Small Governments remain big on deeds

The 2011 general election is less than four weeks away and hence we should brace ourselves for a flood of well-rehearsed policy announcements from all political contenders aimed at attracting our votes. Since this is the season for new ideas, we thought we would share some of the initiatives that we have come across during our research work, that are being used by countries around the world to address their public policy challenges.

Small Texas

With the state of the economy weighing heavily on everyone’s mind, Texas in the US might be able to teach us a thing or two. It has a small government with a legislature that meets for only 90 days every two years. Taxes are low and there is no state income tax. Its economy thrives as large and small businesses generate new jobs. Unemployment rates have been below the national average for more than a decade. In spite of weak state sector unions, public services are superior, with education test scores higher than those in many other states.

Lesson: Smaller governments create jobs, opportunity and wealth.

Surplus in Canada

In the mid 1990s, Canada was an economic basket case, described by the Wall Street Journal as an “Honorary Member of the Third World.” But within three years, the budget was balanced and 11 years of budget surpluses followed.

This remarkable turnaround was achieved through reigning in government spending, reducing the size of the public service, tightening up on welfare, and slashing company tax rates. Canada has continued to reduce corporate taxes giving Canadian businesses a significant competitive edge. Company tax, now at 16.5%, will drop to 15% next year.

Lesson: Lower company tax drives economic growth.

Swedish Lesson

Sweden’s progressive approach to education has long demonstrated that it is competition between schools to attract students, as well as the ability of parents to choose the best school to meet the needs of their children, that are the key factors needed to improve the educational achievement of students, and the working conditions of teachers.

Sweden introduced school choice in 1992, based on the ‘voucher’ system, which is equivalent in value to the average cost of educating a Swedish child in a state school. Parents can then use this ‘voucher’ to ‘buy’ their child a place at the school of their choice, either a state school, a private for-profit school, or a private not-for-profit school. With educational funding following students, state support flows to the most popular schools.

These virtual vouchers cannot be ‘topped up’ and hence private schools participating in the scheme cannot charge additional fees.

Lesson: Competition and choice improves educational achievement.

Italian Health

For the past 10 years, public and private hospitals in Lombardy in Northern Italy have competed directly for patients. In doing so, they are reported to have created one of Europe’s most efficient health-care systems.

Like many other countries, the State pays for health-care in Italy, with patients charged a small co-payment. As a result, most Italians do not buy private health insurance, creating a virtual monopoly of state hospital provision.

With little incentive to improve services or rein in costs, inefficiencies in the public hospital system were rampant, with long waiting lists for non-emergency treatment a telltale sign.

The Government decentralised the country’s health-care system in 1997 to provide regional control over public hospital funding. This gave regions the power to adopt their own quality standards, to set their own reimbursement rates, to decide which hospitals qualified for public funds and to withhold reimbursement if hospitals did not meet their standards.

While many regions essentially maintained the status quo, giving public hospitals preferential treatment, Lombardy took a different approach. It increased quality standards, set new reimbursement rates, and made public and private hospitals equally eligible for public funding. That meant that any hospital that met their quality standards and charged an accepted reimbursement rate, qualified.

Patients were free to choose between state-run and publicly funded private hospitals, with their co-payment being the same in either case.

Lesson: Competition and choice improves patient care.

The above is the edited version of the views expressed by Dr Muriel Newman, Director of the New Zealand Centre for Political Research, in her web-based free weekly Newsletter, NZCPR Weekly. For full text, visit www.nzcpr.com

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