TASMANIA IS NOT at a tipping point, in the sense that the looming changes it faces are irreversible. However, Tasmania does face a key challenge of better understanding leadership – in terms of the risk-management role of government, the capacity of society to compromise, and the importance of the community choosing leaders who confront this challenge.

Government has been described as the ultimate risk manager.[i] In his response to Laura Tingle’s Quarterly Essay, ‘Great Expectations’ (Black Inc, 2012), Dr Andrew Leigh, the Federal Member for Fraser, has taken up this idea.[ii] Much of Leigh’s discussion focused on the financial risks from which individuals and the community desire and deserve protection, focusing on public goods (such as national defence, public health and education, and social welfare) in relation to which government effectively provides risk insurance to the community. In expanding on this theme, Leigh also observed that ‘how a government manages risk says a lot about its values’.

This is a critical issue for Tasmania. Our recurrent ideological battle between the environment and conservation on one hand, and economic development and growth on the other, is essentially a conflict between two different sets of values that are perceived to be mutually exclusive. The art of compromise, or trading off some points for the greater good, largely has been lost.

Recalling the three so-called mega-projects proposed in the past three decades – the Gordon-below-Franklin hydroelectric scheme, the Wesley Vale pulp mill and the Bell Bay pulp mill – Tasmanian governments generally have been pro-development. It is useful to examine the last of these projects, in particular, through the prism of risk management.

In principle, the balance between development and conservation should be based on a methodical assessment of risk, on a case-by-case basis. Environmental regulation is set in a legislative framework that essentially outlines the risks that the parliament, representing the community, is willing to accept.

Over time and between electoral cycles, the values that underpin these risk assessments will vary, which will be reflected in policy and regulatory developments and, to a lesser extent, key appointments. As those underlying values evolve, a government’s key obligation is to provide confidence to the community and investors in the planning and regulatory approvals, in the institutions established by the laws of that parliament, and in the government’s support for the expert regulators and scientists that they appoint. In other words, leadership is required to support the risk-management framework.

The Bell Bay pulp mill was proposed by Gunns Limited for Tasmania’s primary heavy industrial precinct north of Launceston. After delays in and legal challenges to the formal approval process conducted by the Resource Planning and Development Commission, Gunns withdrew its applications in March 2007. Subsequently, in place of the statutory process overseen by an independent expert body, parliament legislated to create a statutory process overseen by an external consultant appointed by the Tasmanian government. Gunns was still required to obtain a range of permits from the Federal Government; but by proposing a different statutory approval process, the State Government effectively usurped the independent experts that it had appointed to review the project.

This is not a comment on the merits of this pulp mill project, the approvals process or its environmental impact. Rather, it is an observation that the government of the day was driven by a desire to mitigate the economic risk of the project failing to progress – perhaps in turn based on a desire to remove constraints on economic development, if the risks to the environment could be demonstrated as manageable, regardless of the process for making that assessment.

In response to the social unrest triggered by this project, Gunns subsequently initiated a process that it hoped could lead to the community reconciling itself to ongoing native forest harvesting to supply the pulp mill. Gunns’ intent here was commercial, as it was seeking certification from the Forest Stewardship Council, which emphasises the social aspects of harvesting. A positive result was that – on one of the few occasions in recent Tasmanian memory – opposing groups of stakeholders came together in an attempt to achieve some common ground in a process now known as the forestry peace talks, involving environmental non-government organisations and forestry industry groups.

Over time, as negotiations continued (and on occasions appeared to stall if not cease) the context changed, and Gunns effectively withdrew from the Tasmanian native harvesting market under financial pressures. Nevertheless, the Tasmanian Forests Agreement was finalised in November 2012, and quickly progressed into a Bill passed by the House of Assembly. Disregarding the widespread opposition from many other stakeholders as outlined in the Legislative Council’s Select Committee report[iii] and the eventual fate of the agreement, a positive outcome was that these groups at least forged considerable agreement and mutual trust in the process.

On the other hand, the pulp mill approval process has probably contributed to polarising the debate in Tasmania between development and conservation. In turn, this has led to a deterioration in the community’s trust in the regulatory frameworks that operate under state and federal law. Without confidence in those frameworks, there is now a greater risk of populist movements arising that call on elected officials to intervene in the assessment process. Each time a government bows to such pressure, it emboldens activists and encourages elected officials (who are not experts in planning or resource management) to usurp duly qualified and appointed experts.

TASMANIA HAS BEEN a leader in environmental issues in many respects. Most obviously, the green activist movement and Green parliamentary representatives emerged, and became established, in Tasmania well ahead of other jurisdictions. The Greens have become a permanent presence in the Tasmanian parliament, and with the balance of power in the House of Assembly, have supported a minority government led by Labor on two occasions – the Field Government between 1989 and 1992, and the Bartlett/Giddings Government from 2010 – and the Liberals’ Rundle Government between 1995 and 1998.

However, our parliament is yet to find an effective way of coping with this dynamic, with a variety of structures tested and usually failing the twin tests of stability and long-term decision-making. On each occasion, resource security has been a key test of the strength (or more accurately the weakness) of the government.

In the present parliament, since becoming Premier in January 2011, Lara Giddings has driven significant budget reforms to return Tasmania’s finances to a sustainable fiscal position – in other words, mitigating the risk of much higher taxes and/or deeper cuts to public services in the future. This reform is absolutely necessary, due to Tasmania’s narrow revenue base. Own source revenue comprises only 38 per cent of total revenue, GST distributions provide 37 per cent, and other federal government grants contribute the balance – and each of these revenue sources could be undermined. These reforms therefore should be supported. Further, while sustained effort is required and momentum may be slowing, growth in employee expenses has been reduced from 7.2 per cent per annum to a more manageable 1.6 per cent per annum on average from 2012-13 onwards.[iv] However, the Giddings government remains strategically exposed on the front of resource management, where the Greens (rightly or wrongly) can claim the moral high ground.

Thus there are very interesting dynamics currently at play in Tasmania: selected (or, according to some critics, self-selected) parties that sought a compromise in forestry; polarised public opinion on resource management questions in the broader community, with increasing calls on elected officials to usurp the appointed expert advisers and scientists they appoint; and a government showing leadership on key issues but lacking the ability to compromise on others.

ELECTED OFFICIALS IN Tasmania often fail to provide the leadership that could steer the community through the risk-management dilemmas of resource management. We should aspire to a position where the community has better faith in our risk-management frameworks. This demands recasting compromise as a position of low, not high, risk.

Here it is worth considering that, beyond the challenge of resource management, the government may be assuming more risk on behalf of the community than is readily understood. Portfolio theory suggests the lowest risk position involves investing in a diversified portfolio of assets that collectively reduce risk relative to individual assets. This can be applied to economic development strategies. Historically, the focus of various state governments on the three mega-projects discussed earlier has increased the state’s risk profile – by diverting scarce resources (including bureaucratic and ministerial effort) from a portfolio of smaller, and less socially divisive developments. In Tasmania today, although our focus has shifted away from mega-projects as the driver of economic development, government still has a tendency to attempt to pick winners at an industry level.

The Tasmanian government’s current Economic Development Plan[v] has many layers of goals and strategies. While many of these are broadly based, the second goal – Maximising Tasmania’s Economic Potential– is based on key growth sectors that are not necessarily supported by underlying market opportunities. For instance, opportunities in large-scale renewable energy are extremely limited, given the technical constraints in the energy system and current oversupply in both generation output and capacity. The plan does identify smaller scale opportunities, which are tied to a broader goal of sustainability, but any competitive advantage accruing to Tasmania at this level seems extremely marginal relative to other Australian states.

Unless the Economic Development Plan evolves with genuine market opportunities, Tasmania risks investing considerable resources in a number of industries with insufficient prospects of growth to justify the investment. A less risky outcome would recognise that market forces will ultimately deliver the mix of economic outcomes consistent with Tasmania’s capital and human endowments; and that the role of government is to facilitate economic activity that operates within the accepted environmental and planning frameworks.

This is well demonstrated by the arrival and impact of the Museum of Old and New Art, located in Hobart’s northern suburbs, where incomes and median house prices are well below Tasmanian averages.[vi] This development and its success could not have been foreseen, let alone planned for, by any government. Indeed, MONA is an almost ‘random walk’ (as an economist or mathematician might put it) – with the right location, an enthusiastic and wealthy proponent, and a timely opportunity leading to its development.

Instead of chasing contentious mega-projects or otherwise risky portfolios, Tasmania should learn from its success as a national (and in some respects, global) leader in social reform. Despite Tasmania’s innate conservatism and stagnant demographic profile, many social reforms have driven microeconomic gains that are impossible to measure – yet they add up to a bigger contribution to economic growth than either failed mega-projects or a portfolio of failed sectoral strategies.

DOES TASMANIA HAVE the human capital necessary to achieve its potential?

As Andrew Leigh has pointed out, education and health are areas where government has traditionally managed risk: ‘Managing risk explains why we have…a public health care system to deal with the risk of illness, and a public education system to remove the risk that a poor family might not be able to afford to educate their child.’[vii]

Tasmanian governments have chronically failed as a risk manager in both these areas. It is increasingly acknowledged that Tasmania has a long-term problem in skills and educational attainment. The 2012 NAPLAN preliminary results[viii] show that 7.6 per cent of Year 9 students are below the national minimum standard in numeracy, and in all other areas, at least 10 per cent are below the national minimum standard. In the same cohort, there have been minimal improvements over the past four years in reading and numeracy, and disturbingly, spelling and grammar and punctuation have both deteriorated against the same benchmark. Further, Tasmania is well behind the rest of the country (excluding the Northern Territory) in each area, and those gaps are widening. Tasmania also has the lowest Year 12 retention rate (again excluding the Northern Territory) at around 70 per cent, which has not improved in more than a decade, and poor post-secondary school attainment. This adds up to a considerable risk that our future workforce will lack the core skills to be competitive in a flexible and mobile labour market. Considering that risks can usually be addressed by more spending, it’s disturbing that Tasmania spends more public money per student, and a greater share of gross state product, on school education than the mainland states and ends up with worse results. Very similar patterns are apparent in public health; higher spending for worse results.

It is commonly suggested that Tasmania must change its economic model to focus on higher value-added, niche markets and service-oriented industries. Yet the worrying weakness in the state’s human capital suggests that this transition will take many years, given the students already in our public education system consistently fall behind their interstate contemporaries. More worrying, in the unlikely event more funding becomes available – when the reality is revenue risks are heavily weighted to the downside – Tasmania is yet to demonstrate any capacity to deliver above-average outcomes in health and education (let alone achieve national averages). In other words, there is a high risk of throwing good money after bad.

Again, all this boils down to an issue of risk management – the state is failing in its primary risk-management role, revenue risks prevent more funding being allocated to these failings, these failings risk prolonging the transition to a new economic model because the requisite human capital is not available, but the current economic model is exposed to structural risks beyond the state’s control. At a time when leadership from elected officials is desperately needed, too few are arguing for the fundamental changes – such as better economies of scale and centralisation, or new teaching and surgical techniques – that are overdue.

GOVERNMENTS CANNOT FIX every problem or address every risk. They must prioritise the problems they seek to solve, and the genuine risks they seek to manage. Reforms in areas such as public sector and local government services, economic and social policy do always involve risk – but this is mitigated by following evidence-based policy. In any case, the risks of doing nothing are far greater. Similarly, resource development involves risk – but this can be managed by experts appointed by governments, rather than governments themselves. The community clearly needs leaders who can explain these risks and find (or make) room for compromise.

Ultimately it is our elected decision-makers who must provide better leadership. The community therefore must elect leaders willing to confront the challenges of risk management on its behalf, and to address the risk of conflicting values, particularly when they undermine effective risk management frameworks and the scope for compromise.

The community also must elect leaders who are able to work within minority governments to achieve sensible compromises for the good of the community.

The community also must elect leaders who can accept chasing mega-projects or a portfolio approach to economic development can be too risky, and may not deliver a path of economic development any better than a ‘random walk’.

And finally, the community must elect leaders willing to confront the long-term failings of Tasmanian governments to deliver effective public education and health systems.

When this leadership is delivered, risks are better managed and compromises reached as a matter of course, Tasmania can start to achieve its bright potential and participate more effectively in the global economy.

References

[i] David Moss (2002), When All Else Fails: Government as the Ultimate Risk Manager, Harvard University Press, quoted in Leigh, Dr Andrew (2012) “Response to Laura Tingle’s Quarterly Essay ‘Great Expectations'”, Quarterly Essay #47

[ii] Leigh, ibid.

[iii] Tasmanian Parliament (2013), Legislative Council Select Committee on the Tasmanian Forests Agreement Bill 2012, Final Report, http://www.parliament.tas.gov.au/CTEE/Council/Reports/TFA%20FINAL%20REPORT.pdf

[iv] 2011-12 and 2012-13 State Budget Papers

[v] Department of Economic Development, Tourism and the Arts (2011), Economic Development Plan, http://www.development.tas.gov.au/economic/economic_development_plan

[vi] RP Data (2012), http://www.rpdata.com/research/rp_data-rismark_home_value_index.html

[vii] Leigh, op cit

[viii] Australian Curriculum, Assessment and Reporting Authority (2012), National Assessment Plan Literacy and Numeracy, Summary Report, http://www.nap.edu.au/Test_Results/National_reports/index.html