Of the many outstanding contributions that former Treasury Secretary Ken Henry made to public policy in Australia, one of my favourites was the wellbeing framework. This framework established Treasury’s goal as improving the wellbeing of Australians, and identified five elements of wellbeing: the level of consumption possibilities, their distribution, the degree of risk borne by individuals and society, the degree of complexity we face in our choices, and the level of freedom and opportunity we enjoy. I liked the framework because it made it clear that Treasury should consider a range of factors, in addition to the impacts on the Budget and the economy, when assessing or developing policy proposals, including social and environmental impacts. This is good economics, as social and environmental impacts should ideally be considered in any cost-benefit analysis of policy measures or projects.
So it is somewhat of a shame that Treasury is abandoning the wellbeing framework according to an article by David Uren in today’s Australian:
Treasury has abandoned the “wellbeing framework” that guided its strategy under secretaries Ken Henry and Martin Parkinson, and which looked beyond managing the economy to environmental and social sustainability, and is instead giving top priority to fixing the budget.
Current secretary John Fraser has released a four-year corporate plan that identifies the budget, lifting productivity and securing the benefits of globalisation as his department’s principal objectives. “I wanted to focus on the things where we can have an influence,’’ he told The Australian…
…The new plan, which is focused on the economic policy issues that Treasury directly controls, contrasts with the more expansive vision which Ken Henry introduced to the department he led from 2001 to 2011. Dr Henry described wellbeing as “a grassroots statement of our mission, encompassing market, non-market, material and intangible components”.
While it is unfortunate that the wellbeing framework has been dumped, at least the Treasury under John Fraser continues to focus on important objectives related to the Budget and productivity, and it is excellent that the Treasury Secretary has identified securing the benefits of globalisation as a principal objective.
It is becoming increasingly clear that many people in advanced economies are either missing out on or are unaware of the benefits of globalisation. While there have been job losses and business closures associated with globalisation, overwhelmingly there have been net benefits to Australians, through news jobs and business opportunities, and through lower prices in real terms for a wide range of products, including clothes, furniture, and cars. Alas, many people do not appreciate these gains and there is a growing backlash against free trade and globalisation, which is manifesting itself in support for political extremists and demagogues.
I was recently alerted to some interesting research by MIT economist David Autor and others regarding the relationship between trade exposure and political polarisation in the US. From the abstract of the working paper:
Has rising trade integration between the U.S. and China contributed to the polarization of U.S. politics? Analyzing outcomes from the 2002 and 2010 congressional elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s. Trade-exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade-exposed districts initially in Democratic hands become more likely to elect either a liberal Democrat or a conservative Republican.
Like the US, Australia is at risk of rising polarisation and extremism. So it is good that the Treasury has a goal of securing the benefits of globalisation. It should re-litigate the case for free trade and globalisation, pointing out the many benefits that Australians have already enjoyed.
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