Improving accountability for state sector performance

Dr Bryce Wilkinson
Insights Newsletter
12 May, 2023

The state sector is widely failing to meet the public’s expectations. One problem is inadequate accountability due to confused objectives.

Far too many spending programmes and regulations require those responsible to balance conflicting considerations with no guidance as how to reach a principled conclusion. That makes purposeful time-consistent management and proper accountability impossible.

To his credit, the Auditor-General has been alerting the public to such accountability problems, albeit to little discernible effect.

The governance of government commercial operations illustrates the importance of clear-cut single purpose accountability.

Government commercial operations can be subject to competition, the strictures of monopoly regulation and transparently subsidised for non-commercial responsibilities. Their Boards then know they are accountable for their commercial results.

The greater the degree of government ownership of commercial operations, the more likely it is that non-transparent uncommercial activities will be undertaken, with the waste concealed from public view. Politicians might want to put party hacks on boards. All might want to purse non-commercial activities with poor transparency. Waste is to be expected.

For these reasons, ownership matters.  It is not the only thing that matters, but it matters.

An assessment last month by Wellington consultancy firm TDB Advisory is a timely reminder of this point.

The assessment showed the financial performance of New Zealand’s ports since 2015 is strongly negatively related to the degree of government ownership.

For example, the rates of return of mixed ownership ports exceeded the returns on 100% government owned reports every year for the past eight years.

The Port of Auckland case is particularly instructive. Between 1993 and 2005 20 percent of its shares were publicly listed. Its return on assets in the four years to 2005 averaged 16.7%.  In the four years that followed delisting it averaged 6.7%.

In 2015, the late Brian Gaynor in 2015 documented a “dramatic reduction” in its communications and transparency after its delisting. Even ratepayers were better informed about its performance under the earlier mixed ownership structure.

One critic of TDB Advisory’s assessment tried to excuse its post 2015 poor performance . He pointed to the $65 million cost of its scrapped automation project. But such commercial waste is a governance issue. Ratepayers had been disempowered relative to the mixed ownership option.

Many New Zealanders are desperate for more income. Wasteful use of capital matters. Clarity of purpose matters.

Much more could be and should be done to reduce waste.

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