Teaching The Public Service To Obey Its New Masters

Earlier this year, Tony Abbott promised there would be no “night of the long knives” if he won the election.

Back in 1996, John Howard dumped six departmental heads – one third of the total – immediately on taking his position as prime minister. It was the biggest overhaul of the public service since federation.

Howard’s one fell swoop is now legend. With this act, he took absolute political control of the public service immediately – a public service that had worked for Labor for 13 years.

But his critics claimed the night of the long knives was destabilising. Subsequent opposition leaders have rejected doing anything of the sort. Mark Latham promised no public service upheaval on the eve of the 2004 election. In 2007, Kevin Rudd left things as they were.

Abbott’s promise no doubt was to reinforce that there would be nothing controversial about returning the Coalition to government. Yet the new Prime Minister may end up regretting this promise more than any others.

Like it or not, the Westminster tradition – of a frank and fearless public service dispensing objective and politically neutral advice while unflinchingly obeying the elected government – has always been a self-serving fiction.

The tradition dates back to the British Northcote-Trevelyan Report in 1854. Essentially, the idea is that public servants serve at the pleasure of the monarch, not the elected government. Yet, at the same time, they are supposed to be nothing more than servants of their ministers.

No surprise then that there have been constant complaints throughout Australian history that the public service has pushed its own agenda.

The new government will be deluding itself if it thinks it can just seamlessly slot itself straight into the bureaucratic institutions of the previous government.

John Howard knew this better than any other new prime minister. Howard had been treasurer in Malcolm Fraser’s government two decades before he formed his own government.

Treasury has always been the most powerful department of state. And Treasury has always been the most capable of wielding independent influence over politicians.

The new Treasurer Joe Hockey has been waging a Cold War against his now-department for the last year or so. He is even going to bring in external auditors to scrutinise the methodology behind Treasury forecasts.

But once the political heat dies down, and the government gets on with the tedious job of governing, Hockey is going to come face to face with the “Treasury view”.

The Treasury view is the institutional economic philosophy that governs Treasury advice. For the first half of the twentieth century, the Treasury view consisted of unflinching support for balanced budgets and low inflation.

After World War II, Treasury was converted to Keynesianism, and the goal of preventing inflation was pushed aside for greater public spending.

The disastrous stagflation that resulted in the 1970s saw Treasury move towards free market economics, with an emphasis on privatisation and market reform. In the 1980s and 1990s, academics were complaining that the public service had been captured by “economic rationalists”.

But there were changes still to come. In their book Shitstorm, Lenore Taylor and David Uren recount how at the end of the Howard years, senior Treasury figures secretly brainstormed a change in how the Australian government should deal with economic downturns. Rather than relying on monetary policy to keep the economy above water, it would immediately enact massive Keynesian stimulus.

When Labor took over in 2007 just before the Global Financial Crisis, this policy revolution had its moment to shine. Treasury’s revived interest in Keynesian activism lined up with the interventionist instincts of Kevin Rudd and Wayne Swan.

Yet the interests of the bureaucracy and the interests of their political masters don’t always line up so neatly.

David Kemp tells a dramatic story about Treasury’s opposition to the decision to devalue the Australian dollar by 17.5 per cent in 1976.

Malcolm Fraser requested Treasury write an economic statement in support of devaluation that he could read in Parliament. Yet the department sent back, churlishly, a bare, useless paragraph. As Kemp says, this was extraordinary. When asked to defend a policy it did not support, Treasury essentially went on strike.

So much for the Westminster ideal.

Still, such a public service strike could not happen today. One reason is introduction of New Public Management – the reorganisation of the public service since the 1980s to make it more efficient, more corporate, and more responsive to its political masters.

Another reason is Howard’s dramatic demonstration of political control in 1996.

The last reason is the rise of ministerial advisors. This dates back from the Whitlam years. Gough Whitlam wanted to avoid being controlled by conservative public sector mandarins, so he brought in his own people as an alternative source of advice.

Political advisors will be particularly important for the Coalition because new ministers – especially those without any previous experience – are vulnerable to capture by their departments.

Neil Brown’s book On the Other Hand ought to be compulsory reading for new Coalition ministers. Brown joined Malcolm Fraser’s ministry at the tail end of the government, and in his book he amusingly documents the experience of being a ministerial trainee up against the permanent, experienced public service.

Brown says the public service divides ministers into good and bad categories. The good ones act on behalf of their department, approve their proposals, and fight for their department to get more money at budget time.

The bad ones are those who believe they are there to control their department, to scrutinise and sometimes reject its policy recommendations, and to do their own reading and thinking.

As Brown wrote, “If a minister is regarded by the public service as bad, he might just be coming close to being what ministers should be.”

Tony Abbott will probably not renovate the upper stories of the public service as his mentor John Howard did. But the first few months of a new government are critical.

If ministers like Joe Hockey don’t push back against the institutional orthodoxies of the public service early on, they may find themselves unable to do so when it counts.