Saving people from themselves
Benign paternalism is reflected in the idea that government is the only agency that can effectively insure against the possibility of zero demand for labour for many groups of workers
As the enormity of the COVID-19 crisis appeared, the first cry that went out was that the effectiveness of counter measures would depend on people’s willingness to do as they were told. To succeed required a strongly paternalist public culture, leading to predictions that countries like Singapore (in the semi-democratic club) and China (in the authoritarian one) would meet the challenge best.
But it is not just their paternalism that works. We are recognising (and selectively leaning into) some similar paternalistic threads in western political and public culture.
In response to the forced shutdown, public finances have dramatically moved into long-term deficit. The drastic actions taken by governments are truly colossal – over US$3 trillion by the US federal government to support its labour market. It is easy to forget that it was Ronald Reagan who once won handsomely by denigrating these ten words: ‘Hello, I’m from the government and I’m here to help’.
Just one explanation stands up: that everyone understands that government is the only agency that can effectively insure against the possibility of zero demand for labour for many groups of workers. Keeping demand in the economy going, when it has dried up suddenly and massively, is beyond Keynesian. It is paternalism, writ very, very large.
Lives versus livelihoods
Benign paternalism is reflected in the federal government’s decision to allow Australians who held (compulsory) retirement savings to draw down AUD$20,000 in two instalments to tide them through the worst of the COVID-19 crisis. Australia, of course, led the world a generation ago in taking the decision and effort out of retirement saving. Compulsion was introduced because too many workers could not be trusted to put earnings aside for retirement, creating a model that other countries have since sought to copy.
But what if the drawdowns fund spending sprees or fuel scams? The spectre of silver-haired Porsche owners suddenly return. COVID-19 is creating financial devastation, for sure, and the draw down option is being presented as a financial rainy day, but scarcely any effort has gone into explaining to the million-plus savers who have participated in the scheme that it is different from the rainy day that compulsory superannuation schemes were supposed to meet. A soft paternalism sat behind that brave and pioneering decision three decades ago; it also sits near the surface of the response to COVID-19 in allowing those workers access to these resources in the hope that they use it to replace income and not to splurge it on discretionary consumption.
Elsewhere, an Australian major big-four bank, the Commonwealth Bank, swiftly moved their mortgage customers onto minimum payment terms in the wake of the pandemic, using an opt-out mechanism that would have gone unnoticed by their affected customers. The bank will have been filled with good intentions, arguing that they have put ‘a little more cash in the pockets of our customers during these difficult times’. But hold on – mortgage holidays are in fact just pauses that shift unpaid interest onto the principal debt, and acting as if the bank knows best is spurious at best.
This is fundamentally changing the choice architecture of how customers go about servicing and paying off their biggest lifetime debt, and it is highly debatable whether, or to what extent, this change in repayment arrangements actually helps customers. Describing the change as a ‘mortgage holiday’ will have certainly encouraged customers to think that they’re not be disadvantaged by it, and this promoted the generalised belief that mortgage debt interest could be deflected into a vague far-off future. But this also smacks of a not-so-benign paternalism that would warrant investigation by financial watchdogs in normal times.
The messiness of eradication
The two pillars of eradication now rely on the development of an effective vaccine in the medium to long-run and, in the shorter-run, the use of phone apps and other technology-based measures to test, trace and track for further outbreaks. The future is an iterative-let’s-see-what-works one.
If it takes 60 per cent of phone users to download the tracing app for it to be effective, is it worth considering incentives or punishments, if only for getting the last five per cent to sign up? Could this last bit of the jigsaw be completed through a randomised selection of one in 20 who find that their phone contracts have been amended to have them auto-enrolled in COVIDsafe? If these calculations sound appealing, it is because the wider societal gain far outstrips the inconvenience or intrusion to a small number. Compulsion has its great upside benefits, especially if the target minority cannot be incentivised to sign up.
The calculus in the end will depend on being clear about where the burdens and benefits will fall. The sweet spot may lie in using compulsion heavy-handedly in order to get tracing up to a crucial proportion if it allows people to abandon other restrictions. A mass return of social life and interaction as it once existed is a very attractive goal, for sure. And if it can be made within reach by applying illiberal measures in a limited way on a designated few, it may appear hard to resist.
The truth is that although soft peer pressure to get people to behave in a particular way is desirable, it is not always successful. Benign paternalism can only work if we are frank about where the axe of compulsion will fall.
Think of the choice architecture of our modern lives. Voice-automation of lifts in buildings will render obsolete the self-appointment of a single button-pusher (whoever gets in first, presumably). Uber vehicles that preclude front seat passengers and mandate that only drivers are able to open doors will, once bedded down, increase public confidence in the service that has been redesigned only modestly to address contamination risk. Airline terminals that scan body temperatures of passengers will provide a head-start in identifying at-risk cases, although this measure in particular may serve a different purpose in practice, by helping to reassure travellers and airport users.
The point is that each of these and many other interventions can incrementally build greater safety if personal choices are taken away subtly and swiftly so that new norms appear overnight. If so, these measures have every chance of being silently adopted without rancour.
The nub of challenge lies in establishing not only how paternalistic and all-knowing governments are but, critically, in the public acceptance of their reasons for doing so. In some instances, it is a pragmatic response to running out of other options. In others, it is about shrewdly discounting people’s self-assessment of how well they are able to cope with complexity and uncertainty.
For instance, why would you prevent a particular consumer choosing a particular good or service? This is a typical question that economic regulators face routinely in weighing up how successfully consumers navigate modern markets. Remember that so much of those markets depend on creating product and service distinctions that consumers tend to overrate at the point of purchase. The answer to this question about stopping consumers in their tracks is that in modern markets, all-too-often individuals make poor choices that significantly harm their own interests – and are unaware that they have do. A shocking proportion of people don’t read the small print, cannot describe a long-term regular savings contract a fortnight after they bought one, and purchased analogue televisions just months before the digital switchover happened. They were harmed through no fault of their own.
For these reasons, regulators tend to see their role in somewhat paternalistic ways whereby they are constantly trying to keep up with the next mess that the least sophisticated market consumer or public service user will succumb to. And, as I have argued in an earlier Policy Network report, enlightened watchdogs will also prove these patterns of poor outcomes and will ask whether they can do more to help weaker, disadvantaged members of society.
For these reasons, governments and regulators are forced to step in to protect them. It looks and feels akin to a parent and child where the latter does not enjoy unfettered access to matches or sharp knives.
No-one in open democratic societies is at ease with bossy, intrusive measures. They are offended, as the late former Canadian PM Pierre Trudeau was, by a nosey state rummaging around in their bedrooms. If people assume that they are the best judge of their own interests ,then it feels as if highly regimented societies should be resisted. But if they admit that they are not, then eliminating people’s choices is now integral to eradicating infection from COVID-19. And the implication is clear: that we do not have the luxury of allowing people to find their own way.
This piece build’s on Shamit’s contribution to the Australian Financial Review which can be found here.