The economic apostle of the 1980s, Milton Friedman, believed the state had three duties: to provide for the military defence of the nation, enforce contracts between individuals and protect citizens from crimes against themselves or their property.

 “When government … in pursuit of good intentions tries to rearrange the economy, legislate morality or help special interests, the costs come in inefficiency, lack of motivation and loss of freedom. Government should be a referee, not an active player,” he wrote.

The postwar period was marked by widespread state ownership, regulation and intervention in all aspects of the economy. Friedman’s principles sparked the rollback, starting with the privatisations of Margaret Thatcher’s government and Ron­ald Reagan’s tax cuts and inspiring Australia’s market and competi­tion reforms in Australia in the 1980s and 90s. 

Opposition finance spokesman Jim Chalmers, who served as treasurer Wayne Swan’s chief of staff from 2010, when the stimulus spending was still rolling out, is a believer in fiscal activism. 

In a speech to the Australian National University’s Tax and Transfer Policy Institute last week, he declared that in government he would broaden the mandate of the Finance Department. A Labor government would take “an activist approach to the portfolio to support our efforts to make growth stronger and more inclusive and our economy broader and more productive”. Stimulating ec­onomic growth would help repair the budget and would be a Finance Department responsibility.

The Clean Energy Finance Corporation is the model that Labor will use for its proposed advanced manufacturing fund, but Chalmers says the goal is not just to create a series of funds, pushing spending off the balance sheet. “The answer is to work out where, after careful, sober and clear-eyed analysis, the market is not functioning properly and where we can make an affordable difference.”

There are problems with the approach of Chalmers.First and foremost, the public sector simply lacks the capability to make intelligent appraisal of entrepreneurial risk. As finance minister, Chalmers would be in charge of a significant organisation with 1250 staff and oversight of spending of about $30 billion. There are plenty of accountants and some budget analysts, but no commercial expertise to speak of.

The entire culture of the Finance Department is one of risk minimisation and budget control. The spectre of being grilled in a Senate estimates hearing hangs over every public sector decision, explaining why so much public service time is spent in meetings where responsibility can be diffused. 

Chalmers talks of the department’s expertise as a shareholder but the reality is one of a not-always benign neglect. The record of public sector shareholdings is that enterprises get squeezed to produce additional dividends whenever the government deems it necessary, or funded whenever it seems to be politically opportune for the minister. The Queensland government’s practice of milking its generating companies and their customers to bolster its budget shows how it works. The overlay of political imperatives results in poor commercial decision-making, as the cost overruns and underperformance of the NBN so abundantly show.

Private enterprise also can stuff things up, but with a clear profit motive and accountability to a shareholder base, which acknowledges the reality of risk, it is far ­better placed to make decisions over capital allocation to maximise the return

Australian