The case for gloom is a case for action

Dr Bryce Wilkinson
NZ Herald
22 July, 2022

New Zealand’s economic and social decline is slowly receiving greater recognition amongst journalists and commentators.

The litany of woes is daunting. Reflect on the scale of the hospital shortages, drug and mental health problems, illiteracy, innumeracy and school truancy, housing affordability, homeless people, beggars in the streets, violence in the streets, gangs, deficits and debts, asset price declines, resurgent inflation, consumer confidence at a record low and business confidence heavily negative.

One recent headline suggested New Zealand is “broken”. Another postulated that New Zealand cannot be fixed “unless our politicians wake up”. A third recent article argued that there are increasing divisions in New Zealand on racial and gender lines.

We at the New Zealand Initiative are also seriously concerned. Our list of recent domestic policy shortfalls includes the wanton banning of offshore oil and gas exploration, the KiwiBuild and Credit Contract Act fiascos, restrictions on overseas investment, termination of partnership schools, abandonment of the previous government’s social investment focus and our newly embarrassing Reserve Bank and New Zealand Productivity Commission.

Not content with this, the government is on the way to making things worse with ill-timed and ill-conceived health reforms, Three Waters confiscations and its proposed resource management law changes.

The government seems to have no concept of what constitutes good governance, no understanding of the importance of well-defined and protected private property rights and far too much confidence in central government direction and regulation. It also has a schizophrenic approach to competition.  Competition between supermarkets is good for customers but competition in health or education is bad for the same people.

The essence of good governance is that tasks are allocated to those who are best placed to respond to them. Devolution is commonly best because locals know their own needs best.

Goods of a private nature are best provided privately through competition.

Public sector managers should not be given multiple conflicting tasks to pursue with little or no guidance as to how to make trade-offs. Those structures prevent purposeful management.  They also remove accountability. The government made a big mistake in giving the Reserve Bank a dual, and sometimes conflicting, mandate – employment and inflation. Under stagflation it must choose between them, but how?

All the points above have an insular domestic focus. Far more serious challenges are facing the world order based on democracy, open trade and peace between the nuclear powers. Anyone watching the US Congressional inquiry into the 6 January riots will be aware now of how close the US was to something approaching much more widespread civil violence. If that election result had been too close to call, what would have got Trump out of the White House, short of a well-armed National Guard?

One big international threat is financial instability due to excessive monetary stimulation by central banks and excessive public debt in major countries. That threat has recently become more visible in the form of higher inflation, collapsing crypto currency prices, and material falls in the prices of shares and bonds. Debt levels are very high internationally, and there will be many bankruptcies. The Euro currency group could fragment. There is no quick fix for these problems and no certainty about how they will evolve.

Well, that is the case for Gloom. What is the best way out of this domestic and international mess?

There is no point in expecting the politicians to “wake up”. They are giving voters plenty of choices. Those who doubt should compare the policies of ACT, the Greens and the Māori Party.

If voters want different outcomes from just throwing more good money after bad, or adding another ineffectual regulation to the existing pile, they need to support politicians who are offering a credible alternative.

A great thing about a democracy where incumbents go peacefully when they lose a general election is that politicians are obliged to count voters’ heads. On the whole, people get what they vote for -- or at least what swinging voter votes for.

The uncomfortable thing is that voters may be able to get what they vote for even if it is expensive, short-sighted, divisive wishful thinking. Those who vote on a ‘what’s in it for me’ and ‘make someone else pay’ basis will attract politicians who promise policies that would lead to long-term division and decline.

The good news is that good institutional arrangements can make it harder for politicians to put in place policies that look good to their supporters in the short-term but make the country worse off along the way.

Devotees of the TV series “Yes, Minister” in the 1980s do not need to be told that the public service has an enormous information advantage over government ministers. It has its own interests and much greater security of tenure. Ministers come and go and need managing.

The public needs highly able, uncorruptible public servants who are working in structures that reward them for giving top quality advice and for implementing government policies competently and loyally. They need to be rewarded rather than penalised for giving free and frank advice.

Instead, my impression today is that what may be most important for the careers of those at top of the public service is gender, race, and subservience to the bandwagons of climate change and the Treaty. Upset any of those pressure groups and you will be on your own.

Nor can Ministers be expected to want free and frank advice that could later be publicly embarrassing. Expert and politically impartial, advice on value-for-money is likely to be a casualty. But the public thinks it is paying public servants to give such advice.

Options for improving matters have a broad scope. The roles of Parliamentary Select Committees, the Public Service Commission, the Office of the Auditor-General and the Official Information Act all influence departmental incentives and constraints.

Government agencies should have a clear over-riding objective. Performance against that objective should be the major focus of those responsible for the appointment, so their incentives are also critical.

Of course, the performance of the public sector is only one facet of what could be done to reverse New Zealand’s decline.

In the large, the big issues are the quality of spending, the tax system and laws and regulations. The Cabinet Manual has many laudable rules, but it evidently lacks teeth. There is much that could be done to improve New Zealand’s fiscal and regulatory ‘constitutions’.

Great awareness of the grounds for gloom is a positive thing if it transforms into a positive drive to strengthen the focus on value-for-money in government. Only voters can hope to change things - and heads that do not vote are not counted.

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