Strengthening Policy-Making Capacity in Latin America Washington, 1-2 June 2010

World Bank 1 Strengthening Policy-Making Capacity in Latin America Washington, 1-2 June 2010 Panel 2: The Policy Process in the OECD Policy Analysis in Whitehall Systems: experience and practice in Australia 1

This Presentation 2 Australian economy and government 3 The characteristics of good (strategic) policy 4 An intellectual framework for government activity 7 Does a Government need a strategic plan 9 Institutions and decision processes that assist good policy 11 Policy players outside government 18 Developing policy capacities 21 Appendix A Australian economy and government 26 Appendix B Elements of good strategic policy 33 Appendix C An intellectual framework for government activity 38

Australian economy and government 3 Open market economy; resources; favourable terms of trade Trend growth 3%; Inflation 2 to 3%; Unemployment 5% Recent budget deficits (3 to 4% of GDP) - after GFC stimulus Fiscal commitment to return to surplus in 2 years Government debt 6% of GDP- projected to decline soon Federal system; Westminster model (2 houses of parliament) Cabinet of 17 Ministers; and junior Ministers outside Cabinet Expenditure Review Committee of Cabinet Non-political career civil service; strong central departments Involved federal financing arrangements Scrutiny by the parliament Appendix A more background

This Presentation 4 Australian economy and government The characteristics of good (strategic) policy An intellectual framework for government activity Does a Government need a strategic plan Institutions and decision processes that assist good policy Policy players outside government Developing policy capacities

The characteristics of good (strategic) policy 5 Recent discussion by the head of the federal civil service in Australia has isolated the following eight elements of good strategic policy: 1. Time horizon 2. A holistic perspective 3. Clear goals and objectives 4. Analysis of underlying problems 5. Shaping the future debate 6. Finding innovative and creative solutions 7. Consideration of implementation 8. Imagining the impact on the ground how citizens, communities, businesses and systems are affected Appendix B more information

The characteristics of good (strategic) policy (continued) 6 More succinctly, a good policy process Has clear objectives Thinks wide Relates to overall strategy Thinks ahead Thinks of connections Considers delivery Can it work Can we innovate

An intellectual framework for government activity 8 Why do we need a framework? o Unifying force; methodology rather than ad hoc The view from economics o Equity and Efficiency A fuller framework for use in government policy making o Appropriateness o (technical) Efficiency o Effectiveness o Policy integration o Performance assessment o Strategic policy alignment Appendix C more detail

Does a Government need a strategic plan? 10 Many organizations and firms have a plan and find it useful All governments have some form of policy platform and priorities Not always well articulated A strategic plan can clarify broad policy directions and set priorities Some governments publish a plan e.g. the government of South Australia http://www.stateplan.sa.gov.au/ If too specific, could be seen as a political liability lock in Publication could discourage frankness and detail Some governments create a plan and do not publish Provides an authoritative reference point on broader directions when formulating policies Being internal to government it can be very explicit

Institutions and decision processes that assist good policy 12 As discussed already, good policy development is more likely to happen where there is a degree of common understanding about The appropriate role of government The intellectual framework for assessing policy actions The delivery capacities of government The broad policy directions and priorities of the elected government However institutions and decision processes are important

Institutions and decision processes that assist good policy 13 Institutions and decision processes have a major influence Contestability of advice and assessment within government A firm format and criteria for articulating options for proposed policy actions and presenting them for decision A mechanism for differing views to be presented to decision makers Collective decision making by Ministers on key actions with genuine opportunity for challenge Parliamentary scrutiny encourages rigour and accountability Independent Audit is important

Institutions and decision processes that assist good policy 14 Contestability of advice and assessment within government Strong well informed central departments in Australia are able to provide advice that competes with that of line departments Procedures require that policy proposals developed by line departments be tested, clarified and improved through early dialogue with central departments and relevant line agencies Central departments need to have both authority and capacity Central departments are recognised to have particular expertise in integrating across government, but they also develop detailed knowledge of line departments and provide alternative views and perspectives to Ministers

Institutions and decision processes that assist good policy 15 Contestability of advice and assessment within government (continued) Expertise in central agencies in Australia is developed through access to line departments and their information, and through on-the-job training and staff exchanges Processes require dialogue among departments (often through inter-departmental committees) before proposals are put to Ministers for decision A firm gatekeeper is necessary to avoid bypassing Advisers within Ministers private offices provide a separate source of advice, which is still within government So potentially there are 3 sources of internal advice: line departments, central departments and private offices

Institutions and decision processes that assist good policy 16 A firm format and criteria for articulating proposed policy actions and presenting them for decision Spending proposals for decision by Ministers in Australia need to be provided in a defined format which Sets out necessary facts and evidence including financial information and Addresses agreed decision criteria and provides options A mechanism for differing views to be presented to decision makers When proponent departments present proposals in a document for final decision, the dissenting views, or concerns or qualifications of central departments or other affected departments are required to be included

Institutions and decision processes that assist good policy 17 Collective decision making by Ministers on key actions with genuine opportunity for challenge When significant decisions are required to be made by Ministers collectively, the proponent Minister s views can be more readily challenged by Ministerial peers Parliamentary scrutiny encourages rigour Key government actions (especially proposed legislation and the budget) are examined by the Australian parliament or its committees, adding accountability and rigour In Australia, all these institutional arrangements and processes are well established Although not universally observed or enforced, they provide a basis for good policy making in the majority of circumstances

Policy players outside government 19 Contestability of analysis and advice within government in Australia and elsewhere has its advantages as discussed However informed people/institutions outside government also bring much to the Australian policy development process As advisers to government, brought inside the tent temporarily As external commentators and potential critics In advice mode external parties can bring particular expertise and a different perspective, especially to test and improve policies developed internal to government A particular benefit can be the experience that such parties have gained through addressing similar issues for other governments

Policy players outside government 20 In critique mode, the experience in Australia is that such parties can provide incisive (if sometimes unwelcome and uncomfortable) commentary and analysis on policies that have been announced or floated for comment The existence of this capacity outside government to critique policies in an authoritative way acts as a spur to more robust internal policy development In Australia and some other countries, and particularly in the United States, various universities, individuals and specific policy institutes (some funded by government) operate productively in both advice and critique modes The Australian Strategic Policy Institute largely funded by government provides independent advice and commentary on defence and national security issues http://www.aspi.org.au/ The privately funded Lowy Institute comments on a wide range of international issues http://www.lowyinstitute.org/ Private consulting firms are typically doing business in advice mode; and the media is vigorously in critique mode

Developing policy capacities 22 As discussed, having a common understanding, having some well articulated broad policy directions from the elected government, instituting good processes and rules, formats, and developing contestability in assessment and advice are all important to good policy making But the capacity of the people involved within government is also a key ingredient Selection of people with good academic training in a range of disciplines is the foundation stone in Australia Commitment by senior leadership to developing policy with rigour and on the basis of evidence and defined criteria Access as widely as possible to relevant information held across government

Developing policy capacities 23 Development of analytical capacities through exposure to policy issues at various stages of the policies development in the company of experienced personnel and in a culture of open debate within government Exposure of individuals to the discussion and decision making forums of senior decision makers Opportunities for individuals within a career civil service for periods of work in various line and central departments or in universities or research institutes The practice of people moving among departments to gain experience is well established in Australia, with interchange with universities etc less common but increasing Particular emphasis is recently being placed in Australia on the value of providing implementation experience to people whose main career role is policy analysis and development

Developing policy capacities 24 Structured training with peers at various career stages In recent years, as well as providing in-house training, successive Australian governments at state and federal levels have established a range of academic partnerships with universities to develop skills and capacities in junior, middle and senior employees Very recently the Australian federal government has established a major partnership with the Australian National University for this purpose http://news.anu.edu.au/?p=2138

Summary 25 In Australia, while there are vigorous debates among parties and individuals about policies and the appropriate role of government and of its capacities, there is a useful degree of common understanding about the framework for policy analysis, although policy making will improve as that understanding further develops There is extensive contestability of advice for decision makers (from within and outside government) There are well developed institutions and processes (not always observed and enforced) aimed at testing and comparing policy proposals and ensuring alternative views are presented, in order to maintain rigour and accountability in advice and policy making Collective decision making by Ministers on major issues assists quality and rigour, as does ex-post parliamentary scrutiny Developing and maintaining policy capacities in government employees and others is recognised as a major issue and is receiving a lot of attention by government

26 APPENDIX A: Background on the Australian economy and government The Economy The Budget and government debt System of government the parliament System of government the executive government Civil service Cooperation between levels of government

Background on the Australian economy and government 27 The economy Open resource-rich economy; educated population Prosperity linked to commodity cycle Recent beneficial movements in the terms of trade Well established markets in products and services Powerful competition law and regulator Well functioning financial markets Vigorous private sector; considerable foreign ownership Many public assets privatised in last two decades Trend growth 3%; Inflation usually in 2 to 3% range; Unemployment 5%

Background on the Australian economy and government (continued) 28 The Budget and government debt Recent cyclical budget deficits (3 to 4% of GDP) but budget is projected to return to surplus in two years Low government debt to GDP ratio (less than 6%) Following the GFC, there was major early stimulus spending, especially once-only cash transfers to individuals and funding for construction Fiscal commitments to return to surplus and keep real spending growth to 2% until surplus is 1% of GDP

Background on the Australian economy and government (continued) 29 System of government the parliament Federal system national government and 8 states/territory governments, as well as local governments in cities and regions Two houses of parliament : lower house elected every 3 years; upper house half of members elected every 3 years Two major political parties have alternated in power for many decades (changes of government in 2007, 1996, 1983, 1975, 1972, 1949, 1941) Minor parties and independents hold some seats, mainly in the upper house where there is proportional representation; governments frequently lack a majority in the upper house Political parties usually issue platforms, policies and promises before elections

Background on the Australian economy and government (continued) 30 System of government the executive government The executive government (led by Prime Minister) is formed by the party with a majority in the lower house; all Ministers are in parliament Cabinet has 17 Ministers, and an outer cabinet of junior Ministers and parliamentary secretaries Cabinet committees do much of the work, especially an expenditure review committee and a strategic committee of four very senior Ministers Committees of parliament have power to examine spending and administration of departments and question officials An independent Auditor General reports to parliament

Background on the Australian economy and government (continued) 31 Civil service Non-political civil service, mainly career based, although increasing interchange with universities and business In last few decades, Ministers private staff of advisers has grown considerably Line departments (education, health, defence etc) and reasonably well resourced central departments serving Prime Minister, Treasurer and Finance Minister and advising Cabinet Senior officials and private office advisers work closely with Ministers in Cabinet Civil service pay and conditions diverged under devolution in the last 15 years but may now converge

Background on the Australian economy and government (continued) 32 Cooperation between levels of government The Federal government raises most tax revenue and passes block revenue to state/territory governments Federal money is also provided to States/territories for specific purposes Where responsibilities are shared, there is much discussion about cost shifting and about the balance of funding and delivery responsibilities In recent decades, many unproductive differences in regulation and standards among jurisdictions have been removed, improving efficiency in the economy and facilitating national initiatives Australia has very many harmonised and common arrangements with New Zealand

APPENDIX B: The characteristics of good (strategic) policy 33 Recent discussion by the head of the federal civil service in Australia has isolated the following eight elements of good strategic policy: 1. Time horizon 2. A holistic perspective 3. Clear goals and objectives 4. Analysis of underlying problems 5. Shaping the future debate 6. Finding innovative and creative solutions 7. Consideration of implementation 8. Imagining the impact on the ground how citizens, communities, businesses and systems are affected

The characteristics of good (strategic) policy (continued) 34 The eight elements 1. Time horizon Strategic policy advice thinks beyond the next incremental decision and considers how governments may effectively position the nation for the future through their actions today. 2. A holistic perspective Strategic policy advice must consider the levers available to government across all policy domains and not restrict itself to particular silos.

The characteristics of good (strategic) policy (continued) 35 The eight elements (continued) 3. Clear goals and objectives We must know where we are going and be able to measure our success in getting there. The new framework between the federal and state levels of government in Australia is an example of where governments are putting this into practice. The 9 governments have agreed to base their policy work in a number of areas on achieving measurable improvements in agreed and shared broad outcomes. 4. Analysis of underlying problems Going beyond treating the symptoms, and understanding what is truly driving a problem and in turn how it can be addressed.

The characteristics of good (strategic) policy (continued) 36 The eight elements (continued) 5. Shaping the future debate Good strategic policy should open new opportunities for discussion and reform that would not have otherwise existed. If we succeed in this, when it comes to making a decision in the future, the discussion and thinking about the best course of action will have already begun. 6. Finding innovative and creative solutions Rather than focusing on marginal change, we should consider and take on board ideas that may seem radical. We should think about what new approaches can be used and what solutions can be borrowed from other domains.

The characteristics of good (strategic) policy (continued) 37 The eight elements (continued) 7. Consideration of implementation Where there are implementation risks, there should be a plan to manage and mitigate those risks 8. Imagining the impact on the ground how citizens, communities, businesses and systems are affected As well as citizen-centric delivery, the focus should be on citizen-centric policy

APPENDIX C: An intellectual framework for government activity 38 Why do we need one? The view from economics A fuller framework for use in government policy making

An intellectual framework for government activity 39 Why do we need one? A unifying force A methodology rather than ad hoc A framework for analysis and decision on particular proposals

40 An intellectual framework for government activity The familiar view from economics two criteria only In a functioning market economy, governments can leave much to the private sector once they have ensured that the appropriate legal and regulatory systems are in place Governments should consider proposed government actions against the yardsticks of o Equity, and o Efficiency

An intellectual framework for government activity 41 The familiar view from economics two criteria only (continued) On equity grounds governments need to intervene to implement their particular version of fairness (horizontal and/or vertical equity) by o Redistributing income and wealth, and sometimes o Allocating property rights On (allocative) efficiency grounds governments need to intervene to counteract market failure o Provision of public goods, and o Adjusting for externalities

An intellectual framework for government activity 42 The familiar view from economics an example Why subsidize education and by how much? On (allocative) efficiency grounds, we all benefit to a degree from all citizens being educated... So a subsidy is warranted to ensure optimal supply and take-up But more of a subsidy may be warranted to elementary education where spillover is high than to university education where individuals capture more benefits On equity grounds, there is a case that is fair that everyone has access to education of a certain quality this subsidized access pursues equality

An intellectual framework for government activity 43 A fuller framework for use in government policy making Some see the economist s equity/efficiency framework for policy making and assessing proposals for government activity as simplistic and of limited practical use Another framework that could be used would assess proposed policy actions or programs against six criteria o Appropriateness o (technical) Efficiency o Effectiveness o Policy integration o Performance assessment o Strategic policy alignment

An intellectual framework for government activity 44 A fuller framework for use in government policy making could be o Appropriateness Social Equity Market failure Which level of government o (technical) Efficiency Options that are simple and cost effective Minimize or manage risk Avoid administrative burden Avoid moral hazard

An intellectual framework for government activity 45 A fuller framework for use in government policy making could be (continued) o Effectiveness Workable Choosing best policy instrument Direct provision vs subsidy/tax vs compulsion Clarify objectives and assess likely benefits o Policy integration Within the one level of government Across departments and programs Avoid overlap, gaps, contradictions Across levels of government Minimize overlap, cost-shifting

An intellectual framework for government activity 46 A fuller framework for use in government policy making could be (continued) o Performance assessment How will the policy or program be assessed Robust, useful, collectable indicators Provision for periodic evaluation o Strategic policy alignment How good is the fit with overall high level strategic policies and priorities that the government may have articulated (such as boosting productivity or increasing participation by disadvantaged groups)