Government

Bob McMullan MP, Parliamentary Secretary for International Development Assistance, reminds us that while Good Governance is critical for developing countries, it's an asset that Australians can't afford to take for granted.

In November 2007, Bangladesh was struck by cyclone Sidr. Less than six months later, in May 2008, Burma was ravaged by cyclone Nargis. Both were category four storms and both struck extremely populous and extremely impoverished lower delta regions. As similar as the storms were, their effects were very different: 3,500 people died in Bangladesh; 130,000 in Burma, and the economic damage to Burma was estimated as being $3.2 billion, at least double that of Bangladesh.

The principal cause of the difference in these results is disaster preparedness. The Government of Bangladesh had taken measures to minimise the impact of future storms, the Government of Burma had not. Good governance made a real difference to lives and to the economy.

We have seen a similar story more recently following the Haitian and Chilean earthquakes. The magnitude 7 quake which struck Haiti effectively flattened that country’s already crumbling infrastructure and has killed an estimated 230,000 people. The Chilean quake and tsunami, significantly more powerful, did far less damage.

Once again the principal explanation of the different impact of these disasters is preparedness. Chile has strong building codes which are effectively enforced. The recent history of Haiti has made such standards impossible to achieve or maintain.

These stories of tragedy and preparedness may teach us many things, but they make one thing crystal clear – good governance matters wherever you live. Natural disasters cannot be prevented, no matter how well a nation is governed. By putting in place better building codes, and effective disaster risk reduction and disaster management plans, damage from natural disasters, both in economic and human terms, can be reduced.

Serious deficiencies in governance in the developing world are bought to stark light in times of crisis. In the developed world, where good governance is sometimes taken for granted, times of crisis still reveal the important role it plays.

Governance in the developed world

We have seen the importance of good governance starkly illustrated in Australia in recent years. This may surprise some who enjoy their democratic right to criticise the performance of governments in Australia. And, of course, no government is perfect. By any measure, Australia is a remarkably well governed country. Not just today, but over recent decades. Some examples are well known.

The Government’s response to the global financial crisis has been widely cited as an example of good governance. Following the catastrophic collapse of the global economy, the Government took action to stimulate the economy to support Australian businesses and jobs. Subsequently Australia has enjoyed the strongest economic growth of the world’s 33 advanced economies at 2.7%. In contrast, in 2009 the US contracted by 3.9%, the Euro area by 4.7% and Japan by 6.4%.

So outstanding was Australia’s economic performance that the International Monetary Fund concluded Australian “authorities’ timely and significant macro policy response cushioned the domestic impact of the global financial crisis”.

Over two decades ago, another piece of good governance ensured all Australians had access to affordable healthcare. The Hawke Government’s successful implementation of Medicare in 1984 completed a project begun by Gough Whitlam over a decade before. Following mounting dissatisfaction with the existing voluntary health insurance scheme, the Whitlam Government sought to, in the words of Bill Hayden, provide the "most equitable and efficient means of providing health insurance coverage for all Australians".

The Medicare project was completed by the Hawke Government in 1984 with the passing of the Health Legislation Amendment Act and its efficient implementation. It remains the linchpin of the Australian health system.

There have been other examples of good governance in Australia, which were vital to key industries but were little known at the time. For example, I recall in the period when I was Shadow Treasurer, immediately after the September 11 terrorist attacks, I received urgent representations from the property industry concerning the impossibility of obtaining the necessary terrorist insurance to allow new developments to proceed. This was important for the businesses affected, it was important for the industry and for the economy as a whole.

After necessary analysis of this genuine market failure we resolved to support a specific measure to respond to this crisis – the Terrorism Insurance Act, which saw the Government accept a proportion of the risk associated with the impact of terrorism on the insurance market. The agency which implemented the policy, the Australian Reinsurance Pool Corporation, still exists today and after a recent review concluded the scheme should continue to remain in place for another three years, as the global economic crisis had further impacted on the commercial availability of terrorism insurance.

This is an example of good governance in response to effective representation from industry organisations leading to important if largely unheralded benefits for the Australian economy over the short-term. Over the long-term, the quality of policy and implementation matters ever more.

It is true that without the Government’s economic stimulus package Australia would not have been able to maintain its current economic position. What is also true is that without the sustained economic reform agenda of the last quarter century, begun by Bob Hawke and Paul Keating, Australia would have lacked the necessary institutional strength to respond as it did to the GFC. The great structural reforms of Hawke and Keating signalled the end to an essentially bi-partisan consensus of industry protection, state paternalism, wage arbitration, imperial benevolence and the White Australia policy.

The float, financial deregulation and tariff reduction laid the foundations for the modern, resilient Australian economy.

Governance is central to development

It is impossible to overstate the importance good governance plays in development. Weak or failed states are the source of many of the world’s most serious problems – poverty, AIDS, terrorism, the drug trade to name but a few. This is as true in our region as it is elsewhere.

The spectacular collapse of Zimbabwe reveals the effects poor governance can have on development. After maintaining positive economic growth of 5% throughout the 1980s and 4.3% throughout the 1990s, the democratic polity and economy of Zimbabwe have been effectively dismantled by the Mugabe regime. At the height of this vandalism, inflation went above 1000% and Zimbabwe bestowed upon itself the ignoble honour of printing a 100 trillion dollar note. Within a generation, the food basket of Africa has been transformed into a basket case.

At the other end of the governance spectrum is South Korea. Often labelled the ‘miracle on the Han’, after the river which stretches across the Korean peninsula and winds through the capital, Seoul, South Korea is in fact a witness to a miracle of economic development. After the Korean War, the South Korean state was devastated. South Korea shared similarly moribund GNP indicators with countries such as Ghana and Ivory Coast. Yet, within one generation, South Korea’s economic development placed it amongst the fastest growing economies in the world. South Korea’s miraculous economic development often overshadows an equally miraculous improvement in the quality of governance. South Korea has become a strong and well governed democracy in parallel with its emergence as a strong and dynamic economy. It has transformed itself from an aid recipient to a generous and important aid donor.

Building strong states

The difficulties of developing well governed countries lies in the fact that there are no universal rules or lessons which can be applied to effective state-building everywhere. Good governance is a product of the culture and social structure of a country, as well as other variables which are outside the direct control of public policy.

Strong states are defined by an established and accepted social contract between the state and its citizens, wherein the citizen accedes respect to the state, the rule of law and the institutions on the basis the state exercises its power in the interests of the citizen.

Developing this social contract is the crux of state-building as it enables developing countries to undergo a long-term development process, notwithstanding the pressure from the shorter-term political cycle. Democracy is a fundamental value in itself, but evidence suggests it is also fundamental to sustained good governance. It is necessary, but not by itself sufficient, to deliver good governance.

Paul Collier, in his book The Bottom Billion, explains the conundrum of creating states to build nations. He correctly argues building democracy is neither a quick nor an easy process. The now-successful states are a result of an enduring and circuitous process that turned them into nations with which their citizens identified. It is only with this shared identity that nations are able to undertake the sustained collective action that is vital for the provision of strong institutions and public good.

In successful states, such as Australia, we take these institutions and public goods for granted (so much so that we forget how essential they are). Legally states can be created by the stroke of a pen, but it takes a sustained and concerted effort by politicians and citizens alike to create nations.

This is why the key to state-building is undoubtedly education, and this is the reason education is the flagship of the Australian Government’s aid program. Education and state-building are not designed to direct the developing world to adapt a certain model of statehood. As we have already seen, we must be aware of the nuances which effect how countries proceed along their development paths. Education is important because is equips individuals with the philosophical and political imaginations to become leaders and to take up the development challenges facing their countries. It also equips citizens to demand better governance from their leaders.

In Australia we take the fundamentals of good governance for granted. We are lucky we can afford to do this. But we must never stop demanding better performance from our governments. In my experience Australians are very forthright in their demands on their government. Our country, our economy and the links between the two are all the better for that strong but understated Australian characteristic.

Bob McMullan is Federal Member for Fraser and Parliamentary Secretary for International Development Assistance.