Popper, Plato and profits, Rodney Hide

The Commercialisation of New Zealand
Brian Easton
Auckland University Press,
$39.95, ISBN 1 86940 173 5

Reining in the Dinosaur: The Story Behind the Remarkable Turnaround of New Zealand Post
Vivienne Smith
New Zealand Post, $24.95,
ISBN 0 473 04389 0

Transforming Government Enterprises: Managing Radical Organisational Change in Deregulated Environments
Barry Spicer, David Emanuel, Michael Powell
Centre for Independent Studies, $29.95,
ISBN 1 86432 019 2

The downpour of books on the reforms of the last dozen years continues apace. These three attack the subject from quite different angles.

The first is the latest offering from writer, economist and commentator Brian Easton. He provides not so much a book as a series of lecture notes and a collection of research papers. It shows. The book lacks the coherence that follows from writing purposefully and it suffers from an excess of appendices (eight) for material that couldn’t easily be squeezed into chapters. Notwithstanding these quibbles, however, the book is a good read and Easton writes well and clearly.

The book’s title suggests Easton is not totally enamoured with the changes in recent years. “Commercialisation” carries a pejorative sting. The title does not mislead. Easton defines commercialisation as “the application of business (or commercial) principles to the public sector (or a particular public sector activity)”. (p26) He goes on: “It is a theme of this book that commercialisation ceased to be a practical solution to various pressing problems but became an all-encompassing application to all public sector activity, whether or not there was a problem.”

To “commercialise New Zealand” does sound bad. But we are left wondering about the alternative. It is perhaps “to politicise New Zealand” which doesn’t sound too comfortable either. The book doesn’t help. In searching for an alternative to “the market”, Easton concedes that “there is no perfect solution to organising something as complex as human society”.

It is implicit in Easton’s work that we can through the political process “design an economic system” and “organise a society”. A cynic might point out that the political process couldn’t deliver letters on time or keep track of tractors on a goods train let alone “organise society”.

We are left with the question: whose fault is it? Is the failure of state organisation a failure of the politicians or the failure of theoreticians who reason that the state could and should deliver?

Easton blames the politicians — and their advisers. But his book is a critique, not a cookbook. He challenges arch-reformer Sir Roger Douglas for his lack of introspection and for launching his reforms as policy blitzkriegs. He contrasts Douglas’s approach with that of philosopher Sir Karl Popper, who argued inThe Open Society and its Enemies in favour of “piecemeal social engineering” rather than grand plans and schemes so beloved of totalitarians of all stripes down through the ages.

But was Douglas really a totalitarian, the mad social organiser and central planner who was the target of Popper’s attack? The reforms known as Rogernomics were exactly those Popper argued for. It is the devolution of power away from the centre that allows the “trial and error” that Popper exhorted us to follow. It was Douglas’s reforms that took us away from the “closed society” that Muldoonism led us to into a more “open society” and a more vibrant one.

It would probably surprise Easton to learn that the Treasury Secretary, Dr Graham Scott, shared his concerns about the speed of reform. He travelled to see Popper to explain that New Zealand had embarked on a ambitious set of reforms on a scope and scale that appeared not to follow the strictures of “piecemeal social engineering”. The great philosopher replied: “These reforms, they increase individual freedom, yes?” The Treasury head had to allow that they did. “So what is the problem?”

It doesn’t matter whether the Berlin Wall comes down piecemeal a brick at a time or is blown up with a bang. The important thing is that it came down. It is human freedom that allows the experimentation, the trial and error that Popper was at pains to point out is necessary if knowledge is to advance. It is totalitarianism and big government everywhere that stamps it out.

It is strange, too, that Easton criticises Treasury officials as new-age “philosopher-kings.” Plato had no room for individual freedom in his Republic. The truth was held in the centre and ordinary citizens bred of bronze and silver and not gold could never access it. They were to be fed simple stories to keep them content with their lot and accepting of the breeding and training programme that would produce those who lorded over them.

Plato’s political philosophy followed his metaphysic that there was true and good knowledge and that he and his disciples (and they alone) could achieve it. To the question, “Who should rule?” Plato’s answer was: “Those with the truth, those with knowledge, those who know right from wrong: we, the philosopher-kings should rule.” What’s more, he detailed a society designed to breed and nurture philosopher-kings so that the truth that he alone possessed could be passed on and organise society forever more.

Far from following Plato, market advocates follow Plato’s teacher, Socrates, whom the Oracle at Delphi declared the wisest of all men. Socrates was puzzled. He knew so little. But he came to realise that his wisdom was that he knew what he did not know. Others thought they knew when they didn’t.

The political heirs of Plato are the Adolf Hitlers, the Joseph Stalins, the Pol Pots. The political heirs to Socrates are the John Lockes, the Algernon Sidneys, the Thomas Jeffersons, the Benjamin Franklins and, yes, the Douglases.

Those who favour small government over big, the market over state control, recognise that no one has the truth, that we can at best just advance towards it and power is better dispersed than concentrated. In dispersing power we allow entrepreneurial effort, allow people “to give it a go” and in so doing minimise the size of the mistakes while maximising diversity and the opportunity for great ideas to take root and flourish. It is only through the market and the social co-ordination that market prices provide that we can have such freedom and diversity and so truly advance.

A course in policy analysis cannot be sustained simply as a critique. Easton closes his book with a 14-point plan of advice to his students for policymaking: (1) don’t panic; (2) policy is about problem solving; (3) use theories consciously; (4) opinion is free, facts are sacred; (5) tolerate diversity, tolerate dissent; (6) implement policy incrementally; (7) avoid cultural cringe; (8) ask in whose interest the advice is;  (9) if it ain’t broke don’t fix it; (10) don’t dismiss economic analysis; (11) …but do not dismiss the other social sciences either… (12) …or history; (13) use English; (14) and don’t forget people.

The book therefore closes with a whimper rather than a bang. It’s hard to disagree with these homilies. It’s hard to see them ruling out any of the reforms of which Easton is so critical. One hopes too that students leave stage 2 policy analysis at Auckland University better armed than with just a hodgepodge of homilies and a smattering of classics wrapped up as a critique of Rogernomics.

2

Students would be better served with a quick read of Reining in the Dinosaur. Here is an in-depth account, warts and all, of the massive changes wrought by commercialisation of New Zealand Post. It is not a dry numbers. It is the inside story and the effects, good and bad, on the life and times of the people who worked in the greatest government department of them all. These are the people who underwent and drove the changes necessary to make New Zealand Post Management magazine’s 1994 company of the year.

Ten years ago New Zealand Post was considered a loser, its chances of success non-existent. Sir Geoffrey Palmer wondered whether the government could “give it away”. The year before it was corporatised it lost $37.9 million. In its first year of operation as a company it returned an extraordinary profit after tax of $72.1 million. Its company of the year citation read: “New Zealand Post provides perhaps the most efficient and inexpensive postal service in the world.”

Postal administrations from more than 80 countries have now sought advice from the company. Bill Cockburn, a former British Post Office chief executive said: “I characterise New Zealand Post like the All Blacks. It’s not logical that you should get such excellent business performance from such a tiny catchment area, but consistently that is the case.”

New Zealand Post is a success story. In its previous incarnation as a government department it was a failure and a disgrace. Its failure was precisely the failure to inject the commercialisation Easton bemoans. There were 2200 people in head office and, with assets of $4.5 billion and revenue of $1.5 billion, it had only 10 accountants. It was, in effect, run with a giant cashbook.

Smith’s book is more than a history of turning a lumbering government department into a successful business. It is social history of the drama and the hopes and fears of New Zealanders in the face of such change. There is an entire chapter on the fight the small Northland community of Waipu put up to keep its post office. There is a chapter on the closure of 432 post offices and another titled “Success, But at What Personal Cost?” The pain of reform is not ignored or glossed over.

There are the heroes, too: Harvey Parker, chief executive from 1987 to 1993, the man with the vision and determination to turn Post around and carry the entire company with him; Douglas, Palmer and Richard Prebble, who drove through the reforms and opened it up to Parker’s entrepreneurial talents; and each and every employee who became part of a remarkable and inspirational success.

There are also the political buffoons. Postmaster-General Jonathan Hunt promised there would be no job losses. Michael Cox, National Party spokesman on financial matters posed these questions and answers: “Will the cost of telephones come down as a result of corporatisation? Will the price of stamps come down? No, of course they will not. Telephone charges will not come down, either; they will rise. Will banking charges come down as a result of corporatisation of the post office banking sector? No they will not. Where is the increased efficiency? Will the number of staff … increase or decrease? … Will increased efficiency mean that the job can be done with fewer staff? No, that will not happen, so where does corporatisation get us?” Parker and the team showed him.

Dinosaur adds to our understanding of our recent history. It tells too of why commercialisation was necessary and of the achievements the reforms delivered.

3

The most detailed of the three books under review is the one by Spicer et al. This is a book for the serious student of the changes wrought through the conversion of government departments to state-owned enterprises (SOEs). The approach is a cross-case study comparing and contrasting experiences across a number of departments and SOEs and there are valuable lessons and insights.

The book gets down to the nitty-gritty of change where all the action was and is. For example, critical to the success of the reforms was the leadership, vision and ability of the boards and management. We learn, too, of the critical role of valuation in setting up the SOEs and of the authors’ favoured approach (embedding discounted cash flow methods within a financial model based on a business plan).

More than anything Spicer et al remind us just how technically challenging the changes wrought in short space of time were. We are aware through are own experience of the political and social challenges. This book reminds us of the managerial and accounting challenges and shows that Cockburn is right about the ability of New Zealanders to achieve the unexpected.

Easton’s book is a healthy reminder that we must always be self-critical of policy and what the politicians have in store for us. But Smith and Spicer et al remind us too that we can achieve great success and turn failure into success and that we should be proud of our achievements. We do have much to be proud of in this little country of ours.

Rodney Hide is ACT’s finance speaker. He has degrees in zoology, botany, resource management and economics. He taught environmental policy and economics at Lincoln University and worked as an economic consultant in Auckland. 

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