NZCPR guest

Dr Graham Scott , former Secretary of the New Zealand Treasury, and former advisor to the Prime Minister of New Zealand was a key advisor to the government and responsible for advice and implementation on major reforms to economic policy and public sector management in the 1980s and early 1990s.

Since leaving the civil service in 1993 he has provided strategic, economic, financial and management advice for government and corporate clients. For government clients he specialises in structural, financial and management reform of commercial and administrative functions. He also advises governments on economic and fiscal strategy and policy, and on regulatory policies in infrastructure.

He has worked in over forty countries in all parts of the world, mostly developing and transition countries but also in the major OECD countries. He was invited by Vice President Gore to address the summit conference on reinventing government in the United States . He advises the management of the World Bank on human resources practices.

For his private-sector clients he has worked on business strategy and regulatory issues in the oil, gas, telecommunications, airlines, electricity and rail industries.

Dr Scott earned a PhD in Economics from Duke University and a Master of Commerce from Canterbury University , and has completed the Advanced Management Program at Harvard Business School . In 1994 he was a Visiting Scholar at the International Monetary Fund.

Dr Scott has been Chairman of the New Zealand Health Funding Authority, the New Zealand Electricity Market and the Asia Pacific subsidiary of the global consulting company LECG. He is a founder and executive chairman of the UK based public sector consulting company Southern Cross Advisers Ltd, which assists governments in developing and transition countries to design and implement programs of administrative reform.

He has published extensively in his fields including a book on public sector management in New Zealand .

He was awarded the Order of the Companion of the Bath by the Queen in recognition of his contribution to government reform in New Zealand .

Opinion Pieces

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NZCPR Guest Forum
By Graham Scott
Some Concerns about the State of the State in New Zealand

The years of the Clark administration have seen a steady expansion of the influence of politicians in the economy and society. In this election year the voters will choose a government partly on what they think have been the results of this and whether they approve of it in principle. The list of illustrations is a long one.

Our Universities are to be guided and planned by a politically appointed Tertiary Education Commission that is to be brought into the inner circle of – until now – apolitical policy advisers. The primary industries are to be fed taxpayer resources to pursue government initiated strategies for breakthrough technical innovations. Air New Zealand has been partially nationalised and then criticised for not conforming to government policies that are not in law. The Government is trying to prohibit shareholders in Auckland Airport from selling their shares to a Canadian pension fund – scarcely a threat to national sovereignty. The rail lines were nationalised – or more accurately the massive costs of maintaining them were - and there is talk of further nationalisation. Spending under the public health system has been tilted strongly towards public providers that are subject to detailed ministerial intervention. A commissioner has been appointed in two DHBs.

The level playing fields of the previous tax regime have been replaced with a raft of tax breaks and penalties for groups and activities favoured or unfavoured by ministers and their advisers.

The public service is under more pressure to conform to political direction than it has been since the professional apolitical civil service was established almost a century ago. This is eroding the attractiveness of the public service as an employer of competent professionals. The emphasis on ‘no surprises’ and providing ‘client service’ has made some advisers gun shy and advice has been fudged in some important areas where forthright advice is needed.

Directors of state enterprises are complaining about the level of political intervention and the balance of political connections and professional skills in choosing boards has shifted towards the former. The State has returned to the banking business.

This pattern of deeper political control was signalled early and has been implemented. So we are headed for an election debate not just about the usual tussle over policy settings but also about whether this expansion of state influence is desirable or whether it is undesirable.

There are two questions around which people might evaluate these extensions of political intervention into our lives and our work. The first is a practical question of whether in each case the country is better off for it, which will be on most people’s minds. But it is not always easy to see what the results are, as the necessary facts are not available in many areas and other things influence the outcomes. This makes it difficult to distinguish ‘common sense’ from populism sometimes. The second question of whether these state intrusions are desirable or flawed by reference to principles of sound public administration and/or ideological preferences where both facts and principles are elusive. Some voters will favour a government that tries to do what they see as the right things even if it messes them up. Others will not give much thanks to a government for achieving something by means they strongly disapprove of.

On the practical question first, the results coming through give cause for concern on some major issues. The latest numbers on productivity trends released by Statistics New Zealand show that our economy is way off track if closing the gap with Australia and the OECD average is the goal – as it was before this Government abandoned it as too hard. The growth in output per worker over the past seven years has dropped to half of what it was in the 1990s. Time lags in economic processes are long, but this productivity problem looks like it is getting embedded and our relative position is worsening, as the emigration statistics suggest. On a related issue, the Government’s environmental policies will suppress the growth in living standards even further unless there is a large infusion of new technologies that make economic sense. So far much of the public information about these is anecdote and spin.

In the electricity industry the poorly designed Electricity Commission that was given deep powers of intervention into the industry has not solved the problems of integrating generation and distribution. The intervention by a sequence of ministers of health into the decisions of DHBs has coincided with a deterioration in the productivity trends in the sector. The health reforms of 2000 were promoted partly as reducing bureaucracy but, as the National Party are pointing out; the growth of administrators has outstripped the growth of medical professionals. Across the state, the addition of a number of public servants equivalent to the global employment of the World Bank is further evidence both of the increased use of the coercive powers of the state by ministers and the administrative costs of doing so. There is enough evidence around to suggest that the sum total of the way in which the government has expanded the use of state powers and the particulars of how it has done this, is doing more to hold back the development of the economy than to promote it. Its drive to transform the economy might be much assisted by more focus on transforming itself.

How you weigh up the evidence around the second and more philosophical question depends partly on your ideological preferences regarding big questions about the role of the state. It depends also on your views of the processes by which the state’s role is analysed, debated and resolved within the crucial institutions of the state that make policy decisions month by month. If you trust those processes you are more likely to trust what comes out of them.

The great German sociologist and political economist, Max Weber, provided an influential definition of the state as being an organisation that has a “monopoly on the legitimate use of physical force”. The form of government is only one aspect of the state and is about who gets access to the use of the instruments of force i.e. the armed forces, bureaucracy, courts and police. This focus on force may surprise those who think of the state as a big friendly bear that is a bit clumsy and wasteful, but looks after you. Also there are other scholars who find this concept of the state unsatisfactory and prefer a concept that includes all the wider structures in society that lie behind binding collective decisions. Further, governments get their way sometimes through the use of persuasion and incentives rather than force. However it is wise never to forget that behind the rhetoric about partnership and stakeholder consultation, governments are using the coercive powers of the state for much of what they do. Nothing matters more in an advanced democracy than the rights and constraints the government has in the use of the coercive powers of the state. A good government uses them sparingly, effectively and wisely.

This was not the case for example in the development of the antiterrorist law. Nothing could be more important in the rules for the use of force by the state than the grounds on which citizens can be arrested and detained. The essence of antiterrorist law is the right of the state to arrest people on lesser evidence, if they are under suspicion of terrorist activities, than for other crimes. Following arrests using this law by the police the Solicitor General said that it was very difficult to bring prosecutions under the act and the charges have had to be dropped. It would have been helpful for the police to have been told this by some one in authority earlier. The Prime Minister said that the law was a bit of a camel as a lot of people wanted to see different things in it. The former chair of the parliamentary committee that developed this unusable legislation said it was not the committee’s fault because it had done what it was asked to do. Plainly something rather worrying went wrong in the Government and the Parliament in consideration of the use of the force by the state in this instance.

The ignoring of advice from the Human Rights Commission and the Electoral Commission on the Electoral Finance Act is another reason to worry about cavalier attitudes to the use of coercive powers. So is the causal attitude to Parliament’s own rules about delegating its powers and towards the Auditor General’s rules on avoiding hidden taxes through excessive fees and charges. The smacking law and the election finance law rely too much on the judgement of the police in making decisions in gray areas where the Parliament should have been clear. Putting police in this position opens too much scope for the personal views of police officers to become the views of the state.

Social conflict is inevitable and permanent, but in healthy pluralistic democracies it is resolved non-violently and efficiently. Some conflict is resolved and channeled by the state apparatus. Some may be exaggerated by the attempts by one elite or another to harness the powers of the state in the interests of its constituents. So the use of the coercive powers of the state by governments ebbs and flows in response to political winds and the flow of events. But the underlying principles about the source and use of the powers of the state should have some permanence in a healthy democracy. A country always arguing about the rules is not going to get on with the game. With a republic in prospect it is essential we have more conversation about these rules and the institutions that give them substance.

It is also important to continue the search for more stable and predictable policy frameworks where the role of the state is prescribed and procedures defined for the use of its powers of intervention. Examples are the fiscal responsibility provisions in the Public Finance Act, The Reserve Bank Act, the State Owned Enterprises Act and the Commerce Act. New rules to stabilize the share of the state in the economy and impose a national benefit test on regulatory powers in the manner of the Regulatory Responsibility Bill before the Parliament would also help to establish a sounder basis for economic po licy than the haphazard intervention of ministers with short political fuses. These practices typified the Muldoon administration and are in evidence again today as for example with the intervention of the Auckland Airport .

Scholars and practitioners in the field of development economics haveme institutions that are functioning poorly and to distort some institutions of civil society. In this connection it is a relief to see that the Government

There is an accumulating agenda of redesign, upgrading, renovation, slum clearance and repairs and maintenance to be done in some important public institutions. Government should begin by focusing more on what it has to do and on doing it well and using the powers of the state more wisely and effectively.