Policy Instruments – Australian Policy Handbook Notes

Policy Instruments: Overview

  • Policy instruments are the means governments use to achieve their ends.
  • Seven types of policy instrument:
    • advocacy: arguing a case
    • networks: working together to solve problems in the community
    • money: using spending and taxing powers
    • government action: delivering services
    • law: using legislative power
    • behavioural economics: using integrated psychological and economic principles regarding public behaviour
    • narrative: using storytelling to frame issues and solutions
  • Good policy advice relies on choosing the right mix of instruments for the problem at hand.

Policy Instruments: Purpose, Use, and the Policy Cycle

  • To convert ideas into practical application, we rely on policy instruments (programs, staffing, budgets, organisations, campaigns, and laws).
  • Policy cycle: consider policy instruments once objectives and goals are clear.
  • Distinguish objectives from instruments: there may be more than one way to achieve a goal; instruments often operate in combination.
  • Political costs: some instruments carry costs that may be too high. Example: Thatcher government in the UK pursued local government reform via the poll tax, which led to urban riots and contributed to her downfall; later, less provocative instruments were used to pursue the same objective.
  • Risk of instrument-driven analysis: choosing an instrument before fully analysing the issue can turn the instrument into the solution rather than a means to an end.
  • Legislation as a first resort is a common habit; but all instruments have strengths and weaknesses. Professional judgement is required to assess viability, comparative merits, and how instruments interact.

Typology, Trends, and the Australian Context

  • Typologies help us make sense of instrument choice, though no taxonomy fully captures complexity (Hood 1983).
  • There are many instruments; some studies identify as many as 64 instruments in economic policy alone (Howlett and Ramesh, 2003).
  • Instruments must be matched precisely to objectives; governments typically have more goals than available means (Howlett 2009; Howlett 2011).
  • Trends:
    • Canadians Atkinson and Nigol (1989): governments seek less obtrusive means of intervention; prefer the least coercive instruments possible.
    • In Australia, despite growth in statutes, there is movement away from regulation toward other forms of instrument; stronger parliamentary scrutiny and committees; emphasis on behavioural incentives.
  • Federal structure in Australia shapes instrument choice:
    • Commonwealth powers have grown; centralisation, High Court support, and referenda occasionally expand Commonwealth reach.
    • GST example after 1998 election showcased how the Commonwealth can dictate policy through revenue arrangements, contributing to a vertical fiscal imbalance.
    • States rely heavily on the Commonwealth for income, even as they spend on education, transport, and health.
    • Local government is not in the Constitution and depends on state permission and grants.
    • Cooperative federalism: coordinating shared goals across jurisdictions (eg, national competition policy, mutual recognition of regulations, essential infrastructure markets in electricity, gas, water).
    • Despite cooperative arrangements, power tends to tilt toward the Commonwealth in financial matters.

A Taxonomy of Australian Policy Instruments

  • Seven common types used in Australia (drawing on Hood 1983):
    1) policy through advocacy – educating or persuading, using information available to government
    2) policy through networking – cultivating and leveraging relationships within and across government and with external partners to develop and implement goals
    3) policy through money – using spending and taxing powers to fund activity beyond government
    4) policy through government action – delivering services through public agencies
    5) policy through law – legislation, regulation, and use of government authority
    6) policy through behavioural economics – using psychological principles and predictive information about public behaviour to shift incentives and nudge behaviour
    7) policy through narrative – framing policy and evoking emotion through storytelling and visuals to influence perceptions and decisions

Policy through Advocacy

  • Advocates argue a case rather than forcing outcomes; often involve government working with interest groups (eg, anti-smoking campaigns with health departments and Heart Foundation or Australian Medical Association).
  • In some areas, government agrees not to impose laws in return for sector agreements (eg, self-regulation in the accounting profession).
  • The power of advocacy is significant because emotion can be as influential as rational debate; perceptions and trust matter.
  • Relational bonds, including moral capital, help legitimize players and issues and reduce fears in times of uncertainty and risk in society.
  • Moral capital can mobilise supporters, disarm opposition, and create political opportunities for policy directions that might not exist otherwise.

Policy through Network

  • Network governance challenges the traditional top-down model; public sector officials engage with external constituencies.
  • Networks range from tightly integrated policy communities to loose ad hoc issue coalitions; many are autonomous and self-governing.
  • A governance network is characterised by:
    1. a relatively stable horizontal articulation of interdependent, but operationally autonomous actors
    2. interactions through negotiations
    3. within a regulative, normative, cognitive, and imaginary framework
    4. self-regulating within limits set by external agencies
    5. contributing to the production of public purpose (Sørensen and Torfing, 2006)
  • Networks operate both within and across governments and include external actors (third-sector, private sector, citizens) to achieve policy ends.
  • Policy occurs through networked configurations built on relationships and exchange of information/resources; governments become policy facilitators rather than sole deliverers.
  • Policy co-production: the public works with government to develop and implement policy (examples in health, environment, community safety; recycling as a case where citizens cooperate with government campaigns and infrastructure).
  • Intergovernmental cooperation networks (eg, COAG) coordinate advice and implementation across Commonwealth, state, and territory governments.

Policy through Money

  • Fiscal decisions aim to influence the economy, though macro-control has shifted with deregulation and tariff reductions.
  • Revenue sufficiency is a key objective; taxes are often unpopular, so balancing budgets remains a challenge.
  • Financial incentives and disincentives influence behaviour (eg, taxes on cigarettes to reduce smoking; carbon emissions permits used in many countries to moderate pollution—though Australia abandoned this under Tony Abbott).
  • Government funding supports industry, education, and other policy instruments; groups outside government lobby for funding to contribute to policy goals.

Policy through Government Action

  • Public sector programs and agencies implement policy; funding and spending are reviewed in annual budget cycles and through cabinet and parliamentary scrutiny.
  • Citizens most often interact with government through services (transport, hospitals).
  • There's a trend away from direct government provision toward contracting out to private providers; this reduces the size of the public sector while maintaining public service reach (the hollowed-out state).
  • The hollowed-out state is described as transferring functions to private or non-government actors, supranational bodies, or cross-jurisdictional groups.

Policy through Law

  • Law is a traditional and powerful instrument to translate policy intent into action.
  • Functions of law include facilitating action, coercing behaviour, or creating governance institutions; laws can be symbolic as expressions of social values.
  • Parliament empowers government and provides enforcement frameworks via police and courts.
  • Much of government action is implemented through delegated legislation (regulations, local laws, ordinances) under Acts; local governments derive authority from state legislation.
  • About half of Commonwealth legislation is expressed as delegated legislation (large volume).
  • Courts and quasi-judicial bodies interpret laws, maintaining independent judgments while being funded by government.
  • Legal instruments also include voluntary agreements (soft regulation): non-binding guidelines, recommendations, and self-regulation where appropriate.
  • Governments can issue directions to employees or change duties, enabling wide-scale policy shifts.

Policy through Behavioural Economics

  • Behavioural economics studies how incentives influence choices, merging psychology, economics, and neuroscience (Kahneman Nobel Prize 2002).
  • Modern policy work has been influenced by figures like Cass Sunstein and the Behavioural Insights Team in the UK; Australia has established Behavioural Insights Units in NSW and Victoria, plus the BETA unit within the Department of the Prime Minister and Cabinet; related academic centers include Behaviour Works (Monash) and QUT’s Queensland Behavioural Economics Group.
  • Core focus: distortions and biases that create gaps between what people want to achieve and what they actually do; human behaviour deviates from purely rational models.
  • Policy design aims to understand how people think and feel to craft environments that make desirable choices easier (cost-effective sometimes).
  • This leads to choice architecture that nudges people toward beneficial behaviours without restricting freedom of choice.
  • Behavioural economics overlaps with social media research on motivating mass political mobilisation; examples include cases like the Arab Spring or Hong Kong protests.
  • The concept of a nudge centers on leveraging cognitive biases (eg, organ donation opt-out vs opt-in). However, critics argue that nudges have limits and can be manipulative; the broader field emphasizes using the full set of policy instruments, not just nudges.
  • Advocates argue the appeal lies in reducing political resistance and increasing acceptance of policy measures, even if effects are not universally large or long-term.

Policy through Narrative

  • Narrative connects policy with storytelling across micro and macro scales; policy and narrative are tightly interwoven.
  • Narratives frame debates and policy processes as the clash of alternative, overlapping, and sometimes conflicting stories (Ken Henry; Roe; Ospina and Dodge; Jones et al.).
  • Narratives can provide depth, focus, and context for policy debates, offering persuasive arguments for or against reforms.
  • Narratives operate as leadership tools, engaging emotions and values to move stakeholders and the public toward or away from policies.
  • They are powerful when used in tandem with other instruments and media; stories shape how people perceive and respond to policy options.

Choosing a Policy Instrument

  • Selecting the best instrument involves a combination of technical efficiency and political judgment.
  • Guiding questions:
    • appropriateness: is this a reasonable approach in this policy area?
    • efficiency: will it be cost-effective?
    • effectiveness: will it achieve the intended outcome?
    • equity: are the likely consequences fair?
    • suitability: will it conflict with existing processes or policies?
    • workability: is the instrument simple, robust, and implementable?
    • scalability: can the instrument mix adapt to changing circumstances or be scaled up/down?
  • The right mix of instruments should be appropriate, efficient, effective, equitable, and workable.
  • Policy instruments cannot solve all problems; some issues are beyond government reach, or require money and authority to back ends.
  • Interactions among instruments can produce unexpected effects; a simple toolkit approach may fail for wicked or poorly structured problems.
  • Always assess whether political economy constraints, fiscal capacity, and legitimate ends align with instrument choices; some objectives may require reforms beyond the instrument choices (eg, reducing inflation/interest rate levers).

Discussion Questions (Summary)

  • 6.1 Explain your understanding of a policy instrument and why clear understanding matters.
  • 6.2 What forces constrain the use of policy instruments in the Australian context?
  • 6.3 Do you judge any particular instrument or group as more useful in Australia? If so, why? If not, defend your case.
  • 6.4 How would you choose between different policy instruments? What would inform your selection of a suite of instruments for a policy end?