Politicians flout Tinbergen rule, to the nation’s peril

Jan Tinbergen was the first economist to be awarded the Nobel Memorial Prize in Economic Sciences, along with Ragnar Frisch, in 1969.

The Dutch economist was a genuine polymath. His early training had been in physics and mathematics, but he was instrumental in developing the subdiscipline of econometrics as well as overseeing the systematic collection of economic data.

But Tinbergen is probably best remembered for the rule that bears his name. The Tinbergen rule states there must be at least one policy tool for each policy target. Having two objectives, say, but one policy lever generally leads to an inefficient mishmash, with neither of the stated objectives satisfactorily met. It is the antithesis of the adage “killing two birds with the one stone”, which, when you think about it, is very difficult to achieve.

Unfortunately, the Tinbergen rule is not commonly appreciated by politicians, who often are keen to achieve multiple objectives with a single policy.

When it came to planning the vaccination program that would be needed to help protect us from the ravages (health and economic) of Covid-19, there was a strong case for the Australian government effectively to back every horse in the field from the start. This would have involved putting in excess orders with all the vaccine developers, given the degree of uncertainty that existed about differences in timing, approval, efficacy and side effects.

Instead, the government decided to put most of its eggs in one basket, the AstraZeneca one, with a smallish side order of Pfizer. (This was only after the University of Queensland vaccine development had ground to a halt.)

It was a case of killing two birds with the one stone because AstraZeneca could be manufactured here. So not only could we roll out a large-scale vaccination program, there also was the advantage of local industry develop­ment. In turn, this created a photo opportunity for Scott Morrison to visit the CSL factory in Melbourne – appropriately kitted out – and to talk up the additional jobs that would be created and the pride we should feel in being able to manufacture the primary vaccine locally.

As events panned out, the failure to apply the Tinbergen rule has been a disaster. We have ended up with an excess supply of a vaccine that many people are (understandably) hesitant to have administered and a marked shortage of Pfizer vaccines. The government insists there will be other vaccines coming into the country later in the year, but this will be too late to avert the economic and social damage that the lockdowns are inflicting.

Another example of flouting the Tinbergen rule relates to using hotels as the principal means of quarantine for arrivals from overseas. In this case, the state governments are mainly to blame, although the federal government was in on the act.

Having decided that for health reasons – to minimise the risk of Covid-19 being spread – incoming passengers would need to quarantine for 14 days, the next question was what type of facilities (and their location) would be fit for that purpose. One aim, one instrument. Instead, politicians were hearing complaints from the owners of big hotels that they were largely empty because of the closed international border, were losing money and laying off staff. Let’s use the hotels to house quarantined arrivals and the proverbial two birds could be killed.

The fact the hotels were not suited to quarantining people, particularly because of inadequate ventilation, clearly was given scant consideration. Moreover, the risks associated with quickly assembling the necessary staff were grossly underestimated, particularly in Victoria.

Indeed, in Victoria, the state government decided it could kill three birds with the one stone by engaging an Indigenous-owned security firm that had not even been on the panel of preferred providers maintained by the relevant department. This firm had few staff in Melbourne and needed to recruit workers from scratch. The training of the recruited workers in relation to infection management was patchy or non-existent (they did get their training in diversity and inclusion though), which inevitably led to problems down the track.

But for a time there the Victorian government thought it had been too clever by half – it had implemented local quarantine arrangements, helped struggling hotels and given a contract to an Indigenous-owned firm. The real intention of the policy, which was to prevent the virus from leaking into the community, was lost in all the self-congratulations.

The federal government also missed the opportunity to step in with the preferred quarantine arrangements along the lines of Howard Springs in the Northern Territory, having largely handed over the responsibility to the states. It was just by chance that Howard Springs was available, it being a camp for workers on a large gas development outside Darwin that no longer was needed. But instead of accepting that this was the preferred model for quarantine, the federal government missed a vital opportunity.

Had the federal government quickly given the green light for facilities similar to Howard Springs – separate units with their own bathroom facilities and balconies – to be funded and constructed in most of the states, the pandemic outcomes might have been quite different. And while there are now plans for such facilities to be constructed, the fear is that they will be completed when it is too late.

A final obvious example of the breach of the Tinbergen rule is the catastrophic decision by the federal government to award a contract to a French company to build a fleet of diesel-powered submarines in South Australia.

While there is broad agreement that replacement submarines are needed, although there is scepticism about the use of diesel engines, the aim of promoting industry development in that state clearly contaminated the decision. With several marginal federal seats at play and not much going on in the South Australian economy, the attraction of securing more employment for that state was just too hard for the politicians to resist.

More generally, defence procurement and industry development make for unconstructive bedfellows. If the aim is for Australia to have the most suitable equipment to defend the country purchased at the best possible price and in a timely fashion, bringing in industry development into the equation is rarely helpful.

Of course, politicians will always act as politicians but it would benefit the country if they took into account the Tinbergen rule more often when making significant policy decisions.