Undesigned revolution, David Caygill

Public Management: The New Zealand Model
Jonathan Boston, John Martin, June Pallot, Pat Walsh
Otago University Press, $49.95,
ISBN 0 19 558325 6

Later this year the World Bank is holding a seminar here on “The New Zealand Model”. As I understand it, they are inviting people to come to New Zealand to study the changes made here over the last 12 years.

This event prompts several emotions. No doubt we should feel some sense of pride. We should welcome the opportunity to exchange ideas and to learn as much as teach. Much remains to be done after all. But chiefly I felt on learning of this seminar, as I felt on picking up OUP’s recent Public Management: The New Zealand Model, that New Zealand could not be a model. Not because our efforts were not good enough, but because our economic changes, our new public policies and particularly our approach to public sector management were not designed that way. They were not intended as a model for anyone.

What the reformers did — or set out to do — was simply to address a series of problems that confronted us in the middle 1980s. These challenges were seen as acute and inter-related. It was acknowledged — notably by the Economic Summit Conference in September 1984 — that comprehensive change was needed. To achieve this would shake and ultimately change the established order. But the next decade’s decisions were neither designed nor intended self-consciously as a revolution — much less as a model for anyone else.

To treat them as such runs the risk of seeing greater coherence and deliberation in the present structures and polices than is warranted. Apart from the risk of overly flattering ourselves and hence becoming complacent about the future, such an approach tends to support the theory that we got here by virtue of some conspiracy rather than the will and efforts of ordinary, elected and therefore fallible and replaceable politicians.

It is a pleasure to explore an academic study of the reforms since 1984 that avoids tiresome suggestions of conspiracy. There has been quite enough nonsense already of how five or six ministers seized power by stealth in conjunction with a band of Treasury zealots. Fortunately there is nothing of that from Jonathan Boston and his co-authors. Of course there are those who tend to the opposite extreme, who expect one to believe that everything was inevitable or at least essential and for the best. This is no work of hagiography either. If it has fault at all it is merely that, for my taste at least, it tends to analyse the changes and the resulting systems in overly academic terms. Frequent comparisons are made with previous academic work — including, understandably enough, that of the four authors — with which most readers may be unfamiliar.

But the book is by no means useful only to academics or students. It should prove of interest to anyone who is keen to understand where the New Zealand public sector has got to. The book is in my view rather better on the “where” than the “why”. And it is far more than the collection of separate essays that it might easily have been with as many as four authors. Only occasionally are individual voices discernible.

Overall one detects more than a hint of scepticism at the explanatory power of neo-classical economics. But it is worth remembering that this is a book about New Zealand’s public sector and its current management and not about the economic changes that have been imposed on the private sector. And while more of the book is descriptive of the present system than speculative as to where future developments might take us, there is a great deal in this work to provoke reflection as to the wisdom or otherwise of the reforms.

Let me try and illustrate this by addressing one area in particular which more than one chapter of this study brought to my mind. I refer to the difficulty, highlighted in several parts of this work, of simultaneously providing more effective management by devolving responsibility away from a monolithic centre, whilst still retaining control over the overall financial budget.

Boston and his colleagues explore this dilemma particularly with respect to wage bargaining in the state sector. The State Sector Act 1988 made the new chief executives the employers with respect to their individual departments. Departments in effect became individual enterprises for industrial relations purposes — introducing enterprise bargaining in the state sector some three years before the Employment Contracts Act brought this to the private sector.

But in fact things were not quite that simple. While the chief executives were the new employers, the State Sector Act provided that the State Services Commission would be the employer party for the purposes of employment negotiations throughout the state sector. It was not until 1992 that the SSC delegated negotiating authority to chief executives of departments and other public agencies. Even then the delegation was subject to a number of conditions: in particular, bargaining outcomes had to be fiscally neutral. In plain language, they could not cost more. Moreover, the SSC has retained its representative on the bargaining panels. And the cabinet subcommittee on state wages continues to maintain an oversight on wage negotiations.

This is surely curious. One might have imagined chief executives would be free to spend more on wages and salaries and less on, say, computer equipment or rent. It was precisely the desire for that kind of flexibility which led to the move away from input budgeting to the alternative focus on outputs required by the Public Finance Act 1989.

But clearly the government is still concerned to manage its overall budget. So even now it has retained controls in the crucial area of industrial negotiations. It is seemingly reluctant to trust such a sensitive function to individual chief executives lest some leapfrog ahead of others, putting pressure on the government’s fiscal “bottom line”.

One can see exactly the same issue arising with respect to schools and hospitals. Indeed, in my view the dilemma between flexibility and central control lies at the heart of much of the present unease over the health and education sectors. The government would clearly like to give schools, for example, the flexibility to determine the number of teachers they wish to employ and their rates of remuneration. The government has encouraged schools to opt for what is now called “direct resourcing”, previously “bulk-funding”.

Most schools have been reluctant to move in this direction. They see that the government still has control of the purse-strings. The purse could easily be lighter next time round. Thus education negotiations are still largely conducted by the State Services Commission which bears no responsibility for the educational consequences of its negotiations. Teachers’ salaries and allowances are determined nationally as the result of single nationwide negotiations. And we are treated to the sight of the Education Minister answering questions about pay negotiations though he does not sit at the bargaining table.

I once did. On one occasion only, in 1985, I joined Russell Marshall in negotiations with the PPTA. The discussions went amicably enough until the resolution that Russell and I thought we had achieved was rejected by the cabinet. Our colleagues were concerned that our recommendations would have set too high a precedent for the subsequent claims we faced from the police and a number of other groups.

What troubled me more than the initial embarrassment at this reversal was the absence of adequate criteria. Russell and I simply had no clear idea of how much of Vote:Education should be spent on teachers’ pay. For that was effectively what we were determining. We had little information on teacher recruitment and retention. Much of what we did have — from the PPTA — was highly speculative. I suspect the SSC’s latest information is little better.

By contrast, presumably each school is able to make a realistic judgment about its need for more or better qualified teachers in particular disciplines as against more or better equipment, library resources and so on. Each school can presumably see what such trade-offs would mean in reality — even if they were uncomfortable making them. At the aggregate, national level priorities are far more abstract. The implications are far less clear.

The problem is, however, that schools are not truly budget-holders. They currently have discretion over the much smaller, non-salary part of their budgets. And the salaries, too, in the case of those few schools which have accepted the risks and the inducements to opt for direct resourcing. (Incidentally, I am unclear why loser schools, that is, those worse off under direct resourcing, should opt for this system. If the answer is that they are expected to do so for the intrinsic advantages of greater flexibility then why offer financial inducements to any schools?)

What schools cannot do is determine the size of their budgets. If they could bargain on any basis with teachers and have the government pick up the tab then teachers’ salaries would no doubt be bid up rapidly. This might not be a bad thing — at least for a while — but it would certainly present budgetary problems to the government. So what we have now is a system that might be termed “compromised flexibility”. Schools have flexibility to switch resources from maintenance to equipment, say. And gradually they are being tempted into adding salary expenditure to this area of discretion. But the bargaining that determines the level of salaries still takes place at the centre. The government cannot afford to let it go. The salary bill is simply too large – both in absolute financial terms and in the consequences of allowing it to move out of government control.

One result is that schools continue to run back to the government with complaints. They say — no doubt with much justice — that the budgets are not large enough. Devolution, bulk funding, call it what we will, has done little or nothing to reduce the impression that schooling remains squarely a central government responsibility. This is so, despite Tomorrow’s Schools and despite the occasional flurries of enthusiasm for even greater local control or decision making, for example, with respect to school property.

One can see the same dilemma with the health system, though in some ways the consequences are more obvious and problematic. Clearly the government remains the prime funder. (I refuse to use the word “purchaser”. Health may well be a set of services, but it is not the consumer or patient who is doing the “purchasing”. This odious terminology does nothing to clarify relationships. It merely reinforces the inappropriate impression of a market analogy.)

Four regional health authorities now negotiate with 23 or so Crown health enterprises within annual budgets fixed by government. CHEs are charged with making a profit. But they cannot increase the volume of services they supply because these are set in their contracts with the RHAs. Indeed, CHEs cannot readily manipulate the demand for their services as they might in a normal market relationship, because the “price” — in this case the level of reimbursement for their services — comes from the RHA and not the patients doing the demanding. Health still looks free to its users.

Incidentally, there is nothing unique about the ostensibly infinite nature of demand for health services. As Enoch Powell, a former British Minister of Health, demonstrated in his wonderful monograph on his time as minister, demand for any other good or service might well be infinite if it was apparently free. 1 We might all have wardrobes like Imelda Marcos if someone else was paying — as they were in her case.

I take it as common ground among New Zealanders that secondary health services — hospital care — should be free to patients. The alternative is to accept that access to health should be determined by income. That is not even truly the case in the United States where Medicare and Medicaid cover some 40% of health services. What we have is a health system where the government doesn’t just do most of the paying. It determines the overall size of the financial pool available for all but primary care. This is a big exception, but the point I am focusing on is why there is so much complaint about hospital services and what can realistically be done to address this.

The government determines the size of the health vote that will be spent on hospital care. It divides that up between the four RHAs who divide it up amongst the CHEs. The CHEs employ the nurses and doctors and negotiate their wages. They appear to behave like profit-driven businesses and employers. But they cannot influence the “market” for their services, because there is no real market. The government holds the purse strings. No way is it going to allow hospitals simply to perform whatever services they think appropriate. But since patients face no price constraint, demand for health care is indeed potentially infinite.

The wonder is not that the government sits astride the overall budget. What does defy explanation — apart from the fact that the mismatch between fixed supply and unlimited demand is so little acknowledged and indeed often denied — is that the method of deciding which services will be supplied is so blunt and arbitrary. With wage negotiations conducted by organisations who can’t be certain of recovering their costs because they face neither market disciplines nor a guarantee of government reimbursement, the CHEs continue to bleed red ink — which the government so far has shown every sign of being resigned to mopping up.

The key question in the health system is simply: what services are to be supplied in what quantity? Electing area health boards ensured that local people had some input into answering that question. It didn’t make the decisions any easier. And area health board budgets were no less constrained than those of CHEs or RHAs. But at least it was clear that the priority choices the boards had to make involved value judgements and not merely technical considerations.

I’m obliged to Michael Cooper, the former chairman of the Otago Area Health Board, for this description of Britain’s national health service. As Malcolm said of Scotland in Macbeth: “It weeps, it bleeds; and each new day a gash is added to her wounds”. What struck me (and I am sure Michael) was that this could as readily have been said of New Zealand’s current health system.

In my view much of the present unhappiness with health and education derives from the fact that the government still holds the purse strings. It is in users’ and employees’ interests to continue to complain at under-resourcing and to point their fingers at the government. This is a habit which electing area health boards won’t shake any more than electing school boards of trustees has. But it might create some buffer between governments and patients and give citizens a greater influence than they have at present, in health at least.

There is at least one alternative to this devil’s choice between monolithic centralism, where all public services are simply delivered by central government, and constrained delegation with its tension between controlled funding and ostensibly delegated decision making. It is an alternative that has hardly ever been tried in New Zealand. For want of a better expression one might call it genuine “subsidiarity”, to use an expression that is in widespread use in the European Union. That is simply the devolution to lower levels of government not just of the power to make decisions but also of the power to levy the necessary resources.

At present territorial local government is the only significant example of subnational administration with the capacity both to make decisions and to raise the requisite revenue. The history of regional government is one of controversy about the scope, functions and very need. Reshaping local government was, of course, a significant component of the changes of the last decade, as Boston et al make clear. They also register the obvious point that the restructuring of local government has not led to a significant accretion of further responsibility.

There are many reasons for this — not least that little demand has been expressed by local government itself. Nor has there been much advocacy from anywhere else. Yet in other countries — I think of Sweden and Germany in particular — many more functions are exercised at local than at national level. In Germany local government is not a creature of federal statute at all. It is autonomous and able to decide its own scope and powers — subject presumably to such constraints as are laid down at the federal level, for example in the German Constitution. Here the situation is precisely opposite. Local government may do only that which Parliament has expressly authorised. The result is one of our largest and most detailed statutes. It is surely time that the Local Government Act was rewritten not just in plain language but with a hedge-trimmer rather than a pen.

Would central government ever contemplate giving taxing powers to elected health boards or education bodies over a broader base than property (that is, rates)? I doubt it. And the history of such functions being administered by territorial local government in the United Kingdom does not provide encouragement for such a change. For one thing, concern for equality of outcome seems too strong in this country. And there is concern for the quality of administration which might result. One might question whether central administration of the purse strings is an adequate guarantee of quality. I note the increasing need to reinforce contractual requirements as to quality with the intervention, for example, of patient advocates. Nor, on the education front, does the Education Review Office yet provide a universally accepted system of assuring educational standards.

All one can say is that occasionally the question of how far genuine devolution might proceed has been asked and that it seems unlikely that our present systems are the final answer. The same problem of how far to devolve responsibility was addressed, or perhaps I should rather say wrestled with, with respect to the administration of Maori affairs. Boston and his co-authors describe well the twists and turns taken as the Labour government contemplated devolving greater responsibility to iwi authorities. Ultimately the Runanga Iwi Act was passed only to be repealed by the incoming National government. This was, I believe, as significant a change in its own way as the abolition of area health boards and with a similar centralising consequence.

The truth had been that the Runanga Iwi Act was controversial even within the Labour cabinet. Its chief advocate was the Minister of Maori Affairs, Koro Wetere. He was supported in particular by Sir Geoffrey Palmer. Some other Maori members were less enthusiastic however. And even Geoffrey raised the issue of how one would define an iwi and how one would ensure that the runanga were either democratically elected or otherwise able to demonstrate a mandate.

Whetu Tirikatene-Sullivan raised the intriguing question of whether non-tribal bodies such as the Maori Women’s Welfare League or the Ratana movement should be entitled to be regarded as runanga and able to exercise authority over resources. Quite what resources or programmes might have been devolved was never entirely clear, partly because it was thought that the answer would evolve over time.

Now perhaps we are seeing a measure of iwi administrative independence as a result of the Treaty of Waitangi claims settlement process. Some iwi, for example, Tainui and Ngai Tahu, have established new structures to facilitate either claim settlement itself or the subsequent management of settled assets. This process is ad hoc. Perhaps it is not the worse for that. But not all iwi have claims of sufficient significance to raise considerations of administrative structure. The result is a process whereby significant public resources are being devolved or handed over in an oddly haphazard way. The Waitangi Tribunal at least is well aware of this. It held as long ago as its report on the Orakei claim that article II of the Treaty of Waitangi requires the Crown to ensure that each iwi has sufficient resources for its needs. Plainly the Crown has yet done no such thing.

If the tradition in this country of looking to central government for redress can be dated right back to the Treaty of Waitangi, I can recollect one less serious example from Labour’s term in office. When the Sale of Liquor Act was being reviewed in 1989 the original proposal was that liquor licences be issued by territorial local authorities. One caucus member asked: Does this mean that Tim Shadbolt will be able to determine drinking hours in Waitemata city? The proposal died at that point and back we went to a single, central Liquor Licensing Authority. I have never understood how as a citizen of Christchurch or of Wellington I am affected by the closing hours on the West Coast or in Northland. Surely we have not reached the limits of those subjects where uniformity of provision is less important than local responsibility and that might therefore reasonably be left to local determination?

What Boston and his colleagues reinforce is that the tradition of looking to the centre continues despite the massive reduction in the size and function of the public sector over the last decade. Quite why this should be is something of a puzzle. It may be a function of the country’s relative homogeneity. If some degree of income dispersal is occurring there is as yet relatively little change in our cultural mix. Alternatively the constant reference back to the centre, rather than merely to the public sector, wherever located, may be a function of the country’s size and/or the simplicity of the structure of our government. As many have observed, it is not hard to get hold of an MP or even a cabinet minister. It is not difficult to lobby central government. One may sometimes feel that “the bastards aren’t listening” but the expectation continues that they should be. Hence MMP perhaps.

Boston et al raise a number of questions about the impact of MMP on the future public service, its administrative structure and ethos. It is hard to do more than speculate on these matters at this stage. What strikes me most strongly is that MMP will not change New Zealand’s fundamental constitutional structure. In the first place it changes merely our electoral system, that is, the means of electing our Parliament. We will still have a parliamentary system. So we will still have a government and an opposition whose prime drive is to replace the government. So MMP will not produce a “kinder, gentler” Parliament. What it will do is add to the number of parties with more than token representation in Parliament. This does not mean that all voices need to be accommodated. If we continue to have a government with a clear majority (albeit made up of more than one party) we may still see the full powers of government on display.

So we may yet see further periods of reform. This is all to the good since many microeconomic areas still need attention. But that is beyond the scope of this book and these comments. What is not beyond at least conceptual possibility and is well within the subject of this book is the possible change to a more devolved system of government.

Two years ago Robert Dahl (not to be confused with Robert Dole, the Presidential aspirant or Roald Dahl, the author) wrote: “As a country becomes more and more a part of a vaster social, economic, cultural and political world, the ability of citizens to make their own decisions autonomously is diminished… In the absence of democratic transnational institutions, at best only a tiny minority of citizens in any country can exercise direct … control … over the agenda of the transnational decisions, actions, choices and influences that so profoundly affect their opportunities and life chance”.

Dahl, who incidentally is Sterling professor emeritus of political science at Yale University, propounds the answer that we should seek “the enhancement of democratic life in smaller communities below the level of the national state”.3 Despite my own enthusiasm for greater devolution than we have yet seen I don’t propose to hold my breath. Dahl’s other remedy may prove more prescient. He also insists on better information and wider debate. This book, to which I am conscious I have not done justice, is a signal contribution to that debate.


David Caygill was variously Minister of Trade and Industry, Minister of Finance and Minister of Health in the 1984-90 Labour government. He retired from Parliament at the October 12 election and now heads a public law section in a Christchurch law firm. 

2 “A Democratic Dilemma: System Effectiveness versus Citizen Participation”, Political Science Quarterly, vol 109, No 1, 1994.

3  ibid

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