POLITICS: Turning Spending Into Investment

When is spending an investment? When it builds up capital stock and generates return. Can the Government think that way? It can in the narrow sense of how the super fund is managed and to small extent in financing infrastructure. But what about the “social” services which eat up the great bulk of its budget?
Steve Maharey, when social “development” minister, talked about “investment” in social services and got the Treasury partway down that route.
His Ministry of Social Development (MSD) also banged that drum and now argues that over the past decade the social policy “paradigm” has changed. In early April MSD’s biennial conference on social policy research and evaluation – large affair, featuring numerous foreign gurus – took as its theme “investing in social success”.
This elicited passing endorsement from Prime Minister Helen Clark in her opening speech. Clark had briefly talked of the 2006 Budget as the “investment Budget” but then, curiously, stopped saying the “i” word.
Why? If the Government were able to convince taxpayers they get return on their spending, wouldn’t that make raising taxes easier?
The problem is rights. Social policy hitherto has been rights-based.
From the 1870s onwards we accorded ourselves rights to education (now up to university), pension in old age, health care at modest cost, reasonable rent if you have modest income and right to sustenance if you fall on hard times or are not able to fend for yourself.
Sometimes those rights have carried an obligation. To get the pension when it was introduced in the 1890s you needed to have lived an upright life. In the 1990s governments tried to attach an obligation to work to receipt of welfare benefits.
But generally the rights side of the deal has heavily outweighed the obligation side. In its multi-volume 2002 briefing to the incoming minister, MSD spent only half page on beneficiaries’ obligations – and that in the context of obligations from the Government to the beneficiaries as well.
Small wonder that when we think of government social services spending we think of it mainly as cost – palliative.
An investment-based social policy would turn this thinking on its head.
Investment implies return on the outlay. It implies that capital stock will be built up which will produce return, that we are building the future, that there is long-term point to paying the social services part of our taxes.
Thus we might invest in children’s education – and especially invest in those who have come from inadequate homes – and build stock of human capital from which we all get return in the form of higher-wage economy.
We might invest in enhancing health capital through better housing and better medical and pro-health interventions and reap return by way of contribution to society and the economy.
We might invest in the unemployed and ill and disabled to build workforce capital and get return in the form of more workers and better integrated outsiders. And in solo parents to get better kids. And so on.
Take that wider. If all parents thought of money and time spent on their children as “investment”, as the great majority of parents do, there would be no need for costly state child rescue services or most of our prisons.
If kids at university and polytechnic think they are making an investment, as they do, the rest of us could. And when we start thinking that way about education, it is not long step to think similarly of other “social” services.
But using rigorous word like “investment” demands rigour in its application and in policy. Who invests? (The government or taxpayers? And the recipients too?) What do they invest in? What is the expected return from each investment? How is that to be measured?
Those are hard questions. Equally hard for vote-driven politicians is that investment is for the longer term, whereas pay-as-you-go social spending is for the moment, which is easier politics.
That myopic focus explains why science is so badly underfunded and why it will again get short shrift in this month’s Budget. Science is strategic investment for the future and the long term – vital but distant. Hip operations and tax cuts are snappier tactics for votes now.
So don’t bet on an investment paradigm really taking root in our politics. It is too hard.

Colin James is Management’s regular political writer. [email protected]

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