Courtesy of the Australian Financial Review
One of Donald Trump’s most eye-catching moves this week was appointing Elon Musk and fellow tech billionaire Vivek Ramaswamy as outside efficiency experts to the US federal government. Many Americans are frustrated with both the size and the cost of their government, much of it paying for regulatory over-reach that hobbles the taxpaying companies that have to fund it.
US federal agencies will spend nearly $7 trillion this year, outlays that critics say are now spiralling out of control. Musk, who has built from scratch groundbreaking industries such as commercial space flight and electric vehicles by keeping a ruthless focus on efficiencies, reckons he can strip $2 trillion from that spending.
Trump has given Musk a mandate to “slash excess regulations, cut wasteful expenditures and restructure federal agencies”. He is calling it his administration’s “Manhattan Project” after America’s effort to build the atomic bomb that ended World War II. But will it be a masterstroke that energises America by making its unwieldy government more efficient? Or will it just explode vital government functions?
Musk manages his companies by continuously deleting any expense or process whose necessity can’t be proven. The job Trump has tasked him with will pitch him against bloated government organisations such as the Pentagon, which has accumulated 600,000 private sector sub-contractors. Official budget watchdogs say it has failed to keep track of hundreds of billions of dollars in spending and transfers of equipment to them.
But there’s a bigger picture in this too. Western governments and corporations now seem bound up in process and regulatory compliance which stifles decision-making and risk-taking investment.
The rising number of non-productive occupations and work time involved in this activity may partly explain the declines in productivity growth over the last few decades.
A Bloomberg survey this week found that the Biden administration had far exceeded even the regulation-happy Obama presidency in issuing new business rules, sometimes hundreds each month, which helps explain why America’s entrepreneur class has consistently backed the rules-averse Trump.
The irony is Australia knows how to deal with its problems.
Australia doesn’t compare well in any of this. The US economy is at least growing at a healthy 2.5 per cent, driven by a still-dynamic private sector. Australia is barely growing. Australia’s strong employment figures would be flat were it not for government spending. Job creation in the public sector, mostly in the care economy, is now at a record high while private sector job creation is feeble. In the US by comparison, employment growth in the public sector has been relatively flat as a percentage of the economy, even as government spending has kept climbing.
We also have regulatory challenges of our own. It’s a wake-up call when a top regulator such as Joe Longo of the Australian Securities and Investments Commission complains that corporate law and rules have become too complex to enforce properly and need to be simplified. Companies struggle to comply. Each addition to the law is well-intentioned, the ASIC chair said this week, but the result “is less an elegant tapestry and more like a painting by Jackson Pollack”.
Australia is not the US, and our leaders are unlikely to take a Trump-style approach to managing public spending. But at least the US president-elect has been prepared to tackle the problem of an over-large and unproductive government head-on by appointing somebody like Musk to come up with answers.
The irony is Australia knows how to deal with its problems of low productivity and lack of economic competitiveness. It has numerous reports from the Productivity Commission, as well as near-comprehensive tax reviews such as that produced by then-Treasury secretary Ken Henry in 2010, which have told successive Labor and Coalition governments what needs to be done.
The recommendations in those reports would remove regulatory bottlenecks and improve the incentives to invest and earn in Australia. But – as past Reserve Bank governors Glenn Stevens and Philip Lowe have pointed out – risk-avoiding governments have left them to sit on shelves rather than take them up as policy.
Trump’s appointment of Musk may come to little, or it might crash and burn and damage the US government. But it does show the political will to deal with deep-rooted inefficiencies that our governments need to find in themselves.
