Control of public sector key to success

By Brian Fallow

Between the lines

Three properties define the economy: small, open and badly governed.

About the smallness, nothing can be done, short of petitioning Australia for statehood.

The openness is now a given. For good or ill - and it is overwhelmingly for good - there is no going back to the fortress economy of old.

It is, of course, our misfortune that industries in which New Zealand has a genuine advantage, such as pastoral farming and plantation forestry, are bedevilled by protectionism elsewhere. All we can do is chip away at that in whatever forum presents itself.

Long term, the need to feed and house another 5 billion people before (demographers estimate) the world's population stabilises, suggests that those are not bad things to be good at.

As for the third fact of economic life, we are indebted to Comalco boss Kerry McDonald for calling attention to the link between our poor economic performance and a debilitated and dysfunctional public sector.

As Mr McDonald points out, public spending on health, education and welfare has trebled in nominal terms since 1984 and represents a larger share of overall economic activity. Yet the perception is of declining standards.

Newspapers are awash with stories about the waste of public money on the one hand, and people falling through the welfare state's safety net on the other.

Those parts of the bureaucracy responsible for policy advice have often been downsized, and are marked by high staff turnover, with an inevitable loss of experience and institutional memory.

For example, a study last year of the Treasury's macro-economic forecasting performance found that the nine economists charged with writing the budget's economic forecasts had an average 18 months' experience of that task. Little wonder they were slow to recognise the gravity for New Zealand of the Asian crisis.

At the heart of this is a changed - some would say corrupted - relationship between the elected Government and the civil service.

Ministers have been taught to see their departments as service providers from whom they buy outputs with taxpayer money.

The structure of purchasing agreements aids transparency and fiscal rigour - but does it encourage ministers to think in terms of leaving their departments in better heart than they found them?

State Services Minister Simon Upton is pressing for a greater focus on the Crown's role as owner of the public sector, and not just a buyer of services from it.

The hope is that from good governance better management will flow.

And from better management, better policies, better implemented.