Reform – where to from here?

There’s an interesting debate raging here about New Zealand, globalisation, the Roger & Ruth reforms and where we go from here.

There’s a fascinating thread on David Farrar’s blog on the same issues.

Funny how we’re still debating the legacy of 1984-93.

So much of what happened, whether it was a good thing and where it should go from here comes down to the age old debate between the role of markets and the role of government.

I’m not one who things the market is god, nor do I think it’s the devil. It is an extraordinarily efficient signals mechanism. And like all signals mechanism it is amoral – that is, indifferent to value judgements. (NOT the same as immoral, please note.)

The market – or capitalism, if you like – has two massive strengths. One, already mentioned, is its efficiency as a signals mechanism.

We need to get those market signals. One of the reasons New Zealand nearly went broke under Muldoon was that there was such an elaborate cats cradle of subsidies and what-have-you that the signals couldn’t’ get through.

That means, from a policy point of view, governments should intervene as little as possible with those signals.

The other great advantage capitalism has is that unlike Marxism or its various offshoots – socialism, social democracy, Frankfurt School Marxism (which is the basis of what we now call ‘political correctness”) or Greenery – no-one thought it up in advance.

It evolved. And it evolved out of humans interacting with each other, buying, selling and trading. It wasn’t dreamt up by some social misfit sitting in the British Museum library.

And because it evolved – and continues to evolve – out of human beings as we actually are it represents all that is best and all that is worst in human beings.

The efforts to constrict markets have mostly been driven two themes – a desire to put some ethical constraints on those market signals, and a desire to fill in the gaps of what markets would not do – the “market failure” argument.

The ethical side is through things such as labour law and welfare. Where this intervention should lie is the main divide between the Marxist and the liberal conservative political traditions. Where you put that divide will almost always come down to where you sit on that spectrum.

The ‘market failure’ area has become ideological and I can’t divine any clearly thought out reason for this. The only reason is pure self interest – some things governments do have been captured by certain groups who don’t want change.

Almost by definition, the ‘market failure’ area of government intervention should be based on what works and what doesn’t. In New Zealand’s early days, no-one else had the wherewithal or the interest in, for example, building the electricity generators and networks.

Or the telephone network.

So the government did it. But times change. What would not work then would work fine now. One might quibble with how Telecom was privatised (and it was a rushed, fiscally driven job) but it was still a positive move. Telecom invested a damn sight more in the network than the government ever would have.

Which is what should drive the privatisation debate. Can the private sector do it better?

Is Contact a better company than, say Meridian? Don’t know actually. Contact is, through the sharemarket, far more accountable than Meridian is as an SOE. You can actually get more information about Contact than you can about Meridian.

We do know though that Meridian has a board which isn’t elected but is appointed by politicians and we also know that Meridian will, from time to time, make decisions based on the politics of the day rather than what is best for the company.

Those decisions might be best for the shareholders but those shareholders are Michael Cullen and Trevor Mallard.

That’s on the acknowledged commercial side of government activity.
The area of this of the privatisation debate which generally drifts from the “market failure’ part of the argument to the “ethical” is health and education.

The assumption might be made that these services fit on the “ethical” side of the ledger but in fact the government’s involvement in them belongs more on the “market failure” side. Historically, much of those services would never have been provided by the private sector. In some parts of those services, that’s no longer true.

People justify the status quo though less on efficiency grounds and more because of a vague feeling no-one should profit from such services (why not?) or that provision of them is a “public good”.

The problem with both these arguments is that the three most basic human needs are all provided by the private sector, at a profit – food, clothing and shelter. If you don’t have any ethical objection to that, there can be no great ethical issue with the private sector providing health, education, electricity, whatever…

It has to come back to what works best. Health, for example, is an acknowledged shambles. Even the health bureaucrats say they are spending an extra billion dollars a year (that’s 1% of GDP folks!) and they don’t know what they are getting for that extra money.

A performance report on DHBs earlier this year pointed out that caseload output was up 2%, but spending was up 7%.
The same report also pointed to problems with what was being measured:
“The current indicators of district health board performance are process based, and do not comprehensively attempt to measure either outcomes or outputs gains.”

In other words, they’re spending a truckload more money and they don’t know if its doing any good or not.

There is scope for a lot more private sector involvement in health. One of the best things Jenny Shipley did – as ACC Minister – was to let ACC use private hospitals.
That is the main reason the numbers of long term ACC claimants has more than halved. (and not,as some will have you beleive, because ACC is too mean) Before then, they had to wait until the public sector could take them. The human benefit of that – we’re talking about 16,000 people a year here – is immeasurale.

There are some areas of health which will never be able to be run privately but the rest can’t possibly be run any less efficiently, and at greater cost to the country, than they are now.

This is a particularly important debate for New Zealand. We have a small, not particularly well paid population base spread out over a comparative large area and some very difficult geography.

That makes the cost of our infrastructure overheads – electricity, roads, schools, hospitals, and so fourth – quite high per capita. this is an expensive country to run.

that means that we need to constantly be focussed on whether there are more efficiient ways of delivering those services to ourselves – and we can’t afford to have a hangup over whether they are delivered by the public or the private sector.

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