or in rich private schools. Comparing the outcomes in these settings with larger classes found in suburban public schools risks comparing apples with oranges.


Moreover, comparisons within a school are not much better.


Principals often tend to use small classes as a means of either enriching gifted students or remedying disadvantage among at-risk students. Thus, comparisons of the performance of small and large classes may obscure more than they reveal.


 In the absence of any good Australian experimental evidence, both advocates and sceptics have drawn -- often selectively -- from American research. But until very recently, most of this research has been of poor quality.


An influential review by Stanford's Eric Hanushek concluded that it is hard to find any effect of class size on student achievement. But while this militates against across-the-board reductions in class size, Hanushek argues that there probably are gains from reducing student numbers in specific circumstances -- such as for disadvantaged and at-risk youth.


This is where the debate rested until the results from Project Star materialised.


One of the largest education policy experiments ever conducted, Project Star cut class sizes in a randomly selected group of Tennessee schools. Students from these schools were then compared with a control group who had experienced no such reduction in student-teacher ratios. When follow-up studies were conducted, Princeton's Alan Krueger and collaborators concluded that test scores of those in smaller classes had indeed improved by a substantial margin, relative to those in larger classes.


Patricia Forsythe, the NSW Shadow Minister for Education, has claimed lately to have been following the US evidence closely. Presumably Project Star underpins her claim that ``the weight of evidence in relation to smaller class sizes for the beginning years of school seems to be compelling.'' But is Project Star compelling?


The sceptics doubt it. Social science has long known about the ``Hawthorne effect'' -- the tendency of subjects to alter their behaviour when they know they are being observed. Thanks to a prior agreement with the Tennessee education union, teachers in the schools with smaller classes knew that if their students performed well, class sizes would be reduced statewide. If not, they would return to their earlier levels.


In other words, Project Star's teachers had a powerful incentive to improve student performance that would not exist under ordinary circumstances.


In the past few years, the most persuasive piece of evidence in the class size debate has been a novel study by Harvard University's Caroline Hoxby. Instead of conducting a new experiment, Professor Hoxby adopted an ingenious research strategy, looking for a ``natural experiment''.


As in Australia, many US schools have a rule that when class sizes exceed a fixed number, another class will be created. For example, if class sizes were capped at 25 students, one school may have 50 students in second grade, yielding two classes each with 25 students, while a neighbouring school with 51 second-graders would have three much smaller classes. By examining many such natural experiments, Hoxby's study avoided distorting the regular incentives that teachers face.


The results of this study have turned the class size debate on its head. Basing her analysis on a large sample of Connecticut schools, Hoxby found that the effect of smaller class sizes was precisely nil.


This research supports the view enunciated last year by a spokesman for NSW Education Minister John Aquilina that ``we are not aware of any current research which shows reducing class sizes significantly improves student outcomes''.


This leaves us with something of a puzzle. Why don't smaller class sizes improve student performance?


The answer may lie in how teachers spend the extra time they have when class sizes are reduced. Consider an analogy. A doctor working in a hospital may be obliged to visit 25 patients per shift. If we required the doctor to visit only 20 patients instead, then either they will carry out better consultations or their patients will get the same attention but the doctor will feel less pressure. So it is with teaching.


Most likely, both effects will occur -- lower class sizes will translate to some extent into better outcomes for students, while also contributing to a more comfortable life for teachers.


This may not be a bad thing -- as the relative wages of teachers have fallen over recent decades, perhaps it is only fair that we ask them to do less. The key is to ensure that we get the balance right.


One thing Project Star successfully showed is that across-the-board reductions in class size will produce gains in student learning if teachers face strong incentives to produce better outcomes.


International evidence also teaches us that getting rid of the very largest classes is useful. In Israel, studies have shown major gains from getting classes closer to 30 than 40 students.


Yet the same does not necessarily hold for countries that already have smaller classes. According to the OECD, the average primary school pupil-teacher ratio is 19 in the US, 21 in England/Wales, 17 in Canada, 21 in Japan and 18 in Australia.


Doubt about the efficacy of across-the-board class size cuts should not deter education reformers from seeking innovative solutions to improving the quality of education. Better teacher training, fresh ways of improving teacher quality in poorer areas, remedial after-school programs, and targeted class cuts are all potentially effective ways of targeting resources where they will do most good.


The lesson of class size research is that policymakers should be modest enough to put reforms to the test, and flexible enough to adapt them in response.




If that's the city where the boys are, then it has to be fabulous, Sydney Morning Herald, 13 May 2002 (with Justin Wolfers)


What sets apart the world's great cities? While the leading metropolises - Paris, London, Berlin, Rio, and San Francisco - are all cosmopolitan, vibrant and exciting, what is it that makes them so special? Closer to home, how can we compare Sydney's brilliant beauty with the cafes of Melbourne, the beaches of Brisbane, and the laidback lifestyle of Perth?


A standard response is that you get what you pay for. By this reasoning, the easiest way to judge city quality is to look at housing prices. But economists have long objected that prices reflect not only whether a city is a nice place to live, but also the quality of local jobs. So we might think that Sydney's land prices reflect what David Williamson once called her "sub-tropical abundance", while Canberra's property market is driven by proximity to government jobs.


Another attempt to compare city quality came earlier this year in a survey by William M. Mercer, a consulting firm. Mercer ranked the world's cities according to 39 factors, including political stability, air pollution, traffic congestion, health care and restaurants. However, how you weigh these factors almost certainly determines which city comes out on top.


How else to measure city quality? Writing in the latest issue of the Journal of Urban Economics, four bright sparks in the US - Dan Black, Gary Gates, Seth Saunders, and Lowell Taylor - believe they have cracked this nut. They argue that if you want to know which city has the best amenities, just look at the gay population.


And size matters.


The argument is simple. Gay men do not have children, and hence they have more money to spend on the finer things in life, including living in the hippest locations. As such, they tend to congregate in cities where the living is good. So we should expect gay cities to be fabulous cities.


The four economists' careful analysis of census data finds strong support for their theory within the United States, where San Francisco and Washington have the highest proportion of gay residents. Interestingly, city quality is a more powerful predictor of where gay men live than differing degrees of homophobia. Outside the US, the nexus between city quality and the proportion of gay residents also appears to hold true for most of the world's great cities.


How does Sydney measure up? Firm numbers are hard to come by, but it has been claimed that Sydney is the gayest city in the world. This may itself further improve the city - not only do we enjoy the gentrifying areas of Paddington, Surry Hills and Newtown, but the annual Sydney Gay and Lesbian Mardi Gras is a spectacle all of its own. Moreover, those families that have children benefit from a group who pay their taxes, but do not further crowd their schools.


Of course, the gay index only reflects amenities that adults value - hip locations, nice weather, restaurants and theatre. So Melbourne can boast about her grassy suburbs, affable neighbourhoods, and other "family friendly" features. But on the sexuality and the city test, Sydney is queen.


So next time you see two men holding hands, give them a smile, for they are our proof that Sydney is indeed Australia's most livable city.




A crisis of trust that bodes ill for society, Canberra Times, 12 March 2002


For the last few weeks, two stories have dominated the political media. John Howard's credibility in the children-overboard saga, and the past wrongdoing of the Governor-General he appointed. Sounds like a successful time for Labor, right?

Not necessarily. The danger that Labor now faces is that the public response to recent events will see the standing of politicians slump to new depths. Sure, voters may think less of John Howard, but it is possible that the recent scandals may also lower their opinion of all politicians, Simon Crean included.

Let's start with recent trends. In 1976, about one in five Australians rated their federal politicians "high" or "very high" for ethics and honesty. A quarter of a century later, only one in 10 held the same opinion. Similar trends are apparent for many other industrialised countries, including Britain and the United States.

In a recently published book, The Prince's New Clothes: Why do Australians Dislike their Politicians? I suggest three factors that may explain why trust in politicians has collapsed. First, the past few decades have seen a "social-capital crisis" across much of the western world. We are less likely to join organisations, less trusting of our neighbours, and less involved in politics. The same factors that have led us to disengage from civic life have probably also contributed to our tendency to trust our leaders less.

The second major change is that politics has tended to focus on issues of left and right, temporarily ignoring the rise of post-materialist "identity politics", and leading voters to feel that neither party really represents their values. Here, the parties have begun to respond, with the emergence of Green politics, the Third Way, and Compassionate Conservatism all indicators of a political system shifting beyond simple left-right debates.

Third, changes in the way in which the media report politics have affected the standing of politicians. With a greater focus on conflict over substance, and personalities over policy, media reporting has become more critical towards politicians. In the words of one commentator, much journalism today "presumes to lift the curtain on the wizard and reveal the charlatan behind it".

Amidst these trends, the Labor Opposition faces a difficult test. On the one hand, it wants to call the Government to account through Senate hearings and the media spotlight. On the other, Labor knows that voters may eventually conclude that "they're all crooked". Moreover, the backlash may hit the ALP harder than the Coalition.

The more voters distrust politicians, the more they may come to decide that Government is ill equipped to solve the problems of society. The result? The party with the most activist vision of Government will suffer the greatest harm. Selling a large-scale policy, a la Knowledge Nation, can only become tougher if voter distrust rises.

After the events of the past two weeks, it is clear that a major challenge for our federal parliamentarians over the coming term will be to tackle the issue of falling trust. Now is the time to transform the tone of Question Time; to toughen up the rules on share ownership by politicians; to adopt a Canadian-style ethics commissioner - and perhaps to follow Britain's lead and ensure that all children are taught civics in schools. None of these reforms would be easy, and none of them in itself would solve the crisis of trust. But together they might just make a difference.

Simon Crean should not allow good poll numbers to mask the challenge that he now faces. For the sake of our system of government, let's hope that he is thinking today of how trust in politicians can be rebuilt for the future.

For as our archbishop-turned-Governor-General might put it, what does it profit a man if he gains the prime ministership but loses the trust of the Australian people?



Political vision required to spur a new kind of public spirit, Sydney Morning Herald, 15 February 2002


In a little-noticed passage of his recent State of the Union address, the United States President set out a policy that both the Left and Right in Australian politics should pay heed to.


Amid his much-reported references to global terrorism and the axis of evil, George Bush announced an expansion of the US volunteer program, AmeriCorps. When they look back in 10 years' time, Americans may conclude that this decision had greater long-term implications than anything else in the speech.


What is AmeriCorps? Founded by President Bill Clinton in 1993, the program is a response to the decline in civic engagement that has taken place in America over the past generation. Since the early 1960s, Americans have become less likely to join organisations, less trusting of their fellow citizens and less involved in government.


AmeriCorps represents a concerted effort to re-engage young Americans with communities, by offering participants a college tuition credit in exchange for a year of serving a disadvantaged community. AmeriCorps volunteers build low-income housing, provide computer skills training, work in health promotion programs, and teach literacy skills to new immigrants.


Each year, 50,000 young Americans take part in the program, and Bush has now agreed to expand that number fourfold. Amid some cries from the right wing of the Republican Party, both sides of US politics now believe that government can play a positive role in building social capital.


In contrast, the bipartisan consensus in Australia appears to run in the opposite direction. In the 1960s, Australians followed President Kennedy - who created the Peace Corps - by forming Australian Volunteers Abroad (AVA). Today, AVA continues to send 500 young Australians overseas each year. But neither major political party has ever proposed creating a domestic version of AVA, much less one that operates on the scale of AmeriCorps.


Yet as in the US, social capital in Australia appears to be waning. Many of the same trends that Professor Robert Putnam documented in his recent book, Bowling Alone, can also be found in Australia - less trust in government and fellow citizens, fewer churchgoers, and declining membership of many voluntary associations.


The causes in Australia are similar to those in the US: more television, longer commuting times, and the loss of an older civic generation. Australians can still pull together during difficult times - as we saw in the Sydney bushfires - but the long-term trend in Australian social capital remains relentlessly downwards.


The Federal Government should tackle this civic crisis, by providing 5000 young Australians a year with the chance to volunteer for a year in exchange for a HECS discount, or some other form of education assistance. Volunteers could work with local bodies implementing after-school programs, revitalising run-down community facilities, and assisting indigenous communities.


A major initiative on volunteering could help re-energise thousands of community organisations that are struggling to survive. Think of the many groups that do good works in your own area, and imagine how much more effective they could be with the assistance of an enthusiastic twentysomething, willing to provide new energy and a fresh perspective.


But the potential benefits go well beyond the community groups themselves. By providing a significant group of young Australians with hands-on experience in volunteering, we will help forge a new civic generation.


There is every indication that former AmeriCorps volunteers have continued to help the community, become involved in politics, and help build social bonds in their workplace. The same is likely to occur in Australia.


In recent years, Labor and Coalition politicians have spoken about social capital in Australia, but few policies have appeared to redress the problems. For the Coalition, the emphasis has been on encouraging corporate philanthropy, while Labor has been reluctant to propose new initiatives for the community sector.


Yet thousands of young Australians would doubtless be keen to take up the challenge. The question is: will our leaders be bold enough to make the call?



Winner Takes All, Sydney Morning Herald, 29 September 2001 (with Justin Wolfers)

(Full version of an abridged piece published in the Sydney Morning Herald)


The latest turnaround in the polls has focused attention squarely on the forthcoming election.  For the first time in months, it appears that the there is real uncertainty over the mood of the electorate.  Should Kim Beazley start measuring curtains for the Lodge? Or will John Howard add to his 1996 and 1998 successes to make it a hat-trick?


No-one knows for sure, but there are several schools of thought on predicting elections. Pollsters argue that they can measure the “pulse” of the electorate more accurately than ever before. Economists contend that the business cycle is actually a better way of predicting when governments will be ousted. And the bookies, who make a living out of predicting races better than the rest of us, argue that they have a pretty good idea. Interestingly, when we apply each of these the three models to the 2001 poll, they yield surprisingly different results.


First, consider the most common way of picking an election winner – the polls. Every two weeks, the major polling firms ask around 700 Australians: “If a Federal election were held tomorrow, which party would you vote for?” Since the 1998 election, Howard has trailed Beazley on the two-party preferred poll – with the gap widening to as much as 26%. Yet in recent weeks, the Tampa incident and the American terrorist crisis has put Howard into the lead. Although he currently enjoys a healthy margin, it is hard to believe that these two incidents will continue to support the Coalition through to the election.


But even if polls taken during the election campaign suggest that one party is cruising to victory, should we trust them? Through most of the 1993 campaign, polls suggested that John Hewson was likely to defeat then Prime Minister Paul Keating. Yet Labor not only won that election, it also increased its majority. In 1999, all the major polling organizations predicted that the cocksure Jeff Kennett would defeat Steve Bracks in the Victorian State election, leading the ABC’s Kerry O’Brien to assert at the start of the campaign that a Labor win was “almost impossible”. But to the surprise of O’Brien, Kennett - and probably even Bracks himself - the polls were proved wrong.


There are two reasons why polls might err. One is straightforward - in our system of government, winning an overall majority of the electorate does not guarantee victory. In the 1998 federal election, Labor won more votes than the Coalition. But unfortunately for Beazley, winning some seats by large margins doesn’t help if your party ends up losing a whole host of seats by small margins. So a poll that simply measures the electorate as a whole may end up incorrectly predicting the result.


The other reason opinion polls aren’t always reliable is a little more tricky. Some researchers believe that merely asking people for their opinion is flawed because the respondent need not put their money where their mouth is. Psychologists argue that when asked to choose between candidates, we often are expressing a preference – although not necessarily a preference for one candidate over the other. For example, at a time of national crisis, it is easy to understand why we might express a preference for stability.


So if pollsters can get it wrong, why not turn to see what the economists have to say? The second theory of predicting elections starts from a simple maxim: historically, the people most likely to lose their jobs in a period of rising unemployment are the Prime Minister and Treasurer. Those who study the effect of economic cycles on elections explain this in two ways. On one hand, when voters learn that the government is not a particularly adept economic manager, they bring in new talent.  On the other hand, perhaps the game is about retribution: when voters believe that economic opportunities have been squandered, they exact their revenge at the polls. Whichever theory holds, politicians have a strong incentive to manage the economy well.


The current state of the Australian economy doesn’t seem to augur well for Howard’s job prospects. Although unemployment fell through 2000, it has risen in the past six months, and election studies have typically found that voters have short memories. And it doesn’t matter that much of the present slowdown is part of a global recession – our own research has shown that voters don’t distinguish between a downturn caused by poor economic management, and one caused by these external factors.


Moreover, it seems unlikely that the economic indicators will turn around between now and the end of the year. Given its single-minded pursuit of low inflation, there’s little chance of the Reserve Bank throwing the government a lifeline. To make matters worse for the government, consumer confidence has dipped dramatically in light of the terrorist crisis.


But how much does the fate of governments really turn on the state of the economy? As a way of checking the theory, the following graph shows the swing against incumbent governments against the change in the unemployment rate over each electoral cycle since 1949.  The trend line up until 1990 shows a fairly direct relationship.  Prior to the last few elections it was clear that rising unemployment spelled doom for the incumbent government. 


Unfortunately for the economists, more recent data is less clear.  Despite the recession of 1990-91 and its after-effects, Keating was re-elected in 1993. Yet three years later, after presiding over a robust economic recovery, he was summarily booted out of office.  Although joblessness did not increase in the following two years, the Coalition barely scraped home in 1998. On the face of it, one might think that unemployment was no longer as important to voters. Yet in the 1987 and 1990 elections, less than half of all Australians rated unemployment as an extremely important factor in their voting decisions – in the subsequent three elections, this rose to well above 60 percent


What is going on here? One explanation is that the elections of the 1990s were just aberrations. Another is that the traditional relationships between election outcomes and unemployment started breaking down. The 2001 election will help us understand which is true. No doubt Howard will be hoping that economic indicators matter less today than they once did, while Beazley will be on the side of the traditionalists. If Howard squeaks home this year, researchers will need to start explaining why electoral fortunes are not as tightly linked with the hip pocket nerve as they once were.


Finally, we turn to the bookies and the punters. Under Northern Territory law, bookies are allowed to take bets on a range of non-sporting events, including elections. This has given us a new source of data for predicting election outcomes. Their accuracy is based on the assumption that when we are asked to put our money where our mouth is, it is likely that we think long and hard about all dimensions of the government’s performance.


According to Centrebet, Australia’s largest online bookmaker, Beazley has been a solid favourite all year.  At one point Beazley was posted at odds of 7/2 on – shorter odds than Phar Lap in the 1930 Melbourne Cup.  Even at those skinny odds, Centrebet sportsbook manager Gerard Daffy found that “most bets have been for Labor”, with one Victorian punter putting $50,000 on Beazley. 


Indeed, betting market fluctuations over the past two years tell a more nuanced story than either the polling results or the economic indicators.  This election appears to have been Howard's to lose.  The Liberal Party opened a strong odds-on favorite, but their odds have drifted out significantly since.  While Howard's polling numbers slid south some time ago, the punters only really reacted in the wake of the Western Australian and Queensland elections.  This slide has also coincided with ongoing concern about the GST, and the deterioration in the economic outlook.


Following the Tampa incident however, the punters reacted before the polls, and Howard has been all the rage, attracting two bets of $10,000 amid other large wagers.  In a remarkably even betting contest, Centrebet are now offering a return of $1.75 for every dollar wagered on Beazley, and $1.95 for Howard-supporters.  This suggests that Labor rates about a 55% chance of winning the election.


Daffy rates the betting markets as the most accurate barometer of the electorate, and he reads them as pointing squarely in the direction of Labor, who have been “backed for bundles”. He notes that the federal election "will be the single biggest betting event this year - bigger than either the ARL or NRL grand final."  After all, he points out, "it is an 'event' that everybody has a vested interest in." But before you rush to cast your bet, it is worth noting that in 1993, Hewson lost as a short-priced favourite.


Each of the three ways of forecasting elections point to a close election.  While last week’s polls are pointing to Howard, recent events make these numbers difficult to interpret.  Looking at “fundamentals”, the softening economy suggest that Howard is in trouble, and on this point, the betting market suggests that the punters concur.  Pollsters, economists or punters – who do you trust?



Social Policy Requires a Fresh Focus, Canberra Times, 3 July 2001


At a time when Australia is wealthier than ever, when government spends a greater proportion of that wealth than at any time since World War II, and when we can draw on more good ideas than ever before, our policy-makers should be bold about tackling one of the hardest policy problems of recent times: social exclusion.


The challenge is undoubtedly vast. Rapid technological changes, combined with increased economic openness, have placed new burdens on the most disadvantaged in our society.


We should address the problems for compassionate reasons and because it is in the long-term interest of those who are already socially "included". If the stagnation of our national skills base is allowed to continue, the growth of new industries will be impaired.


If early intervention programs are not promoted, crime rates will be higher in later years. And if the benefits of economic openness are not shared, we risk a backlash against globalisation. The serious economic reformers of the 2000s will be those who are as innovative about social reform as they were about microeconomic restructuring in the '80s and '90s.


What is meant by "social exclusion"? It is a concept that originated in Europe several decades ago and is now becoming increasingly prominent in social-policy debates, as policy-makers seek to move beyond asking whether an individual's income places him or her above or below the poverty line, to address broader measures of well-being. In particular, social exclusion has encouraged a focus on how unemployment, geography and social networks can affect an individual's life chances.


Of these three factors, unemployment is perhaps the most difficult. More than many other developed nations, unemployment and poverty in Australia are inextricably linked. The long-term unemployed, and those who find themselves drifting in and out of the labour market, merit special attention if they are not to be left behind by the rest of society.


Job training is only part of the answer, since many long-term unemployed people do not have the literacy skills to benefit from such programs. A fully integrated strategy requires smarter interventions earlier and better targeted.


Much recent research indicates that social exclusion is increasingly being concentrated geographically. Inner-city poverty, while not as prevalent as it once was, still remains a problem in some parts of our major cities.


Additionally, the highest concentrations of poverty are now found on the urban fringe where low incomes are compounded by the difficulty such residents have in accessing basic services. Outside the metropolitan centres, more attention needs to be paid to social exclusion in towns that are now struggling as a result of falling commodity prices or the closure of manufacturing plants.


Other countries, facing the same problems, are exploring innovative ways of focusing policies on a geographic basis. In Britain, Health Action Zones, Employment Zones and Education Action Zones have been used as a basis for targeting government assistance where it is most needed. In the United States, mobility programs have been used to reduce "hard-core" poverty. Such initiatives are not a panacea, but they represent a novel means of redressing societal inequality.


Recognising the geographic nature of poverty means accepting that problems stem from a lack of human capital (education) and also from an absence of social capital (interpersonal networks) that makes a community function effectively. Social networks may not figure in our national accounts, yet they make a dramatic difference to almost everything we care about from employment opportunities and health outcomes to the quality of our government and the safety of our streets.


Beyond the existing problems, social exclusion also risks expanding in the years to come. As a society, we need to think of how we will deal with the digital divide, genetic discrimination and credit redlining before they begin to hurt those who are already disadvantaged. In each case, answers can be found if only the questions are asked in time.


An effective means of addressing the problem would be for the Federal Government to create a Social Exclusion Unit with a mandate of researching the problems, and devising whole-of-government solutions. Its mission would be to draw on as many sources as possible consulting academics, practitioners and community bodies, and devising policies that work across departments and between different tiers of government. Just as the problem of social exclusion crosses these boundaries, so should the solutions.


For the sake of those who are excluded from participating fully in society, Australian social policy must be constantly looking to produce fresh, innovative solutions. Moreover, we should be confident about our chances. Since Federation, Australia has solved problems that once seemed equally intractable the disease epidemics of the 1920s, family homelessness of the 1940s, and high inflation of the 1970s. Might the next decade be the time when we finally tackle social exclusion?



Take the Money and Run... or Wrestle, Sydney Morning Herald, 15 May 2001 (with Justin Wolfers)


The claim by former Pakistani coach Javed Miandad that his team "threw" a recent one-day series against New Zealand highlights the difficulty in eradicating betting-related cheating in sport. It's easy to understand the bind the cricketing authorities are in: how can they discern real corruption from the sour grapes of a failed coach looking to deflect blame?


What if it were possible to systematically study a sport and discover whether it was corrupt, to rely not upon finger-pointing but on objective economic analysis to determine whether or not corruption was really occurring?


Two professors from the University of Chicago's famed department of economics - Mark Duggan and Steven Levitt - have recently taken up the gauntlet. They wrote a paper which analyses Japan's national sport, sumo wrestling, and the outcomes have been explosive. Honour and ritual, it seems, hide corruption and pay-offs.


Their analysis is startlingly simple. Japanese wrestling tournaments comprise 15 bouts. Wrestlers who win eight or more bouts benefit dramatically more than those who win seven or fewer (in terms of ranking and salary). Thus, for those on the margin of winning eight bouts, the pay-off is disproportionately large.


Analysing the bouts, the two economists find some intriguing results. To begin with, they point out that the proportion of wrestlers who end each tournament with eight wins should be the same as the proportion who end with seven wins. But, in fact, substantially more wrestlers manage to end with eight wins. Moreover, wrestlers who are on the margin of eight wins on the final day of the tournament are about 25 per cent more successful than one would expect.


But mightn't those who are on the margin of getting the critical eight wins simply put in more effort than their opponents? To test this question, Duggan and Levitt looked at what happened when the same two wrestlers next met. They found that a wrestler who won his eighth bout on the final day of the tournament was 10 per cent more likely to lose when he next met the same opponent. In other words, part of the pay-off for throwing a match is doing the same for one's opponent the next time.


Duggan and Levitt's analysis has important implications for cricket and, indeed, various codes of football. At the heart of their analysis is the idea that sportsmen respond to incentives. In most situations, sporting honour and the joy of victory will be the dominant incentive. But the incentive for corrupt conduct is greatest in situations in which one team cares much more about the result than another. Therefore, "dead rubbers" - games played after the series has been decided - are ripe for corruption. Similarly, it is notable that players on the cusp of retirement have been at the centre of the recent cricketing scandals; a youngster trying to establish his career in the national team simply cannot afford to make a duck. Another area in which the incentives are distorted is "points shaving". Teams who deliberately win a game by less than the "bookies' start" can potentially both win the game and make money by backing their opponents.


What can we do about sports betting scandals?


Australians love a bet and banning the bookies may be an overreaction. But it seems that points-start betting and betting on "dead" games may be particularly attractive for the crooks, and perhaps the authorities may want to closely monitor attempts to manipulate these types of betting.


Finally, there is the good news arising from the recent high-profile cricketing shenanigans. Duggan and Levitt found that public attention deters match-fixing. In three sumo tournaments that followed media coverage of allegedly rigged matches, the win-loss ratio for wrestlers on the margin was far closer to what would ordinarily be expected. This seems to give credence to the line from Justice Louis Brandeis, of the US Supreme Court, that "sunlight is the best disinfectant".


It also suggests that in today's climate of heightened suspicion, we should perhaps expect less corruption.


Until now, the stars at uncovering corruption have been whistleblowers and investigative journalists. While they will continue to play a role, the lesson from Duggan and Levitt is that economists and statisticians ought to take their place on the starting bench.



A jobs miracle that has baffled the experts, Canberra Times, 5 March 2001 (with Justin Wolfers)


One of the most striking features of the recent US Presidential campaign was the absence of any meaningful debate about unemployment. By contrast, joblessness has been a major issue in every Australian election campaign since the mid-1980s. While this comparison partly reflects different political cultures, the primary reason must be the seemingly miraculous performance of the US labour market over the past decade. Economists who had long argued that unemployment could not go lower than 6% without sparking inflation were embarrassed to see unemployment sink past that level in September 1994, and since fall below 4%, with inflationary pressures barely evident. The "natural rate" of unemployment, it seems, is not so natural.


What can Australian policymakers learn from this extraordinary experience? It depends on who you ask. Some on the left tend to deny this unemployment miracle, pointing to high incarceration rates and demographic shifts as evidence that the numbers are being distorted. Many on the right argue that these developments are a vindication of laissez-faire policies. An intriguing study by Professors Larry Katz (Harvard) and Alan Krueger (Princeton) evaluates these claims.


"The High Pressure US Labor Market of the 1990s", published by the Brookings Institution, starts by examining demographic trends. The highest unemployment rates, Katz and Krueger point out, are amongst teenagers and young adults. This meant that in the late-1960s and 1970s, when the baby boomers entered the labour market, the unemployment rate rose. But by the 1990s, the boomers had become mature-age workers, bringing unemployment down again. They estimate that these demographic shifts have reduced unemployment by 0.2 % since the 1980s.


Secondly, Katz and Krueger identify the effects of increasing casualisation of the labour market, and particularly the development of the temporary help industry. Earlier research, they point out, has shown that such agencies are playing an increasingly important role in screening potential employees and providing computer training. By comparing unemployment rates in those states that have a well-developed temporary help industry with those that do not, Katz and Krueger conclude that the industry has helped reduce unemployment by up to 0.4%.


Next, what role was played by efforts to improve "matching" between the long-term unemployed and work opportunities? New initiatives put in place in the 1990s required the long-term unemployed to make use of re-employment services in order to continue claiming benefits. However, with long-term unemployment barely evident in the US, these programs were too small to have a noticeable impact on the unemployment rate.


The fourth factor is increased incarceration rates. As a result of "tough on crime" policies, 0.9% of American adults are now in prison – twice the proportion in custody in 1985. Assuming that only about one-third of those behind bars would otherwise be employed, Katz and Krueger estimate that the jail boom has shaved another 0.1-0.2% from the unemployment rate.


Finally, the two economists assess the combination of weaker unions and worker insecurity. With fewer than one in ten private-sector workers in a union, and lower trade barriers placing firms under more competitive pressure than ever before, they contend, workers have been unable to press for wage gains as forcefully as they might have done in the past. However, while the "weak backbone" thesis has often been cited by Federal Reserve Board chairman Alan Greenspan and media pundits, Katz and Krueger find little quantitative evidence of such heightened insecurity.


So what are the implications of all this? While these five factors explain at best half of the decline in unemployment, they clearly show that the US unemployment miracle is neither a figment of distorted data, nor a reflection of fundamental structural change. Yet although the exact causes of the low jobless rate remain something of a mystery, there is reason to believe that a sustained economic boom can substantially lower the natural level of unemployment. The dismal science may be uncomfortable with miracles, but this is one that we should do our best to understand. Getting Australian joblessness down to US levels would be a substantial achievement indeed.




Vote Buying in America, Online Opinion, November 2000


Say "vote buying" to your average political scientist, and he or she will probably respond with "Bangladesh", "Zimbabwe" or "Indonesia". That is, unless they’ve been watching the US election campaign closely, because that’s exactly what’s happening at the moment.


If you are a registered US voter, the process is as simple as logging onto Vote-auction.com, and checking the going price. Anonymous bidders state their price, depending on which state the voter is from. For example, this week a vote in the safe state of Texas is worth just $4.19, but one in marginal Michigan will garner $22.73. If a majority of voters were willing to sell their votes, winning the Presidency would cost between $200 million and $1.1 billion (based on 1996 turnout figures). Given the power of the Presidency, many interest groups would consider that a steal.


For budding vote-sellers, though, there’s a small catch. Due to a recent court ruling, they won’t actually see the proceeds of their sale. Instead, the money will be donated to a charity of their choice. The amounts on offer appear substantial – with the site’s owner claiming to have been offered over $260 000 by various bidders. This claim is unproven, though we can be certain about something else – officials in at least four states of the US are preparing to take legal action against Vote-auction.com.


Presumably the practice of vote-buying will be quickly stamped out by legislation, but it will much trickier for officials to tackle the other practice that has emerged over the past few weeks: vote swapping. This arises from a simple problem. Gore needs to obtain a majority of electoral college votes (in most states, the candidate who wins the most votes gets all the electoral college votes from that state). Nader needs to win 5 percent of the popular vote, entitling him to Federal matching funds for the 2004 election, but most Nader supporters don’t want Bush to win.


When you think about it, the surprise is that it took until October for someone to come up with a solution that benefits both parties. Gore voters in safe seats agree to vote for Nader in return for Nader voters in marginal seats agreeing to vote for Gore. At least five websites are now dedicated to just this purpose – winwincampaign.org, nadertrader.org, votematch.westsidebeta.com, voteexchange.com and nadergore.org.


The legality of these sites is unlikely to be tested until well after polling day. In the meantime, those using them argue that what they’re doing is no different from what politicians do every day – you do me a favour, I do you a favour, and we’re both better off. In a country where electors can only tick one box, advocates of vote-swapping contend that it provides the same benefits as preferential voting.


Interestingly, whilst it could provide substantial benefits to both Gore and Nader, vote-swapping has emerged as a purely grassroots movement. Gore is probably glad of it, but for obvious reasons, can’t lend his support. Nader, on the other hand, seems quite happy with the prospect that he might deliver the election to Bush – and perhaps even a little miffed at the emergence of vote-trading.


Whether the next President is Bush or Gore, my guess is that 2001 will see a heated debate over whether or not to wipe out vote-buying and vote-trading. But until then, the United States has once again shown itself to be the country where the market rules supreme.



Howard Dumbs Down Policy Debate, Australian Financial Review, July 6 2000 (with Justin Wolfers)


There are probably only two theories that elicit agreement among economists.  First, generating and refining new ideas is the key to continuing improvements in living standards. Second, competitive markets usually produce better outcomes than monopolies.  Yet while Canberra’s economists have levelled every playing field in sight, chanting the mantra of deregulation, privatisation and corporatisation, they act as though there remains one market in which competition is unwarranted.  Not surprising for a group that understands self-interest so well, the last great monopoly is the market for economic policy advice.


The Australian policymaking process is stymied by a lack of sufficient data and analysis in the public domain. Government reports are often produced not with the aim of fostering informed debate, but in an attempt to mollify the voters. The underlying technical analysis is rarely released.  Yet if research by government boffins is not made public, how can it be contested? In the market for policy ideas, the invisible hand is tied behind the public back, when it should be allowed to deftly sort out the best ideas and analysis.


This need not be the case. In the United Kingdom, a slew of green papers (which raise options) and white papers (which outline proposed legislation) encourage careful examination of policies. In the United States, the complete separation of the legislative and executive branches of government requires the President to substantiate his proposals with detailed analysis if they are to have any chance of being approved by Congress. Yet despite our Anglo-American political history, neither practice has prevailed here.


Indeed, recent years have seen the problem worsen. Since 1996, the Howard Government has refused to publish its modelling on the costs of meeting the Kyoto targets on greenhouse gas emissions, failed to provide its analysis substantiating the scrapping of the superannuation co-contribution, declined to release an independent report on productivity on the Australian waterfront and rebuffed calls to make public the most sophisticated econometric analysis of the GST. In each case, taxpayers had paid for the research, yet were denied the benefit of having it openly dissected and debated.  Do not be surprised if the effects of the GST differ from what the government has been predicting.


Even the key statistics are not readily available. Unlike its US counterpart, the Australian Bureau of Statistics releases very little of its information on the internet. Everyone – including academics and charitable bodies – must pay a hefty subscription rate. Businesses can afford to pay for the data that affects them, but for independent policy bodies, the effect is to further discourage the provision of timely, high quality analysis.


This monopolisation of information sits oddly with the neo-liberal orientation of the Howard Government. Whilst promoting public versus private sector competition in health care, telecommunications and employment services, the Government seems to eschew competition in the vital area of policy formulation. What’s good for Employment National is not, it seems, good for the Department of the Treasury.


Ideally, a process analogous to “creative destruction” – whereby innovation destroys old firms and creates new ones – can also operate in the policymaking arena. With free and informed debate, innovative thought will flourish, and new ideas will supplant old ones. As the pace of change accelerates, creative destruction should help government continually reinvent its institutions and its policies.


The stultifying effect of monopolizing the market for advice is to “dumb down” our policy debates. The High Court has held that freedom of political speech is protected by our Constitution, since the community has an interest in information, opinions and arguments concerning government and political matters. But the quality of political debate depends on whether the government provides sufficient basic information for these opinions and arguments to be informed. Free but uninformed speech helps no-one.


With insufficient analysis to wrestle with, it is not surprising that our think-tanks have become little more than speechmaking venues.  If the information sluices were opened up, these think-tanks might once more engage in the process of serious policy debate.  It is simple economics to argue that if the market for ideas remains uncompetitive, the quality of our democracy must suffer.


Until this is acknowledged, however, we taxpayers will continue to suffer the ignominy of paying for analysis that our government is too fearful to expose to public scrutiny. How ironic – to have a government that spruiks the rhetoric of competition, yet insists on monopolising information.




Unfair Admissions Index, Sydney Morning Herald, December 13 1999 (with Justin Wolfers)


As final year high school students throughout New South Wales wait anxiously for their results, educators are no doubt bracing themselves for another annual ritual – the debate over scaling of University Admissions Index (UAI) scores. Once again, parents, teachers and bureaucrats will argue over the process of statistical adjustment. Which should be worth more – 70% on a Chemistry exam, or 70% on a Japanese exam?


But is this really the right focus of debate, or should we be thinking more broadly about scaling? Fundamental to equality of opportunity is the notion that a hard-working student born into a poor family should be able to gain a university degree.  Although the rough winds of HECS have shaken somewhat Gough Whitlam’s dream of free higher education, this democratic ideal is still central to the way in which most Australians think about access to universities.


Statistical scaling ensures equality on one level, by making sure that we are comparing apples earned in the English classroom with apples earned in the Maths classroom.  But is this enough?  Is a UAI of 75 from a girl at a privileged private school who has had over $10,000 per year spent on her education really equivalent to a UAI of 75 from one who has had to struggle in an underperforming school in Sydney's western suburbs?  Should the score of a Professor’s son who has grown up surrounded by books really be treated as identical to that of a boy who has had to struggle for emotional stability through his parents’ divorce?


Those who calculate the United States tertiary entrance scores – the so-called SATs – clearly do not think so. They have recently suggested that students who excel despite coming from a disadvantaged family, neighbourhood or school be labelled "Strivers". Tom Ewing, whose company runs the SAT, argues that a child who has to "dodge bullets" on the way to school yet still does as well as one from an elite private school, should have an advantage when it comes to allocating university places. "If they can succeed under those circumstances," he said of the disadvantaged students, "they can succeed in college."  By being labelled a Striver, he hopes to give university admissions committees "an indication that there's more than meets the eye".


When the Strivers proposal was put forward in the US, an angry debate ensued, with the supporters and opponents of affirmative action taking predictable positions. Yet the conflict mostly focussed on whether race should be a factor in describing Strivers, rather than on the underlying concept of identifying those who have overcome disadvantage. Indeed, following a court decision that banned explicit affirmative action by Texas universities, state governor and Republican presidential hopeful George W. Bush required state-funded universities to offer a spot to any student finishing in the top ten percent of any high school. Like the Strivers scheme, Bush’s plan clearly recognises the importance of extending the opportunity of a university education beyond the privileged few.


In fact, adjusting tertiary entrance scores in Australia is not new either. Those who administer the UAI regularly boost the scores of students who are disadvantaged by an unexpected illness or family crisis. Universities also have their own equity plans. The University of Newcastle, for example, adds four extra UAI points to students from schools in particular parts of New South Wales, including the Hunter and the Central Coast.


If we can adjust the scores of sick kids and kids from regional schools, there seems no obvious reason not to broaden it to a system of affirmative economic opportunity. What might the implications be? Lecture rooms would certainly become more diverse, spelling an end to the socio-economic and ethnic homogeneity of institutions such as the University of Sydney. But what would happen to the quality of education? Would the newly admitted Strivers be up to the task?


Asked whether tertiary entrance exams understated the academic potential of students from low-income families, noted Harvard sociologist Christopher Jencks replied "I know no evidence that supports the theory". He argues instead for a more nuanced approach, whereby universities consider not just test scores, but also "information about the student's own experiences", whether they attended a "lousy school" and if there is "evidence of strong ambition". A more sophisticated approach perhaps, but one which would require Australian universities to change their long-held reluctance towards broadening the criteria for admission.


Perhaps any reluctance towards boosting the scores of disadvantaged students should be tempered by one other fact. Rich students who just miss the cut-off can now buy a place in most university courses. Educators evidently believe that these fee-paying students can keep up with the coursework – otherwise they would not have admitted them. If so, surely the same is true of the Strivers – who have reached the same league, despite struggling against economic and social hardships.




Abortion's Secret Legacy, Melbourne Age, November 11 1999 (with Justin Wolfers)


One of the hottest debates among American criminologists over the past few years has been why the US crime rate, rising since the 1960s, has fallen sharply during the 1990s. Political fortunes have been made as politicians have claimed vindication for policies that are tough on crime, including longer jail terms, better policing, and the end of the crack epidemic. Some liberals have countered that reduced crime is yet another benefit of a full employment economy.  But two leading academics have just put forward a much more radical proposition – that the legalisation of abortion explains a large part of the drop.


Their case is stunningly simple. The 1973 Supreme Court decision in Roe v Wade effectively legalised abortion, leading to a dramatic increase in the number of terminations performed. The turning point in violent crime in the 1990s coincided with the period when children born in the post Roe v Wade era would be reaching their late-teens, and this decline has continued as this generation reaches the peak ages for criminal activity.


The researchers – Dr John Donohue (Stanford University) and Dr Steven Levitt (University of Chicago) – cite several pieces of evidence to support their explanation. First, the drop in crime came around 1992, following roughly twenty years after Roe v Wade. Secondly, it was disproportionately concentrated among those under 25. Thirdly, the handful of states that legalised abortion before Roe v Wade were also the first to witness a fall in crime. Fourthly, states with high abortion rates had larger reductions in crime than states with low abortion rates. Donohue and Levitt estimate that crime in 1997 was 10-20% lower than it would have been without legalised abortion – explaining around half of the drop in crime.


Predictably, when the findings of the study were made public, the responses were fast and furious. Pro-lifers were outraged at the study's logic, arguing the murder of a million foetuses is not offset by 6,500 less homicides. Meanwhile, the left voiced discomfort with the eugenics-like notion that greater numbers of abortions – around 40% of which are by blacks and minorities – weeded out society’s villains. To these charges, the writers responded that they were simply explaining a phenomenon, not advocating an agenda.


When the political dust settles, we might – surprisingly – learn something far more interesting about child-rearing than about abortion. Roe v Wade had only a minor effect on the number of children brought into the world – its main effect was to change when they were born. Thus, the main effect is not that the underprivileged have less kids, but rather that all of these children are born when the mother feels more ready to raise kids. Thus, Levitt argues that the main finding is simply "that when you remove a government prohibition against a woman choosing, the woman makes choices that lead to better outcomes for her children."


What about Australia? Like most developed countries, we experienced what Francis Fukuyama calls a “great disruption” in the period following World War Two. Part of this was a rise in crime. On their face, the statistics are astounding – with rates of violent crime and theft growing tenfold in less than forty years. Much of this, however, must be attributed to higher reporting rates. A more reliable guide is generally considered to be homicide rates, which are both comprehensive, and also considered to be a good indicator of rates of other violent crimes.


From the end of the war onwards, Australia’s homicide rate climbed steadily – from an annual rate of around 1 per 100 000 in the 1940s to a peak of 2.4 per 100 000 in 1988. Thereafter, it has slowly declined, staying below 2 people per 100 000 throughout the 1990s. Australian criminologists have attributed this fall to a range of factors – chief among them the reduction in the proportion of young people in the population, shifting attitudes towards violence and higher incarceration rates.


But could the legalisation of abortion also have contributed to the drop in crime? Perhaps the best way of approaching this question is by considering each of the four factors pinpointed by Donohue and Levitt.


First, did the drop in crime follow around twenty years after the legalisation of abortion? Whilst there is no single Roe v Wade-type decision in Australia, a number of seminal changes can be identified. Court decisions in Victoria in 1969 and New South Wales and the ACT in 1971 substantially broadened the circumstances in which abortions could be legally performed. Legislative changes in South Australia in 1969 and the Northern Territory in 1974 had a similar effect.


The changes did not occur in every jurisdiction. In Tasmania, Queensland and Western Australia, the legal status of abortion remained unclear throughout the 1970s. But for over two-thirds of the Australian population, the change occurred in the late-1960s or early 1970s – or about 20 years before the drop in crime rates. Indeed, just as the legalisation of abortion in most parts of Australia preceded Roe v Wade by 2-4 years, so the fall in Australian homicide rates preceded the drop in the US by a similar amount of time.


Secondly, was the fall in crime disproportionately concentrated in those under 25? Unfortunately, the relatively small numbers involved make it difficult to draw any statistically significant conclusions on this point.


Thirdly, were those states that legalised abortion earlier also the first to experience a drop in crime? Some evidence seems to suggest so. Victoria (which legalised in 1969) saw homicide decline from 1987-88. New South Wales (which legalised in 1971) saw homicide decline from 1989-90. The Northern Territory (which legalised in 1974) saw homicide decline from 1990-91. By contrast, Western Australia (where the legal status of abortion remained unclear until recently) has not seen any significant drop in its homicide rate. Yet the evidence for other regions does not support this proposition. At best, we can say that this part of the theory holds for the states where most Australians live.


Fourthly, we come to the smoking gun – did states with higher abortion rates in the early 1970s have lower crime rates in the 1990s? Unfortunately, only one state – South Australia – kept official statistics on abortions performed during the 1970s. These showed that the 1971 legalisation of abortion in South Australia led to a large increase in the number of abortions performed over the subsequent three years. Reporting in 1977, the Royal Commission on Human Relationships cited this phenomenon, and concluded that New South Wales and Victoria probably experienced a similar increase following their legalisation of abortion (even accounting for the number of illegal abortions performed before legalisation). Unlike Donohue and Levitt, we cannot point to statistics showing an increase in the number of abortions performed in the first states to legalise abortion. However, there does seem to be a strong connection between the legalisation of abortion and an increase in the number of abortions performed.


Whilst Donohue and Levitt’s theory does not fit Australia perfectly, there is enough evidence that we should be suspicious next time we hear a politician or police chief taking responsibility for the latest drop in crime. And the good news is that if this theory is correct, the fall in crime is here to stay.