Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

When many people hear the word 'market', they immediately think 'free markets'. But most markets aren't free. There are all sorts of ways in which they are regulated—disclosure requirements, product standards, restrictions on unconscionable dealing, and many more—as it should be. Indeed, the notion of a free market is a theoretical and intellectual benchmark that is useful but far from the norm.

Tonight I'm going to talk about a particular kind of intervention or regulation of markets that can be life changing and, indeed, lifesaving. The real-world markets that look most like free markets are those for often homogenous or simple products and services, where price is the key determinant. Those often work quite well. However, government funded services are becoming increasingly complex. For services not easy to either source or put a price on, market design and market stewardship, often by government, are required in order to get the best outcomes for people.

In a disability or aged-care services or healthcare context, a person's main concern is usually quality of care and how well that care is suited to their particular needs. A low price will usually not induce a person to choose a supplier if they believe they will receive substandard or inappropriate care. An older person might need a range of services to remain in their home but may not be able to get them all from one provider. It might be difficult for them to navigate a market to access all the services they need from various providers. Similarly, people on the NDIS might need a range of services that are not available from a single provider—a wheelchair, occupational therapy and direct care, for example.

With heterogeneous, highly varied preferences and complex products or services, effective service delivery is often a two-sided match. The personal connection between the person and the service provider is extremely important, as those of us who shop around for a GP or health specialist would attest. We want to get the services to those that need them, and price can still often play a role but in many contexts won't be playing the key or only role.

This is where innovative market designs come into their own. They could provide much bigger bang for buck in a range of areas of government spending. Matching markets is one example of innovative design. Indeed, several winners of the Nobel Prize in economics in the past two decades have worked in this area. A prominent lifesaving application is the kidney exchange system. Previously a husband may have wanted to donate a kidney to his wife but their blood types may have been incompatible, making the donation impossible. Often, donations were limited to particular geographic areas or hospitals. In a matching market, incompatible donor patients are matched with similarly incompatible pairs so that patients receive kidneys from a compatible donor. Such coordinated exchanges provide many more matches than if individual donors and hospitals are left to their own devices, thus saving many more lives. Similar kinds of matching opportunities are available in many areas of government service delivery.

Closer to home, another innovative market design led to a huge increase in the quality of life of children with autism. The Northern School of Autism, which opened in 2012, drew students from much of the metro area of Melbourne. While bus travel was free, the geographic spread of students was vast, resulting in long travel times of up to two hours each way. Transport involved three legs for senior students—from home to a pickup point, then on to the junior campus, and then a shuttle leg to the senior campus. While students attending the junior campus arrived on time for the 9 am start of classes, senior students arrived 30 minutes later at their campus. This not only shortened their educational time but disrupted the teaching of all other senior students. An innovative design was implemented through a pilot. I worked on this when a parliamentary secretary in the Andrews Labor government, with the University of Melbourne's Centre for Market Design and the renowned California Institute of Technology. A maximum travel time was set: one hour each way. Algorithms then determined the optimum bus size and routes, and those routes were auctioned. The results were amazing. The average travel time was cut from 66 minutes to 29 minutes for the morning service, resulting in much happier children and parents, and a substantially enhanced learning environment.

Such a coordinated approach isn't anti market, but it requires what might be described as well-designed, and often well-managed, markets. It is about effecting preferences through choice in a way that empowers all participants in the market. Leaving consumers and providers to their own devices doesn't work nearly as efficiently in as many contexts as a coordinated and well-designed approach.