Most important to avoid the perception of crony capitalism
While there is a tradition of former bureaucrats moving to business or even politics, Ken Henry provides an interesting challenge to Australian governance.
There is no doubt that Henry has very valuable skills; he has management experience in a large organisation, a sound knowledge of the economy and political influence. It is not surprising that the private sector would want to employ him. Similarly, it is entirely appropriate that he earn a return for those skills.
The challenge Henry poses is that it isn't clear where he sits in the accountability spectrum. He wishes to serve on the boards of private organisations as a director while also serving the commonwealth as a public servant.
Ordinarily that couldn't happen. But Henry isn't an ordinary public servant. Since resigning his position as Treasury secretary he was appointed (part time) as a special adviser to the Prime Minister under section 67 of the Constitution, a provision that is rarely used and usually only for the head of the Australian Secret Intelligence Service.
The existence of a potential conflict of interest shouldn't be problematic in itself. Conflicts always exist and it is how they are managed that is important. What isn't clear is how any potential conflict of interest will be managed, or even if they can be managed.
There are clear separations of power in our political economy. Executive government is accountable to parliament and bound by the courts. Business executives are accountable to boards of directors and shareholders. So, too, political power and corporate power should be separate. Of course, the odd corporate executive is often a consultant to government, but never actually as an employee.
Contrary to what the Occupy Wall Street movement thinks, the same people who wield political power don't also wield corporate power.
Conflicts of interest are usually managed through trade-offs and common sense. Not so in this situation. The conflict between corporate power and political power is actually managed by prohibition. The Reserve Bank governor, for example, must be sacked if he engages in paid outside work. Cabinet ministers are expected to place their investments in blind trusts. In other words, our system of governance has a clear separation between corporate and political power.
Henry potentially will be breaking that model of separation. He will be firmly straddling the divide between the highest political office and high corporate offices.
The argument to consider is whether the Henry situation really matters. After all, he is a man of great ability and integrity who, in theory, would be in a position to accomplish a great deal of good in almost any role he could take on. If Australians are a pragmatic people, then having Henry across corporate and political decision making is very pragmatic.
While that kind of argument sounds sensible, close relations between government and business have the potential to quickly degenerate into crony capitalism or corporatism, which is why the principle of separation has existed. It is always easier to define and explain the profit motive than the public interest. A lack of separation between business and government has the potential to lead to government providing special privilege to business.
Business is already the beneficiary of special privilege. Some is socially beneficial; limited liability, for example, allows the corporate sector to raise the vast amounts of capital necessary to finance their activity. Bankruptcy laws allow business to break contracts. Laws that restrict trade and competition, however, do not benefit the broader community. Not only has crony capitalism resulted previously in poor outcomes but the probability of future success is even poorer.
US blogger Arnold Kling highlights the differential between knowledge and power. In the modern economy knowledge is becoming ever more diffuse, while power is becoming ever more concentrated. Good policy relies on knowledge. Just when government has greater power to make policy, so the likelihood of good policy declines.
Diffuse knowledge is best managed through markets and not government.
So the "commanding heights" model is unlikely to work well in future irrespective of the personalities involved.
This brings us back to Henry. He has a skill set that could work well in either the public sector or the private sector. It is unlikely that his skill set could add value to the public and the private sectors at the same time.
Close relations between government and business also would create the impression of impropriety. Given what we know of crony capitalism it would be very difficult to credibly demonstrate an arms-length relationship between government and business when a high-ranking public servant is also a high-ranking private sector decision maker.
All up, despite what we know of the man himself, a man of integrity and ability, having Henry occupy influential positions in both sectors is going to generate a lot more heat than light.
Sinclair Davidson is professor in the school of economics, finance and marketing at RMIT University and a senior fellow at the Institute of Public Affairs.