Are there too many people in the higher levels of our public service?

This week The Australian‘s Tom Dusevic reported his analysis of the growing proportion of higher-paid executives in our federal public service. He calculates since 1998 “the number of middle managers … has jumped 132%, while the elite, three grade Senior Executive Service has expanded 78%”.

This calculation is in line with the analysis done by former department head Roger Beale in a review of the Senior Executive Service. It addressed only the top SES level, not the executive tier below (EL1 and EL2), but found the SES “did not significantly expand between its establishment in 1984 and 2003. However since 2003 the SES has grown by 50%.”

The dates are important. Both Dusevic and Beale agree that this growth in senior levels has occurred under both Labor and Coalition governments. It is thus not driven by party politics. The chart below from the Beale report shows clearly that the upwards momentum started around 2003 and has continued since. In 2010 the government instituted a cap on SES staff in each agency, and in response to the Beale review extended it to 2016. That is by now likely to be moderating the trend.

Total SES: 1984-2010 (Review of the Senior Executive Service)

The Dusevic article pointed out that EL1 and EL2 growth has been even higher than the SES. Loss of people at the most junior levels has been going on for many decades in both the Commonwealth and the states/territory public services, driven largely by technology (eg the demise of typing pools) and outsourcing of some services that can be provided commercially.

This explains why there is now a higher proportion of people in senior grades, but not why the total number has been growing at such a rate.

The EL levels are not all managers — many are in specialist jobs of various sorts, or senior policy advisors. But disturbingly, because of the growth in SES above them, some of the people who in past years had a seriously responsible job are now doing lower-level administrative work rather than analysis and decision-making. This is frustrating for the people concerned, and a massive dampener on innovation and new policy thinking.

Beale identified the causes of SES growth as the complexity of work, stakeholder demands for interaction (including ministers), the impact of information and communications technology and the 24/7 media cycle.

He could also have mentioned (but didn’t) that what kickstarted the trend was that the Howard government by 2003 had let go of the fiscal steering wheel. Buoyed up by what then appeared to be endless rivers of mining boom revenues, the later Howard/Costello budgets introduced a fiscally unsustainable combination of personal income tax cuts, expansion in welfare and other spending programs, and growth in public service numbers.

Initially the Rudd government intended to address the budget sustainability problem. Remember that Kevin Rudd in the 2007 election campaign promised to “take a meat axe” to the public service? The global financial crisis intervened. The government objective became to keep Australia out of the crisis by expanding, not cutting. More rather than fewer public servants were needed to manage the stimulus package.

More recently, there’s an increased “efficiency dividend” on the public service, and the 2012-13 budget papers forecast a fall in total public service numbers. If this occurs (we will find out in the May budget) it will be the first in 14 years. (A note for purists: this number is not strictly the “public service”; budget papers record all staff in the “general government” sector. This includes Defence personnel and others not counted as public servants in the otherwise more comprehensive Australian Public Service Commission statistics, which come out later in the year.)

As Minister for Public Service, Mark Dreyfus responded to Dusevic’s report by pointing to the government’s cap on SES numbers and saying “we don’t believe in the wholesale slashing of public sector jobs”.

Whether or not the public service itself is too large is a different question. That is a good debate to have, and worth exploring separately. Clearly the question of how large a public service should be relates closely to what we as a public expect it to do, and there is a range of opinion about that.

There is no disagreement about the need for an efficient public service. You would have a unity ticket on that proposition from bodies as far apart as the left-leaning Centre for Policy Development and the Business Council of Australia. They differ only on how best to achieve it.

What is undeniable is that the statistics show that senior levels have grown even more rapidly than the total public service. If ministers wish to address this, they have part of the solution in their hands.

One of the drivers is demands from ministers and their offices that they be given advice — invariably they demand it from senior executives — to help them manage perceived media and opposition attacks. This is relatively new. Before the 1990s there was a stricter separation in roles and an expectation that a minister’s own staff dealt with this.  It may be too late to turn back that clock; the intensity of the environment in which ministers work means they have become used to this support.

Parliamentarians too are partly responsible for the explosion in SES numbers because of the amount and complexity of regulation they pass (identified as a cause of growth in the Beale report, table 4.1). Regulation requires people to monitor and enforce it. The more complex the regulation the more likely it is to require senior people to administer it.

Reducing numbers of senior executives will make little difference to the budget bottom line — their costs are trivial by comparison with large program expenses. However, it is still important for managing perceptions. The lesson from micro-economic reform in the 1980s and 1990s is that if a government wishes to make changes that are seen to hurt other sectors of society (however good in the long term) it has to demonstrate that it is equally strict with itself.

If programs are cut but senior executive numbers rise, government credibility will fall. If SES numbers grow while those of junior staff at the frontline are cut, morale will fall.

Both the present Labor government and the Coalition have indicated they are committed to spending cuts. The best way to do this is to fix the drivers: new program proliferation, retention of outdated programs, and the ever-growing amount of regulation. For its part the public service has to turn around the practices of the last decade and push more decision-making and responsibility downwards rather than ever upwards.

Arbitrary staff cuts that do not address these underlying causes can have perverse effects, leading to lower services at higher long-run costs. Ministers should also worry about the negative signals if services to the public are cut but the senior management layer remains untouched. If Australia’s experience of the 1980s and 1990s has taught us anything, it is that public service reform works best when financial, staffing and workplace relations reforms complement each other.