The Productivity Commission faced challenges gathering evidence for its recent inquiry into the gambling industry, but reached firm conclusions.
EVIDENCE is crucial to good public policy outcomes in two respects: it helps policymakers work out which policy options are likely to achieve the best results; and it helps in getting a policy implemented in circumstances where there is opposition to it.
Opposition to genuinely ‘good’ policy – policy that makes the community as a whole better off – is actually quite common. It can be the result of ignorance or special interests. The former is an easier obstacle to overcome than the latter, since it will generally suffice to be able to explain or demonstrate the benefits of the proposed policy action.
Disarming the opposition of special interests is a lot harder. This is because evidence of public benefit will rarely ameliorate the reason for their opposition – namely, expectation of private loss or disadvantage. Thus, opposition from special interests to such policy proposals tends to persist, unless it can somehow be bought off. But this can be a perilous path for governments to take.
In such circumstances, credible evidence of the potential gains from policy change can play a vital role. It can provide government with ammunition to counter the claims of special interests, as well as alert the beneficiaries of the proposed policy to what is at stake for them – thereby creating a more active political constituency for change or reform.
In short, evidence about the public interest is the friend of the reformer and the enemy of vested interests, who will accordingly often seek to undermine it in an attempt to preserve the perceived legitimacy of the status quo.
Thus, the story of structural economic reform in Australia has been a story of the effective building and selling of evidence about the need for reform and how it should be advanced.
It represented the triumph of public over private interest – reversing previous experience – and has yielded substantial rewards to the Australian community.
Social policy harder
Evidence has played a less central or dramatic role in the evolution of social policy in Australia, at least until relatively recently. Many policies have been devised without much evidence or even close analysis. Perhaps the most calamitous instances were the policies introduced some four decades ago that simultaneously made it harder to employ indigenous people, while making it easier for them to get by without work, the consequences of which are all too evident today.
Social policy is often directed at equity goals, and reflects the (changing) norms or values of society. It is thus inherently more value laden and ‘political’ than much economic policy, and it can evolve in new directions. The focus tends to be on doing good or avoiding obvious harm to people – on the ends, rather than detailed assessment of alternative means.
It is also the case that the potential payoffs from alternative social policy measures can be very hard to evaluate in advance. Theory is often not settled and evidence can be difficult to collect, and rarely definitive.
Standard of ‘proof’
So if not quite ‘dancing in the dark’, social policymakers have access to imperfect and hard-to-interpret evidence, and they must often make their moves in the shade. Some might say that imperfect evidence should mean no policy action until there is greater certainty. In many cases, this is a reasonable rule of thumb. Its underlying premise, however, is that the consequences of wrongly adopting a poor policy (a false positive) are likely to be more costly to society than the consequences of wrongly rejecting a good one (a false negative).
But in some social policy areas, the potential cost of false negatives – not acting when it would have helped – could be much higher than false positives. In such cases, a precautionary approach may be called for, requiring a lower standard of evidence.
The test in social policy needs to be more akin to the test in civil law ‘on the balance of probabilities’, than the criminal law’s ‘beyond all reasonable doubt’.
This is all highly relevant to the history and evolution of policies concerned with gambling. For many years, the various forms of gambling were either illegal or heavily constrained in Australia.
The extensive liberalisation of poker machine gambling (in states outside WA), which occurred through the 1990s, was not the result of new evidence about the social effects of gambling. Rather, liberalisation was mainly driven by pressure from the gambling industry itself, in a policy environment that was more receptive to market forces, together with the desire for tax revenue by governments – buttressed by the mistaken view that more gambling would create more jobs.
This illustrates the special difficulty of achieving good public policy when it comes to gambling. It not only faces all the difficulties of an evidence-based approach that are inherent to social policy, it also faces the political difficulties that stem from strong vested interests. It is hard to think of another area of social policy where this combination of obstacles is so marked. Indeed, gambling has often been seen as industry or regional policy as much as social policy, with this confusion often also being present in administrative arrangements.
Evidence is thus both very important to achieving gambling policies/reforms in the public interest and very hard to assemble. In its 1999 inquiry, the commission had the benefit of little evidence other than what it was able to generate itself, including through surveys. It accordingly recommended that evidence be collected through trials and other means.
Returning to the field a decade later, we were disappointed to find that, although many research studies and policy initiatives had been undertaken, few had been directed where they were likely to do most good. Methodologies lacked consistency and key data and indicators were not always presented.
Evidence on the effectiveness of alternative harm minimisation options has been a particular weakness. In the case of gaming machines, where the social costs loom largest, there have been few targeted trials to assess the impacts of machine design features – where harm minimisation has the most potential. Where trials have taken place, their scale and design have often detracted from their policy usefulness.
All this has provided fertile ground for the selective use and misuse of data. The industry has argued that large revenue losses would result from recreational gamblers being ‘put off’ by the more effective harm minimisation measures, when in reality their revenue comes predominately from a small group of big spending ‘regulars’ – a large proportion of whom are likely to be experiencing significant problems.
Further, most of the harm minimisation measures that were introduced by governments in the decade between our inquiries had little evidence to support their efficacy, let alone cost-effectiveness. The measure that had the biggest impact – smoking bans in hospitality premises – was only incidental to gambling policy.
This illustrates the double standards displayed by the gambling industry when it comes to evidence.
The industry essentially owes its existence and current size to the lack of an evidence-based approach to liberalisation, which has resulted in extensive ‘community based gambling’. It subsequently protested only a little at the lack of evidence for most of the (ineffectual) harm minimisation measures introduced over the past decade, despite their compliance costs. But it has been insistent on high standards of proof for measures that promise to be effective.
• This is an edited extract from Productivity Commission chairman Gary Banks’ speech to the South Australian Centre for Economic Studies on March 30.