Alternative Service Delivery

New Zealand Institute of Public Administration,
Turnbull House,
Wellington

Your seminar on Alternative Service Delivery for Government is very appropriate given the changing strategic environment that government finds itself in. I would like to consider some of the issues and responses this raises, and to ask a few questions along the way.

The Strategic Environment - the need for new policy responses from government:

Things change. New Zealand has moved from a fortress economy where the Prime Minister decided the price of a loaf of bread, to one that is now very much part of the global village. More than twenty years ago I spent time working as an advisor in a centrally planned economy. It taught me that Governments that focus mainly on redistributing income reduce a society's wealth very quickly. Now that country, Tanzania, has changed its focus although it struggles to catch up. As with the rest of the world, technology and globalisation has opened up opportunities for increased trade and commerce and forced change.

Globalisation:
The reality of the global economy means that people, knowledge, technology, and capital, are not restrained by national boundaries and other barriers, including the law. The nature of commerce and social interaction is changing fast, at the same time the ability of governments to control has been reduced. Change is a constant reality. The challenge now is for governments to adapt and to keep up.

Globalisation has a number of policy challenges for governments. At the economic level:

the national identity of many firms is increasingly difficult to identify;
much of what businesses do internationally is beyond the control of individual governments
it is more difficult to think in terms of national markets.
things can move and change faster than policy changes
Traditional boundaries and assumptions are disappearing.

Technology has sped up the globalisation process and created challenges for traditional government. The internet illustrates the inability of local legislation to prevent technology circumventing well intentioned law, be it with pornography or parallel importing.

But harnessing information technology is an opportunity to markedly change and improve Government service delivery. For example:

The Companies Office, by using the Internet can now provide a range of services on line anywhere, 24 hours a day, rather than having to physically go to an office and receive a paper file.

The large registry roles of Government are changing dramatically from intensive manual processes to automated and multiple option processes. Land Titles is being automated, and eventually even the Births, Deaths, and Marriages register will catch up with the NZ Dairy Boards 30 year old technology that record livestock performance.

The Income Support and Employment are currently merging to serve the same client base. It is not beyond the realms of possibility to ultimately see Income Support and Income Tax driven off the same technological and policy base system. Perhaps a positive or negative transaction, like a bank statement, between the citizen and Government seems a logical progression.
But back on the global scene, international trade is increasing at three times the rate of production. This commercial reality also drives an international inter-connection of economy's.

On the global political scene, international agreements and fora are playing an increasing role in the globalised society. As local borders become more permeable, we need those international agreements to protect New Zealander's rights and open up new opportunities. And as the globe gets smaller, large trading groups are forming as a surrogate extensions of the national trading boarder. Power shifts from Parliament to the market place, and to the people.

Mutual recognition agreements provide increasing contestability in the core legislative and regulation making role of Government and Parliament. The Trans Tasman Mutual Recognition Agreement, which we signed earlier this year, accepts and standards and professional regulation each Australian jurisdiction as being acceptable in New Zealand. The EU Mutual Recognition Agreement we signed last week, recognises testing standards for a range of products affecting over NZ$1billion in trade.

On the domestic political front, globalisation has underscored the central importance of domestic economic reform efforts focused on ensuring international competitiveness. Government needs to provide an environment that attracts capital and encourages innovation across the whole economy including the government sector. Hence the overall economic strategy of Government must be focussed on a country's international competitiveness. This is particularly so for smaller economies

International competitiveness:
To do this it is generally accepted that open competitive markets are the best way to extract that efficiency and to promote national welfare gains. Being a monopoly provider of any service does not provide the institutions with the best real incentives to perform. Hence the focus on introducing competition and contestability into areas traditionally closed parts of the economy.

In New Zealand we are continuing with this process. For example, in the last budget, several micro economic reforms were announced. Greater competition is being introduced into the electricity market. The prohibition on parallel importing was removed, as a competition policy issue, to ensure access to products at worlds best prices.

The freeing up the monopoly provision of agricultural marketing services, provided by Producer Boards and purchased by farmers and growers, is to allow more innovation and investment to arrest the decline in farmers standards of living and to grow the overall economy. Competition reduces costs and encourages innovation in a continuing manner.

At the same time there is an expectation that Government will lift its own management game and deliver its services as efficiently as possible. Competition is being introduced into the ACC market. In my own fishing portfolio we are introducing more contestability, contracting out, and working towards more devolution, to ensure that industry growth is not unnecessarily held back.

Taxation policy also is important to our international competitiveness. If we are to continue to attract investment and grow jobs, we need to ensure that our tax rates are as low as they can be.

The big question is whether the change is happening fast enough. There is always the political reality of getting society to accept such change. Often we are told to slow down, but such indulgence means we fall behind, and loose opportunities.

Demands of domestic society:
As well as the challenges and opportunities presented by globalisation and technology change, government has to also adapt the changing realities of the economic and social demands of its domestic society and the politics of dealing with these. For example:

Changing socio demographic profiles - aging populations,
Treaty of Waitangi issues,
changing workforce participation - women in the workforce,
uneven paces of attitudinal change,
general expectations of a civil society,
pressures on the environment,
resource constraints,
the trade off between meeting short term demands and longer term investment.
These factors have all served to force governments? everywhere to reassess their role, the scope and quality of their interventions in the economic and social fabric of their societies.

President Bill Clinton has said on Government: "We can no longer afford to pay more for - and get less from - our government. The answer for every problem cannot always be another program or more money." He goes on: "It is time to radically change the way the government operates - to shift from top-down bureaucracy to entrepreneurial government that empowers citizens and communities to change our country from the bottom up. We must reward the people and ideas that work and get rid of those who don't".

Size of Government:
In New Zealand, are we paying more and getting less? Do we have entrepreneurial government? At over 32% of GDP, our tax burden is close to a 100 year high. And for our 3.5 million people we have about 40 government departments, 64 Ministerial portfolios, (not including associates) and a myriad of crown entities, registration authorities and other instruments of the Crown.

Does this make a difference to government service delivery? There is a body of opinion that says size of Government does matter. This view is encapsulated in an overseas report on ?Reinventing Government? which states that: ?More Government may lead to chaos. As governments become bigger, they tend to dysfunction: the service to the community becomes ineffective, inefficient, unfriendly and costly. Big Government tends to become a self-serving organisation that loses contact with the very public it is supposed to serve?.

Is this relevant to New Zealand? Why does government try to do everything that it does?

Some years ago, I suggested tongue in cheek, that Government could actually operate out of 4-5 Super Ministries. Given the increasing complexity of policy work, it seems to me that good policy requires a collegial critical mass, that some smaller agencies lack.

The question needs to be asked, is the Government working to its strengths, doing only core activities for the benefit of the public good? Or do we build the size of government to pander to political squeaky wheels? If we operated New Zealand as a corporate, would we have the administrative function of the corporate structured and operating the way that we have our public sector? Perhaps not. But then corporates may take a different approach if starting a greenfield operation.

We have to begin with the structure we have. Working from the status quo, we must continue to explore opportunities to either devolve appropriate functions which are not our core business, and contract out those which can be more efficiently provided by the private sector. At the same time we must continually improve those functions that remain with Government.

Incentives:
As a Government, when we are looking to improve service delivery we need to ensure that we have the right incentives on the relevant players. Peoples actions are influenced by the incentives that the prevailing environment provides. We need to change the prevailing environment to get the outcome we want.

As Trebilcock says in his CD Howe Institute article 1994:

"... in evaluating choices among alternative policy instruments for realising policy objectives, an insistent focus must be trained on the incentive effects for all e ffected actors that are likely to be associated with particular institutional structures. The blunt fact is that incentives (pecuniary and non-pecuniary) are central determinants of human behaviour, and to ignore this reality in the choice of policy instruments entails a socially very costly form of romanticism.

If the goal is to change the outcomes produced by existing policy instruments, alternative policy instruments must embody a different set of incentive structures that are more congruent with the desired outcomes. Rhetorical exhortations to do better or to try harder will rarely be effective by themselves."

Since the mid 1980's, the focus of the early reforms was on driving for improved efficiencies throughout Government, through structural change and the imposition of new management disciplines - splitting policy and operational functions, funder and provider functions, clarifying departmental objectives, and in the service delivery area splitting out those functions which could more efficiently be carried out under a Crown Entity or SOE , or private sector structure or a direct contracting model with private sector providers. There was a shift in focus from prescriptive inputs to purchasing outputs.

Principles of transparency, accountability and devolution of decision making responsibility were important driving factors. They were supported by key new institutional pillars such as the Public Finance Act, Fiscal Responsibility Act and the Official Information Act.

All these measures sought to change incentives.

While we have seen many gains on the financial side of Government, I would question whether we yet have the incentives right on the regulatory side for both politicians and the public service.

This leads on to the regulatory challenge. The process of regulatory reform is not just about improving Government's direct service delivery but even more importantly the impact of legal and regulatory environment to allow society to meet individuals freedoms, environmental sustainability and economic responsiveness to our global society.

The Government is the guardian of the mountain of parliamentary laws, subordinate legislation, decrees, licences, codes and informal instruments, which make up New Zealand?s legal system. Rather than simplify or reduce Government interventions, in the last 10 years we have introduced 1600 pieces of new legislation and over 3600 new regulations.

Developed over eons, this system represents the fabric of our society, for example through providing and protecting rights. It also reflects the hidden cost of Government intervention in society. In the United States this cost has been estimated at between 4 and 10 percent of GDP.

In New Zealand the Statutes and Regulations Database runs to 120 megabytes of text, or the equivalent of 27 King James Bibles, a good bit of it highly confusing and difficult to understand and imposes high costs on society. Are we restricting society from making progress?

History has demonstrated that as a general proposition, markets produce better outcomes than Government regulatory interventions in a great number of areas. This is as true of New Zealand as it is of the reforming ex-communist countries of Eastern Europe. The simple truth is that Governments cannot provide all the answers through more spending or more regulating.

Where governments do have a responsibility is to provide good law - law that facilitates business transactions, maintains competitive market, provides rights and basic protection against those rights being infringed. One could argue that every intervention either adds to or erodes a right in society.

When Government does attempt to intervene, are we;

getting the best out of the public service, in terms of both policy advice and operation?;
achieving regulatory objectives at least cost?;
meeting the expectations of the customers of government services?
This challenge is already being felt by those providing policy advice to Government on its regulatory options. The challenge is to get better regulatory design, to ensure that Government only regulates when it needs to, and to ensure that regulation is both efficient and effective.

Part of the answer rests with good process design, such as proper problem identification, careful analysis of the options, good decision-making process, good legislative drafting and proper scrutiny by Parliament. It also requires top people.

Officials are now putting the final touches to a package of measures aimed at improving regulatory design through good process and decision-making. The underlying principles are ones of transparency and accountability, which have stood us in good stead in earlier reforms.

Future Public Management Issues:
I now would like to reflect on some of the broader issues for public management over the next decade if we are to continue our drive for improved Government performance in a more complex and fast changing world.

Four inter-related issues I believe deserve early attention are:

the need to build the strategic management capability of Government; we do run a third of the economy
the need to shift the focus away from outputs to outcomes;
improving the effectiveness of the top managers and building the HR capability of the public service; with more crossover between public and private sectors
the need for improved information and evaluation and greater consistency in approach to similar issues.
the need to ensure that incentives are aligned with desired outcomes.
Government?s ownership role needs additional attention to the strategic positioning of departments and the outputs they expect to be producing in the medium to longer term. Issues here include; Is there an imbalance between vertical and horizontal relationships? How can we get better interdepartmental coordination and strategy making in the collective interest? Possibly with larger policy units instead of the plethora of small agencies

In this context it is legitimate to ask whether benefits may be achieved through cross - portfolio spending envelopes which would encourage Ministers to prioritise strategic interventions?

The large social service functions of Government in areas of security, health, education and welfare pose very real policy challenges where the growth in demand continues to exceed overall economic growth. The challenges in redefining public and private boundaries and encouraging greater innovation are critical policy issues today.

Chief Executives and senior management teams need to take ownership of the Government?s SRAs and to use their leadership, organisational and operational expertise to see that the Government?s desired outcomes are achieved.

My colleague, Rt Hon Paul East, at the New Zealand Public Service Conference last year noted two risks in the public sector: the emergence again of a risk averse culture amongst senior public servants and loss of concentration on outcomes. Although new management frameworks have been imposed across the public service, performance has been markedly different.

Are these differences still founded in structural issues or is the key variable being the effectiveness of top managers? If the latter now what should we be doing if we are to meet the continual challenge of moving from a culture of compliance and risk avoidance to one of innovation? Have we got the incentives right?

Government?s ownership interests now need to be seen in wider human capital terms. We need to be paying much more attention to this. Mike Wintringham State Services Commissioner has identified the policy development and advisory performance of the public Service as a priority. I agree. There is a need to invest in human capital to build not only the capability of the top management but the supply of skilled and innovative policy advisors.

Finally, and very briefly, I reflect on the imperative for high quality information for decision making. A key weakness in Government remains the adequacy, or lack of, evaluation as a matter of professional activity. Improving this capability is critical to assessing whether outcomes are being achieved.

In conclusion, improving service delivery has to be a key focus of any Government today, and thus, this Conference is important.

Public administrators would suggest that progress is being made. But we need to continue to improve with even more flair. Despite what some might like to believe Government, like the private sector, is not immune from the fast changing world within which we live. The Prime Minister no longer decides the price of a loaf of bread. Like the private sector, we need to continually question what we are doing, whether we should be doing it, and if so, are we doing it as best we can?

One of the observations one makes in looking at centres of innovation and excellence, in both the public and private sector, is the continued hype and striving to improve performance with continuing new approaches and products.

The challenge is to get all Government thinking this way. I wish you well as you seek answers as to how we can achieve this. Thankyou.