Good intentions – unintended outcomes

| May 26, 2014

Designing public policy in a multi-disciplinary world is difficult. Peter Fritz gives examples of policies with good intentions and unintended outcomes.

Policy makers have the view of an ordered world. The reality is that the world is a complex, messy place. People have an almost infinite freedom to respond to policy setup – policies, which by their nature are narrow and inflexible. With the limited opportunity for the majority of people to participate in devising public direction, we find only after the event that we missed again to see the eventual outcomes ahead. Thus often good intentions lead to unintended consequences.

Following are some examples.

We require electricity companies to supply electricity at peak demand, with no black outs occurring. This creates a lot of unused capacity with inefficient use of the infrastructure – an over-engineered system. At the same time the campaigning for households lowering the usage of their electricity has been quite successful. So while electricity companies are increasing their infrastructure spend, the government is advocating lower usage. Electricity suppliers are thus caught in a double-whammy: They invest more in a reducing market. The obvious outcome of these two opposing events is higher electricity prices. Investment at household in technology would allow lower investment for the suppliers and indeed lead to lower electricity prices.

We have been talking about reducing water consumption and Australia’s perceived water shortage with droughts etc. for some time. It worked. Households have reduced consumption. Water suppliers have been left with overcapacity and hence need to increase the price of water.

The government is talking about developing the North. The underlying thinking is that there is a lot of land, which is unused and close to the Asian market, and there is a lot of water. The reality, however, is that there is too much water at times. Over the centuries nutrients have been bleached out of the ground, and the weather patterns are worsening due to climate change. So commercial investing in the North doesn’t stack up. This solution has been dreamt up by people living in the southern parts of Australia, an area fighting for water.

We are talking about lifting the retirement age – it seems to make sense. We are living longer. Why should people retire at 65 and pick up their superannuation? The problem is that this looks only at one side of the equation. At 51 years, it takes on average 40 weeks to find work. Many people will never have a job if they lose it in their 50s. All these people will draw on the unemployment benefit. They potentially will also access the much higher disability benefit. So instead of saving, we are increasing the burden on our budget. The origin of this idea stems from Bismarck, who introduced superannuation at an age when most people were dead (in their 60s). That world is not comparable, because at the time there was no unemployment benefit or disability benefit in place.

When we introduced the idea of electronic health records, the government decided to encourage General Practitioners to participate by giving them an IT allowance to buy computers with the expectation they’ll be using them for creating electronic health records. We now know that this incentive was badly positioned, because we still don’t have a nation with electronic health records. By placing the incentive at paying for the creation of electronic health records, the General Practitioners and doctors would have had an incentive to create the records and for that they would have had to buy computers. So we positioned the incentive where it did not deliver the desired outcome.

We thought it would be important for the small and middle enterprise sector to have a Minister in one of the main Ministries like Treasury or Finance instead of something like Industry which concerns itself only with one aspect of the economy. The government duly installed a Minister for SME in the Department of Treasury. The reality is however that Treasury doesn’t understand and has a low threshold of tolerance for SMEs. The Minister for SME finds the effectiveness of his position hampered. The move made sense philosophically but didn’t have the intended outcome.

The government tells us that borrowing is bad, that we have to repay the national debt because interest costs are so high. The application of money is the issue, not the debt, i.e. what is the money used for. At the moment sovereign bonds are at an all-time low, and borrowing rates are very low. So it is actually a good time to borrow and pay back when interests increase. We can earn more with money we borrow, if well invested, than the interest we pay. This is an example of dogma versus national interest.

We are going to be paying a co-contribution to visit General Practitioners with the expectation that fewer people will be visiting the GP for companionship rather than medical reasons. The likely outcome however is that the visits to hospital emergency units will increase. The poor and elderly will postpone seeing a doctor and will only be diagnosed at a point when their health concerns are much more serious. The later intervention means a higher likelihood that they then need a more senior intervention, which obviously will be more expensive for the health system. Germany just abolished the 10€ co-payment because it was ineffective and a burden to the GPs. Given the strong opposition by the opposition and minor parties in the Senate, it seems that the proposed co-contribution is unlikely to get up in Australia.

There is a degree of knowledge in policy making, but to paraphrase Donald Rumsfeld, former United States Secretary of Defense: There are known knowns – things that we know that we know. Then there are known unknowns – where we know there are some things we do not know. And then there are unknown unknowns, the ones we don’t know we don’t know.

We each have a degree of knowledge, and that goes for policy makers as well. But we fail to consider the unknown factors that others know. There is a lack of analysis of the complexity of the issues at hand and conclusions are drawn without having considered all parts of the equation and the likely response by the public. We should form multidisciplinary teams able to design more complete scenarios, because the way we currently draft policies is too simplistic.

“I agree with you, I want to do it, now make me do it.” Franklin Delano Roosevelt