Politics: Government role gets rethink

It’s five years from the first stutterings that turned into the global financial crisis – time enough for governments to have stopped treating symptoms and hoping for the best. The world is not going back to old business-as-usual. Some think it is time to rethink how governments operate.
After the 1929 crash and subsequent depression, governments took to planning, which gave us social security and the mixed economy. After the 1973 oil crisis and collapse of the Bretton Woods system, governments ditched planning as futile in favour of “more-market” economies which were assumed to tend always to equilibrium.
The GFC was powerful disproof of equilibrium theory. It underlined historian Niall Ferguson’s analysis that economies and societies are complex adaptive systems which can suddenly fall into chaos. The 1929 crash, the 1973 oil crisis and the GFC are examples.
A recent Boston Consulting Group (BCG) report agrees but insists strategy is relevant. While the future cannot be predicted, future scans and scenario planning can prepare governments and firms for the future, however it turns out. BCG instances Singapore.
The trick is to be clear about goals but flexible about methods, the opposite of pre-GFC practice. BCG suggests governments adopt “policies that will be attractive under wide range of scenarios”, hedge against severe risks, protect some assets and policies “even under acute short-term pressure” and make some “core bets”.
Some say elections are the enemy of strategy. Not necessarily, BCG says: conviction politicians can drive major change (as Sir Roger Douglas and Ruth Richardson did here from 1984-92); wide consultation to develop consensus can deliver strategy (the Land and Water Forum may turn out to be an example here); and independent institutions can be created to manage contentious policy (one example here: the Reserve Bank since 1989).
How does the Key government measure up against the clear-goals, flexible-methods yardstick?
At one level, not well. In their rhetoric most ministers still treat the GFC as blip – very big blip that isn’t going away fast but temporary aberration. Actually, the game has changed. Most developed economies are deep in private and government debt, from which they could take decades to dig themselves out. There is long and widely flapping tail to this crisis, which is normal for major financial upheaval.
At another level, the Government does have two clear goals: get back to fiscal surplus and rebalance the economy to be driven principally by the tradables sector (earning our way), not the domestic sector (living off debt).
For the rebalancing goal, ministers’ methods are still essentially pre-GFC ones: get the regulatory rules right, build infrastructure and it will happen. There is some modest attention to innovation (far less than Singapore) but the thinking otherwise doesn’t get much beyond more cows (to which there are environmental limits if the fresh/safe/natural brand is to be preserved) and more tourists (currently in reverse) plus oil, gas and minerals if foreigners decide to exploit them. These methods are nearer the pre-GFC fixed than BCG’s flexible methods mode.
For the fiscal goal, the methods are potentially much more flexible if the Better Public Services Advisory Group’s report is eventually fully implemented. The Government has picked up some of the report. Separately, it has also adopted an actuarial/investment approach to welfare reform which, if widely applied, has significant potential.
But much of the report is yet to be picked up. The “goals” and “results” into which the government has translated the group’s “outcomes” recommendations are short-term and narrow. Though worthy and, being measurable and comprehensible to the public, big step on from “outputs”, they do not add up to the sort of goal or goals BCG has in mind.
Of course, BCG might be wrong – and the Government right to hope that the complex, chaos-susceptible global system “muddles through” the continuing GFC. By 2022 we might know. M

Colin James is New Zealand’s leading political commentator and NZ Management’s regular political columnist. [email protected]

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