FOCUSING GOVERNMENT ON WHAT IT DOES BEST

TIMARU

In the wake of the recent UK general election, the British Conservative Party is searching for the roots of its rout. There are many and varied theories being offered aside from the blindingly obvious conclusion that 18 years in power is a bad platform from which to ask for another five. A considerable number allege that the Tories lost because they didn't go far enough on a range of issues. Euro-sceptics believe the Party wasn't Euro-sceptical enough; champions of privatisation believe the Party didn't privatise enough; social conservatives believe the Party wasn't sufficiently conservative and so on.

When one looks at the Party that did win the election it's pretty clear that very few of those explanations are going to wash. If British voters had been ragingly Euro-sceptical, enthusiastically libertarian or hangers and floggers to a man, they would scarcely have voted for Tony Blair's new Labour Party. The claim is about as absurd as some left wing analyses of the 1983 election which concluded that Michael Foote was insufficiently left wing and hence lost by a country mile to Margaret Thatcher.

But neither was the election a rejection of what the Tories had achieved - indeed, there is considerable evidence to show that Britons finally felt that it was safe to vote for a Labour Party that was embracing many of the changes the Tories pioneered. Good ideas and good policy do win out - unless you are supremely pessimistic.

There are two morals to be drawn for the National Party here in New Zealand. The first is that the world has changed for ever - modern parties of the left (and I don't include the New Zealand Labour Party here since it lost its 'new' wave to ACT) have buried socialism. For that we should all be thankful. The second moral is altogether more subtle - and less reassuring. It is this: that however much the notion of a centrally planned economy has literally vanished from public thinking, there is no tide of public opinion that is demanding a similarly radical retreat by the State in the non-economic sphere.

There can be little doubt that deregulation, trade liberalisation, privatisation and lower marginal rates of taxation have rekindled economic growth and dynamism across the world. That's not a statement of ideological faith. It's a description of what has actually happened from Wellington to Warsaw. But it's another thing to argue that even lower taxes, lower government expenditure and retreat by the Government from many areas of social and environmental regulation is the route to even greater happiness and prosperity.

Those who argue that case from a fundamental belief in the rights and freedoms of individuals tend to sound like ideological zealots; the rather large number who argue this line on the basis that it will make everyone richer, fail similarly to cut much ice. As the Tories found, the best performing economy in Europe couldn't deflect voters from dumping them. Banging on about growth, as our Prime Minister keeps reminding us, isn't enough to win elections - although it's probably a necessary prerequisite.

So is change at an end? Is the 'end of history' a rendezvous with market economies, redistributive bureaucracies and the continuing politicisation of every remaining sphere of social and cultural life? I'm going to suggest to you that this is not the case. But that if we are going to advocate further change we must argue with (not against) the grain of our times, and in terms that are tuned into the actual experience of voters rather than abstract premises that have put down few roots beyond the hot house world of think tanks and opinion columns. Very simply, people are prepared to embrace changes if (i) they can be convinced things really will be done better and (ii) if, along the way, their basic values aren't affronted.

Let me talk about each in turn with respect to the enterprise that we call the government at the close of the 20th century. First, what is a credible role for the State - a role that embraces things the people really do believe governments need to do and can do quite well? This was a debate that never occurred during the revolution of the mid-1980s and early 1990s. The economic malaise facing New Zealand was real enough. The public was prepared to accept sweeping measures on the basis that things seemed to be going from bad to worse.

The heady nature of the revolution (for that's what it was) encouraged many politicians to believe they had a mandate for radicalism that far out-stripped the electorate's willingness to experiment. People came to believe they were on a roller coaster that was beyond democratic control and would remove their ability to secure things that really mattered to them.

Take privatisation for example. One of the reasons privatisation got a bad name is that the process launched by Messrs Douglas and Prebble was seen as a fire sale without any articulation of what the appropriate role for the Government might be. As a result of the way the debate was launched, there's a fear that any politician who questions the role of the state would, if left to his own devices, go down a road of never-ending minimalism. By not articulating a clear vision of what government should be about, we have a significant percentage of our population convinced that we want to throw away many valuable things that governments can secure.

That sort of minimalism certainly isn't part of my agenda. I have flirted with libertarianism in its more extreme forms but time (and a family) have made me somewhat more Hobbesian in outlook. Societies need rules to back up the mutual understandings that make social intercourse possible. Those rules provide not just traditional law and order but protection from a raft of human and environmental risks that civilised societies don't wish to take.

Here's my list of essential government functions. It's by no means definitive and I don't suggest that it can't be debated. But I doubt you could run a modern society without some of these capabilities:

providing the basic machinery for a democratic, parliamentary system of government and a means of delegating responsibility to local and regional tiers of government; I'd include a good dose of publicly funded education about democratic processes under this heading.

maintaining our basic criminal and commercial codes and the machinery of enforcement needed to compel compliance: there's a huge raft of rules and regulations here ranging from traditional law and order through to workplace safety and environmental regulation;

maintaining our ability to interpret, detect and respond to threats to our biosecurity at the border;

maintaining an immigration service;

collecting and publishing a range of information for use by industry and the community: this is everything from land information to much of the data collected by the Statistics Department;

conducting research of benefit to the public at large and to support the maintenance of regulatory regimes like fishing quotas, water rights and so on;

the conduct of foreign policy, defence and intelligence gathering;

conserving and protecting territorial and marine biota that is unique to New Zealand and in public ownership.
Most of these functions involve the collection and publication of increasing amounts of high quality information and the provision of public services that require highly sophisticated, capital intensive equipment. If they are done well they can provide an efficient, well lubricated infrastructure into which citizens and communities can plug. I estimate they currently account for about $5.5 billion of the $33 billion the government spends annually. As I say, I don't believe we're investing enough in many of these activities and as a result our national performance is impaired. Here are three examples plucked literally from off the top of my head:

an ancient, clunking paper-based births, deaths and marriages register that our livestock industry dispensed with years ago;

large numbers of native plant and animal species in our national parks and reserves still hovering on the verge of extinction;

a total of just five diplomatic and trade promotion staff in the entire South American continent, home to 320 million people who generate a combined GDP of $1.9 trillion.
Take, for instance, the quality of our regulations. My colleague, John Luxton, has recently announced a sweeping review of the quality of regulations in our society. It's long overdue. Our world is changing fast and our regulatory environment has to be 'state of the art'. His plans have been welcomed by industry groups who complain of costly and time consuming compliance with red tape. No one can defend that.

But I should disabuse anyone who believes that such a review will lead to the elimination of regulations. In my view it is naive to believe that voluntary compliance through education can simply take the place of regulation and legislation. We live in a society that demands bottom line performance. And where non-performance can harm the rest of the community, it has to be swiftly dealt with. It may surprise you to learn that in some cases our problem is the absence of clear bottom lines.

Take the Resource Management Act. In truth, there is very little proper regulation under the Act. We rely instead on narrative and discretionary controls that make for huge uncertainty. Proper regulations based on good research and high quality technical data would spell out performance standards with a degree of certainty that would protect the environment and provide resource users with certainty. Most people don't mind complying if they know what they've got to comply with.

But it all costs money. To generate a suite of standards and clean up techniques for organochlorines alone is a three year, $3 million programme for the Ministry for the Environment. To cover the field at the current rate will take decades. But without clear regulations we can't secure environmental quality and we can't monitor whether we're going forwards or backwards.

Cabinet ministers are presently in the middle of the annual budget cycle. We have before us the perennial problem - not enough money to meet all the claims on the funds available. It's not as though there aren't significant increases in expenditure planned - $950 million extra in the next year, a total of $5 billion extra over the next three years. One thing was certain before we even began: there will be ongoing dissatisfaction about the adequacy of our provision.

It has been that way ever since I became a minister seven years ago. It's instructive to see how public expenditure has changed since we took office in 1990. These two pie charts provide the answer: not a lot. The only really big change is in debt servicing - and that's good. We are spending much less servicing debt because we're steadily paying it back. But otherwise, there is broadly the same scale and pattern of expenditure.

We're still trying to do pretty well all of the things we were when we took office. One thing we've all learnt is that if you want to make a real difference to public expenditure you have to stop doing something altogether. Trimming activities back is a bit like pruning the roses - they come back bigger and stronger next year.

Now there are those who would just throw away the secateurs and take the axe to public expenditure indiscriminately. ACT seems to be in this camp. Taxes are bad - governments spend too much by definition: throw the cheque book away and hand it back to the citizen. The bigger the cuts the better.

It's a catchy and populist approach, but any sort of practical consideration about how societies operate indicates that there is a significant and important role for the Government. And before we pull out the chainsaw, we need a clear idea about what that role is. That is a subject the National Party should always be prepared to question. I have a clear idea about what the Government should do. I have an equally firm conviction that the things it needs to do it should do well. And I am convinced that the annual dissatisfaction we encounter in the budget rounds means that we're trying to do too much: we can't do everything that we are trying to do well. So we need to think hard about what we do try to achieve with the taxes we levy.

The first point to make is that there's nothing inevitable about many government activities. Government programmes are frequently the result of historical accident. For example, dental care for adults in New Zealand has largely been left to individuals to purchase privately. In the United Kingdom dentistry is publicly provided at no cost through the National Health system. There's no particular reason why there should be this difference in approach - it simply reflects different historical circumstances that have led to different social expectations.

Conversely, when it comes to Government owned enterprises, we still own electricity generating companies. But in the United Kingdom they've long since been privatised. This is no small consideration: the sale of ECNZ and Contact Energy would generate $5 to $6 billion; if the proceeds were applied to debt repayment we would free up about half a billion dollars of debt servicing costs. The reason energy companies here haven't been privatised is that the case has never been made and the public have never been convinced of the merit of it. It must be possible to make that case. No one would today advocate renationalising Telecom. I for the life of me can't see why we want the government to own gas and coal fired power stations when the private sector is b uilding new clean wind farms. But that is the legacy of the reforms of the last 10 years - a very strange one to many observers around the world.

Now, you will notice that I didn't include in my basic list any social expenditure. That's not because I don't believe the government has a role but rather because the extent of that role is subject to much more debate. Labour and the Alliance argue that we should spend more on all the items I've mentioned and not only maintain social expenditure but expand it as well. It's a recipe for higher overall expenditure, higher taxes and an end to debt repayment.

National has firmly rejected that line and so, to its credit, has our coalition partner New Zealand First. All the new expenditure we are undertaking is to accommodate initiatives NZ First advanced in the coalition negotiations. NZ First wanted much more. Labour was prepared to accommodate it, National wasn't. It was an act of real political courage for NZ First to accept that long term prudence meant there had to be limits on new expenditure.

To those who are troubled by that increase in expenditure, it would be easy for National to claim that this was NZ First's doing and blame them. It would also be disingenuous. The fact is that the increased expenditure - the vast bulk of it social in nature - is valued by National voters. NZ First correctly judged that the electorate wanted more spent on health and education initiatives. Many National voters hoped for the same - indeed, as my earlier pie charts showed precisely, those items of expenditure grew under National. It would be dishonest to pretend otherwise. In their different ways, National and NZ First have responded to a widely held belief by New Zealanders that this sort of expenditure is good.

The question I want you to debate is whether all of it is necessarily sensible: whether the Government can make better decisions than the people who pay the taxes and whether in trying to do so much, the Government ends up not doing some of the things it should do properly. Remember, if you believe taxes are high enough and debt should be reduced - and that's a bottom line for all of us in the National Party - then something else has to give if we are to have state-of-the-art government interventions in the essential areas I've spoken of.

I've come to the view that voters' expectations of better social services through more government expenditure are, in many cases, set up for failure. That's a conclusion I've reached on the basis of practical rather than ideological considerations. There are two related questions: is the Government any longer the best provider of services that once were assumed to be its sole preserve? In other words, why do we own institutions like public hospitals and schools? Secondly, is it in all cases best to fund some of these services from taxes rather than leave people with the income to purchase them directly? This raises questions about equity and the redistribution of wealth.

The Prime Minister in recent speeches has made the point that power is flowing back to individuals and the intimate communities in which they gather; that there is a realisation that people managed to live together in a civil and peaceable way before the arrival of big government and central planning; and that its failure makes it important for us to rediscover how organic communities reproduce themselves by maintaining 'social capital'.

He made a call to "get the government out of people's lives when there is no need to be there and to be there when that is what a modern civilised society would expect."

It's an important challenge and one that should make us think about the entire reach of government.

If our social security systems were dealing only with very basic needs, we might still see the government as the obvious guarantor of what we want. But our social expenditure goes so far beyond basic needs that governments are increasingly unable to deliver no matter how much money they are able to command from taxpayers. We have unwittingly chosen a blind bureaucracy as a middle-man between us and many of the services we value very highly.

Take education and health. Beyond a certain point, education and health services become pure consumption goods. The best arbiter of what should be provided and how much of it should be provided is going to be the individual. Can we seriously pretend that services as personal and rapidly evolving as day to day health care or tertiary education can any longer be left in the hands of an anonymous (and politically manipulated) rationing agent?

To illustrate my point, let me choose a couple of highly controversial examples. Take personal health care. None of us know how long we will live, nor how well or ill we will be. Fate can deal very different hands. When it comes to matters of life and death I don't know of anyone who doesn't believe that care should be available without reference to your bank balance. We should be able to provide first class tertiary services from taxes. But we also know that in the ordinary course of our lives, routine care will be required from time to time. Furthermore, all of us know that the way we live influences our day-to day need for health care; and that there is an unlimited amount that even well people can spend on their health if they put their minds to it. Furthermore, the gap that once existed between expert medical opinion and lay knowledge is being closed by an increasingly well-informed public.

I have no difficulty with paying taxes to cover the acute emergencies that can't be planned for, or the often lengthy and harrowing incapacity that attends the degenerative illnesses of old age and inherited incapacities. Neither do I object to contributing taxes to see that we don't take any chances with the critical years from conception to toddler-hood: problems over-looked then can blight an entire life and cause huge costs - emotional and material.

But does it make sense to meet the reasonably predictable needs of working age New Zealanders whose individual requirements are highly personal by taking in taxes and then churning them out through costly bureaucracies which are under little pressure to perform? As any Minister of Health will tell you, while the drug bill soars onwards under prescribing pressure from doctors and patients who have little idea of the costs involved, absolutely vital areas of public health surveillance that can only be done by the government are seriously under-funded.

When it comes to government ownership of health facilities the questions get even harder to answer. The overwhelming majority of New Zealanders receive their primary health care from private providers called GPs. They run their practices themselves with a minimum of fuss. I don't hear calls for the government to take them all over. But when health care is provided in a hospital we suddenly get terribly excited about who owns it. Does it matter who holds the scalpel as long as the service is delivered safely and skilfully? There is no reason why a wholly 'public' health system could not be delivered privately but for the fact that we've refused to debate it.

Similar questions can be raised with respect to education. There's an overwhelming view - with which I concur - that the education of the next generation cannot be left to chance. Securing an educational platform from which young New Zealanders can launch their adult lives is an investment that wins universal support from taxpayers. But does it have to be delivered in a monolithic way with a central bureaucracy still negotiating teachers' salaries and controlling a host of other matters?

As parents become more and more discriminating about education, it is inconceivable that they will continue to be satisfied with a system that uses taxes to deliver a standardised product using professionals whose representatives are fighting workplace battles that belong in another age. There is no shortage of MPs in our Party who would be prepared to advocate much higher expenditure on the compulsory part of our education system to make salaries competitive and bring technology up to date. But no-one can see the point of pouring money into inflexible, insular institutions. Meanwhile, Maurice Williamson tells me that the rate of technology uptake in many schools will see us left in the dust in comparison with our Asian trading partners.

On the other hand, the tertiary sector represents an area of spiralling expectations and unprecedented growth. Vital though post-compulsory education is, does it make sense to fund as much of it as we do through taxes when the choices involved in selecting courses of study are so personalised and appetites virtually insatiable. As tertiary education ceases to be a rarefied pursuit for the few but a universally sought after experience, we have to ask again whether this is really the most important destination for taxpayers' dollars.

Meanwhile is it such a terrible thing that parents who can afford to should seek to add more to the taxpayers' contribution? Apparently it is. Fees of any significance can only be paid by consenting adults in private schools: but it's just fine to send your kids to a state school and spend surplus income on a bach or a boat.

At least in respect of health care it is easier to add private dollars to public ones. The health reforms I launched - and which continue to unfold today - were not designed to eliminate public funding of health care as some ideologically disposed commentators claimed. But they were designed to make it easier to link private funding with public funding. The more you drive public and private health apart, the more you drive up costs and inequities. The more you allow them to complement one another, the better the guarantees that can be given without making unrealistic claims about how far the tax dollar will go.

The National Party should consider a division of labour in which the Government agrees to provide those aspects of health care that don't lend themselves to insurance and pose particular affordability problems, while citizens pick up the balance of their health care needs through packages tailored to their personal and family circumstances. Tax reductions would be necessary to make that possible. It's a question of sorting out what decisions can best be made in advance by individuals and what can sensibly be left to a tax-funded scheme, ensuring all the time that the outcome - access to health care for ordinary citizens - is a morally defensible one.

By holding itself out as able to do everything, the government spreads itself too thinly and compromises the investments on which everything else depends. In doing so, it short changes the very people it claims to be helping. I can't see what is morally defensible about that.

Now to talk about health and education expenditure in these terms remains heretical. Those that do tend to be in the shrill, smaller-government-must-be-better mould. That is, as I say, a profession of ideological faith that leaves most New Zealanders cold.

For a start, most people don't see many of the social services being provided by the government as being necessarily beyond its competence. For all the carping and criticism, people know that the health system works more or less; and that the education system, despite some disaster areas, manages to graduate lots of successful young people. Is a further upheaval, they ask, worth the effort? The onus is going to be on those who advocate change, and hectoring ideology won't be sufficient. It all boils down to what is and isn't working - and whether you think things can get significantly better performance within existing arrangements.

It is increasingly clear to me that many of the social services that matter most acutely and personally to individuals are provided in the most circuitous and unresponsive ways. Why churn billions of dollars in taxes to secure services for the very individuals who pay those taxes but whose preferences can never be as effectively met by a bureaucracy as they can by a 'one on one' relationship? Why accept the waste involved in systems like this when there are functions of vital national importance that only the government can provide? It might have made sense in the 1940s with a less mobile, less well educated population. It might have made sense at an earlier stage of industrial development when the gap between experts and ordinary people was enormous. But it doesn't make sense in a better-informed, more widely-travelled society which is less and less satisfied with paternalistic responses.

But the argument is not just a practical one. It's also about values. Even to promote change on the pragmatic ground that it's no longer good enough for a system to be working 'more or less' (and tending in the direction of less, not more), is to invite a bucketful of slogans about equity and fairness. And it is a debate that can't be ignored or wished away. Arguments rooted in values have to be answered in similar language - otherwise the disputants are talking past one another. This is precisely what happened during the Lange-Douglas years. The reformers confronted social equity arguments with technical answers about efficiency. I don't believe they knew what social outcomes there were really prepared to defend; what things they were prepared to leave individuals to carry; and what outcomes required a claim on the resources of the entire community through taxes.

Which brings me to the second pre-condition for change that I mentioned: the requirement that proposals should not affront people's basic values. That requires some very clear convictions that go to the heart of what political parties and the communities from which they're drawn believe. For my part, these values should be framed not in terms of some theory, but in terms of the way we think about people.

Let me try to encapsulate some of the values we share. Above all, we in the National Party share a common view about what motivates people.

I would suggest that there are three things that determine the course our lives take. The first is how hard we work. For us, hard work is non-negotiable. But not only is hard work a necessary ingredient of success: lack of it is positively bad for people. It doesn't matter whether you avoid it by relying on inherited wealth or welfare, not working hard leads to a lack of self-esteem.

Secondly, our skills and aptitudes will influence our lives. We applaud the fact that people are different and that some people have special talents that we haven't got. That's not a cause for envy: it's a cause for celebration - we all benefit from gifted people in our community. But everyone has skills and something of value to offer. Recognising that rather than wondering how everyone could have been made the same is the best way of caring about people.

Thirdly, there's the role of luck - or the lack of it. This is possibly the most worrisome factor. We don't begrudge people their good luck. Again, envy has nothing valuable to offer. But it is morally indefensible to turn your back on somebody in trouble just because they've had bad luck. We can't choose our parents or our genes. That's where the social insurance we provide for one another through publicly funded health and education comes in.

This is what distinguishes us from the extreme right-wing, libertarian view - that individuals have inviolable rights and should never be made party to intervening on behalf of others. As conservatives we are less interested in rights and rather more interested in responsibilities: responsibilities to ourselves - to work hard and use our skills, but also to care for others. Our entire approach is driven by our view of people.

It also distinguishes us from the left. The political left has always been obsessed by theory. Its most urgent goal is equity. It's a word I never use. Equity doesn't exist in this world. We're all different. We're better to base our social relations on the way humanity is rather than some ideal theory of how it might be.

Our Prime Minister has urged us to be progressive; to think outside the square. That means doing more than banging on about good economic performance (although without that we can do very little). It means being prepared to examine sacred cows. There may be good reason why they're still sacred; or we may discover that technological and social change have turned some of them into cull cows.

Ideologues of left and right commence these debates with rigid pre-conceptions. That too we should resist. To return to my opening comments, the principles and values we in the National Party share are human ones not theoretical ones. Our policy advocacy has to be equally human. Reform in the 1980s was all about ramming changes through ahead of public opinion. That won't work under MMP.

People have to be persuaded that there are tasks that would be better left to citizens along with lower taxes to pay for them. That would leave a more modest government doing what remains superbly. That remains my bottom line: if political parties are going to argue that governments should do things, then they must do them superbly. If, on the other hand, they decide that things are best done outside the political arena (and there could scarcely be a less private, personalised and level-headed environment) then they should quit then. You as New Zealanders and National Party members have to tackle these issues. If you can run with them, we as your parliamentary representatives can. If you can't, there will be no constituency for change.