Short-term gain may bring long-term pain

15/04/2009 - 22:00

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How are political and business decisions made to achieve short-term goals of any real benefit to society?

Short-term gain may bring long-term pain

TO this simple observer of state politics from varying degrees of distance, the Western Australian parliament has had two strong and influential (if not always centre stage) personalities during the past 15 years. One is the current premier, the other is the retiring member for Fremantle.

The former, Colin Barnett, has been a champion of policy, right or wrong, the latter - while no policy slouch - a champion of politics, right or wrong. Indeed, in recent memory, there's probably been no better reader of the political play than James Andrew McGinty.

From the moment we learned that Alan Carpenter's snap decision to go the polls last year had come as a surprise to Mr McGinty, everyone knew the Labor government was in trouble.

Recently reflecting on his almost 20 years in parliament, Mr McGinty cited the move to one-vote, one-value as perhaps his greatest achievement. It's a shame the man who could work the numbers better than most savants didn't weave his magic when it came to extending the political horizon to 'long term.'

What am I banging on about? Well, it seems to me that we'd all be in a better place if decision-makers - government and business alike - took a long-term view before making decisions.

The global financial crisis is a case in point. The pursuit of annual bonuses and salary incentives is at least one factor behind the short-term risk taking that helped get us into this mess, from the packaging of sub-prime mortgages to their approval by ratings agencies. The focus on the next profit announcement - and a remuneration regime to match - rather than the long-term viability of a company is an easy trap.

At a breakfast in Perth recently, Markus Miele, the managing director of German appliance giant Miele, spoke about his company's focus on long-term, sustainable, organic growth rather than the short-term quest for profits on the back of the capital markets.

He spoke about the company's disastrous knee-jerk response to the recession of the early 1990s when the decision to discount in Australia threatened the integrity of its brand, something that had taken decades to build.

The rush by governments around the globe to spend big in response to the downturn also smacks of short termism. Some will say it was better to do something than nothing but I'm not sure the latter would have burdened future generations to the same extent.

In defence of our pollies, the horizon for many tends to extend as far as the next election, which when a week is a long time in politics probably feels like 'long term.' Add to the mix that hungry beast, the 24-hour news/media cycle, and the incessant polling, three or four years in office must seem like an eternity.

And where is the incentive to implement long-term solutions when, by the time they really bear fruit, you are no longer in power? But when the case for a long-term approach is compelling, when the data strongly suggests that a longer horizon will deliver better value for money, there should be no excuse. There are plenty of examples but two immediately come to mind.

The WA Supreme Court Chief Justice Wayne Martin told Committee for Economic Development of Australia (CEDA) members that a recent auditor general's report on the juvenile justice system showed that 250 of the worst offenders would cost the state about $100 million - about $400,000 per child.

These are direct costs, he advised, not the indirect cost to community and family.

"In direct financial terms, there is a very strong incentive to take steps to reduce the level of juvenile crime, even if preventative measures cost a substantial amount," Chief Justice Martin said. "Any money invested in reducing the incidence of juvenile crime is likely to pay substantial dividends in terms of the cost of dealing with the consequences of that crime."

A similar theme was enunciated at the recent CEDA forum on education. Melbourne University's Collette Tayler told the conference the bigger the commitment to a child's education in the early years, the greater the savings and return in the later years.

"Optimal development produces maximum gain to individuals and society whether it's through pro-social behaviour, skilling or savings in negative behaviours," Professor Tayler said.

"Omissions in the early years result in higher costs over time to the public through deeper problems that are harder to alleviate."

The WA Commissioner for Children and Young People, Michelle Scott, cited a US study which showed a return to society (eg higher taxes flowing from a better paying job and less need for welfare etc) of more than $US16 for every tax dollar invested in its early care and education program. "We have been ranked 23rd out of 25 OECD countries that were compared to set benchmarks on their investment in early childhood services," Ms Scott said.

The short-term response to the global financial crisis in some parts of town has been to sack workers, some who have been with their employers for 20 or 30 years.

Mr Miele spoke with pride of the 8,300 of his staff who had been with the company for 25 years and the 1,400 who had been there 40 years. He said their experience and expertise was worth holding onto.

The decision of other parts of town to reduce hours and wages across the board, rather than offload staff, has more of a long-term feel about it. But I don't expect it to catch on. With the eye of decision-makers on the next election or the next quarterly result, I fear short termism is here to stay.

n Tom Baddeley is state director WA of the Committee for Economic Development of Australia.

 

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