Monday, 8 August 2016

Revisiting the 'Failed State' in northern Australia

Oh, how wretched / is that poor man that hangs on princes’ favours!
Henry the Eighth, Act 3, Scene 2

In the last week, and following the revelations from within the juvenile justice system in the NT, there have been a number of media articles focussed on broader issues related to the effectiveness and implicitly the viability of the Northern Territory Government.

On 31 July 2016, in The Age and The Sydney Morning Herald, Peter Martin argued that the Northern Territory Government (NTG) is replete with inefficient services and overly generous public sector staffing conditions which stand in sharp contrast to the poverty and disadvantage of the Territory’s indigenous citizens. He points to the cause of this malaise and ‘featherbedding’ as being the poor incentives implicit within the fiscal equalisation process which provides the bulk of the NTG’s revenues, based on a formula which allocates substantial sums based on the levels of disadvantage, but without any requirement to spend those resources on remedying the disadvantage.

Martin argues, citing economist Neil Warren, that in fact, the NTG has an incentive to maintain Indigenous disadvantage, and thus maintain the flow of an inflated share of GST revenues. He recommends a review of the Grants Commission formula, and an inquiry into the NT itself. His concluding paragraph begins:
If it was a state, it’d be a failed state, propped up by diverting aid that was intended for its most disadvantaged citizens.

Mike Seccombe followed up with a piece in The Saturday Paper (6-12 August 2016) titled “How the Northern Territory Failed”. Seccombe recounts various instances of chaotic political management within the Government, but quickly moves to the financial underpinning of the Territory’s public sector. He notes that around 70 percent of the NTG’s revenue is from the Commonwealth, including around 50 percent from the GST. Like Martin, he hones in on the fact that the NT is not required to spend its GST revenues in accordance with the basis upon which it is determined. He cites longstanding and ongoing research by Darwin accountant Barry Hansen who calculates that around $500m provided to the NT each year on the basis of Indigenous disadvantage is not allocated to addressing Indigenous disadvantage.

Based on interviews with a number of academics and public policy players (myself included), Seccombe develops a narrative demonstrating that public sector expenditures are strongly skewed towards Darwin and the major towns, and away from the bush communities where the majority of the Indigenous population –comprising almost a quarter of the NT population – resides. This narrative underpins an argument that the NT’s public sector budget foundations are based on ‘a sort of fiscal racism’, the outcomes of which add up to neglect of remote communities in order to maintain the privileged lifestyle of the territory’s urban centres.

These commentaries are not new. In October 2009, Nicolas Rothwell, writing in the Australian, published a scathing analysis under the title ’The failed state’. The parallels with the more recent analyses are striking. Importantly, Rothwell’s analysis was directed at a Territory Labor Government.

Rothwell’s opening sentence sums up his argument: ‘The Northern Territory is a lost cause’. He goes on:
There is, though, a failed state in our midst. That state is not Aboriginal north Australia, where the social fabric is in shreds and tatters. No: it is the jurisdiction largely responsible for entrenching this degree of indigenous disadvantage: the modern-seeming, self-governing Northern Territory.
Rothwell too points to the federal subvention, the divide between black and white, the ‘fa├žade’ of democratic institutions, and the complex social stratification at work. He argues that
the Territory  is best understood as an interlocking set of interest groups. It is heavily dependent on outside funding, the bureaucracy is shot through with politics, almost all medium-sized business relies on public sector contracts and the entire system is founded on the administration of an Aboriginal underclass.

Like Martin, Rothwell canvassed some of the potential ways forward. He noted the most straightforward change would be to tie the GST funding to the underlying formula and thus ensure an appropriate proportion is spent on addressing Indigenous disadvantage. More drastically, he notes the possibility of appointing a Commonwealth controlled Council of Administration. More intriguingly, he moots the possibility of splitting the Territory in two and exploring forms of Indigenous self-government in the bush.

I recommend interested readers read all these articles as I have not done their arguments justice. They are replete with facts and detailed instantiation which reinforce the argument that something is fundamentally wrong. See also my earlier post on fiscal equalisation.

It seems clear that the problems pervading the governance of the Northern Territory are structural and institutional in nature. It is also clear, clear as day, that the political will does not exist to drive radical change to the current system. The forthcoming election, and the likelihood that the present CLP Government will be wiped off the map, and that we have a new government writing on a new page, will be used to justify further inaction. It seems highly unlikely that the royal commission established by Prime Minster Turnbull has the remit, or the analytical firepower to propose, and persuade the Commonwealth to pursue, structural and systemic change to the current structures of governance in the Northern Territory.

Of course, one never knows when a crisis will emerge which will trigger fundamental change. For this reason, it is worth thinking through the key elements of the arguments made in the articles above, if only to begin to disentangle the complex threads which comprise the ‘failed state’ argument.

One fundamental and threshold issue is to delineate responsibility for state ‘failure’. In 2007, in our book Beyond Humbug, Neil Westbury and I argued that remote Australia might be characterised as a ‘failed state’ for many of the reasons outlined in the media articles discussed above. See also the 2012 monograph by Bruce Walker, Doug Porter and Ian Marsh Fixing the Hole in Australia’s Heartland published by Desert Knowledge Australia which also refers to the failed state of remote Australia, and places the blame squarely with the existing systems of governance established by governments.

Westbury and I were not directing this criticism at Indigenous communities ,though many readers appear to have misinterpreted our analysis as doing this perhaps because we also identified the existence then of serious dysfunction in many if not most remote communities. Rather than focussing on the administration of various governments, we argued that the outcomes within communities, where the footprint of government (police stations, post offices, kindergartens etc) was virtually non-existent, pointed to state failure. Our ‘failed state’ critique was directed at governments (plural). This line of argument did not and still does not sit well with much of the thinking on the left which sees the solutions to Indigenous disadvantage and lack of autonomy in less, not more, government. Yet, as John Keane points out in a recent essay in The Conversation titled “Whither anarchy”, institutions are crucial for liberty. The real issues revolve around the quality of those institutions.

In particular, we directed our critique at the Commonwealth Government, its system of fiscal equalisation, its inability or unwillingness to require state and territory governments to deliver services equitably to all their citizens (particularly their Indigenous citizens), and at the woeful levels of investment by the Commonwealth in remote Australia, underpinned by structural impediments to capital investment in remote Australia through poorly designed  local government funding systems , social housing shortfalls, and the like.

A key element of our argument was that Indigenous disadvantage is structural, and deeply embedded. Accordingly, solutions must also be structural. While the problems identified within the NTG are real and are serious, to the extent that the Commonwealth is structurally complicit in creating and maintaining Indigenous disadvantage, solutions which are directed solely to the NT will be bound to fail.

So for example, in relation to the legitimate issues with fiscal equalisation in the NT mentioned in all three articles discussed above, it is clear that the same problems also exist in South Australia, Western Australia, NSW and Queensland, but they are disguised by the scale of those jurisdictions. Fixing fiscal equalisation is a potentially fraught exercise; there is already a simmering conflict within the Federation over the distribution arrangements. Initiating change in an attempt to address NT issues, or Indigenous issues, will inevitably reopen a wider and bitter debate over distribution more generally. The allocations to remote Australia could suffer, and Indigenous interests may not benefit, or could even go backwards. Nevertheless, when change to the GST distribution system is next mooted, there ought to be action to address Indigenous disadvantage in remote regions.

Westbury and I proposed, in Beyond Humbug, the creation of a new ‘GST jurisdiction’ across the totality of remote Australia, which would protect the existing freedom of states and the NT to decide allocations within their jurisdictions, but would quarantine the expenditure of the sums allocated on the basis of indigenous need to the remote ‘GST jurisdiction’ within each state or Territory. A further issue which we didn’t deal with relates to the fact that remote Australia suffers, because the GST distribution formula is calculated on the basis of recurrent needs, not capital needs. Yet remote Australia, the last settled parts of the nation, suffers from enormous capital backlogs. These are just some of the structural issues which drive Indigenous disadvantage in remote Australia.

Other systemic issues, known but unaddressed, exist within the Commonwealth’s funding systems for local governments which allocate commonwealth assistance to local government nationally based largely on a per capita distribution, but then require the states and territories to allocate the per capita determined allocation through a local government grants commission formula based on assessed need. This ensures that the NT in particular receives and distributes to local governments a much smaller cake than it would receive if the Commonwealth resources were themselves allocated on a needs basis.

In relation to welfare and employment, Mike Seccombe deals briefly with the substantial and growing issues within the Commonwealth’s remote employment program, which imposes much more onerous requirements than the equivalent non-remote program. The introduction of a revised remote program, named the Community Development Program, has led to a massive increase in breaches of remote residents, and is contributing to a major legitimacy crisis for government in remote Australia. Minister Scullion has adopted a suite of ‘tough’ measures ostensibly justified as incentivising job seekers to find employment, but in reality causing Indigenous ‘job seekers’ (in the Orwellian language of the bureaucracy) to exit the system altogether, thus adding to the Indigenous ‘underclass’ that Rothwell identified as being an essential element of the ‘failed state’.

On a positive note, one of the less recognised elements and consequences of the NT Emergency Response, or Intervention as it was known, was a massive step up in Commonwealth investment (largely under the guiding hand of Labor’s Minister Jenny Macklin as she attempted to soften the impact of what has been a major policy disaster for remote Australia) into the NT and remote Australia, through a suite of National Partnership Agreements totalling in excess of $8bn over ten years. This funding kept at bay the worst consequences of the systemic failures of governance at Commonwealth and state levels. Unfortunately, the current Government has deliberately set about dismantling these National Partnership Agreements, simultaneously making the funds more vulnerable to annual budget cuts driven by the incessant drive for ‘budget repair’, and not coincidentally, laying the groundwork for less transparency when the arrangements come up for renewal in 2017 and 2018. [Disclosure: I worked as an adviser to Macklin from 2008 to 2011].

Conceptual Issues

The concept of a ‘failed state’ is not without its critics and a range of definitional and conceptual limitations. The Wikipedia article on failed states provides a good introduction to these issues. I don’t propose to attempt to assess the merits of the various points of view, adopting the pragmatic view (following Schneckener’s approach outlined in the Wikipedia article), which identifies three core requirements for state viability: a state monopoly on the use of violence; state legitimacy, and the rule of law.

On each of these criteria, there are serious doubts regarding the robust existence of these requirements in many remote communities. The patchy footprint of police services across remote Australia, and a lack of traction on family violence issues undermines the state’s monopoly on the use of violence. I have already referred to the legitimacy undermining elements of the rollout of the remote employment scheme; another example was the recent announcement by Minister Scullion and Chief Minister Giles that the Groote Eylandt community would contribute to the construction of police facilities in their communities, something no other Australian citizens are asked to fund, and a decision bound to undermine the legitimacy of government. Finally, the rule of law is fatally undermined by the excessive incarceration rates within Indigenous communities generally, and particularly in remote Australia, often for trivial offences. Clearly, the existence of state failure must be given serious credence, and in turn, deserves serious policy attention. It says much that it is largely the media and not government which is addressing the issue in the domain of public discourse and opinion.


The ‘crisis’ within the juvenile justice system in the NT is just one facet of a deeper problem within the Northern Territory. The crisis of governance in the Northern Territory is part of a deeper crisis across remote Australia. Its root causes can be traced to systemic and institutional arrangements which span state and Territory governments, but also reach into the Commonwealth domain.

The demographic dynamics at play within remote Australia, plus the likely reduction in real levels of funding from governments, for both new capital investment and ongoing maintenance of essential services and programs will ensure that the social dynamics of remote Australia will remain under intense pressure for the foreseeable future.

I see little prospect of the impetus for the fundamental structural changes required being generated from within governments, and indeed out federal structure mitigates against system wide change. Incremental policy change will emerge, sector by sector, jurisdiction by jurisdiction, as crises continue to occur.

In the absence of political will to address fundamental issues, governments will likely resort to simplistic policy nostrums, over the top rhetoric, obfuscation and non-transparency, and continued reliance on ‘an announcement a day to keep the electorate at bay’.

The current federal government is doing virtually nothing to keep the states up to the mark (juvenile justice in the NT being just the peak/pique of this iceberg). The federal government focus on school attendance (a state and territory responsibility), the rhetoric of economic development to the exclusion of all else, cuts to remote social housing, cuts to the Indigenous Advancement program, and the looming fiasco of the remote employment program all square with a tactic of talking big but doing little. More distressingly, the tactic entails in many cases dismantling the sensible funding and policy arrangements put in place by previous governments (of both Labor and Liberal/National persuasions) under the guise of implementing ‘reform’.

The low prospect of governments initiating fundamental change (or “princes’ favours”) is a depressingly pessimistic, but realistic assessment.

It is partially offset by the reality that Indigenous people and communities have shown themselves to be very resilient survivors, albeit at a terrible ongoing cost in reduced and compromised life opportunities. ‘How wretched’ indeed.