Public Policy and Governance Frontiers in New Zealand 9781838674564, 9781838674557, 9781838674571

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PUBLIC POLICY AND GOVERNANCE FRONTIERS IN NEW ZEALAND

PUBLIC POLICY AND GOVERNANCE Edited by Professor Evan Berman, Victoria University of Wellington, New Zealand. This series brings together the best in international research on policy and governance issues. Authored and edited by experts in the field, these books present new and insightful research on a range of policy and governance issues across the globe. Topics covered include but are not limited to: policy analysis frameworks; healthcare policy; environmental/resource policy; local government policy; development policy; regional studies/policy; urban policy/planning; social policy.

Titles include: Leadership and Public Sector Reform in Asia Evan Berman and Eko Prasoji Corruption, Accountability and Discretion Nancy S. Lind and Cara Rabe-Hemp The Experience of Democracy and Bureaucracy in South Korea Tobin Im Governmental Financial Resilience: International Perspectives on How Local ­Governments Face Austerity Ileana Steccolini, Martin Jones, and Iris Saliterer The Global Educational Policy Environment in the Fourth Industrial Revolution: Gated, Regulated and Governed Travis D. Jules Governing for the Future: Designing Democratic Institutions for a Better Tomorrow Jonathan Boston Asian Leadership in Policy and Governance Evan Berman and M. Shamsul Haque Different Paths to Curbing Corruption: Lessons from Denmark, Finland, Hong Kong, New Zealand and Singapore Jon S. T. Quah Institutional Reforms in the Public Sector: What Did We Learn? Mahabat Baimyrzaeva New Steering Concepts in Public Management Sandra Groeneveld and Steven Van de Walle Curbing Corruption in Asian Countries: An Impossible Dream? Jon S. T. Quah

PUBLIC POLICY AND GOVERNANCE

PUBLIC POLICY AND GOVERNANCE FRONTIERS IN NEW ZEALAND EDITED BY

EVAN BERMAN

Victoria University of Wellington, New Zealand and

GIROL KARACAOGLU

Victoria University of Wellington, New Zealand

United Kingdom – North America – Japan India – Malaysia – China

Emerald Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2020 Copyright © 2020 Emerald Publishing Limited Reprints and permissions service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-83867-456-4 (Print) ISBN: 978-1-83867-455-7 (Online) ISBN: 978-1-83867-457-1 (Epub) ISSN: 2053-7697 (Series)

CONTENTS List of Figures

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List of Tables

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Prefacexi Andrew Kibblewhite About the Editors

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Introduction New Zealand: At the Frontiers of Public Policy Innovations Evan Berman and Girol Karacaoglu

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Chapter 1  New Zealand in the Making: Past and Present Gary Hawke

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PART I PUBLIC POLICY Chapter 2  Social Laboratory: Reality or Myth? Colin James

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Chapter 3  Economic Performance: A Prosperous, Very Distant Economy Michael Reddell

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Chapter 4  Māori Interests and Rights: Four Sites at the Frontier Maria Bargh and Carwyn Jones

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Chapter 5  Agriculture: Continued Strengths Frank Scrimgeour

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Chapter 6  From Growth to Wellbeing: Evolution of Policy Frameworks Arthur Grimes

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Chapter 7  On Sustainable Development Les Oxley and Mubashir Qasim

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PART II PUBLIC GOVERNANCE Chapter 8  State Sector Governance Reform: Past Experience, Contemporary Challenge Graham Scott

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Chapter 9  Strengthening Integrity Systems: Complacency Versus Confidence Suzanne Snively

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Chapter 10  Fiscal Policy Governance: A Focus on Principles Robert A. Buckle

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Chapter 11  Monetary Policy Governance and Inflation Targeting in New Zealand Robert A. Buckle

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Chapter 12  Digital Government: Leadership, Innovation and Integration Elizabeth Eppel and Barbara Allen

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Chapter 13  Environmental Governance – Are We Making the Grade? Marie Doole and Fleur Maseyk

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Chapter 14  Quest: New Zealand Public Sector Reform Since 2000 Iain Rennie

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About the Authors 

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LIST OF FIGURES Chapter 3 Fig. 1.

Real Exchange Rate.

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Chapter 5 Fig. 1. NZ Agricultural Exports as a Share of Total Exports (June Year).

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Chapter 6 Fig. 1. Traditional Budget Process and Wellbeing Budget Process.

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Chapter 7 Fig. 1. Sustainable Wellbeing as the Objective of Public Policy.

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Fig. 2. GS Measure of Future Wellbeing (Real Per Capita).

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Fig. 3. Trends in the GS Gap as a Percentage of GNS and Its 10-Year Moving Average. 

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Fig. A.1. Who Was in Power and Prime Minister When?

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Fig. A.2. Log Normalised Count of SaW Terms in NZOYBs by Political Parties.

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Fig. A.3. Correlation Network of SaW Terms in New Zealand Official Yearbooks (1893–1970).

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Fig. A.4. Correlation Network of Frequently Occurring SaW Terms in NZOYBs, Post 1970.

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List of Figures

Chapter 8 Fig. 1.  Merging Political Strategy with Service Delivery.

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Chapter 9 Fig. 1. CPI 2019. 

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Fig. 2. NIS. 

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Chapter 10 Fig. 1. Core Crown Net Debt as Percentage of GDP: 1972–2015.

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Chapter 11 Fig. 1. New Zealand and OECD Inflation: 1971–2018. 

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Fig. 2. New Zealand Inflation and Inflation Targets: 1990–2019. 

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Fig. 3. New Zealand Inflation and Output Volatility During Inflation Targeting. 

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Chapter 12 Fig. 1. Using Information and Communication Technologies to Realise Benefits.

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Chapter 14 Fig. 1. The Performance Improvement Framework.

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LIST OF TABLES Introduction Table 1  Prosperity and Issues in NZ.

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Chapter 3 Table 1  Labour Productivity: New Zealand and a Leading OECD Group.

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Table 2  Population Growth.

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Chapter 5 Table 1  NZ Productivity Statistics.

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Table 2 NZ Farming Types.

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Table 3

Farm and Orchard Size.

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Table 4

Government Engagement with Agriculture.

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Table 1  Examples of Evidence Behind the Wellbeing Budget Priorities.

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Table 2

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Chapter 6

The OECD Approach to Measuring Wellbeing.

Table 3 NZ Wellbeing Rankings within BLI Domains (Across 38 OECD Countries).

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Chapter 9 Table A Tools to Inspect, Detect, Prevent, and Prosecute Corruption (Chartered Accountants Australia and New Zealand (CAANZ), 2014.

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Table B

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Integrity System Development Factors. ix

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LIST OF Tables

Chapter 10 Table 1 Principles of Responsible Fiscal Management.

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Table 2

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Fiscal Reporting Requirements

Chapter 13 Table 1 Key Environmental Legislation and Implementing Agencies.

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PREFACE Andrew Kibblewhite New Zealand is a small country, a long way from pretty much anywhere else. We face our own unique set of challenges and opportunities, our own geography, social and cultural makeup and our own, distinctly evolved, institutions of government and governance. Though we have much to learn from the experience of other countries we are not the same. We cannot just import and apply others’ policy prescriptions. We need to develop New Zealand understandings, policies that reflect who we are, our challenges and aspirations. This book offers the fruits of an important collaboration, a useful collection of perspectives on public policy, by a group of distinguished students, shapers, and implementers of public policy over several decades. It is intended for both international and domestic audiences that wish to learn about our experiences in a convenient and thoughtful way. One of the advantages of being a small, relatively well run country is we can move quite quickly from idea, to policy decision, to implementation. This is a strength when the ideas and policies are good – but can be disastrous when they’re not! Our fleetness of foot in policy creates a higher premium on the quality of our policy community: our politicians, public servants, academics, and commentators. One of my preoccupations as previous Head of the Policy Profession, and of the Policy Project team that supported me, was how to build the capability of the policy community for thoughtful, long term, insightful advice – for policy stewardship. We have been on this journey for at least three decades now, with a progressive bolstering of the formal expectations for stewardship advice in more recent times. In 2013, as a response to the recommendations of the Better Public Services Advisory Group, a new responsibility for CEs – to be responsible for their department’s capability and capacity to offer free and frank advice to successive governments - was included in the State Sector Act. In 2017, the Cabinet Manual was updated with more specific stewardship obligations on CEs and Ministers. And in 2017, the State Services Commissioner issued two sets of guidelines, for Free and Frank Advice and for Policy Stewardship, setting out expectations for public servants in these important and related areas. Looking forward, the Public Service Bill, which at the time of writing is still before the House, includes a new obligation on public service Chief Executives to produce and publish ‘long-term insights’ briefings.

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In parallel with this more formal framing of policy stewardship, we have also seen a growing and welcome emphasis on the role of evidence in policy. Under the leadership of the Prime Minister’s Chief Science Advisor (first Sir Peter Gluckman, now Professor Juliet Gerrard), the network of departmental science advisors has assumed an increasing role, with their work often now used to frame policy discussions and test the efficacy of interventions. Alongside this, the development of the Integrated Data Infrastructure (IDI) by the Department of Statistics offers the promise of a world leading repository of data and information that can be used to test policy proposals. In public policy, the quality of the ideas and research is a necessary, but not sufficient, condition. There also needs to be a constructive relationship between advisors and Ministers, characterised by trust, by mutual respect, and by a mature understanding of the role each other plays. Public servants and politicians need to have enough confidence in each other, and in the confidentiality of their discussions, that they can speak freely and openly. That they can test policy ideas in private without necessarily having to justify that questioning – or their disagreements – in public. As well as insisting on more timely and sharper performance in responding to Official Information Act (OIA) requests, the Chief Ombudsman (Peter Boshier) has explicitly recognised the importance of Ministers and public servants having greater certainty about what will or won’t be released under the OIA, and the desirability of protecting, as free and frank advice, early stage, ‘blue skies’ thinking. Policy stewardship will flourish when Ministers and public servants do not face too great an incentive to self-censor – when challenging ideas can be tested at a preliminary stage – without the distraction of premature public debate. So, there is some useful wind in the sails of good public policy in New Zealand, which is important, as we are often running against the tide. We have few think tanks focussed on public policy, an academic community of a size that reflects our population, and journalists under pressure, still working out how to cope with the immediacy and frequent superficiality of the modern media environment. We also suffer from an inevitable short termism in politics, arising from the three-year Parliamentary term. The pressure on Governments to develop, launch and implement policies in time to have something to show at the next election creates an unhealthy bias against thoughtful public policy. It is a credit to successive New Zealand Governments they get as much achieved as they do. Publications such as this one are too rare in New Zealand. They help build the conversation between the public service and academia, between the blogosphere and the commentariat, among the community. We need to look for more opportunities to build that conversation, to create more fora where ideas and evidence can be tested. Departments can help by publishing more data series, more working papers, and by funding and undertaking more research. They need to give effect to the expectations now upon them that they should prepare to answer the policy questions of tomorrow as well as those being asked today. This will necessitate taking a longer run perspective in their advice and having a well thought-through and longer run research agenda. It will require building up deep technical expertise.

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This book is an important collaboration, a useful collection of perspectives on public policy in our country. I agree wholeheartedly with many of the insights offered and find myself disagreeing with a few as well. But in many respects that is the point. New Zealand needs more thoughtful, reflective, sometimes provocative contributions to the public policy debate. This edition offers many examples of that and I commend it to all those involved in public policy and governance in New Zealand. I congratulate and thank the School of Government of the Victoria University of Wellington, whose stated vision is to be a globally recognised capital city university, for taking the initiative to pull the material presented in this book together. It is my hope that, in doing so, they have also made a valuable contribution to the very active international sharing of ideas on public policy and governance. Andrew Kibblewhite, Secretary for Justice and Chief Executive, Ministry of Justice Former Chief Executive of the Department of the Prime Minister and Cabinet and Head of the Policy Profession September 2019

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ABOUT THE EDITORS Evan Berman is a Professor of Public Management at the Victoria University of Wellington (VUW). He is a leading scholar in public administration. Among his awards are the Fred Riggs Award for lifetime achievement in comparative and international administration (2015) and the NASPAA/ASPA Distinguished Research Award (2017) from the American Society for Public Administration. Prior to joining VUW, he was a Distinguished Professor at Louisiana State University. He is Adjunct Chair Professor at National Chengchi University, Taiwan’s premier university of social sciences. He is the series editor of Public Policy and Governance (Emerald, UK). In 2020, he joined Fundacao Getulio Vargas, in Brazil, as Chair Professor. Girol Karacaoglu is the Head of School at the Victoria University of Wellington, School of Government. Prior to joining VUW, he was the Chief Economist of the New Zealand Treasury and before then, he was the Chief Executive of the Co-operative Bank of New Zealand for nine years. His previous roles included General Manager at Westpac NZ, the Chief Economist at the National Bank of NZ, and a lecturer in Economics at VUW.

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INTRODUCTION NEW ZEALAND: AT THE FRONTIERS OF PUBLIC POLICY INNOVATIONS Evan Berman and Girol Karacaoglu

INTRODUCTION New Zealand (NZ) is widely regarded as being close to, or at, the frontier of public policy reforms and innovations, being an early adopter of New Public Management, as well as a leader in e-government, and in transparency in government and the public sector. This edited book is about the evolution of the governance and management of public policy in Aotearoa1/NZ over the past five decades. It discusses reforms and innovations on topics that are relevant throughout the world, including wellbeing, sustainability, environmental management, agriculture, and indigenous development. It will appeal to those interested in cutting-edge, innovative, public policy and governance strategy. This book contributes to the purpose of policy diffusion and shared learning by bringing examples from one of the world’s most innovative countries. Worldwide, challenges of public policy and governance are increasingly converging. In the NZ context, the main innovations in the governance and management of public policy occurred in the 1980s, in response to an ‘overloaded’ and over-reaching government sector, an unaffordable welfare state, an inflexible public sector governance and management structure that was unresponsive to changing circumstances, the public sector not being citizen-centred enough, and fiscal crises. Because the first symptoms of these emerging pressures appeared in the form of economic problems and the increasing inefficiency of the public sector, the first wave of innovation took the form of the adoption of the New Public Management framework. The centre of attention was on increasing efficiency and

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 1–10 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032020

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accountability, with primary focus on outputs, by making the governance and management of the public sector more business-like – run firmly from the centre. As the scope of the problems faced by NZ started to expand in the latter part of the 1990s and into the present, to include social and environmental concerns as well, the second wave of innovation was a gradual but steady move towards the adoption of the New Public Governance framework. This process is still evolving. Its focus is more on outcomes, and there is an active policy dialogue in NZ today on the place and role of local and regional government, and the communities they represent, in the identification of the main problems, and the design, governance, management, and evaluation of public policies to address them.

FRAMING INQUIRY FOR THIS BOOK The book explores why and how such a small and far away, but not isolated, country managed to push out the frontiers in public governance and management, pioneering across a whole range of domains. Most of the ideas that were adopted, adapted, and applied in these spheres did not originate in NZ, so why and how do they keep finding fertile ground in this country? Is there anything that can be learned and emulated by others, or is it all due to idiosyncratic historical, cultural, and other factors? An equally important, second, inquiry relates to the successes and failures of these experimentations. What, if anything, can we learn from them that may be of value to the international community? The lessons drawn from NZ’s policy successes and failures need to be conditioned by the country’s historical, cultural, and geographic context, at the very least. Thus, although we have a lot to share, we must urge caution in transcribing the lessons from these experiences to other jurisdictions. Purpose of the Book The book has three purposes. First, to share what has been learned from NZ’s experiences with an international audience, especially in the Asia/Pacific Region, who appear to be very enthusiastic about learning from them. Second, to offer an assessment of the impact of these policies and their implementation, from a group of academics and policy practitioners who were closely involved with them. Third, to provide a glimpse of emerging challenges for public policy governance and management, and highlighting their origins. The book focusses on four areas of NZ’s strength in public policy governance and management, namely, managing and governing the economy, the natural environment, the effectiveness of the public service, and advancing minority populations. Within each area, chapters highlight specific challenges, contexts and responses, with focus on such contemporary matters as wellbeing, sustainability, and fiscal responsibility. These specific areas were chosen as material for the book because they have great importance for NZ’s public policy and management – certainly in recent times. Judging by the international public policy discourse, they will also be of great interest for our international audience.

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The book discusses practices for developing innovative public policy and governance. It provides a detailed discussion of public governance reforms and use of innovative public management and e-government practices. Chapters provide fact-based analysis and discussion of specific policies and management tools in ways that facilitate policy and governance transfer. There are five common threads that bind the chapters in this volume together. First, the historic and bi-cultural context in which NZ’s policies have been designed and implemented. Second, the dominant influence of international events and developments on NZ’s public policy landscape. Third, the impact of emerging theories and changing ideologies on the way public policy was designed and implemented. Fourth, the primacy of good public governance as a focus for institution-building. Fifth, the evolution of public policy concerns and issues, and especially the emergence of new ones which could not have been foreseen 30 or 40 years ago.

HISTORY OF ACHIEVEMENTS AND EMERGING CHALLENGES Under this umbrella, there are a number of characteristics that have defined NZ, at least so far, as well as providing a platform for the innovations in the governance and management of public policy that will be elaborated throughout this book. These are the threads that hold the contributions to the book together. They also help us explain the types of innovations that emerged in NZ. These common threads and themes, to be developed and linked to the reforms in public policy and governance in the following chapters, are summarised in Table 1. Judging from the lists above and returning to the question as to why and how such a small and far away, but not isolated, country managed to push out the frontiers in public governance and management, pioneering across a whole range of domains, there is clearly not a straightforward answer. The basic narrative revolves around a group of people, coming to a far away land, intent on making it a home for themselves and their children, and reaching out to everything the world has to offer to improve their lives. To a large extent, the challenges highlighted above, facing NZ, are also found in most other countries in the world. Although there are no straightforward answers to our framing questions, we nevertheless offer some tentative suggestions here, based on what the authors who have contributed to this book have highlighted. Our authors agree that most of the ideas that were adopted, adapted, and applied in these spheres did not originate in NZ, but they do not offer a coherent narrative as to why they have so frequently found fertile ground, and have been adopted and adapted in often creative ways, in NZ. The academic and policy communities in NZ do not appear to have explored deeply the sources or drivers of NZ being innovative adopters and adapters of global ideas. Of course, the narrative is not always positive. The following chapters also highlight environmental, social, cultural, and economic developments that are not so good.

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Table 1.  Prosperity and Issues in NZ. From prosperity and stability … Successes

Contributors

High per capita incomes

A natural-resources based economy A pragmatic country that is happy to adapt international ideas to local circumstances to improve the wellbeing of its people An open country – society and economy – evolving and developing as part of an international community. Relative peace and social A distant country cohesion A bi-cultural country that is gradually evolving into a multi-cultural country An immigrant country Democracy Evolving and revolving role of government in economic and social life (as investor, provider, protector, regulator, partner, supporter, enabler, incentiviser, nudger/persuader, etc.) Fairness, equality Attempts to achieve equality, especially equality of opportunity, through employment, and access to good education and health services, for all A country that puts a lot of emphasis on equality and fairness – including, and especially, across gender and ethnicity – and increasingly on intergenerational equity Social laboratory of the world Good governance and An ongoing focus on welfare (or wider wellbeing) as a focus of public government policy throughout the modern history of NZ Ideas, ideology, theory – as other drivers of public policy A country that has put institution-building at the centre of its public policy governance and management in recent decades High integrity, low The evolution and reshaping of the social contract between the corruption government and the citizens Open government A country with a centralised government Early adoption of digital A democratic country government … to present day issues and frontiers A search for answers for the languishing (and sometimes declining) economic performance certainly since the 1970s, accompanied more recently by worsening social and environmental outcomes as well A country that is still struggling with the challenges of embedding bi-culturalism into the governance and management of public policy, while trying to cope with the emerging pressures of multi-culturalism Population growth, and its interface with migration flows, is a recurring theme in the book – interwoven into ongoing public policy discourse Some of the dominant current themes of public discourse (such as homelessness, poverty, housing shortages, and the environment) would have been unrecognisable 50 years ago in NZ. The background and context to these emerging challenges, and their implications for public policy governance and management, is another thread that runs through all 14 chapters of the book A country that is facing emerging social, environmental, and economic concerns and challenges that are very out of character A country that had one of the highest material standards of living in the world in the 1950s but has since been experiencing a modest but steady decline

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Nevertheless, a series of factors associated with the creative adaptation of public policy ideas can be readily found in the following chapters. They include NZ having only a single Parliamentary Chamber and Westminster form of government that affords great power to executives and civil servants, a centralised form of government, a citizenry that is given to robust and vocal debate on public issues, a professional and competent civil service, and a small economy that since the 1970s has been subject to international forces and shocks requiring vigilance and responses by the State. The small population and size of civil service might also play a role, making resources scarce and indeed of sound management. And being perennially a bit dissatisfied with past achievements is perhaps also a reason that new policies are often being pursued with enthusiasm. There may be additional factors, too. Of interest is also the high integrity ranking of NZ, especially the NZ public sector. NZ does not have a story of, say, redemption. The ethical climate just seems to have always been there; one can almost feel it in the air. Having a strong integrity climate focuses on doing the right things and doing them in the right ways. It supports having robust debates, being accountable, and dealing with consequences of policy decisions in proper and humane ways. There are things that are just not done, or only at great cost to one’s career and livelihood should ‘it’ become known. Of course, there are also ‘behind-the scene’ games and legal loopholes that one wishes would be closed, and NZ is too small to ignore one’s many acquaintances. But a focus on integrity is surely also the NZ way. Going further, it is not only the tendency to choose good strategies and policies, but also the capacity to adapt them wisely, as well as continuously improving their effectiveness by making adjustments as one learns and goes along, that is a characteristic of NZ’s public policy landscape. We are not wise enough to know all the consequences of public policy in advance; we need to focus on the destination, the process for getting there and on addressing what comes up in an agile manner. We need to produce good outcomes and work in ways that are consistent with our values. Thus, nothing stays in place for very long in NZ; there is constant assessment and change and improvement. We think that the constancy of change (having ‘fleetness of foot’) has allowed NZ to be an effective adapter. Still, it must be observed that performance in some areas is much better than in others in NZ. On the very positive side, agricultural performance is strong, worldclass and continuously improving. NZ does provide a model for how a small, agricultural society can be so prosperous. Public sector performance management tools are effective and often leading, no doubt. Civil servants are motivated to find the next new practices that make things better and are rewarded for that by career or job opportunities. The performance of its fiscal management is impressive. Readers should be taken in by Chapters 5, 8, and 10 for example. NZ is also well known for its progressive social policies. Whether it is retirement benefits (2/3 of the median income), marriage/civil union rights, or nearly free access to universal health care and public education, NZ does stand out as a model for the modern welfare state. It has pursued very innovative initiatives with regard to indigenous rights. No doubt in all these areas more could still be done. Readers will find ample material on these matters in this book (e.g., in Chapters

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1, 2, and 4). For a small country, NZ also manages to command more positive attention in the international media and policy circles than one might expect for its small size. On the other side of the ledger, Chapter 3 highlights long-enduring concerns associated with low economic productivity and outmigration, that reflect inadequate development of new business opportunities and economic sectors. While there are some international niche successes (film industry, accounting software, and boating), this list is too small. Public policy seems lacking in these areas. Environmental governance shows a mixed record too (Chapter 13), and while the book does not discuss housing and secondary education, those sectors do not measure up against the highest world standards. Why does NZ underperform in these areas? We do not know, but speculate that UK and US policy models, which so often provide a source for NZ adoption and improvement, have themselves had little to show for in these areas in recent decades. NZ could do well to learn from a broader set of countries and experiences. Persistent weaknesses in the above areas have been a constant in recent times, regardless of voter dissatisfaction and the policy preferences of successive governments. Therefore, NZ has good experiences worth sharing with the world, while at the same time seeking to improve its performance as well. Whether or not others can learn from the experiences described in this book is not for us to say. Each country, NZ included, must come to understand and deal with its own aspirations and conditions. We hope this book may help in the sharing of policy and governance practices around the world. The following overview of the contents of the chapters in this book may guide readers to relevant chapters and topics. Structure of the Book The book is organised into two parts. Following the introduction and overview chapters, the first part traces the evolution and impact of public policy as it relates to economic, social, cultural, agricultural, sustainability, and wellbeing dimensions. The second part discusses public governance and governance reforms. It starts with an overview of these reforms, and then focuses on governance as it relates to transparency and integrity, fiscal and monetary matters, digital government, and the environment. Chapter 1, New Zealand in the Making: Past and Present (Gary Hawke), provides a broad introduction to NZ for an international audience. It discusses current institutions of governance in NZ, emphasising how the culture of NZ is reflected in how government works. It traces the evolution of the public policy agenda in the past 50 years in ways that inform the longer-term movements of public policy debate as set out in later chapters. It also provides a discussion of NZ social and economic conditions and concerns (e.g., highlighting Māori policies, inequality and poverty, while also noting NZ leadership in some social policy areas). Chapter 2, Social Laboratory: Reality or Myth? (Colin James), traces the historical roots of social progressive policies in NZ, through the early founding. It covers the expansion of the welfare state since the 1930s, providing greater

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redistribution, much expanded public services, and increased roles of unions. It discusses innovative policies that have had far-reaching effects, such as the nofault, state-administered scheme of accident compensation (replacing unpredictable and expensive tort law), and NZ’s social security scheme which provides all residents with a generous baseline amount tied to the median average wage. It also notes official recognition of Māori culture and biculturalism (subject of Chapter 4). It discusses the decriminalisation of homosexuality and subsequent reforms. Yet, despite these and other advances noted, many major issues remain and may be increasing, such as relating to families, child poverty and health, mental health and other issues that require continuing innovative efforts today. Chapter 3, Economic Performance: A Prosperous, Very Distant Economy (Michael Reddell), deals with managing the small economy of NZ. While ‘small’ may be overstated (many advanced countries have less than 10 million people), for decades NZ has had among the very highest per capita incomes in the world. How has this been achieved? This chapter examines major public policy tools that contributed to this outcome, including innovative institutional overhauls and various ambitious integrated reforms, underpinned by rigorous analysis, courageous politicians, and having a small, single chamber legislature. There have also been favourable exogenous factors such as liberalisation of global agricultural and other trade. Not all outcomes have been favourable in the past decade (e.g., housing is recognised as a major public policy failure). The chapter concludes that today’s policy seems reduced to: (a) maintaining macro stability and (b) responding in a scattergun way to emerging symptoms and calls for increased analysis and depth among political parties to address deepening specific issues. Chapter 4, Māori Interests and Rights: Four Sites at the Frontier (Maria Bargh and Carwyn Jones), discusses four areas that concern public policy related to Māori: ‘Tangata Whenua’ (public policy relating to the recognition of the rights of Māori as people of the land); ‘Rangatiratanga’ (constitutional dimensions of public policy, including the important Waitangi Tribunal); ‘Kaitiakitanga’ (innovative public policy approaches to the relationship between communities and the natural environment); and ‘Iwi Taketake’ (public policy in the context of the rights of Indigenous peoples and the international human rights framework). Each of these is used to illustrate, in particular cases, Māori policy and legal traditions and innovation, as well as Crown policy and practices, and frontiers the Crown continues to find too startling to cross. Chapter 5, Agriculture: Continued Strengths (Frank Scrimgeour), explores the background and context for NZ’s strengths in agriculture, which continues to be an important part of its economy. This chapter discusses the role of agriculture in NZ’s social and economic history, and current practices examining structure and change of this sector, agricultural productivity and incomes, and environmental pressures and responses. It then examines the public policy responses and the supporting apparatus that have helped this sector perform so well. Key aspects covered are policy frameworks, agricultural facilitation (e.g., biosecurity), innovation and public-private partnerships (e.g., in education), competition policy (and link to environmental policies), and trade policy and export facilitation.

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Chapter 6, From Growth to Wellbeing: Evolution of Policy Frameworks (Arthur Grimes), notes the recent trend in NZ and internationally towards wellbeing and living standards frameworks (LSFs), while emphasising that NZ was also a pioneer in the welfare state. NZ already ranks highly on measures of average wellbeing but performs quite poorly relative to other developed countries on inequality and per capita GDP vs Subjective Wellbeing. The chapter also covers the new government’s commitment to a ‘wellbeing’ budget for 2019, and to reinserting the ‘four well-beings’ back into the Local Government Act. It closes with a discussion of the Treasury’s LSF and policy challenges going forward, including policy areas and metrics. Chapter 7, On Sustainable Development (Les Oxley and Mubashir Qasim), discusses how in NZ sustainability has become embedded in discourse, policy and theory. It emphasises that if wellbeing, especially intergenerational wellbeing, is an objective of public policy, then we should be concerned not only about the sustainability of the natural environment (which is of course critical), but also the sustainability of the various other sources of wellbeing (social as well as economic). Against this background, the primary aim of the chapter is to assess whether NZ’s public policy and governance have been supportive of sustainable development, that is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Chapter 8, State Sector Governance Reform: Past Experience, Contemporary Challenge (Graham Scott), discusses the well-known reforms of NZ public governance of the 1980s and 1990s, and their continuing implications and relevance for performance today. NZ’s reforms, or its early reforms at least, have been described by various commentators – supportive, neutral, and critical – as having an unusual conceptual coherence. The chapter establishes the concept and dimensions of public governance and provides in-depth discussion of the mainstay early reforms and what they have achieved in service delivery, devolution, managerialism, coordination, and policy advice. It also notes other achievements that are discussed in later chapters such as improved fiscal management and accountability. These early reforms continue to be relevant to NZ today and are still sought by other countries. Chapter 9, Strengthening Integrity Systems: Complacency Versus Confidence (Suzanne Snively), explores the background to NZ’s high international ranking on Transparency International’s corruption index. It examines the role of integrity in public governance from a NZ perspective, and provides a discussion of the role and evolution of institutions in integrity/anti-corruption management. It offers an assessment of the current situation and challenges, and discusses tools of integrity, such as generating discussion among public sector leaders, the roles of audit, internal audit, risk management, the strengths and weaknesses of whistle blowing/protective disclosure, demonstrating a trusted tone at the top through transparency, accountability in every action taken, anti-corruption training that is annually refreshed for everyone, strong anti-corruption knowledge and more. Chapter 10, Fiscal Policy Governance: A Focus on Principles (Robert A. Buckle), discusses New Zealand’s fiscal policy governance arrangements. First established 25 years ago, the approach emphasises fiscal principles and reporting provisions

Introduction

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which were regarded as world-leading fiscal reforms when introduced and has been embraced by successive New Zealand governments. These helped reverse a history of poor fiscal management by improving transparency and strengthening accountability for fiscal performance. The chapter discusses the implementation of the principles and reporting provisions, and traces responses to intergenerational issues, population ageing, pro-cyclical government expenditure growth, coordination with monetary policy, and recognition of the economic and social importance of the Government’s balance sheet Chapter 11, Monetary Policy Governance and Inflation Targeting in New Zealand (Robert A. Buckle), discusses how New Zealand ushered in an innovative approach to monetary policy governance. Formalised by the Reserve Bank of New Zealand Act 1989, it specified price stability as the primary function of monetary policy and provided operational independence for the central bank. This spawned the spread of similar central bank governance arrangements around the world with a mandate to prioritise inflation targeting. This chapter reviews how the practice of inflation targeting and the choice of policy instruments evolved, and discusses research evaluating the impact of inflation targeting. The chapter concludes with a discussion of contemporary issues and recent legislative changes to monetary policy governance in New Zealand. Chapter 12, Digital Government: Leadership, Innovation, and Integration (Elizabeth Eppel and Barbara Allen), explains why NZ was an early adopter of digital government and a leader in such practices as open government. Using an institutional perspective, it sets out the conditions and challenges that NZ faced, leading to the incorporation of digital tools and accompanying governance; early failures; and lessons learnt. While many initial applications were piecemeal efforts, government and citizen aspirations for improving public services and outcomes shifted the game, as did the more ubiquitous availability of the Internet. Information Communication Technologies (ICTs) became a means for information sharing across government, for more joined-up, effective and citizen-centric design of services; improving services and citizen engagement and co-production. Specific noteworthy successes and failures are highlighted, drawing lessons from each. Chapter 13, Environmental Governance – Are We Making the Grade? (Marie Brown and Fleur Maseyk), asks and explores whether NZ’s reputation for having a pristine environment is justified. While sustainability has become an important buzzword, managing environmental governance is what makes that a reality. This chapter discusses environmental governance for safeguarding the environmental context and addressing key environmental challenges. The chapter argues that as a young nation, NZ has yet to come to grips with duty of care. It has property rights which are barriers to good governance, and its reliance on a primary production economy and economic development, including iwi land, is compromising current biodiversity. This chapter discusses four cases that highlight how NZ is addressing environmental governance. Chapter 14, Public Sector Reform Since 2000: The Quest (Iain Rennie), provides an insider’s view of managing NZ agencies. Written by NZ’s top former civil servant, this chapter discusses the evolution of the toolkit available to public sector managers to lead/manage public institutions, including those tools developed

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in the late 1980’s and 1990’s relating to strategic planning, resource allocation, performance management, accountability requirements, and those evolved in the 2000’s (e.g. 4 Year Fiscal Plans, Performance Improvement Reviews). This chapter extends the focus of chapter 8 that discusses the earlier reforms. It covers innovative practices such as Performance Improvement Reviews and sectorwide talent management in detail, as well as processes through which innovative practices are developed.

NOTE 1.  Aotearoa (Māori: [aɔˈtɛaɾɔa] is the Māori name for New Zealand. It was originally used by the Māori people in reference to only the North Island but, since the late nineteenth century, the word has come to refer to the country as a whole. Several meanings have been proposed for the name; the most popular meaning usually given is ‘long white cloud’, or variations thereof. This refers to the cloud formations which helped early Polynesian navigators find the country. (Wikipedia)

CHAPTER 1 NEW ZEALAND IN THE MAKING: PAST AND PRESENT Gary Hawke

1. ‘NEW ZEALAND’ Like all countries New Zealand has both a history and a set of myths. Common beliefs are that it is a small country which is unusually influential in international affairs and that it is isolated but nevertheless a significant part of the world community. As is usual with national myths, these are exaggerations with elements of truth within them. Modern New Zealand evolved in the nineteenth century as one of the late parts of European overseas expansion. The indigenous Maori have a longer history, having been in New Zealand from somewhere about 1,300 ad. They had arrived as part of the major settlements of the Pacific by Polynesians, as the result of extraordinary ocean voyaging. However, Maori had become isolated; when Europeans began settlement in the late eighteenth century, they had no contact with the Pacific or anywhere outside New Zealand. Modern New Zealand developed as part of the international economy. Initially, it was a source of naturally occurring resources such as timber, whales and seals. Later, it was a source of gold, but New Zealand’s gold deposits were small relative to those of Australia (or California). The development, however, initially was dependent not on natural resources but on wool-growing. New Zealand’s climate was favourable for the growth of grass – imported grasses since they were more nutritious than native ones – and wool could be raised in New Zealand and be transported around the globe to industrial areas in the

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 11–24 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032021

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North Atlantic where despite transport costs it was competitive with domestic production. The New Zealand economy emerged as an early example of the effect of off-shoring – or New Zealand developed because Britain was prepared to outsource its agriculture. Later in the nineteenth century, the technology of refrigeration made it possible to add foodstuffs – refrigerated meat and dairy produce – to wool. There were challenges within New Zealand to adapt landholdings to new possibilities, and to develop institutions to finance and market the additional products, but the originating force came from the international economy. Some remnants of the earlier resource exploitation remained, especially timber exports to the growing urban centres of Australia beside its use in New Zealand towns as additional areas of native forests were sacrificed to provide space for grass. Furthermore, the New Zealand population, fed by immigration mostly from the United Kingdom, located itself in towns requiring all aspects of urban development and demanded commodities known to be available overseas. Urban industries, more usually characterised by ‘making and dealing’ than by large-scale manufacturing, were added to the economy. New Zealand by the end of the nineteenth century was a sophisticated economy and society. However, it remained as an essential component in the international economy rather than an autonomous entity. New Zealand is still often thought of as an ‘agricultural economy’, but that is true only in when agriculture contributes more to its exports than for most economies with comparable income levels. Overall, as in most advanced economies, services are the most common economic activity. Even in exports, dairy products are the leading product, but while farms supply an essential input they provide directly only about 20 per cent of the final value, processing activities adding about the same and various distribution services much more. Services are exported, but embedded in goods rather than explicitly. In more recent times, tourism and education have emerged as major income earners for New Zealand. Nevertheless, despite efforts towards diversification, and as highlighted in Chapter 3, products of the (fixed) land and sea, directly or indirectly, continue to contribute a very significant share of the country’s export revenue. The processes of integration and transformation were not entirely harmonious. The indigenous population, who called themselves ‘Maori’ (meaning ‘common’) adapted to an inflow of immigrants, who they called ‘Pakeha’, a Maori term of indeterminate origin but with a sense of ‘pale’ or ‘outsider,’ sometimes meaning specifically ‘British’ but more usually including all non-Maori other than Pacific Islanders who became numerous only after World War II. Maori adapted to Pakeha customs, especially religion, while also maintaining much inherited culture, and they participated in the Pakeha economy, including shipping services as well as growing crops and engaging in construction. But their land was wanted by Pakeha settlers. It was acquired in various ways, consensual purchase, manipulated purchase, or confiscation. Maori and Pakeha intermarried from early days and Maori who adopted a Pakeha style of living were assimilated. But Maori institutions were marginalised.

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2. FOUNDING EXPERIENCES Modern New Zealand developed as a British colony and governing institutions soon showed little Maori influence. Colonisers had mixed motives and attitudes. Missionary societies, conscious that whalers, sealers and seamen were interacting with Maori, wished to exert government control so as to facilitate their own activities. Others were conscious of opportunities for profit from New Zealand land and resources. The British Government, 65 years after the American Declaration of Independence, was not enthusiastic about colonies but it acquiesced, and in 1840 New Zealand became a British colony. (For administrative and legal convenience, it was initially absorbed into the existing colony of New South Wales but that was never more than a fig-leaf.)1 From 1840, New Zealand was governed by a British-appointed governor and the advisers he selected. (There was never a woman governor.) But the settlers soon demanded and obtained a role in their governance. In the 1840s, Canadian settlers worked out with the British government the concept of ‘responsible government’. Settlers in Australian colonies and in New Zealand followed suit. From the early 1850s, governors were required to follow the advice of elected parliamentarians. There were some qualifications. What we now call external relations remained essentially an imperial matter and the British government made some efforts to retain the unity of English law but soon deferred to the responsible government. More important, the early idea of a special responsibility for Maori persisted for some time. One of the expressions of British scepticism of colonies in the mid-nineteenth century was parliamentary restraint on the executive government acquiring colonial responsibilities, without either parliamentary approval or the acquiescence of the colonised people. To avoid the need for parliamentary debate, the British government concluded a treaty at Waitangi with an assembly of local Maori in northern New Zealand – then the centre of greatest concentration of Pakeha activity and also with a relatively large Maori population. The treaty was carried around New Zealand and signed by several but not all other tribes. Treaties were not uncommon in British colonisation, but the Treaty of Waitangi was unusual in being written in both English and Maori. In modern times, in a process akin to how Magna Carta, an agreement between a dissolute king and some rebellious barons over baronial rights, became a charter of individual freedom, the Treaty of Waitangi became the ‘founding document’ of New Zealand. It was a simple document, in English transferring sovereignty, guaranteeing possession of land, and conferring the status of British subjects, while in Maori, although the translation was well-intentioned, being much more ambiguous about what was transferred and what property was guaranteed (see Chapter 4). In particular, mana and rangatiratanga, the Maori terms closest to ‘sovereignty’ were not used, and the Maori chiefs explicitly acquiesced only in transferring kawanatanga, a transliteration of ‘governorship’. The ambiguity which always existed, and social and governance changes over 180 years, mean that the terms of the Treaty of Waitangi are now interpreted in circumstances far beyond any

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comprehension by those who made the agreement. This guarantees a continuing fruitful field for jurisprudence, as part of a much wider and ongoing exploration of ways of giving effect to biculturalism. New Zealand, like many other modern countries, has shared the fruits and challenges of multiculturalism, but it has been among the leaders in seeking a way to include in its public life acknowledgement of a distinct indigenous culture. Most obvious, the Maori language has official status and is widely, if mostly incidentally, used in everyday settings. (It nevertheless remains in danger of being swamped by the majority language.) The Treaty of Waitangi was not highly regarded initially, being neglected or rejected not only by colonists but also by British governments. (Nor did all Maori tribes participate in its acceptance.) However, the motivation of missionary organisations persisted in official circles in London, and the British government acknowledged a responsibility for Maori and excluded ‘native affairs’ from the ambit of responsible government. Nevertheless, governors were caught up in local affairs and were leaders rather than restraints in the warfare by which some Maori were dispossessed of their land, and the British government did not prevent local legislation which led to a great deal more dispossession. Governors became more and more symbolic in time. New Zealand governments asserted the right to make trade agreements in the 1870s and the British government decided not to maintain any imperial authority. New Zealand governments recognised that they could not pursue ambitions in the South Pacific without the support of the Royal Navy, but they did not recognise or experience any imperial constraints on their power to decide on matters which were important to colonists. For New Zealand, gaining independence was not a momentous occasion; it simply evolved as colonists decided they wanted to control some aspects of their lives. New Zealand considered itself at war in 1914 because the king declared the British Empire to be at war, but had there been any significant body of opinion in New Zealand opposed to the Imperial government, the outcome would not have been obvious. Maori were dispossessed and marginalised. Intermarriage and assimilation remained strong, and a Maori was acting the prime minister of New Zealand before the end of the nineteenth century. At the same time, Maori leaders emerged who sought for ways of integrating Maori and Pakeha institutions. They had some success, symbolised by the way that ‘native affairs’ became ‘Maori Affairs’, but it was in the last quarter of the twentieth century that the ‘principles’ of the Treaty of Waitangi and the idea of a partnership between Crown and Maori became prominent. In essence, it was recognised that New Zealand institutions have always to meld the ideas of Pakeha culture, and its inheritance of British and international thinking, with Maori traditions and expectations. Maori introduced the single biggest distinction of New Zealand from other British colonies. But there are others. Responsible government quickly became Cabinet government as the local ministers recognised the power of a united front presented to the governor. There was an experiment with provincial governments from the 1850s to the 1870s when the main settlements in New Zealand were widely distributed around a long coastline. But railway communication and the need for central control of government borrowing in the UK for development

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purposes brought about the abolition of the provinces. The central government was supported by local territorial authorities, townships and county, and by a myriad of special administrative authorities for health, roading, the control of rabbits and other local issues. New Zealanders tend to think of New Zealand as a small country; it is actually on most measures of geographic size in the upper quartile of approximately 200 members of the United Nations; in geographic size, it is slightly larger than the UK. Even in terms of gross national product, New Zealand is not small. It is however small in relation to the populations of countries with which New Zealanders like to compare themselves – the UK, the USA, Australia and the Organisation for Economic Co-operation and Development (OECD). The more significant point is that New Zealand is centralised. In a community of half a million in the 1880s, 1 million in about 1910, 2 million in the 1950s, and nearly 5 now, the centralised government has always been readily accessible to the population at large. In this sense, New Zealanders have never shared the sense of ‘mystery’ (or remoteness and deference to hierarchy) of government that Europeans seem to have about their governments, or even the remoteness of the central government relative to states and local authorities in the USA. Nor was there anything of the federal government surrounded by state governments as in Australia after 1901. Responsible government was established in New Zealand with a courtesy towards the contemporary British structure of a House of Lords and a House of Commons. It had a body of individuals thought to be especially equipped to manage the public interest and a body representative of the public. The latter was quite quickly associated with a wide understanding of the public, adult males being enfranchised in the 1870s and adult women in 1893, a pioneer among countries. The upper house, the Legislative Council could hardly be composed of hereditary aristocrats, and unlike the US Senate and the Australian Senate after 1901, it could not be a “states’ house” either. Initially, it was simply a body of people nominated by governments to have a lifetime tenure. When it conflicted with the representative house, it was made clear that the governor should follow the advice of ministers and nominate enough members of the Legislative Council with appropriate views to guarantee the government a majority, and the tenure of councillors was reduced to seven years. It did not play a significant role and it was abolished in 1951. New Zealand then had the distinction of being a highly centralised, unicameral government. Constraints on government were initially self-imposed. Parliament adopted rules about its own proceedings, including provision for public submission to select committees. In the 1990s, after a reforming government with a mission of settling issues from first principles in the 1980s, there was public support for a change in the electoral system which made it less likely that any political party could dominate the Cabinet and make quick decisions. This was a political response to the economic reforms of the 1980s which were influenced by the theory of New Public Management and motivated primarily by a drive for economic efficiency (see Chapters 3 and 8 for elaborations). While these reforms undoubtedly delivered improved economic efficiency, they also caused a lot of economic disruption

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and pain (primarily through loss of jobs). The electoral system of mixed-member proportional representation, MMP, is still the principal constraint on centralised, Cabinet government. MMP is nearly 25 years old (Hawke, 1993). There is little debate about the core provision that a popular vote determines the proportional allocation of parliamentary seats. A little over half the seats are nevertheless determined by individual electorates, and then ‘list members’ are added so as to adjust the allocation of constituency seats to the required proportionality. The intent has always been clear, namely to achieve a parliament which reflected popular opinion while maintaining the ancient British belief that members of parliament should represent local communities. Nevertheless, and maybe inevitably, simplicity soon disappears. Maori had been allocated specific seats in parliament since the 1860s, and Maori opinion strongly resisted losing ‘their’ element of parliament. A parliament of many small parties would probably not maintain stable governance, and therefore a threshold established a minimum share of the popular vote for representation at all. Parliament’s ‘representativeness’ was inevitably qualified, and by-elections made ‘distortions’ readily apparent, especially when they originated in a member’s withdrawal of support for their party’s position on an issue. Hoping that ‘list members’ might have a ‘national’ rather than a ‘local’ perspective were disappointed, especially when parties allocated responsibility to list members to service constituents in seats held by other parties. More important, and less recognised, the design of MMP implicitly assumed that the population would elect a parliament, and the members of parliament would form an executive. That proved to be idealistic. Electorates, and perhaps even more the media, were never convinced that elections were other than about selecting who was to be the government. Much could depend – as in 1996 and 2017 – on decisions made by minor parties about which coalition they preferred. Despite the above experiences, MMP has become established. New Zealanders generally trust their governments and their parliaments, both in an absolute sense and relative to most other countries (see Chapter 9 for supporting evidence). This owes much to the transparency and integrity of New Zealand’s political institutions, politicians and public servants (see Chapter 9). It also probably owes much to the way that since the 1880s, the determination of constituency boundaries has been successfully insulated from political manipulation, boundaries being drawn by a Representation Commission dominated by independent and professionally qualified adjudicators working within a tight definition of an equal population in each constituency. But it owes most to a political culture when members of parliament and ministers are easily accessible. New Zealand’s governance system has evolved in accordance with its experience. It has drawn on international knowledge as specific issues were encountered. The notion that constraints were needed on ‘the passions of the people’ was imported, and New Zealand’s experiments in moving towards more complete reliance on equality of individuals was always within understanding of how democracy was evolving internationally. The introduction of MMP is somewhat unusual. It was informed by commentary linking New Zealand to international discussion of ‘representative’

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governance and especially to recognition that complete reliance on discrete constituencies could generate unrepresentative legislatures, but it was also driven by a much more elemental dissatisfaction with what were seen as dictatorial governments. The more idealistic hopes for a change in political behaviour were not realised and there were complaints that small parties were too influential in determining which major party could form a government but the adoption of MMP was endorsed by a subsequent referendum. There are suggestions that MMP has been accompanied by a growing sense among members of parliament that they can manage directly rather than be arbiters of collective choice while technical analysis rests with the public service. On the other hand, more members of parliament are professional politicians rather than first having a career elsewhere. They want to achieve their own objectives. There is little sign of the cooperative spirit which some proponents of MMP expected. However, political debate has become more partisan in many places (e.g. the UK and the USA) which have not adopted any form of proportional representation. New Zealand continues to have close relations between interested electors and their politicians. Constituency members are expected to live in their electorates and most have strong links to the local community separate from politics. New Zealand is not characterised by any special freedom from self-interested behaviour and crime, but its political life has been characterised by very little corruption even by comparison with most Australian states. The difficulty of concealment in a system of open access is probably the major reason for this.

3. MAIN AGENDAS OF PUBLIC POLICY The New Zealand public policy agenda has always been concerned with the collective life of a self-aware minor player in international affairs, concerned mostly with its own welfare. The pattern for many years was set in the 1870s with major central government interventions concerned with immigration and public works. The guiding principle was the desirability of building a bigger community with a standard of living better than that of the UK, the source of most immigrants. Promotion of immigration has been nearly continuous. It ceased only in periods when there was uncertainty about ‘progress’, notably the 1880s and the 1930s. It was initially directed to the UK, widened only a little in the 1940s and made ‘skill based’ rather than focussed on geographical origins from the 1970s. Over time, economists became sceptical of the continued value of immigration; in particular, since the 1950s, economists have generally doubted whether immigration facilitated the growth of per capita income. Popular opinion remains otherwise. A larger and more complex society would result from natural increase alone, but a popular opinion sees immigration as overcoming shortages and does not pay much attention to analysis that focuses clearly on per capita growth. Building a larger community required infrastructure or social overhead capital, especially railways and roads as well as ports, communications and an electricity network. Successive governments chose to employ a great deal of direct

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government activity, settlers using the government as a convenient vehicle for local control in preference to relying on regulatory powers over private investments which would inevitably have a large element of overseas ownership. In retrospective view, we can identify in contemporary rhetoric a distinctive concept of ‘development’. It was not the concept of economic development that later became established in the economics profession, whether the growth in real per capita income as identified by Atlantic economists, or the greater sophistication of economic institutions as identified by South American development economists, while it has some similarities with the latter. It centred on the growth of a larger and more varied economy, providing options for employment of all aptitudes and capabilities, while maintaining real income above the level of the UK. Elements of that concept had a very long life, and indeed some persist still. Since the 1930s, politics was dominated by politicians who traced New Zealand’s experience of the Great Depression to its dependence on overseas economies. They sought to ‘insulate’ the New Zealand economy, using ‘guaranteed prices’ to detach farm incomes from export receipts and giving moderate protection to New Zealand industries. Since 1938, initially in response to a foreign exchange crisis, imports and eventually other overseas earnings were subjected to a requirement for licences. The system eventually became similar in many respects to the import substitution industrialisation pioneered in Latin America and adopted in many developing economies. But while over time it was given different priorities, it was much less of a development policy than those used overseas to promote real per capita income, and more a concern to vary production so as to reduce dependence on particular prices. It remained identifiably a descendant from ‘development’ as identified much earlier – more an employment policy seeking to cater for all aptitudes and capabilities than income promotion. Insulation was weakened in the 1960s and 1970s, especially by efforts to widen the range of export commodities and the range of markets, but it lasted until the 1980s. By then it was obvious that New Zealand incomes were falling behind those available overseas – the comparator was no longer the UK but average OECD experience. The revolution of the 1980s accepted that New Zealand’s economic future rested on using all its resources to serve world markets and support standards of living comparable with those available elsewhere in the OECD. The social disruption of the 1980s was abandonment of explicit and implicit subsidies to activities which provided variety to New Zealand production, but which used more resources than the alternative of generating economic exports to finance imports. Promotion of employment was less prominent in statements of objectives, but the underlying change was subtle: the focus of employment policy shifted from guaranteed employment (see Chapter 3 on the ‘social contract’) to productive employment. New Zealand was always an open society, and despite tariffs and import licensing, accessible to innovations from abroad. The inflow of migrants, and their continued contacts with family and associates in their origins, guaranteed a constant inflow of international ideas; also imported books, magazines and other publications generated widespread knowledge of what was available overseas. Printed materials were quickly supplemented by radio when it became available, and then

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by TV. Especially after World War II, American sources competed with British sources although even more noticeable was the growth of domestic publication at least until the internet began to compete with all traditional media. Economic policy was therefore always debated in the context of at least partial knowledge of overseas trends. Other parts of the public policy agenda were even more dependent on ideas from abroad. The three biggest trends in public policy after World War II were increased attention to the place of Maori in New Zealand society, the enhanced standing of women in society, and a relative detachment from Europe in favour of Asia. All owed most to overseas origins while being strongly developed locally. After World War II, the USA pursued emancipation of blacks and promotion of civil rights while the United Nations pursued decolonisation. New Zealand could hardly welcome the former and participate in the latter (especially with a direct connection in Samoa and to some extent in the Cook Islands) without recognising the disadvantageous position of many Maori. Also, young Maori leaders would not be ignored. Similarly, New Zealand women drew on international feminism to secure equal pay for equal work, equal opportunities for employment in all fields, and equal recognition for work done predominantly by women – the last especially is still a live issue. New Zealand’s efforts since the 1960s to diversify its export markets led it to look increasingly to Asia. As Japan, other East Asian economies, and eventually China became large and rapidly growing markets, New Zealand businesses and diplomats found themselves in a new position. Other international ideas were also influential. The natural environment became more than a minority interest, especially with the campaign to prevent the flooding of Lake Manapouri in the late 1960s. New Zealand never simply followed overseas prescriptions, but it used international thinking to recognise policy issues and define policy options. This is very apparent in current political debate. Prime Minister Jacinda Ardern has declared ‘climate change’ to be the identifying issue of her political generation. Furthermore, the government’s declared priorities start with various aspects of ‘poverty’ and ‘inequality’. None of these issues begin with identification in New Zealand experience. All are imported from overseas although they are then elaborated into local versions. If we began from inside, we would find that reaction to globalisation and determination to secure ‘inclusive growth’ and ‘No One Left Behind’ are the issues which have most resonance in New Zealand political debate. Somewhat behind is ‘Industry 4.0’, digitisation and the ‘Internet of Things’ which mostly resonates in the form of worries about technology generating unemployment rather than the challenges and opportunities of change.

4. SOCIAL PARADISE: REALITY AND MYTH Overseas opportunity and local responses were also central to social policy. As the modern economy grew, governments made provision for collective goods which were known to be available overseas, especially in the UK. Primary education was

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initially funded by provinces, but when they were abolished the central government took over and promoted ‘free, compulsory and secular’ primary education. It was gradually extended to secondary schooling. Provincial governments, and then the central government, also provided funding for universities. There were some local characteristics, such as well-intentioned but fumbling efforts to develop Maori schools, but the main story was the adoption of international practice. In health too, the story was similar. Local provision was supplemented by taxfinanced public hospitals. It was not until 1938 that tax-funding of primary care became significant but then that was true overseas too. Relief for the poor and those with disabilities is also a story of local effort, first supplemented by public funding and eventually essentially absorbed into government activity. Initially, settler New Zealand had few aged people but the population inevitably aged over time. Old Age Pensions were introduced in 1898, initially with conditions. Eligibility began at 65, an age higher than attained by many, and was subject to ‘good character’ tests as well as means-testing. A slow process, with a spurt in the 1930s when eligibility was fixed at 60 and a distinct universal superannuation scheme began at 65, progressively increased the role of the state. A more distinctive feature of New Zealand, albeit shared in large part with Australia, was collective intervention in employment conditions. New Zealand introduced Industrial Conciliation and Arbitration in 1894. It mandated recognition of unions and sought to substitute conciliation councils and compulsory arbitration for strikes. The Arbitration Court gradually acquired pre-eminence in the process of setting wages, observing traditional relativities, and guided by the notion that employed men [sic.] should be able to support their wives and two children. This last provision led to a significant extension of public welfare schemes. Family benefits were introduced in 1926, initially being paid for the third and subsequent children. The intent was to reconcile the practice of the Arbitration Court with the existence of large families. The government at the time was the more conservative Reform Party, albeit led by an innovative and non-ideological prime minister, rather than by a progressive administration. Then, the general picture is a gradual drawing on international thinking and experience to address the evolving circumstances of the settler community, along with some provision for Maori. But there was a significant settler input. The government was in the hands of settlers; there was no sense of a remote monarchy or mystique of aristocratic privilege to be considered. Nor was central government distant and remote. Therefore, the government was an instrument which was available whenever it could be expected to be useful. When refrigeration changed the optimal division of land into productive units, government powers of compulsory purchase and differential tax could be used to facilitate the process. When there were worries over colonists being exploited by overseas insurance companies or banks, government entities could be used to exert local control. The traditional use of public powers to finance infrastructural development could be extended to facilitate private borrowing for land development. The public policy agenda was a wide one, and it was characterised by direct intervention with government-owned institutions rather than arms-length regulation of private activity. This remains an enduring influence on public policy debate.

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We may note that in New Zealand there was an extension of government responsibilities in welfare provision in the 1930s. This was the result of the first Labour Government. The Great Depression generally provided not a swing towards collectivist governments, but a sharp rejection of whoever was in power when the Depression arrived. The NZ Labour Party had the good fortune to come to power in 1935 as rising overseas prices relieved the Depression. But this means that in New Zealand the extension of the Welfare State is not something which occurred in World War II, as was the case in Europe and the USA, but something which arrived in the 1930s along with insulationism. That helps account for why the same set of ideas remained dominant for 40 years after World War I, and why direct controls were deeply embedded in thoughts about welfare. The reliance on direct government activity was reinforced by matters of implicit ideology. While political discussion is dominated by imported rhetoric – left versus right (with an implicit notion of collectivism vs individual responsibility), socialist versus neocapitalist, implicit misapplications of philosophical terminology as judgemental condemnations – there is a deeper indigenous ideology. New Zealanders generally agree that they give priority to equality – and overseas observers from Siegfried at the beginning of the twentieth century to Lipsey in the middle, and David Hackett Fischer (Fischer, 2012) at the end, see New Zealanders as giving special attention to equality. The best image is Lipsey’s, that if New Zealand had an equivalent to the US Statue of Liberty it would be a Statue of Equality. The idea was a nineteenth century one. Pakeha radicalism distinguished New Zealand from its British origins by the absence of squires and established churches – there was no state religious organisation and nobody acquired a position in society by birth; a person’s standing in society depended on what they did, not on where they came from. The idea was a statement of aspiration, not of reality, and while indigenous it was not far removed from the thinking of people like Tawney in the UK. (Ironically, it meant that Maori thinking, with its emphasis on whakapapa, lineage and membership of an iwi, with a basis in specific land, was closer to English than to Pakeha ideology.) This idea of equality was maintained from the nineteenth century to the present day. But from the 1920s to the 1930s, statisticians developed new concepts of equality from better data on individual and national incomes. It was, and is, very easy to assume that the New Zealand idea of equality has something to do with the shape of the distribution of individual incomes. In fact, there is little evidence that New Zealand was ever distinctive in income distribution, although wage dispersions were probably constrained by the IC & A system. In addition, the ideology of equality of social status was often easily transferred from aspiration to achievement and bolstered by ideas such as a ‘great place to bring up kids’. The advertisement in New Zealand history which had most impact is probably Seddon, a nineteenth century prime minister, looking at New Zealand in the 1930s with men pulling a plough and saying, ‘This in God’s Own Country’. Most countries think they are ‘God’s Own’ – Australians are more honest in saying, since the 1960s, that they are ‘the Lucky Country’2 – but it is deeply engrained in New Zealand conventional thinking. ‘Equality’, ‘God’s Own

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Country’ and the Treaty of Waitangi have been elevated to non-historical status and provide the framework for contemporary public policy debate.

5. CONCLUSION: ENDURING FOUNDATIONS New Zealand evolved rather than being founded at a specific date. It existed as a Maori society, a site at which hapu – family groups – co-existed and recognised relationships to a common ancestor – forming iwi or tribes – with very little, if any, overseas contact except in foundation myths. That was disrupted as Europeans expanded their economic activities overseas and found New Zealand an economical source of wool and then refrigerated products. Colonists soon ceased to be simply suppliers to European consumers but built a society which incorporated Maori but relied most on imported ideas. The end result was a sophisticated community, with a political system adapted from imported ideas and shaped by local circumstances. New Zealand society soon learned to manage its own affairs. It was part of the British Empire but that was understood to open up opportunities for New Zealanders to participate in imperial affairs rather than to involve any significant obligations. New Zealanders fought in imperial wars because they wanted to do so. As the Empire dissolved into the Commonwealth, New Zealand went along, but reluctantly rather than enthusiastically; the change offered little. As the USA succeeded the UK as the world’s leading power, New Zealand adapted. The International Monetary Fund (IMF) succeeded the pound sterling at the centre of New Zealand’s international economic diplomacy, while strong support for the World Trade Organisation and multilateralism displaced various kinds of protectionism in the search for ‘development’. Looking back, each generation of New Zealand could realise that they had lived through a great deal of change. New Zealanders have been able to participate in major international institutions and events, and international events create news in New Zealand. But for the most part, impacts are gradual. Yet, despite many challenges, New Zealand foundations endure and continue to shape and inform current policy and debates. First, the most obvious contemporary descendant of historic elements in New Zealand is the persistence of Maori in all aspects of New Zealand public life. New Zealand’s national day, Waitangi Day within New Zealand, is 6 February, the anniversary of the signing of the Treaty. Appropriately, it mixes celebration with conflict as the building of modern New Zealand society included dispossession and marginalisation for many Maori. Waitangi Day is as likely to generate discourse about colonisation as it is about celebration, and ‘colonisation’ now evokes thoughts not of ‘Our Empire Story’ and the expansion of Europe but of injustice to indigenous people. However, New Zealand is distinctive in endeavouring to recognise its Maori heritage – the contrast is especially stark relative to Australia. While Maori are still concentrated in various dimensions of underprivilege, Maori society and participation in the economy are thriving. While preserving its cultural heritage, modern Maori society owes much more to international thinking that has evolved over the

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last 250 years than it does to the Maori society which existed when Cook added New Zealand to European knowledge. The celebration of the 250th anniversary of Cook’s first voyage will be marked by conflict and protest as well as celebration, but it will be marked, and it will refer both to Cook and to the Maori who he encountered. Then, other elements of New Zealand’s historical foundation are also still readily apparent. The utopian element that is seeking to build a better society far from Europe still exists in the preference for achievement rather than social standing as a marker of status. ‘Pakeha radicalism’ persists. Like all features of New Zealand, it is continually assimilated towards international experience – even Maori protest now owes more to United Nations provisions about indigeneity than it does to traditional Maori culture – and Pakeha radicalism is often equated with international socialism and later forms of collectivism. The original idea of ‘development’ was overtaken by the growth in real per capita incomes; the New Zealand (and Australian) ‘working men’s welfare state’ based on centralised determination of wages in relation to family support, gave way to the idea of ‘labour market flexibility’ and the modern welfare state; the ideas of ‘full employment’ and ‘insulationism’ are assimilated into ‘import substitution industrialisation’, and a preference for locating and servicing the most advantageous global markets. But in every case, a residue is left, and it is those residues which combine to make New Zealand distinctive. New Zealand’s history is also apparent in the willingness to use state action in response to economic and social problems. State action was a response to possible overseas domination in the nineteenth century, and a pragmatic approach continues to dominate any anxieties about encroachment on private enterprise. So, Pharmac, a state drug-buying agency, continues to be a target for US trade negotiators. As with politicians, the transparency inherent in close surveillance of collective activity is an effective constraint, not perfect but effective, on any corruption associated with collective activity (see also Chapter 9). It is always hard to preserve a unique New Zealand characteristic against the constant inflow of ideas from abroad – an inflow which is, of course, very welcome since most progress is going to be initiated outside the tiny fraction of the world population who are New Zealanders.

NOTES 1. See Adams (2013); the literature on the Treaty of Waitangi is immense; a good starting point is Byrnes (2009). 2.  Ironically, the term originated in criticism of reliance on luck rather than work and skill.

REFERENCES Adams, P. (2013, December 20). Fatal necessity: British Intervention in New Zealand, 1830–1847. Wellington: Bridget Williams Books. e-book (originally published in 1977). Byrnes, G. (Ed.). (2009). The new Oxford history of New Zealand. Melbourne: Oxford University Press. Fischer, D. H. (2012). Fairness and freedom: A history of two open societies: New Zealand and the United States. Oxford: Oxford University Press.

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Hawke, G. R. (1985). The making of New Zealand: An economic history. Cambridge: Cambridge University Press. Hawke, G. R. (Ed.). (1993). Changing politics? The electoral referendum. Wellington: Institute of Policy Studies. James, C. (1992). New territory: The transformation of New Zealand, 1984–92. Wellington: Bridget Williams Books. James, C. (1986). The Quiet Revolution: Turbulence and transition in contemporary New Zealand. Wellington: Allen & Unwin/Port Nicholson Press. Oliver, W. H. (Ed.). (1981). The Oxford history of New Zealand. Wellington: Oxford University Press. Rice, G. W. (1992). The Oxford history of New Zealand (2nd ed.). Auckland: Oxford University Press. Smith, P. M. (2012). A concise history of New Zealand (2nd ed.). Cambridge: Cambridge University Press.

PART I PUBLIC POLICY

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CHAPTER 2 SOCIAL LABORATORY: REALITY OR MYTH? Colin James

1. INTRODUCTION New Zealand has a reputation, mostly self-ascribed but at times attested by foreign observers, for periods of social policy innovation and experiments amounting to a ‘social laboratory’. This experimentation was most active in the 1890s, the 1930s and the 2010s, was interspersed with periods of consolidation or more modest change. Is this ‘social laboratory’ a comforting national myth or honest narrative? One guide to social policy has been the social contract. This is an implied understanding between citizens and the state that the government has a wider duty to its citizens than keeping them safe from foreign invasion and domestic crime. In the nineteenth century, the government asserted to immigrants from Britain that they would be paid a good wage and have affordable access to small land holdings and thus become independently prosperous. This developed in the 1930s to a much wider assumption of rights to sustenance, education and health care, leading to the welfare state. Many felt that economic deregulation in the 1980s broke that contract and that it has not yet been fully restored. This is one contributor to the broad ‘wellbeing’ focus of the post-2017 government. A trigger of social policy change has been a periodic willingness to innovate and a relative freedom to do so. Initially, the new colony in the nineteenth century did not have an entrenched traditional class structure and those settling in the colony wanted a less unequal, fairer society, with more individual opportunity than in the one they had left. Fairness and opportunity continued to drive innovation through much of the twentieth century and again now.

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 27–52 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032022

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Most social policy has been a practical response by politicians or officials or both to a social issue or distortion. At times, an official commission of inquiry or expert taskforce or working group has generated the response. But a strong influence in much social policy is politicians’ ideology or ideas or political party preference. Officials’ role then is to translate political will into practical policy. More broadly, theory, either at the political or official level, is also a driver of social policy. Then, there have been policy responses to pressure groups, such as from the feminist movement from the 1960s and indigenous Maori activists from the 1970s. Periodic fiscal constraints have also reshaped social programmes, notably in the 1920s/early-1930s and the late-1980s/1990s. In the 2010s, renewed fiscal constraint led to the innovation of ‘social investment’. New Zealand’s small size is a factor. There is less distance than in large countries between cabinet ministers, officials, theorists, experts and practitioners. When there is a will or need for change, relatively small numbers of politicians and officials can effect change. But at other times small size can also constrain change because there is less room than in large societies for minority, experimental or radical ideas. Running through these triggers and guides have four tensions: between targeting social programmes to specific, usually low-income, people and making them universal; between self-provision of sustenance and services and state provision; between whether something should be done by the central government or local councils and/or not-for-profits; and between practicality and theory.

2. THE ‘SOCIAL CONTRACT’ Small, sparsely populated, distant yet connected, modest but aspirational, New Zealand through the first century or so after annexation by Britain in 1840 believed it was free enough from tradition and dogma and nimble enough in the way its institutions operated to innovate to improve its social settings. Through the second half of the nineteenth century and into the early twentieth century, this outpost of empire saw itself not just as an outgrowth of Britain but, in the 1980s words of historian James Belich, a ‘better Britain’ (Belich, 2001). This included indigenous Maori, subjected by the colonisers with military force, overrun by numbers and debilitated by disease. Maori and others were expected to assimilate into this British-but-better society, culture, morality and politics. This ‘better Britain’ was constructed on a foundation which historian John E. Martin has called a ‘“social contract” between the state and wage-earners’. Incoming migrants from the lower orders of British society would be paid a good wage and would have access to small land holdings at a low or controlled price, enabling them to become independently prosperous. This was to be ‘an independent yeomanry rooted to the soil’, forming ‘the basis of a democratic and egalitarian society of opportunity’ (Martin, 2010). This ‘contract’ was between the colonial state and the immigrants. Later it was between the state and the settlers those immigrants became as, by the late

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nineteenth century, they outnumbered new immigrants. To deliver to the immigrants/settlers required an active state, which in any case, Martin argues, was necessary because the new transplant lacked Britain’s established social institutions. This active state was broadly supported by those who controlled the fledgling, then evolving, Parliament and government, many of whom had backgrounds in Chartism,1 trade unionism and popular liberalism (as did many wage worker and artisan immigrants). In addition, universal male suffrage from 1879, extended to women in 1893, meant members of Parliament had to pay attention to public demands. A long, severe depression through the 1880s and first half of the 1890s added edge: for large numbers of wage-earners, many of whom became unemployed, the state was not seen as honouring the ‘contract’. This was both in the supply of land (which was never managed well enough by the state to keep its side of the contract, despite several legislative initiatives and revisions) and in the availability of employment and adequacy of the wages for those who were employed. The policy emphasis began to shift from ensuring land that was available to underpinning a decent standard of living to more direct social policy interventions. This was, as Martin argues: a shift from facilitating individual endeavour and opportunity, supported by ‘contractual’ arrangements to encourage independence, to the progressive extension of state powers in order to preserve the existing society. (Martin, 2010, p. 22)

A ‘maritime’ strike by watersiders, miners and seamen in 1890, though defeated, gave impetus to nascent labour and socialist political groupings. In the same year, a Liberal government which included wage worker, union and socialist Members of Parliament under various Labour, socialist and related banners was elected with a clear majority. It held office for 22 years, in which 13 of them from 1993 under the premiership of Richard Seddon, a populist with progressive social instincts – humanist was his word. In a ‘humanist manifesto’ issued five days before the 1905 election, Seddon wrote: The life, the health, the intelligence and the morals of the nation count for more than riches and I would rather have this country free from want and squalor and unemployed than the home of multi-millionaires. (Brooking, 2014, p.390)

These words would not be out of place in a social democratic government 110 years later. That government passed legislation recognising unions and setting up a statebacked conciliation and arbitration (IC&A) process for wage bargaining and setting (Sinclair, 1980, pp. 184–185; Richardson, 1981, pp. 203, 207), premised on a wage being sufficient to support a family with three children. This was the result of a close association between the Minister of Labour, William Pember Reeves, and his top official, the Secretary of Labour, Edward Tregear. They were both radical reformers. At the time was introduced, the system was unique, though Australia followed some years later. In modern parlance, this might be seen as ‘pre-distribution’, ensuring a ‘living wage’ and thus reducing or eliminating the need for ‘redistribution’ through welfare and other state assistance.

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Regional conciliation boards with union and employer representation heard and decided wage claims. Their decisions were enforceable as industrial agreements or, if referred to a national Arbitration Court, were issued as ‘awards’ applying to all employers and union members in an industry. If dissatisfied, either party could take the dispute to the Arbitration Court. The court comprised a judge of the Supreme Court (now known as the High Court), with one representative nominated by employers and one by unions. Strikes were banned while a dispute was before a board or the court. Unions had to register with the court to use the process and while registered could not bargain outside it. Despite the success of a vigorous feminist movement which had won the vote for women the previous year, 1893, the legislation assumed men were the family’s income-earner and did not countenance equal pay for women. For the unemployed, there was relief work (though others among the ‘destitute’ had to rely on charitable aid). In 1898, the government introduced modest, income-and-property-tested oldage pensions funded out of general taxation.2 The £18-a-year pension was available only to those over 65 who had been in the country for 25 years, who were of good repute, sober, who had not deserted their family or recently been in jail, and who did not own property and other assets of more than £370. It was abated for other income above £34 a year, so those with annual income of £52 or more got nothing. Despite this parsimony, William Pember Reeves called it Seddon’s greatest political feat and the best of its kind in the world. In 1904, the government considered making it universal but felt the cost was too high. In 1905, the pension amount was increased. Even so it was judged then and by subsequent historians inadequate. From 1905, there were state-supplied houses for workers earning less than £175 a year to rent but few were built because the houses were of high-quality design and construction and thus even the relatively modest rents were too much for the slum dwellers they were intended to house. From 1906, there was state assistance to workers to buy houses. Also from 1905, there were state-funded maternity hospitals, staffed entirely by women, for wives of men earning less than £4 a week. The architect of this was the feminist Assistant Inspector of Hospitals, Grace Neill, who, with Tregear, was the most influential public servant of the time. Encouraged also by his two feminist daughters, Seddon backed Neill’s project strongly, declaring that healthy mothers – healthy morally, intellectually and physically – would ‘breed good, healthy youngsters, the pride of the country and a credit to the race from which we sprung [sic.]’ (Brooking, 2014, p. 382) – again, except for the reference to ‘race’, words social democrats of 2018 could comfortably echo. The Liberal government also sought to, and to some extent did, break up some of the large estates into smallholdings and helped finance men into them. It imposed income tax on the better off to help pay for its initiatives. It imposed border protection to encourage local industry. These measures, radical for their time and arguably the most radical in the world,3 attracted international attention. A visiting French sociologist described this pragmatic, contract-based social enterprise as ‘socialism without doctrine’.4 An American commentator, Victor Clark, thought it was seen by wage-earners as

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ensuring a ‘living wage’5 and Lord Asquith saw a ‘laboratory in which political and social experiments are every day being made for the information and instruction of the older countries of the world’.6 Thus was born the belief, intoned by generations of New Zealanders until the 1970s, that their country was the ‘social laboratory of the world’. (This was paralleled by a demonstrably false refrain: ‘the best race relations in the world’.) The successor conservative Reform government, which took office in 1912, by and large maintained the Liberal innovations, including a pension for widows with children introduced in 1911, and added pensions for war veterans, miners disabled by lung disease from coal dust and the blind. In 1926, it introduced a modest taxfunded family allowance of two shillings a child for each child in excess of two. But the Reform regime was ruthlessly intolerant of militant unions which formed a ‘Red’ Federation of Labour outside the IC&A system which the ‘reds’ (and many moderate unionists) said was not maintaining real wages and did not adjust wages to take a share of profits. It used force to break two strikes, registered alternative unions, criminalised picketing and some strike action. It amended the IC&A Act to allow the Arbitration Court to reduce wages, which it did in May 1922. In 1931, as global economic depression took hold, the court cut wages across the board by 10% that year and by another 10% in 1933 (Condliffe, 1959, p. 261). Recourse to the Arbitration Court was constrained, enabling employers to cut wages at will. Public service salaries and the old-age and other pensions and the family allowance were reduced. However, as unemployment skyrocketed during the depression, the government (by then a coalition of Reform and the Liberal-descended United party) formed a ‘brains trust’ team of public servants led by W. B. (Bill) Sutch which worked with Gordon Coates, Public Works then Finance Minister, to develop some attempts to help those worst hit. This included low-paid ‘relief’ work for the unemployed. Another major Reform change in 2012, addressed in Chapter 8, was to end political patronage in appointments to the public service and to require it to be politically neutral, professionally trained and appointed on merit, with security of tenure and overseen by an independent commission. Future social legislation, while still very much a political act, thereafter was usually, and better, informed by officials’ advice.

3. SOCIAL SECURITY, OPPORTUNITY AND AN ACTIVE STATE The long and severe early 1930s economic depression, its social damage and the perceived failure of the Coalition government’s measures to counter the depression and alleviate social stress opened wide political space for unorthodox initiatives. The Labour party supplied that alternative from 1935, drawing on its ideology, parliamentary experience in the 1920s and some high-quality public servants. The Labour party had been officially formed only in 1916, when disparate and often warring factions of the labour and union movements accepted they needed a single political vehicle. The factions ranged from radical socialists, Marxists and syndicalists who wanted to replace the capitalist economic system

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to pragmatic unionists and social activists focussed on adapting the capitalist system to secure a living wage, universal healthcare and guaranteed opportunity through education. Labour’s leader from 1919 was an avowed socialist, Harry Holland. Its principles included an objective to ‘socialise the means of production, distribution and exchange’ – that is, to replace capitalism with socialism. But through the 1920s and in the early 1930s, especially after Holland’s death in 1933, the party modified and moderated its policy platform to something closer to social democracy and what later was called the mixed economy. Holland’s successor, Michael Joseph Savage, labelled this programme ‘Christian socialism’, in essence an extension of the Liberal government’s initiatives: ‘We intend to begin where Richard John Seddon and his colleagues left off.’7 Social security was its objective, to be achieved by an active state, including in the economy, protecting local industry and supporting beleaguered small farmers. This moderation, coupled with the widespread social distress caused by the 1930s depression, widened Labour’s appeal in the early 1930s and generated widespread public approval for its early actions in government. Moreover, some of the support measures introduced by the previous government could be read as precursors to Labour’s eventual actions.8 But Labour went far further, so much further that it was not just an extension of what had gone before. It greatly increased social assistance, wages and incomes and access to much expanded public services. Coincidentally, the economy began to recover from the depression in 1934. Lifting and securing incomes was a high and urgent priority for the new government. Prime Minister Michael Joseph Savage said: ‘Income should be a reflection of production but it never has been. We have come into power to make it that’.9 The government restored the IC&A system, requiring the Arbitration Court to fix basic wages for adult workers – though still focussed on men and not contemplating equal pay for women. It passed a Finance Act in 1936 under which the Arbitration Court restored wages to their pre-depression levels, reduced the workweek (in excess of which higher wage rates applied) from 44 to 40 hours Monday-to-Friday and gave ‘unqualified preference’ to union members which in effect made union membership compulsory in jobs covered by the Arbitration Court’s jurisdiction. Any 15 people in an occupation could form a union and if the court registered it, it was the union for the whole of the area and so were its awards.10 The court’s jurisdiction was extended from ‘industry’ and associated services such as transport, communications and ports to all workers, including in agriculture, clerical work, shops and warehouses which had been excluded from the court’s original jurisdiction, the court having judged them not to be ‘industrial’ as the legislation’s title implied. The government also replaced relief work for the unemployed with a much higher ‘sustenance payment, increased pensions and introduced a disability pension. All this was a precursor to widespread social security (see Box 1), encompassing benefits for the needy and to help raise children, subsidised houses for the less-well-off, near-free healthcare and access to free education (Condliffe, 1959,

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Box 1. The Social Security Act 1938: Cradle to Grave. The new Labour government in 1936 introduced invalidity pensions for those unable to work because of accident, illness or congenital defects, including blindness, and removed restrictions on Asians and those naturalised as citizens for less than a year. It also made deserted wives eligible for widows pensions. The 1938 legislation consolidated into one Act previous pensions and benefits and widened the range so that it included invalidity, sickness, disability, unemployment, widows, orphans, miners and the old. It also included the young. The family allowance, introduced in 1926 at 2 shillings for every child more than two if family income was not more than £4, was increased to 4 shillings. In 1940, it was paid for all children more than one, in 1941 for all children, then in 1946 raised to 10 shillings a week for all families and renamed the family benefit. The benefit was paid to the mother. Other benefit rates were raised in the 1938 Act. They were funded from registration fees (£1 a year), a social security tax on all incomes of 5%, raised to 7.5% in 1946, subsidised from general taxation. The new rates were paid from April 1939. The Labour party had in opposition explored the possibility of a contributory superannuation scheme and as late as 11 February 1938 Finance Minister Walter Nash brought to the MPs caucus a mix of a contributory scheme plus expanded tax-funded pensions. Labour did introduce a contributory scheme for public servants. Also (see Box 3), the issue did not die. Two later Labour governments supplemented tax-funded pensions with contributory schemes. The 1938 legislation was essentially driven by politicians, acting on an ideology that all should have a reasonable living standard. Prime Minister Michael Joseph Savage summed this up as ‘social justice must be the guiding principle’. The guide was Fabian socialism, not Marxist socialism, and was essentially humanitarian. Importantly, it operated on a principle of universality. Benefits were not targeted. Even the rich received the family benefit and universal superannuation. Prime Minister Savage said this support ran ‘from the cradle to the grave’.

p. 293ff; Sinclair, 1980, pp. 263, 267–269). Heavy protection of domestic industry from 1938 meant there was a near-guarantee of work and, with that, a nearguarantee that income from that work, coupled with a family benefit, could sustain a nuclear family. The Labour party manifesto pledged a guarantee:

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COLIN JAMES to every person able and willing to work an income sufficient to provide him [sic.] and his dependants with everything necessary to make a “home” and “home life” in the best sense of the meaning of those terms. (Sinclair, 1980, p. 267)

A measure of how attractive that was to voters before whom it was put in the 1938 election was that in that election Labour added 10 percentage points to its popular vote to reach the highest popular vote of any party in 110 years from 1908. But voters were not all-powerful. The Social Security Act’s provision for free health care was stalled by the country’s most ruthless and powerful union, the New Zealand branch of the British Medical Association. General and mental hospital treatment was made free in 1939 by the government paying the cost (hitherto met partly by patients, partly by local rates and partly by government subsidy). Likewise, maternity services were free from 1939 under a statutory contract binding all doctors providing those services. But it was not until 1941 that the government obtained general practice doctors’ agreement to state payment for services to patients and they were left free to charge patients extra, which most did. More straightforward was state rental housing. A vigorous building programme began in 1937 of high-quality houses, four to an acre (10 to a hectare) with common recreational space. They were to be built as far as possible from New Zealand materials. They had tiled roofs and heart-timber floors, copper piping and an electric power point in every room. This influenced the quality of new houses generally (Sutch, 1966, pp. 193–194). While principally for low-income tenants, they were available to some others, including older people. In 1938, these houses were 27% of all houses built that year, and in 1940–1941 they were 40%. In addition, the government expanded lending to buyers of new houses through government-owned State Advances Corporation mortgages of 4.5%. Education was a particular focus of Deputy Prime Minister Peter Fraser, who was Prime Minister from 1940). He and the influential and innovative Director of Education, Clarence Beeby, set out to deliver wide and longer access to education. In his 1939 annual report, Beeby stated the objective as: every person, whatever his [sic.] level of academic ability, whether he be rich or poor, whether he live in town or country, has a right, as a citizen, to a free education of the kind for which he is best fitted and to the fullest extent of his powers.11

(Fraser endorsed this formulation and used it himself.) That meant all could go to secondary school without the need, as before, for scholarships if from working-class families, and could even go to university. The syllabus was widened, textbooks were made free and New Zealand-oriented texts were published. Beeby had studied philosophy and psychology, had a doctorate from Manchester University and was the first director of the Council for Education Research which produced a raft of papers during his time and brought him to Fraser’s notice. He was instrumental in expanding vocational guidance and developing child welfare services. His wife, Beatrice, was one of the founders of parent-run playcentres for pre-school children. By 1941 when the primary health subsidies kicked in, New Zealand had the most developed social assistance in the world. The ‘social laboratory’ claim had merit.

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3.1. Social Security Secured and on to Social Welfare The conservative National government which replaced Labour in 1949 largely maintained the social policy settings (though not always the relativity of benefits with wages or inflation) and maintained the mixed-economy settings (though it did replace some import licencing quotas with exchange controls). Towards the end of the 1960s, it even set up some potential to extend social security. Formed out of the early 1930s conservative coalition partners, the National party initially opposed Labour’s social security and the other social and workplace interventions, import protection, nationalisation of the Reserve Bank (the central bank) and later the Bank of New Zealand and the incorporation into government departments of a range of activities, including the railways. But by the time the National party took office in 1949, it had adjusted to political, social and economic reality. Jack (later Sir John) Marshall, a minister in the 1950s, Deputy Prime Minister in the 1960s and Prime Minister in 1972, highlighted this adjustment in his maiden speech in 1947: ‘The doctrine of laissez-faire passed out of liberal thinking 50 years ago’. He endorsed universal education, a degree of labour market regulation, including ‘collective bargaining’ and ‘decasualisation of labour’ and social security to help common people achieve ‘economic liberty’.12 So, in the 35 years from 1949 to 1984, during which time National party ruled for all but six years, social security and other social programmes continued. In 1972, government spending was very close to the same percentage of GDP as in 1949. Education was expanded, to accommodate the surge in numbers of children after World War II in primary and secondary schools, then in the 1960s to accommodate a higher percentage of that larger young population in universities. One significant social policy change was to allow the sale of state rental houses to tenants, which the Labour government had specifically rejected. This was in keeping with National’s belief in a ‘property-owning democracy’, an ambition which a short-lived Labour government from 1957 to 1960 in effect endorsed by allowing allowed less-well-off families to capitalise the family benefit as a deposit on a house purchase, funded with 3% loans from the State Advances Corporation. Importantly, the National government backed the industrial conciliation and arbitration system, including the preference for union members. When it confronted and defeated a rerun in 1951 of the 1913 clash between port employers and workers whose union had, as in that earlier period, withdrawn from the IC&A system, the government insisted new replacement port unions register under the act. While the party also wanted to remove unions’ unqualified preference which set wages for all in an occupation, it found employers generally opposed and awards continued to include preference clauses. But the system came under increasing strain after a sharp fall in 1966–1967 of commodity prices and a balance of payments squeeze. That precipitated an austerity ‘minibudget’ on 4 May 1967 and on 12 November 1967 a 20% devaluation of the exchange rate, which pushed up inflation. In addition, a growing number of unions had been resorting to direct bargaining with employers on an enterprise or regional basis, outside the court’s jurisdiction. Employers facing labour shortages agreed

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to enterprise agreements with higher wages to recruit and retain employees. That generated a ratchet effect as others sought to catch up. When the Federation of Labour sought from the Arbitration Court a general cost-of-living adjustment in March 1968, the Employers Federation representative sided with Judge A. P. Blair and the court issued on 17 June 1968 what became known as the ‘nil wage order’. Unions threatened, and some took, widespread action and union leaders joined a protest at the opening of Parliament at which students protesting against the Vietnam War forced the Governor-General to enter through a side door to perform the opening ceremony and speech. Eventually, the union and employer federations backed a renewed case, overruling Judge Blair in what the Minister of Finance, Robert Muldoon, called an ‘unholy alliance’. The system never fully recovered. The government, the Federation of Labour and the Employers Federation did agree on new general wage orders legislation in the Industrial Relations Act in 1973. But second-tier wage bargaining had expanded, triggering statutory wage controls in 1971 and ‘wage controls or the threat of their reintroduction dominated wage-fixing for the next 13 years’ (Franks, 2009; Walsh, 1994, p. 193ff), notably in the early 1980s as inflation soared and as fiscal and balance-of-payments deficits widened. In 1987, the Labour government restored some protections for unions removed by the preceding 1975–1984 National government. But it did not restore compulsory arbitration, nor did it reintroduce a managed wage round even as unemployment soared and some unions were unable to secure agreements and even had to concede some contractions. It even allowed some contestability between unions for membership and allowed enterprise bargaining. In 1991 (see below), the next National government dismantled the remnants of the IC&A system by radically deregulating the labour market and it has been that legislation which subsequent law changes have adjusted (Labour in workers’ favour, National in employers’ favour). On the positive side for women, the 1957–1960 Labour government passed a Government Service Equal Pay Act in 1960 equalising pay between men and women for equal work. A National government in its dying days in 1972 passed an Equal Pay Act extending equal pay for equal work to the private sector, though equal pay remained more a matter of principle than practice. Two other changes in the late-1960s/early 1970s resulted from royal commissions. Out of which one came an earnings-related, no-fault accident compensation scheme (see Box 2) to replace common law tort processes and a limited workers compensation scheme for accidents related directly to work, which produced widely varying payments or none at all. The Royal Commission to Inquire into and Report upon Workers Compensation, set up in 1966, reported in 1967. It recommended (Royal Commission to Inquire into and Report upon Workers Compensation, 1967) a scheme to cover all accidents on a ‘no-fault’ basis and abolition of the right to sue. The scheme began operation in 1974.13 Its legacy is: comprehensive earnings-related payments to accident victims; but an arbitrary, inequitable distinction between those incapacitated by accident and those incapacitated by illness. While there are many disputes in specific cases, the system has strong public support.

Social Laboratory: Reality or Myth?

Box 2. Comprehensive Compensation for Accidents. The Royal Commission on Compensation for Personal Injury was set up in 1966 at the behest of cabinet ministers Ralph Hanan (justice) and Tom Shand (labour) and the heads of their departments, John Robson and Bert Bockett. A liberal judge, Sir Owen Woodhouse (after whom the reforms came to be known), was appointed as the Chair on Chief Justice Sir Richard Wild’s advice. It recommended in December 1967 a comprehensive ‘no-fault’ compensation programme covering all motor vehicle injuries and injuries to employees whether at work or not, funded by levies on motor vehicle owners, employers and the self-employed. Unions backed it. The right to sue was to go, removing a lucrative source of income for lawyers. A high-level interdepartmental committee (Labour, Justice, Transport, the Treasury and the State Services Commission) assessed operational and funding feasibility. A government white paper in 1969 was referred to a parliamentary select committee which reported in October 1970. Legislation was passed late in 1972 covering only workplace and motor vehicle injuries. The Labour government elected in November 1972 expanded it, against strong Treasury advice, to cover all accidents, with tax funding for nonwork accidents. A commission began operating in April 1974. The scheme paid medical and rehabilitation expenses, a weekly benefit while unable to work, one-off payments for permanent and mental injuries and funeral costs. Part of the delay in implementation was due to debate whether the scheme should be run by the Social Security Department – as an extension of social security – or by a separate commission – in effect a state-run insurance scheme, possibly through insurance companies (and in fact initially part-run by the State Insurance Office). The royal commission’s brief was just to reform a messy branch of tort law. That narrow perspective, plus the choice of a separate commission, drew an inequitable line between incapacity from injury and from illness. That was at odds with the principles underlying social security, as George Brocklehurst, head of the Social Security Commission, pointed out in 1968 (and the royal commission itself said). Successive governments have been unable to remove that inequity. Labour ministers have widened the range of what is called an accident to include some results of illness. National ministers have narrowed the coverage. A National government in 1991 made the scheme more explicitly an insurance programme funded by annual levies and converted the commission into a company-like corporation. Governments since 2000 required the corporation over time to fully fund future liabilities. Implementing the scheme required a high degree of interdepartmental cooperation. It was the largest administrative change since the 1938 Social Security Act.

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The other royal commission was into social security. Its report in 1972 declared the objective as ‘to enable any citizen to meet and mix with other New Zealanders as one of them, as a full member of the community – in brief, to belong’. It found the system did not need major change. But one recommendation, implemented by the 1972–1975 Labour government, did have a lasting and growing impact: a benefit for sole parents, whose numbers were rising as a result of social change. Most recipients were women. That Labour government also returned to a well-worn topic: the degree to which state pensions for those past a defined age (see Box 3) should be funded from tax and/or contributions. The system up to then had paid a means-tested age benefit to those aged from 60 to 65 who were not working and ‘universal superannuation’ from age 65. In 1975, the Labour government instituted a complicated compulsory portable contributory scheme for employees, subsidised by employers, to supplement superannuation funded out of taxation, which it increased.15 In 1976, a National government replaced that with a simple, generous tax-funded scheme with a qualifying age of 60.16 Subsequent governments income-tested it, then raised the qualifying age to 65, reset the age relativity and supplemented it with a sovereign wealth fund (the Superannuation Fund) to meet future liabilities (and also to siphon funds into a place where spending ministers could not bid for it) and added a voluntary contributory scheme, KiwiSaver.

Box 3. Pensions Again – And Again and Again. From the 1880s, officials and politicians debated whether old-age pensions/ superannuation should be funded by transfers from general tax – ‘pay-asyou-go’ (PAYGO) – or from funds accumulated from contributions – ‘saveas-you-go’ (SAYGO) – or a combination. In 1898 and 1938, PAYGO was chosen. Still, many people contributed to private insurance and employersubsidised schemes. From the latter, they usually could benefit only on reaching retirement with that employer. In 1972, the Labour party proposed a mandatory portable scheme of work-lifetime minimum contributions by employees and employers into a state-overseen investment fund, producing a minimum pension related to the average weekly wage and building a growing investment (sovereign wealth) fund. After Labour took office in late 1972, an officials committee extensively tested it and a two-tier (PAYGO and SAYGO) scheme was substituted. Approved private schemes remained. The next National government dumped that scheme in 1976 and reverted to a very generous PAYGO-only scheme: superannuation at age 60 at 80% of the average wage for a couple and 48% for a single person, taxable.

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This was political opportunism and not rigorously costed. In 1979, after the cost rose from 4.1% of GDP in 1975–1976 to 6.9% in 1978–1979, it was reset so the after-tax pension was related to the after-tax average wage. In 1985, the 1984–1990 Labour government imposed a tax surcharge on recipients’ ‘other income’ – a blunt form of targeting. The 1990–1999 National government raised the surtax and, after a short-lived multi-party ‘accord’, lowered the wage-relativity, then replaced it with inflation relativity – and raised the qualifying age to 65 over 10 years from 1991. The Treasury was influential in these moves. In 1997, as a condition of the coalition agreement in 1996, the surtax was abolished and a two-tier, PAYGO-SAYGO scheme was put to a referendum but defeated 92%–8%. However, in 2007, the 1999–2008 Labour-led government set up KiwiSaver, a voluntary scheme overseen by state-appointed ‘guardians’ in which employers must match employee contributions. The contributions determine the payout at age 65. That government also restored wage relativity of the PAYGO scheme at 65% of the average wage for a couple. It also set up in 2001 a National Superannuation Fund, funded from tax revenue, to partially pre-fund 2020s payouts as baby-boomers retired in numbers. This built a growing sovereign wealth fund. The 2008–2017 National-led government suspended payments but the post-2017 Labour-led government resumed them, explicitly invoking the 1972–1975 investment theme. Thus PAYGO and SAYGO coexist. Then, in 2014, Labour proposed lifting to 67 the qualifying age for national superannuation. It dropped that in 2015 and a post-2017 coalition partner, New Zealand First, made 65 a sticking point but a higher age remains a live issue.

4. TO MARKET, TO MARKET – RETREAT FROM THE ‘CONTRACT’ From 1984 to 2017, social policy was strongly influenced by five main factors. 1. A ‘pull’ factor – was theoretical and ideological. There was growing interest in ‘more-market’, ‘market-liberal’ and ‘free market’ economic theories and theories of individual behaviour and social interaction. These theories appealed to a younger generation which had grown up in a stable, increasingly prosperous society where there was much less insecurity than in the previous generation. 2. A ‘push’ factor – was a combination of rising inflation and fiscal deficits resulting from internal economic imbalances and a worsening external balance of payments, particularly after the oil shocks of 1973 and 1979 (see Chapter 3). These two factors were important contributors to the Treasury’s briefing, Economic Management (New Zealand Treasury, 1984) to the incoming

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government in 1984. They greatly influenced the 1984–1990 Labour government and the succeeding National government in 1990. 3. Strongly influencing social policy – another ‘pull’ factor – was a strong desire for more personal and social freedom among the younger (under age 45) generation which dominated the Labour government which took power in 1984 and was influential in the succeeding National government. Some moral and civil law was liberated, including access to alcohol and decriminalisation of homosexuality. 4. A ‘push’ factor that evolved into a ‘pull’ factor – was a concerted push by Maori from the late 1960s and more intensively from 1978 for recognition of Maori culture and heritage and redress of wrongs since colonisation. The post1984 Labour government began to incorporate the ‘principles of the treaty’ into official thinking and action, including a growing recognition that better results were likely if, in addition to socioeconomic factors, Maori cultural factors were taken into account when dealing with Maori. This was later in part given effect to in the whanau ora and other devolution of some social service delivery to localised iwi or hapu organisations (see Chapter 4). As these organisations take over they are generating a ‘pull’ factor. 5. Another ‘push’ factor that evolved into a ‘pull’ factor – was a concerted push by women for equal recognition alongside men in society, in the economy and in the power system. This culminated in a landmark Supreme Court decision on equal pay for women in women-dominated occupations with that for men in comparable men-dominated occupations (James, 2000; James & McRobie, 1987, p. 21, 1990, pp. 49–50, Satherley, 2017; The Spinoff, 2017) (See Box 4). Together, these five factors generated a profound change in social policy in the decade and a-half from 1984, at least as great as in the 1930s and arguably greater but mainly in the opposite direction from the 1930s changes. This change was paralleled by, and was in part influenced by the major changes (see Chapter 8) to the way the public service was organised and managed, including particularly its finances. The new ways of thinking, combined with actual fiscal and economic stress, in effect asked six questions of social assistance and development policy:

• Had the welfare state expanded to the point where it was becoming counterproductive in some of what it was intended to do? • Was this expanded welfare state fiscally affordable and, even if so, was its fis• •

cal demand constraining economic development and so over time the fiscal affordability of some services and support? Had ‘cradle to grave’ provision (however far it fell short) undermined people’s wish and/or capacity for individual self-reliance and self-actualisation? Was the universal provision of education, healthcare and income assistance truly equitable? Should those able to pay for some services not pay some of the cost and pay for some of their old-age pension?

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Box 4. Women Edging Upwards. Until the 1950s, wage setting legislation assumed men earned the income for a family. Women were routinely paid less for exactly the same work as men and had much worse promotion prospects. A Government Service Equal Pay Act in 1960, followed by a general Equal Pay Act in 1972 recognised the inequity and the fact that increasing numbers of married women were in the workforce. A vigorous feminist movement of the 1970s argued the case for equality, not just in wages but in society generally and in the power structure. A cadre of strong young women carried this into the Labour party and the 1984–1990 Labour government made some changes. One was a Ministry for Women’s Affairs, with a mandate, never fully realised, to inject a women’s dimension into policymaking. To that was added in that government’s first term (1984–1987) a series of forums throughout the country to find out women’s concerns, a big increase in government funding of women’s sport, more funding for centres providing refuges for women from family violence and childcare centres for public servants. An Employment Equity Act in 1990, intended to enforce equal pay and employment opportunities in both the public and private sectors, was shortlived: the incoming National government repealed it in December 1990. The 1984–1990 Labour government promoted women to high positions, including as Governor-General (head of state). By the year 2000, New Zealand’s second woman Prime Minister was in office (Helen Clark following Jenny Shipley), Dunedin had the world’s first woman Anglican bishop. This spelt progress but not equality, especially equal pay for equal work. In 2017, Motu Economic and Public Policy Research found women bringing exactly the same value to a private firm as men working there were paid on average 16% less. In 2015, the Supreme Court upheld an Employment Court decision that aged care workers, predominantly women, should be paid the same as similarly skilled occupations in which most were men. A government-appointed working group of unions and employers came up with principles for establishing comparisons, subsequently enacted by the National-led government in 2017. The government settled a large pay increase for aged-care workers in 2017, costed at $2 billion. The post-2017 Labour-led government set an aim of equal pay in the public sector within four years, starting with the core public sector. Prime Minister Jacinda Ardern said cost was not an excuse for inaction.

• Was the welfare state too centralised, both in centring policy and programme

development and management in the national government and in crowding out innovation, including by not-for-profits?

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• Could corporatisation of some services, applying private sector management principles, improve those services?

In short, had the ‘social contract’ at the core of the welfare state from its earliest times been stretched too far for the economy’s, and so society’s, good? In essence, governments from 1984 to 1999 acted as if the answer to that question was yes. In addressing that ‘yes’, governments of the 1980s onwards relied heavily on officials, particularly in the Treasury, the Department of Prime Minister and Cabinet and other major departments and ministries. But they also drew on outside expertise and/or perspectives by appointing taskforces and working groups, some of them chaired by businesspeople – for example, to review education services (1987), superannuation (1991) and welfare (2010–2011). (However, a royal commission set up in 1986 and which reported in 1988, was ignored.17) A small selection of the multiple changes to social policy from 1984 onwards includes:

• The Labour government after 1984 made some changes aimed at improving

•

•

the status and pay of women (see Box 4). This was one of the positive social policy changes by that government. It also put substantially more money into health, education and public housing, pushing up the ‘social wage’ component of government spending by just under 20 percentage points over the 6 years – though a large share of that additional funding went in large salary increases for teachers and health workers (James & McRobie, 1990, pp. 47–48). One statistic: the cost of funding the domestic purposes benefit rose 45% faster than inflation between 1984–1985 and 1989–1990 (James & McRobie, 1990, p. 46). The Labour government after 1984 imposed a tax surcharge (surtax) on national superannuation recipients’ other income. The following National government increased the surtax and reduced the relativity with wages and raised the qualifying age from 60 to 65 (see Box 3). However, as part of the New Zealand First party’s coalition deal with National in 1996, the surtax was removed but the wage relativity lowered. Since 2000, the rate for a couple has been set at 65% of the average wage from age 65. Also at New Zealand First’s behest, a ‘Supergoldcard’ was issued to over-65s entitling them to some free services, notably public transport. The 1984–1990 Labour government introduced, then increased, a guaranteed minimum family income, in effect a negative income tax for low-income families to bring the income up to a specified level (initially $250 a week, then $320). It added what it called family support to boost the family benefit, initially by $36 a week for the first child and $16 for the rest. Late in its term, it indexed benefits to the lower of wages or inflation. In December 1990, National cut benefit rates paid to the unemployed, the sick, the disabled and sole parents on the ground that the gap between them and wages at the lower end of the scale discouraged beneficiaries from working. In 1991, it axed the family benefit. For those in serious need, various ‘supplementary’ allowances were introduced. The 1999–2008 Labour-led government in 2001 reintroduced a version of its 1980s guaranteed minimum income through an income-capped Working for

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•

•

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Families income tax rebate for wage-earners with children, later extended in a modified form by National to individuals. This rebate was intended to reward those in paid work and benefit rates were left unchanged relative to wages. This, however, left a tangled mess of benefits, allowances (rebated as income rose) and tax rebates for benefit-dependents. The 1984–1990 Labour government introduced the notion of a ‘co-payment’ through a payment for medical prescriptions, initially $1 then $5 for adults and $2 for children for all who did not have a special ‘community services’ card, issued to beneficiaries and those on low incomes. It extended this co-payment to partial fees for tertiary education, a recognition that there was private benefit as well as public benefit from tertiary education and also that student numbers were multiplying. National after 1990 increased the fees. Labour in 2006 made the loans students took out to pay for fees interest-free. The state guaranteed the loans. The 1984–1990 Labour government devolved management of state schools to locally elected trust boards (see Box 5). The National government opened a greater role for private enterprise in running early childhood education and aged care (Lange, 1988; New Zealand School Trustees Association, 2018).

Box 5. Tomorrow’s Schools, an experiment in subsidiarity In 1987 a taskforce headed by a supermarkets businessman, Brian Picot, was charged with rethinking the highly centralised and overly bureaucratic administration of the school system. This review arose out of a special briefing to the government in 1987 on education by the Treasury. Picot’s taskforce recommended much more management responsibility for principals, overseen by locally elected boards of trustees. Those boards were also to appoint the principals, though other teacher appointments and the actual delivery of the educational curriculum – the teaching – were the principal’s responsibility. The main principles were: a partnership between teachers and the local community; each school to set its own objectives, set out in a ’charter’, within guidelines set by the state; each school to determine how to use its educational resources, again with guidelines set by the state; and schools to be accountable to a national review and audit agency (called the Educational Review Office). The focus was the educational achievement of students, which was underlined as a key indicator in legislation in 2001 and in the setting of specific ’standards’ by the 2008-17 National-led government (revoked by the Labour-led government in 2018). The principles accorded with the principle of subsidiarity which some saw as integral to the 1980s market-liberal ideology: decisions and actions should be taken as close as practicable to those most directly affected. Schools obviously were local. Another example was the devolution of responsibility for the Resource Management Act to regional and district councils, on the basis that the impacts were regional or local.

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Boards varied in capacity and performance. Lower socioeconomic areas tended to have less able boards. Principals said their workloads became very heavy. There were arguments and standoffs between some boards and principals. There were issues of funding. But generally, boards of trustees have argued, the devolved system has worked better than the centralised system. The Picot report illustrated another shift in the 1980s: from reliance on officials to develop policy to using taskforces or working groups headed by businesspeople. For example, chartered accountant and company director Jeff Todd headed the review the superannuation system for the National government in 1991 and board director and economist, Dame Paula Rebstock, headed the 2010-11 Welfare Working Group. In 2018 the Labour government instituted a review which looks likely to return to officials much of the school boards’ governance responsibilities.

• The 1990–1999 National government converted hospital boards into compa-

•

•

•

nies competing for funds from three regional funding agencies. The 1999–2008 Labour-led government reverted to running hospitals through local boards, funded by one central agency. Universities and other tertiary institutions – and even public secondary schools – were freed to compete for students. Hospitals partnered with and part-funded not-for-profit deliverers of some services. The 1984–1990 Labour government boosted the building of state rental houses, in keeping with its practice in previous periods of government. By contrast, National and National-led governments from 1949 sold off state rental houses. In 1998, the National-led government introduced a subsidy for low-income people in private rentals aimed at enabling beneficiaries and others on low incomes to pay ‘market rents’. This subsidy was at odds with the 1938 principle of low rents in state-supplied houses. It tended to push up private rentals because low-income people could be charged more than if they were paying the whole rent out of their incomes. The post-2017 Labour-led government, in keeping with its actions in previous periods in government, is expanding the number of state-owned rental houses. The National-led government in 1991 radically deregulated workplace relations, essentially individualising wage contracts – the legislation was called the Employment Contracts Act. Unions lost their leverage and union membership plummeted to about 11% of the workforce. The deregulation ended the era of state-supervision begun in 1894. The wage proportion of national income fell. The Labour-led government of 1999–2008 replaced this with an Employment Relations Act which restored some protection to employees, subsequently reduced again by the National-led government of 2008–2017. The post-2017 Labour government set up a taskforce which in January 2019 recommended unions could push for industry-wide ‘fair-pay’ agreements and seek arbitration if blocked. A minimum wage, adjusted periodically, put a floor under wages. In the 2010s, a movement developed to persuade businesses, district councils and the government to pay a ‘living wage’, calculated to be about 30% above the minimum

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wage. The incoming Labour-led government in 2017 committed to paying its employees at least that ‘living wage’ and over time to extend that to a requirement that suppliers to the government must pay it, too. 4.1. Welfare Writhing, Targets and an ‘Investment’ Idea The 1980s/1990s welfare changes reduced fiscal pressure and helped governments work towards, then achieve, fiscal balance. But there were damaging social outcomes. This was not the ‘decent society’ that Prime Minister Jim Bolger promised in the 1990 election campaign in which his National party ousted the Labour government. It also eroded ‘social capital’ about which Bolger began to speak in 1997, his seventh (and last) year as the Prime Minister. The 1980s–early-1990s radical economic deregulation generated a steep rise in unemployment, to a peak of 11%. This, plus slow wage growth in the deregulated labour market from 1991, sharply increased and then embedded income inequality and social inequality. By the mid-2010s, this was showing up in proliferating media reports of homelessness and child poverty – the opposite of what the ‘contract’ was supposed to deliver. Among other outcomes, dysfunctional households in this more unequal society contributed to a rise in single-parent beneficiaries. Late in the 1990s, the National government embarked on a programme of ‘strengthening families’ to redress suboptimal outcomes for some children and teenagers. This did not develop. As noted above, the Labour-led government of the 2000s introduced the Working for Families income tax rebate to compensate for compressed earned incomes. The National-led governments from 2008 applied four broad approaches. These were in part driven in the early stages by the need for budget stringency in the wake of the global financial crisis and the high cost to the government of the 2010–2011 earthquakes in Christchurch. One approach was to require government service agencies to deliver ‘more with less’. This was, initially at least, personally driven by Bill English, Minister of Finance (and in 2016–2017 Prime Minister) who wanted public servants to be more innovative. ‘More with less’ presumed there was wasteful expenditure and low productivity. Operational budgets were not increased to match inflation. New or expanded programmes had to be financed within existing allocations, including by discontinuing low-producing or low-ranked programmes, or, if the programmes were to be funded from a limited budget pool of additional spending, agencies had to make convincing cases, each based on making a real, measurable difference in recipients’ lives. Over time ‘more with less’ turned into ‘less with less’, especially when high net immigration from the mid-2010s was not matched commensurately with additional resources. Through the mid-2010s, for example, hospitals ran up deficits as they struggled to meet rising demand. There were increasing reports of understaffing (and recruitment difficulties due to constrained wages/salaries) of other delivery agencies, including schools. The second approach of the 2008–2017 National-led government was to expand partnership with and/or to contract organisations or private companies to deliver

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services. This was on the assumption that they were closer to their ‘customers’ and thus could deliver what was needed with more precision and could innovate more than rule-bound government agencies. Not-for-profits also could draw on charity funding and thus supplement government funding from tax revenue. One problem was that risk-averse officials tied up the not-for-profits in complicated short-term contracts with tight auditing, which constrained innovation and investment in capacity. The innovative Hamilton-based Wise Group found that half its administrative time was taken up negotiating and auditing contracts. Contracting out the management of Mt Eden prison to a British-based company, Serco, went sour after media reports of failure to protect inmates from assault and it was fined and the Corrections Department reassumed management of the prison. The third approach came out of the ‘Better Public Services’ programme headed by the Treasury (see Chapter 14). Under this programme numerically specific targets were set for agencies in defined activities. The first 10 were set in 2012 and were raised (or, if achieved, replaced with new targets) in 2014 and again in 2017. In 2017, the 10 were: cut the numbers on a welfare benefit for more than a year; increase participation in early childhood education; increase child immunisation rates and reduce the incidence of rheumatic fever; reduce assaults on children; lift the proportion of 18-year-olds with NCEA level 2 (the National Certificate of Education, internally assessed by schools around age 17); increase the proportion of 25–34-year-olds with advanced trade certificates; reduce rates of total crime, violent crime and youth crime; reduce reoffending; a one-stop online interaction by businesses with the government; and easier citizen-government online transactions (New Zealand Treasury, 2018).35 The positive outcome was that almost all targets were met or nearly met or more than met and some lives were thereby improved. For example, rates of child vaccination rates and attendance at pre-school institutions greatly increased and there were big cuts in cases of child rheumatic fever and in waiting times for some hospital operations. But there was also a negative outcome: resources were focussed on those particular targets at the expense of others which might have been equally important, for example, other hospital operations. And, while there were big increases in passes at NCEA level 2, evidence grew that some teachers were pushing some students, especially Maori and Pasifika, to NCEA subjects that were considered easier to pass and thus not a pipeline to higher education at tertiary level, that is, the teachers met their targets by lowering the targets for their students. Another criticism was that the targets were narrow and did not take into account the interrelated impact on people’s lives of the state of their housing, education, health and income. That is, meeting the targets, while positive as far as they went, did not produce genuine ‘outcomes’, which are much more complex than a single indicator and usually involve more than one agency. ‘Outcomes’ have eluded government agencies since the 1988 reforms. Partly for that reason, the Labour-led government in 2018 discontinued the targets, intending to subsume them into its ‘outcome’-focused ‘wellbeing economics’ programme (see Chapter 6).

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The fourth approach of the 2008–2017 National-led government evolved into something much more far-reaching: assessment of the future fiscal liability of someone staying on a benefit long-term and working out ways to avert that liability by getting that person into lasting paid work. By 2015, this was being called ‘social investment’ and by 2017 its scope had widened far beyond just eliminating a liability (see Box 6). This was recommended by a Welfare Working Group of mainly non-government appointees (Welfare Working Group, 2011). It started as a ‘forward liability investment approach’, using actuarial projections to identify which people, if helped, especially in helped into sustainable wage-work, would yield the greatest return in reduced future fiscal liability. This gradually evolved into a ‘social investment’ approach, using metadata analysis to determine which people to help and focussing on broader ‘outcomes’ than just reducing future fiscal liability. Agency bids for funding for these programmes were assessed by a committee of external science advisers to agencies and had to meet ‘outcome’ tests incorporated in a CBAx (cost-benefit-plus) tool developed by the Treasury. Box 6. From Fiscal Liability to ‘Social Investment’. A Welfare Working Group (WWG), drawn mainly from outside the government and housed in the Institute for Governance and Policy Studies, reported in February 2011. Among its 53 recommendations was a proposal to adopt an actuarial approach used by the Accident Compensation Corporation (ACC) to identify those on its books most at risk of staying there if it did not get them back to work reasonably quickly. The WWG’s Chair, Dame Paula Rebstock, was also the Chair of the ACC board. The WWG recommended a ‘forward liability investment approach’ to identify those on social security benefits at risk of spending long periods or even a lifetime on benefits and focus Ministry of Social Development action on them. An Australian firm, Taylor Fry, did an actuarial estimate of the future fiscal cost of such long-time benefit recipients and the consequent potential savings over time of investing successfully in getting those people into paid work and keeping them in work. Finance Minister Bill English promoted the scheme in the cabinet. This became one of his focal projects – and can be regarded as his, and the 2008–2017 government’s, most important innovation. The scheme was first applied in mid-2011 to teenagers at risk of long-term unemployment, then widened to other beneficiaries, notably sole parents. Critics labelled it a device to reduce benefit numbers at the cost of the wellbeing of those moved off the benefit. Some worried that it denied the opportunity to upskill and forced beneficiaries into low-paid jobs. Some also worried about children’s welfare when their mothers were forced into work. Others argued avoiding a future fiscal liability was not true ‘investment’ which usually aims to build assets.

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Supporters pointed to improved self-esteem of those who did get into, and stay in, work and a sense among frontline staff that they were making a positive difference. In 2015, the scheme was relabelled as ‘social investment’ and its scope progressively widened. Artificial intelligence processing of anonymised data enabled a more detailed understanding of who was most in need and could most benefit from intensive assistance, especially the 5% most ‘at-risk’ children, for whom a new agency, Oranga Tamariki (‘the wellbeing of children’) was set up, able to draw on resources of other agencies, including health and education. A Social Investment Agency (SIA) was set up to advise on and monitor departments’ collection and use of data. An SIA symposium in July 2017 indicated a growing recognition of the scheme’s possibilities. The Labour party was among the critics of the original scheme, both for its focus on liability and for its rejection of universality in its programmes. But over time, it began to see potential to build ‘social investment’ into a wider concept of personal and social wellbeing which in government since after 2017 it has called ‘wellbeing economics’. How well it builds this into budgeting and policy remained to be seen at the time of writing. A special agency, the Social Investment Agency, was set up to provide guidance and monitor the use of data. A new agency, Oranga Tamariki, was separated from the Ministry of Social Development to focus on children, originally those ‘most vulnerable’ but widened by the post-2017 Labour-led government to children generally, though still with an obvious need to attend particularly those most in need and most at risk.18 There was another innovation in 2017: getting external science advisers to generate policy, not just check it against evidence. To address the rising incidence of mental health problems, the Prime Minister’s Chief Science Adviser, Sir Peter Gluckman, convened a group of external science advisers to government agencies to develop a platform for policy development. This was given official status in a planned series of pilot programmes but was subsumed into the post-2017 Labour-led government’s more general mental health inquiry.

5. BACK TO THE ‘CONTRACT’? In April 2015, Girol Karacaoglu, then chief economist at the Treasury, drafted a working paper which the Treasury published in September 2015.19 Karacaoglu used Amartya Sen’s ‘wellbeing economics’, as reframed by New Zealand economists Paul Dalziel and Caroline Saunders (Dalziel & Saunders, 2014), to give more flesh to a skeletal Treasury Living Standards Framework initially published in 2011. The paper discussed expanding the notion of economic welfare to judge economic (and fiscal) success by whether stocks of natural, social and human capital are rising or falling (in addition to traditional measures of financial and physical capital). This ‘wellbeing’ approach, which has been taken up by the post-2017 Labourled government,20 is examined in Chapter 6. The relevance here is that widening

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the measure of government policy success to other indicators of welfare than economic production might resuscitate the ‘contract’ that underpinned the 1890s social policy innovations and the mid-twentieth-century welfare state. Income, wealth and consumption are critical contributors to personal and social welfare. But there is more to welfare, as the originators of the 1890s and 1930s reforms understood but the 1980s/1990s reformers (partially?) forgot. Much will hang on what the post-2017 Labour-led government does and what of that endures.

6. SUMMARY New Zealand, a tiny country at the bottom of the world, is more usually a follower than a leader in innovation in technology and business – and social policy. But in the 1890s and 1930s, it was innovative and attracted international attention and its social investment and wellbeing experimentation might eventually rank with those eras, though it is far too early to say that. (In the 1980s, the innovation was more in state sector and monetary management, which is outside the scope of this chapter.) If ‘wellbeing’ is successfully embedded into successful policy that could match the 1890s and 1930s for home-grown innovation. New Zealand’s small size enables it to be nimble when the mood takes it. There is less distance between cabinet ministers, officials, theorists and experts, and practitioners, including not-for-profits, than in larger countries. That villageatmosphere smallness often constrains. But personal-connectedness smallness enhances and, when needed or wanted, can enable fast and innovative action. One guide through the 130 years addressed is the ‘contract’ between the people and the government, the expectation each has of the other. At times, this has been a strong guide to action, as in the 1890s and from the 1930s to the 1960s. At other times, as in the 1980s and 1990s (and, some would argue, still), other guides to action have superseded the ‘contract’. Most social policy change has been a practical response to an issue or social distortion: do what works. But at times ideology or theory has been the key to change, for example, in some of the 1890s and the 1930s reforms and then, strongly, in the 1980s. Pressure groups have also driven major change, particularly in indigenous policy and policy for women. Fiscal constraint has also driven social policy change at times. Underlying much social policy has been a tension between targeting and universality, whether to address need and/or provide equal benefits for all or some intermediate positioning some call ‘proportionate universality’. For much of the 130 years from the 1890s, universality was the clear preference of governments and voters, especially on provision of income for older citizens and also, from the 1940s to the 1960s, assistance to those with dependent children. But fiscal and other tensions and the complexity of modern social issues have led to many attempts to target at least partly to need. The post-2017 Labour-led government seeks a middle road of ‘proportionate universality’, that is, provision on the basis of need to all in need. There has also been a tension between self-provision and state-provision. This has been complicated by the deregulation of the labour market which has left

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many less able to provide for themselves than in the heyday of the Industrial Conciliation and Arbitration Act and the protected, mixed economy. One might add a fourth emerging tension, between centralism and localism. Will the principle of subsidiarity gain policy ground? That is outside the scope of this chapter but if it does, it could have profound impacts on social policy and programmes. The 2020s will bring more complications as new forms of economic globalisation and the impact of digital technology in its many forms affect social order and the capacity for self-provision. If this chapter was being written in 2028, it would likely have a long and very different coda following from this point.

NOTES 1.  Chartism was a working-class movement for political reform in Britain from 1838 when a People’s Charter posed six demands: votes for all men; equal electoral districts; abolition of the requirement that Members of Parliament be property owners; payment for MPs; annual general elections; and the secret ballot. 2. See Martin (2010, p. 186ff), Brooking (2014, pp. 151–175), including, p. 174, quotes from Reeves (1924, p. 298) and Reeves (1902, pp. 242–300). See also Condliffe (1959, pp. 296–297). 3.  Sinclair (1980, p. 187) said that the social and industrial relations legislation, coupled with votes for women and other measures, ‘made New Zealand for a time the most radical state in the world’. 4. See Métin (1977). As can be seen from the subtitle, Métin applied the term also to Australia. He could not understand how New Zealand could have the world’s ‘most advanced labour legislation’ with ‘the weakest labour party, quoted in Wikipedia (retrieved 3 June 2018) as from: Weir (2009). 5. See Clark (1907), quoted in Martin (2010, p. 22). 6.  The Times, 27 June 1896, quoted in Martin (2010, p. 22). 7.  Sinclair (1980, p. 268). On p. 267, Sinclair cites (but does not give a reference) a writer in the Labour party magazine, Tomorrow, as saying Labour’s aim was ‘to turn capitalism quite painlessly into a nicer sort of capitalism which will eventually become indistinguishable from socialism’. 8.  McKinnon (2016) argues that there was a much higher degree of continuity than has generally been recognised. 9.  Michael Joseph Savage to the Parliamentary National Health and Superannuation Committee set up in March 1938 to hold hearings on the 1938 social security legislation, quoted by Rockwell (1939, p. 3). 10. See Condliffe (1959, pp. 261–262). Condliffe notes that in 1934 and 1935 some individual awards had raised some wages by the consent of both parties. 11. See Sutch (1966, p. 262). Beeby went on to add that acceptance of this principle ‘will involve the reorientation of the education system … The present government was the first to recognise that continued education [beyond primary school] is no longer a special privilege for the well-to-do and the academically able but a right to be claimed by all who want it to the fullest extent that the state can provide’. 12.  New Zealand Parliamentary Debates, v276, 1947, July 8, pp. 294–295. 13.  The scheme has been much studied and written on. A useful recent summary is Duncan (2019, pp. 329–356). Martin (2003) examines the roles of public servants in the development and implementation of the scheme. A comprehensive review is in Palmer (1979). Palmer, at the time an academic lawyer, drafted the 1969 white paper. Palmer was later an MP and in 1989–1990 was the Prime Minister. In Palmer (1977, p. 165) he stated that ‘a lot of people who received nothing under the old systems are being compensated and compensated quickly’. 14.  New Zealand Royal Commission into Social Security (1972), as reprinted in the Appendices to the Journal of the House of Representatives (1972) IV, AJHR H 53, p. 64.

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The commission also said, p. 55, there was a ‘need for a comprehensive social welfare system, flexible and adaptable, complementing rather than conflicting with the total programme of economic and cultural activity in the community and directed at the achievement of objectives rather than serving dogma’. It found, p. 65, ‘no need for sweeping or radical change in the general principles underlying our present system of social security’. 15.  Collins (1977, p. 63) called it ‘a compromise which resulted in a poor welfare measure and was probably not actuarially sound. But it did create a large capital investment fund’. 16.  See Booth (1977). Booth tracks the evolution of the National party’s policy as essentially politically driven as an issue on which to win the 1975 election. 17. See Royal Commission on Social Policy (1988). The commission was instructed ‘to inquire into the extent to which existing instruments of policy meet the needs of New Zealanders and report on what fundamental or significant reformation or changes are necessary or desirable in existing policies, administration, institutions or systems to secure a more fair, humanitarian, consistent, efficient and economical social policy will meet the changed and changing needs of New Zealand and achieve a more just society.’ The Warrant, pv, Vol. 1. 18.  Boston and Gill (2018) examines social investment and its predecessor, forward liability investment, from multiple angles. The writer has previously examined the evolving scheme in James (2015, 2016). 19. See Karacaoglu (2015). Retrieved from https://treasury.govt.nz/publications/wp/ new-zealand-treasurys-living-standards-framework-exploring-stylised-model-wp-15-12. Accessed on August 23, 2018. 20.  Very soon after taking office, the government announced its intention to amend the Public Finance Act to include measures of and targets for reducing, child poverty, an approach it said it would take to a range of social welfare indicators. A bill to give effect to this was introduced into Parliament in September 2019.

REFERENCES Belich, J. (2001). Paradise reforged. A history of the New Zealanders from the 1800s to the year 2000 (pp. 27–120). London: Auckland, NZ: Penguin. Booth, C. J. (1977). The National Party’s 1975 superannuation policy. In G. Palmer (Ed.), The welfare state today (pp. 72–135). Wellington: Fourth Estate. Boston, J., & Gill, D. (Eds.). (2018). Social investment. A New Zealand policy experiment. Wellington: Bridget Williams Books. Brooking, T. (2014). Richard Seddon. King of God’s Own. Auckland: Penguin. Clark, V. S. (1907). The labour movement in Australasia: A study in social democracy. London: Constable (Original work published in 1906 by H Holt and Co). Collins, D. B. (1977). Formulating superannuation policy: The labour party approach. In G. Palmer (Ed.), The welfare state today (pp. 23–71). Wellington: Fourth Estate. Condliffe, J. B. (1959). The Welfare State in New Zealand (p. 261). London: George Allen and Unwin. Dalziel, P., & Saunders, C. (2014). Wellbeing economics. Future directions for New Zealand. Wellington: Bridget Williams Books. Duncan, G. (2019). New Zealand’s universal no-fault accident compensation scheme: Embedding community responsibility. In J. Luetjens, M. Mintrom, & P. Hart (Eds.), Successful public policy. Lessons from Australia and New Zealand. Canberra: Australian National University Press. Franks, P. (2009, February 16). The Nil Wage Order. Labour History Project. Retrieved from http:// www.lhp.org.nz/?p=155. Accessed on August 20, 2018. James, C. (2000, September 15). Women at the top. Far Eastern Economic Review. Retrieved from http://www.colinjames.co.nz/2000/09/15/women-at-the-top. Accessed on August 30, 2018. James C. (2015, June). The “investment approach”: Liabilities or assets. Working Paper No. 15/01. Institute for Governance and Policy Studies. Retrieved from https://www.victoria.ac.nz/__data/ assets/pdf_file/0011/1175249/WP15-01-Investment-approachv2.pdf. Accessed on August 23, 2018. James, C. (2016). Social investment: Chance for a mentality shift. Treasury Lecture. Retrieved from https:// treasury.govt.nz/sites/default/files/2016-02/tgls-james-notes.pdf. Accessed on August 23, 2018. James, C., & McRobie, A. (1987). The election book. Wellington: Allen and Unwin/Port Nicholson Press.

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James, C., & McRobie, A. (1990). Changes? The 1990 election. Wellington: Allen and Unwin/Port Nicholson Press. Karacaoglu, G. (2015, September 8). The Treasury’s living standards framework – Exploring a stylised model. Working Paper No. 15/12. Wellington: New Zealand Treasury. Lange, D. (1988, August). Tomorrow’s schools. The reform of education administration in New Zealand. Wellington: Government Printer. Martin, J. R. (2003). Establishment of the Accident Compensation Commission 1973: Administrative Challenges. Victoria University Law Review, 34. Martin, J. E. (2010). Honouring the contract. Wellington: Victoria University Press. McKinnon, M. (2016). The broken decade: Prosperity, depression and recovery in New Zealand 1928– 1939. Dunedin: Otago University Press. Métin, A. (1977). In R. Ward (Trans.), Le Socialisme sans Doctrines: la question agraire et la question ouvrière en Australie et Nouvelle-Zélande, 1901 [Socialism without Doctrine]. Chippendale: Alternative Publishing Cooperative. New Zealand Royal Commission into Social Security. (1972). Social security in New Zealand. Wellington: Government Printer. New Zealand School Trustees Association. (2018, May). Twenty-first century schools. Using the review of Tomorrow’s schools to build an education system for the future. Wellington: New Zealand School Trustees Association. New Zealand Treasury. (1984, July 1). Economic management, briefing to incoming minister. Wellington: Government Printer. New Zealand Treasury. (2018). Better public services. Wellington: New Zealand Treasury. Retrieved from https://treasury.govt.nz/information-and-services/state-sector-leadership/collaboration/betterpublic-services. Accessed on August 23, 2018. Palmer, G. (1977). Accident compensation in New Zealand: The first two years. In G. Palmer, G. (Ed.), The welfare state today (pp. 165–217). Wellington: Fourth Estate. Palmer, G. (1979). Compensation for Incapacity: A Study of Law and Social Change in New Zealand and Australia. Wellington: Oxford University Press. Richardson, L. (1981). Parties and political change. In W. H. Oliver (Ed.), The Oxford history of New Zealand. Auckland, NZ: Oxford University Press. Rockwell, A. F. (1939, May). The New Zealand Social Security Act. Social Security Administration (US) Bulletin, p. 3. Retrieved from https://www.ssa.gov/policy/docs/ssb/v2n5/v2n5p3.pdf. Accessed on August 17, 2018. Royal Commission on Social Policy. (1988, April). The April Report (4 Vols). Wellington: Government Printer. Royal Commission to Inquire into and Report upon Workers Compensation. (1967). Compensation for personal injury in New Zealand. Wellington: Government Printer. Reeves, W. P. (1902). State experiments in Australia and New Zealand. London: Grant Richards. Reeves, W. P. (1924). The long white cloud: Aotearoa (4th ed.). London: Horace Marshall and Sons (Original work published in 1898). Satherley, D. (2017, November 6). Cost no excuse to pay women less – Jacinda Ardern. Newshub. Retrieved from https://www.newshub.co.nz/home/politics/2017/11/cost-no-excuse-to-pay-womenless-jacinda-ardern.html. Accessed on August 30, 2018. Sinclair, K. (1980). A history of New Zealand. Auckland: Penguin. Sutch, W. B. (1966). The quest for security in New Zealand, 1840–1966 (pp. 193–194). Wellington: Oxford University Press. The Spinoff. (2017, August 29). The new evidence that proves beyond a doubt the NZ gender gap is real. Retrieved from https://thespinoff.co.nz/society/29-08-2017/the-new-evidence-that-provesbeyond-a-doubt-the-nz-gender-pay-gap-is-real/. Accessed on August 30, 2018. Walsh, P. (1994), An unholy alliance. The New Zealand Journal of History, 28(2). Weir, R. E. (2009). Knights down under: The knights of labour in New Zealand. Newcastle upon Tyne: Cambridge Scholars Publishing. Welfare Working Group. (2011). Reducing long‐term benefit dependency. Wellington: Victoria University of Wellington. Wood, N. S. (1963). Industrial Conciliation and Arbitration in New Zealand. Wellington: Government Printer.

CHAPTER 3 ECONOMIC PERFORMANCE: A PROSPEROUS, VERY DISTANT ECONOMY Michael Reddell

I do not know in political economy … a single practical rule that must be applicable to all cases; and I am sure that no one is at all capable of determining what is the right political economy for any country until he knows its circumstances. (J. S. Mill, House of Commons, 12 March 1868)

INTRODUCTION New Zealand was the last major land mass settled by humans, probably in the 1200s. The Maori population appears subsequently to have been almost entirely cut-off from the rest of the world, but enjoyed modest, largely subsistence-based, material living standards, aided by a temperate climate and ready access to lakes, rivers, and the sea. But from the early nineteenth century, contact with western cultures and peoples opened up possibilities for foreign trade and then for settlement. British colonial government was established in 1840 and over the decades that followed, particularly after 1860, there were large inflows of migrants (mostly from the United Kingdom), often with the active financial assistance of the state.1 By the late nineteenth century, the advent of refrigerated shipping, new technology in the dairy industry, and strong institutional, personal, and economic ties to the United Kingdom – then the world’s leading economy and financial centre – had combined to generate among the very highest levels of per capita income2 anywhere in the world, in its most remote corner. On the eve of World War I, New Zealand (then with a population of only 1.1 million), Australia and the

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United States each had similar levels of gross domestic product (GDP) per capita, well ahead of any of the countries of northwest Europe. Despite the extremes of distance, New Zealand held that top-tier rank for decades. It was, in many respects, a remarkable accomplishment, a testament to the fruit of the first great age of globalisation. Anything that would today be thought of as economic policy was quite limited. There was no central bank (until 1934) and the (privately issued) currency was largely tied to sterling. On the other hand, the key economic institutions3 were much as received from the United Kingdom, and UK-based financial markets provided the key source of both public and private external capital. As befitted a fast-growing new country, extensive use was made of foreign capital, and estimates of a (negative) net international investment position with the rest of the world exceeded 200 per cent of GDP at peak.4 Complementing foreign capital flows, foreign trade was central to New Zealand’s prosperity. Contemporary writers talked of New Zealand exports per capita being the highest anywhere. The opportunities arose from the potential of the land for grassland farming, and ready access to the UK markets – the United Kingdom being more heavily dependent on imported farm products than any other country at the time. This world-matching prosperity (and productivity) was largely unchallenged through until around 1950, although with the benefit of hindsight the seeds of the next wave of challenges lay at least a generation earlier. In more recent decades, there has been a sharp deterioration in New Zealand’s relative fortunes. Although New Zealand remains a relatively prosperous country – and much richer than it was even 50 years ago, with an impressive degree of macroeconomic stability and functioning open markets – the decline in relative productivity/incomes has been stark. That decline and the failure of far-reaching reforms in the 1980s and 1990s to end it decisively, let alone reverse it, is central to this chapter. I document the decline, and some of stylised facts relevant to it, and offer some perspectives on why there has been no reversal. New Zealand’s productivity and average incomes are now no better than fifth or sixth even in the Asia-Pacific region, and perhaps 30th in the world. For decades, New Zealand’s relative decline troubled policymakers, and there appeared to be political returns to promising action to reverse the (productivity and income) gaps that had opened up between (in particular) New Zealand and Australia. But in the last couple of decades, even the will to explore the challenges and think seriously about steps that might reverse the decline that appears to have faded. The capacity of the major economic institutions – a challenge to maintain in a small country – has been degraded. As some other authors have done, I suggest that the extreme remoteness5 of New Zealand is an important part of the story. But it may matter in different ways than has been generally recognised. There is no other advanced country with economic opportunities and constraints quite the same as New Zealand’s. That in turn makes the challenges facing New Zealand policymakers and advisers very different from those for small advanced or emerging countries in Europe in particular (for each of whom there are usually several good comparators).

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There are many areas of public policy where physical proximity to, or remoteness from, other countries does not appear to matter greatly (one might think of education, health, or even taxation). But national productivity and overall economic performance appear to be bit different. Geography matters. For decades, research has highlighted that trade happens most intensively between parties located close to each other (the predictions of gravity models appear to be broadly correct). New Zealand is close to nowhere, and yet foreign trade is the lifeblood, central to the prosperity, of any small country (and most of the larger ones too). Ideas – central to so much of modern economic growth – can be and are germinated in New Zealand, but more often than not good ideas seem to have generated higher rates of return when applied/developed in locations nearer the centres of world economic activity. Against that backdrop, New Zealand’s aggressive approach to immigration, broadly similar under successive governments in recent decades, has come to seem particularly problematic. Using public policy to attract ever more people into such an isolated location, where few internationally oriented businesses based on anything other than the fixed stock of location-specific natural resources have successfully developed, and where for decades there have been few changes in economic circumstances or technologies causing significant productivity improvements favouring those natural resources industries, looks highly questionable. Over the past 40 years, a net 800,000 New Zealand citizens have left permanently for better opportunities abroad. There is no longer any evidence of urgency among policy advisers or policymakers in responding to this most concerning trend.

BACKGROUND Although New Zealand’s economic fortunes were always heavily dependent on foreign trade (exports and imports), the thrust of much of economic policy after the late 1930s had been to reduce New Zealand’s exposure to the world, by imposing high levels of protection for manufactured goods. That, in turn, saw the establishment of a large but inefficient domestic manufacturing sector, producing a wide variety of products once (and again now) typically imported. The high costs, as well as comparatively low quality, of these domestically produced manufactured goods, which often also were used as inputs in the production of exported goods, made exports less competitive. As a consequence, whereas New Zealand had once had the highest exports per capita of any country, foreign trade shares of GDP shrank in the post-war decades. By the early 1970s, the export share of GDP was around 22 per cent, less than in all small Organisation for Economic Co-operation and Development (OECD) countries other than Greece. And whereas for more than a century the net flow of people between Australia and New Zealand had been small, and had mostly just been a relative cyclical phenomenon, from the mid-1970s the (net) flow became large and unidirectional, as the gaps between Australian and New Zealand economic performance widened.6

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The deterioration in New Zealand’s relative performance in the post-World War II decades was recognised relatively early by careful analysts,7 but it was not until at least the late 1960s, and more broadly probably until the late 1970s (with a sharp fall in the terms of trade, and the entry of the United Kingdom to the European Economic Community), that the deterioration began to impinge materially and consistently on political and public consciousness. Until then, despite lagging productivity growth, absolute living standards had remained attractive for most, and unemployment rates were usually extremely low. The broad direction of policy in the post-war decades came to be towards liberalisation, involving a cautious move towards the removal of trade restrictions, and the encouragement of more competition in domestic goods and labour markets, but it was a halting and hotly contested process, sometimes put into reverse. Progress in most areas was relatively limited until the quasi-crisis associated with the 1984 general election. A run on the (then fixed) New Zealand dollar rate during the election campaign culminated in a 20 per cent devaluation just days after the election. Official advisers believed that an overvalued real exchange rate had been a significant element in the story of New Zealand’s economic malaise. The 1984 devaluation ushered in a period, which would stretch for a decade under two different governments, of the most far-reaching structural reform and liberalisation programme that New Zealand had ever experienced (probably more thoroughgoing in a shorter space of time than in any OECD economy until then8). A small group of visionary political leaders and senior officials, a sense of growing discomfort over the underperformance of New Zealand, more visible over the previous decade or so, and a system of government (single chamber parliament, dominant majority party) that made it relatively easy to implement change quickly, combined to bring about a concentrated wave of reform. The key watchword associated with this very broadly based structural reform programme (discussed in Chapter 8) was efficiency (see also Evans, Grimes, & Wilkinson, 1996). The structural reform programme was accompanied by a stabilisation programme, involving low and stable public debt, low and stable inflation and domestic financial stability. Institutional reforms, affecting both fiscal and monetary policy, were designed to enhance transparency and accountability, and increase the prospects for durable macroeconomic stability (for details, see Chapters 10 and 11 in this volume). Together the reforms were widely seen (among officials and sympathetic commentators in New Zealand, and a galaxy of overseas admirers9) as having put New Zealand on a secure foundation, that would enable the gaps that had opened up between New Zealand incomes (and productivity) and those in other advanced OECD countries to close. The pre-eminent comparison was with Australia – itself hardly a stellar economic performer at the time – where in the 25 years to 1990 a net 400,000 New Zealanders had settled,10 attracted by the widening gap in material living standards. But with hindsight, it was striking how little attention appeared to have been given in the course of the reform programme – much of which was conducted at high speed – to the specifics of New Zealand’s situation. The unstated, but implicit, assumption often appeared to be that New Zealand was in no different a

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position in any important respect than other (perhaps other small) OECD economies. On this implicit view, provided the same sorts of policies were adopted in New Zealand – perhaps supplemented by reductions in global agricultural protectionism, a key cause at the time – outcomes as good as those in the rest of the advanced world could be expected.11 This approach is found strongly implicit in, for example, The Treasury’s (1987) two-volume briefing prepared for the incoming government, but also in, for example, the advice provided to the New Zealand authorities in the 1980s and early 1990s by the OECD. That approach made considerable sense in many areas (notably macroeconomic stabilisation). But it did not pay sufficient attention to the potential implications, for productivity growth in particular, of the constraints of distance, the natural resource intensity of most exported products and the implications for real interest rates and exchange rates (i.e. for the international competitiveness of industries based in New Zealand) of New Zealand’s emerging large-scale immigration policy. These, and their consequences for New Zealand’s economic performance, are articulated in the remainder of this chapter.

MACROECONOMIC STABILITY In the decades since the reform era, New Zealand has had a reasonably good record of macroeconomic stability. The floating exchange rate, although sometimes volatile, has mostly served New Zealand well, particularly in avoiding the consequences (seen, e.g., in Ireland, Spain and Greece) of injudicious pegs. After a couple of decades in which it had been both high and volatile, inflation since around 1991 has been low and stable. That outcome is attributable both to the operationally independent Reserve Bank and (perhaps more importantly) to successive governments that have set the policy targets for the Bank and kept the policy focus on low inflation even when that focus became politically contentious. The inflation target has been changed several times, and changes to the Reserve Bank Act or to the core policy target were called for by one or more significant political parties in every election from 1990 to the present day. Few other advanced inflation targeting countries had a similar experience, and in New Zealand the unease has probably been as much a response to symptoms of the broader economic challenges – including high (by advanced country standards) real interest rates and a persistently high real exchange rate – as to any specific problems with the conduct of monetary policy itself. The bipartisan consensus encompassed fiscal policy. For 15 years starting from 1994, across two different governments, New Zealand ran fiscal surpluses.12 New Zealand governments ran deficits for several years following the recession of 2008/2009, exacerbated by the effects of a succession of destructive earthquakes in 2010 and 2011. The success of the model is not that deficits are always avoided, but that when deficits happen there is a fairly strong shared commitment to close them. Operational surpluses are now again well-established, and in the most recent (2017) general election the two main parties had very similar aggregate

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fiscal policies, both offering surpluses into the indefinite future, from a starting point of a very low level of public debt.13 Fiscal and monetary stability has been complemented by a high degree of financial stability, at least after the exuberance-followed-by-aftermath period in the late 1980s that came hard on the heels of financial liberalisation.14 Despite large increases in housing, farm, and business debt in the 2000s, the core financial system experienced only a fairly modest increase in the level of loan losses in the recession of 2008/2009. The banking system (largely foreign-owned) appears to be strongly capitalised and resilient to demanding stress tests imposed by New Zealand and Australian regulators. In addition, the funding structures of banks are also now more robust (much less dependent on short-term foreign wholesale funding). That in turn partly reflects the considerably smaller deficits in New Zealand’s external balances. While New Zealand’s net (but mostly private sector) dependence on foreign capital has remained high, it has fluctuated around a fairly stable level (share of GDP) for most of the last 30 years. The macroeconomic stability that New Zealand has achieved is not unique – Australia and Canada for example have had similar records – and so one should be wary of putting too much store by New Zealand-specific interpretations. Low inflation has been a common experience for advanced economies (and increasingly for emerging ones) in recent decades. Nonetheless, on the fiscal and monetary side, there is little doubt that New Zealand policymakers and advisers – and the political system more generally – had been scarred by the experience of the late 1970s and early 1980s. As late as 1991, New Zealand grappled with the threat of a double downgrade to its sovereign credit rating, reflecting the high levels of its public debt (relative to the country’s income). That backdrop helped to create a constituency (across the core political divide between the National and Labour parties) for a cautious approach to future macroeconomic management. The financial crisis of the late 1980s (in both New Zealand and Australia) may also have played some part in shaping more cautious attitudes among both lenders and potential borrowers. More generally, advanced floating exchange rate countries: (a) whose governments stayed out of housing finance markets and (b) whose banks did not find themselves with excessive deposits, have avoided systemic financial crises in recent decades. New Zealand and Australia – with banks dependent on raising foreign wholesale funding for their (mostly) rather simple domestic loan portfolios – were two of those countries. But if the headline macroeconomic stability numbers have mostly offered a pretty encouraging story, a set of continuing macroeconomic imbalances lurk just a little below the surface.15 Most obviously perhaps, New Zealand real interest rates have for decades averaged well above those in other advanced economies. Markets have long expected convergence between New Zealand and foreign rates (over decades this was implicit in the respective yield curves). But that convergence has never, enduringly, happened. At the time of writing (mid-2019), for example, when US short-term interest rates are unusually high relative to those in the rest of the advanced world, New Zealand short-term official interest rates are below those in the United States for only the second time in many decades. But, the recorded low absolute levels of New Zealand interest rates

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are still materially higher (in real and nominal terms) than those in most other advanced countries. Simple explanations for the persistent difference in real interest rates have been unsatisfactory. New Zealand’s government accounts are extremely solid (net debt among the lowest quartile in the OECD), the banks are strongly capitalised (and part of highly rated banking groups), and New Zealand’s negative net international investment position (as a share of GDP) has cycled around a fairly stable level for several decades now. In principle, persistently high real interest rates and exchange rates, in a small open economy setting, could reflect strong productivity growth. However, as I explain and emphasise below, this is not at all consistent with the stylised facts of New Zealand in recent decades. Instead, productivity growth has been consistently poor. The persistently high real interest rates and real exchange rates, underpinned by strong policy-driven immigration, appears to have been a cause of the poor productivity performance.

PRODUCTIVITY UNDERPERFORMANCE A creditworthy advanced economy might still be expected to have persistently higher real interest rates than its peers if domestic productivity growth was persistently high. Rapid productivity growth tends to be associated with high rates of business investment (and associated pressure on real resources). Countries with strong productivity growth may also experience rapid consumption growth, in anticipation of future income gains. Both forces could be expected to put persistent upward pressure on real interest rates, and over time strong productivity growth would also be expected to be reflected in a trend rise in the country’s real exchange rate. However, none of that resembles New Zealand’s experience. There has been no sustained period since the reforms were undertaken when New Zealand’s labour productivity growth has matched (let alone exceeded) that in the typical advanced country. At best, the rate of relative decline has slowed. On some wellbeing metrics, New Zealand still scores rather well. But the revealed preferences of New Zealanders tell another story: between 1990 and 2017, another 530,000 New Zealanders (net) left to settle abroad (mostly in Australia). On OECD estimates, real GDP per hour worked in a group of leading advanced economies – in northern Europe (Germany, France, Belgium, Netherlands, Denmark and Sweden) and the United States16 – is now about twothirds higher than that in New Zealand (Table 1). There are no longer-term comparable productivity estimates available for historical periods, but until around 1960 New Zealand had higher per capita incomes than all of these countries except the United States for a hundred years. Various authors (including Conway, 2016; McCann, 2009; Reddell, 2013, 2017) have attempted to make sense of New Zealand’s disappointing productivity performance. A variety of other stylised facts often appear in these and other discussions, including:

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Table 1.  Labour Productivity: New Zealand and a Leading OECD Group. GDP Per Hour Worked USD, Constant Prices, 2010 PPPs

New Zealand Netherlands Belgium Denmark France Germany Sweden United States Median of seven NZ as per cent of median

1970

1990

2017

21.4 27.5 25.0 25.1 21.6 22.3 27.2 30.9 25.1 85.3

28.5 47.7 46.6 44.7 43.0 40.6 38.8 41.8 43.0 66.3

37.3 62.6 64.8 64.9 59.8 60.5 61.7 64.2 62.6 59.6

• The persistently high average real interest and exchange rates • Persistently low average rates of business investment (per cent of GDP) • Low rates of spending (per cent of GDP) on research and development • Flat or falling shares of foreign trade in GDP (and of tradables sector production) • High house prices (and high price-to-income ratios) • Low rates of foreign direct investment • A small, but quite rapidly growing, population • Relatively low national savings rates. On the other hand, over the last 30 years (since the reforms), New Zealand has benefited from one of the larger increases in its terms of trade17 of any OECD country. Towards Making Sense of the Productivity Performance On most standard comparisons, New Zealand looks as though it should have had a much better-performing economy:

• Institutions. New Zealand is widely regarded as having low levels of corrup• • •

tion,18 an effective independent judiciary, the rule of law, and has been one of the longer standing consistent democracies in the world.19 Natural Resources. New Zealand has a temperate climate, has among the highest quantities of fresh water per capita and has fairly abundant land area per capita. Skill Levels (Human Capital). On OECD cross-country skills metrics,20 New Zealand workers rank among the most skilled – both natives and (to a lesser extent) the substantial immigrant population, scoring particularly strongly in problem-solving skills. Standard OECD Microeconomic Policy Prescriptions. Even after a couple of decades with little fresh reform, New Zealand still scores relatively well on many of the OECD’s Going for Growth indicators. Indeed, in a paper written several years ago, OECD researchers took a set of microeconomic policy

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indicators and estimated a cross-country model, which suggested that real GDP per capita in New Zealand should be well above the OECD average,21 not below that average. Clearly, something important was missing from the model. The continued disappointing productivity performance has sometimes been described as the New Zealand ‘productivity paradox’. Authors who accept this framing typically also take the view that New Zealand policy frameworks have been fit for purpose, hence the idea of a paradox (good policies, poor outcomes). The alternative interpretation is that the models such authors are using, whether more formal or narrative-based, are omitting one or more key explanatory variables. New Zealand is one of the most remote countries in the world (perhaps the most remote independent country of more than a few hundred thousand people22). It is not just that the distance between, say, Wellington and Canberra is greater than that between capitals of any other neighbouring countries, but that Australia itself is remote. A vivid image that has sometimes been used is of New Zealand as the last bus-stop before (uninhabited) Antarctica. It is hardly surprising that New Zealand produces a lot of natural resourcebased exports – with ample oceans, fresh water, temperate climate and land. It is difficult to draw precise lines, but at least 80 per cent of total New Zealand exports – including the large tourism sector – could still reasonably be considered location-specific (the bulk of which is traditional agricultural production).23 The number is similar for Australia and Norway, but in much of northern Europe and in the United States that share might be no more than 25 per cent. In the Netherlands, for example, which is the world’s second largest agricultural exporting country, agricultural products make up only around 10 per cent total exports. What might seem more surprising is that more of other stuff (whether goods or services) is not sold from New Zealand. After all, New Zealand has talented, innovative, entrepreneurial people, the rule of law, and tax rates that are not unduly high by advanced country (OECD) standards.24 Most advanced OECD economies (and likes of Singapore and Taiwan) do not prosper these days mainly by selling – however productively – the fruits of fixed stocks of natural resources. Rather, firms in those countries sell abroad manufactured products and services that draw primarily on the ideas and talents of their people. In that context, more people can often mean more ideas, more opportunities, more exports and higher productivity.25 But for New Zealand, total exports as a share of GDP are modest – perhaps no more than half what might be expected for a country of New Zealand’s size.26 There has been little or no success for decades in substantially increasing the economic contribution of non-natural resource sectors; exports of services and advanced manufactured goods are a smaller share of GDP than even 15 years ago. Over the last 15 years or so, there has been increasing recognition of the potential importance of distance, not just in explaining where economic activity occurs within countries, but also in influencing which countries activity takes place in at all. The central issue here is not physical transport costs – the actual shipping costs associated with, say, sending a container of New Zealand lamb to London or Shanghai are pretty modest – and probably is not much of an issue for simple homogeneous products (e.g. bulk minerals or milk powder). Rather the focal

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point is partly about options for complex supply chains, in which numerous firms/ plants play to their own expertise to provide different stages in the production of complex products from iPhones to Airbus aircraft. When your country27 is the most remote land mass on earth, there are few such options – unlike (say) Singapore, typically whatever could be provided from New Zealand could be provided more cheaply, and with fewer transport delays, from somewhere closer. There have been many brilliant ideas given birth in New Zealand, but most – especially those not specific to New Zealand natural resource industries – appear to have been more valuable to businesses based near the centres of the modern world economy. Firms attempting to tap world markets from Cape Town, Melbourne, Santiago, Montevideo or Buenos Aires face many of the same issues, in a way that firms operating from Tokyo, London, Amsterdam or New York do not.28 The challenges of growing a large export sector from New Zealand have been compounded by at least two other considerations. The first is the limitations of a fixed supply of productive land (including the growing domestic concerns about water pollution, and the fact that around half of New Zealand’s greenhouse gas emissions are from farm animals). Probably of equal importance in recent decades has been the relatively high cost of New Zealand products in international markets, reflecting the consistently high value of the real exchange rate (Fig. 1). I offer below a potential explanation for New Zealand’s low productivity growth that is underpinned by strong policy-driven non-citizen immigration to New Zealand. Immigration policy has been a central feature of New Zealand development strategies ever since colonial government was established in 1840.29 With rare and quite short-lived exceptions, the focus has been on encouraging, and even subsidising (directly or indirectly), immigration.

Fig. 1.  Real Exchange Rate.

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A newly liberalised immigration policy was an integral part (although not widely discussed at the time) of the microeconomic reform process of the late 1980s and early 1990s. A Potential Explanation: Immigration Policy In an economy with relatively modest national savings rates, persistent repeated positive domestic demand shocks associated with large immigration flows tend to boost both real interest rates and the real exchange rate (articulated in Reddell, 2013). As has been recognised formally since the 1950s and 1960s,30 whatever supply side benefits might in time flow from an influx of migrants, in the shorterterm the demand pressures associated with positive population shocks will typically outweigh those effects. More people mean a need for more physical capital (including housing), and the same resources cannot be used for two purposes at once. These effects, repeated year after year, negatively affect the international competitiveness of New Zealand-based businesses, and can skew activity away from the tradables sector, exacerbating the difficulties posed by remoteness. This hypothesis, in turn, may help to explain some of the stylised features of the New Zealand economy discussed earlier, including low rates of business investment (in turn including low rates of business R&D spending). Firms invest when the prospective profits exceed the cost of capital. High interest rates and a high real exchange rate, all else equal, hold back total investment and skew it away from the (outward-oriented) tradables sector. The hypothesis that immigration policy may have played an important part in the story of New Zealand’s economic underperformance reflects the interaction of three effects:

• First, New Zealand’s annual permanent migration target (granting annual res-

• •

idence approvals of around 45,000) has long been the highest of any advanced country (in per capita terms, Canada is now similar and Australia is also now not far behind). The only OECD country that consistently takes more migrants than New Zealand is Israel, where the policy imperatives (security) are different.31 Second, the continued dependence of the economy on natural resource-based exports. The natural resource endowment is fixed, and more people will – all else equal – dilute the per capita benefits of that endowment. Australia and Norway face similar issues, but most north European countries do not. Third, the relatively modest national savings rates. It is unclear why national savings rates are relatively modest (despite fiscal policy typically being supportive) but the pattern has been apparent for decades. Thus, for example, high immigration to (say) Singapore is a different matter than for New Zealand – both because Singapore’s rapid outward-oriented growth is not natural resource-based, and because the national savings rates in Singapore are high (thus additional labour and high savings are in that sense natural complements).

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New Zealand policymaking around immigration appears often to have not been based on particularly robust analysis or research, especially about economywide productivity effects. Even some of the more rigorous champions of high rates of immigration acknowledge the lack of specific New Zealand evidence on the macroeconomic impact.32 In part, that may reflect limitations of a small state, including limited data and a small policy analysis community. But it is also likely to reflect strong pro-immigration priors among the political elites. Going back to the nineteenth century there has been a repeated political emphasis on the idea of growing New Zealand’s population – at times to help secure European dominance, at times to accommodate perceived over-population in the United Kingdom, at times reflecting unease about Japan (following World War II), and more recently ideas from endogenous growth theory suggesting the economy would do better (per capita) with more people. High rates of non-citizen immigration, both in the decades after World War II and again since around 1990, were policy-initiated and often policy facilitated.33 Those large inflows have meant that despite the decades-long exodus of natives, New Zealand’s population has grown much more rapidly than those of, say, countries in northern Europe at or near the productivity frontier (those in Table 2, chosen for having had largely unchanged boundaries over the period). Globally, there is no evidence that small countries manage less productivity growth than big ones, and if anything in recent decades there has been an increase in the number of small countries. There appears to be no particular reason why a country with fairly abundant natural resources and good institutions and skilled people, should not be able to deliver top-tier advanced country material living standards. But an extremely remote small country might only be able to do so for a very small number of people: thus 100 years ago a million people in New Zealand managed to have the best material living standards anywhere. Cross-border trade is a key element in national prosperity, especially for small and medium-sized countries, and trade is very strongly (negatively) correlated with distance. Despite the best of intentions among policymakers during the reform era, the New Zealand policy mix has clearly not worked to achieve any narrowing in the productivity/income gaps. In fact, those gaps have kept on widening, including Table 2.  Population Growth. Population (Million) 1913 New Zealand Norway Denmark Switzerland Sweden Netherlands Belgium

1.1 2.4 3.0 3.9 5.6 6.2 7.7

2017

Per cent Increase

4.8 5.3 5.8 8.6 10.0 17.1 11.3

Source: Maddison (2009, for 1913), Conference Board and Statistics New Zealand.

336.4 120.8 93.3 120.5 78.6 175.8 46.8

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in recent years. Clearly, while policymakers have done much to provide a stable macroeconomic environment, much more is now needed to increase productivity through new services and business activity, as well. Why has the Underperformance been Allowed to Persist? New Zealand’s relatively productivity underperformance, over decades, is probably the worst anywhere in the world among countries with a record of stable democracy. It should not have happened, and once the problems became apparent should have been able to be remedied. In this chapter, I don’t have room to explore in depth the possible reasons why policy analysis and the political process has failed so badly. However, factors that may be relevant include:

• There has been a significant decline in the capacity of the small key public •

•

•

service agencies, notably The Treasury, which was once at the forefront of economic reform. Because New Zealand is small, remote, and not that directly comparable to other countries, there is little incentive for researchers abroad now to attempt to make much sense of the New Zealand story. If anything, the lagging productivity performance is something of a curiosity, and for those who do dig a little, almost an uneasy embarrassment. International economic agencies (notably the OECD but also the International Monetary Fund) have consistently struggled to identify relevant comparator countries when thinking about the productivity underperformance, and their advice to New Zealand has often seemed better tailored to a small north European country than to an extremely remote set of islands. Being small, and stable, there is not much incentive for these agencies to invest in developing better New Zealand stories. New Zealand domestic policy debate also suffers from various limitations of being a small, not overly prosperous state. For example, members of Parliament and parliamentary committees have very limited resources. Media also typically have very limited resources, and typically must appeal to a broad mass market. It isn’t a combination that promotes a ferment of ideas.

Sadly, there is also little sustained evidence of a strong domestic demand for much-improved economic performance (whether from within politics, from the business sector, or from the general public) and that absence of demand has, in turn, probably contributed to the decline of official institutional capacity and capability. The domestic political debate is still scarred by the experience of the 1980s reforms, without evidence of a sustained improvement in productivity performance in the wake of those social and economic upheavals. It is a recipe for settling on the status quo, with all the entrenched interests favouring individual bits of that status quo, poor as the outcomes of those unchanged policies may continue to be for New Zealanders as a whole.

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CONCLUSION After the bold reforming period of the 1980s and early 1990s, official and political economic policymaking in New Zealand appears to have been at sea, without a tiller or compass, for at least a couple of decades. Seared by the experience of the quasi-crisis of 1984, and rapid escalation of official debt in the previous decade, New Zealand has since enjoyed an enviable degree of macroeconomic stability: low and stable public debt, low and stable inflation and domestic financial stability (even amid severe policy-induced upward pressures on house prices and household debt). Unemployment rates that are fairly low on average are another successful element. In those areas of policy, meaningful international benchmarks have provided a routine check on policy, and any external advice has typically been drawn from countries (small floating exchange rate countries), where the comparisons are apt and insightful. If stability has been successfully regained and maintained, on the wider counts of economic performance, only a ‘fail’ mark could possibly be assigned. Among the failures, policymakers managed to preside over reforms that have created artificial scarcity of urban land and sky-high housing prices, in common with many of their Anglo peers. But the productivity failure is more stark because it is more specific to New Zealand. Despite numerous (de)regulatory steps taken to open the economy to international competition – and considerable increase in the real volume of exports and imports – foreign trade as a share of GDP has shrunk and with it the relative size of the tradables sector. The export sector itself remains heavily dominated by industries reliant on domestic natural resources (a fixed asset) – services exports have been shrinking as a share of GDP – and, despite rapid population growth, business investment has been modest at best. To an outsider coming afresh to the New Zealand story, perhaps the surprising feature of such an underperforming advanced economy is that population growth has nonetheless been quite rapid. Birth rates have been below long-term replacement rates for several decades now. But defying the revealed preferences of New Zealanders, who have left the country in huge (but cyclically variable) numbers over the last 50 years, for 25 years now policy has been set to bring in one of the largest migrant flows (per capita) of any advanced country. Regularly presented as a skills-focussed approach, it has remained difficult to attract many really talented people to a small remote country with lagging incomes and productivity,34 and there have been few (apparent or realised) outward-oriented economic opportunities in New Zealand for either natives or migrants. Looking ahead, if New Zealanders are once again to enjoy incomes and material living standards matching the best in the OECD, policy and academic analysts will have to focus afresh on the implications, and limitations, of New Zealand’s extreme remoteness and how best policy should be shaped in light of the unchangeable nature of that constraint (at least on current technologies). Past experience – 1890s, 1930s and 1980s – shows that policies can change quickly and markedly in New Zealand. But with no reason to expect any sort of dramatic crisis – macroeconomic conditions are stable, unlike the situation in the early 1980s – it is difficult to see what might now break policy out of

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the twenty-first century torpor or, indeed, that the key economics institutions would have the capacity to respond effectively if there were to be renewed political appetite for change.

NOTES 1.  Being so remote, the costs of migrating to New Zealand (including opportunity cost of lost working time) were substantially higher than to, say, North America. 2.  This and other pre-1970 estimates is drawn from the Angus Maddison collection of historical statistics at http://www.ggdc.net/maddison/oriindex.htm. A hundred years ago, even in the then-richest and most productive economies, material life for the average citizen was tough – short life expectancies, air pollution, high infant and material mortality, and the utilities, appliances and services now taken for granted (when available at all) were far from universal. See, for example, Reddell (2018). 3.  Note that the definition of ‘institutions’ used by many social scientists is extremely broad – it includes not only ‘organisations’, but also rules (such as the rule of law), norms, customs, practices, conventions, private property rights, etc. 4.  See Wilkinson, B. (2013), New Zealand’s Global Links: Foreign Ownership and the Status of New Zealand Net International Investment. Wellington: New Zealand Initiative. 5.  A repeated theme in reflections on New Zealand over the years. See, for example, Sinclair, K. (Ed.). (1961). Distance Looks Our Way: The Effects of Remoteness on New Zealand. 6.  New Zealanders and Australians have had the freedom to live and work in the other country as long as the two countries have existed. 7.  See notably Blyth (1960) and Monetary and Economic Council (1962). 8.  A description endorsed by the OECD in its 1991 Economic Survey of New Zealand. 9.  See, for example, the 1991 OECD Economic Survey. 10.  Even by 1990, New Zealand’s total resident population was only around 3.3 million. 11.  The author was closely involved, from the New Zealand end, in the 1991 OECD Economic Survey. By then, there was already unease about the prolonged adjustment phase, and the lack of evidence of economy wide productivity gains. But neither in the text, nor in the discussions in Paris, was there any suggestions that remoteness might matter, or might have material implications for appropriate policy design. 12.  On the operational spending and revenue balance measure introduced as part of New Zealand’s adoption of accrual accounting for the public sector. 13.  On the OECD general government net financial liabilities measure, 1 per cent of GDP in 2017. 14.  With parallels to the (similar, if less marked) Australian experience at the same time, and in some respects to the Nordic experience in the late 1980s and early 1990s (the latter economies still having fixed exchange rates). 15.  These have been recognised in official circles for some time. The Reserve Bank and The Treasury hosted a prominent conference on the issue some years ago https://treasury. govt.nz/publications/conference-paper/new-zealands-macroeconomic-imbalances-–causes-and-remedies-policy-forum-23-and-24-june-2011. 16.  There is a further group of idiosyncratic OECD countries (Luxembourg, Norway and Ireland) with still higher average rates of labour productivity. 17.  Steenkamp (2014) highlights how different the business investment responses were in New Zealand and Australia following significant lifts in the respective terms of trade. 18.  Scoring consistently well on the Transparency International Index. 19.  Representative government dates back to 1856. 20. See, for example, OECD (2016). Retrieved from http://www.oecd.org/skills/skillsmatter-9789264258051-en.htm.

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21. Barnes, S. et al. (2013), The GDP impact of reform: A simple simulation framework. Working Papers No. 834, OECD Economics Department, OECD Publishing, Paris. Retrieved from http://dx.doi.org/10.1787/5kgk9qjnhkmt-en 22.  And even without this population threshold, probably only a few small, poor, Pacific Island states would qualify as more remote. 23.  And some of the remaining sectors benefit substantially from explicit or implicit government subsidies (explicit in the case of the film industry and implicit – through bundling with the immigration system – in the case of the substantial export education sector). 24.  Although corporate income tax rates in New Zealand are in the upper part of the OECD range, and the level of competition in domestic services sectors (inputs to the tradables sector) is often quite limited. 25.  Consistent with this, GDP per capita in the major cities of advanced countries not dependent on natural resource exports is typically well above that in the rest of the country – not so in New Zealand (or Australia). 26.  Bearing in mind that productivity in New Zealand is around 60 per cent of that in leading countries, and the export share of GDP (even of value-added in GDP) is less than one might expect for an advanced country of New Zealand’s population. 27.  But the same logic applies to remote areas of other countries. 28.  Consistent with this, estimates of GDP per capita in Auckland (and Sydney) are not much above those for the respective countries as a whole, quite different to the situation in major cities in Europe and the United States. 29.  Note that as a distant island state, New Zealand has almost complete control of inward non-citizen migration. 30.  Including in a New Zealand context: Belshaw (1952), Holmes (1966a, 1966b, 1967). 31.  Not that over recent decades, productivity growth rates in Israel are similar (low) to those in New Zealand. 32.  See, for example, New Zealand Initiative (Krupp & Hodder, 2017). 33.  Immigration was opened up again after the late 1980s. At the same time, the reforms (including a points system) were regarded as being to the forefront of global immigration policy, designed to focus on bringing in skilled migrants. 34.  OECD (2016) adult skills data suggest that although the gap between skills of natives and migrants is small, migrants to New Zealand are, on average, less skilled than natives.

ACKNOWLEDGEMENTS The author acknowledges, without implicating them, the helpful comments received from David Archer, Don Brash, Sir Roderick Deane, John Janssen, Simon McLoughlin, Bill Rosenberg, Grant Scobie and Bryce Wilkinson.

REFERENCES AND FURTHER READING New Zealand Economic History Blyth, C. (1960). Economic Growth 1950-1960. Research Paper No. 1. New Zealand Institute of Economic Research, Wellington. Condliffe, J. B. (1930). New Zealand in the making. London: George Allen and Unwin. Easton, B. (1997). In stormy seas: The Post-War New Zealand economy. Dunedin: University of Otago Press. Gould, J. (1982). The Rake’s progress: The New Zealand economy since 1945. Auckland: Hodder and Stoughton.

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Hawke, G. (1985). The making of New Zealand: An economic history. Cambridge: Cambridge University Press. Monetary and Economic Council. (1962). Economic growth in New Zealand. Wellington: Government Printer. Wilkinson, B. (2013). New Zealand’s Global Links: Foreign Ownership and the Status of New Zealand Net International Investment. Wellington: New Zealand Initiative.

New Zealand Immigration Policy and Analysis Belshaw, H. (1952). Immigration: Problems and policies. Wellington. Brooke, G., Endres, A., & Rogers, A. (2018). The economists and New Zealand population: Problems and policies 1900–1980s. New Zealand Economic Papers, 52(2), 204–226. Fry, J. (2014). Migration and macroeconomic performance in New Zealand: Theory and evidence. Working Paper No. 14/10. New Zealand Treasury, Wellington. Holmes, F. W. (1966a). Some thoughts on immigration. Part I. NZIER Quarterly Predictions, 9, 18–24. Holmes, F. W. (1966b). Some thoughts on immigration. Part II. NZIER Quarterly Predictions, 10, 18–22. Holmes, F. W. (1967). Some thoughts on immigration. Part III. NZIER Quarterly Predictions, 11, 19–24. Krupp, J., & Hodder, R. (2017). The New Zealanders: Why migrants make good kiwis. Wellington: New Zealand Initiative. Reddell, M. (2016). Distance still matters hugely: An economist’s case for much-reduced noncitizen immigration to New Zealand. Presentation to Law and Economics Association of New Zealand. Retrieved from https://croakingcassandra.files.wordpress.com/2017/06/distance-stillmatters-hugely-leanz-presentation-26-june-2017.pdf. Accessed on June 26, 2016.

New Zealand: Reforms and Productivity Underperformance 2025 Taskforce. (2009). Answering the $64000 question: Closing the income gap with Australia by 2025. Retrieved from https://treasury.govt.nz/sites/default/files/2017-12/2025tf-1streport-nov09.pdf 2025 Taskforce. (2010). Focusing on growth: The Second Report of the 2025 Taskforce. Retrieved from https://treasury.govt.nz/sites/default/files/2017-12/2025tf-2ndreport-nov10.pdf Brook, A.-M. (2014). Options to narrow New Zealand’s saving-investment imbalance. Working Paper No. 2014/17. New Zealand Treasury, Wellington. Conway, P. (2016). Achieving New Zealand’s productivity potential. Research Paper No. 2016/1. New Zealand Productivity Commission, Wellington. Conway, P. (2018). Can the Kiwi Fly? Achieving productivity lift-off in New Zealand. International Productivity Monitor, 34(Spring), 40–63. Conway, P., & Nolan, P. (2018). Moving on from New Zealand’s Productivity Paradox. Policy Quarterly, 14(3), 3–9. De Serres, A., Yashiro, N., & Boulhol, H. (2014). An international perspective on the New Zealand Productivity Paradox. Working Paper No. 2014/1. New Zealand Productivity Commission, Wellington. Evans, L., Grimes, A., & Wilkinson, B. (1996). Economic reform in New Zealand 1984–95: The pursuit of efficiency. Journal of Economic Literature, 34(4), 1856–1902. McCann, P. (2009). Economic geography, globalisation and New Zealand’s productivity paradox. New Zealand Economic Papers, 43(3), 279–314. Reddell, M. (2013). The long-term level ‘misalignment’ of the exchange rate: Some perspectives on causes and consequences. Paper prepared for the Reserve Bank/Treasury exchange rate forum, Wellington. Retrieved from https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/ Seminars%20and%20workshops/Mar2013/5200823.pdf ?la=en. Accessed on March 26, 2013. Reddell, M. (2018). Possibilities and (lack of) passion: Lifting productivity, for our kids’ sake. Presbyterian Support Northern Lecture Series on Improving Child Wellbeing. Retrieved from https://croakingcassandra.files.wordpress.com/2018/05/psn-lecture-series-lifting-productivityfor-our-kids-sake-may-20181.pdf. Accessed on May 17/18, 2018. Sinclair, K. (Ed.). (1961). Distance Looks Our Way: The Effects of Remoteness on New Zealand. Auckland: Auckland University Press.

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Steenkamp, D. (2014). Structural adjustment in New Zealand since the commodity boom. Analytical Note 2014/02. Reserve Bank of New Zealand, Wellington. The Treasury. (1987). Government management: Brief to the incoming government (2 Vols). Wellington: The Treasury.

Other General References Baldwin, R. (2016). The great convergence: Information technology and the new globalisation. Cambridge, MA: Harvard University Press. Boulhol, H., & de Serres, A. (2010, January). Have developed countries escaped the curse of distance? Journal of Economic Geography, 10(1), 113–139. Maddison, A. Maddison HIstorical Statistics. Available at https://www.rug.nl/ggdc/historicaldevelopment/maddison/original-maddison Mill, J. S. (1868, March 12). Speeches in 1868. Hansard for the House of Commons. OECD. (2016). Skills matter: Further results from a survey of adult skills. Retrieved from https://www. oecd.org/skills/skills-matter-9789264258051-en.htm

CHAPTER 4 MĀORI INTERESTS AND RIGHTS: FOUR SITES AT THE FRONTIER Maria Bargh and Carwyn Jones

Māori are the indigenous peoples of Aotearoa (New Zealand). Aotearoa has been the home for Māori for many generations, with some Māori tribes indicating that they have always been in Aotearoa. It was only when non-Māori, such as Abel Tasman and James Cook, sighted and landed in Aotearoa, in 1642 and 1769, respectively, that it began to become a frontier where Māori and non-Māori needed to negotiate settlement and co-existence. Whatever sphere it relates to, public policy is a product of the values and cultures which are embedded in the communities, people and agencies that design, implement, monitor and evaluate it. Public policy is not neutral. Our primary interest in this chapter is in the evolution of public policy as it relates to Māori rights, and the relationship between Māori and the Crown. The Crown, which can encompass multiple meanings, is commonly used in New Zealand to refer to the New Zealand state (sometimes extended to include the British Monarchy) and often to the executive branch of government. Where such policy has been successful, and sometimes innovative, it has largely been a result of pressure from Māori. Where public policy has not worked tends to be in places where the Crown continues to institutionalise colonial practices. Most of this chapter is devoted to examples of both where and when policies have been successful from a Māori perspective, and where they have failed. The questions, therefore of ‘what has worked’ and ‘what hasn’t worked and why’ come back to the fact that the Crown itself, and indeed the dominant thinking of many New Zealand public policy scholars, continue to perpetuate colonial practices and attitudes. The consequence of such a circumstance is that Māori scholars

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 71–89 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032024

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are left to explain to policy makers and other scholars New Zealand’s history and the way that current public policy is not culturally neutral (Mikaere, 2005). As an example of how public policy in New Zealand is culturally ‘loaded’, consider how law and policy was originally constituted through the English Laws Act 1858. This Act ‘made all English laws applicable to New Zealand’ (Durie, 2005a, p. 2). As Mason Durie argues, ‘it was taken for granted that if the laws worked in England, they should work in New Zealand’ (Durie, 2005a, p. 2). Durie highlights early non-Māori assumptions about the applicability of English laws and policy to New Zealand in the 1800s, but the core of this legal and governance system remains and continues to claim a neutral positioning. Notwithstanding that policies and laws also continue to evolve and be adapted, of course. When analysing and evaluating public policy, it is essential to recall its origins and acknowledge its cultural specificity. Legislation and policy are imbued with the values and assumptions of particular cultures and national contexts. Evaluating whether ‘innovations’ in policy have been ‘successful’ depends therefore on which part of the ‘frontier’ you are standing on: whether you are on the frontier because you are Indigenous and at home, or whether you are non-Indigenous. This chapter explores four areas of public policy that have been notably important and, in some ways, innovative. These four ‘sites’ are addressed under the following headings: Tangata Whenua (public policy relating to the recognition of the rights of Māori as people of the land); Rangatiratanga (constitutional dimensions of public policy); Kaitiakitanga (innovative public policy approaches to the relationship between communities and the natural environment); and Iwi Taketake (public policy in the context of the rights of Indigenous peoples and the international human rights framework). The development of public policy relating to Indigenous peoples in settler states is dependent upon how the state conceptualises the Indigenous population and their rights. The four sites examined in this chapter show how Māori rights have been conceptualised by the Crown in different ways across time, resulting in varied responses in different areas of public policy. We use the term ‘the Crown’ to refer to the partner to the Te Tiriti o Waitangi (Treaty of Waitangi discussed below; Shore & Kawharu, 2014). We will use each of these sites (Castree, 2004) to illustrate in particular cases Māori policy and legal traditions and innovation, as well as Crown policy and practices, and frontiers that the Crown continues to find too startling to cross. The Treaty of Waitangi was signed between Māori and the British in 1840, and is the cornerstone of New Zealand’s democracy and constitutional arrangements. There are different understandings of the Treaty, its status and implications within New Zealand. The most controversial points which Māori and non-Māori have tended to disagree about relate to the version of the Treaty that should take precedence – the Māori language version that Māori mainly signed or the English version which fewer than five Māori signed – and the extent to which the kawanatanga (governance) provided for the British Crown limited, or was limited by, the tino rangatiratanga (self-determination, chiefly authority) reaffirmed to Māori. Which views are dominant at any given point in history has an impact on the kind of public policy that is developed and implemented.

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SITE ONE: TANGATA WHENUA Māori are ‘tangata whenua’, literally ‘people of the land’ in Aotearoa (New Zealand). At the core of the concept of being tangata whenua, is the understanding of mana whenua, that is, that particular hapū (sub-tribes) and iwi (tribes) have authority over specific areas of the land. The Māori land tenure system is built around the mana (authority) each hapū and iwi hold over land, and was in place when non-Māori arrived. Each area of the country was governed collectively by hapū or iwi, and use-rights relating to specific resources were allocated to external groups (Erueti, 1999). Crown policies towards Māori land and land tenure have focussed on Māori as land owners rather than Treaty partners. Based on British historical and cultural traditions about land, the British determined that their own system, based on individual land title, was superior to that of Māori and implemented it across the country. The New Zealand Native Land Court, or the ‘Land Taking Court’ as it was known by many Māori, was established in 1865 and converted Māori customary land title into an individual land title system (Williams, 2007). The British did not conceive of Māori as equal Treaty partners (despite having signed Te Tiriti o Waitangi which created a partnership) whose laws, including land law, should be negotiated with in partnership. The British instead sought to rapidly change the dominant mode of land tenure, and make sales and allocations to British settlers thereby reconfiguring who ‘the people of the land’ were. The Crown also acquired land through the New Zealand land wars when they declared some iwi to be in ‘rebellion’, and punished them with land confiscation legislation such as the New Zealand Settlements Act 1863 and the New Zealand Suppression of Rebellion Act 1863. Both of these Acts had a dual purpose, to acquire Māori lands, including by confiscation, which could then be allocated to non-Māori settlers, and to try to destroy Māori political and legal institutions, which aimed to retain Māori ownership and control of Māori lands (Keane, 2010). These Acts were devastating for Māori, but effective for the Crown who confiscated large areas of land, including in Waikato and Taranaki. Māori rejected the Native Land Court and its work of altering Māori land tenure, but by the 1880s most of the country had been processed and removed from Māori ownership (Durie, 2005b). Crown policy then shifted to changing Māori land utilisation. Once again the Crown determined that their system of managing and utilising land was superior to Māori systems. The Crown insisted that under Māori governance land was ‘idle’ or ‘wastelands’ (Payne, 2014). They instituted policies to ‘develop’ Māori land primarily through agriculture (Keenan, 2013). Land development schemes were introduced and had a degree of success in some regions (Harris, 1996). Inequities were unfortunately embedded in land development policies, and in places where non-Māori were given land removed by the Native Land Court from Māori ‘in the national interest’ as late as the 1960s (Payne, 2014). Legislation through the 1950s and 1960s made slight shifts towards trying to protect Māori land ownership but although some mechanisms were established, like the Māori Trustee, their effectiveness at protecting Māori land development

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and ownership were limited (Office of the Controller & Auditor-General, 2004). Huge tracts of land were lost between the 1860s and 1920s, and continued to slowly be alienated until the 1950s and 1960s. Te Ture Whenua Māori/The Māori Land Act 1993 marked a sea change in public policy towards Māori land. Te Ture Whenua Māori Act brought a halt to the conversion of Māori land into general fee simple title and sale, which had been possible under other land Acts until that point. The Act aimed to support the retention of Māori ownership of Māori land, and set out policy frameworks for the occupation, use, and development of Māori Land. Between 2015 and 2017, Te Puni Kōkiri/Ministry of Māori Development reviewed Te Ture Whenua Māori and Māori land policy. A Bill to repeal the Act and significantly alter its purpose was introduced in 2017. The Bill sought to resolve a number of the issues associated with managing and developing communally owned land – what some saw as too large a role of the Māori Land Court in management – and to enable more flexibility in the activities of land Trusts. The Bill was discharged when a new government was elected in the 2017 general election, and the 1993 Act stands. The key feature of the Crown’s policy and interactions with Māori around land has been to deal with Māori as land owners or rights holders but not as Treaty partners. Ultimately, through individualisation of title and other mechanisms, this approach served to undermine Māori forms of land tenure and, as a consequence, also eroded Māori political and economic structures. The key innovation in this site was to firmly halt the further alienation of Māori land and legislate its retention in Māori ownership. The limitation of this retention policy has been the difficulty Māori have subsequently experienced with being able to govern their lands in agile ways.

SITE TWO: RANGATIRATANGA The issues surrounding the people of the land connect closely with the political and constitutional status of tangata whenua, since the Treaty of Waitangi there has been very little consensus between Māori and the Crown regarding the extent of Māori political and constitutional rights. The Waitangi Tribunal was created in 1975 to hear and report on claims based on the principles of the Treaty of Waitangi and, for that purpose, to determine the Treaty’s meaning and effect. The Waitangi Tribunal is a standing commission of inquiry. The Tribunal’s members include Māori and non-Māori, reflecting the Treaty partnership, and the members are appointed for their particular skills and expertise relevant to matters likely to come before the Tribunal. Claims may be made by any Māori person on behalf of themselves or a wider group/community. All claims are against the Crown and must allege that some Crown action or omission that was in breach of the principles of the Treaty has had a prejudicial effect on Māori.1 The Waitangi Tribunal makes recommendations to the Crown. These recommendations are predominantly non-binding; however, the Tribunal does have limited jurisdiction to make binding recommendations in relation to former

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State-owned Enterprise land and Crown Forest Licensed land. These binding powers have never been fully exercised. Since its establishment, the Waitangi Tribunal has reported on claims addressing a wide range of subject matter, including historical claims relating to alienation of lands and natural resources, and contemporary policy matters relating to te reo Māori (the Māori language), electoral issues, fisheries management, intellectual property and many other issues (see Hayward & Wheen, 2004). The Treaty of Waitangi Act 1975, which established the Waitangi Tribunal, directs the Tribunal to consider both the English and Māori texts of the Treaty in determining the practical application of Treaty principles. In 2014, in their report Part One of the Northland Inquiry, Te Paparahi o Te Raki, the Waitangi Tribunal found that Māori had not ceded sovereignty in Te Tiriti o Waitangi 1840. This statement reflected what many Māori thought was already clear, and had been using as justification for advancing the extent and inclusion of Māori constitutional rights since 1840 (Jackson, 2016). The Tribunal’s announcement was followed closely by the Prime Minister of the day John Key, responding that the finding ‘did not affect the Government’s authority to rule of New Zealand’ and that New Zealand had been ‘settled peacefully’ (Key quoted in 2014). This example shows the mismatch between a reality that Māori are comfortable with and the Crown’s unwillingness to consider co-existing sovereignties. This has been reflected in Crown policy which has shifted from one of assimilation of Māori, to a minimal acknowledgement of Māori rights, to an uneasy recognition that Māori tino rangatiratanga limits Crown kawanatanga in some areas. The 1867 Māori Representation Act introduced four seats for Māori representation, marking a significant innovation in New Zealand’s democracy. There were several rationales for the original introduction of Māori representation, including to provide representation for a tax paying population, to encourage Māori to abandon separate political institutions and assimilation (Wilson, 2010). Over the years the Māori seats became permanent although not entrenched as the general seats are, and this remains a point of contention (Bargh, 2015). The Royal Commission on the Electoral System in 1986 found that: Although they were not set up for this purpose, the Māori seats have nevertheless come to be regarded by Māori as an important concession to, and the principal expression of, their constitutional position under the Treaty of Waitangi. To many Māori, the seats are also a base for a continuing search for more appropriate constitutional and political forms through which Māori rights (mana Māori in particular) might be given effect. (Royal Commission on the Electoral System, 1986)

At various points of New Zealand history, the Crown has acknowledged different levels of Māori political rights. Te Urewera Native District Act 1896 which was in existence until 1922, enabled Tūhoe self-government (Binney, 2009). Māori political entities have had limited abilities to enforce Māori law, therefore over the years Crown recognition has repeatedly been sought. From the 1860s until 1900, the Kingitanga (King Movement) and the Māori parliaments sought recognition of their rights to govern Māori people and to control the governance

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of land and its alienation (Keane, 2010). The Kingitanga continues to promote unity for Māori and is based in the territory of, and works closely with, Waikato Tainui. The Māori parliaments came to an end in 1901 as the Crown introduced the Māori Councils Act and persuaded Māori to channel their political attention there and into the settler parliament. The settler parliament had established four Māori seats in the House of Representatives in 1867, and whilst several of the first Māori parliamentarians also attended the Māori parliaments, attention soon focussed on trying to receive recognition of Māori rights within the House of Representatives. Early Māori parliamentarians attempted to introduce a Native Rights Bill which would have acknowledged Māori jurisdiction over Māori people and resources but European members refused to debate it (Cox, 1993). With the change of electoral system to Mixed Member Proportional in 1993, the number of Māori seats were able to increase, largely dependent on the number of Māori on the Māori Electoral Roll. In 1867, there were 4 Māori seats out of 76, there are now 7 Māori seats in the 120-seat Parliament. Every five years, Māori are able to decide which electoral roll they wish to be on, and just over half of all Māori enrolled to vote elect to be on the Māori roll (Electoral Commission, 2018). Although the seats are regarded by many Māori as a positive innovation to enable a minimum level of Māori representation as per the Treaty guarantees, there are still some groups and political parties which seek their abolition. Although in some ways Māori representation at a national level has set something of a precedent, this has not been accepted through all levels of government. Amendments to the Local Electoral Act 2001 mean that Local Councils have the opportunity to replicate the system of Māori representation at a national level, and introduce Māori wards and constituencies at a local government level. Since those amendments however, only two other Councils have introduced Māori constituencies (Waikato Regional and Wairoa District) taking the total to 3 out of a total of 78 Councils (with the Bay of Plenty Regional Council having introduced constituencies under a separate Act) (Bargh, 2016). The creation of the Principles of the Treaty of Waitangi in the mid-1990s led to a significant shift in the way public policy recognised Māori constitutional rights. The creation of the principles, and the inclusion of reference to them in numerous pieces of legislation, provided an avenue for Māori to advocate for policies which supported their rights and provided an avenue to the courts to have the principles defined. The courts and the Waitangi Tribunal have increasingly outlined the obligations for Māori and the Crown arising from the principles. Whilst there are often different views, the principles of (1) good faith, (2) Crown’s duty to actively protect Māori rights, and (3) partnership, are the key ones. Definitions of the principles of the Treaty have been central to the Treaty Settlements process, which has been the main policy framework for Māori and Crown relations since the 1990s. The Treaty Settlements process involves the Office of Treaty Settlements, negotiating directly with Māori iwi about historical breaches of the Treaty. The process follows a standard formula set out by the Office of Treaty Settlements. Māori iwi that wish to enter direct negotiations must demonstrate that they are mandated by their members to negotiate. Iwi then enter

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into negotiations with the Office of Treaty Settlements to agree on an historical account of what occurred and any breaches of the Treaty of Waitangi. Once agreement is reached on those matters, then a Deed of Settlement is drafted setting out redress and future obligations on both parties. The Deed is initialised and eventually passed as an Act of Parliament (Wheen & Hayward, 2012). The Treaty Settlement process attracts criticism from many sides, and the Waitangi Tribunal has highlighted flaws in the way the Office of Treaty Settlements determines which groups to negotiate with and the manner in which negotiations take place (Jones, 2018a; Waitangi Tribunal, 2018). The Crown established an agency called ‘Te Arawhiti: Māori-Crown relations’ in 2018, to ‘help make the Crown a better Treaty partner’ (Retrieved from Te Arawhiti website: http://www.tearawhiti.govt.nz), and ensure that adequate and coherent attention is given to the Crown’s post-settlement commitments and obligations. It is too early in the existence of the agency to assess whether it is an enduring innovation for Māori rights and interests, but for an optimist it presents an opportunity for change (Jones, 2018b). With the Crown’s greater sense of the need for engaging with Māori that has emerged in a post-settlement environment, most branches of government have policies which require engagement with Māori. On the other side, a number of Māori organisations engage directly with the Crown. Since the 1980s, the New Zealand Māori Council was one of the most prominent entities to actively try to hold the Crown to account for Crown Treaty obligations, mainly through the courts. When the Māori Party entered Parliament, and then joined a coalition arrangement to become part of the government in 2008, it promoted the Iwi Chairs’ Forum as a single entity for the Crown to consult with on a number of resource management and constitutional issues.

SITE THREE: KAITIAKITANGA The third site addressed in this chapter is the site of public policy as it relates to the natural environment. This site provides rich examples of engagement between Māori and the Crown. It illustrates the distinctive approach of negotiation and, often imperfect, recognition of Māori rights at the public policy frontier. Māori and the Natural Environment The natural environment has a central role in the Māori world. The natural environment is understood not merely as a set of resources, but part of a complex network of kin relationships, which directly connects people to all other aspects of the natural world. At the heart of the relationship between people and the environment is the Māori cosmology, within which Papa-tū-ā-nuku is understood as the Earth Mother, the deity that sustains all life. In the context of resource management law reform, the Māori theologian and philosopher, Māori Marsden, described how this understanding of the natural world ought to drive law and policy in relation to environmental planning and management. He suggested that

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anyone involved in environmental management should act according to the following principles (Marsden, 1992):

a. Humankind’s contribution is to enhance and maintain the life support systems of Papa-tū-ā-nuku. b. People should treat Papa-tū-ā-nuku with love and respect in recognition of her life-supporting function, her role in the creation of the natural world, and her place in our own whakapapa. c. We do not own Papa-tū-ānuku, but are recipients, and therefore stewards, of the natural environment. The concept of kaitiakitanga has, in recent years, been used to reflect the Māori ethic of guardianship that encapsulates these basic principles. Kaitiakitanga stems from the obligations of kinship, to care for and nurture one’s relations. It encompasses the rights necessary to discharge those obligations. Kaitiakitanga is distinct from Western concepts of property and ownership, and includes a spiritual dimension that animates the rights and obligations that are inherent within the relationships between people, communities, and the natural world. Māori Environmental Guardianship in New Zealand Law and Policy Māori interests are recognised in the environmental law and policy of Aotearoa (New Zealand) in a number of ways. A central piece of legislation that regulates environmental policy and planning is the Resource Management Act 1991. This legislation requires people exercising functions under the Act to ‘recognise and provide’ for a number of matters of national importance, including ‘the relationship of Maori and their culture and traditions with their ancestral lands, water, sites, waahi tapu, and other taonga’ (s6(e)). The principles of the Treaty of Waitangi must also be ‘taken into account’ (s8). And ‘kaitiakitanga’ is the first item on a list of matters to which people exercising powers under the Act must ‘have particular regard’ (s7). There is provision for the recognition of Māori interests in other parts of the Act as well. For example, s33 of the Act allows for local authorities to delegate some decision-making powers to iwi authorities (tribes); however, no such delegations have occurred in more than 25 years of the Act’s existence. And, despite the specific references to the Treaty of Waitangi, Māori relationships to the natural environment, and the guardianship ethic of kaitiakitanga, Māori interests have struggled to have a strong and effective voice in environmental management (Williams, 2013). As the Waitangi Tribunal noted in Ko Aotearoa Tēnei (2011, p. 284): ‘Nearly 20 years after the RMA was enacted, it is fair to say that the legislation has delivered Māori scarcely a shadow of its original promise…’. In 2017, amendments were made to the Resource Management Act, designed to, amongst other things, to more effectively provide for Māori interests (Resource Legislation Amendment Act, 2017). In particular, these amendments introduced the possibility of creating instruments for enhanced Māori participation in environmental management processes, which are known as Mana Whakahono a

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Rohe (ss58L-58U). Section 58M of the Resource Management Act sets out the purpose of Manawhakahono a Rohe as follows:

a. To provide a mechanism for iwi authorities and local authorities to discuss, agree and record ways in which tangata whenua may, through their iwi authorities, participate in resource management and decision-making processes under this Act. b. To assist local authorities to comply with their statutory duties under this Act, including through the implementation of Sections 6(e), 7(a), and 8. Sections 6(e), 7(a), and 8 are the sections that provide for Māori interests as referred to above. Under this part of the Act, an iwi authority may initiate discussions relating to the establishment of a Mana Whakahono a Rohe, by inviting a local authority to enter into an agreement (s58O). The local authority is then required to respond and engage in negotiations with the iwi in relation to adopting a relationship agreement. The guiding principles of Mana Whakahono a Rohe require the local authority and the iwi to use their best endeavours to, amongst other things, ‘enhance opportunities for collaboration’, ‘work together in good faith and a spirit of co-operation’ and ‘achieve the purpose of the Mana Whakahono a Rohe in an enduring manner’ (s58N). Innovative Public Policy Responses and the Settlement of Historical Claims The settlement of historical claims arising from Crown breaches of the Treaty of Waitangi has led to the development of innovative mechanisms for public policy relating to the natural environment. The recognition of legal personality of landscape features such as the Whanganui River and the forest that formerly comprised Te Urewera National Park, has gained international attention, but other settlements have been similarly innovative in relation to environmental management. Settlements of historical claims underpin co-governance arrangements for the Te Arawa Lakes, the Waikato, Rangitaiki and Manawatu Rivers, and the establishment of joint planning committees in regions such as Hawke’s Bay, and in relation to iconic environmental features such as the volcanic cones in Auckland and Te Oneroa-a-Tohe (Ninety-Mile Beach). Co‐management of Lakes and Rivers Co-management arrangements relating to lakes and rivers that developed out of the negotiation of the settlement of historical claims form an important part of the public policy framework. The Te Arawa Lakes settlement represented an early example of such co-management arrangements. Key aspects of this settlement were implemented by the Te Arawa Lakes Claims Settlement Act 2006. This Act transferred the title of 13 lakebeds to Te Arawa (s23). The Act also established the Rotorua Lakes Strategy Group, with members appointed by the Rotorua District Council, the

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Bay of Plenty Regional Council and the Trustees of the Te Arawa Lakes Trust (s48). The purpose of the Group is to (s49): contribute to the promotion of the sustainable management of the Rotorua lakes and their catchments, for the use and enjoyment of present and future generations, while recognising and providing for the traditional relationship of Te Arawa with their ancestral lakes.

A further major development arising for claims settlement negotiations between Māori and the Crown, was the agreement for the settlement of historical claims in relation the Waikato River. This agreement is given effect by the Waikato-Tainui Raupatu Claims (Waikato River) Settlement Act 2010. The Act established the Waikato River Authority which has an equal number of members appointed by the Crown and Māori entities representing iwi with interests in the Waikato River (s22). The Authority is to (s22):

a. set the primary direction, through the vision and strategy, to achieve the restoration and protection of the health and well-being of the Waikato River for future generations; b. promote an integrated, holistic and co-ordinated approach to the implementation of the vision and strategy and the management of the Waikato River; and c. fund rehabilitation initiatives for the Waikato River in its role as trustee for the Waikato River Clean-up Trust. More recently, joint-governance bodies have been established in relation to waterways, such as the Rangitaiki and Manawatu Rivers, which reflect the approach pioneered in the Te Arawa Lakes and Waikato River settlements and applied to other kinds of collective redress, as discussed below under the ‘Joint Planning Committees’ heading. The co-management arrangements in relation to lakes and rivers have also established a political and policy context that allowed for the application of the concept of legal personality to iconic landscape features. Legal Personality The recognition of legal personality of landscape features, though still rare, has been a significant development in the settlement of historical claims and public policy relating to environmental management. The first implementation of the recognition of legal personality of a landscape was provided by the Te Urewera Act 2014. This Act declared that Te Urewera (the forest land that had formerly comprised Te Urewera National Park), ‘is a legal entity, and has all the rights, powers, duties, and liabilities of a legal person’ (s11). In the background to the Act (s3), Te Urewera is described in the following terms:

a. Te Urewera is ancient and enduring, a fortress of nature, alive with history; its scenery is abundant with mystery, adventure and remote beauty. b. Te Urewera is a place of spiritual value, with its own mana and mauri. c. Te Urewera has an identity in and of itself, inspiring people to commit to its care.

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The Act established the Te Urewera Board to act on behalf of, and to provide governance for, Te Urewera (ss16-20). The Board now has nine members – three members appointed by the Crown and six appointed by Māori (specifically, by the trustees of Tūhoe’s governance body, Te Uru Taumatua) (s27). The shift in approach to environmental management of Te Urewera that has been initiated by this settlement is illustrated by the management plan (Te Kawa o Te Urewera) promulgated by the Te Urewera Board (2018). This plan is framed by the following statement (p. 8): ‘Deliberately, we are resetting our human relationship and behaviour towards nature. Our disconnection from Te Urewera has changed our humanness. We wish for its return.’ Following the recognition of the legal personality of Te Urewera, legislation has also been enacted that recognises the legal personality of the Whanganui River system, now known as Te Awa Tupua (Te Awa Tupua (Whanganui River Claims Settlement) Act 2017). As with Te Urewera, the recognition of the legal personality of Te Awa Tupua is part of a suite of measures intended to better reflect Māori understandings of relationships with aspects of the natural environment. The Te Awa Tupua Act identifies a set of key values (‘Tupua Te Kawa’) including (s13):

a. Te Awa Tupua is a spiritual and physical entity that supports and sustains both the life and natural resources within the Whanganui River, and the health and well-being of the iwi, hapū, and other communities of the River. b. Te Awa Tupua is an indivisible and living whole from the mountains to the sea, incorporating the Whanganui River and all of its physical and metaphysical elements. c. The iwi and hapū of the Whanganui River have an inalienable connection with, and responsibility to, Te Awa Tupua and its health and well-being. d. Te Awa Tupua is a singular entity comprised many elements and communities, working collaboratively for the common purpose of the health and wellbeing of Te Awa Tupua. Decision-makers under a range of other environmental legislation are required to either recognise and provide for, or have particular regard to, these key values and the legal personality of Te Awa Tupua (s15). In December 2017, the Crown signed a Record of Understanding with iwi of Taranaki agreeing to work towards the recognition of the legal personality of ‘Ngā Maunga’ (the mountains that currently sit within Egmont National Park. That document records that the redress arrangements are intended to recognise Ngā Maunga, ‘is a living, indivisible whole incorporating the peaks, to be referred to by their Tupuna [ancestral] names, including Taranaki, Pouakai and Kaitake’ (cl 3.4.1) and ‘encompasses all of the physical and metaphysical elements of Ngā Maunga from the peaks through to all of the surrounding environs’ (cl 3.4.2). The Record of Understanding also notes that the recognition of legal personality will sit alongside the recognition of key values that will guide decision-makers in relation to the management of the national park within which Ngā Maunga are situated.

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Joint Planning Committees The settlement of historical claims has also led to other joint-governance arrangements involving multiple Maōri communities and local government. These mechanisms illustrate a distinctive approach to environmental planning, specifically as it relates to Māori rights and interests. A collective settlement relating to the significant volcanic cones throughout Auckland is one example of a co-governance model that has emerged through the Treaty claims and settlement process. This settlement was given effect by the Ngā Mana Whenua o Tāmaki Makaurau Collective Redress Act 2014, and involved 13 iwi and hapū who had historical claims in Tāmaki Makaurau (Auckland). That Act established the Tūpuna Maunga o Tāmaki Makaurau Authority which is composed of six members appointed by the Auckland Council, six members appointed by representative Māori entities and, initially, included one non-voting member appointed by the Minister for Arts, Culture and Heritage (s107). The Authority oversees the administration of 14 volcanic cones that are sites of cultural and historical significance to the members of the iwi collective. To carry out its purpose, the Tūpuna Maunga o Tāmaki Makaurau Authority exercises the powers that local authorities would usually hold under the Reserves Act 1977 (s112), whilst the Auckland Council provides administrative support (s114). A similar joint-governance body formed part of the collective redress of Northern iwi who have interests in Te Oneroa-a-Tohe (Ninety-Mile Beach). Claims settlement legislation established the Te Oneroa-a-Tohe Board as a statutory body (s77, Te Rarawa Claims Settlement Act 2015).2 The Board has eight members: one member to be appointed by each of Te Rarawa, Ngāti Kuri, Te Aupouri, and Ngāi Takoto (being the relevant iwi who participated in a collective agreement for this redress)3; and two members to be appointed by each of the Northland Regional Council and the Far North District Council (s79). The purpose of the Board is (s78): to provide governance and direction to all those who have a role in, or responsibility for, the Te Oneroa-a-Tohe management area, in order to protect and enhance environmental, economic, social, cultural, and spiritual well-being within that area for the benefit of present and future generations.

The Board performs a range of functions to achieve its purpose. Amongst other things, it is responsible for preparing and approving a beach management plan for Te Oneroa-a-Tohe, monitoring the implementation and effectiveness of that plan, and appointing commissioners to panels to hear resource consent applications that relate to Te Oneroa-a-Tohe (s81). An example of a joint-governance body that has a more general mandate in relation to environmental planning processes is the Hawke’s Bay Regional Planning Committee (RPC). This committee was originally developed as part of the settlement negotiations with two Hawke’s Bay groups, Ngāti Pāhauwera and Maungaharuru-Tangitū. The RPC was formally established by the Hawke’s Bay Regional Planning Committee Act 2015. The RPC is a statutory body made up of members appointed by the Hawke’s Bay Regional Council and tāngata whenua groups, and its purpose is to oversee the development and review of regional documents under the Resource Management Act 1991 (s9). Although, originally,

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part of the settlements negotiated with two specific groups, the Act provides for representation from nine tāngata whenua groupings throughout Hawke’s Bay (s11). There have, nevertheless, been some significant concerns raised by tāngata whenua representatives about the operation of the RPC (Sharpe, 2018). This suggests that public policy responses that aim to negotiate the frontier in relation to kaitiakitanga and environmental management must also address relationships alongside formal legal instruments, and often need to unpick colonial power dynamics and entrenched behaviours. These are the very issues that are currently playing out in both political and legal fora in the context of freshwater management. Though still developing, the resolution of those issues will no doubt provide further useful lessons for public policy in relation to the natural environment.

SITE FOUR: IWI TAKETAKE The final site that is addressed in this chapter is the site framed by the international recognition of the rights of Indigenous Peoples, and the public policy frontier that sits between Māori as iwi and rights holders, and the New Zealand state as duty bearer. This frontier is located within a framework of international human rights bodies and instruments, and of particular relevance is the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). The Waitangi Tribunal, in its report on the Māori Community Development Act reform – Whaia Te Mana Motuhake – examined the way in which UNDRIP reinforces the principles of the Treaty of Waitangi. Subsequent Waitangi Tribunal inquiries have also considered the way in which public policy development ought to be informed by rights set out in UNDRIP, especially those rights relating to consultation and participation in decision-making. Indigenous Peoples’ Rights in the International Human Rights Framework Since its adoption by the United Nations General Assembly in 2007, UNDRIP has been recognised as the leading statement of the rights of Indigenous Peoples. UNDRIP developed over a period of many years, with the Working Group on Indigenous Populations being established in 1982 (UN Economic and Social Council E/RES/1982/34), which produced a draft declaration in 1993, and the final text then adopted in 2007. New Zealand was one of four states that initially voted against the adoption of UNDRIP; however, in 2010, the New Zealand government announced its support for UNDRIP (Sharples, 2010).4 There are a number of mechanisms within the United Nations system which promote the recognition and implementation of the rights of Indigenous Peoples. The Special Rapporteur on the Rights of Indigenous Peoples, the Expert Mechanism on the Rights of Indigenous Peoples, and the United Nations Permanent Forum on Indigenous Issues are all specifically focussed on the rights of Indigenous Peoples. The United Nations Human Rights Council and treaty monitoring bodies such as the Committee on the Elimination of Racial Discrimination, to which New Zealand has reporting obligations, also take an interest in Māori rights as a part of their broader mandate.

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In fact, the rights that are articulated in UNDRIP are intended to reflect the particular implications for Indigenous Peoples of rights which have previously been recognised as human rights more generally. In line with this approach, UNDRIP is framed by the core human rights of equality, freedom from discrimination, and self-determination. The 46 articles of UNDRIP describe how those rights apply to the distinctive circumstances of Indigenous Peoples. The rights expressed in UNDRIP are closely connected to the rights guaranteed to Māori under the Treaty of Waitangi. The New Zealand Human Rights Commission (n.d.) has described the two instruments as being ‘strongly aligned and mutually consistent’ and, therefore, ‘[t]he Declaration assists with the interpretation and application of the Treaty principles’ (‘The Rights of Indigenous Peoples’). UNDRIP is, therefore, an important part of the framework of Māori rights that ought to be considered in the development of public policy in Aotearoa (New Zealand). The relevance of UNDRIP to public policy has been addressed by the Waitangi Tribunal in several inquiries. UNDRIP and Reform of the Māori Community Development Act The most thorough examination of UNDRIP undertaken by the Waitangi Tribunal can be found in Whaia Te Mana Motuhake/In Pursuit of Mana Motuhake – Report on the Māori Community Development Act (2015). This report was the result of an inquiry into the process that had been adopted for the reform of the Māori Community Development Act 1962. That Act is significant in the context of Māori rights of self-determination because it established the New Zealand Māori Council as an advisor to government, and also provides the regulatory framework for Māori Wardens, a volunteer service that provides support and security often at community events. When the New Zealand government undertook a review of the Māori Community Development Act, representatives of the New Zealand Māori Council argued that this undermined the self-government institutions that were protected by the Act, and brought a claim alleging that the Crown was, therefore, acting in breach of the principles of the Treaty of Waitangi. The Waitangi Tribunal found that any policy development or law reform in this area should be based on the recognition of Māori self-government. Specifically, any reform of the Māori Community Development Act should be led by the New Zealand Māori Council itself and negotiated with the Crown. The Tribunal reached these findings after a thorough consideration of the principles of the Treaty of Waitangi, as informed by UNDRIP. The Tribunal explains how articles of UNDRIP are relevant to understanding the application of Treaty principles. For example, the Tribunal identifies Articles 19, 38, 39 and 46 of UNDRIP as assisting with the application of the Treaty principles of kāwanatanga. Kāwanatanga refers to the role of the Crown to govern the State of New Zealand, whilst also requiring it to act towards Māori with utmost good faith. The articles of UNDRIP identified by the Tribunal as relevant to understanding the application of the principle of kāwanatanga are as follows:

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Article 19 States shall consult and cooperate in good faith with the indigenous peoples concerned through their own representative institutions in order to obtain their free, prior and informed consent before adopting and implementing legislative or administrative measures that may affect them. Article 38 States, in consultation and cooperation with indigenous peoples, shall take the appropriate measures, including legislative measures, to achieve the ends of this Declaration. Article 39 Indigenous peoples have the right to have access to financial and technical assistance from states and through international cooperation, for the enjoyment of the rights contained in this Declaration. Article 46

a. Nothing in this Declaration may be interpreted as implying for any state, people, group or person any right to engage in any activity or to perform any act contrary to the Charter of the United Nations or construed as authorizing or encouraging any action which would dismember or impair, totally or in part, the territorial integrity or political unity of sovereign and independent states. b. In the exercise of the rights enunciated in the present Declaration, human rights and fundamental freedoms of all shall be respected. The exercise of the rights set forth in this Declaration shall be subject only to such limitations as are determined by law, and in accordance with international human rights obligations. Any such limitations shall be non-discriminatory and strictly necessary solely for the purpose of securing due recognition and respect for the rights and freedoms of others and for meeting the just and most compelling requirements of a democratic society. c. The provisions set forth in this Declaration shall be interpreted in accordance with the principles of justice, democracy, respect for human rights, equality, non-discrimination, good governance and good faith. The Tribunal notes that these Articles also speak to the right of States to govern, but that the State also has a role to play in ensuring that Indigenous Peoples participate in collaboratively developing legislation or administrative measures and providing support for this to occur. Furthermore, in exercising its governing role, the State has an obligation to protect the rights of all citizens, including Indigenous Peoples. These Articles also make it clear that the rights recognised in UNDRIP are to be interpreted and implemented in accordance ‘with principles of justice, democracy, respect for human rights, equality, non-discrimination,

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good governance, and good faith’ (p. 40). This, the Tribunal finds, is consistent with the Treaty principle of kāwanatanga and in fact reinforces and assists with our understanding of that principle. The Tribunal undertakes a similar analysis of the recognised Treaty of Waitangi principles of rangatiratanga, partnership, active protection, equity and equal treatment, and the right to development in the context of specific articles of UNDRIP. This contributes to the Tribunal’s assessment of the Crown’s compliance with Treaty principles in the development and implementation of policy. UNDRIP and the Development of Public Policy in Aotearoa (New Zealand) Whaia Te Mana Motuhake is not the only report in which the Waitangi Tribunal has addressed UNDRIP, though it is addressed in most detail in that report. UNDRIP has been raised in recent inquiries dealing with contemporary public policy processes, specifically where Māori participation has been at issue. The inquiry into the reform of Te Ture Whenua Māori Act/The Māori Land Act 1993 is one such example. In 2012, the New Zealand government initiated a process to review and reform Te Ture Whenua Māori Act 1993, the comprehensive statute that regulates the administration of Māori land. Claims were lodged with the Waitangi Tribunal challenging the process that the Crown had adopted for this review and an urgent inquiry into the matter was held. The Tribunal reported on this inquiry in He Kura Whenua Ka Rokohanga: Report on Claims about the Reform of Te Ture Whenua Māori Act 1993 (2016). In this report, the Tribunal notes the arguments raised by the parties in relation to UNDRIP and the standard of consultation required for compliance with Treaty principles. The claimants argued that this was a case where the Treaty/Māori interest was so central to the subject matter of the legislation in question that the standard of free, prior and informed consent that underpins many of the articles of UNDRIP should be the standard applied (p. 74). The Crown, on the other hand, argued that the UNDRIP requirement of consent to legislation is ‘aspirational’ and that so long as the Crown is properly informed of the Māori interest, the Crown should not be prevented from making final decisions on policy (p. 73). The Tribunal does not make any explicit finding about the UNDRIP standard in this report, but the Tribunal’s statements on the consultation process are clearly informed by reference to UNDRIP. Ultimately, the Tribunal found that aspects of the reform process were not Treaty compliant. However, the Tribunal acknowledged that the reform process was not entirely Crown led, even though information and representation were lacking in fundamental parts of the process. Standards of consultation and engagement with Māori over policy reforms have been raised in other recent claims to the Waitangi Tribunal. At the same time, UNDRIP is starting to become a more frequently cited reference point when Māori rights are before the courts (Charters, 2017). The New Zealand government’s engagement with UNDRIP continues to be relatively uneven, but

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understanding Māori rights and interests in the context of the broader articulation of the rights of Indigenous Peoples is becoming a crucial aspect in the development of public policy in Aotearoa (New Zealand).

CONCLUSIONS Māori rights and interests form an important element of the development of public policy in Aotearoa (New Zealand). Successive governments have struggled with addressing Māori rights within the public policy context. This can be seen across the key sites of engagement and interaction considered in this chapter. This interaction at the frontier is often challenging for both Māori and the Crown, and the effectiveness of public policy has been mixed, whether aimed at recognising or extinguishing distinctive Māori rights. As we have demonstrated throughout the chapter, over time, the Crown’s policy objectives, acknowledgement of Māori rights, and approaches to engaging with Māori have all shifted significantly. Nevertheless, the relationship between Māori and the Crown, and how that ought to be recognised in public policy, continues to be negotiated across multiple sites of interaction and remains dynamic.

NOTES 1.  For information on this process, see https://www.waitangitribunal.govt.nz. The text focusses on broader concerns, but the process itself is innovative as well. 2. Note that the provisions relating to the Te Oneroa-a-Tohe Board were originally introduced to Parliament in a combined Te Hiku Settlement Bill, but eventually ended up being repeated in separate settlement acts for each iwi involved. For simplicity, we will refer to the provisions as they appear in the Te Rarawa Claims Settlement Act 2015. 3. Ngāti Kahu, another iwi with rights and interests in this area, opted not to participate in the collective process, though still retains the opportunity to join the Te Oneroa-a-Tohe Board. 4.  Note that the other three countries who opposed the adoption of UNDRIP were Canada, Australia and the USA. Each of those countries has also subsequently modified its position in relation to UNDRIP.

FURTHER READING Bargh, M. (2007). Resistance: An indigenous response to neoliberalism. Wellington: Huia Publishers. Erueti, A. (Ed.). (2017). International indigenous rights in Aotearoa New Zealand. Wellington: Victoria University Press. Hayward, J., & Wheen, N. (Eds.). (2004). The Waitangi Tribunal – Te Roopu Whakamana i te Tiriti o Waitangi. Wellington: Bridget Williams Books. Hickford, M., & Jones, C. (Eds.). (2018). Indigenous peoples and the state: International perspectives on the Treaty of Waitangi. Oxford: Routledge. Jones, C. (2016). New treaty new tradition. Wellington: Victoria University Press. Mulholland, M., & Tāwhai, V. (Eds.). (2010). Weeping waters: The Treaty of Waitangi and Constitutional Change. Wellington: Huia Publishers. Wheen, N., & Hayward, J. (Eds.). (2012). Treaty of Waitangi Settlements. Wellington: Bridget Williams Books.

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REFERENCES Bargh, M. (2015). The Māori seats. In J. Hayward (Ed.), New Zealand government and politics. Auckland: Oxford University Press. Bargh, M. (2016). Māori wards and advisory boards. In J. Drage & C. Cheyne (Eds.), Local government in New Zealand. Wellington: Dunmore Press. Binney, J. (2009). Encircled lands. Wellington: Bridget Williams Books. Castree, N. (2004). Differential geographies: Place, indigenous rights and ‘local resources’. Political Geography, 23, 133–167. Charters, C. (2017). Use it or lose it: The value of using the declaration on the rights of indigenous peoples in Māori legal and political claims. In A. Erueti (Ed.), International indigenous rights in Aotearoa New Zealand (pp. 137–151). Wellington: Victoria University Press. Cox, L. (1993). Kotahitanga: Search for Māori Unity. Auckland: Oxford University Press. Durie, M. (2005a). Race and ethnicity in public policy: Does it work? Social Policy Journal of New Zealand, 24, 1–11 . Durie, M. (2005b). Ngā Tai Matatū: Tides of Māori Endurance. Auckland: Oxford University Press. Electoral Commission. (2018). Māori electoral option results. Retrieved from https://www.elections. org.nz/events/maori-electoral-option-2018/results-statistics Erueti, A. (1999). Maori customary law and land tenure: An analysis. In R. Boast et al. (Eds.), Maori land law. Wellington: Butterworths. Harris, A. (1996). Māori land development schemes 1945–1974. Unpublished Master’s thesis, Massey University. Retrieved from https://mro.massey.ac.nz/bitstream/handle/10179/6486/01_front. pdf ?sequence=1&isAllowed=y Jackson, M. (2016). Facing the truth about the wars. E‐Tangata. Retrieved from https://e-tangata.co.nz/ history/moana-jackson-facing-the-truth-about-the-wars/. Accessed on September 17, 2016. Jones, C. (2018a). Crown treaty settlement process ‘Not Fair or Reasonable’. RadioNZ. Retrieved from https://www.radionz.co.nz/news/national/355429/crown-s-treaty-settlement-negotiations-notfair-or-reasonable. Accessed on April 18, 2018. Jones, C. (2018b). Te Arawhiti – A game changer? Newsroom. Retrieved from https://www.newsroom. co.nz/2018/09/23/246760/te-arawhiti-a-game-changer. Accessed on September 24, 2018. Keane, B. (2010). Kotahitanga. In M. Bargh (Ed.), Māori and parliament. Wellington: Huia Publishers. Keenan, D. (2013). Ahuwhenua: Celebrating 80 years of Māori farming. Wellington: Huia Publishers. Marsden, M. (1992). Kaitiakitanga: A definitive introduction to the holistic world of the Māori. Wellington: Ministry for the Environment. Mikaere, A. (2005). The Treaty of Waitangi and Recognition of Tikanga Māori. In M. Belgrave, M. Kawharu, & D. Williams (Eds.), Waitangi revisited: Perspectives on the Treaty of Waitangi. Auckland: Oxford University Press. New Zealand Human Rights Commission. (n.d.). The rights of indigenous peoples: What you need to know. Retrieved from https://www.hrc.co.nz/files/5814/5618/4456/NZHR_Booklet_12_WEB. pdf Office of the Controller and Auditor-General. (2004). Maori Land Administration: Client service performance of the Maori Land Court Unit and the Maori Trustee. Report of the Controller and Auditor‐General. Wellington: The Audit Office. Payne, D. (2014). Mai Rangiriri ki Pōkaewhenua: The Confiscation of Pokaewhenua in the national interest 1861‐1869. Unpublished Ph.D. thesis, Victoria University of Wellington. Royal Commission on the Electoral System. (1986). Report of the Royal Commission on the Electoral System. Retrieved from https://www.elections.org.nz/voting-system/mmp-voting-system/reportroyal-commission-electoral-system-1986 Sharpe, M. (2018). Treaty claimant groups call on Crown to replace Hawke’s Bay Regional Council with commissioners. Retrieved from https://www.stuff.co.nz/environment/105751963/treatyclaimant-groups-call-on-crown-to-replace-hawkes-bay-regional-council-with-commissioners Sharples, P. (2010). Supporting UN Declaration restores NZ’s mana. Retrieved from https://www.beehive.govt.nz/release/supporting-un-declaration-restores-nzs-mana Shore, C., & Kawharu, M. (2014). The crown in New Zealand. Sites, 11(1). doi:10.11157/sitesvol11iss1id267 Te Urewera Board. (2018). ‘Te Kawa o Te Urewera’.

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Waitangi Tribunal. (2011). Ko Aotearoa Tēnei: A report into claims concerning New Zealand Law and Policy Affecting Māori Culture and Identity. Wellington: Legislation Direct. Waitangi Tribunal. (2018). Report on the Whakatohea Mandate Inquiry. Wellington: Waitangi Tribunal. Williams, D. (2007). Te Kooti Tango Whenua: The Native Land Court 1864–1909. Wellington: Huia. Williams, J. (2013). Lex Aotearoa: An heroic attempt to map the Māori Dimension in Modern New Zealand Law. Waikato Law Review, 21, 1–34. Wilson, J. (2010). The Māori seats. In M. Bargh (Ed.), Māori and Parliament. Wellington: Huia Publishers.

LEGISLATION [DATABASE] Hawke’s Bay Regional Planning Committee Act 2015. Ngā Mana Whenua o Tāmaki Makaurau Collective Redress Act 2014. Resource Management Act 1991. Te Arawa Lakes Claims Settlement Act 2006. Te Awa Tupua (Whanganui River Claims Settlement) Act 2017. Te Rarawa Claims Settlement Act 2015. Te Ture Whenua Māori Act 1993. Te Urewera Act 2014. Waikato-Tainui Raupatu Claims (Waikato River) Settlement Act 2010.

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CHAPTER 5 AGRICULTURE: CONTINUED STRENGTHS Frank Scrimgeour

INTRODUCTION The ongoing strength of the New Zealand (NZ) agricultural sector is a compelling story of how public policy has combined with private initiative to generate wellbeing for citizens. This success is manifest in the sustained productivity in the sector (see Table 1) and the ongoing contribution of the sector to NZ exports (see Fig. 1). Ongoing success in this area has been a feature of the nation’s history despite shocks and political challenges associated with war, social and technical change, and the changing structure of the world economy (Hawke & Lattimore, 1999). This enduring success has surprised those who perceived agriculture belonging to a ‘stage of development’, but the notion that natural resource-based countries will inevitably experience slower growth has not been sustained in the empirical literature (Rae, 2014). Agriculture has been defined as: The utilization of biological processes on farms to produce food and other products useful and necessary to man [sic.]. Both a ‘way of life’ and a ‘means of life’ for the people involved in this industry.

The agricultural sector incorporates production activity that occurs in specific biophysical environments and results in products which are transformed into a form that satisfy consumers. Agriculture is a sociological phenomenon whereby people engage with each other in the production and marketing processes, and the political and economic forces that shape their sector.

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 91–112 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032025

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Table 1.  NZ Productivity Statistics. 1978–2017 Transport, postal, and warehousing  Agriculture Agriculture, forestry, and fishing Information media and telecommunications Primary industries   Forestry, fishing, and services to agriculture, forestry, and fishing   Textile, leather, clothing, and footwear manufacturing   Wood and paper products manufacturing Retail trade   Non-metallic mineral product manufacturing Financial and insurance services Service industries Construction   Food, beverage, and tobacco product manufacturing Wholesale trade  Printing Goods-producing industries Manufacturing   Furniture and other manufacturing   Transport equipment, machinery and equipment manufacturing Electricity, gas, water, and waste services   Petroleum, chemical, polymer, and rubber product manufacturing Metal product manufacturing Mining Accommodation and food services

1996–2017

3.0 2.6 2.4 2.4 2.0 1.5

1.0 1.7 1.4 2.4 0.9 −0.1

1.3

1.6

1.3 1.0 0.8

1.9 2.4 0.7

0.8 0.7 0.6 0.5

1.1 1.0 1.2 0.2

0.5 0.4 0.3 0.2 0.2 −0.1

1.4 0.2 0.4 0.5 1.3 0.1

−0.1 −0.2

−2.1 0.8

−0.2 −0.9 −1.0

0.4 −1.8 −0.2

Source: Statistics NZ

Agricultural production predominantly occurs in rural communities, but the provision of inputs and the marketing of products occurs in towns and cities around the world. Understanding agriculture requires consideration of inputs, products, processes, and relationships across value chains and within their cultural, economic, environmental, political, and social contexts. Understanding of NZ agriculture is enriched if we consider the changing nature of NZ agriculture across all these dimensions. Following the introduction, this chapter presents an economic history of NZ agriculture, an economic description of contemporary agriculture in NZ, and an analysis of public policy and institutions that support NZ. Given this assessment of the past, the present, and the role of the State, this chapter concludes with an assessment of why NZ farmers have been, and continue to be, so successful.

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Fig. 1.  NZ Agricultural Exports as a Share of Total Exports (June Year). Source: Statistics NZ.

AGRICULTURE IN NZ’S SOCIAL AND ECONOMIC HISTORY Economic histories of NZ often emphasise how a settler society cut farms from the bush, to establish profitable enterprises on the back of international markets, made possible by refrigeration and higher productivity facilitated by the aerial application of fertiliser (Hawke, 1985). The outcome was an economy characterised by agricultural exports, and rhetoric of agriculture as the backbone of the country. However, settler agriculture was not only a construct of entrepreneurial pioneer communities but also a product of policy settings. In contrast to many other countries, the NZ government has only had an indirect role in supporting various forms of agricultural production and marketing during the last three decades. The absence of direct participation of government in agriculture does not mean that policy has been irrelevant for the sector and the nation. Since settlement, policies have had a major effect on commercial choices and the resulting economic, environmental, and social outcomes. Key policy settings impacting the trajectory of the NZ agricultural sector include those pertaining to access to land and capital; general economic policy settings of government; specific agricultural sector legislation that facilitates production and marketing; policy and investment in technical advance; collaboration and freedom in marketing, and supportive trade policies. From time to time, policy and practice have deviated, but in large measure the long run trajectory has been one of private initiative underpinned by a supportive policy environment. NZ Agriculture Until World War I From the commencement of European settlement through the start of World War I, agriculture grew strongly despite various challenges and shocks. Initially,

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agricultural production was extractive (e.g. harvesting flax which grew to exports of 25,000 tons in 1918 (Yeates, 1936), followed by grazing of native pastures. James Cook brought sheep with him in 1773 and Samuel Marsden in 1814, but sheep farming was established as a result of a series of imports in the 1840s. Large flocks were imported in 1843 by Bidwell and in 1844 by Clifford (Condliffe, 1959). This resulted in wool production being the dominant export product along with meat, dairy, and arable crops for the domestic market. By 1853, there were 300,000 sheep and 35,000 cattle in a Dominion with 28,000 European settlers (Belshaw, 1936c). Māori and Pakeha agriculture initially prospered in response to food demand associated with the period of gold discovery (Condliffe, 1959). Agriculture is dependent upon access to land and capital. After the establishment of the Wakefield settlements, large areas of land were leased for sheep farming. For instance in 1850, the majority of Canterbury land was leased by 180 licensees (Evans, 1969). Significant momentum to engage more farmers came with Governor Grey’s 1853 cheap land policy (Belshaw, 1936c). Throughout the period from 1860 onwards, the number of holdings increased consistently, reaching approximately 25,000 in 1880 and nearly 40,000 in 1890. Government acted during the 1890s to facilitate closer land settlement with a modest increase in the rate of holding formation with 60,000 holdings achieved by 1900 and 85,000 by the 1920s when the number peaked. Three important elements were used to increase holdings – changes to the leasehold regulations, the repeal of the property tax, and the most quoted but least used powers of compulsory acquisition of land (Evans, 1969). Furthermore, the establishment of the Advances to Settlers Office of Land was influential. Land required development and maintenance to be productive. Hence, large investments were made in cultivation, fencing, drainage, and weed control. It was during the 1880s that lime was first used to improve the pH of NZ soils (Evans, 1969). Agriculture was revolutionised by the development of successful refrigeration, which enabled the first shipment of frozen lamb to the UK in 1892. The markets of the UK beckoned for both meat and dairy products, and this boosted production across the nation. In the space of 70 years, the national sheep flock had grown to 24 million by 1914. Likewise, cattle number increased from 76,000 in 1880 to 202,000 by 2011 (Belshaw, Williams, Stephens, Fawcett, & Rodwell, 1936). Dairy exporting began with butter exports growing from 5 tons to 21,000 tons in 1915, and cheese exports growing from 22 tons to 40,000 tons in the same period (Stephens, 1936c). Growing sheep numbers and meat exports impacted farming practice. The proportion of merino sheep in the national flock declined as meat breeds increased. Pasture was supplemented by fodder crops as the area grown increased from nearly 100,000 ha in 1881 to nearly 320,000 ha in 1909 (Evans, 1969). The end of the gold rush, a decline in world commodity prices, and the limited size of the global wool market meant the wider economy struggled during the 1870s. However, on-farm investment by settlers seeking to establish themselves, and infrastructure developed by Vogel’s policies, provided a foundation for the longer view (Greasley & Oxley, 2009).

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There were also additional factors in play. Farmers were gaining experience and accumulating capital, new immigrants continued to arrive, and agricultural development did not just occur on the land and in processing firms. During the 1890s, multiple laws were passed to support the sector. Public sector impetus came with the formation of the Department of Agriculture in 1892, out of the Stock Department and the Agricultural Branch of the Land Survey Department (Evans, 1969). Between 1890 and 1910, at least 10 different Acts were passed pertaining to agricultural education, dairy processing, flax grading and export, land settlement, livestock, manure adulteration, slaughtering, statistics, and weed and pest control. NZ Agriculture from World War I Until World War II World War I disrupted agriculture. Labour was redirected from productive agriculture to the war effort. Market activity came under the control of intergovernmental agreements, resulting in product being ‘commandeered’ to meet national commitments. This was the precursor to Statutory Marketing Boards – the first of which were formed in the 1920s (Fleming, 1999). These Boards and their supporters were full of ambition, but they functioned best when they did not use all the powers they were given, but focussed instead on achievable tasks such as improving communication and managing product flow (Stephens, 1936a). Collective action was no panacea for market risk and the Boards had stressful relationships with cooperatives and the Government, as well as the investor-owned firms. Following the war, agriculture suffered with reduced food demand from the UK and the great depression that followed the sluggish twenties. Agricultural prices plummeted. Between 1929 and 1932, meat prices fell by 40% and wool prices by 63%. By 1934, dairy prices had fallen by 47% (Belshaw et al., 1936). Pessimism fuelled talk of the ‘farm problem’ (Belshaw, 1928). However, it would be a mistake to focus solely on the difficulties. It was also a period of significant activity. Technology was rapidly adopted. The Department of Scientific and Industrial Research was established in 1926. Government funded research programmes were initiated in Hamilton, Lincoln, and Palmerston North, addressing major issues in arable agriculture, pasture, and livestock production. Previously unproductive land became productive land once the Department of Agriculture staff discovered cobalt deficiency in the unproductive land (Coates, 1993). Scientists developed pasture swards of grasses and clover that thrived in NZ, and commenced research in animal genetics, soil science, the control of weed and pests, and other challenges facing the sector (Callaghan & Peren, 1936). Farmers rapidly expanded the application of fertiliser from 0.63 million ha in 1927 to 1.19 million ha in 1931 (Belshaw, 1936b). The number of milking machines utilised increased from 8,806 in 1899/1900 to 25,178 in 1933/1934 (Fawcett, 1936). Herd testing which commenced in 1909/1910 with 0.14% of cows being tested was rapidly adopted and increased to 16% by 1933/1934 (Ward, 1936). The number of tractors utilised increased ninefold between 1920 and 1928 (Ross, 1987). A number of irrigation schemes were established (Evans, 1969). Further, the sector

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and country responded to environmental challenges with the Soil Conservation and Rivers Control Act of 1941 becoming law (McCaskill, 1973). Employment grew. By 1930, the farm population was 345,770, or 23% of the total population, with farm wages reported to be 89% of the rate of all industrial groups combined (Belshaw, 1936a). The area of land farmed continued to expand and there was relocation of some land from larger blocks to smaller blocks. Between 1900 and 1920, Government acquired (largely by market transactions) 1.1 million ha of land which was either leased or sold freehold to returning soldiers or other eligible purchasers, and thus increasing the labour input into farm development (Williams, 1936). It was during this period that dairy farm sizes started to expand, and aggregation occurred due to economies of scale. This is not surprising given that, in 1933/1934, there were 75,000 dairy farms in the country but only 45% had more than 20 cows (Fawcett, 1936). The ability to fund land acquisition was enhanced by milk production per cow increasing by 45% between 1919/1920 and 1933/1934 (Fawcett, 1936). Māori agriculture continued to be marginalised, but changes in policy regarding Māori Lands Board led to Boards lending money to Māori entities in the 1920s (Williams, 1936). Despite the technological advances, the inter-war period ended with malaise following the depression, and a government searching for new institutional arrangements. Agriculture was to come under further pressure during World War II, as again mobilisation for a war effort and commandeering for the UK market slowed development. NZ Agriculture 1950–1983 Following World War II, a period of peace, combined with a maturing and more confident nation, led to significant investment and growth in production. A short boom associated with the Korean War fuelled optimism, and the steady growth of the domestic economy during the 1960s, along with the adoption of new technologies such as aerial topdressing, enhanced productivity. The 1950s was the exceptional decade when production volumes and export receipts grew at a fast and relatively consistent rate. On-farm productivity gains were accompanied by off-farm gains, as milk began to be collected by tankers and more modern processing plants were constructed for dairy and meat processing. Government saw the opportunities and facilitated returning soldiers onto the land. Farm lending was expanded through the State Advances Corporation. The government invested in the scientific institutions established prior to the war and developed significant research programmes. Additional investments were made to improve the quality of rural road networks, electricity and telephone networks, and ports. However, this investment in infrastructure and agricultural activity took place in the context of government policies to grow manufacturing, which in turn indirectly harmed the agricultural sector. Hence, the government responded with subsidies to keep the sector viable. Initially, these were input subsidies and subsequently they were complemented with output subsidies.

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The pressure was intense, and the problems compounded when the UK decided to join the European Community in 1972. From the mid-1960s through to the mid-1980s, the NZ Government was constantly in negotiation with European authorities to secure access for product. Again the economic challenge was met with proactive responses by Government and industry. The Dairy Board was established in 1960 and quickly diversified its marketing activities to establish itself as a major global player in the dairy sector (Lind, 2013). Likewise, the meat industry successfully diversified. The government achieved its first trade agreement with Australia with the NZ Australia Free Trade Agreement (1965), which evolved into the Closer Economics Relation Agreement of 1983. However, beginning with a price collapse in 1967/1968, course wool commenced its slide to becoming a by-product rather than a driver of farm businesses. A period of NZ history which had begun with much optimism in the agricultural sector ended with pessimism, and hence Prime Minister Lange’s perception of agriculture as a ‘sunset industry’. NZ Agriculture 1984–2000 Following the election of the Fourth Labour Government in 1984, the agricultural sector subsidies were removed, along with the disestablishment of a significant number of quasi-autonomous, non-government organisations that were focussed on agriculture. This was all part of a government strategy of reshaping the entire NZ economy, with a greater focus on the role of markets (Silverstone, Bollard, & Lattimore, 1996). These changes caused significant hardship as the sector went through significant transitions (Johnston & Sandrey, 1990). Nevertheless, again the sector managed to adapt and adjust. The total area under pasture reduced by nearly 3 million ha (Scanniello, 2018). The national sheep flock contracted and the national dairy herd expanded. Farmers produced fewer lambs of larger weight. Perhaps more important, albeit slower to occur, were the positive effects on farming of the reduced protection of the manufacturing sector. The costs of a protected manufacturing sector on the agricultural sector had been significant, in terms of lower incomes due to exchange rate effects, higher input prices, and higher prices of consumption items (Duncan, Lattimore, & Bollard, 1991; Rayner & Lattimore, 1991). To be fair, there had been attempts to ameliorate these costs. Approximately 38% of farm inputs were exempt from tariffs at some point, and another 30% were exempt if they were supplied from Britain (Rodwell, 1936). The sector also benefited from the deregulation of other sectors. Despite the sale of the Rural Bank to the private sector, financial liberalisation improved agricultural access to capital, thus overcoming past capital constraints (Pryde, 1987). This liberalisation also released significant areas of Māori land from the control of government departments into the control of Māori organisations, yielding economic and social benefits. Agricultural transitions were not seamless. Expertise in one form of agriculture did not guarantee expertise in another. Furthermore, many farm and city

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investors experienced losses as asset prices became inflated during the emergence of new agriculture activities, including deer and goat farming, and grape and kiwifruit production. Transition costs were also experienced in the public sector, as well as the offfarm processing sectors. The Department of Scientific and Industrial Research (DSIR) and agriculture-oriented Ministries and Departments were restructured. Three new Crown Research Institutes that were focussed on the agricultural sector were established. The Government owned farm advisory services were privatised. New institutions were formed to facilitate private sector led marketing within what was perceived as a robust policy framework, which minimised both free-riding and forced-riding. This included the Horticultural Export Authority (1987), Zespri (1997), and Fonterra (2001). Meanwhile, the major political parties were active in international trade negotiations, to reduce tariffs and restrictions on agricultural produce, and played an important role within the ‘Cairns Group’ of nations.

AGRICULTURE IN THE TWENTY-FIRST CENTURY Twenty-first century agriculture in NZ utilises approximately 14 million hectares of land, with an internationally competitive suite of industries that is constantly changing in response to the economic and political environment. It employs approximately 130,000 people managing nearly 60,000 farm holdings, and associated input-providing and output-utilising firms. The sector is characterised by the diversity of products and production processes, the farm and orchard businesses involved in production, as well as the agribusiness firms that provide farm and orchard inputs, and process and market the outputs. It is important to consider the productivity and incomes achieved, the pressures and challenges faced, and the resultant economic contribution to the nation. Table 2 reports farm numbers for NZ. The productivity of these farms can largely be explained by variations in capital, labour, intermediate expenditure, and productive land, although differences in farm practice and locality characteristics (such as weather) impact the output Table 2.  NZ Farming Types. Farm Types Dairying Sheep and beef farming Cropping Deer farming Pig farming Poultry Total Other Total all farm types

Number of Farms

Percentage of Principle Farm Types

12,150 25,113 3,297 1,128 225 135 42,048 16,020 58,068

28.9 59.7 7.8 2.7 0.5 0.3 100.0

Source: (Statistics NewZealand, 2014).

Area in Sown Pasture (‘000 ha) 2,415 9,328 284 287 11 3 12,327 2,067 14,394

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(Apatov et al., 2015). However, it should be noted that these gains are associated with the ongoing advances in scientific, business, and economics research, helping managers to adjust their production systems and associated management and monitoring. The adoption of precision farming technologies, animal tracking systems, and information systems complements the adjustment of specific technologies and enhances the value of human capital. Some of this progress is driven by farmers but other aspects are driven by the government, as is the case with the National Animal Identification and Tracking System (NAIT). The definition of a farm has evolved though time. Historically within NZ, a farm was regarded as a single land-holding farm business. Through time many of these farms expanded via amalgamation. Some farm businesses evolved to include two or more farms operating as a single farm system, such as a finishing farm to complement the hill country station or a dairy run-off for rearing replacement stock. Since the 1990s, farming groups have emerged with a controlling interest in five or more farming operations. The group may or may not be registered as a limited liability company. The group may or may not involve equity partners and sharemilkers co-investing in the operations. In essence, a farming group is a production entity operating across multiple properties, and leveraging capital and agricultural skills and expertise, to achieve profitable production. A surviving farming group would have demonstrated an ability to achieve economies of scale in production. The emergence of these groups is significant in that historically this has been hard to achieve in NZ. It is interesting to note that the majority of these groups have their roots in a significant family commitment. The question remains as to whether these groups will survive and thrive through intergenerational transfer or sale as a business, or whether they will unwind into subsidiary parts. With regard to share-milkers, it is appropriate to note the Government’s role in facilitating agreements and reducing transaction costs by issuing ‘orders’ under the Sharemilking Act 1937. Farm and Orchard Structure Contemporary farms and orchards are larger and more productive than farms and orchards in the past, as shown in Table 3. Care should be taken in interpreting data, as often a business entity owns one or more farms/orchards, and the table reports average data for a single farm/orchard. Growth in farm size and productivity is associated with the substitution of labour for both capital and services. It is helpful to consider the ‘farm’ as a nexus of contracts (Allen & Lueck, 2002). Farmers purchase inputs and services to support on-farm production. Farm inputs are purchased from numerous investorowned firms (IOF) and cooperatives (Scrimgeour, 2014). Furthermore, contemporary farmers make significant use of contractors in the production process. Hence, contractor activity is also significant. Input suppliers include local firms, specialised foreign firms, and multinational businesses. Farms sell production to IOF or sell through cooperatives. These processors distribute and market product around the world. These relationships provide pathways for reaching global markets, but they also require agreement on supply arrangements

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Table 3.  Farm and Orchard Size. NZ Dairy Farms (Owner Operators) Farm Size (ha) 2000/2001 2016/2017

100 148

Herd Size (peak) 252 414

Milk Production (kgMS) 79,857 160,302

Gross Income $422,900 $1,014,072

NZ Sheep and Beef Farms (All Classes Average) Farm Size (ha) 2000/2001 2016/2017

589 640

Total Stock Units 3,894 3,846

Lambing % 116.3 128.9

Gross Income $288,605 $479,199

NZ Kiwifruit Orchards Orchard Size (ha) 2000/2001 2000/2001 2017/2018 2017/2018

Green 3.5 ha Gold 2.0 ha Green – 3.5 ha Gold – 2.6 ha

kiwifruit Trays/ha

Orchard Return: $/tray

6,596 5,527 8,812 11,292

$4.51 $4.96 $6.71 $10.06

Gross Income $104,118 $54,830 $206,950 $295,354

Sources: Beef+Lamb NZ; Dairy NZ and Zespri.

and pricing. Cooperative members are also investors in the cooperative. Many farmers also invest in IOF involved in the sector. These investments are partly an attempt to secure the relevant business services and partly to gain knowledge about what is happening in this part of the value chain. Some contracts are formalised whilst others are implicit. These relationships are complemented by spot market transactions. What is unusual in NZ agriculture is the minimal role of futures trading in agricultural commodities. Some of these purchasers connect directly with global customers whereas others link into global supply chains of other firms. Agribusiness External to the Farm and Orchard NZ agriculture involves numerous commercial relationships and transactions in pursuit of production, processing, distribution, and marketing. The 2013 Business Demographic survey by Statistics NZ identified 200,600 business enterprises in NZ. This included 67,973 in agriculture, fishing, and forestry, and 20,481 in manufacturing. If we exclude fishing, forestry, and manufacturing not related to agriculture, we end up with an estimate of 71,000 agribusinesses in NZ. These NZ agribusiness firms can be classified into the following six categories, on the basis of their business focus. They are farming groups; general farm input suppliers; specialist farm input suppliers; dairy processors and marketers; meat processors and marketers; other processors and marketers; state-owned enterprises and other industry participants. Perhaps surprisingly, NZ capital investment in off-farm agribusiness is only 15% of that invested on-farm. Farmers often purchase inputs from specialist suppliers because of the expertise associated with the product, service, installation, or maintenance provided. Specialist providers are often used for irrigation systems and equipment, tractors

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and farm machinery, fertiliser and fertiliser spreading, insurance. Specialised providers have greater product specific knowledge but sometimes they suffer from less developed distribution systems. Contractors generally provide increased utilisation of equipment and more experienced machine operations than when farmers seek to own and operate equipment themselves. General farm input suppliers are significant with farms, with expenditure less labour exceeding $8.5 billion per year. This includes more than $1.6 billion spent on fertiliser applications, and both animal health and vehicles expenses exceeding $600 million per year. Sometimes product input suppliers also provide services such as seasonal finance, insurance, or livestock trading. General input suppliers are those firms that provide a portfolio of products to farmers in a particular region or industry. There are at least four general farm input suppliers with sales in excess of $100m per year, including Ashburton Trading Society, Farmlands Trading Society, Farm Source, and PGG Wrightson. There are at least 10 specialist farm input suppliers with sales of more than $100m per year. They include Ballance; C B Norwood; Dow Agroscience; FMG; Gallagher Group; LLC; Power Farming Group; Rabobank; and Ravensdown. In addition to the specialist input suppliers, a number of economy-wide businesses have staff or divisions focussed on the agribusiness sector, such as the agribusiness sections of the major commercial banks. Exports Agricultural production in NZ is dominated by export products which in the year ended June 2018 had an estimated value of $31.7 billion. Dairy products, at $16.6 billion (52%), was dominant, followed by meat and wool at $9.4 billion (30%), and horticulture at $5.5b billion (17%). Arable exports were $220 million (1%). Within these categories, the product mix has changed modestly from previous decades. Dairy products are dominated by milk powders (44%), butter (22%), cheese (12%), and caseinates (10% of value). It should be noted that export volumes of infant formula have grown by a factor of 6.7 in the last 15 years, and other dairy products have grown by a factor of 3.7 during this period, although they still only comprise 6% and 5%, respectively, of dairy export revenue. Sheep and beef products are dominated by lamb and mutton (37%), and beef and veal (30%). Wool and venison are modest contributors. Horticultural production is dominated by kiwifruit (34%), wine (31%), and apples and pears (14%), of horticultural export revenue. It should be noted that in addition to exporting, agricultural products are also produced for and consumed by the domestic market. The largest contributors in this space are chicken, eggs, pork, and fruit and vegetables. Dairy processors and marketers collect milk from farmers, process it and sell it. Over 90% of this milk is exported. There are at least six dairy companies with sales in excess of $100m per year: Fonterra; Open Country Cheese; Westland; Synlait; Tatua; and the Dairy Goat Cooperative; however, Fonterra stands out on its own as the only one with sales close to $20b per year. In addition to these players, Goodman Fielder plays a significant role in the domestic fluid milk market. The milk is processed into a wide variety of products, with major categories being whole

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milk powder, skim milk powder, butter and cheese, but firms are making on-going investments to grow margins and markets through value added activity. It should be noted that although there is a modest number of major factories, there were more than 400 licenced dairy product exporters as at March 2014. Despite the vertical integration along the dairy chain, it is appropriate to note the place of milk auctions and the Global Dairy Trade trading platform for price setting. Meat processors and marketers sell both frozen and chilled products. There are at least four exporting firms with meat revenues in the order of $1b per year (AFFCO, Alliance, ANZCO, and Silver Fern Farms), and at least four others with revenues in excess of $100m per year: Blue Sky Meats (NZ); Greenlea Premier Meats; Ovation NZ; Taylor Preston; UBP, and Wilson Hellaby). In addition to this, Inghams and Tegel generate more than $100m of revenue in the chicken industry. As at May 2014, there were 124 meat exporters listed on the Beef and Lamb trade directory. NZ agribusiness produces a diversity of products that extends beyond dairy, beef and sheep meat products. Merino NZ has been an active commercial player in seeking to enhance the returns to fine wool. NZ agriculture has long been characterised by a significant number of cooperatives (Stephens, 1936b). Cooperatives make up more than 25% of the population of NZ companies, generating more than $100m of revenue per annum. In 2017, there were 15 agricultural cooperatives (or cooperative like entities) in the top 200 companies in NZ. They included: Fonterra Cooperative Group (1); Foodstuffs Auckland (5); Foodstuffs South Island (11); Zespri Group (15); Farmlands Cooperative Society (17); Silver Fern Farms (18); Alliance Group (28); Ballance Agrinutrients (52); Westland Cooperative Dairy (64); Ravensdown Fertiliser Cooperative (66); Market Gardeners Christchurch (71); Tatua Cooperative Dairy Company (128); Ashburton Trading Society (170); NZPM Group (178); and LIC (182) (Deloitte, 2017). NZ agribusiness competes and complements global food and industry players that are involved in NZ and the markets we supply. Heinz and Nestle both do more than $100m of business in NZ and have business engagements with NZ products outside of NZ. John Deere, and other machinery suppliers, make major contributions to the sector. Likewise, new technology companies play an important role. It is noteworthy that there are both international and domestic companies based at The Waikato Innovation Hub where more than 40 companies are involved in testing new products and commercial opportunities. A significant proportion of the domestic technology companies also have offshore activities. A small number of the large NZ processors also have off-shore facilities – some re-processing domestic product and some processing foreign product.

AGRICULTURE AND THE STATE – POLICY AND INSTITUTIONS NZ’s historic and contemporary agricultural success has been built on successful alignment of government, farmer, and other interests. On the occasions when the level of alignment has diminished, pressures have emerged. However, it would be a mistake to consider the relationship between the State and agriculture as a simple

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two-party relationship. The State is multi-faceted. There are political and bureaucratic institutions involving elected politicians, as well as officials in the public service. At present (in 2020), there are multiple institutions involved in these relationships, including the Ministry for Primary Industry (MPI) and the Ministry for Business, Innovation and Employment (MBIE), and at least 10 other public agencies/entities that have significant interactions with the agricultural sector. Likewise, with agriculture. There is diversity in farm systems, farming locations, farming business systems, as well as farmers. Furthermore, ‘industry good’ organisations have emerged in the majority of sub-sectors where one of their major roles is engagement with Government. Given Government and agricultural diversity, agricultural policy formation and implementation has consistently involved a network of engagements, within an evolving economy, within the evolving global economy. It has been characterised by both continuity and shocks. Governments and the sector have consistently pursued their aspirations for a successful agricultural sector, contributing to regional and national wellbeing, and not having adverse effects on specific regions or the national economy. The pursuit of such success has required ongoing dialogue with non-government identities as well. This has been essential not only for gaining political acceptance but also because Government has limited information about many components of the agricultural sector. Participants have included those focussed on agricultural interests and those focussed on other interests. Agricultural producer interests have engaged via Federated Farmers (itself an amalgam of subsector entities), levy bodies (such as Beef and Lamb NZ) who levy their members for funding per the requirements of the Commodities Levy Act) and by their participation in committees and enquiries. Agriculture processing and marketing interests (such as Fonterra and Zespri) have engaged by direct dialogue with Ministers and officials, as well as engaging in public persuasion strategies. Agricultural input interests (such as Irrigation NZ and the NZ Fertiliser Manufacturers Association) have engaged by participating in regulatory and policy debates. Agribusiness entities beyond the farm gate (such as the Meat Industry Association) likewise engage with officials and politicians to ensure policy decisions are not farmer-centric. Policy engagement has never been the responsibility of one Government entity in isolation. Where Ministry for Primary Industries (MPI) are engaged on a policy industry, they not only engage with the private sector but also engage with other government entities (such as Ministry of Business, Innovation and Employment [MBIE] and Ministry of Foreign Affairs and Trade [MFAT]). Furthermore, there are the normal routines of the public sector, and the intense periods of engagement associated with critical events such as The Royal Commission into the Sheep Industry (1939), responses to biosecurity events such as the 2010 Pseudomonas syringae pv actinidiae (PSA) outbreak in kiwifruit, and responses to actual and potential food contamination events. Agricultural policy formation does not just involve government engagement with farmers, growers, and agribusiness interests. Other important forms of dialogue involve consumer interests that have aspirations regarding food quality, food pricing, and food information. Environmental interests are also a key contributor to agricultural policy formation, given the actual and potential impacts

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of agriculture on the environment. This includes direct lobbying via specific environmental groups, as well as collaborative participation in decision processes as with the Land and Water Forum. Local and regional government are important because they are the main source of infrastructure affecting agriculture (e.g. roads and ports), but also the major source of environmental regulation. Beyond these stakeholders, Māori are a critical participant in agricultural policy dialogue. Māori as tangata whenua have rights recognised in key legislation as Treaty rights. Furthermore, Māori are major land owners and directly engaged in significant agricultural production and exporting. When considering NZ agricultural policy, it is useful to focus on the key themes that have dominated agricultural policy over decades. These include: sustainable land rights; facilitating production; resolving externality problems; securing future production; and successful processing, marketing, and trade. It has long been recognised that farm ownership provides strong incentives for farmers to both invest and manage the land efficiently. In the NZ context, this required the Government to secure property rights for land and allocate them. Throughout the period from 1840 to 1890, the Government had a major role in securing land, allocating it, and establishing a land information system that sustains a land market. The result was widespread land ownership, with famers having confidence to invest and the ability to expand or exit as per their preferences and access to resources. Nevertheless, this land acquisition and distribution policy was compromised at various times by Government actions, both in the early years of settlement and more recently (see Waitangi Tribunal in Chapter 4). Despite the alienation of land, some remained in Māori ownership under Māori control, with significant areas of it managed by the Government via the Department of Māori affairs. The establishment of Te Puni Kokori in 1992 was an important step in the transfer of several thousand hectares from government management back to management by iwi (tribe) and hapu (subtribal or clan) organisations. This has been complemented by land returned as a result of Treaty Settlement processes. Considerable areas of Māori land continue to be fragmented and be characterised by lower than average productivity. In response, the Te Ture Whenua Māori Bill was considered by Parliament in 2017, with a focus on more autonomy for Māori land owners over their whenua; greater ability for Māori land owners to utilise their whenua; and greater simplicity and efficiency working with Māori land; whilst safeguarding whenua for current and future generations. The bill was not passed, and the Labour led Government elected in 2017 is now focussed on ‘efforts to support Māori Land owner collectives, whanau (family group) and hapū who seek to develop the potential of their land and enterprise opportunities.’ Sustaining agricultural production throughout NZ provides income and employment for citizens, tax revenue for government, and exports which are valuable for a small, open and isolated economy. From the earliest days of settlement, even prior to the formation of the Agriculture Division within the Ministry of Lands in 1856, Government has sought to increase agricultural output. Building the nation on an agricultural foundation was an assumed

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doctrine. Frequently, the doctrine has been reconsidered in the light of technological advances and aspirations to grow non-agricultural employment. The National Development Conference of the 1960s and the associated Agricultural Development Conference (Philpott, 1975; Sutch, 1964) represented typical conversations in that context. Policy approaches to enhance agricultural production have been focussed on financial incentives, State (including infrastructure) investments, education and extension activity, and the co-creation of quality standards and systems. Prior to the 1960s, financial incentives were attempted to initiate activity rather than to subsidise an industry. One famous example was a £500 grant to the first company to establish a factory that produced 500 tons of butter or cheese. During the period from 1966 to 1984, the breadth of subsidies increased and included subsidies on some inputs such as fertilisers and pesticides, and subsidies on some outputs such as milk and lamb. State investments included development of railways, roads and ports, the development of land by the Department of Lands and Survey which was on sold to farmers, and the co-development of irrigation schemes. The Government also invested in agricultural education programmes through Lincoln College (founded 1878) and Massey College (founded 1927), both of which eventually became universities. Other education providers and the Ministry of Agriculture farm advisory officers developed human capital and facilitated the transfer of scientific knowledge critical for modern farming. Government initiated finance came to the sector by the Reserve Bank providing subsidised credit to Statutory Marketing Boards and the State Advances Corporation, and later the state-owned Rural Bank being a major source of farm finance. Increasing productivity was not just a matter of the government providing financial incentives or making financial investments. The government worked with the private sector in the importing of new plant cultivars and animal breeds. Historically, problems occurred when the government was beholden to hunting interests and had limited scientific and organisational capacity to evaluate proposed imports. In recent decades, gene pools have been enhanced to improve productivity and biocontrol agents have been imported to reduce pest damage without adverse effects. However, plant and animal breeding has been constrained by restrictions on genetically modified organisms following the Royal Commission in 2000. Farmers and the government have long known that incomes depend on quality as well as quantity of outputs. Developing agreed quality measures and standards has been an ongoing activity. NZ implementation of the Babcock test for milk content was an important early milestone following its development in Wisconsin. More recently, standards for fertilisers and other inputs, and for measuring and grading wool and other products, have increased market efficiency. Likewise, the development of traceability systems has increased consumer and government confidence that product sources can be validated. Traceability systems have also been valuable in tracking livestock and plant cultivar movements. Market acceptance of the majority of these standards has relied on government recognition and verification.

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Agriculture is impacted by shocks that affect production or markets. Earthquakes, storms, and droughts have all led to disaster relief activity being undertaken by governments. Earthquakes such as Murchison (1929), Napier (1939), Canterbury (2008), and Kaikoura (2013) have all led to government support – especially pertaining to infrastructure. Storms and flood events have also caused significant losses. Government action has been focussed on preventing adverse effects (e.g. by subsidising the building of stop banks), and by social welfare support for those badly affected. Likewise, droughts have been addressed through drought preparedness advice and by the provision of social welfare support in association with Rural Support Trusts. Weeds, pests, and diseases have also been an ongoing challenge. Rabbits have caused major agricultural losses and environmental damages for many decades. Government expenditures on pest control have been important for control but with variable success. Tuberculosis (TB) testing of cattle and expenditure on possum control has been another public investment that has assisted agriculture and the wider community. In the twenty-first century, collaborative investment to contain PSA in the kiwifruit and M bovis in cattle have been significant. Sustaining production following adverse price shocks and declines in farmer terms of trade is difficult. Largely, individual farmers have borne the burden with reduced household consumption, adjusted farming practice (minimal maintenance), deferred debt repayments, and sometimes bankruptcy. Individual farm operations have been characterised by high rates of farm accidents resulting in injuries and death. In the 1960s, the Government commenced tractor safety campaigns to address one major concern. The issue has commanded further attention from policy makers in the twenty-first century, resulting in significant changes in farm practice. Sustaining agricultural productivity growth requires ongoing research and development. Given the time period from initial investment to economic return, the benefit to any individual farmer from engaging in scientific research is low. However, research in NZ (Scobie & Eveleens, 1986) and around the world (Alston & Pardey, 2016) has shown very significant economic returns. Not surprisingly, governments have worked with agricultural industries to fund scientific research in universities, the DSIR, the Department of Agriculture and its successors, and the Crown Research Institutes. Research and development expenditures have focussed on the farm domains of soils and fertilisers, plant and animal health, plant and animal genetics, and the off-farm domains of dairy, meat, and wool processing. In this century, 2 of the nation’s 11 national science challenges focus directly on agriculture – namely High-Value Nutrition and Our Land and Water. Government policy directly impacts agricultural processing, marketing, and trade. In the early years of NZ, marketing activity was more limited with NZ functioning as Britain’s South Pacific farm. Even then however, engagement with foreign partners was necessary, given that NZ exporters were not directly connecting with consumers. Frozen lamb and cold dairy products were transported in ocean going vessels and stored in foreign cool stores before they reached wholesale markets and ultimately retailers. In this period, inter-government agreements were important and this solidified during the war years when the NZ government

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‘commandeered’ product for Britain. Following the end of World War I, a number of statutory marketing Boards were established, with changes and additional Boards being established after World War II as well. These Boards could never achieve what some of their protagonists hoped for; nevertheless, they were a mechanism of cooperation and for improving information flows. The variation in their design and activity is partly evidence of being fit for purpose. Since the deregulation of the 1980s and 1990s, there have been fewer State sanctioned entities involved in international commerce. Fonterra is a cooperative company rather than a statutory marketing board – though its existence does derive from the Dairy Industry Restructuring Act. Zespri is a limited liability company with sole export rights beyond Australia, but there is a regulatory body – the New Zealand Kiwifruit authority. The Wool Board and The NZ Meat Producers’ Board were disestablished. A replacement – the New Zealand Meat Board – manages allocation systems for three country-specific Tariff Rate Quotas (TRQs), for export markets which have TRQs to be administered by NZ, and registers meat companies to export to markets all over the world in accordance with the Meat Board Act 2004. In the twenty-first century, governments have focussed on facilitating trade by working with the World Trade Organization, negotiating trade agreements (an MFAT responsibility), and building market relationships (NZ Trade and Enterprise). Onshore, the focus is on ensuring that industry specific legislation, such as the Dairy Industry Restructuring Act, is fit for purpose, and that the Commerce Commission is fulfilling its duties pertaining to collusion and other commercial misdemeanours, and the evaluation of merger decisions. Managing agricultural externalities has been a long-term policy concern, which has been increasingly important during the last 30 years. Possibly, the biggest initial concern was soil erosion. As North Island bush was removed from hill country to establish pastures, significant soil loss was experienced, damaging pastures, and fences and increasing sediment flows in rivers and streams. Erosion problems were also occurring in other parts of the country. Researcher initiative, farmer concern, and government investigation in the 1920s and 1930s resulted in the Soil Conservation and Rivers Control Act which became law in 1941. This led to numerous initiatives by Catchment Boards and others, to reduce erosion and flooding and improve water quality. Another early concern related to waste streams from dairy factories, meat processing plants, and wool scours. During the last decades of the twentieth century, significant progress was made to substantially reduce adverse impacts from these plants. Experience gained from the implementation of initial legislation, along with the evolution of public expectations and scientific knowledge, led to the passing of the Resource Management Act in 1993. This has been the principle legislation which has shaped industry, government, and citizen conversations about policy, to manage externalities and determine and implement sustainable management practices. The implementation of this Act by Regional Councils has resulted in a mix of regulations, resource consent processes, and tradable emission rights that have been reducing agricultural emissions in some contexts. However, emissions growth has continued in places where the regulatory constraints were not binding.

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A key development since the 1980s has been the consideration of the intergenerational external effects of greenhouse gas (GHG) emissions. This has resulted in the Emissions Trading Scheme which to date has only indirectly impacted agriculture. Given the magnitude of the challenge, the government and industry have invested in research via the establishment of the Greenhouse Gas Research Centre, which has been investigating ways to reduce GHG emissions by NZ agriculture. Another agricultural challenge is water allocation. NZ has moved from the historical situation where water rights were determined on the basis of prior appropriation, to being determined by processes under the Resource Management Act (RMA). Unfortunately, these processes have not evolved as fast as could be expected, and there is evidence that significant current allocations are suboptimal and there is no feasible pathway to more optimal allocations. In recent decades, governments have been directly involved in agriculture via state-owned enterprises and their farming, research and quality assurance activities. These entities have strategic responsibilities from the perspective of government, but they also have to function in a commercial manner. There are at least four state-owned enterprises in the agribusiness space, with annual revenues exceeding $100m. They include: AgResearch; Assure Quality; Pāmu Farms; and Plant and Food Research. The key areas of Government involvement in agriculture is summarised in Table 4. In each of these domains, there is significant government policy and law, guiding government (and to some extent industry) strategy and actions. Beyond this, there are hundreds of other initiatives, regulations, and activities where government engages with the sector. Table 4.  Government Engagement with Agriculture. Issues Biosecurity Land ownership and agricultural finance Land, water, and CO2 management Manufactured inputs Farm production processes Food processing Research

Domestic markets International value chains and markets

Focus of Activities Borders management Responses to incursion Land law and titles Overseas investment Resource management Climate change Product standards Animal welfare; Health and safety standards Product and processing standards Research funding; Commodity levies

Research Commerce Commission Dairy industry legislation Market facilitation Trade negotiations

Major Activities Inspection Control Facilitation Approval National policy statements Emissions trading scheme Establishment and inspection Establishment and inspection Establishment and inspection Facilitating industry contributions and Funding Government and nongovernment researchers Undertaking research Facilitating competition Facilitating competition International relationships International agreements

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CONCLUSION: AN ASSESSMENT OF WHY NZ FARMERS ARE SO SUCCESSFUL NZ agriculture has been successful for a number of reasons. First, it is important to note that NZ agriculture is diverse and constantly changing. Wool was the largest export in 1953, meat the largest export in 1983, and dairy the largest export in 2013. This flexibility has been crucial for the resilience of the sector. Agricultural success in NZ has been built on the biophysical environment and at least six policy-related factors: access to land and capital; the economic policy settings of government; specific agricultural sector legislation that facilitates production and marketing; technical advances; collaboration and freedom in marketing; and supportive trade policies. From time to time, policy and practice have deviated, but in large measure the long run trajectory has been one of private initiative underpinned by a supportive policy environment. The biophysical environment is conducive to agriculture. Despite variation in soil quality, large areas are fertile, and many more areas have been made productive with the addition of fertiliser. The climate facilitates grass growth all year round. Although there is a seasonal pasture production curve, this can be managed without housing animals. Farming to the grass curve, with judicious use of supplementary feed, has been profitable. Although the initial view was, that there were limited areas of land suitable for horticulture, significant areas of land are suitable for apples, kiwifruit, wine, and other horticultural crops. This biophysical setting provides the opportunity for successful agriculture. Within this agriculturally attractive biophysical environment, agricultural success has been built on access to land by owner managers with responsibility for decision-making and opportunities to benefit from the outcomes. The outcome has been a relatively educated and entrepreneurial farm business class, which contrasts with the tenant farmers of old Europe, the peasant farmers of the third world, the explicitly controlled farmers of China and Eastern Europe, and the implicitly controlled farmers operating under Farm Bills in the USA, supply management in Canada, and regulations in modern Europe. The economic policy settings of governments have been crucial in enabling farmers to succeed. Macroeconomic policy settings that sustained growth in the long run and which have minimised the adverse effects of shocks have been essential. A low inflationary environment is important for agriculture which relies on investment which brings reliable returns, but over a medium to long-term time horizon. Stable capital markets have been essential as the sector copes with significant fluctuations in both product prices and production. Modest taxation, and sustained public investment in infrastructure, have underpinned business confidence. Specific agricultural sector legislation has been important in facilitating production and marketing. The flurry of legislation in the late nineteenth century is indicative of the need – The Rabbit Nuisance Act 1882, The Stock Act 1893, The Pastoral and Statistics Act 1895, The Orchard and Garden Pest Act 1896, and the Dairy Industry Act 1898. These and related legislation provided common standards and practices, as well as facilitating understanding and transactions,

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and helped to resolve adverse external effects. Success has followed where robust understanding at both conceptual and practical levels was combined with pragmatism and resolve. Legislation which facilitated the formation of Zespri and Fonterra are examples of pragmatic legislation which has delivered for a significant period. Legislation such as that underpinning the Supplementary Price Schemes of the late 1970s failed the test and did not last. Technical advances have been a core element of on-farm and off-farm activity, enabling farm productivity and output to grow and the mix of manufactured products to diversify. This has included the major developments associated with refrigeration; plant and animal genetics; application of fertilisers; and the development of factories and processing systems. It also includes the simpler developments such as the development of rotational grazing practices and alternative structures for growing kiwifruit. It has constantly been assisted by developments outside of the sector, such as the production and distribution of electricity which has empowered farms, and the development of cell phone technology that has allowed farmers to manage multiple farms. Successful agriculture depends on satisfying customers. NZ agriculture began by satisfying consumers in NZ, Australia, and Britain. In the last 60 years, the set of customers has expanded around the world. Achieving successful marketing arrangements has required both collaboration and freedom in marketing. Collaboration has been required to enable numerous small producers to band together to provide sufficient scale and scope for success. This has involved cooperatives, contracting, and a range of alternative approaches. Occasional overreach has occurred with unnecessary restrictions which have limited innovation and adaptation. Commercial firms, whether investor-owned or cooperative, operate in a world of sovereign governments. In the early years of NZ’s history, agreements with Britain provided access and shaped the development of commerce. In recent decades, with Britain belonging to the European Community, and global trade expanding, the challenges of bilateral and multilateral relationships have continued to be demanding. The quality of agricultural policy and related policies has varied through the decades. Mostly policy settings have been helpful, if not optimal. From time to time, policies have directly or indirectly harmed the sector as when marketing has come under State control, and when production has been subsidised. Governments have been willing to respond and adjust policy settings on the basis of the agricultural, economic, environmental, and social experiences. A key feature of NZ policy is that government institutions, processes, and investments have had to evolve to address changing priorities – particularly in a world of evolving technologies and evolving consumer expectations (Nightingale, 1992). NZ agriculture has flourished for approximately 170 years. It will continue to do so if governments successfully navigate the political requirements of urban electorates, whilst providing sufficient opportunity and freedom to educated and entrepreneurial farmers. There is ongoing global demand for agricultural and food products (with evolving tastes (Tait, Saunders, Gue, & Rutherford, 2016). NZ has the capacity to produce for these markets and generate farm incomes and well-paid

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employment. The challenge is not so much domestic policy objectives but determining the policy institutions and instruments that will be used to pursue them.

REFERENCES FOR FURTHER READING, USEFUL CASES/POLICY TOOLS, AND KEY SOURCES Allen, D. W., & Lueck, D. (2002). The nature of the farm: Contracts, risk and organization in agriculture. Cambridge, MA: The MIT Press. Alston, J. M., & Pardey, P. G. (2016). Antipodean agricultural and resource economics at 60: Agricultural innovation. Australian Journal of Agricultural and Resource Economics, 60(4), 554–568. doi:10.1111/1467-8489.12162 Apatov, E., Fabling, R., Jaffe, A., Morris, M., Thirkettle, M., & Apatov, E. (2015). Agricultural productivity in New Zealand: First estimates from the Longitudinal Business Database (Motu Working Paper No. 15-13). Retrieved from Motu Economic and Public Policy Research. Retrieved from https://motu.nz/assets/Documents/our-work/productivity-and-innovation/firm-productivity-andperformance/15-13-Agricultural-productivity-in-New-Zealand.pdf Belshaw, H. (1928). The economic position of the farmer in New Zealand. Economic Record, 4(1), 53–70. Belshaw, H. (1936a). Agricultural labour in New Zealand. In B. H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Belshaw, H. (1936b). Factors affecting land utilization in New Zealand. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melburne: Melbourne University Press. Belshaw, H. (1936c). Trends of Development. In Horace Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural Organization in New Zealand. Melbourne: Melbourne University Press. Belshaw, H., Williams, D. O., Stephens, F. B., Fawcett, E. J., & Rodwell, H. R. (1936). Farming industries during the world crisis. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Callaghan, F. R., & Peren, G. S. (1936). Scientific developments. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Coates, A. A. (1993). The Pumice land story. Hamilton: R.G. Coates. Condliffe, J. B. (1959). New Zealand in the making: A study of economic and social development. London: George Allen & Unwin Limited. Deloitte. (2017). Deloitte Top 200 companies. Retrieved from http://reportingnz.org/2017-deloitte-top200-companies/. Accessed on November 11, 2018. Duncan, I., Lattimore, R., & Bollard, A. (1991). New Zealand tariff reform and the international playing field. Wellington: NZIER. Evans, B. L. (1969). A history of agricultural production and marketing. Palmerston North: Keeling & Mundy. Fawcett, E. J. (1936). Dairy farming. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural Organization in New Zealand. Melbourne: Melbourne University Press. Fleming, G. A. (1999). Agricultural support policies in a small open economy: New Zealand in the 1920s. Economic History Review, 52(2), 334–354. Greasley, D., & Oxley, L. (2009). The pastoral boom, the rural land market, and long swings in New Zealand economic growth, 1873–1939. The Economic History Review. 62(2), 324–349. Hawke, G. R. (1985). The making of New Zealand: An economic history. Cambridge: Cambridge University Press.

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Hawke, G. R., & Lattimore, R. (1999). Visionaries, farmers & markets: An economic history of New Zealand agriculture. Working Paper No. 1, NZ Trade Consortium. Johnston, W., & Sandrey, R. (1990). Land markets and rural debt. In R. Sandrey & R. Reynolds (Eds.), Farming without subsidies: New Zealand’s recent experience. Wellington: Ministry of Agriculture and Fisheries. Lind, C. (2013). Till the cows come home. Wellington: Steele Roberts. McCaskill, L. W. (1973). Hold this land. Wellington: A.H. and A.W. Reed. Nightingale, T. (1992). White collars and gumboots: A history of the ministry of agriculture and fisheries, 1892–1992. Palmerston North: The Dunmore Press. Philpott, B. (1975). Concepts and consequences of the N.D.C. (Project on Economic Planning). Wellington: Victoria University Wellington. Pryde, J. (1987). Capital and agriculture. In L. T. Wallace & R. Lattimore (Eds.), Rural New Zealand – What Next? Canterbury: AERU. Rae, A. N. (2014). What’s wrong with being an agricultural economy? Palmerston North: New Zealand Agricultural and Resource Economics Society. Rayner, A., & Lattimore, R. G. (1991). New Zealand. In A. Papageorgiou, M. Michaely, & M. Choksi (Eds.), Foreign trade liberalisation (Vol. 6). Oxford: Basil Blackwell. Rodwell, H. R. (1936). Taxation, grants, and subsidies in relation to farming. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Ross, B. (1987). Development of the agricultural industry. In L. T. Wallace & R. Lattimore (Eds.), Rural New Zealand – What Next? Christhchurch: AERU. Scanniello, J. A. (2018). Technological change and productivity growth in the Agrarian Systems of New Zealand and Uruguay, 1870-2010. In V. Pinilla & H. Willebald (Eds.), Overview, agricultural development in the world periphery: A general economic history approach. London: Palgrave. Scobie, G. M., & Eveleens, W. M. (1986). Agricultural research: what’s it worth? Hamilton: Ruakura Agricultural Research Centre. Scrimgeour, F. G. (2014). Cooperatives and investor owned firms. In A. Emerson, J. S. Rowarth, & F. G. Scrimgeour (Eds.), New Zealand agriculture: An economic perspective. Wellington: NZX. Silverstone, B. D. J., Bollard, A., & Lattimore, R. (Eds.). (1996). A study of economic reform: The case of New Zealand. Amsterdam: North Holland. Statistics NewZealand. (2014). Agricultural production statistics: June 2013. Wellington: Statistics New Zealand. Stephens, F. B. (1936a). Control boards. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Stephens, F. B. (1936b). Cooperation in New Zealand. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand (pp. 745–763). Melbourne: Melbourne University Press. Stephens, F. B. (1936c). The processing and marketing of dairy produce. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Sutch, W. B. (1964). Farm-based processing industries – Their future in a developing country. Welington. Tait, P., Saunders, C., Gue, & Rutherford, P. (2016). Emerging versus developed economy consumer willingness to pay for environmentally sustainable food production: A choice experiment approach comparing Indian, Chinese and United Kingdom lamb consumers. Journal of Cleaner Production, 124, 65–72. Ward, A. H. (1936). Dairy Herd Testing in New Zealand. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Williams, D. O. (1936). Land settlement and settlement finance. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press. Yeates, J. S. (1936). Flax (Phormium Tenax) or New Zealand Hemp. In H. Belshaw, D. O. Williams, F. B. Stephens, E. J. Fawcett, & H. R. Rodwell (Eds.), Agricultural organization in New Zealand. Melbourne: Melbourne University Press.

CHAPTER 6 FROM GROWTH TO WELLBEING: EVOLUTION OF POLICY FRAMEWORKS Arthur Grimes

INTRODUCTION New Zealand (NZ) has long been a pioneer in designing public policy to improve the wellbeing – or welfare1 – of its citizens. In 2018, a newly elected government announced that 2019 will see the country’s first ‘Wellbeing Budget’. That Budget builds on work within the country’s Treasury to develop a comprehensive Living Standards Framework (LSF) for policy-making. It explicitly extends the targets for government’s economic policy to a broad range of wellbeing outcomes rather than focussing narrowly on economic growth and/or fiscal objectives. In addition, the new government is amending the Local Government Act (LGA) to include, as local government purposes, ‘to promote the social, economic, environmental, and cultural wellbeing of communities’.2 In this chapter, we first outline the recent moves to formalise a wellbeing approach to policy in NZ. We then briefly examine the philosophical and historical backgrounds that underlie NZ’s current wellbeing policies and relate the NZ experience to a range of wellbeing approaches that have been articulated domestically and internationally. We conclude with an assessment of potential future paths for a wellbeing approach to policy, both in NZ and elsewhere. As I emphasise below, public policy, both in NZ and internationally, has always focussed on improving the wellbeing (or welfare) of the population. In that sense, there is nothing new in wellbeing being of interest to policy-makers. Nevertheless, since the 1980s, there has been an emphasis on economic efficiency as a priority for public policy in NZ (Evans, Grimes, Wilkinson, & Teece, 1996). While this has

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been broadly successful, it has been accompanied by rising concerns about social and environmental outcomes. Similar concerns elsewhere were the catalyst for the commissioning of the highly influential Stiglitz–Sen–Fitoussi (SSF) Commission report (Stiglitz, Sen, & Fitoussi, 2009) by French President Nicolas Sarkozy. Its aim was, ‘to identify the limits of GDP as an indicator of economic performance & social progress’, and to recommend alternative policy approaches to enhance wellbeing. This report served as a catalyst for the then NZ Treasury Secretary John Whitehead, to ask his Treasury analysts to explore its potential implications for public policy in NZ. This is the origin of the LSF which I discuss next. In doing so, I also highlight the point that while wider wellbeing has always been of interest to public policy-makers, the formalisation of this wider wellbeing framework, and the prioritisation of public policies within that framework using new data and analytical techniques, is emerging as a new challenge for public policy advisers and decision makers all around the world, including NZ.

NZ’S WELLBEING APPROACHES TO PUBLIC POLICY The NZ Treasury formally released a LSF in December 2018 with the publication of Our People, Our Country, Our Future (Treasury, 2018a, 2018b).3 The LSF provides an underpinning for the central government’s wellbeing approach. In the same month, as required by law, the Minister of Finance released a Budget Policy Statement (BPS) (Robertson, 2018). The BPS drew on the information supplied by Treasury in its LSF to prioritise five key policy areas on which the government’s 2019 budget (the Wellbeing Budget) would focus:

• transitioning to a sustainable and low-emissions economy; • boosting innovation, and social and economic opportunities in a digital age; • lifting Māori and Pacific incomes, skills and opportunities; • reducing child poverty, improving child wellbeing and addressing family violence; and • supporting mental wellbeing, with a special focus on under 24-year-olds. In 2019, Statistics NZ, the country’s central statistical office, released a suite of wellbeing indicators, Indicators Aotearoa New Zealand (IANZ). Concurrently, the central government has amended the LGA to introduce four aspects of wellbeing – social, economic, environmental, and cultural – as outcomes for local government to pursue. These four approaches (LSF, BPS, IANZ, and LGA) are each outlined below. Living Standards Framework The Treasury describes the LSF as ‘a high-level framework on inter-generational wellbeing that operates alongside other outcomes frameworks in the public sector’ (Treasury, 2018a). In keeping with recommendations by an international commission on the measurement of economic and social progress (Stiglitz et al., 2009),

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the LSF presents a dashboard of indicators for outcomes covering current wellbeing, future wellbeing, and risk and resilience. It reflects similar dashboard approaches within NZ (Ministry of Social Development (MSD), 2001), the Organisation for Economic Co-operation and Development (OECD) (2011), and the United Nations.4 The LSF dashboard comprises 38 indicators across 12 wellbeing ‘domains’, plus measurements of inequalities across different population groups for 9 of those domains.5 The dashboard incorporates a further 23 measures indicating the state of 4 ‘capitals’ which are interpreted as indicators of future wellbeing (Treasury, 2018b). The 12 current wellbeing domains in the LSF comprise: (i) civic engagement and governance, (ii) cultural identity, (iii) environment, (iv) health, (v) housing, (vi) knowledge and skills, (vii) income and consumption, (viii) jobs and earnings, (ix) safety, (x) social connections, (xi) subjective wellbeing, and (xii) time use. The four capitals comprise financial and physical capital, natural capital, human capital, and social capital. Inequalities are presented for seven population characteristics according to: sex, age, ethnicity, family type, hours worked, neighbourhood deprivation, and region. The result is a comprehensive list of measurements summarising aspects of current wellbeing (on average) for the whole population as well as for segments of the population. Measures of the capital stocks, while being far from comprehensive, indicate particular aspects that are of relevance for the sustainability of wellbeing. Indicators Aotearoa NZ Statistics NZ, the official statistical body, has also been tasked by government with compiling a body of wellbeing and sustainability indicators. This set of indicators, known as IANZ was derived following extensive consultation with the public. It comprises a list of 115 indicators relating to current wellbeing (71 indicators), future wellbeing (35 indicators), and contributions to the rest of the world’s wellbeing (8 indicators).6 These indicators are supplemented by a wide range of contextual indicators relating to 18 separate fields (e.g. regional and ethnicity breakdowns for some statistics). The approach of including indicators covering current, future and rest-of-world wellbeing is based on the Conference of European Statisticians Framework and is influenced also by the UN’s Sustainable Development Goals (SDGs). Budget Policy Statement While providing a substantial list of indicators of current and future wellbeing, the LSF and IANZ do not attempt to provide an overall measure of wellbeing. A report to Treasury that advised on the LSF approach (Smith, 2018) recommended the incorporation of a summary measure of the population’s subjective wellbeing7 to sit above the other domains, but this recommendation was not adopted. Table 1 from the 2019 Wellbeing Budget, based on the BPS priorities, provides a synopsis of the wider environmental, social, and economic outcomes that have emerged as areas of concern for public policy.

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Table 1.  Examples of Evidence Behind the Wellbeing Budget Priorities.a Taking Mental Health Seriously

Improving Child Wellbeing

Supporting Māori and Pasifika Aspirations

Mental health – Material hardship – Living standards – In any year, Around 150,000 Māori and one in five New children in New Pacific people Zealanders Zealand live rank low in will have a in households most measures diagnosable experiencing of wellbeing mental illness, material relative to the with threehardship rest of the quarters of population lifetime cases starting by the age of 25 Suicide rates – New Zealand’s suicide rate for young people is among the worst in the OECD

Building a Productive Nation

Transforming the Economy

R&D expenditure – Greenhouse gas New Zealand emissions – New has low Zealand has one research and of the highest development per capita rates (R&D) of greenhouse expenditure gas emissions in relative the OECD to OECD countries

Health outcomes – Income level Future of 41,000 children disparities – work and are hospitalised Māori and automation – each year for Pacific people 21% of current conditions have lower workforce associated with income levels, tasks may be deprivation on average, than automated by other groups 2030

Quality of waterways – Waterways in our farming areas have markedly higher pollution than in catchments dominated by native vegetation

Homelessness – Family violence – Educational One in 100 New New Zealand attainment – Zealanders are has high rates of Māori and homeless, based family violence Pacific people on the 2013 are less likely Census to attain higher educational qualifications than other groups

Productivity – New Zealand’s productivity is low relative to other OECD countries

Soil erosion – Annual soil erosion of 720 tons per km2 is reducing our land’s productivity and harming aquatic ecosystems

Young people in Crowded housing – Disparities in employment – Over 40% of health status 12% of young Pacific children – Māori and people aged 15– and roughly Pacific people 24 years are not 25% of Māori are less likely in education, children live in to report good, employment, or crowded homes very good, or training excellent health than other groups

Incomes – New Waste – New Zealand’s Zealand’s incomes are in level of waste the bottom half per capita of the OECD has increased as measured substantially by per capita since 2013 gross domestic product (GDP)

Source: New Zealand Government (2019). a Further information on these measures, as well as New Zealand’s wider wellbeing context, can be found in the NZ’s Wellbeing Approaches to Public Policy Section.

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The LSF and IANZ do not attempt to prioritise aspects of wellbeing that need policy attention. For instance, the inequalities component of the LSF dashboard shows that women are doing poorly on issues of safety while Pacific families are doing poorly in housing. The LSF does not then indicate which of these, or other wellbeing problem areas, should take priority when decisions are taken in allocating public funds. Instead, prioritisation is left to the Minister of Finance’s BPS, a document that is required by law to outline the government’s fiscal programme prior to the actual budget document. It is in this document that the Minister of Finance releases the government’s wellbeing priorities, informed by the LSF and IANZ information. In his BPS 2019 (being a precursor to the 2019 budget), as stated above, the Minister of Finance identified the five wellbeing policy areas that were considered most in need of attention (Robertson, 2018). The link from the LSF to the five priority areas in the BPS can be illustrated with reference to the third of these five priority areas. The inequality data in the LSF show that, as a group, Māori have a greater likelihood of having poor outcomes on all nine measured domains relative to the rest of the population. They also have a lower likelihood of having good outcomes for most domains. People with a background from the Pacific Islands also tend to have poorer outcomes for most domains relative to the rest of the population. Hence, the priority of lifting Māori and Pacific incomes, skills and opportunities flows from the data presented in the LSF. The separation of the Treasury’s summary of wellbeing outcomes from Ministerial prioritisation reflects an appropriate distinction (within NZ’s constitutional arrangements) between advice and information provision on the one hand, and policy decision-making on the other. This approach to wellbeing policy therefore fits well into NZ’s governance framework. In addition, the process for considering and adopting policy proposals from across government agencies (known as ‘budget bids’) changed as a result of the new wellbeing framework. Robertson (2018; fig. 1, p.4) contrasts the previous traditional linear budget policy process with the new more focussed wellbeing budget process as shown in Fig. 1. In practice, this process means that policy agencies have had to justify their budget bids in terms of the five wellbeing priorities established by the Minister of Finance. The purpose of this process is to achieve a more cohesive set of policy interventions that have a material effect on addressing the priority wellbeing areas rather than spreading new funding thinly across a diverse range of policy areas. Local Government Act NZ has 78 local government authorities, and central government has sought to extend the wellbeing approach to this level of government. Following similar legislation in the United Kingdom (Grimes, 2019), the LGA 2002 (which governs the powers and duties of local government) introduced, as one of its purposes, that the Act ‘provides for local authorities to play a broad role in promoting the social, economic, environmental, and cultural wellbeing of their communities, taking a sustainable development approach.’8 This purpose, inserted by a Labour-led government, was subsequently deleted by a National-led government.

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Fig. 1.  Traditional Budget Process and Wellbeing Budget Process. Source: Robertson (2018, fig. 1, p. 4).

In 2019, the LGA is once again being amended to include, as one of local government’s purposes, ‘to promote the social, economic, environmental, and cultural wellbeing of communities’.9 The new Act will require local councils to consider the likely impact of their decisions on each aspect of the four wellbeings. Frameworks for considering how policies and programmes relating to these ‘four wellbeings’ are to be implemented have been left to local governments to decide without central government involvement. This recognises that local governments are likely to be more in tune with the preferences of their local communities than is central government. Given this closer relationship to the wellbeing concerns of the community, the reintroduction of a local government role to enhance wellbeing may become a cornerstone element of NZ’s wellbeing approach to public policy. However, NZ’s local authorities are of a disparate size – ranging (in 2018) from populations of 3,830 to 1,695,900.10 The lack of central government involvement in assisting local authorities to implement (and fund) the four wellbeings framework reduces the ability for smaller councils, in particular, to pursue the required wellbeing focus. In place of central government assistance, peak bodies are supporting individual councils in the provision of data relating to local wellbeing and in developing frameworks to consider the wellbeing consequences of local

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programmes.11 Thus, local governments are implementing community-oriented versions of wellbeing policies, but without any coordination or support from central government.

HISTORICAL AND INTERNATIONAL CONTEXTS NZ’s multiple concurrent approaches to wellbeing policy are not in themselves new, either in a NZ or an international context. Within NZ, both centre-left (Labour) and centre-right (National) governments have pursued wellbeing-oriented policies previously.12 These policies included a set of far-reaching social initiatives introduced by the 1891–1912 Liberal government and the introduction by a Labour government from 1935 of the world’s first comprehensive welfare state (see Chapter 2). A National Government introduced a much-enhanced universal superannuation scheme in 1976. In the 2000s, the National-led government introduced a ‘Social Investment Approach’ that sought to prioritise wellbeing-related expenditures using evidence from administrative ‘big data’ of inter-generational benefits that might flow from those expenditures. It also introduced a set of ‘Better Public Services Targets’ which aimed to reduce long-term welfare dependence, support vulnerable children, boost skills and employment, and reduce crime.13 At other times, governments have not been so explicit about enhancing the wellbeing (or welfare) of its citizens, and yet have maintained a high level of fiscal expenditures aimed at improving the wellbeing of New Zealanders. The ratio of NZ social spending to GDP in 2015 was 19.7%, only slightly below the OECD average ratio; it was substantially higher than its ratio in 1990 (of 16.7%) and very substantially higher than its ratio of 11.4% in 1960.14 Thus, NZ’s governments have consistently maintained – and increased – expenditures on social programmes that contribute to wellbeing for several decades prior to the recent introduction of an explicit wellbeing approach. Academics, officials and others in NZ and internationally have long emphasised the importance for government of improving wellbeing (as opposed to concentrating solely on growth in market transactions). For instance, Nordhaus and Tobin (1973) emphasised the importance of non-market transactions and outcomes for welfare, while in NZ, the work of Marilyn Waring (1988) highlighted the economic and social contribution of women’s unpaid work which is left unmeasured in the national accounts. Accompanying the effort to measure wellbeing has been a rich philosophical literature on the foundations of the wellbeing approach to public policy.15 For instance, building on Bentham’s ideas, Mill (1863) argued that a moral government should choose the action that maximises the total happiness in the world.16 This approach also formed the basis for the Australian Treasury’s wellbeing framework; Australian Treasury (2004) stated: ‘the Treasury wellbeing framework draws primarily on the methods of welfare economics and the related philosophical tradition of utilitarianism’.17 An alternative philosophical approach that can be used to underpin wellbeing policy is Amartya Sen’s capabilities approach. This approach concentrates on

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expansion of the capabilities of persons ‘to lead the kinds of lives they value – and have reason to value’ (Sen, 1999). Policies that enhance a person’s capabilities expand the development space of that person (or, in economic parlance, their choice set). This expansion of capabilities then expands their set of potential functionings, where functionings are interpreted as states of ‘being and doing’ (e.g. being well fed or enjoying opera). The capabilities approach to wellbeing lies at the heart of the SSF Commission report (Stiglitz et al., 2009). SSF recommended the adoption of a range of measures relating to people’s objective and subjective conditions and capabilities including: health, education, personal activities, environmental conditions, social connections, political voice, and insecurity. Addressing inter-generational issues, the SSF report emphasised the importance of the sustainability of wellbeing. It called for the adoption of a dashboard of sustainability indicators. Perhaps the best-known example of this approach internationally is the OECD’s ‘How’s Life’ documents (OECD, 2011) and its accompanying summary version, the Better Life Index (BLI).18 Specifics of the OECD approach are shown in Table 2. A similar approach had already been adopted by NZ’s MSD (2001) in their Social Report and in subsequent Social Reports through to 2016. Based on internationally comparable (and unweighted) BLI data, NZ was ranked 11th of 38 OECD countries for overall wellbeing in mid-2018.19 The OECD emphasises that ‘differences across groups’ are important in interpreting these domains, so that the focus should be extended from averages to include a range of distributional measures, as is observed in the NZ Treasury’s LSF. Table 3 lists NZ’s ranking relative to 38 OECD countries for the 11 domains of the OECD’s BLI.20 In addition, I list the rankings for life expectancy that is a component of the health index. We do so, since life expectancy features explicitly as a component in many other wellbeing indices. NZ ranks highly relative to other OECD countries for health, community, environment, civic engagement and life satisfaction; and moderately for life Table 2.  The OECD Approach to Measuring Wellbeing. Individual Wellbeinga Quality of Life

Material Conditions

Health status Work–life balance Education and skills Social connections Civic engagement and governance Environmental quality Personal security Subjective wellbeing

Income and wealth Jobs and earnings Housing

Sustainability of Wellbeing Over Time Natural capital Economic capital

Human capital Social capital

Source: OECD (2013). a Including statistics for population averages and differences across groups (i.e. distributions).

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Table 3.  NZ Wellbeing Rankings within BLI Domains (Across 38 OECD Countries).a Domain Housing Income Jobs Community Education Life satisfaction

Rank 21 20 15 3 19 8

Domain Environment Civic engagement Health Safety Work–life balance Life expectancy

Rank 6 8 1 24 29 13

A rank of 1 denotes the best-performing OECD country in that domain; a rank of 38 denotes the worst-performing. a

expectancy and jobs. However, it performs less well for education, income, housing, safety, and work–life balance. The OECD highlights four ‘capitals’ that are important for the sustainability of wellbeing: natural capital, social capital, human capital, and economic capital. The emphasis on capitals, however, reflects a concept of the sources of wealth (and wellbeing) in the modern world that is arguably becoming outdated. Increasingly, wealth and individual wellbeing is generated through (often freely available) intangible capital in the form of knowledge capital (Dalziel, Saunders, & Saunders, 2018; Haskel & Westlake, 2017). It will be important that future iterations of wellbeing frameworks acknowledge and incorporate this fast changing nature of production and consumption in relation to alternative forms of capital. Another multi-dimensional indicator approach is the Human Development Index (HDI) compiled and published by the United Nations Development Programme (UNDP) since 1990. Unlike some dashboard approaches, the HDI aggregates a number of measures together to compile an overall index of human development (i.e. wellbeing). Specifically, the HDI aggregates measures relating to three dimensions of wellbeing: ‘a long and healthy life’ (life expectancy at birth), ‘knowledge’ (mean years of schooling for adults aged 25 years and more, and expected years of schooling for children of school-entering age), and ‘a decent standard of living’ (the logarithm of gross national income per capita). The HDI is calculated as the geometric mean of indices for each of these three dimensions to produce a single index.21 In 2018, NZ ranked 16th of 189 countries according to the HDI. The UNDP also produces an inequality-adjusted HDI; NZ ranks 13th in the world on this index.22 In addition to cross-country dashboard approaches to wellbeing, agencies have compiled cross-country measures of sustainability. One internationally comparable sustainability measure that is grounded in economic theory is Adjusted Net Savings (ANS) (Arrow, Dasgupta, Goulder, Mumford, & Oleson, 2012; Ferreira & Vincent, 2005; Hartwick, 1977; Pearce & Atkinson, 1993).23 ANS is a measure of ‘weak sustainability’ compiled by the World Bank. It adjusts conventionally measured net national savings (sourced from the national accounts) for depletion of energy, minerals, and forest resources, and also for pollution from particulate matter and from carbon emissions. It treats education expenditures as additions

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to human capital and hence as savings. It is therefore intended to be a measure of the change in/broadly defined capital stocks of a country (as opposed to a measure of the stocks of capital as in the OECD and NZ Treasury approaches). According to the ANS measure, NZ has run a sustainable economic policy from 2000 to 2016.24 Dashboard approaches to measuring wellbeing have had a long history in NZ. The MSD launched their first Social Report in 2001 with the statement: The Social Report 2001 is the first step in the establishment of a regular programme of social monitoring. The aim of the report is to provide information on the overall social health and well-being of our society. (MSD, 2001)25

The 2001 report presented 36 headline indicators across 9 domains: (i) health, (ii) knowledge and skills, (iii) safety and security, (iv) paid work, (v) human rights, (vi) culture and identity, (vii) economic standard of living, (viii) social connectedness, and (ix) the environment. By 2016, the report had expanded to 49 headline indicators across 10 domains which had a strong overlap with those in the Treasury’s 2018 LSF.26 In earlier work by Treasury, published in a paper entitled Investing in Wellbeing: An Analytical Framework, Jacobsen et al. (2002) adopted an explicit ‘social investment approach’ to determining preferred investments in the social sector. It developed an analytical framework that considers ‘social expenditure as an investment designed to improve aggregate and population sub-group wellbeing, with current costs and uncertain future benefits’.27 The approach emphasised the inclusion of benefits that extended outside the fiscal realm, including improvements to people’s wellbeing. Aspects of this approach were subsequently championed by Minister of Finance, Bill English, who established the social investment approach to welfare policy in 2015. 28 He described key objectives of the approach as follows: Social Investment is about understanding what makes the most difference to people’s lives, and using evidence to do more of what works. The goal is to support people in difficult circumstances to improve their lives and become more independent. So we are putting the needs of our most vulnerable customers at the centre of decisions on planning, programmes and resourcing – by applying rigorous and evidence-based investment practices to social services. This requires us to know three basic things. (i) We need to know what we are trying to achieve by setting clear, measurable goals … (ii) We need to know the individual needs of the people we are trying to help. (iii) We need to know which services will help them best … we’re using Social Investment tools to decide when to intervene, invest early and help the most at-risk people lead better lives – and save taxpayers money in the long run.

The social investment approach that was adopted mirrors that recommended by Jacobsen et al. (2002) except for one feature. The concentration on ‘saving taxpayers money’ had the effect of diverting the approach from one which included all benefits attributable to a programme (as in a conventional social cost-benefit analysis) to one that concentrated on fiscal benefits (e.g. savings on future welfare benefits). Thus, what started out as an approach consistent with standard approaches to wellbeing instead became an actuarial approach that concentrated more on fiscal elements (Raubal & Judd, 2014).

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An alternative set of wellbeing frameworks has been developed by Māori contributors within NZ. Durie (2006) postulates that there exist culturally specific components of Māori wellbeing that differ from those of the dominant culture in NZ.29 These components include utility gained from affiliation with one’s iwi and hapū (tribe and sub-tribe) as well as other aspects of Māori culture, such as visiting one’s marae.30 Durie’s conceptual model of Māori wellbeing (called ‘Te whare tapa whā’) proposes that overall wellbeing for Māori consists of four parts: (i) Taha whānau (family health); (ii) Taha wairua (spiritual health); (iii) Taha tinana (physical health); and (iv) Taha hinengaro (mental health). Durie considers that all four components must be maintained in order for Māori to experience a high state of wellbeing. Spiller, Erakovic, Henare, and Pio (2011) extend Durie’s model to explicitly include environmental aspects.31 One key issue in implementing any wellbeing framework is how the framework can be used, in practice, to contribute to public policy development and prioritisation. Smith (2018), building on Boarini and Smith (2014), suggests that a wellbeing framework can assist with policy alignment (especially across agencies in order to address common goals and common target groups), policy analysis (by identifying the effect of policy options on population wellbeing), and policy accountability (especially through consistent monitoring of outcomes, including developments in the capital stocks).32 This is the direction of travel for NZ public policy. There is ongoing work, involving the use of newly available data and analytical techniques, to prioritise public policies on the basis of wellbeing measures and, as an integral part of that effort, to expand the scope of standard cost-benefit analysis to take into account the wider environmental and social outcomes of public policies.

CONCLUSION: THE FUTURE NZ governments of all persuasions since at least 1891 have maintained a strong wellbeing – i.e. welfare – focus for public policy. At the aggregate level, social expenditures targeted at improving societal wellbeing have risen strongly since the 1950s and the country boasts high performance relative to other developed countries in areas such as health, the environment, strength of communities, and overall life satisfaction. What more, then, might we expect from an explicit wellbeing approach to policy? In recent years, NZ’s explicit wellbeing policy approaches have focussed principally on developing measures of wellbeing across multiple domains. Treasury’s focus has been on 12 domains (the 11 domains of the OECD’s BLI together with a cultural domain) plus 4 capitals. Statistics NZ’s approach is based more closely on the UN’s SDGs. In these respects, the NZ developments are well within the bounds of approaches adopted elsewhere. They are also similar in nature to the longstanding Social Report that has been published by NZ’s MSD since 2001. Like those reports, however, the recent approaches downplay specific aspects of wellbeing mooted by Māori scholars as being pivotal to the wellbeing of many Māori – for instance, spiritual health

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(taha wairua) is absent from the Treasury’s framework. This is an aspect that is likely to require greater attention in future wellbeing frameworks within NZ. The lack of policy attention that has hitherto been accorded to the Social Report – which has been published regularly from 2001 to 2016 – demonstrates that a wellbeing measurement approach is not the same as a wellbeing policy approach. While it is possible to use a measurement framework to improve alignment, analysis, and accountability of policy development as suggested by Smith (2018), a measurement framework by itself does not achieve these outcomes. Two additional elements are required. The first is a set of tools at the micro level to evaluate policy alternatives in a manner that enables comparisons across policy options, using a standardised metric. Thus, a wellbeing approach to policy is likely to require the retention of some form of cost-benefit analysis (or cost-utility analysis), a tool that has long been championed by the NZ Treasury.33 Currently, work is underway at the Treasury to enhance its cost-benefit analysis tool (CBAx) to better cater for alternative elements of wellbeing through the incorporation of willingness-to-pay measures for non-market benefits (Treasury, 2018b). The second element is a mechanism to decide on priorities at the macro level. The 2019 BPS has taken a tentative step in this direction through its specification of five priority policy areas for the 2019 budget. The priority areas (appropriately) reflect the political priorities of government; however, it is not clear why or how those five specific areas were prioritised above others. Further enhancement of transparent and rigorous mechanisms to make the link from the LSF and IANZ indicators to the priority formulation process is an area of policy development that could usefully be pursued in future years. While still in a development stage, the wellbeing approach to policy has the potential for the policy-making process to become more aligned across policy areas, with enhanced analysis and accountability. The measurement of multiple wellbeing domains in NZ is being developed along internationally comparable lines. What is potentially more novel – albeit still in its infancy – are developments in the policy prioritisation process. The concentration on a few priority areas at the macro policy level, informed by the wellbeing indicators, offers a tentative way forward for policy-making processes elsewhere. There is still a need, however, to increase the rigour and transparency of the prioritisation process. This challenge faces both the NZ authorities and their international counterparts who are exploring how to build policy frameworks on explicit wellbeing foundations.

NOTES 1.  The Oxford English Dictionary provides ‘welfare’ as one definition of ‘well-being’. Similarly, Haybron, (2016, p. 347) states: ‘I will use “well-being”, “welfare”, and “flourishing” interchangeably’. Pigou’s (1920) use of the term ‘total welfare’ is similar to the modern use of the word ‘wellbeing’. Pigou argued for a government role in boosting total welfare both through redistribution policies and through the conservation of natural resources for future generations. 2.  Local Government (Community Well-being) Amendment Bill, introduced to Parliament in 2018.

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3.  For antecedents of this approach within Treasury, see Gleisner, McAlister, Galt, and Beaglehole, (2012) and Karacaoglu, (2015). 4. In particular, the UN’s SDGs; for further information, see: https://www.un.org/ sustainabledevelopment/sustainable-development-goals/ (Accessed on April 16, 2019), although the SDGs were explicitly rejected within Treasury as the basis for a wellbeing framework in New Zealand: ‘Note that the UNDP’s SDGs are goals rather than measures and as such do not make a good measurement framework’. (King, Huseynli, & MacGibbon, 2018, p. i). 5.  A similar approach to incorporating inequalities in a measurement framework had earlier been included in Superu (2017, chapter 3). 6.  For further information, see details on the Statistics New Zealand website: https:// www.stats.govt.nz/indicators-and-snapshots/indicators-aotearoa-new-zealand-ngatutohu-aotearoa/ (Accessed on April 16, 2019). 7.  Subjective wellbeing may be measured using the Cantril ladder (Cantril, 1965) as used in the Gallup Poll, or through a measure of overall life satisfaction as incorporated in NZ’s General Social Survey. 8.  Local Government Act 2002, Part 1, 3(d). 9.  Local Government (Community Well-being) Amendment Bill, introduced to Parliament in 2018. 10.  Source: Statistics New Zealand. 11.  In particular, the Society of Local Government Managers and Local Government NZ are assisting councils in these respects (Grimes, 2019). 12.  Excellent descriptions of wellbeing-oriented social policy advances in New Zealand in the 1890s and the 1930s can be found in the 1972 Royal Commission on Social Security in New Zealand and the 1988 Royal Commission on Social Policy. 13.  For further information, see http://www.ssc.govt.nz/better-public-services (Accessed on April 16, 2019). 14.  OECD Social Expenditure database (www.oecd.org/social/expenditure.htm). 15.  See, inter alia, the work of Bentham: Burns (2005), Mill, (1869), Easterlin, (1974), Australian Treasury, (2004), Stevenson and Wolfers, (2008), Wollstonecraft (1792), Clark, Diener, Georgellis, and Lucas, (2008), Fujiwara and Campbell, (2011), Layard, (2011), Singer, (2011), Helliwell, Layard, and Sachs, (2012), Pinker, (2018), Clark, (2018), and Carver and Grimes (2019). 16.  Thomas Jefferson further stated: ‘The care of human life and happiness and not their destruction is the first and only legitimate object of good government’. 17.  Australian Treasury (2004) emphasised the breadth of this approach by stating: ‘utility is a measure of not just happiness, but all of the elements of life that are valued by an individual. This type of utility function can encapsulate capabilities, as discussed by Sen, to the extent that they are valued by the individual’. 18.  See http://www.oecdbetterlifeindex.org/#/11111111111. 19.  See http://www.oecdbetterlifeindex.org/#/11111111111 (Accessed on July 30, 2018). 20.  As at 30 July 2018. Grimes, Oxley, and Tarrant (2014) examine NZ’s rankings relative to other countries across a wider span of indicators. 21. For further information, see http://hdr.undp.org/en/content/human-developmentindex-hdi (Accessed on 30 July 2018). 22.  For evidence on developments in inequality in NZ, see Ball and Creedy (2016). 23.  ANS is also known as Genuine Savings, Comprehensive Investment, Comprehensive Savings, and Inclusive Wealth (Qasim & Grimes, 2018). 24.  Historically, this was not always the case. For instance, the period from 1974 to 1984 saw large fiscal and current account deficits that caused official and national debt to increase substantially (Evans et al., 1996). 25.  The 2001 report stated three specific aims (MSD, 2001, p. 7): ‘to provide and monitor over time measures of well-being and quality of life that complement existing economic indicators; to allow us to assess how New Zealand compares with other countries on various measures of well-being; to help identify key issues and areas where action is needed, which can in turn help with planning and decision-making’. The third aim demonstrates

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that the report was seen not just as a measurement device but also as an input into policy decision-making. 26.  The 2016 domains were: health, knowledge and skills, paid work, economic standard of living, civil and political rights, cultural identity, leisure and recreation, safety, social connectedness, and life satisfaction. 27. See Jacobsen et al. (2002, p. 29). This view built on work already ongoing within the Ministry of Social Development. 28.  For instance, see the speech by Bill English to IPANZ, February 2016; Retrieved from https://www.beehive.govt.nz/speech/speech-institute-public-administration-new-zealand-1 (Accessed on July 31, 2018). 29.  However, Māori are not a homogeneous group. A number of analyses (e.g. Durie, 1998; Houkama & Sibley, 2010; McNeill, 2009) establish that there are distinct groups of Māori in terms of identity; thus a single model of Māori wellbeing is unlikely to apply to all those who identify as Māori. 30.  A marae is a communal meeting area, generally within the lands (rohe) of the iwi or hapū, that has great cultural significance. 31. Empirical studies show that Māori tend to have lower (objective and subjective) wellbeing than do non-Māori (Cooke, Mitrou, Lawrence, Guimond, & Beavon, 2007; Ganglmair-Wooliscroft & Lawson, 2008; Kiro, von Randow, & Sporle, 2010; Sibley, Harre, Hoverd, & Houkamau, 2011; Sin & Maré, 2004). 32.  More specifically, Smith points to work by Fujiwara (2013), OECD (2013), and Benjamin et al. (2014) who develop techniques based either on life satisfaction regressions or choice experiments to ascertain the benefits of certain non-market outcomes that can be used in a cost-benefit (or cost-utility) analysis. 33. See, for example, https://treasury.govt.nz/information-and-services/state-sectorleadership/investment-management/plan-investment-choices/cost-benefit-analysis-including-public-sector-discount-rates/treasurys-cbax-tool (Accessed on August 6, 2018).

REFERENCES Arrow, K. J., Dasgupta, P., Goulder, L. H., Mumford, K. J. & Oleson, K. (2012). Sustainability and the measurement of wealth. Environment and Development Economics, 17(3), 317–353. Australian Treasury. (2004). Policy advice and Treasury’s wellbeing framework. Economic Roundup Winter 2004. Retrieved from https://treasury.gov.au/publication/economic-roundup-winter-2004/ policy-advice-and-treasurys-wellbeing-framework/#P37_9328 Ball, C., & Creedy, J. (2016). Inequality in New Zealand 1983/84 to 2012/13. New Zealand Economic Papers, 50(3), 323–342. Benjamin, D., Heffetz, O., & Kimball, M. (2014). Beyond happiness and satisfaction: Toward wellbeing indices based on stated preference. American Economic Review, 104(9), 2698–2735. Boarini, R., & Smith, C. (2014). Whispering wellbeing in the ears of princes: Towards an integrated policy framework for better lives. European Framework for Measuring Progress Deliverable, 11.1, 135–146. Burns, J. H. (2005). Happiness and utility: Jeremy Bentham’s Equation. Utilitas, 17(1), 46–61. Cantril, H. (1965). The pattern of human concern. New Brunswick: Rutgers University Press. Carver, T., & Grimes, A. (2019). Income or consumption: Which better predicts subjective wellbeing? Review of Income and Wealth, 65(S1), S256–S280. Clark, A. (2018). Four decades of the economics of happiness: Where Next? Review of Income and Wealth, 64(2), 245–269. Clark, A. E., Diener, E., Georgellis, Y., & Lucas, R. E. (2008). Lags and leads in life satisfaction: A Test of the baseline hypothesis. The Economic Journal, 118(529), F222–F243. Cooke, M., Mitrou, F., Lawrence, D., Guimond, E., & Beavon, D. (2007). Indigenous well-being in four countries: An application of the UNDP’S human development index to indigenous peoples in Australia, Canada, New Zealand, and the United States. BMC International Health and Human Rights, 7(9), 1–11.

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Dalziel, P., Saunders, C., & Saunders, J. (2018). Wellbeing economics. Basingstoke: Palgrave Macmillan. Durie, M. (1998). Whaiora: Māori health development (2nd ed.). Auckland: Oxford University Press. Durie, M. (2006). Measuring Māori well-being. Wellington: Treasury. Easterlin, R. (1974). Does economic growth improve the human Lot? Some empirical evidence. In P. David, & M. Reder (Eds.), Nations and households in economic growth: Essays in honour of Moses Abramovitz (pp. 89–125). New York, NY: Academic. Evans, L., Grimes, A., Wilkinson, B., with Teece, D. (1996). Economic reform in New Zealand 1984– 95: The pursuit of efficiency. Journal of Economic Literature, 34, 1856–1902. Ferreira, S., & Vincent, J. R. (2005). Genuine savings: Leading indicator of sustainable development? Economic Development and Cultural Change, 53(3), 737–754. Fujiwara, D. (2013). A general method for valuing non-market goods using wellbeing data: Three-stage wellbeing valuation. Discussion Paper No. 1233. London: CEP. Fujiwara, D., & Campbell, R. (2011). Valuation techniques for social cost benefit analysis: Stated preference, revealed preference and subjective well-being approaches. HM Treasury. Retrieved from www.hm-treasury.gov.uk/d/green_book_valuationtechniques_250711.pdf Ganglmair-Wooliscroft, A., & Lawson, R. (2008). Applying the international well-being index to investigate subjective well-being of New Zealanders with European and with Māori heritage. Kotuitui: NZ Journal of Social Sciences Online, 3(1), 57–72. Gleisner, B., McAlister, F., Galt, M., & Beaglehole, J. (2012). A living standards approach to public policy making. New Zealand Economic Papers, 46, 211–238. Grimes, A. (2019). Wellbeing at the local level. Policy Quarterly (forthcoming), 15(2), 44–49. Grimes, A., Oxley, L., & Tarrant, N. (2014). Does money buy me love? Testing alternative measures of national wellbeing. In D. McDaid & C. Cooper (Eds.), Economics of wellbeing. Wellbeing: A Complete Reference Guide (Vol. 5, pp. 49–82). Oxford: Wiley-Blackwell. Hartwick, J. M. (1977). Intergenerational equity and the investing of rents from exhaustible resources. American Economic Review, 67(5), 972–974. Haskel, J., & Westlake, S. (2017). Capitalism without capital: The rise of the intangible economy. Princeton, NJ: Princeton University Press. Haybron, D. M. (2016). “Mental State Approaches to Well-being”, Chapter 12. In M. D. Adler & M. Fleurbaey (Eds.), The Oxford Handbook of well-being and public policy (pp. 347–378). New York, NY: Oxford University Press. Helliwell, J., Layard, R., & Sachs, J. (2012). World Happiness Report 2012. New York, NY: The Earth Institute, Columbia University. Houkama C., & Sibley, C. (2010). The multi-dimensional model of Māori identity and cultural engagement. New Zealand Journal of Psychology, 39(1), 8–28. Jacobsen, V., Mays, N., Crawford, R., Annesley, B., Christoffel, P., Johnston, G., & Durbin, S. (2002). Investing in well-being: An analytical framework. Working Paper No. 02/23. New Zealand Treasury, Wellington. Karacaoglu, G. (2015). The New Zealand Treasury’s living standards framework – Exploring a stylised model. Working Paper No. 15/12. New Zealand Treasury, Wellington. King, A., Huseynli, G., & MacGibbon, N. (2018). Wellbeing frameworks for the treasury. Discussion Paper 18/01. Living Standards Series, Wellington. Kiro, C., von Randow, M., & Sporle, A. (2010). Trends in well-being for Mäori households and families, 1981–2006. Auckland: Ngä Pae o te Märamatanga. Layard, R. (2011). Happiness: Lessons from a new science (2nd ed.). London: Penguin. McNeill, H. (2009). Māori models of mental wellness. Te Kaharoa, 2, 96–115. Mill, J. S. (1863). Utilitarianism. London: Parker, Son & Bourn. Mill, J. S. (1869). The subjection of women. London: Longmans, Green, Reader and Dyer. Ministry of Social Development (MSD). (2001) (and subsequent years). The Social Report. Wellington: MSD. Retrieved from http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/ monitoring/social-report/index.html. Accessed on August 6, 2018. New Zealand Government. (1972). Royal Commission on Social Security in NZ. Wellington: New Zealand Government. New Zealand Government. (1988). Royal Commission on Social Policy. Wellington: New Zealand Government.

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New Zealand Government. (2019). Wellbeing budget. Wellington: New Zealand Government. Nordhaus W., & Tobin, J. (1973). Is growth obsolete? In Milton Moss (Ed.), The measurement of economic and social performance (pp. 509–564). Cambridge, MA: NBER. OECD. (2011). How’s Life? Measuring well-being. Paris: OECD Publishing. OECD. (2013). How’s Life? Measuring well-being. Paris: OECD Publishing. Pearce, D. W., & Atkinson, G. D. (1993). Capital theory and the measurement of sustainable development: An indicator of weak sustainability. Ecological Economics, 8(2), 103–108. Pigou, A. (1920). The economics of welfare. London: Macmillan and Co. Pinker, S. (2018). Enlightenment now: The case for reason, science, humanism and progress. London: Allen Lane. Qasim, M., & Grimes, A. (2018). Sustainable economic policy and well-being: The relationship between adjusted net savings and subjective well-being. Working Paper No. 18-07. Motu, Wellington. Raubal, H., & Judd, E. (2014). Work and income 2013 benefit system performance report for the year ended 30 June 2013. Wellington: Ministry of Social Development. Retrieved from https://www. msd.govt.nz/documents/about-msd-and-our-work/publications-resources/evaluation/investmentapproach/2013-benefit-system-performance-report.pdf. Accessed on August 6, 2018. Robertson, G. (2018). 2019 budget policy statement. Wellington: New Zealand Government. Sen A. (1999). Development as freedom. Oxford: Oxford University Press. Sibley, C., Harre, N., Hoverd, W., & Houkamau, C. (2011). The gap in the subjective well-being of Māori and New Zealand Europeans widened between 2005 and 2009. Social Indicators Research, 104, 103–115. Sin, I., & Maré, D. (2004). Māori incomes: Investigating differences between Iwi. Working Paper No. 04-06. Motu Economic and Public Policy Research, Wellington. Singer, P. (2011). Practical ethics (3rd ed.). Cambridge: Cambridge University Press. Smith, C. (2018). Treasury living standards dashboard: Monitoring intergenerational wellbeing. Wellington: Kōtātā Insight. Spiller, C., Erakovic, L., Henare, M., & Pio, E. (2011). Relational well-being and wealth: Māori business and an ethic of care. Journal of Business Ethics, 98, 153–169. Stevenson, B., & Wolfers, J. (2008, May). Economic growth and subjective well-being: Reassessing the Easterlin paradox. Brookings Papers on Economic Activity, May, 1–87. Stiglitz, J., Sen, A., Fitoussi, J.-P. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress. Paris: Insee. Retrieved from https://www.insee.fr/en/information/ 2662494. Accessed on August 5, 2018. Superu. (2017). Families and Whānau Status Report. Wellington: Social Policy Evaluation and Research Unit (Superu). Treasury. (2018a). Our people, our country, our future. The living standards framework: Introducing the dashboard. Wellington: New Zealand Government. Treasury. (2018b). Our people, our country, our future. The living standards framework: Background and future work. Wellington: New Zealand Government. Waring, M. (1988). If women counted: A new feminist economics. San Francisco, CA: Harper & Row. Also published as Counting for nothing: What men value and what women are worth. Wellington: Allen & Unwin in association with the Port Nicholson Press. Wollstonecraft, M. (1792). A vindication of the rights of woman: With strictures on political and moral subjects. Boston, MA: Thomas and Andrews (American edition).

CHAPTER 7 ON SUSTAINABLE DEVELOPMENT Les Oxley and Mubashir Qasim

I. INTRODUCTION This chapter can be most fruitfully read in conjunction with, and as a complement to, Chapters 6 and 13 in this volume. Chapter 6 highlights the emerging focus on wellbeing as the objective of public policy in New Zealand (NZ). Chapter 13 is focussed on the governance challenges associated with the natural environment as a critical source of wellbeing. This chapter provides a bridge, by emphasising that if wellbeing, especially intergenerational wellbeing, is an objective of public policy, then we should be concerned not only about the sustainability of the natural environment (which is of course critical), but also the sustainability of the various other sources of wellbeing (social as well as economic). The Appendix below considers the origins, uses and outcomes of the use of the words sustain, sustainable, and sustainability in NZ’s environmental, social, and economic policy over the past 125 years. The primary aim of this chapter is to assess whether NZ’s public policy and governance have been supportive of sustainable development. By ‘sustainable development’ we mean, ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (World Commission for Economic Development (WCED), 1987, p. 43) – i.e. protects and enhances intergenerational wellbeing. Thus, pursuing sustainable development is very closely related to enhancing intergenerational wellbeing as an objective of public policy. The term ‘sustainability’ is not universally linked to sustainable development in the way we define, measure, and assess it in this chapter. More often than not, the term ‘sustainability’ is specifically associated with environmental sustainability, the primary focus of Chapter 13 in this book. ‘Sustainability’ is also used in all sorts of other contexts – e.g. (in economics) sustainable government budget deficits, sustainable trade and/or current account balances, sustainable national (private or public) debt, and so on. In this chapter, we highlight the relationship Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 129–144 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032027

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between sustainable development (or the pursuit of sustainable wellbeing) and environmental sustainability, especially in the context of the debate between ‘weak sustainability’ (WS) and ‘strong sustainability’ (SS). We raise concerns about the sustainability of the natural environment as one of the sources of sustainable wellbeing in NZ, at the end of the chapter. Further detailed discussion of sustainability in the context of the natural environment is presented in Chapter 13 in this volume. The rest of this chapter explores answers to the following policy questions. Has NZ public policy been supportive of sustainable development? (Section III) What have been the areas of success and failure? (Sections III and IV) What are the emerging challenges, and how are they being addressed? (Sections IV and V) What mix of complementary policy levers need to be jointly used to ensure that NZ attains, and then remains on, a sustainable development path? (Section IV) We hope that all of these questions would be of interest to public servants advising on public policy anywhere in the world.

II. SUSTAINABLE DEVELOPMENT Our primary interest in this chapter, as a complement to the preceding Chapter 6 on wellbeing, is on assessing whether the management of public policy and governance in NZ has been conducive to enhancing the country’s overall standard of living (or ‘wellbeing’) across generations. We use the above definition of sustainable development, ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (WCED, 1987, p. 43), as the basis of our assessment. This is explored in Section III with reference to the ‘genuine savings (GS) gap’ as a specific measure. Fig. 1, which we have reprinted from Costanza et al. (2014), captures the main tensions between different approaches to ‘sustainability’. A distinction is made in the literature between ‘SS’ and ‘WS’, which is a main focus of the wider debate on sustainability. Following Pelenc et al. (2015), by ‘WS’, we refer to making allowance for a degree of substitutability both within different categories of capital stocks (such as different elements of natural capital) and across them (such as between natural capital and human capital) in generating wellbeing. Under ‘SS’, at the very extreme, all main categories of capital stock are complements in generating human wellbeing (although a degree of substitutability within each category may be allowed). Pelenc et al. (2015) provide relevant empirical evidence on these distinctions. Turning again to Fig. 1, first, there are interactions between various types of capital in generating sustained wellbeing. Built capital and human capital are embedded in society, which in turn exists in the natural environment. Second, ‘sustainability’ refers to the sustainability of human wellbeing, not necessarily to the sustainability of any particular forms of natural capital. We should allow for the possibility of substitutability of various types of natural and other forms of capital in generating human wellbeing. Indeed, and to repeat, whether such substitutability is possible or not is the fundamental difference between the, so called, ‘WS’ (‘yes’) and ‘strong sustainablity’ (‘no’) approaches to sustainability in the context of public policy. The ‘GS

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Fig. 1.  Sustainable Wellbeing as the Objective of Public Policy. Source: Costanza et al. (2014).

gap’ measure we use to assess whether NZ has been pursuing a sustainable development policy or not, is squarely based on the concept of ‘WS’. In their Blueprint for a Green Economy, Pearce, Markandya, and Barbier (1989) define sustainable development as a situation where, the wellbeing for a given population is not declining, or preferably is increasing, over time. In this context, under ‘WS’, there is a belief that what matters for future generations is only the total, aggregate, stock of manmade, human and natural capital (and possibly other forms of capital as well) that is available to them. These capitals would enable future generations, with a given technology, to be capable of achieving certain (non-declining) levels of future wellbeing. Our conceptualisation of ‘sustainable development’ in this chapter, as measured by the ‘GS gap’ in Section III below, is strongly based on WS. ‘Loosely speaking, according to WS, it does not matter whether the current generation uses up non-renewable resources or dumps CO2 into the atmosphere as long as enough machines, roads, ports as well as schools, universities are built to compensate’. Because that natural capital1 is regarded as being essentially substitutable in the production of consumption goods and is a direct provider of utility (or wellbeing), I call WS the ‘substitutable paradigm’ (Neumayer, 2010). An alternative approach to sustainable development, which is referred to as ‘SS’, focusses primarily on natural capital assets, arguing that sustainability requires that these capital assets should not be declining through time (Pearce et al., 1989, p. 37). Fundamentally, SS is based, as a paradigm, on the notion that natural capital is regarded as non-substitutable in the production of consumption goods (what Neumayer refers to as the ‘source side’ of the economy) and in

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its capacity to absorb pollution (what Neumayer refers to as the ‘sink side’ of the economy). This is what Neumayer refers to as the ‘non-substitutability paradigm’ (Neumayer, 2010). One issue that has arisen in this broad debate is whether SS and WS are opposing paradigms? To many, the answer is an unambiguous ‘yes’. However, elements of Pearce et al. (1989) suggest this is not the case. In short, Pearce et al. state that sustainable development requires that each generation passes on an undiminished stock of total capital (our emphasis) to the next generation, meeting a requirement for intergenerational fairness and non-declining consumption over time. Another potential path is suggested by Pelenc et al. (2015). They advocate a practical and cautious approach – treat natural, social, and economic ecosystems as complements (i.e. ‘SS’), while allowing for substitutability at the margin within different categories of capital (i.e. ‘WS’), in the generation of human wellbeing. Measuring Sustainability Our measure of sustainability or sustainable development, which is referred to as ‘GS’, is based on WS. GS relates sustainability of the total capital stocks, allowing for substitutability among them in generating wellbeing across generations. This capital stock‐based, approach states that the wellbeing of present and future generations depends on how societies choose to use their resources (i.e. their various forms of capital). These resources include physical elements, such as shelter and sub-soil assets or the quality of the natural environment, but also intangibles such as knowledge or the quality of social and institutional structures. The definition of capital should therefore include more than produced (economic) capital, to encompass social, human, and natural capital as well. According to this approach, a sustainable development path of an economy is one where the (per capita) real values of changes in capital stocks are non-negative (i.e. constant or increasing). The GS approach and the range of measures it provides, have become one of the most popular, and perhaps important, indicators of sustainable development (Bank, 2011; Greasley et al. 2016). Such indicators focus on how well a country maintains its total asset base – i.e. natural capital, human capital, and produced capital – over time, considering how rents from the depletion of natural resources are utilised for current consumption or savings for the future. It permits discussion and testing of the effects of population growth, which potentially dilutes the amount of capital available to future generations. It also enables measures of savings gaps to be calculated with a view perhaps to use government policy to close them for the benefit of future generations.

III. IS NZ ON A SUSTAINABLE DEVELOPMENT PATH? The specific question we are addressing is whether NZ, as a nation, is saving enough to replace the various capital stocks it uses (and therefore depletes) to meet its ongoing needs. Is it maintaining its aggregate wealth (inclusive of human,

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natural, and produced capital), per head of population (per capita) over time? If so, then NZ is on a sustainable growth path; if not, it is not. The measure used for such an assessment is the ‘GS’ measure. GS measures year-on-year changes in total capital, as a source of wellbeing. In our analysis, total capital includes various forms of natural capital, human capital (education, but ideally should include at least health as well), and produced capital. A country’s development is said to be sustainable if it maintains or increases the overall stock of capital (Pearce & Atkinson, 1993). One driving principle of GS’s notion of sustainable development is that: income from the use of non-renewable resources should be reinvested in renewable resources in order to maintain total wealth and to achieve non-declining wellbeing over time (Hamilton, 1990; Hartwick, 1977). An economy which saves more than the combined depreciation of its stocks of natural capital and produced capital, will be (weakly) sustainable (Pearce & Atkinson, 1993; Pearce et al., 1989]. Whenever GS takes negative values, it indicates that the economy is on an unsustainable development path (in terms of the Pearce et al., 1989 ). WS, the underlying assumption of GS, shows how different types of capital are combined to produce a stream of total wealth over time (Hanley, Dupuy, & McLaughlin, 2015). The types of measures/indicators of sustainable development used in this literature include: 1. Gross investment (savings): Gross fixed capital formation + inventories + net foreign investment. 2. Net investment (savings): [1] – depreciation of reproducible capital. 3. Green investment (savings): [2] + Δ natural capital. 4. Genuine investment (savings) (GS): [3] + Δ human capital. 5. Pollutant adjusted GS: [4] – damage from pollutants (typical CO2). 6. Malthusian savings/wealth dilution: [3] or [4] adjusted for population growth. 7. Technology augmented GS: [3] or [4] augmented by the present value of Total Factor Productivity. The results presented below, towards answering this specific question, are based on NZ time-series data for the period 1950–2015, compiled from several national databases and publications. Instead of going into a lot of technical detail, perhaps the easiest way to consider what the NZ data suggests on sustainable development since 1950 is to consider the time-path of one of these various indicators [i.e. GS, item (4)] in the list above, graphically. Fig. 2 shows the real monetary value of GS. In fact (see Qasim, Oxley, & McLaughlin, 2018), all these measures are telling the same story. An increasing trend means increasing real per capita future wellbeing. The value of GS (and various other comparable measures as well), in real terms, is positive over the study period (1950–2015). We conclude that, based on these various measures, NZ has been on a (weakly) sustainable development path over the whole period. The result presented in Fig. 2 relates to whether GS is consistently positive (which it is), from which we can then infer that data are consistent with WS. We also considered the effects of wealth dilution based on NZ’s actual population

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Fig. 2.  GS Measure of Future Wellbeing (Real Per Capita).

growth over the period of interest – resulting from the sharing of a given amount of capital between more people. In the case of NZ, population grew at an average rate of 1.38% between 1950 and 2015. Therefore, as long as population growth is positive, wealth dilution reduces GS per capita. A characteristic of NZ (and Australia) is that population has been growing much more rapidly than in Western Europe and the USA. Between 1946 and 2000, population has grown, on average, at a rate of 1.75% in Australia; 0.33% in Britain; 0.63% in Germany, and 1.28% in the USA (Greasley, Hanley, McLaughlin, & Oxley, 2017). In the case of NZ, population grew at an average rate of 1.38% between 1950 and 2015. As a consequence, the possibility of a significant wealth-dilution effect (the spreading of capital among a larger population) may have particular resonance for NZ (and Australia). Results for NZ show that, although less robust, even after we allow for wealthdilution effects, estimates based on the GS model still suggest that WS has been achieved. Nevertheless, and this is the bad news, per capita wealth is declining. In other words, NZ, as a nation, is not saving sufficiently to expect growing wellbeing over time. Fig. 3 highlights this result in the form of a ‘gross savings gap’ (expressed as a % of gross national savings). The gap measures the extent to which NZ as a nation has to increase its saving in order to maintain its wellbeing (per capita) over time. The key message is that NZ should continue to increase its savings and investing at levels necessary to ensure sustainable future increases in wellbeing. Looking specific sub-periods in Fig. 3, in more detail, it is interesting to note that New Zealanders in aggregate initially achieved unsustainably low savings rates, with the gap then narrowing for a while, only to start to widen again more recently. It is noteworthy that for the period 2000–2015, the average GS gap as a % of GNS is + 7.2%, which is second only to 1955–1975 as a period of a large savings gap. In summary, although NZ remains on a weakly sustainable growth path throughout the period, the effects of population growth have led to wealth dilution with, at best, NZ wealth per capita remaining static over the new millennium.

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Fig. 3.  Trends in the GS Gap as a Percentage of GNS and Its 10-Year Moving Average. Note: Positive (negative) number is bad (good) as it shows the country is saving less (more) than required to maintain sustainability. The World Bank (WB) has replaced negative numbers with NA (not applicable) in their estimates.

In particular, and focussing specifically on sustainable development (or wellbeing), NZ:

• Has exhibited positive GS from which we can infer that the data are consistent with being on a weakly sustainable development path. • Has experienced savings gaps, which have varied over the period, with the decade 2000–2010 exhibiting a + 7.2% average GS gap as a percentage of GNS. • Exhibits a situation where wealth dilution effects are important and will put •

•

further strain on sustainable development (i.e. per capital sustainable wellbeing) if population growth rates continue at comparatively high levels, unless the stock of capitals increases at a rate faster than experienced in the past 65 years.2 Has experienced year-on-year increases in human, fixed, and renewable natural capital assets that are internationally comparatively low (and typically declining) leaving, until very recently, non-renewable natural capital growth rates to reduce the savings gap. Moving into a period where non-renewable natural capital growth rates are now stagnant (or declining), will put the onus on the other capitals to grow at historically unprecedented levels in order to seek to achieve future positive changes in wealth per capita. Has, in terms of wealth per capita, a pattern of wealth dilution from the beginning of the sample through to the early 1990s, created, in the main, by a persistent GS/Net National Savings (NNS) savings gap. This gap is beginning to re-emerge in the new millennium, where for the period 2000–2010 it was (on average) + 7.2%. This is reflected in changes in wealth per capita of between $−431 and $−295.

Relating all this to our earlier discussion on the relationship between sustainable wellbeing and stocks of natural, human, and produced capital stocks, even

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allowing for substitutability between these capital stocks as sources of intergenerational wellbeing, pressures are emerging on all fronts. Although the data suggest that the necessary conditions for WS are being satisfied in NZ, there are issues of concern in terms of long-term sustainable development – in particular:

• Changes in per capita wealth have been declining due to the effects of savings gaps and wealth dilution. • Savings gaps have re-emerged in NZ (they were more persistent and higher in the early parts of the sample than in the new millennium). • Although not explicitly analysed in this chapter (but see Qasim et al., 2018), we are seeing relatively small contributions from technological change towards increasing the productivity of the various types of capital stocks.

IV. POLICY IMPLICATIONS The evidence shows that NZ is experiencing low and downward trending additions to stocks of human3 and fixed capital, as well as stagnant growth rates in the stocks of renewable natural capital. Total capital is not growing fast enough to match population growth, and underneath that broad umbrella, relative to other comparable countries, investment rates in all forms of capital (including natural capital) are low. Given this background, the focus of a wellbeing policy has to be on ensuring a sustained increase in the quantum and quality of public investments in these capital stocks. In terms of specific areas that require attention, and without in any way underemphasising the importance of human and produced capital as areas that require attention, there appears to be a strong convergence between ‘SS’ and ‘WS’ advocates on the need to pay particular attention to the deletion of natural capital. Non-renewable natural capital was the area with the highest growth rates, which in part was reversing the savings gaps in the 1980s and 1990s. However, this reversed in the new millennium, contributing significantly to a +7.2% savings gap. The challenge here is to increase the growth rates of the other capitals (particularly human) to compensate for the decline in the growth of non-renewable natural capital exploitation, which is likely to encounter longerterm environmental resistance. Including forestry (standing timber) in measures of GS leads to positive increases in future wellbeing and likely positive changes in per capita wealth. More land dedicated to forestry will increase the stock of renewable natural capital with positive carbon sink effects, but there may be tensions regarding optimal harvesting rates. Furthermore, the opportunity cost to increasing forest area by planting native forest (which cannot be harvested by law) would likely be significant and may might impact on the future growth of other capitals, for example, produced capital. The shift to more dairy farms using marginal lands puts pressures on the expansion of forestry.

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• The net contributions to future wellbeing and wealth per capita arising from valuing water effects have yet to be fully evaluated. • The net contributions to future wellbeing and wealth per capita arising from •

fishery related effects have yet to be fully evaluated, although the World Bank is confident the rents from fisheries in NZ are likely to be ‘substantial’.4 If/when the effects of emissions (other than CO2) are monetised, conclusions relating to sustainable development paths may need to be revised. To some extent, the substitution of forestry for other agricultural land may mitigate some of these (likely to be unambiguously negative) effects. However, this is likely to have short-term effects on gross domestic product per capita and consumption per capita growth rates.

These and other policy suggestions in terms of public policies that need to be pursued, with regard to the natural environment and natural capital, in pursuit of sustainable development, are developed in detail in Chapter 13.

V. CONCLUSIONS If wellbeing, especially intergenerational wellbeing, is an objective of public policy, as it is in NZ, then it is important, from the perspective of informing public policy, to focus on concepts and associated measures that can guide public policy. In that context, this chapter focussed specifically on sustainable development, presenting some of the necessary building blocks of the popular GS approach to the evaluation of current and past development paths followed by countries. By ‘sustainable development’ we mean, ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (WCED, 1987, p. 43) – i.e. protects and enhances intergenerational wellbeing. Thus, pursuing sustainable development is very closely related to enhancing intergenerational wellbeing as an objective of public policy. The GS approach allows analysts to specifically measure and evaluate whether a country and the policies it is following, will lead to sustainable outcomes in terms of resources being available to future generations. Using NZ as our example, we asked the question: Has/is New Zealand following a sustainable development path? One of our contributions is to show that these questions can now be rigorously addressed, with the use of appropriate techniques and data. There is lots of work to be done on both fronts – but it is possible to do this work and it is being done to inform and guide public policy. Based on the analysis we have done so far, the good news is that ‘yes, New Zealand’s economy has been following a (weakly) sustainable development path, even when growing population pressures are considered’. The bad news is that NZ, as a nation, is not saving sufficiently to expect growing wellbeing over time –NZ should continue to increase its savings and investing at levels necessary to ensure sustainable future increases in wellbeing. That public investment has to occur on all fronts, covering natural, human, and produced capital.

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NOTES 1.  In general terms, we can think of two types of natural capital: (i) exhaustible and (ii) non-exhaustible (replaceable). Pearce et al. (1990) define natural capital as: ‘… the stock of all environmental and natural resource assets...from oil in the ground to the quality of soil and groundwater, from the stock of fish in the oceans to the capacity of the globe to recycle and absorb carbon’ (p. 1). The Natural Capital Declaration, from the UN Conference on Sustainable Development, states that, ‘natural capital comprises the Earth’s natural assets (soil, air, water, flora and fauna), and the ecosystem services resulting from them, which make human life possible’. The European Union’s 7th Environmental Action Plan (EAP) sees their first priority is ‘to protect, conserve and enhance the Union’s natural capital’ and defines natural capital as the Union’s ‘biodiversity, including ecosystems that provide essential goods and services, from fertile soil and multi-functional forests to productive land and seas, from good quality fresh water and clean air to pollination and climate regulation and protection against natural disasters’. This European EAP includes under the term marine, coastal and fresh waters, land and forests, and air. 2.  This assumes that we are measuring brain-gain human capital from migration sufficiently accurately. 3.  For example, a detailed analysis of human capital accounts for Canada, New Zealand, Norway, Sweden, and the United States unambiguously shows that human capital is a leading source of economic growth (World Bank, 2011, p. 105). 4.  There are notable exceptions to this, such as fisheries in Iceland, New Zealand, and Namibia, where better management allows substantial rents to be generated (World Bank, 2011, p. 21). 5.  This section draws upon the work of Qasim (2019) where readers can view a more extensive discussion of the topics raised here. 6.  The ministries are NZ Treasury, MFE, MPI and MBIE. Source URLs for are: https:// www.parliament.nz/en/pb/hansard-debates/rhr/; http://archive.stats.govt.nz/browse_for_stats/ snapshots-of-nz/digital-yearbook-collection.aspx; https://treasury.govt.nz/publications/corporate-documents/annual-reports; http://www.mfe.govt.nz/publication-search; https://www.mpi. govt.nz/about-us/corporate-publications/; https://www.mbie.govt.nz/publications-research/ publications. 7.  In our analysis, we applied Equation 1 to calculate normalised frequency of a term in a given year in order to extract annual trends of SaW terms.



 W  i  (1) NTFi , y = log  TWC y 

where NTFy represents normalised frequency count of term i in year y; Wi is the selected SaW term; and TWCy is the total word count in year y. For instance, let’s assume that the term ‘sustainability’ appears 44 times in the total word count of 181,755 in the New Zealand Official Year Book (NZOYB) of 2008, then the normalised frequency count of term ‘sustainability’ is 2.42e-04. 8.  Bigram analysis is one of the commonly used yet very powerful technique to conduct the relationship between words in a text corpus (Banerjee & Pedersen, 2003; Feldman, Sanger & others, 2007; Hall, Jurafsky, & Manning, 2008). We used ‘tidytext’ library in R programming language to extract tokenised text by pairs of adjacent words. 9.  For a more extensive discussion of the LSF and its relationship with the current government’s wellbeing strategy, see Chapter 7 in this volume.

REFERENCES Banerjee, S., & Pedersen, T. (2003). The design, implementation and use of the N-Gram statistics package. In A. Gelbukh (Ed.), Computational linguistics and intelligent text processing (pp. 370–381). New Delhi: Springer.

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Costanza, R., de Groot, R., Sutton, P., van der Ploeg, S., Anderson, S., Kubiszewski, I., … Turner, R. K. (2014). Changes in the global value of ecosystem services. Global Environmental Change, 26, 152–158. Feldman, R., & Sanger, J. (2007). The text mining handbook: Advanced approaches in analyzing unstructured data. Cambridge: Cambridge University Press. Ghosh, A., & Ramakrishnan. (2018). Current account deficits: Is there a problem? Retrieved from https://www.imf.org/external/pubs/ft/fandd/basics/current.htm Greasley, D., Hanley, N., McLaughlin, E., & Oxley, L. (2017). Australia: A land of missed opportunities? Environment and Development Economics, 22, 674–698. Greasley, D., & Madsen, J. B. (2016). The rise and fall of exceptional Australian incomes since 1800. Australian Economic History Review, 57(3), 264–290. Hall, D., Jurafsky, D., & Manning, C. D. (2008, October). Studying the history of ideas using topic models. In Proceedings of the conference on empirical methods in natural language processing, Honolulu (pp. 363–371). Hanley, N., Dupuy, L., & McLaughlin, E. (2015). Genuine savings and sustainability. Journal of Economic Surveys, 29(4), 779–806. doi:10.1111/joes.12120 Hartwick, J. M. (1977). Intergenerational equity and the investing of rents from exhaustible resources. The American Economic Review, 67(5), 972–974. Herald. (2009). Don’t say that “sustainability” word. Retrieved from https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10606288. Accessed on March 02, 2020. Neumayer, E. (2010). Weak versus strong sustainability: Exploring the limits of two opposing paradigms. Northampton, MA: Edward Elgar. New Zealand Official Yearbooks. (1893–1970). Stats NZ. Wellington: Government Publisher. Pearce, D. W., & Atkinson, G. D. (1993). Capital theory and the measurement of sustainable development: An indicator of weak sustainability. Ecological Economics, 8(2), 103–108. doi:10.1016/0921-8009(93)90039-9 Pearce, D. W., Barbier, E., & Markandya, A. (1990). Sustainable development: Economics and the environment in the third world (p. 4). Abingdon: Routledge. Pearce, D. W., Markandya, A., & Barbier, E. (1989). Blueprint for a green economy (Vol. 1). Earthscan. Pelenc, J., Ballet, J., & Dedeurwaerdere, T. (2015). Weak sustainability versus strong sustainability. Brief for GSDR United Nations. Qasim, M. (2017). Sustainability and wellbeing: A scientometric and bibliometric review of the literature. Journal of Economic Surveys, 31(4), 1035–1061. Qasim, M. (2019). Sustainability and wellbeing: A text analysis of New Zealand parliamentary debates, official yearbooks and ministerial documents. Retrieved from https://ideas.repec.org/p/wai/ econwp/19-01.html Qasim, M., Oxley, L., & McLaughlin, E. (2018). Genuine savings as a test of New Zealand weak sustainability. Environment, Development and Sustainability. Resource Management Act. (1991). Parliamentary Council Office: Wellington. Retrieved from http:// www.legislation.govt.nz/act/public/1991/0069/latest/DLM230265.html World Bank. (2011). The changing wealth of nations: Measuring sustainable development in the New Millennium, The International Bank for Reconstruction and Development. Washington, DC: The World Bank. World Commission for Economic Development. (WCED). (1987). The Brundtland Report. Oslo, Norway: WCED.

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APPENDIX Evolution of the Use of the Term ‘Sustainability’ in NZ’s Public Policy Discourse The words sustain, sustainable, and sustainability are often used in very different contexts, to refer to different phenomena. NZ discourse is no exception. The use of the term ‘sustainability’ differs between and within groups in NZ as well, often reflecting the influences of different academic disciplines and various ideologies. The term now enters into conversations at all levels – business, local and central government, and NGOs. Like train-tracks, well-intentioned groups run in parallel, finding it hard to agree even on the terms of reference for change, let alone policies. This makes it very difficult to have a constructive dialogue on whether public policy and governance have been supportive of ‘sustainability’, and how it can be improved. We present below some results from the application of natural language processing and semantic analysis methods to analyse a very large volume of text that covers material published on NZ,5 between 1893 and 2017. From such a set of analyses, we are then able to ask and answer various questions such as, when did New Zealanders start to talk about sustainability and when did government policies, texts, and actions feature sustainability as a key element; and whether different political parties had different degrees of influence and engagement in the discussion and operation of sustainability and welfare enhancement (sustainable development)? The text data used in this study are extracted from multiple sources that include Parliamentary debates (1893–2017), annual NZ official yearbooks (1893–2010), and annual reports from four ministries (1999/2010–2017).6 By way of political background, Fig. A.1 presents a timeline of who was in power, and when, since the late 1800s. Fig. A.2 presents results on the occurrence of the terms ‘(un)happy’, ‘sustain’, ‘welfare’, and ‘wellbeing’, and shows that such words start to appear in the corpus from the first year of the data sample (i.e. 1893) in the NZOYBs and Hansard. Terms, including ‘happy’ and ‘unhappy’, have been used with fairly standard semantics, however with opposite trends. There is a decline in the use of the word ‘happy’ during the Liberal political regime until 1935, when the Labour government was first elected, after which the trend is reversed. In contrast, the term ‘unhappy’ follows exactly the opposite pattern in both periods (i.e. before and after Liberal governments). The term ‘sustain’ was used increasingly during the Liberal regime in both the NZOYBs and Hansard in the context of maintaining certain levels of something – e.g. ‘sustained yield’ or ‘sustained injuries’. The trend in the word count for the term ‘sustain’ continues to grow, however, at a much slower rate from the late 1930s. The term ‘welfare’ also exhibits a non-linear trend where the use of the term continues to grow from the first year in our data (i.e. 1893) and reaches its peak by the mid-1980s, During the late 1980s, following the publication of the Brundtland Commission’s report Our Common Future, sustainable development becomes a global agenda and the term ‘sustainability’ and its variants are commonly used in policy debates and documents (Qasim, 2017).7 The term ‘resilience’ appeared in 1904 in parliamentary debates and in 1926 in the NZOYBs, and has been used in a wide range of social and economic contexts

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Fig. A.1.  Who Was in Power and Prime Minister When?

Fig. A.2.  Log Normalised Count of SaW Terms in NZOYBs by Political Parties.

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with an overall increasing trend. Note however that resilience and sustainability are not the same concepts (see Qasim, 2019). This finding is consistent with the common understanding that the term ‘sustainability’ became less popular during the National government tenure because they felt it was poorly understood, ill-defined and had a vague agenda to follow. Helen Clark’s government was criticised by National for overusing the word ‘sustainability’ in their conversations (Herald, 2009). The term ‘sustainability’ exhibited an increasing trend during the Labour government period between 1999 and 2008, but this upward trend in the frequency of use was reversed under the National government, and the trend continued to decline in the following years of their tenure. Our key results highlight that the term ‘welfare’ can be found in the NZOYBs and Hansard data from 1893 (which is the first year in our dataset), with and increasing trend for approximately a century. This mirrors the long history of social welfare oriented policies in NZ. Figs. A.3 and A.4 show the context in which ‘Sustainability’ and ‘Welfare’ (SaW) terms have been used before and after the 1970s by using highly correlated Bigram8 networks. Each word is represented by a node and their link is illustrated by the edges linking two nodes. The thickness of the edge represents the degree of correlation between two terms, that is, thicker edge represents strong correlation. Three standalone networks in Fig. A.3 show how SaW terms were used semantically during this time. Where the term ‘sustain(ed)’ was used in a sense of maintaining the levels of something. For example, terms ‘sustain’ is highly correlated with words like ‘capital’, ‘rights’, ‘force’, ‘trade’, etc. Likewise, the term

Fig. A.3.  Correlation Network of SaW Terms in New Zealand Official Yearbooks (1893–1970).

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Fig. A.4.  Correlation Network of Frequently Occurring SaW Terms in NZOYBs, Post 1970.

‘sustained’ is also associated with words such as ‘forest’, ‘management’, ‘timber’, ‘yield’, etc. In addition, this it is also linked with the term ‘welfare’ which is linked with words like ‘people’, ‘children’, ‘environment’, ‘child’, etc. In other words, the SaW relationship did not exist before 1970s (Qasim, 2017; Qasim et al., 2018). In contrast, post 1970, we see a strong relationship between SaW terms clearly in the context of sustainable development. As shown in Fig. A.4, there is a high correlation between the terms ‘welfare’ and ‘sustainable’, and ‘sustainability’. The terms ‘sustainable’ or ‘sustainability’ are strongly linked with words like ‘rio’, ‘climate’, ‘environment’, etc., and ‘welfare’ is linked with words like ‘social’, ‘aged’, ‘persons’, etc. Further network density analysis (not shown), shows that the network density of SaW is denser for the Labour party compared to that of National party. We also observe a disconnect between SaW networks for the National party, whereas these are linked in case of the Labour party. When National is in power, sustainability and wellbeing are viewed as two separate issues and they are not discussed together or one of the terms is just neglected. Resilience entered the vocabulary under the recent National period of tenure – a retrograde step if sustainability is the goal. The current Labour government under Prime Minister Ardhern seems committed to increasing environmental sustainability coupled with higher levels of wellbeing through social housing, poverty reduction, extensive forestation programmes, for instance. One of their significant steps in this regard is the intended use and adaption of The Treasury’s ‘Living Standard Framework’9 (LSF) for setting priorities, decision making, and monitoring progress related to intergenerational wellbeing.

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What this analysis shows is that NZ has been at the forefront of discussions, debates and action relating to sustainability, wellbeing, welfare and resilience for more than 125 years. Furthermore, it shows how different political parties and leaders appear to have different and changing views over time about such issues, at least based upon what they say, debate in Parliament and report in official documents. NZ is not just a modern rock-star economy, but a long-time advocate of consideration of sustainability issues at a national level.

PART II PUBLIC GOVERNANCE

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CHAPTER 8 STATE SECTOR GOVERNANCE REFORM: PAST EXPERIENCE, CONTEMPORARY CHALLENGE Graham Scott

1. INTRODUCTION New Zealand’s state sector reforms, over the last four decades, can be characterised as an evolving story in public sector governance frameworks and in the administrative and management processes that these frameworks regulate and provide resources for. These changes established new frameworks of governance, accountability, resourcing, delegations of authority, employment, and other matters. The aim of this chapter is to describe and comment on some of the major reforms to the State, focussing on those that began in the mid-1980s. Specifically, this chapter covers reforms to commercial activities, ministries and departments, and semi-autonomous state entities. It is not claimed here that the individual components of New Zealand’s state sector evolution are especially unique by international standards, although some things were in fact on the frontiers of reform across democratic countries at the time. Indeed, the problems that these reforms in New Zealand addressed are well-known to many other countries. However, the reform events described here are unusual in the concentration of governance, administrative, and management reforms in a relatively short time. This chapter concludes with some reflections on the significance of this and what further reform is needed today.

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 147–170 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032028

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2. THE CONTEXT OF NZ STATE SECTOR REFORMS: BRIEF HISTORY New Zealand has a long tradition of highly centralised control and management of the economy and the state. This has its roots in historical pragmatism at least as much as ideology, because New Zealand was an underdeveloped economy remote from global centres. Its colonial settlors brought with them the institutions of the British unwritten constitution, but the country was sparsely populated; had no significant local capital markets, industrial, or commercial centres; and repeatedly looked to the central government to do things that might have been done by private enterprise or local government in Britain. The Labour Government in the 1930s expanded the control of the state over the economy, and these controls were extended and embedded by wartime controls in the 1940s. National Party governments, although sometimes conservative in their rhetoric, maintained most of these controls, for example, quantitative controls on imports, and did not undertake the broad programmes of deregulation that their counterparties in the USA, Britain, Canada, and Australia launched in the 1980s. National Party governments were in power more often than Labour in the post-war decades. In the early 1950s, New Zealand had one of the highest per capita standards of living in the world, but from then on, there was a steady relative decline, which has been an enduring concern to economic policy makers. There have been numerous explanations for this decline, including British entry into the European common market, small-scale local industry, lack of comparative advantage in sunrise industries, protection policies to encourage infant industries that never became adults, poorly designed regulatory policies, and many more explanations. A contemporary view of the causes can be seen in the work of the Productivity Commission (Conway, 2018). When the oil crises hit in the 1970s, governments were faced with lowering the standard of living to absorb the oil price increases and the impact of the weaker global economy. New Zealand’s adjustment to the new reality was slow and inadequate by contrast to the Organisation for Economic Co-operation and Development (OECD) countries on the whole. The government, led by Prime Minister Robert Muldoon after 1975, first responded with orthodox macroeconomic policies but almost lost an election in 1978, so turned to fiscal stimulus, tightening regulatory controls of prices to combat inflation, maintaining an over-valued exchange rate, huge public spending on infrastructure, and rapid growth in the fiscal deficit and public debt. But by the time of the 1984 election, the economy was faced with a short-term financial crisis, unsustainable fiscal policies, the financial collapse of its infrastructure investments, and controls on wages and prices that were unsustainable politically and economically. It was into this situation that the fourth Labour Government was elected in a landslide in 1984. After nine years out of power, it was energetic and committed to make changes, starting with addressing this grave situation. Among the senior

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ministers, there was a preference for deeper reforms of policies and institutions over marginal adjustments to the status quo. This can be seen in the writings of finance minister Roger Douglas; for example, Therefore, one of the major philosophical differences in the new Government in 1984 was a change in its understanding of the role of government and its ministers. The proper role of government is to ensure that the people get the best possible value from the country’s limited human, physical and financial resources and to provide the maximum benefit for the whole population…and not just favoured sectors or industries.(Douglas, 1989)

Minister of State Enterprises Richard Prebble similarly wrote of his convictions that the way state businesses were run needed fundamental reform. Geoffrey Palmer, who was Deputy Prime Minister and later Prime Minister had strong views on weaknesses in the structure and functions of the State and in the Parliament, who colourfully said, ‘We ended up being run very similarly to a Polish shipyard’, adding: ‘We couldn’t keep living on borrowed money – we’re not the Cook Islands’. They and other ministers arrived in office primed to make fundamental changes to the governance of the State and beyond, while the economic situation and outlook made policy corrections urgent. The State-Owned Enterprises (SOE) Act 1985 brought massive changes in the performance of government commercial businesses. Privatisation of some of these shrank the role of the state in some industries. The Public Finance Act 1989 changed the accountability relationship between ministers and their departments, and the processes for allocating resources in the budget. The State Sector Act 1988 changed the way senior public servants were held to account for the performance of their department and extended their delegations to give them managerial control. The Reserve Bank Act 1989 fundamentally changed the relationship between the Government and the Central Bank for the conduct of monetary policy. The political and economic background to these events is elaborated further in Scott (2001), which was reviewed in Martinez (2003) and Scott (1996). The process did not stop when the National Party was returned to the office in 1990. The Fiscal Responsibility Act changed the accountability of the executive to the Parliament in the conduct of fiscal policy and imposed a multi-year framework on fiscal management. The perspective and contribution of Ruth Richardson, who was Minister of Finance in the National Party Government after 1990, appear in her memoire (Richardson, 1995). The introduction of purchase–provider splits in the health sector in the 1990s changed the governance of public hospitals and the funding of primary care providers. The electricity monopoly was broken up and a wholesale market for electricity created. On Labour’s return to government in 1999, health sector governance was changed again to decentralise the funding function. The Crown Entities Act 2004 changed the accountability framework of semi-autonomous bodies and their relationships with ministers. In 2008, National Party, in government once again, made further changes to the Public Finance Act and the State Sector Act, with the objective of sharpening

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the focus on government’s high-level policy goals and marginally increasing the discretion of ministers and officials to shift resources around. This government also partially privatised some SOEs by selling minority shareholdings. The remainder of this chapter briefly describes and assesses the main changes in State Sector institutional frameworks beginning in the mid-1980s: financial accountability, public service employment, and performance management; State Enterprises and structural changes aimed at clarifying roles and focussing accountability for performance. The story goes beyond the first wave of changes in the 1980s and early 1990s, to cover some important changes in these areas that responded to lessons learned and changing agendas from the later 1990s and up to the present. (Chapter 14 focusses more explicitly on issues and reforms beyond 2000 and up to the present.)

3. STRENGTHENING ACCOUNTABILITY FOR SERVICE DELIVERY AND FINANCE Faced with a fiscal deficit approaching 10% of gross domestic product (GDP) in 1985, forecasts for it to deteriorate further, and policies on which they wanted to increase spending, the ministers in the fourth Labour Government turned their attention to weeding out low quality and low priority spending. As a centre-left government, they did not want to rely on orthodox austerity policies, and therefore they sought to drive much improved efficiency and effectiveness through the provision of state services. The first and most effective initiative was the reform of the commercial activities of the State, which were 12% of the economy and 17% of national investment. Many made losses, were protected by regulations and subsidies, and paid no taxes or dividends. The SOE Acts moved them from being run under the direct control of ministers to being incorporated under New Zealand’s generic Company Laws, with ministers as the shareholders and therefore subject to statutory constraints on their rights to intervene in the operations of the companies. Also, they became required to pay taxes and dividends and operate as successful commercial businesses. Later some of the businesses, with a value approximately equal to 5% of GDP, were privatised. Coverage of these reforms is available in Duncan and Bollard, (1992) – see the textbox below. Buoyed by the success of the state-owned enterprises, policy ministers set out to find similar performance improvements in the non-commercial functions of the State. They quickly learned that the information available to them was wholly inadequate for this. By 1986, Deputy Prime Minister, Geoffrey Palmer, described the situation as ‘massive economic waste’. They were not inclined to implement across the board cuts in spending, as had been tried and largely failed under the previous Muldoon Government. The ex-post evaluations of that policy showed that much of the saving was only a postponement of spending. Also, across, the board cuts would not allow for the changes in priorities the new government sought. They were looking for a new system of expenditure control.

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Some Results from State Enterprise Reform

• Electricity Corporation return on assets rose from around 13% in 1980– •

• • • •

1985 to 20% in 1988–1990. In real terms, price per kWh fell from 4.90c in 1988, the first year of corporatisation, to 4.70c in 1990. Coal Corporation increased coal production per employee from 820 tonnes per annum in 1987 to 2,482 tonnes per annum by 1991, while the real price of coal decreased from a high of $90 per tonne in the State coal era to around $50 per tonne in 1991. Years of losses were replaced by profits. Telecom productivity rose 85% while prices dropped 20%. The waiting time for a phone fell from 6 weeks to 2 days. NZ Post productivity rose 120%, with a turnaround from a loss of $38M to a profit of $43M while the price of stamps remained fixed in spite of the introduction of GST at 10% NZ Rail moved from a $77M loss to a $41M profit with a drop in freight prices of 50%.1 The Port Companies formed by the harbour boards cut the workforce by 50%, prices dropped from 20% to 50% and turnaround times for ships declined (by 56% at Tauranga).

Sources: Spicer (1996), Duncan and Bollard (1992), Jennings and Cameron (1987).

According to information provided by the State-owned Enterprise Unit, these results were achieved within the period from the introduction of the policy in 1986–1987 up to 1992 and in some of the enterprises well before the end of this period.

3.1. Public Finance Act 1989 After the election in 1987, a new approach to budgeting and reporting based on outputs and accrual accounting was introduced. This was done in concert with the development of a new system of accountability for performance in the State Sector, which was incorporated into the State Sector Act 1988 – see below. These developments are described in detail in Scott (2001). Together these two acts established a new framework for governance and management of the core state sector. As is the case in most advanced countries, the government had a programme budgeting system, but in fact it did not fulfil the textbook principles of programme budgeting, which are intended to enable ministers to evaluate the performance of the programmes and change priorities. The concept of outputbudgeting was developed to help ministers see what services they were paying for by using accounting methods to accumulate the input expenses into the associated outputs. It is worth noting that the distinction between outputs and

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subprograms within programme-budgeting systems is sharper in theory than in practice, as outputs and subprograms are commonly somewhat similar. Accrual accounting was introduced to take proper account of assets and liabilities so that lumpy expenditures on capital were allocated to output expenses over the life of the assets. This was essential to support new financial delegations to top managers, allowing them to make trade-offs between current and capital expenditure within budgetary ceilings. The accountability for the delivery of the outputs, subject to budget constraints, was a central innovation in these reforms. However, the Act required that outputs should be linked to the outcomes that the Government set for state agencies. To put it simply, the concept was to provide the heads of departments with freedom to choose their inputs while delivering the services described by the outputs based on integrated budgeting and financial reporting. Previously, the information system in the budget process was not integrated with the system for external reporting to Parliament at the departmental level. The outputs could be summarised at varying levels of aggregation for management and reporting purposes. The Auditor General audited the ‘Statement of Service Performance’ both in terms of the cost and delivery of the outputs. This statement reflected the ‘Performance Agreement’ for each departmental CEO as negotiated with their ministers annually under the provisions of the State Sector Act. 3.2. State Sector Act 1988 In 1988, the Government passed the State Sector Act, which fundamentally changed the governance of the departments and ministries. It repealed the State Services Act 1962 and the State Service Conditions of Employment Act 1977. Under those laws, the public service was a single entity and all public servants were employed by the State Services Commission (SSC). Pay and conditions were set centrally through a system of occupational classes and grades within these. Accommodation, office systems, IT, and other administrative matters were all controlled centrally. Promotion was on the basis of merit but gave heavy weight to seniority. It was very unusual for someone to be appointed to a senior position from the outside. Senior appointments were made on the recommendation of a panel of departmental heads. It was a closed system known as ‘the college of cardinals’.

What Are Outputs? Outputs, as defined by the Act:

a. denote goods or services that are supplied by a department, Crown entity, Office of Parliament, or other person or body, and b. include goods or services that a department, Crown entity, Office of Parliament, or other person or body has agreed or contracted to supply on a contingent basis, but that have not been supplied.

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Examples of outputs include policy advice, administration of legislation, administration of benefits, and delivery of services such as health and disability services. What Is an Output Class? A class of outputs means a grouping of similar outputs. In general terms, the scope description of an output class should:

• have an external focus; • cover goods or services that are similar in nature ï not cover goods or services covered by other output class scope descriptions; • be comprehensive; • be verifiable; • be controllable by the agency; and • be informative. The Act allows for multi-class output expense appropriations that cover more than one output class. This provision permits the Crown to reallocate resources between output classes within a multi-class appropriation without seeking further Parliamentary approval. Source: The Treasury (2005, p. 20).

Ministers sought a new governance arrangement that gave managers the freedom to manage their own departments and set objectives that were the basis of the assessment of the performance of senior managers. According to the SSC (1998): The key principle was that managers, if they were permitted to make all input decisions – pay, appointments, organisational structures, production systems, etc – would respond by accepting personal accountability for producing substantially higher quality outputs – the goods and services provided for the Government and other users… The Act also set up a triangular relationship between each departmental Minister, the chief executive as head of the department, and the State Services Commissioner as the chief executive’s employer. This arrangement recognised the practical need for chief executives to be responsible to their Ministers for the conduct of departments and for giving effect to the Government’s programmes, but very importantly to also retain and reinforce the principles of a non-political and professional Public Service.

Top managers became ‘chief executives’ and were contracted for five years but could be reappointed for a further three years or to another department at the discretion of ministers on the advice of the SSC. Ministers cannot make the appointments but can turn down the advice of the Commission and ask for further advice but in reality this rarely happens. There is an extensive literature on these changes including a contribution by the author (Scott, 2001), who explains the changes and their consequences in

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detail. They attracted a lot of attention internationally and were subjected to some intensive reviews including: Schick (1996), Jonathan Boston, Pallot, and Walsh (1991), Logan (1991), Pradhan, 1996). They were managerialist in the sense that managers were given freedom to meet specified goals and were assessed on that basis. New systems of management were installed, and departments were managed within fixed budgets without access to supplementary appropriations for their spending on their operations during the financial year. Financial control was much improved, and prioritisation done much better because Ministers could see what they were spending their appropriations on, in terms of services being delivered rather than inputs, which is all the previous system provided them with. There is evidence of reductions in the cost of standard packages of administrative services (Jim Brumby & Honeyfield, 1996) and changes in patterns of spending. After the introduction of the system, there were no increases in appropriations for departmental running expenses for several years, which was unprecedented. Requests of supplemental budget appropriations, which were a long tradition, were stopped. Contemporary management methods were brought into the departments as chief executives took control of human resources, financial management, IT, communications, etc. as management became more professional. For example, almost all the departments and ministries with substantial budgets employed qualified professional accountants for the first time to take positions as financial officers to actively manage the finances and who were part of the management team. Previously, administrative staff just administered the budget and accounting rules from the Treasury. 3.3. Managing for Outcomes A persistent challenge with these changes was how to align the objectives of departments with the outcomes associated with their organisations. This was not something that could be learned from the private sector and nor was it a straightforward managerial exercise. It is easy, but usually unproductive, to invent grandiloquent statements of outcomes for government departments to pursue, such as the Australian Defence Force, which once had an outcome, ‘to defend Australia’. There have been various outcome statements in health and education in New Zealand, which are similarly grandiose, but not much use in the practical processes of managing a department to achieve a performance expectation. The Public Finance Act in its first version required outcomes to be included along with the associated outputs in the financial statements: ministers were to identify, ‘the link between the classes of outputs to be purchased by the Crown and the Government’s desired outcomes’. Many departments struggled with this, so appropriations for outputs commonly just asserted that the outputs met various outcomes with little or no supporting evidence. Some outcomes were expressed in broad terms that could justify many different output bundles. There was often inadequate ‘intervention analysis’, to show the intended impact on an outcome of the services represented in the output, nor evidence to assess that impact. The departments that made progress

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set outcome indicators that were measurable and capable of being influenced by the activities that make up the outputs for which budget appropriations had been made. For example, the Corrections Department in the late 1990s set an outcome target which was recidivism by inmates. Then drew on its knowledge and literature to identify activities that had an impact on recidivism, allocated resources to these and monitored results. There were leading examples in funding some employment services, road safety funding, biodiversity, and Maori education (Kibblewhite, 2002). The leading exponents of managing for outcomes became part of the ‘Pathfinder’ programme aimed at diffusing their experiences. However, success in managing for outcomes remained patchy. In 2002, the Government promulgated a requirement for all departments to make outcomes the focus of their management, but replaced this in 2003 with revised guidance for a ‘more strategic and outcomes-focused approach to management and reporting’ (SSC, 2003). It was based on the traditional policy cycle diagram and was administrative guidance. The approach was described as ‘the meeting point between top-down budget strategy setting by Ministers and the bottom-up development of initiatives by departments’. The guidance material foreshadowed making this requirement more formal over time although it would not be used in performance assessment of chief executives, because of the problem of attributing outcomes to the actions of departments. The requirements were supported by workshops and shared experiences in applying the approach. It was noted however that there were no requirements in financial statements for outcomes to be reported, but invited departments to proffer this information for audit and reporting if they so wished, which seemed unlikely. When the Public Finance Act was revised in 2004, the requirement for outcomes was demoted in significance, but the reason for this has not been explained. It seems probable that the practicalities of outcomes playing a formal role in the system of budgeting and accountability led to attention to outcomes being addressed in other components of the system of public management such as strategic management. Defining outcomes and assessing performance in terms of outcomes is always more arguable and looser than allocating and monitoring expenditure on outputs externally and inputs internally within agency accounting systems Success in managing for outcomes has been patchy and dependent on the circumstances of particular cases. There have been significant successes, which are generally with outcomes defined in practical and measurable terms that align with service delivery. Overarching general outcomes that are unsupported by strong policy analysis and evidence or cross the organisational boundaries of government agencies have generally had little impact on practical outcomes. For example, the report of the ‘Better Public Services Advisory Group’ stated: One of the strengths of the ‘new public management’ reforms implemented in New Zealand in the late 1980s and early 1990s is the sharp focus on delivering services (outputs) to citizens and business . Unfortunately, performance has been less impressive in gaining traction on the big outcomes that matter. (SSC, 2012, p. 17)

In recent years, there has been some success in disaggregating high-level outcomes into contributory indicators where the evidence shows that delivery on

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the services that impact those indicators are effective. For example, in the health sector, high-level goals such as ‘healthy children’ or ‘healthy aging’ have been unpacked into contributory indicators that provide performance targets for service delivery, such as immunisation of children or reducing falls by old people.

Accountability Within the Executive for Outcomes The ‘Managing for Outcomes’ initiative is directed by Cabinet and is part of the Chief Executives’ accountability. Chief Executives will be held accountable for ‘managing for outcomes’, which includes whether a department has:

• assisted its Minister(s) to decide on the outcomes to pursue and their relative priorities, and measured progress towards these outcomes; • advised its Minister(s) on the best intervention mix to produce to pursue the desired outcomes based on evidence of effectiveness and efficiency; • put in place strategies to manage the major risks to achieving the desired

• • •

outcomes, including undertaking evaluative activity to increase certainty about how well its interventions are actually working, collaborating with other agencies that impact on achieving the desired outcomes and adjusting strategies on the basis of evaluative findings; managed its capability appropriately to ensure that it can deliver the agreed intervention mix; delivered the outputs agreed by their Minister(s) to the agreed standards; and made connections with other organisations that contribute to similar or related outcomes and where possible, agreed on shared outcomes and interventions.

Chief executives are not held to account for achieving or not achieving outcomes because of the inherent difficulty in determining and attributing causality for achievement and potentially long time-lags between interventions and desired outcomes. The extent to which chief executives are making progress will be considered in the context of each chief executive performance review. Source: SSC (2003).

The numerous initiatives over three decades to strengthen the influence of outcome goals have been entangled with initiatives to make the system more responsive to government-wide strategic goals. These issues overlap but are not the same.

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3.4. Setting Government-wide Strategic Goals Back in the Muldoon era, strategic goals either set themselves as they emerged from ‘events’ like the oil crises, or imposed at the discretion of the Prime Minister, like the major energy projects. Developments since then in relation to setting strategic goals for governments have followed a winding path, but a lot has been learned from the various endeavours. From the late 1980s, the Public Finance Act and the State Sector Act grounded the system of accountability for performance in terms of outputs and outcomes. These assumed implicitly that governments could be clear in specifying what they required their ministries to focus on and what they wanted to achieve. In the New Zealand experience, sometimes governments can achieve this and sometimes they cannot. There have been a series of attempts to clarify and sharpen the focus of officials on overarching government-wide goals. But for this to succeed, the factions within the government must be brought into alignment around these goals. This is not always possible, so goals are set piecemeal by ministers with the budget process being the main integrating mechanism. The 1980s was a time of highly contested strategic goals within the Labour Government. The processes for resolving these differences, which had worked in a rough and ready way in the first term of that government, collapsed in the second term for several reasons: the consequences of the 1987 stock market crash, deteriorating relationships between the Minister of Finance and the Prime Minister (PM), and growing ideological differences and policy positions. The PM had, in the first term, rested on the mantra that his government would repair the economy and then spend the dividends on traditional Labour Party preferences for social spending. To this end, he established a Royal Commission on Social Policy, in part to put social policy off the agenda until the second term of office. Drawing this hard line between economic policy and social policy was always artificial, given how these two areas of policy are entwined, and the stock market crash put an end to the idea that the economy was about to yield a large fiscal dividend to the Government. This toxic mix of circumstances led in the end not only to a change in government, but also to lessons hard learned about the need for cohesion in setting policy objectives. The National-led government after 1990 did enough to restore the credibility of the government’s fiscal and financial policies and laid the groundwork for 15 years of fiscal surpluses and moderate improvement in productivity. But tensions in the Cabinet over priorities reinforced concerns in policy circles about difficulties in successive governments in resolving differences about policy strategies. Subsequently, the Treasury put more strategic commentary in budget documents and a crucial meeting of the Cabinet was held at the start of each budget cycle to set budget priorities. Finance Minister Ruth Richardson promoted the Fiscal Responsibility Act 1994. This put in the law requirements to conduct fiscal policy in a forward looking way, with a timetable of key reports to Parliament and principles of sound fiscal policy. It included a requirement for a ‘Budget Policy Statement’ to ‘specify the broad strategic priorities by which the government will be guided in preparing the budget for that financial year’.

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From the mid-1990s onwards, there have been several initiatives to set strategic goals by governments to try to direct resources and energy to goals set at various levels of specificity. They were variously labelled Key Result Areas, Strategic Result Areas, Key Government Goals to Guide Public Sector Policy and Performance, and Better Public Services (BPS) goals. Starting in 1993, the ‘three central agencies’ – SSC, Treasury, and Department of Prime Minister and Cabinet – developed a system for improving the strategic focus of the government based on ‘Strategic Result Areas’ set by the Cabinet, which were translated into ‘Key Result Areas’, which were performance targets for ministries. In February 1995, the Government published ‘Strategic Result Areas for the Public Sector 1994–1997’ (NZ Government, 1995), where it was stated: The Strategic Result Areas set out the contribution that the public sector will make to achieving the Government’s strategic vision for New Zealand. They form the link between the Government’s longterm objectives and the operational activities of departments. They aim to bridge the gap between the broad vision of a future New Zealand as stated in the 1993 document ‘Path to 2010’, and the one-year focus of existing departmental budgets and chief executive performance agreements. The Strategic Result Areas identified activities in the public sector that must be done – and done well – over the next 3-5 years to achieve the longer-term strategy. These feed into ‘resultsfocussed’ priorities within departmental budgets and work plans and are part of the accountabilities set down in the performance agreements of departmental chief executives.

These concepts are illustrated in Fig. 1, which is adapted from Matheson and Ross Tanner (1997) The crucial point illustrated in the figure is that the merging of politically determined goals with strategic and operational management in the ministries is

Fig. 1.  Merging Political Strategy with Service Delivery.

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an iterative conversation rather than a top-down hierarchal cascade like a business corporation. A complete description and discussion of this initiative can be found in Scott (2001, p. 339). The reviews of the system at the time showed generally positive responses from ministers and chief executives. This system was abandoned when Labour returned to power in 1999 and set some very high-level goals and attempted to hold departmental heads accountable for their achievement. Some were set at such a high level that they were little more than signals. An example in the early 2000s under the general heading to “Strengthen national identity and uphold the principles of the Treaty of Waitangi” was to: Strengthen national identity and uphold the principles of the Treaty of Waitangi Celebrate our identity in the world as people who support and defend freedom and fairness, who enjoy arts, music, movement and sport and who value our cultural heritage; and resolve at all times to endeavour to uphold the principles of the Treaty of Waitangi.

Once again, the lesson was learned that this does not work unless the highlevel goals are underpinned by contributory goals that are achievable by service delivery operations. For example, an early goal for that government was called ‘Closing the Gaps’, which imposed on ministries and others the requirement to reduce disparities between Maori and the general population across economic and social outcomes. But the work was not done to decide what the ministries could do within their mandates to achieve this. The goal was abandoned. Chapter 14 by Iain Rennie in this book describes and discusses the further attempts by that government to make the system more responsive to government strategic goals. Two further substantial initiatives to align the public management system with high-level strategic goals deserve mention. The initiative known as Better Public Services (BPS) is the most thoroughly articulated and evaluated attempt thus far (Better Public Services Advisory Group, 2011). The Prime Minister, in 2012, set 10 key results for the public sector over the next 3–5 years, to cover 5 areas:

• Reducing long-term welfare dependency; • Supporting vulnerable children; • Boosting skills and employment; • Reducing crime; and • Improving government interaction with New Zealanders. Part of the inspiration for this was experience with success in reducing the road toll through more systematic analysis and interventions. Each result had an identified lead minister, chief executive and a lead agency, which is to identify critical, measurable results to achieve Minister’s priorities and report on action plans. An important theme was to align organisations with desired results and promote collaboration across organisational boundaries. The BPS goals were more capable of being translated into operational terms. Some of the most effective statements of intention in outcome terms were quite specific.

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An example of a detailed outcome framework that has been accompanied by improved results comes from the Accident Compensation Corporation, which has been successful in aligning with health services in reducing the incidence of falls and fractures in older people, as part of a broad outcome about ‘healthy aging’. By taking a systems approach to falls, the many contributing factors can be incorporated, including safety in homes, diet and bone density, exercise for strength and balance, family and community engagement and support, rehabilitation, and so on (HQSC, 2018). This simple example illustrates how the practical knowledge of service professionals backed by consultation can arrive at outcome indicators that are both sensible and achievable. The evaluation of the BPS initiative concluded that it has been successful, by contrast with reasonable counterfactuals in focussing effort on the specified goals (Scott, 2017). The most ambitious initiative so far, to create a comprehensive outcomes framework running across wide swathes of public services, is the Living Standards Framework, which has just been launched in the 2019 ‘Wellbeing Budget’ (Robertson, 2019). It adapts the OECD living standards framework to New Zealand. Its external face is a dashboard of indicators grouped around financial and built capital, social capital, environmental capital, and human capital. In its first airing in the budget, fiscal decisions were grouped under these headings. It is not readily apparent however how much analysis lies underneath the presentation in the budget documents that would justify these particular expenditures over others that might have been more effective in moving the indicators in the associated domains of wellbeing. Eighteen years in development, it is still a work in progress and too soon to evaluate its impact on improving the alignment of public expenditure to strategic priorities by contrast to the previous system. A lesson from the previous initiatives in managing for strategic goals, in terms of outcomes, is the importance of the evidence base and the policy propositions that connect these goals to what people actually do in service delivery systems within, across, and beyond the core of the state. 3.5. From Focussed Service Delivery and Devolution to Coordination and Collaboration The early reforms directed the powers of the State down new governance channels through delegation, decentralisation, de-concentration, and privatisation. This can be interpreted as the centre giving away operational control to agents better placed to make those decisions, while strengthening strategic control at the centre. An enduring issue has been about the coordination of state agencies in the pursuit of objectives that transcend organisational boundaries. A typical expression of this issue can be found in the ‘BPS’ report (Better Public Services Advisory Group Advisory Group, 2011), which states (p. 5): Change is needed to manage the state agencies that provide or fund services less as a collection of individual agencies, in pursuit of their own singular objectives, and more as a system that is focussed on the results that will have the biggest positive impact on New Zealanders’ lives.

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Some commentators have asserted or implied that the ministries and departments did work in a coordinated manner before the reforms and that the reforms diminished this coordination. Others, including the author, recall ferocious rivalries between ministries and saw no diminution in general willingness to work together. For everyone who recalls the days of large meetings of officials working together, others recall the same meetings as attended by too many people who did not speak, and did not lead to useful conclusions. While there is no impartial evidence one way or the other, some useful observations can be made. The coordination of officials before the reforms was simple, top-down and controlled by the Treasury. The Prime Minister, who was also the Minister of Finance, dominated Cabinet and also attended the most powerful subcommittee of Cabinet – the Cabinet Economic Committee – which was chaired by the Deputy Prime Minister. All papers that went to this committee were signed off by the Secretary to the Treasury, who chaired the Officials Economic Committee, which cleared these papers for his signature. Most papers going to these powerful committees were drafted in the Treasury after consultation with other departments. The Secretary to the Treasury or his senior staff attended all meetings of the Cabinet Economic Committee, usually with the senior officials from other department attending for their own items of concern. Any paper that came to the Prime Minister from other Cabinet subcommittees that did not meet with his approval would be referred to the Economic Committee for further consideration. Not surprisingly, the Labour Government after 1984 abolished these arrangements and greatly reduced the position of the Treasury in the role of coordinator. Perhaps ironically, this freed the Treasury to give its advice on any matter within its very large mandate, free from pressure to accommodate the views of other departments in a joint paper if it did not agree. The ministers in the Government after 1984 told officials clearly that differences between them should come to ministers for decision and not be buried in interdepartmental compromises. Generally, ministers will get as much collaboration among their departments as they want, and sometimes they do not want much. Ministers have competing priorities, so it is naïve to think they will gladly expose all their proposals to scrutiny by the officials reporting to other ministers. Any rules will be honoured in the breach. However, the Cabinet Manual is a very important source of rules and conventions about how ministers and officials will consult and work within an orderly framework of rules governing how the Cabinet conducts its business. The Cabinet Office polices those rules. For example, a crucial rule is that proposals for expenditures must be accompanied by a report from the Treasury. From time to time, new provisions about how Cabinet operates are entered in the Manual, which is an important feature of the governance arrangements of the State. A further observation is that the agenda of issues that become government priorities has changed to include many that run across organisational boundaries. Climate change, poverty, public health perspectives on health policy, and security are the examples. In a landmark speech in 1997, Jenny Shipley, as a minister of SSC and soon to become PM, signalled a shift from the economic agenda to pretty much

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everything else and social policy especially (Shipley, 1997). The agenda – or at least the language about it – shifted towards blended services catering for client needs. This shift in government agendas sparked a long saga of endeavours to improve coordination among ministries, strengthen coordination from the centre, and to try to get focus across the State on key government priorities. Over the ensuing two decades, there has been a constant theme of trying to improve coordination by the arms of the state, strengthen the centre, and try to regain some strategic coherence. The BPS reforms of 2012 strengthened the role of the SSC in the coordination of the ministries. Previously, coordination centred on the three central agencies – Treasury, SSC, and the Department of Prime Minister and Cabinet (DPMC) – working together. As these three have different perspectives on issues reflecting their mandates and culture, they do not always agree, which is not necessarily a bad thing. However, the process of holding ministries to account was fragmented initially with Treasury assessing financial management, the SSC assessing management and culture, and the DPMC assessing policy. This did not work well. The ‘Review of the Centre’ after 2000 (addressed in Iain Rennie’s Chapter 14) recommended a stronger centre through better collaboration of the central agencies. Then as part of the BPS initiative, the three agencies were brought together formally into a ‘corporate centre’. These developments are covered in detail in Iain Rennie’s chapter. The message that is relevant to this chapter is the theme of steady recentralisation of corporate control at the core of the state sector. But it is important to remember the recentralisation of control at the centre which comes after the widespread decentralisation of commercial and other activities in the 1980s and 1990s that have not been recentralised. A further strengthening of the centre has been imposed by the current Labour Government (Parliamentary Counsel Office, 2018). The changes are under consideration at the time of writing and will involve some legislative change. The key elements of these proposals are to establish:

• An Interdepartmental Executive Board to support planning and budgeting and/ or policy alignment on a set of complex cross-cutting issues. • Public Service Joint Ventures to allow departments to hold joint resources including assets and staff. • A more flexible Departmental Agency model, which is an independent unit within a larger department. • Functional Chief Executives, which establish accountability for departmental functions that run across departments.

A crucial point is that the story of coordination has largely been with respect to the social policy instruments of the state, that never were coordinated historically, and certainly not to the degree of refinement that has emerged in recent years, which are discussed below. However, climate change has emerged as an issue that will require advanced methods for coordinating state organisations around policies for decarbonisation. The success stories of coordination between ministries are often cases where top-down methods of coordination could work because of standardised services

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at the front line –for example, border controls. But the record of top-down coordination methods where variegated service packages tailored to client circumstances is disappointing. The coordination must happen at the front line, which challenges vertical lines of accountability, whether they are coordinated top-down or not. This point introduces the ‘Social Investment’ agenda discussed below.

4. SOCIAL SERVICES The story of the continual reform of social services illustrates well the evolution of attempts to integrate service delivery across the main boundaries between state agencies. As stated in Section 3 above, with reference to the landmark speech by Jenny Shipley, effective and efficient delivery of social services emerged as a priority for public policy towards the end of the 1990s. This was because most social services have the characteristics she highlighted, as they are commonly not adequately delivered through standardised services to meet clear and singular needs. The needs of citizens for social services are typically clustered, especially for those with the greatest needs. Effective responses to those needs often requires integration across service channels. The governance structures across social policy had been stable for many years up to 1984. Education, Health, and Labour policies were highly centralised under government departments that had regional offices, which reported only to their head offices in Wellington. State provision dominated health and education except for primary health services were provided by General Practitioners, who are doctors working in private practice, but subsidised by a fee-for-service payment from the Government. There were also private schools based mostly on religious affiliations. Change was on its way, which involved major reforms of how social services were governed. Prime Minister Lange appointed a prominent businessman – Brian Picot – to review the state school system. The Government adopted his recommendations delivered in 1988 that schools should be re-constituted as semi-autonomous organisations governed by boards elected from the parents of pupils. They were not however given control of teacher salaries, which remained centrally negotiated. Many struggled with managing properties and the Ministry of Education stayed engaged with this. The Educational Review Office was formed to assess the performance of the schools regularly and recommend improvements. A few failing schools had commissioners appointed to take over from their boards for a while. This system of school governance persists to the present although there have been adjustments to policy and funding frameworks within the governance along the way. The current government is, at the time of writing in 2019, consulting on a proposal to make major changes to these long-standing arrangements. This proposal made by a government-appointed advisory committee, recommends recentralisation of the state education system with some powers being shifted from elected school boards and school principals to regional offices of the Ministry of Education. Again, we see a preference for a degree of re-centralisation of what was de-centralised in the era of reform, but the proposals do not go back to the

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high degree of centralisation that lasted up to the early 1980s. A succinct coverage of the Picot reforms and the assessment of the current situation that is background to the current reform proposals is available in Education (2018). The Labour Government in the late 1980s introduced Area Health Boards in place of the former boards that governed that public hospitals. The essential idea was to bring about some integration of primary and secondary health services. These boards were elected in local government elections, but the Government retained the power to appoint a commissioner if a board was failing, which happened with the Area Heath Board in Auckland. When the National Government took over in 1990 it undertook a fundamental governance reform in the health system, based on a ‘purchaser–provider split’. The hospitals were re-constituted again as Crown Health Enterprises, and four Regional Health Authorities were established as purchasers with budgets set based on the area populations, adjusted for significant demographic differences. These purchasing authorities also funded various primary and community services although the Government remained involved in the funding of general medical practitioners in the primary care sector. The boards of the Regional Health Authorities were appointed by ministers. Caught between a reduced health budget and demands for service, some of the regional authorities struggled financially. It was also realised that differences in service available around the country were unpopular politically, while the case for some services to be designed and funded nationally became clear. For example, in a small country, it was not feasible to duplicate paediatric oncology services in several cities, but rather to have a national service supported by travel and accommodation subsidies for parents of affected children. Consequently in 1997, the Government integrated the four regional authorities, firstly into a federal governance arrangement across the four and then into a single national funding authority, known simply as the Health funding Authority.1 Finally, on the return of the Labour Government in 1999, the Health Funding Authority was abolished and replaced with 22 ‘District Health Boards’. The boards are a mixture of locally elected members and government appointees. That government also changed the funding system of primary health care by providing for the creation of ‘Primary Health Organisations’ with enrolled populations and per-capita funding formulae. The strengths and weaknesses of these models is beyond the scope of this chapter, suffice to say that weariness with governance changes became pervasive even though few knowledgeable observers would say the current arrangements are ideal. They have not lived up to what their designers hoped. The number of district health boards seems excessive, and progress with the integration of primary and secondary services has been slow except for the evolution of integrated health care models in some places and in Canterbury especially. 4.1. Integration of Social Services – The Frontier of Innovation Through the 1990s, awareness of the problems caused by the traditional governance structures of the main social services grew. Around 1992, Margaret Bazeley, as

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a Commissioner of the SSC, formed a committee of the heads of the social policy departments to begin an exploration of the needs for integration of social services especially around vulnerable families. The same individuals and families were drawing on multiple social services in patterns that were costly and ineffective. In various ways from that time onwards, the leaders of social service departments have come together to try to find ways to better integrate services. This objective emerges in some of the government-wide strategic goals that were set, as already discussed above. Over the past 15 years, two streams of work have emerged that are illustrating great potential for better social service integration. These are the ‘Social Investment’ work programme in the central government, discussed below (and in Chapter 2), and the Clinical Network of the Canterbury District Health Board. These are two leading examples of a broader movement on the frontier of governance reform in the State in New Zealand. They break with the pattern for re-engineering of the structures and operations of the State summarised in this chapter. They are experimental, evolutionary, and all involve advanced applications of newly available sources of data. The policy and service functions within these initiatives look more to networks than hierarchies, and some promise radical news ways in which the State relates to the citizens in the design and delivery of public services and the governance of those arrangements. The State becomes a participant rather than the controller in some respects. The Social Investment initiative goes back to around 2005, with the use of data analytics with administrative data in the Children and Young Persons service. Then, data began to be linked across administrative databases in other organisations. This initiative was simply an expansion of previous emphases on programme/policy evaluations, to assess the effectiveness and efficiency of public sector programmes, to the broader social domain, underpinned by the increasing availability of relevant data. A milestone was an invitation by the Minister of Finance, Bill English, to present to ministers in 2009 data on the anonymised records of 2,000 children aged 6 or 7, who were deemed to be particularly vulnerable. The data were linked to the administrative data in the Corrections system, which runs the prisons. The analysis showed that, based on the characteristics of these children, half were likely to spend time later in an adult prison and the average cost to the Corrections service alone was $1.5 million. Over the whole sample, it was estimated that they would cost $.75 billion over time. This was just the costs to the prison system, which would be a fraction of the total costs that the State would bear in relation to these people. The analysis raised a lot of questions about privacy and ethics concerning the use to which these data and results could be put, but it caught the attention of ministers. Bill English as the Minister of Finance became a champion of the use of linked administrative databases, and launched a stream of work under the name of ‘Social Investment’ that went well beyond data analytics and tentatively explored new approaches to social policy. It sparked wide interest both critical and supportive and a growing literature. Near the end of the term of the National Government in 2016, an edited volume of contributions was published that covered all the issues with Social

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Investment up to that time (Boston & Gill, 2017). This contains a chapter by the writer on how Social Investment relates to the structures and roles of the State and how these might develop to get the benefits of the Social Investment approach. It is not one clear idea but rather a related family of possibilities from different perspectives that has yet to gel – i.e. the use of big data and data analytics, new possibilities for social science research, new approaches to evaluating budget proposals for social policy expenditures, long-term fiscal forecasting, actuarial analysis of risks, and new networked methods of service delivery in which citizens are ‘co-producers’ of the services they receive, which are contextualised to their specific circumstances. A Social Investment ‘unit’ was established to lead the development of the approach. Advice was provided on how Social Investment should be governed and funded (Scott et al., 2016). This report goes further into the practicalities of how the concepts and methods of Social Investment build on the existing systems for delivery of social services and can create fundamental reforms in how these services are designed, funded, and delivered. With the change in government, the Labour Government is adjusting the concept to place less emphasis on fiscal analysis, and targeting of services on areas of high need. It sees social services as being more universal in their provision. The changes are captured in the new name for the initiative ‘Investing for Social Wellbeing’. A report by the Productivity Commission (2015) on ‘More Effective Social Services’ was also a significant contribution to these developments. One of its messages of direct relevance to the theme of this chapter is that social services are least effective for citizens who have complex needs and low capacity to access and integrate the services they are entitled to. The reason for this is that the structures, governance, and funding of the various social services make difficult, or even prohibit, the blending of government provided services to respond effectively to the situations that vulnerable people are in. Furthermore, they cannot blend with services from non-government providers, which are often essential to the needs of these people and the only way certain services can be delivered. The vertical lines of accountability within departments and to ministers and Parliament make it difficult for frontline government employees to participate flexibly in collective arrangements with others to provide an effective blended service. But there are numerous cases of collective arrangements arising in response to areas of need in rather a spontaneous way. For example, the Police are working with Maori communities and other government agencies to address troubled families in some parts of the country. The Productivity Commission report recommended greater use of direct budget support for some people with the capability to manage their situations unaided, such as many of those with disabilities, to choose who their support will come from and organise it to meet their circumstances. For vulnerable people with complex needs and having difficulty coping or accessing services, the report promoted the use of ‘Collective Impact’ methods to provide blended services effectively. There is an extensive literature on these, as for example the Stanford Social Innovation Review.

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The Governance of Collective Impact methods is a large topic, but for this chapter suffice to note that they can fundamentally change the governance of policy areas where they are used. The State becomes more a partner than a controller within a collective of people – including the recipients of the services – who agree among themselves what each party will commit to bring to the group and under what conditions. The parties are jointly accountable for the success of their endeavour. These organisations are not easy to establish and take time, as the case of the Canterbury District Health Board’s ‘Clinical Network’ (Canterbury Clinical Network, 2018) demonstrates. But as that case shows, the performance improvements can be large and enduring. A theme in the Productivity Commission report is about ‘Commissioning’, meaning the process by which the Government designs its policy interventions and makes its decision decisions about how to implement them in a single integrated process. This is necessary where the policies cannot be simply allocated to an existing hierarchical ministry to augment or modify its existing service provision, because the objective is clear and that ministry has all that is necessary to meet it. Where policies are in areas where finding out what works is a continuing experimental process at the frontiers of knowledge, the means of implementation are not obvious and a single ministry may not have all the means to hand. This is particularly true where collective impact vehicles are involved, either on a large scale through a state purchasing agent, or on a small scale where responses to detailed local circumstances are what matter for success. However, the fundamental democratic system of accountability requires that ministers are accountable to Parliament for what goes on under their responsibility. Therefore, the challenge is how to get both the flexibility for frontline staff to act with deep delegations and able to experiment, while protecting the public purse and the accountability of ministers to Parliament. The report on governance of Social Investment noted above provides a way to do this, which makes the minister or an agent accountable for the investment in a collective impact vehicle while a ‘treasurer’ is appointed to release public money in accordance with the milestones agreed to and the delivery of those services, within the collective that the government has budgeted funds for. Establishing a Commissioning Agent with the responsibility for a portfolio of such investments would be necessary where the volume of transactions warrants this. It also enables risks on each transaction to be assessed within the performance of a portfolio rather than one by one, which helps with political accountability. Across the State, ministries and departments will be challenged by the implications of working in networks and collective impact vehicles. The skills required are not those of administrators but rather of innovators and people with high skills in working with others in less hierarchical environments. The middle ranks of ministries have reason to fear that their responsibilities will be delegated elsewhere and the skills required to operate in this new environment are unfamiliar. The Productivity Commission report unveiled a widespread view that community providers found it difficult to partner with the ministries effectively. Also, some ministries have a view that they can take a measure of control over

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organisations funded by charity working in their areas of responsibility. There is evidence that the existing relationships between ministry officials and community and private service providers are often not conducive to front line innovation, and that working in networks remains a challenge for many. Attention to these issues and the concepts and governance system behind them is on the next frontier of governance reform in New Zealand.

5. CONCLUSION: REFLECTIONS This chapter has discussed the main reforms of the 1980s and 1990s in terms of what was done, the circumstances the changes were intended to respond to, and brief comments on the results. I have also discussed a few significant changes since those early reforms that update the search for better public policy and management in the key areas of public finance and state administration. Judged against the objectives that ministers had in mind at the time, the reforms to the state enterprises largely achieved their objectives. The quality of services improved, prices fell for many of them, and the enterprises stopped getting subsidies and paid taxes and dividends for the first time. Job losses were supported by redundancy payments. The SOE system has stayed basically the same as first designed and has been augmented administratively in various ways intended to improve the quality of governance. Similarly, the Public Finance Act largely delivered on the objectives in the minds of the ministers who created it. Trends in fiscal deficits and public debt were reversed over a period of approximately eight years, and successive governments ran surpluses and paid off foreign debt. The surpluses continued until the Global Financial Crisis and eased the adjustment to that, while being subsequently restored. The financial management system has remained basically the same but with amendments to increase its flexibility, make its processes more efficient and more readily support collaboration across the boundaries of ministerial responsibilities. At the time of writing, the requirements for new statutory reports on aspects of wellbeing are being introduced, but it will be a few years before the impact of this change can be assessed. The frameworks for holding officials to account for results, and for setting strategic and operational goals, have been less stable and aroused more discussion and experimentation. The ‘Review of the Centre’, the ‘BPS’ changes and now the current government’s tightening of central controls, together make up a substantial re-centralising of formal control and put the SSC in a pre-eminent position in the public management system. However, while the State Sector Act granted deep formal delegations to managers to run their organisations, informal constraints on the use or misuse of those freedoms were in evidence. These constraints have been made formal but are still far less intrusive into the authorities of managers than under the system that the State Sector Act replaced. The focus in this short account of three decades of reform has been on structures, governance, and management. But these do not determine alone how state organisations perform either individually or collectively. Questions of strategic

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and operational capability, culture and innovation usually matter more, but are beyond the scope of the chapter. They are crucial especially to the quality of policy analysis and advice, and to the design and delivery of services, especially blended services to people with chronic disadvantages. The traditional structures of the state cannot respond to these requirements, but resistance to the changes that would promote such responses are in the DNA. The coverage of social policy challenges and social investment above is included to illustrate this challenge. The Productivity Commission reported that there have been over 20 centrally driven initiatives to promote collaboration across organisational boundaries. Much of the innovation that has occurred in response to complex needs of vulnerable groups has been at the grassroots. There is no possible organisation chart for the state sector that solves all the big coordination problems. Chief executives have responsibilities that force them to focus on their separate mandates. Progress has been very slow in making the changes necessary for the state agencies to operate effectively with families, communities, NGOs and each other to support vulnerable people to improve their lives. This is the challenge that today’s reformers need to meet. Only time will tell whether the changes being introduced at the time of writing will bring progress in this regard.

NOTE 1.  The writer was the Chairman of the Health Funding Authority

REFERENCES Boston, J., & Gill, A. D. (2017). Social investment. Wellington: Bridget Williams. Campos, E., & Pradhan, S. (1996). Budgetary institutions and expenditure outcomes binding governments to fiscal performance. World Bank Policy Research Paper no. 1646, Washington DC, September 1996. Canterbury Clinical Network. (2018). Retrieved from http://ccn.health.nz/OurHealthSystem/ HowitBenefitsOurPeople.aspx Conway, P. (2018). Can the Kiwi Fly: Achieving productivity lift-off in New Zealand. Wellington. Retrieved from https://www.productivity.govt.nz/research/nz-productivity/ Douglas, R. (1989). The ends and the means. In S. Walker (Ed.), Rogernomics: Reshaping New Zealand’s economy (Ch 2, pp. 22–29). Auckland: New Zealand Centre for Independent Studies. Duncan, I., & Bollard, A. (1992). Corporatisation and privatisation, lessons from New Zealand. Auckland: Oxford University Press. Education, M. O. (2018). Background reading for a review of tomorrow’s schools. Retrieved from http://www.education.govt.nz/assets/Documents/Ministry/Information-releases/R-1093090Dep-Sec-signed-Briefing-Note-Background-reading-for-a-review.pdf HQSC. (2018). Falls and fractures outcomes framework. Retrieved from https://www.hqsc.govt.nz/ assets/Health-Quality-Evaluation/PR/Falls_fractures_outcomes_framework-_Methodology_ Jan_2018_.pdf Jennings, S., & Cameron, R. (1987). State owned enterprise reform in New Zealand. In A. Bollard & R. Buckle (Eds.), Economic liberalisation in New Zealand (p. 121). Wellington: Allen and Unwin. Jim Brumby, P. E., & Honeyfield, K. (1996, August 30). Effects of public sector financial management reform (FMR) in New Zealand. Paper presented at the Paper presented to Australasian Evaluation Society Conference. Jonathan Boston, J. M., Pallot, J., & Walsh, P. (1991). Reshaping the State. Auckland: Oxford University Press.

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Kibblewhite, A. and Ussher, C. (2002). Outcomes focussed management in New Zealand. Journal of Budgeting, 1(4), 85–109. Logan, B. (1991). Steering Group, ‘Review of State Sector Reforms’ State Services Commission. Retrieved from Martinez, J. L. M. (2003). Public sector management in New Zealand: Lessons and challenges Graham Scott. International Public Management Journal, 6(1), 3. Matheson, A., & Ross Tanner, G. S. (1997). Strategic management in government: Extending the reform model in New Zealand. In B. Spicer, D. E. M. Powell. Transforming government enterprises. Wellington: Centre for Independent Studies. NZ Government. (1995). Strategic result areas for the public sector 1994-1997. Wellington: NZ Government. Pradhan, E. C. A. S. (1996). Budgetary institutions and expenditure outcomes binding governments to fiscal performance. Productivity Commission. (2015). More effective social services. Retrieved from www.productivity. govt.nz/inquiry-content/social-services Reserve Advisory Group. (2011). Better public services. Advisory Group Report. Retrieved from https:// www.ssc.govt.nz/sites/all/files/bps-report-nov2011_0.pdf Richardson, R. (1995). Making a difference. Christchurch: Shoal Bay Press.. Robertson, H. G. (2019). Budget 2019. Retrieved from https://treasury.govt.nz/publications/budgets/ budget-2019 Schick, A. (1996). The spirit of reform, managing the New Zealand State sector in a time of change. Retrieved from https://ssc.govt.nz/resources/spirit-of-reform/ Scott, G. (1996). Government reform in New Zealand. Occasional Paper no. 140, International Monetary Fund, Washington, DC. Scott, G. (2001). Public sector management in New Zealand: Lessons and challenges. Wellington: New Zealand Business Round Table. Scott, R. B. (2017). Interagency performance targets: A case study of New Zealand’s Results Programme. Washington, DC: IBM Center for the Business of Government. Retrieved from http://www. legislation.govt.nz/act/public/2018/0031/latest/whole.html Scott, G., Barton, R., Gullery, C., Mansell, J., Martin, N., McNaughton, S., … Warren, K. (2016). Governance and accountability in social investment. Retrieved from http://www.treasury.govt. nz/statesector/socialinvestment/informationreleases Shipley, J. (1997). Future public management issues: Conference address. Retrieved from https://www. beehive.govt.nz/speech/future-public-management-issues Spicer, B. (1996). Transforming government enterprises: Managing radical organisational change in deregulated environments (CIS policy monographs). Sydney: Centre For Independent Studies State Services Commission (SSC). (1998). New Zealand’s state sector reform: A decade of change, chapter 3 management of the state – The State Sector Act. Retrieved from https://www.ssc. govt.nz/node/1395 State Services Commission (SSC) (2003). Managing for outcomes: Guidance for departments. Retrieved from http://www.ssc.govt.nz/mfo-guidance-04/05-rollout State Services Commission (SSC). (2012). Better Public Services: Results for New Zealanders. Retrieved from http://www.ssc.govt.nz/bps-results-for-nzers Parliamentary Counsel Office. (2018). State Sector and Crown Entities Reform Act 2018. Wellington. The Treasury (2005, August). A Guide to the Public finance Act. Retrieved from https://treasury.govt. nz/sites/default/files/2007-09/guide-pfa.pdf

CHAPTER 9 STRENGTHENING INTEGRITY SYSTEMS: COMPLACENCY VERSUS CONFIDENCE* Suzanne Snively

INTRODUCTION Throughout its history, New Zealand has enjoyed a variety of social, economic, and public sector governance achievements that were world leading at the time. These include being the first country to send mechanically refrigerated meat to Europe, the first nation to have universal voting rights, first to have a merit-based public service, first to have an Ombudsman, and, in 2019, the first government to adopt a Wellbeing Budget.1 Another area where New Zealand is acknowledged (more abroad than locally),2 is that the New Zealand public sector is one of the least corrupt in the world. The basis for this designation is that the New Zealand public sector and judiciary system always come in the top five and frequently come first on the Corruption Perceptions Index (CPI) compiled by the global anti-corruption body, Transparency International (TI) (2020). It is possible, though not proven, that this and the other more well-known firsts, contribute to New Zealand’s reputation abroad for integrity, and preparedness with open minds, for strategic agility and quality outcomes. *  This chapter owes much to the work of the research team, managed by Liz Brown and co-directed by Murray Petrie and Suzanne Snively, responsible for the preparation of the 2013 Integrity Plus New Zealand National Integrity System Assessment (NIS), and to the 2018 NIS update led by Liz Brown, Julie Haggie and Suzanne Snively.

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 171–190 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032029

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They add up to create the government’s branding agency, the New Zealand story (www.nzstory.govt.nz). It found from international focus groups, without prompting, that New Zealand is a place of integrity where people strive to do the right thing. This is most encouraging because of increasing evidence that indicates the best antidote for corruption is having an authentic reputation supported with a strong culture that come together to form sectors with strong integrity systems.3 This chapter explores the attributes of the New Zealand public sector integrity systems, and surmises about the origins. Based on two National Integrity System (NIS) Assessments, it describes the features of the public sector here that may contribute to a reputation for integrity while also pointing to evidence of complacency. It explores the question of how New Zealand’s more proactive approach to the ethics and conduct of its public sector could be carried over to business and media, and whether this would enhance confidence in New Zealand’s ability to prevent corruption and, secure a more sustainable future.

CORRUPTION The global body, Transparency International (TI), was set up over 25 years ago in 1993. Its focus was on developing a campaign to describe the damaging impact of corruption on the world’s people and their societies. In this way, TI aimed to raise awareness of how to combat corruption. A challenge was to find a universal definition of corruption and then to develop a common measure for comparison between countries. To this day, there has been no agreed universal definition of corruption. As a result, there are several different approaches applied to detect corruption and a range of measures of its magnitude and scope. The 2019 TI CPI, pictured at Fig. 1, is compiled from 13 different reputable information sources. For a country to appear in the index, there will be at least 3 of the 13 data sources collecting data about its corrupt activities. The high-level definition of corruption that is applied in constructing this Index is the abuse of entrusted power for private gain. TI’s initial research team compiled measures of corruption from several different sources and developed the methodology behind its CPI to score and rank as many countries as possible. The chart in Fig. 1 illustrates the heat map drawn up to illustrate the degree of corruption by country and the scores and ranks of those countries included in the Index. The CPI scores and ranks countries/territories based on how corrupt a country’s public sector and judiciary is perceived to be by experts and business executives who contribute to the surveys that make up its composite index. The TI-CPI is the most widely used indicator of corruption worldwide. Globalisation and the development of transnational financial services have enabled well-organised, corrupt, government officials, or individuals looking to hide funds gained through corruption, to extract resources from their populations on a grand scale. Populations that pushed for democracy in post-colonial states have become increasingly disenfranchised through the establishment of kleptocratic regimes that operate the state apparatus entirely in that regime’s interest.

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Fig. 1.  CPI 2019. Source: Transparency International (TI) (2020).

Often these corrupt elites are at the top of state institutions influencing global politics and security. This threatens the foundations of the rules-based global order (e.g. Ugaz, 2018). These activities contribute to grand corruption, transactions that are generally undertaken outside national boundaries, taking advantage of loose legal systems and poor inspection processes. Authorities such as the United Nations Convention Against Corruption (UNCAC) pursue an active policy to address specific forms of corruption (United Nations (UN), 2004) such as trading in influence and abuse of power, as well as private sector corruption such as embezzlement and money laundering. Negotiated by member states of the UN, UNCAC is the only legally binding international anti-corruption multilateral treaty. It has been adopted by the UN General Assembly in October 2003 and entered into force in December 2005. UNCAC’s anti-corruption approach is to require member countries to implement anti-corruption measures that focus on five main areas: 1. 2. 3. 4.

Prevention Criminalisation and law enforcement International cooperation Asset recovery

5. Technical assistance and information exchange to uncover corrupt practice.

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New Zealand developed4 its formal policy and practice around these five areas which comprehensive omni-bus anti-corruption legistation law passed in 2015. Given the perception of a low level of corruption in New Zealand’s public sector, it is worth considering whether this is because it is only recently that there have been effective monitoring measures in force. For example, the establishment of anti-corruption agencies is seen by some countries to be a prevention policy and yet New Zealand has lacked such an agency until the Serious Fraud Office was given the mandate to address corruption in 2014. It may be simply a case that since there was a merit-based system of public sector recruitment in place since 1913 in New Zealand, combined with a perception of low corruption here, there were other activities pursued instead. Features of effective anti-corruption agencies are that they implement anticorruption policies, disseminate knowledge that assists in identifying and mitigating corrupt practice, and do so independently of other public agencies, so that these agencies are kept under the spotlight to avoid corruption. To be effective, such agencies need to be independent, and adequately resourced to do the job with properly trained staff. UNCAC requires that countries signing the convention provide assurances that their public services are subject to safeguards that promote efficiency and transparency, and, that they have staff recruitment practices based on merit. Furthermore, all public servants should be covered by a code of conduct that imposes requirements for a register of interest that includes financial and other disclosures, with sanctions for any bribery and corruption when it is detected.

NEW ZEALAND’S INTEGRITY SYSTEM By the new millennium, two different approaches for addressing corruption could be distinguished. In countries where evidence of corruption was rife, there has been growth in funding for anti-corruption agencies, accompanied by centralised anti-corruption policy and enforcement. In contrast, New Zealander Jeremy Pope, an anti-corruption activist and co-founder of the Berlin-based global body TI, led an alternative approach to combat corruption, which is based on strengthening integrity systems (Pope, 2000). An integrity system is a framework based on doing the right thing, including a robust mechanism for detecting and preventing bribery, corruption and fraud (corruption). ‘Integrity system’ refers to the features of an entity’s structure that contribute to good conduct, demonstrated by transparency and accountability. An integrity system is more effective in preventing corruption when it is pervasive, operating consistently through the whole governance and management system. It starts with policy and governance, supported by financial performance, information/communication, personnel, customers, operations, monitoring, and procurement practice. Integrity systems are antidotes to corruption, preventing internal corruption and protecting organisations from offshore corrupt persons looking for loose systems to channel funds acquired through illicit activities.

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Fig. 2.  NIS. Source: TINZ (2019), Adapted from Pope (2000).

As can be seen from the NIS diagram in Fig. 2, a NIS has 12 or 13 pillars (depending on whether the Law Enforcement Pillar is divided up between Law Enforcement and Anti-Corruption Agency as it is in countries who have large anti-corruption agencies). A NIS assessment is an evaluation of whether the ‘pillars’ of a country’s governance systems, and the underlying societal foundations, function well and are in balance with each other to safeguard against the abuse of power. It is essentially a country risk assessment system, concerning its preparedness to inspect, detect, prevent and prosecute corruption. The main approach to assessing the integrity systems of the public sector to date has been through national integrity system assessments. Integrity System ‘Tool Kit’ A robust integrity system has two dimensions. The first part of the system contains the policies, practices and processes to inspect, detect, and prevent corruption. This part has many well-known tools. New Zealand’s Transparency International Chapter, TINZ, is also actively promoting the second dimension of the system that covers the adoption of strategy, policies, and practices to reap the benefits of a strong system for prevention. Few organisations link integrity to their financial planning and hence fail to fully adapt the development tools that enable them to reach their full potential. Integrity System Corruption Prevention and Detection Tools There are seven key tools to detect and prevent corruption. They are tone at the top, code of ethics, communications and training, up-to-date knowledge of regulation, avenues for report breaches in ethical standards (protected disclosure for whistleblowers), due diligences that detect bribery and corruption, and regular risk assessments. These tools are described in more detail in Table A.

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Table A.  Tools to Inspect, Detect, Prevent, and Prosecute Corruption (Chartered Accountants Australia and New Zealand (CAANZ), 2014). 1. Tone at the Top

2. Code of ethics and guidelines continuously improved

3. Corruption prevention communication and training

4. Up-to-date knowledge of relevant legislation/regulation

5. Avenues for reporting breaches in ethical standards

6. Due diligence of distributors, agents, joint ventures

7. Regular audits backed up by independent risk assessments to uncover any corrupt practice

Demonstrating a trusted tone at the top through transparency, accountability and in every action taken. Commitment to zero tolerance for corruption backed up by prompt and decisive action where corrupt practice is discovered including better ways to prevent corruption by policy makers, boards of directors, and senior leadership teams, reinforcing the values that create strong integrity systems and sets an environment for preventing corruption Code of ethics that engage all organisations, their senior management teams and staff provide the framework for trusted operations, staff and customer relationships aimed at doing the right thing that is enforced (including through penalties for serious misconduct), regularly refreshed for what works best and continuously improved. Maintaining an ethical, transparent operating model contributes positively to risk management and strategy Regular communication and training highlighting the benefits of trust, cases of individual courage as well calling out corrupt practice when it occurs, backed up with training (continually refreshed with current case studies) aimed at preventing corruption Ensuring that there is up-to-date anti-corruption knowledge. Consumers are increasingly demanding more ethical products and services. Retail research provides data on consumers’ purchase decisions based on ethics. International cooperation around anti-money laundering and domestic legislation are changing at a rapid pace making it necessary to have explicit systems to keep upto-date on anti-bribery and anti-corruption legislation Avenues for reporting breaches to ethical standards provide a strong lever for preventing corruption. Support for those reporting breaches combined with robust protective disclosure processes. Sanctions for those who breach accountability requirements, are essential. All staff members need to feel safe in reporting breaches when they have evidence Due diligence that detects bribery and corruption. With an increasingly diverse population, labour force and overseas markets, organisations that are proactive in due diligence of distributors, agents, joint ventures, sub-contractors, are in a stronger position to prevent corruption Regular risk assessments by internal auditors backed up by routine inspections, external reviews that are designed to uncover any corrupt practice, leading to recommendations of ways to further enhance tone at the top, transparency, and accountability. Undertaking regular audits to review internal processes that search for evidence of corrupt practice accompanied by independent risk assessments, assists directly in preventing corrupt practice while also signalling that addressing corruption is a priority for organisations

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Integrity System Development Factors For an integrity system to achieve optimal outcomes, it is important to take additional steps to realise the opportunities when organisations undertake increasingly robust approaches designed to detect, prevent, and prosecute corruption. The execution of a strategy of seven key development factors (tools) provides a strategic framework to harvest the benefits that come from addressing bribery and corruption (see Table B on Page 179). The underlying hypothesis is that, through the implementation of these development factors, organisations can develop in a more productive and sustainable way. The resulting increased efficiency and effectiveness can be re-invested in greater improvement in wellbeing, including continual refreshment and enhancement of activities designed to prevent corruption. This generates a virtuous cycle, enabling the provision of more public services, better education, health and housing outcomes, active job creation, and better customer services. It should be noted that the frameworks shown in Tables 1 and 2 for all of New Zealand – public, private, and community sectors. While this chapter centres on the public sector, TINZ is focussed on assessing and furthering the integrity systems for the private, civil society, and financial sectors as well. TINZ change model is an activist one, working directly with key organisations to implement the preventative practices and motivate a focus on the development factors. Through TINZ, around 40 people are involved in New Zealand, continually seeking the evidence behind the assessment and scores for each pillar to inform practices about what needs to improve to strengthen integrity systems. The number of people researching the pillars that make up an integrity system significantly increased the stock of knowledge about New Zealand’s national integrity systems compared to the 2003 NIS. Opportunities Integrity Systems Provide For an integrity system to achieve optimal outcomes, it is important to take additional steps to realise the opportunities from having an approach designed to prevent corruption. The implementation of seven key development factors provides a strategic framework to harvest the benefits that come from addressing bribery and corruption in the public sector. It is through the implementation of these development factors that organisations can grow in a more productive and sustainable way. The resulting savings can be re-invested in development, including continual refreshment and enhancement of activities designed to prevent corruption. This generates a virtuous cycle, enabling quality of public service, active job creation, and better treatment of the public. Table B describes the developmental factors to achieve these potential benefits. Evidence that supports the achievement of these benefits can be found in the literature of specific case studies, demonstrating flow on from the precepts of just businesses with good governance.

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Table B.  Integrity System Development Factors. 1. Reputation and Brand

Strategic direction setting based on a demonstrated reputation for integrity. The value of a modern organisations is its reputation. If the reputation is harmed, the value of the brand is destroyed. The New Zealand Story toolkit – Ingenuity, Kaitiaki and Integrity provides examples that New Zealand exporters have used to their advantage. Also included in the toolkit is a wide range of infographics providing evidence of good practice. All organisations can increase productivity based on their continuously improving integrity systems 2. Improved interactions Connection with the public becomes easier once organisations with the public prioritise their ethical practice. Maintaining an ethical standard of and adhering to New Zealand’s good reputation opens doors for organisations. This latter is evidenced by several case studies in the New Zealand Story toolkit 3. Lower costs All organisations can save costs through trusted operating environments. Maintaining an ethical, transparent operational model contributes positively to risk management and strategy. Maintaining good ethics will help organisations to remain sustainable, prevent scandal, and catastrophe at all costs through proactive culture (rather than reaction after the fact) 4. Customer, user, client Through the development of practices to build customer, user and loyalty/strengthened position citizen trust, organisations are in a strengthened position with more effective service delivery freeing up revenue for innovation and investment in sustainability. Clients and users are increasingly demanding more ethical services and products 5. Access to funding A responsible ethical investment policy will attract funding, reducing the cost of acquiring the capital as well as the actual capital costs. Public organisations able to show that they have integrity are more likely to increase funding and access investment 6. Quality committed staff Demonstrating integrity as part of the recruitment, retention and retraining will attract, retain, and develop loyal staff. Maintaining a positive and ethical work environment will ensure more efficient and productive staff. Avoiding favouritism and nepotism allows talented employees to feel certain they can develop careers based on merit and fair compensation 7. Higher productivity Promoting a strong integrity system in the above ways has the potential to increase productivity in the public sector, providing adherence to ethical and sustainable behaviour freeing up time and resources to engage with the wider public Note: This table derived by Suzanne Snively to refocus the discussion about the costs of addressing corrupt practice to describe the opportunities from strengthening integrity system. The table identifies the benefits to demonstrate that the returns are likely to greatly exceed the costs of the inspection, detection, prevention, and prosecution of corruption.

The potential benefits are: 1. Most importantly, a strong reputation and brand, is enhanced by demonstrating a commitment to addressing corruption. This is fundamentally what makes an organisation, public, private, or community sector more effective and any trading company achieve continuous growth in quality revenues that contribute to

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the tax base, support growth in quality jobs and be invested in the development of sustainable operational practice. 2. Organisations have lower costs of doing things because of the absence of corruption (research shows corrupt practices add an average of 35% to the cost of doing business in Malaysia, for example). 3. Private sector organisations benefit from lower cost of capital as shareholders and bankers give preference to investing in organisations from countries with trusted governments and governance. Then, the public sector benefits from an improved tax return and a more prosperous economy. 4. Easier (e.g. less expensive, more open and quicker) access overseas markets for international education, tourism, exporting and so on. 5. Ethical organisations are more productive.8 6. Staff prefer to work for ethical organisations9 and so there is a major benefit to be achieved by organisations who promote their ethical approach with cost savings for recruitment, retention and retaining and additional earnings that come from staff committed to always doing their best. 7. Ethical organisations achieve greater customer satisfaction.

New Zealand Public Sector’s Adoption of an Integrity Systems Approach to Combat Corruption New Zealand’s first NIS assessment was carried out in 2003. The 2013 NIS assessment was focussed on developments over the intervening 10-year period. The 2018 update report, Building Accountability (TINZ, 2019a), is an update of the 2013 NIS assessment. TINZ intends to carry out the next full NIS assessment in 2023. TINZ’s NIS is based on a detailed assessment methodology that gains evidence about the mandate behind the different pillars and then examines whether the legislation, the practice and the resources support it. It is a superior way of gaining understanding the integrity systems that prevent corruption than the TI-CPI which is a compilation of unrelated indices. It is unclear whether those surveyed as part of the databases that apply to the compilation of the TI-index CPI score for New Zealand have any knowledge about the findings of the NIS. The research carried out for the NIS provides evidence to policy makers about what more needs to be done to detect, prevent and prosecute corruption. In the next section, the results of the 2018 NIS update are discussed. A review of the evidence from TINZ’s 2013 Integrity plus NIS assessment, updated for 2018, provides valuable insights of strategies that the public sector is continuously improving to detect and prevent corruption as set out in Table A. Notably, the tone at the top is demonstrated by significant leadership of core government agencies to strengthen their integrity systems. This is through anticorruption policies, guidelines and, as a last resort, regulations and enforcement, as referenced earlier in this section.

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Another example demonstrating tone at the top are is the regular meetings of the Public Sector Chief Executives’ Leaders Integrity Forums, co-hosted between TINZ and the Office of the Auditor General since 2016. Chief Executives (CEs) and their officials from across government voluntarily attend these Forums held eight times a year in Wellington, with at least two planned each year for Auckland. The officials engage in open discussion, under Chatham House rules, of key challenges and opportunities to detect and prevent corruption through strengthening integrity systems. The discussions at the eight sessions each year have addressed all seven key corruption preventation tools at some stage and some of the development factors. These include presentations by CEs from over 20 government agencies each year covering topics including, tone at the top, code of ethics, communications and training, up-to-date knowledge of regulation, avenues for reporting breaches in ethical standards, due diligences that detect bribery and corruption, and regular risk assessments. They have also looked outwards to consider increased responsiveness to official information requests, management of corruption at the borders, and so on. There are also other separate government initiatives that more explicitly address bribery and corruption. For example, from 2019, the OAG required auditors (internal and external), integrity officers, and those leading the management of risk and opportunity, are required to ask government agencies to search out bribery and corruption using similar approaches to detect fraud.5 Another activity involves the role of elected Parliamentarians. The Cabinet Manual (Department of Prime Minister and Cabinet (DPMC), 2017) has weathered the test of time as a consensus-based document providing guidance for the role of the Executive without needing formal legal status. On the other hand, the less-well developed guidance around behaviour and the absence of a formal code of ethics for Parliamentarians may be reasons for recent instances of inappropriate conduct. An important vehicle for strengthening the integrity systems within Parliament is a strong commitment to Government Parliamentarians Against Corruption (GOPAC)6 (TINZ, 2016). GOPAC’s vision is to achieve accountability and transparency through effective anti-corruption mechanisms, and inclusive participation and cooperation between Parliamentarians, government, and civil society. It does so by assisting and supporting Parliamentarians in their advocacy, and legislation to make governments accountable and transparent. GOPAC’s cross-party membership is considering a code of ethics and conduct for Parliament, which is one of the as yet unfulfilled recommendations of the 2013 NIS assessment and its 2018 update. Other work led by the State Services Commission (SSC) is focussed on better ways of ensuring employees feel safe in disclosing information about breaches in ethical standards. Both central and local government are progressing improvements in procurement processes. Beyond the above, the 12 commitments of the Open Government Partnership’s third National Action Plan7 all have aspects which will enhance transparency over time. There are also growing teams of people knowledgeable about the UN Sustainable Development Goals [UN, 2015] and, most importantly, Goal 16 which aims to put in place governance processes aimed at addressing corruption including a worldwide universal measure of corruption. Progression of goals 16.5.1 and 16.5.2 is being led by UN Office on Drugs and Crime.

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Linkages from the Past Integrity systems have historically played a strong role in the public governance of New Zealand. New Zealand has been building elements of its integrity system throughout its history. Three linkages are commonly noted in New Zealand, relating to the Treaty of Waitangi, universal suffrage, and the merit-based public sector. It can be surmised from these that low levels of corruption in the public sector are consistent with the nature of these activities. First, there are key elements of the Treaty of Waitangi that have been generally accepted, which set the pattern for the integrity features of core New Zealand policy development. While both the provisions of the Treaty and the actual meaning of the bi-cultural relationship continue to be debated, the Treaty settlement process, the key means of settling grievances, has enabled a constructive resolution. With record immigration in recent years, New Zealand has shown that a culture of integrity can continue even with the integration of other, even more diverse, cultures and religions when there is basic respect for the rule of law, transparency, accountability, and integrity. Second, in 2018, the 125th Anniversary of the passage of the Universal Suffrage Act in 1893, there was much focus on New Zealand women being the first in the world to have the right to vote. This right opened the door for the development of more transparency, and legislation that demonstrated accountability for all. However, a lesson learned from history is that exercising the right to vote is insufficient on its own to achieve the transparency and accountability required to build robust integrity systems. It would be several years before New Zealand women could work for the public sector doing anything other than secretarial work, for example. It is only recently that elected governments and officials have recognised that lack of transparency of gender and ethnic pay, which has meant that more pay and other forms of remuneration went to white men than to others.10 Equal pay for equal work is not expected to happen in New Zealand, across all sectors, prior to 2044. Third, The Public Services Act implemented 107 years ago, on 1 April 1913, furthered the development of the integrity framework in the public sector that for more than a century has acted as an antidote to prevent corruption.11 It legislated for merit-based promotion and the setting up of an independent body to appoint staff. Instead of being directly answerable to Cabinet (the Executive wing of Government), the Act set up a Public Service Commission reporting to Parliament. As discussed in Chapter 8, New Zealand has remained concerned about strengthening public sector performance in effective and efficient ways through ongoing reforms.

NEW ZEALAND NIS ASSESSMENT – 2018 UPDATE The publication of TINZ’s (2013) NIS Assessment widened the discussion among public officials about the nature of public sector integrity systems. The discussion has been further widened since, with the publication of the 2018 update (TINZ, 2019). This update describes the attributes of integrity systems by focussing specifically on transparency. These attributes are addressed on the basis of three factors:

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(1) capacity (resources) and independence; (2) governance (based on transparency, accountability, and integrity); and (3) role. In 2013, when the NIS scores for the 12 pillars were added up, there was not much difference between the public sector (71) and business (67). According to the 2013 NIS, updated to 2018, public sector institutions contribute to New Zealand’s low level of corruption against each integrity dimension. Important integrity underpinnings in New Zealand are:

• A national culture that strongly supports adherence to the rule of • • •

law with, in general, a high congruence between what the laws say and actual practice.12 Sophisticated and comprehensive approaches to transparency and accountability, including central bank independence and public sector financial management. Operational accountability integrated into the fabric of public management processes rather than treated as an afterthought (Schick, 1996). Coherence across public sector governance frameworks, covering state-owned enterprises, monetary policy, fiscal policy, and central and local government and their autonomous agencies.

Low corruption is important too, but by no means the only element in good public sector governance. New Zealand has a powerful Executive with comparatively weak formal checks and balances, and the 2013 NIS assessment highlighted emerging governance challenges in the making of policy and regulation, the relationship between ministers and officials, and the relationship between central government and local government. The main findings in the assessment relate to resourcing, independence, transparency, accountability, public procurement, integrity systems, integrity promotion, and the public sector reform programme. As highlighted in the discussion below, while progress has been made since 2013, many of the 2013 findings were still relevant in 201813: 1. Resourcing: The accountability systems about resourcing public sector organisations are adequate. Output-based budgeting and reporting provide reliable information on the cost and volume of services.14 Two systemic factors can contribute to the under-funding of services: (a) insufficient information on the results of policies compared to their intended achievements and (b) a regulatory interface between central and local government that risks distorting local resource allocation (Productivity Commission, 2013). 2. Independence: The public sector is not improperly influenced by other branches of the state, or by non-governmental institutions of private sector entities/lobbyists. Public services are generally delivered without partypolitical bias. Public servants carry out their work in a non-partisan manner. Well-institutionalised rules and conventions maintain public sector political neutrality around general elections.

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Nevertheless, there is a lack of clarity in the conventions about relationships between ministers and departments in respect of independent policy advice and major decisions on departmental management.15 Some decisions by central government on local governance leave unclear the place of local democracy in the country’s governance. Some decisions on Crown entity Board appointments have left room for doubt that the principle of Crown Entities’ arm’s length relationship with government has been respected.16 3. Transparency: The Official Information Act (OIA) 1982,17 combined with the Public Finance Act 1989, generally accepted accounting principles, the Reserve Bank of New Zealand Act 1989, and good financial management control, make the New Zealand public sector one of the world’s most transparent (Seifert et al., 2013). The 2013 NIS generally confirmed this high standing. Transparency could be enhanced when meeting international good practice standards for national environmental reporting and in follow up of procurement (Parliamentary Commissioner for the Environment, 2010). There have also been important systemic shortcomings across government in the reporting on the impact of policies.18 4. Accountability: Accountability relationships within the public sector, among agencies, departments, and their ministers, are clear at the operational level. There is a strong legal framework for the Executive’s accountability to the Legislature. A variety of laws and processes all contribute in practice to public sector accountability for management and activities.19 Legislation for local government and for the management of natural resources provides for the direct engagement of, and accountability to, local communities. School Boards are locally elected from among students’ parents. The Executive’s accountability for the impact of policies is not well institutionalised. Project and programme evaluation occur in some sectors, but the public management system does not demand that major policies be independently monitored and evaluated. This exposes the government and the public to the risk that policy failures are not recognised and corrected.20 The public has been particularly at risk from the lack of accountability for regulatory policies. 5. Public procurement principles: The 2013 NIS assessment found that public procurement principles reflected international good practice and the process appeared to be working well in general. Faults identified in oversight reports usually relate to relatively marginal issues of process. However, the system is highly decentralised by international standards; systematic procurement records are not readily available within departments and agencies, leading to shortcomings in information and transparency about what may be the complete state of affairs upon closer inspection. Public procurement has improved since the 2013 NIS assessment, but risks arise from the capability of staff, especially in smaller entities. Passive oversight with reliance on targeted discovery through the OIA, select committee mechanisms, and entity-level ex post audits, as well as the potential for conflicts of interest in a small market, are identified risk areas. The country’s exposure

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to procurement corruption is increasing with the changing geography of its trade and purchasing patterns, and increasing offshore procurement. Since 2013, substantial changes have led to improvements in procurement processes, including the publication of the winning contractor. 6. Integrity systems: Integrity systems in departments and agencies for the control of corruption and promotion of ethical conduct are sound, and the evidence is that, in general, public sector staff act with integrity. Surveys of integrity and conduct (by the SSC) and of fraud awareness, detection, and prevention (Office of the Auditor-General) show good results overall. Management control in some departments and agencies does not appear to be adequate to assure internal processes for administrative justice.21 7. Integrity promotion: Government departments and agencies are active in fighting corruption and promoting integrity. Those involved in international trade provide information and advice to the business community on New Zealand’s international anti-bribery and corruption obligations.22, 23 New Zealand signed and ratified the OECD Anti-Bribery Convention (2001).24 Key issues identified in the 2013 NIS assessment were the need to increase penalties for private sector bribery offences, and the ratification and implementation of the UN Convention against Corruption (UNCAC). These issues have since been addressed.25 The 2018 NIS Update report also finds that the public sector has responded to a number of other 2013 recommendations. For example, the public sector’s three central agencies have taken concrete steps to set the tone at the top with the State Services Commissioner appointing a Deputy Commissioner Integrity, Ethics and Standards; the Department of Prime Minister and Cabinet leading the formation of a committee to activate anti-corruption policy implementation; and the Treasury leading initiatives to continually improve fiscal transparency. The Ministry of Justice, currently working on policies to modernise the bribery and corruption offence framework, supported Government initiatives to design and pass omnibus anti-corruption legislation in 2015. (Many countries with lower quality anti-corruption legislation ratified UNCAC much earlier than New Zealand.) This brought New Zealand closer to UN standards, and Parliamentarians were prepared to vote unanimously in favour, finally ratifying the UNCAC, 10 years after first agreeing to adopt UNCAC. The Office of the Auditor General and the Ombudsman have led continuous improvements in the quality of information audited, and the processes for making it publicly available. In September 2016, the SSC published a response to the recommendations made in the 2013 NIS report. One of the core responses was: In the last three years, much has been done to strengthen policy capability in the state services. This strengthening is being achieved through the use of more robust evidence to inform policy advice; ‘free and frank’ communication of policy advice to Ministers; and improvements to the legislative process and the quality of the legislation.

The response was updated in the SSC’s 2018 work programme, including policy work and the work of the Integrity, Ethics, and Standards team:

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• Issuing new ‘Speaking Up’ and ‘Conflicts of Interest’ standards and support. • Issuing a new Code of Conduct for Ministerial staff, in September 2017. • Issuing new Guidance on ‘free and frank advice and policy stewardship’, with guidelines, in December 2018. • Undertaking a review of the Protected Disclosures Act 2000. Auckland Council (New Zealand’s largest city) worked with Auckland Transport to collect the evidence for a successful Serious Fraud Office case about major procurement, corruption perpetrated by staff at former Rodney District Council and a contractor (Projenz). Justice Sally Fitzgerald’s judgement identified corrupt procurement practices, setting precedents for the future detection and prevention of corruption as well as for sanctions. There are many other examples of leadership by government agencies and their officials to address corruption. For example, laws pertaining to registered banks and other financial organisations have been substantially upgraded in recent years.26 This includes the introduction of anti-money laundering legislation to different industry sectors, including for example banks, insurers, accountants, lawyers, real estate agents and sellers of high value goods, and changes to the disclosure obligations of private issuers. Comprehensively, rewritten securities legislation is before Parliament.27 Despite evidence of much more action by public officials since 2013, the changes in policy and practice to date are not a guarantee that New Zealand’s public sector will continue to rank high on TI’s CPI. But More Needs to Be Done ... There are, however, pressures (including governance arrangements that have promoted fragmentation) on the capacity of the public service to provide free and frank advice and to assure high-quality regulatory processes. Information on the impact of policies is insufficient, and the arrangements within local government to promote transparency and accountability are variable. At a practical level, there has been resistance to the obligations established by the OIA28. While procurement processes have improved considerably, specific enhancements are still needed. There is a need to enhance evidence-informed policy making and to evaluate the effects of policies and departmental restructuring, initiating or improving reports on social and environmental outcomes and fiscal matters, getting a more firmly embedded role for local government, and improving transparency and capability in procurement processes. The public sector has shown leadership by engaging the business sector in anti-corruption/integrity-building activities in promoting integrity in trade. More could be done to encourage integrity-focussed education and training in the wider business sector and civil society. Some of the recommendations that would fall to the public sector to implement relate to providing more civics education. Elected Government Ministers have a short time to get up to speed on public sector resourcing. Despite being at the top for fiscal transparency, the nature

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of New Zealand Government financial decision-making has traditionally suffered from being too centralised. When it comes to final decision-making about increased and/or new expenditures, a small core of the Cabinet, five or six ministers, appear to make the major strategic decisions. The high managerial delegation to chief executives and the scarcity of information on service impact make it difficult to assess resource adequacy at the individual department or agency level. Perhaps surprising and unsettling, given New Zealand’s international reputation for human rights, is the existence of human trafficking, and illegal employment and immigration practices. There are grounds to argue that these activities are capable of being defined as corrupt, as they all have the potential to ‘cultivate an atmosphere in which the bottom line justifies illicit activities’.29 Regulatory governance has become more important as the economy has become more complex. Government interventions rely increasingly on influencing independent actors, rather than on direct government action. One answer is to have comprehensive codes of conduct, for e.g., L’Oreal (2016).30 Big changes have occurred in the scope of regulation, as markets have become global, and in the design of regulation to minimise the perceived ‘dead weight’ costs of compliance imposed on those regulated. In the New Zealand public sector, new approaches to regulation, whether for health and safety, building standards, financial institutions, or the machinery of government, have relied heavily on self-regulation, and allowing those regulated to find the best way to reach regulatory goals. Another feature of regulation is the extent to which New Zealand is dependent on international standards, such as international airline standards and safety standards in automobiles. Concerns and evidence about the ease of doing business in New Zealand was being exploited to operate shell companies involved in commercially and legally questionable activity prompted the introduction of legislation in June 2013 requiring, among other elements, that at least one director be New Zealand domiciled.31 This was insufficient on its own to prevent criminal exploitation from offshore. This led to a rapid growth in trusts with overseas owners until, in response of the Panama Papers, the Shewan (2016) Inquiry succeeded in bringing in the requirement that beneficial owners had to be registered for the Trust to be formed. Some government decisions have favoured specific commercial outcomes to align with public policy or politically desired outcomes. For example, the government’s choice of Chorus32 to roll out optic fibre nationally for most of the government-assisted ultra-fast broadband project has led it to seek to overrule the actions of the telecommunications regulator and initiate a policy review process in conflict with the regulator’s statutory mandate. There are cases in which local government officials have shown preference for certain businesses over others, including the 2015 Auckland Transport Case with Justice Sally Fitzgerald’s comprehensive judgment and 2016 sentencing report. Finally, New Zealand has a strong reputation for integrity and as a good place to do business. Yet, business has done a mediocre job of harvesting the benefits of the strong reputation of trust generated by public sector tone at the top, policy and practice of transparency, and accountability. There was little evidence published that indicated that the above seven development factors were integrated

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into routine operations and/or strategic plans. There is much more to do for our top listed companies to be putting enough effort into addressing corruption and building integrity systems.

CONCLUSION In today’s global economy, an authentic reputation for doing the right thing is what takes countries and organisations to the top. In New Zealand, there is now an environment where a growing group of public service leaders are working together, often across several agencies coordinating, to acknowledge and progress the activities required to maintain the integrity of government. This is being done by observing the rule of law (even without a constitution). Unlike the defensive positioning observed in 2013, it has now become normal for public officials to discuss openly where there are gaps in inspection, detection, prevention, protection, and prosecution and what more there is to do. What many of these New Zealand public sector leaders have done in the last five years is all the more remarkable, because to achieve changes in anti-corruption policy and practice has meant going over and above their own self-interest. Several of the initiatives have taken selfless courage. Examples include progress made with Open Government Partnership; implementation of anti-money laundering requirements; progressing the registration of beneficial ownership and recruitment of staff to tackle corruption from organised crime. For many leaders in this area, it means working extra hours and giving up personal time to do more than their normal jobs. This reflects aroha (love, affection, and devotion) for our special country, New Zealand. Countries who aspire to enduring low corruption in their public sector, with a high ranking on the TI-Corruptions Perceptions Index, will gain greater knowledge of the origins of corruption and the basis for strengthening integrity systems by carrying out a NIS. This also informs their business and NSO sectors to also take the initiative to ensure that they are striving to achieve the same high standards of integrity alongside the public sector, through continuous improvement. There is a curious paradox of the attributes of the New Zealand public and business sector integrity systems. The public sector has become more proactive in taking steps to address corruption while remaining quiet about its achievements. In contrast, general business and financial sector organisations promote their good reputations while tending to treat anti-corruption practice as being of low priority. This is despite growing evidence that businesses with a more proactive approach to integrity and conduct will achieve greater levels of sustainable economic returns. Since the 2013 NIS Assessment, the public sector has exceeded expectations through policies and practices put in place to strengthen transparency and accountability. Five years on, public sector officials have become more active in corruption prevention and have formally responded to around half of the 60 recommendations in the 2013 NIS. But in 2018, there was further hard evidence that

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New Zealand’s lax company and trust registration systems, with a lack of transparency of beneficial ownership, are being exploited. Overseas interests set up shell companies and opaque trusts, with the potential for corrupt and illegal activities. These developments are not isolated or temporary. They illustrate some of the fundamental systemic risks to our integrity systems, arising from the dominance of the Executive branch of government, and from the increasing international integration of the New Zealand economy. It is the commitment of the New Zealand public sector over the last five years that gives us hope. Even these threats can be addressed, and some of them resolved, re-enforcing a culture of integrity and in this way, keeping corruption at bay.

NOTES 1.  See Chapters 1, 2, 7, 8, 10, and 11 of this volume. 2.  The 2013 Transparency International Global Corruption Barometer found less than 5% of New Zealanders had knowledge of TI or the CPI. 3.  See the work of the Centre for Governance and Public Policy (2019) at Griffith University, Australia; and Brown (2019). 4.  Since 2015 when the Government introduced omnibus anti-corruption legislation in support of the unanimous ratification of UNCAC by Parliament in November that year. 5.  In conversation with SFO CEO, Julie Read, it was pointed out that audit processes can raise awareness, but deeper detection processes are required to fully remediate cases. 6.  GOPAC, in New Zealand, has been chaired by Deputy Speaker, Anne Tolley, since 2018. 7.  See www.ogp.govt.nz. 8.  Fortune Magazine, December 2018, p. 40. 9.  Deloitte Bribery and Corruption Surveys, 2013, 2015, and 2017. 10.  For most of the history of New Zealand, for example, the vesting of life insurance and income protection plans has favoured those with longer employment tenure and higher income levels, something often harder to achieve by women with breaks in their careers for family reasons. Groups of workers in more casual, seasonal and/or part-time employment are also often disadvantaged by these schemes. 11.  In contrast, many of the countries where there are high levels of corruption, have less well-developed public sector integrity frameworks where the lack of a clear merit-based structure and poor levels of remuneration leads to those in “official” positions feeling the pressure to take bribes. 12.  For example, after the Christchurch earthquakes public concern focussed on the adequacy of building standards. Compliance with existing standards (with one or two tragic exceptions) has not been an issue. 13.  A particular challenge, noted in TINZ (2018), is that while public officials made strong headway on filling gaps in anti-corruption legislation, policy and practice, the National-led Government became less engaged in its third term after leading a unanimous ratification of UNCAC and the 2015 omnibus anti-corruption legislation. 14.  This judgement on the resourcing system does not mean that all individual entities are adequately resourced. 15.  New Zealand Treasury (2010) (often called the ‘Scott Report’). The review was chaired by former Secretary to the Treasury Dr Graham Scott. The other team members were former Secretary of the Department of Human Services in Victoria, Australia, Patricia Faulkner and Commerce Commission member Pat Duignan. 16.  See the independence section of this pillar report. 17.  New Zealand was one of the earliest countries to so introduce such legislation. It has a wide scope that that covers Cabinet papers.

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18.  The government released a discussion document in 2013 concerning a proposal for new legislation to improve the nation-level state of the environment reporting, and improving some of the environment statistics that underpin it: Ministry for the Environment (2013). 19.  The OIA, citizens’ surveys, the chief executive management process, the financial management and accounting system, departmental and agency Performance Improvement Framework reports, and reviews of regulatory regimes. 20.  The Public Finance (Fiscal Responsibility) Amendment Bill may rectify this. 21. Protection of private information, integrity of complaint and dispute settlement procedures, and responsiveness to the OIA and Protected Disclosures Act 2000. 22.  The Serious Fraud Office, Ministry of Justice, Office of the Auditor-General, and SSC. 23.  The Ministry of Foreign Affairs and Trade and the New Zealand Export Credit Office provide high-level advice on their websites. 24. The effectiveness of its implementation is being assessed by an OECD working group undertaking a phase 3 evaluation. 25.  An outstanding issue is the treatment of facilitation payments. While these are illegal for New Zealand transactions, the law is silent about offshore transactions. 26. Consolidation of market conduct regulatory functions previously shared across agencies, including the NZX under the newly constituted Financial Markets Authority (Financial Markets Authority Act 2011). 27. The Financial Markets Conduct Bill (which has passed its second reading) will replace the Securities Act 1978 and Securities Markets Act 1988 and other legislation relating to the financial markets. 28.  See generally the 2014 report of the Chief Ombudsman on the handling of official information requestswww.ombudsman.parliament.nz/ckeditor_assets/attachments/399/ oia_report_not_a_game_of_hide_and_seek.pdf ?1449533820 29.  Frank Vogel, Individual Member, TI, speaking at the International Anti-corruption Conference in Malaysia September 2015. 30.  Emmanuel Lulin noted in September 2018 “speaking at Victoria University of Wellington, that with the rapid change in technology, regulation on its own is insufficient as it can’t keep up with the pace of change.” 31. New Zealand Parliament, ‘Legislation: Supplementary order papers – Companies and Limited Partnerships Amendment Bill’. Retrieved from www.parliament.nz/en-NZ/PB/ Legislation/SOPs/d/7/3/50DBHOH_SOP1688_1-Companies-and-Limited-PartnershipsAmendment-Bill.htm. 32.  Chorus is a telecommunications infrastructure company.

REFERENCES Brown, A. J. (2019, May). Corruption in 2030: What will it look like and how will we have beaten it? Keynote address to the 7th Hong Kong Independent Commission Against Corruption (ICAC) Symposium. Centre for Governance and Public Policy. (2019). Public integrity and anti-corruption. Australia: Griffith University. Chartered Accountants Australia and New Zealand (CAANZ). (2014). Special purpose financial reporting in New Zealand. Wellington: CAANZ. Department of Prime Minister and Cabinet (DPMC). (2017). Cabinet manual. Wellington: DPMC. L’Oreal. (2016). Code of Ethics. Retrieved from Ministry for the Environment. (2013, March). Release of discussion document: Proposed Environmental Reporting Bill. Cabinet Economic Growth and Infrastructure Committee. Wellington, New Zealand. NZ Treasury. (2010). Review of expenditure on policy advice, improving the quality and value of policy advice: Findings of the committee appointed by the government to review expenditure on policy advice. Wellington: New Zealand Treasury.

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Parliamentary Commissioner for the Environment. (2010). How clean is New Zealand? Measuring and reporting on the health of our environment. Wellington: Parliamentary Commissioner for the Environment. Pope, J. (2000). Confronting corruption: The elements of a national integrity system, TI Source Book. Berlin: Transparency International. Productivity Commission. (2013). Towards better local regulation. Wellington: New Zealand Productivity Commission. Schick, A. (1996). The spirit of reform: Managing the New Zealand state sector in a time of change. Wellington: State Services Commission. Seifert, J., Carlitz, R., & Mondo, E. (2013). The Open Budget Index (OBI) as a comparative statistical tool. Journal of Comparative Policy Analysis: Research and Practice, 15(1), 87–101. Shewan, J. (2016). Government inquiry into foreign trust disclosure rules. Wellington: New Zealand Treasury. Transparency International (TI). (2020). 2019 Corruption Perceptions Index. Berlin: TI. Transparency International New Zealand (TINZ). (2013). Integrity plus national integrity system Assessment (2013). Wellington: TINZ. Transparency International New Zealand (TINZ). (2016). GOPAC reconstituted. Wellington: TINZ. Transparency International New Zealand (TINZ). (2018). Annual report. Wellington: TINZ. Transparency International New Zealand (TINZ). (2019a, 22 May). Building accountability: Summary of the national integrity system assessment – 2018 update. Wellington: TINZ. Transparency International New Zealand (TINZ). (2019b). New Zealand national integrity assessment – 2018 update. Wellington: TINZ. Ugaz, J. (2018). Speeches given in New Zealand during his visit to NZ [Chair of TI between 2014 and 2017.] United Nations (UN). (2004). United Nations convention against corruption. New York, NY: UN. United Nations (UN). (2015). United Nations sustainable development goals. New York, NY: UN. World Bank. (2019). Doing Business 2019. World Bank.

CHAPTER 10 FISCAL POLICY GOVERNANCE: A FOCUS ON PRINCIPLES Robert A. Buckle

1. INTRODUCTION New Zealand (NZ)’s current fiscal policy governance arrangements were established 25 years ago. They are based on a set of fiscal principles and reporting provisions. They represented a radical change to the governance of fiscal policy in NZ when first introduced and attracted international attention. The approach, and the principles and reporting provisions, have proved to be remarkably resilient and have been embraced and extended by successive NZ governments of different political persuasions. The aim of this new approach to fiscal policy governance was to reverse a long history of poor fiscal management, to create greater transparency in fiscal policy decisions, and to improve accountability for fiscal performance. Fiscal reform was first enacted in 1994 by the Fiscal Responsibility Act (FRA) and consists of a set of principles for responsible fiscal management, regular public reporting on performance by the government, and regular and independent economic and fiscal updates by the Treasury, including a pre-election update. NZ Governments were required to follow these principles and publicly assess their fiscal policies against these principles. This new approach eschewed the use of targets, mainly because it was felt that a sound theoretical justification for any fiscal target was lacking, and because targets were apt to change over time. The defining characteristic of NZ fiscal policy is that it is based on principles and accountability. The principles and reporting requirements laid down by the original FRA have been maintained and extended in scope.

Public Policy and Governance Frontiers in New Zealand Public Policy and Governance, 191–210 Copyright © 2020 by Emerald Publishing Limited All rights of reproduction in any form reserved ISSN: 2053-7697/doi:10.1108/S2053-769720200000032030

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The motivation for fiscal reform, as first enacted in 1994, was borne out of NZ’s history of continuous government budget deficits and increasing public debt since the mid-1970s. This history of poor fiscal performance was the consequence of several compromising features of fiscal management. These included a focus on short-term fiscal management, poor policy coordination that was compromising other policy objectives, the assignment of fiscal policy to achieving objectives that were better targeted by other policy instruments, and a lack of transparency that compromised the scope for public scrutiny and for new policy initiatives by incoming governments (Wells, 1987, 1996; Scott, 1995). This resulted in persistent fiscal deficits and unsustainable growth in public debt, as shown in Fig. 1. This, in turn, resulted in higher interest rates and exchange rate (which had been floated in March 1985). NZ faced a fiscal crisis which, some argued, also threated the wider economic liberalisation reform programme of the day (Blyth, 1987, pp. 9–16; Buckle, 1987).

Fig. 1.  Core Crown Net Debt as Percentage of GDP: 1972–2015. Source: Data for this chart were supplied to the author by Norman Gemmell and is drawn from the database prepared for the paper by Gemmell, Gill, and Nguyen (2018). Core Crown debt refers to the debt obligations of government departments and ministers, the Reserve Bank of New Zealand and the New Zealand Superannuation Fund (NZSF). Net Core Crown Debt is the difference between gross Core Crown Debt and liquid financial assets excluding those of the NZSF and advances (such as student loans) (see The Treasury, 2018, p. 39). Data for advances are not available prior to 1992 (see note to fig. 1 in Buckle & Cruickshank, 2014).

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NZ’s fiscal reforms were regarded as world-leading and have subsequently been cited as international best practice by agencies such as the Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF, 2007). Other countries subsequently adopted similar principles of responsible fiscal policy and reporting. Examples are the Australian Charter of Budget Responsibility Act, 1998 and the United Kingdom Charter for Budget Responsibility 2011. Formal frameworks embedding principles of sound fiscal policy have come to be regarded as mainstream among many OECD economies, particularly among countries in the European Union (see OECD, 2015). The remainder of this chapter is structured as follows1. Section 2 further discusses the historical background to NZ’s fiscal policy reforms in 1994. Section 3 discusses the design of the FRA and the issues influencing its design and the reasons for the emphasis on principles and transparency. The subsequent evolution of the principles and reporting provisions and the factors influencing those decisions are discussed in Section 4. Contemporary issues and challenges are discussed in Section 5 and conclusions are in Section 6.

2. HISTORICAL BACKGROUND The introduction of principles of fiscal practice and mandatory reporting requirements ushered in by the FRA of 1994 was a relatively late but important component of the extensive economic reforms in NZ that prevailed during the decade after the 1984 general election, discussed in Chapter 8. The reform of fiscal policy had its origins in principles laid out in the State-Owned Enterprises Act 1986, the State Sector Act 1988, and the NZ Public Finance Act (PFA) 1989. Generally, these principles seek to improve public sector performance by clarifying objectives, strengthening incentive structures, increasing transparency and accountability, and measuring performance against clear expectations.2 The reform of the governance of fiscal policy nevertheless had its own motivations. In the mid to late 1980s, NZ continued to face dire macroeconomic and fiscal conditions. The IMF described NZ’s fiscal situation in 1984 as ‘a major imbalance’ (Scott, 1995, p. 6). NZ’s credit rating slipped during the 1980s: a single-A rating was only narrowly avoided in 1991 because the incoming government took decisive action to contain a fiscal deficit that was forecast to increase to 5%–6% of gross domestic product (GDP) (Scott, 1995, p. 6). In short, the fiscal debt situation was unsustainable and required attention. There was also disillusionment with the stabilisation role of fiscal policy. Interventions had resulted in subsidies and large-scale investments by government in agricultural production and industrial projects which proved much more expensive and produced far lower economic returns than expected (Wells, 1987). But there were also concerns that institutional arrangements were lacking to mitigate the risks of future governments reverting to the fiscal policy practices of the past. In 1990, as in 1984, the incoming government found the fiscal situation to be much worse than it had been led to believe: it had not been made aware of

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the insolvency of the Bank of New Zealand which was owned by the Government (Scott, 1995, p. 4). A similar situation also occurred in October 1989 with the failure of the Development Finance Corporation which managed public servants’ pension funds. All this led to calls for increased transparency and accountability which influenced the design of the fiscal reforms. There was also concern about the potential conflict with the monetary policy goal of maintaining low inflation. Both theory and practice had shown that a conflict between monetary and fiscal policy could exist, impacting inflation and broader macroeconomic conditions. Some argued that the gains and losses of constituent support shaped budgetary outcomes in democratic systems which created a bias towards financing public expenditure by increasing debt rather than raising taxation (Alesina & Perotti, 1995; Buchanan, Rowley, & Tollison, 1987; Buchanan & Wagner, 1987). Others had shown that such fiscal situations, if not checked, had the potential to compromise the aims of achieving and sustaining low inflation which was the goal of monetary policy as defined by the Reserve Bank of New Zealand Act 1989 (Buckle & Stemp, 1991; Sargent & Wallace, 1984; see also Chapter 11). Decisions to change NZ’s electoral process gave added force to the call for fiscal reform (see Bollard, 1993; New Zealand Business Roundtable, 1994). A referendum in 1990 supported the introduction of mixed-member proportional (MMP) representation, to be introduced in the 1996 election. A critical concern was the potential for the fragmentation of political parties and the impact this would have on fiscal decisions. One concern for example, was that the competition among political parties to create coalition governments may result in political agreements that impact on the quality and sustainability of future government expenditure and taxation decisions. All these factors played a role in the design of the governance of NZ’s fiscal policy.

3. DESIGN OF NZ FISCAL GOVERNANCE: FRA 1994 The original FRA came into effect from 1 July 1994. It was designed to encourage the establishment of a fiscal strategy by government with the oversight of Parliament, and to create more transparency in the determination of government budgetary policy. Scott (1995, p. 3) explains that the principal aim of the FRA was to tilt the balance of fiscal decision-making away from short-term economic and political considerations towards strategic and long-term fiscal objectives. The FRA was intended to promote more informed debate about the trade-offs associated with strategic fiscal objectives and, in doing so, help hold governments accountable and therefore improve the credibility of fiscal policy. The FRA legislated a set of principles of responsible fiscal management, regular public reporting on performance by the government, and regular and independent economic and fiscal updates by the Treasury. The original Act legislated five principles and several fiscal reporting requirements, some of which had evolved during the years immediately preceding the passing of the Act, including the shift to Generally Accepted Accounting Practice (GAAP) for financial

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reporting purposes. The principles and reporting provisions (which are now incorporated in the NZ Public Finance Act 1989) require governments to follow these principles and publicly assess their fiscal policies against these principles. 3.1. Principles Versus Targets This new approach eschewed the use of targets. Janssen (2001) explains that preference for fiscal principles over fiscal targets was reinforced by the following considerations, which were also reflected in parliamentary decision-making: (i) a perceived lack of sound theoretical justification for any particular fiscal target; (ii) that judgements about appropriate targets for fiscal aggregates can vary over time and across economic circumstances, and the inflexibility of targets would make it difficult for fiscal policy to respond appropriately to changing economic circumstances; (iii) as a consequence, the use of targets could pose a risk to the credibility of fiscal policy; and (iv) despite the advances made in transparency of fiscal policy and improving the availability of fiscal information, it was felt that targets could still be evaded. The desire to encourage a stronger focus on medium to long-term fiscal performance and to allow flexibility was also motivated by upcoming changes of the electoral system in NZ to a MMP system (see also Report of the Finance and Expenditure Committee, 1994, pp. 13–14; Scott, 1995 pp. 12–14). The current NZ Public Finance Act 1989 (which now incorporates the FRA) includes eight principles of responsible fiscal management, shown in Table 1, and five fundamental reporting provisions, shown in Table 2. The original Act of 1994 included the Principles 1–5 in Table 1 and some aspects of the Reporting Provisions 1, 2, and 5 in Table 2. Definitions of terms included in the principles such as ‘prudent’ level of debt, or ‘reasonable’ degree of predictability are not specified in the Act. It is left to the Government of the day to interpret the relevant fiscal terms. Governments may depart temporarily from the principles and, if they do so, they are required to publicly explain why, and explain how and when they intend to return to conforming to the principles. The merits of fiscal targets to supplement fiscal principles have been re-visited and debated by officials and others on several occasions (see Wilkinson, 2004; Wilkinson & Acharya, 2014), but the original issues raised during the design of the FRA and the experiences of regimes that have experimented with fiscal targets have tended to be more persuasive (see Mears, Blick, Hampton, & Janssen, 2010; Ter-Minassian, 2014; The Treasury, 2012). The flexibility of the framework allows governments to set broadly similar debt objectives but with differences in the make-up of government expenditure and taxes. This may have been a factor contributing to successive governments of differing political persuasions embracing the fiscal framework and political commitment to self-imposed fiscal targets. 3.2. GAAP Under the FRA, all financial statements included in reports required by the Act are prepared under GAAP. Fiscal reporting follows a set of consistent accounting

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Table 1.  Principles of Responsible Fiscal Management. The Government must pursue its policy objectives in accordance with the following principles of responsible fiscal management: Debt and fiscal balance: 1. Reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year 2.  Once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues Net worth: 3. Achieving and maintaining levels of total net worth that provide a buffer against factors that may impact adversely on total net worth in the future Fiscal risks: 4.  Managing prudently the fiscal risks facing the Government Predictability and stability of tax rates: 5. When formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates Interaction between fiscal and monetary policy: 6. When formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy Intergenerational effects: 7. When formulating fiscal strategy, having regard to its likely impact on present and future generations Management of Crown resources: 8.  Ensuring that the Crown’s resources are managed effectively and efficiently Sources: NZ Public Finance Act 1989 (as at 28 September 2017), Part 2; Fiscal responsibility, Section 26F, pp. 51–52.

rules established independently by the Accounting Standards Review Board. The use of accrual accounts means that the full cost of any policy must be disclosed, including non-cash items such as depreciation and future obligations arising from for example, changes to government employee pension rights. It helps ensure consistent treatment of cash-based and accrual-based flows of expenditure and revenue. NZ also pioneered the introduction of a complete audited balance sheet for the public sector, and it remains one of only a few countries to do so systematically (Janssen, 2015). In 2007, the NZ Public Benefit Entity (PBE) International Financial Reporting Standard came into place, with an update in 2014 (PBE IPSAS) (Janssen, 2018, p. 9). The adoption of GAAP reporting was intended to contribute to improved transparency. The shift from cash-based to GAAP-based financial statements was introduced at a time when awareness of the inadequacies of fiscal reporting in NZ

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Table 2.  Fiscal Reporting Requirements. The Minister (of Finance) must present to the House of Representatives a report on the Government’s: 1.  Budget Policy Statement: To be presented no later than 31 March in each (June) financial year. It must state: the broad strategic priorities and the overarching policy goals by which the Government will be guided in preparing the Budget; the policy areas that the Government will focus on in that year; how the Budget for that year accords with the short-term intentions, long-term objectives, and the Government’s strategy for managing expenditure, assets, and liabilities as specified in the most recent fiscal strategy report; and explain how they accord with the principles of responsible fiscal management. 2.  Fiscal Strategy Report: To be presented immediately after each annual Budget (or at any time prior to that date on the same day). This Report must contain: (a) Government’s long-term objectives for fiscal policy, explain how those long-term objectives accord with the principles of responsible fiscal management, and state the period to which those long-term objectives relate (which must be a period of 10 or more consecutive financial years); (b) For at least the next 2 financial years, indicate explicitly, by the use of ranges, ratios, or other means, the Government’s short-term intentions for operating expenses, operating revenues, balance between total operating expenses and total operating revenues, the level of total debt, the level of total net worth, how they relate to the principles and long-term fiscal objectives. The FSR must also explain the Government’s strategy for managing expenditure, assets, and liabilities and intended outcomes for at least 3 financial years. 3.  Statement on long-term fiscal position: Prepared by Treasury and presented at intervals not exceeding 4 years, a statement on the longterm fiscal position relating to a period of at least 40 consecutive financial years commencing with the financial year in which the statement is prepared, and stating the assumptions underlying any projections included in the statement. 4.   Investment statement: Prepared at intervals not exceeding 4 years describing the value of the Crown’s significant assets and liabilities, how they have changed in value over time, how they are expected to change in value in each of at least the next two financial years and identifying any significant differences between the actual and previously forecast values and the equivalent information reported in the most recent previous investment statement. 5.  Economic and fiscal updates: These are to be prepared on three occasions: a. Annually immediately after delivery of the Government’s annual Budget (Budget Economic and Fiscal Update or BEFU) b. Annually between 1 November and 30 December (Half-yearly EFU) c. Prior (20 to 30 days prior) to any general election of Members of the House of Representatives (PREFU) These statements are required to contain: economic and fiscal forecasts that relate to the financial year to which the update relates and each of the next two financial years and a statement of tax policy changes during the past year and approved for the future. These statements must also include a disclosure of any policy decisions and other circumstances that may influence the future fiscal situation (with the exception of decisions or circumstances that may prejudice NZ’s economic or security interests or result in material loss of value to Government). The Minister of Finance to communicate all of the Government’s policy decisions to the Treasury so that the forecasts are based on relevant and comprehensive Government policy intentions, and to refer all reports required under the Act to a parliamentary select committee Sources: NZ Public Finance Act 1989 (as at 28 September 2017), Part 2; Fiscal responsibility, Sections 26I to 26Z, pp. 53–66.

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had become much more apparent to politicians. As early as 1978, the AuditorGeneral had been critical of the government’s financial management information systems, but was largely ignored (Scott, 1995, p. 8). Some reporting practices had commenced in some form during the early 1990s. Thus, the FRA did not represent a completely new change to reporting practice, but it did ensure that more suitable reporting and improved transparency were given greater attention and was more likely to be continued. 3.3. Political and Cross-party Acceptance The success of the fiscal responsibility provisions depends on the level of acceptance and support they receive across governments; there is no legal sanction if a government breaches the provisions of the Act. The first major test of acceptability came about with the change in 1999 from a National-led government (which sponsored the Act in 1994) to a Labour-led government. Following a review of the public management system in 2001, which included a review of the FRA, the new Ministers of Finance and of State Services concluded that, ‘the fundamentals of the PFA and the FRA are sound’ and proposed changes which sought to, ‘reinforce the existing objectives and principles of the PFA and FRA’ (Cullen & Mallard, 2003, p. 5). Another test occurred with the change to a National-led government in 2008 which embraced the fiscal responsibility provisions introduced by the previous government, and undertook a review which led to further additions to principles and reporting requirements (discussed in Section 4 below). After a quarter of a century, governments are now explicitly stating their fiscal obligations with reference to the requirements of the NZ Public Finance Act 1989 (where the FRA provisions are now located). The first Fiscal Strategy Report (FSR) tabled by the Labour-led government elected in 2017 is the most recent example (Robertson, 2018). The acceptance and common interpretations of the fiscal responsibilities by successive governments of different political persuasions is demonstrated by the similarity of the fiscal objectives stated by the Labour-led government elected in 2017 with those of the immediately preceding National-led government, as shown by Gill (2019, Box 4). The codification of fiscal principles and reporting provisions has also influenced the way fiscal policy works in practice. Major fiscal policy proposals need to give attention to the trade-offs involving not only the immediate social and economic effects but also the impact on public debt, government net worth, the implications for monetary policy and taxes, and intergenerational effects. The principles and reporting provisions have also helped to enrich public debate. As an example, the Treasury’s long-term fiscal statement in 2013 (The Treasury, 2013) ignited debate about the potential future fiscal implications of the national superannuation scheme. The debate included implications for future and current generations of the trade-offs associated with changes in the parameters for national superannuation (such as the age of qualification), including social consequences and the impact on future public debt. This debate prompted further research on the issues involved (see Buckle & Creedy, 2014), including the

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importance of recognising uncertainty when formulating policy advice (see Ball & Creedy, 2014b; Ball, Creedy, & Scobie, 2016). Similar types of debates are occurring today with respect to investment in public health care and education, and the implications for public debt and the Government’s fiscal responsibility obligations.

4. THE EVOLUTION OF PRINCIPLES AND REPORTING PROVISIONS The principles and reporting provisions laid down by the original FRA have been extended in scope during the past 25 years as successive governments assessed their adequacy during different and often challenging economic circumstances. These circumstances have included the Asian Financial Crisis and a series of severe droughts during the late 1990s, and heavy infrastructure investment following major earthquakes in 2011 and 2013 in the Canterbury region. Extensions to the fiscal principles and reporting provisions were often motivated by intergenerational issues and population ageing, the need to improve coordination of fiscal and monetary policy, and recognition of the economic and social importance of the Government’s balance sheet. 4.1. Population Ageing and Intergenerational Effects of Fiscal Policy The first changes to the original Act were introduced by the Labour-led government elected in 1999. The introduction of reporting on the long-term fiscal situation (reporting provision 3 in Table 2) was the culmination of a series of initiatives that had taken place over the previous two to three decades. The long-term and intergenerational effects of high public debt and high interest rates experienced during the 1970s and 1980s had been sobering for governments of all political persuasions. Although the reduction in the level of NZ’s public debt during the 1990s was ameliorating this immediate concern, the potential fiscal implications of population ageing was becoming more evident, particularly through the expected impact on future public pension and health costs (Bell & Rodway, 2014). The fiscal risks of a public pension scheme interacting with an ageing population had been exposed in the late 1970s because of electoral competition between the two main political parties during the 1975 election (Wells, 1996, pp. 217–218). The Todd Task Force on Private Provision for Retirement (1992) was subsequently established to evaluate superannuation options. Its Reports of 1992 and 1997 drew attention to the importance of demographic influences on future public pension costs and government budgets. The issue attracted enough attention to prompt a national referendum in 1997 on alternative superannuation schemes. The NZ Treasury began during the 1990s to include long-term fiscal projections in its briefings to incoming governments, and the issues were occasionally recognised in government documents such as the 1999 FSR. Meanwhile, reporting practices in countries such as Australia (Intergenerational Report) and the United Kingdom (Fiscal Sustainability Report) had already

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incorporated long-term fiscal reporting into their fiscal frameworks, and OECD and academic research was highlighting the fiscal effects of population ageing in a range of countries. The publication of long-term fiscal statements every four years commenced in June 2006 and created greater public awareness of the influences on NZ’s future fiscal position (e.g. The Treasury, 2013). These statements highlighted the expected impact of population ageing on the costs of the universal public pension scheme and health care, issues that had been previously highlighted by the Todd Task Force reports and work initiated by Treasury. Other changes that were introduced by the Labour-led government in 2004 involved the reporting provisions. These included a clearer differentiation of the requirements of the Budget Policy Statement (BPS) and the FSR. The requirement that the BPS cover high-level fiscal strategy was removed so that it focussed more on the priorities for the upcoming Budget. This meant that the FSR became the main instrument for conveying high-level fiscal strategy. Also, in a Regulatory Impact Statement (RIS) in 2012, Treasury concluded that the fiscal responsibility provisions had supported an improvement in fiscal sustainability. Fig. 1 shows that as a percentage of GDP, NZ core crown net debt declined continuously from the inception of the FRA in 1994 until 2008. As a result, NZ benefitted from relatively low public debt at the time of the global financial crisis and domestic recession in 2008–2009 (The Treasury, 2012, p. 3). 4.2. Pro-cyclical Government Spending and Coordination with Monetary Policy Experience during the economic expansion from 2000 to 2008 suggested that the principles and reporting provisions were insufficient. The concern expressed in the RIS by The Treasury (2012) and earlier by Barker, Buckle, and St Clair (2008) was that unexpected gains in taxation revenue during periods of strong economic growth could be too easily converted into higher levels of structural spending and a potential future structural fiscal deficit. Such higher government spending could also induce higher real interest and exchange rates and compromise monetary policy. As noted earlier, these potential coordination difficulties between fiscal and monetary policy had been raised prior to the introduction of the RBNZ Act 1989 and the FRA 1994. This is a problem for many countries and it has been a focus of concern among countries in the European Monetary Union (Bean, 2009; European Commission, 2006, p. 171). Fiscal policy during the first decade of the 2000s raised three main concerns that prompted a second major review of the principles and reporting provisions. These concerns were that: there was an insufficient requirement to consider the stage of the economic cycle in formulating fiscal policy; there was no requirement to focus on the efficient management of resources during periods of strong taxation revenue growth as well as during periods of slow taxation revenue growth; and there was no requirement to consider future generations when formulating fiscal policy. Nor were governments required to systematically report on past fiscal experiences. In response, three further principles of responsible fiscal management were added in 2013 (Public Finance Amendment Act 2013): the interaction between

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fiscal and monetary policy, intergenerational effects, and management of Crown resources (principles 6, 7, and 8, respectively, in Table 1). Principle 5 relating to taxation was rephrased to also include an emphasis on efficiency and fairness of tax rates when formulating taxation policy. Fiscal reporting provisions were extended to include the requirement that an ‘Investment Statement’ be prepared at intervals not exceeding four years. This statement is required to describe the financial features of the Crown’s balance sheet, how they have changed, and how they are expected to change in the future (reporting requirement 4 in Table 2). While not prescriptive, these provisions place an obligation on governments to take into consideration the issues that had posed a threat to sound fiscal policy during the preceding decade, including the implications for monetary conditions, the intergenerational effects of fiscal policy and implications for the tax system. As with other legislated provisions and reporting requirements, these new requirements enhanced accountability and scrutiny by independent observers. 4.3. Management of Crown Resources and Investment Statements The first official Investment Statement was published in 2014 and the second in 2018. These are intended to improve transparency by revealing in more detail the composition of the government balance sheet. They are also intended to highlight the significance of the composition of government assets for the delivery and quality of public services, to provide an assessment of the performance of the government assets, to assess their sustainability, and to promote improved management of the government’s asset portfolio. The investment statements provide a valuation of the government’s financial and physical assets, including the portfolios of social, financial, and commercial assets, and information about the government’s liabilities including borrowing, insurance, and retirement plan liabilities. This information is not unique to the investment statements, and regularly appears in economic and fiscal updates. But the investment statements include much more information about the performance of government assets and risks. Included in the risk analysis is a selection of ‘stress tests’ assessing the impact of a range of adverse events (such as a major earthquake or a significant international recession) on the value of the government’s balance sheet and its ability to sustain the delivery of public services. According to The Treasury (2018a), the production of investment statements has prompted more requests for advice and reporting by government officials on the alignment of the government’s investment portfolio with intended outcomes, and has prompted agencies to pay more attention to delivering benefits from these assets and to invest in the capability to manage assets.

5. CONTEMPORARY CHALLENGES NZ fiscal governance based on legislated fiscal principles and reporting provisions has had several beneficial effects. It has largely succeeded in tilting the balance of fiscal decision-making away from short-term goals towards strategic

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and longer-term objectives, although opportunistic and short-term tendencies can still prevail; created more transparency in the determination of government budgetary policy, and promoted more informed debate about strategic fiscal objectives; and it has enhanced government accountability for fiscal policy decisions. The framework has also increased clarity about the distinctive roles of fiscal policy in economic management, and improved coordination of fiscal and monetary policies, although there remains scope for improvement. Since the early 1990s, there has been much greater international recognition of the importance of fiscal transparency, as well as improved fiscal reporting and surveillance, as a means of strengthening policy accountability and the quality of fiscal policy. In 1998, the IMF introduced its ‘Code of Good Practices on Fiscal Transparency’ in response to shortcomings exposed by the Asian financial crisis. In 2014, the IMF released its current Fiscal Transparency Code (FTC), which is composed of four pillars: Fiscal reporting; Fiscal forecasting and budgeting; Fiscal risk analysis and management; and Resource revenue management (IMF 2018). The FTC is supported by a process of assessing country practices against the code (Fiscal Transparency Evaluations, FTE) which are carried out by the IMF at the request of member countries and form part of the policy dialogue with those countries. While NZ has not undertaken a formal FTE by the IMF, Ter-Minassian suggests that NZ’s fiscal responsibility provisions and reporting requirements align closely with the requirements of the four pillars of the IMF’s FTC. Ter-Minassian (2014, p. 2) concluded that: This framework has served NZ well in many respects. It has promoted a responsible conduct of fiscal policies under different governments, resulting in levels of the net public debt that look modest in international comparisons; and it has provided flexibility to accommodate the adverse fiscal consequences of the global financial crisis and the heavy fiscal cost of rebuilding Christchurch, following two devastating earthquakes in 2010 and 2011. The strong culture of transparency and official accountability, promoted by the Public Finance Act, is widely regarded as an example of international best practice.

Nevertheless, there are several dimensions of NZ’s fiscal management that can be improved. The next three parts of this section consider where improvements can be achieved by applying a taxonomy of the roles of fiscal policy developed by Barker et al. (2008), who suggest three fundamental roles for fiscal policy: these are sustainability, stability, and structural roles. 5.1. The Pursuit and Reporting of Fiscal Sustainability Sustainability of fiscal policy has improved since the mid-1990s. As Fig. 1 shows, while rising somewhat following the global finance crisis (GFC) and a series of costly earthquakes in NZ, lower levels of public debt have been sustained. As an illustration of the progress towards improving fiscal sustainability, the Treasury judged that NZ’s fiscal position and level of net debt in the late 1990s was not adequate to allow the full operation of automatic fiscal stabilisers to buffer the economy in response to the Asian financial crisis and severe droughts that occurred at that time. In contrast, in their review of the fiscal policy adjustments

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during the 2000s and following the GFC, Bose, Philip, and Sullivan (2016, p. 12) concluded that: New Zealand’s strong fiscal institutions have played a significant role in the achievement of the surplus. The interaction of the Public Finance Act 1989, the fiscal management approach and state sector reform were key to the ability to reduce expenses without major cuts to services.

Since 1994, NZ governments have set as an anchor for fiscal policy, net debt targets ranging between 15% and 30% of GDP (see Buckle & Cruickshank, 2014, fig. 1, p. 116). While it is not entirely clear why this range and targets within this range were chosen, they align with the results in Fookes (2011) which suggest that a starting net debt level of 20% may be adequate to manage a selection of adverse supply and demand shocks NZ could experience. It is surprising that despite the importance of the target level of net debt, the procedure used to specify a ‘prudent’ level of net debt is not made more transparent. In any case, the calculus required to assess NZ’s contingent liability risk is changing. First, the potential impact on economic growth and government contingent liabilities arising from destructive geological and climatic conditions could become more acute (Fleming, Noy, Pastor-Paz, & Owen, 2018). The depletion of the National Disaster Fund following claim obligations arising from the Canterbury and Kaikoura earthquakes in NZ since the mid-2000s highlights the vulnerability of the fund (Earthquake Commission, 2017). Similarly, the uncertainty associated with the economic impact of policies implemented to mitigate climate and environmental change creates greater uncertainty of future income growth (see Frame, Rosier, Carey-Smith, Harrington, & Dean, 2017). Second, the two areas of government expenditure and transfers that regularly feature as potential threats to fiscal sustainability are superannuation (pensions) and health, and proposals addressing them continue to be politically contentious. The proportion of the population, including the voting population, in the older age brackets is expected to rise over the next decades (Bascand & Dunstan, 2014). This could make the future political challenges of addressing the impact of rising superannuation and health costs on the long-term fiscal position more acute. Improvements in modelling methods that enhance understanding of the trade-offs involved would help inform public debate and may strengthen the political resolve to ensure fiscal sustainability. Third, there is scope to improve the modelling method used by The Treasury to evaluate fiscal sustainability. The approach used to date has relied predominantly on deterministic projections of government expenditure and revenue using contemporary policy settings (Bell & Rodway, 2014). This approach does not capture the full implications of the government budget constraint, and the associated feedback effects such as changes in interest rates, private investment, private savings, and labour supply in responses to changes in tax rates, government expenditure, etc. (see also comments by NZ Controller & Auditor-General, 2017; Ter-Minassian, 2014). Nor do the deterministic projections necessarily capture the full implications of demographic change for budget finances, which was one reason for introducing this reporting provision (Ball & Creedy, 2014a). Creedy and Scobie (2017) provide a basis for improving the method of assessing NZ’s fiscal sustainability that embodies many of these issues.

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5.2. The Stabilisation Role of Fiscal Policy The stabilisation role of fiscal policy in NZ relies predominantly on allowing automatic stabilisers to take effect during fluctuations in the business cycle. The potential time-inconsistency of more discretionary stabilisation policies was mitigated somewhat by the RBNZ Act 1989 which specified price stability as the primary goal of monetary policy and provided the Bank with operational independence. This has created a situation where monetary policy has tended to smooth macroeconomic fluctuations (see Chapter 11). However, avoiding pro-cyclical fiscal injections to aggregate demand during periods of economic buoyancy and growth of government revenue, is a perennial issue in NZ and other countries (Alesina, 2000; European Commission, 2006). In some countries, stabilisation funds are used to absorb unexpected revenue gains and can be applied as an intergenerational transfer instrument, as in Norway, or to smooth spending over time, as in Chile. Ter-Minassian (2014) has suggested that stabilisation funds should be considered by NZ. These and related ideas were evaluated prior to the revision of the fiscal principles and reporting requirements introduced in 2013 (Brook, 2013; Buckle & Drew, 2006; Smith, Hall, & Janssen, 2013; The Treasury, 2012). The coordination of fiscal and monetary policies remains an important challenge. A lack of coordination can result in conflicting influences on monetary conditions, such as the term structure of interest rates (Cecchetti, 2018; Greenwood, Hanson, Rudolph, & Summers, 2014). Principle 6 in Table 1 was included in the 2013 revisions to try to mitigate this risk, but it has yet to be fully tested. Improvements in transparency, and more timely public information of government revenue growth during economic upswings, and other sources of unexpected taxation revenue growth may be necessary to strengthen the effectiveness of principle 6. Greater emphasis on conveying to governments the uncertainty associated with fiscal variables and the development of procedures to support fiscal management in an environment of uncertainly, may be another way to mitigate this type of risk. 5.3. Fiscal Policy and Economic Structure This role refers to the structural economic impacts of the level and composition of taxation, public spending, and the composition of the government balance sheet (‘fiscal structure’). The original FRA was not intended to be prescriptive of fiscal strategy. The Public Finance Act continues to rely on transparency, via the reporting provisions, to influence responsible management of fiscal structure. Accountability and scrutiny of the structural role of fiscal policy therefore relies on the adequacy of the reporting provisions revealing successive governments’ objectives and intentions, as expressed in the FSR in particular. A sound approach to this aspect of fiscal policy relies on robust policy evaluation processes and incentives to continuously improve capability and productivity in the public sector, as well as improvements in information and processes to evaluate current and future government proposals. This is a vulnerable aspect of NZ’s fiscal framework and has received regular critical scrutiny.

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Ter-Minassian (2014) suggested that there was a need to improve the information base required to strengthen the assessment and management of spending programmes and the Crown’s assets. Wilkinson and Acharya (2014) observed that NZ’s fiscal rules are weak in guarding against failures to reduce poor quality spending, the impulse to increase spending during revenue upturns, incentives to use ‘bracket creep’ from inflation to increase tax revenue and spending, and the lack of transparency about the quality of election campaign spending promises. Wilkinson (2018) notes that while NZ ranks highly in international comparisons of the efficiency of some public services, the New Zealand Productivity Commission’s (2018a, 2018b) inquiry into state sector performance also concluded that there was insufficient focus on productivity, on performance monitoring and improvement, as well as inadequate use of programme evaluations, and observed risk averse behaviour and restrictive rules and funding systems. The challenge of ensuring adequate processes for considering structural policy issues may become more challenging in the future if governments embrace a broader ‘Living Standards Framework’ (LSF) to guide their policy analysis and prioritisations, as proposed by The Treasury (2018b) and based on the OECD’s (2017) How’s Life?. In one sense, the Living Standards approach can be viewed as an extension of the traditional economic approach to the evaluation of policy options. However, as is evident from Smith (2018), the LSF has not developed to the point of determining the components of a social welfare (or ‘wellbeing’) function, nor identifying a robust framework for integrating the relevant flows and stocks required to understand intertemporal trade-offs for guiding public policy. (See also Chapter 6 in this book.) 5.4. Back to Transparency NZ’s fiscal governance and effective accountability relies heavily on adequate transparency. This in turn depends on successive governments accepting the fiscal principles and compliance of the reporting provisions developed over the past 25 years. The Office of the Controller and Auditor-General in NZ has a responsibility to comment on the accuracy of the government’s accounts, but it does not review a government’s performance in respect of meeting the reporting requirements of the fiscal responsibility provisions of the PFA. There are regular reviews by international financial institutions such as the OECD and IMF which provide a source of scrutiny and commentary. The establishment in 2007 of the NZ Productivity Commission has been a valuable step but the focus of the work of the Commission is largely determined by government. There is therefore an important role for private and university research organisations to monitor how well governments adhere to the fiscal principles and reporting provisions. The establishment of Independent Fiscal Councils (IFC) has gathered momentum during the past 20 years, particularly in Europe where they have been propelled by new European Union laws on fiscal governance (see Beetsma & Debrun, 2018). Wilkinson and Acharya (2014) and Ter-Minassian (2014) have

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recommended that NZ consider establishing an IFC, and the current NZ government has stated its intention to consider this idea. In its first FSR, it stated that it will: engage with the public on the creation of an Independent Fiscal Institution … to establish a body independent of Ministers of the Crown which will be responsible for determining if these [Budget Responsibility] rules are being met. (Robertson, 2018, p. 13)

6. CONCLUSION Fiscal policy governance in NZ has benefitted from legislated fiscal principles and reporting provisions designed to enhance transparency, accountability, and fiscal sustainability. The approach allows governments scope to pursue different fiscal strategies and remain consistent with the legislation. The framework has shown remarkable resilience and is one of the stand-out successes of the wide-ranging economic policy reforms from 1985 to 1995. This resilience is a consequence of successive governments endorsing the fiscal governance approach, and the steady evolution of the principles and reporting provisions in response to experience, emerging research, and insights from fiscal management and reporting ideas applied overseas. Embedding the principles and reporting provisions in legislation has encouraged officials and successive governments to continuously review their effectiveness. This has increased their scope and led to greater consideration of intergenerational effects of fiscal policy, the consequences of pro-cyclical government spending, the need to improve coordination with monetary policy, and recognition of the importance of the government’s balance sheet. The fiscal responsibility principles and reporting provisions of 1994 ushered in an era of improved fiscal performance and led to greater consideration of issues pertaining to fiscal sustainability, fiscal stabilisation, and fiscal structure. The principles-based approach has also been flexible enough to allow governments scope to pursue different fiscal strategies while remaining consistent with the principles and reporting requirements. Although governments may depart temporarily from the principles and reporting provisions, the governance arrangements have prevailed for a quarter of a century and have been accepted by successive governments. The fiscal framework has largely succeeded in shifting the balance of fiscal decision-making away from short-term goals towards strategic and longer-term objectives, creating more transparency of government budgetary policy, promoting more informed debate about strategic fiscal objectives, and enhancing government accountability. Some of the principles underpinning NZ’s fiscal policy governance framework have yet to be fully tested, and there are many areas where the reporting practices warrant improvement. Nevertheless, if the history of the last quarter of a century is a suitable guide, there is a good prospect of future governments embracing and improving the fiscal framework, while also adapting it to cope with future fiscal challenges associated with traditional international economic and financial

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shocks, as well as those arising from the challenges associated with climate change and the environment.

NOTES 1.  A fuller discussion of some of the issues discussed in this chapter can be found in Buckle, (2018). 2.  For comprehensive explanations of the scope of the NZ economic reforms of the late 1980s and early 1990s, see Bollard and Buckle (1987), Silverstone, Bollard, and Lattimore (1996), and Evans, Grimes, Wilkinson, and Teece (1996). See also Scott (2001) for discussion of the reforms to the public sector.

ACKNOWLEDGEMENTS I am grateful to John Creedy, Rodney Dormer, Norman Gemmell, John Janssen, Simon McLoughlin, Renee Philip, Grant Scobie, Graham Scott, Conal Smith, and Ken Warren for helpful discussions during the preparation of this chapter, and to Evan Berman and Girol Karacaoglu for their editorial suggestions.

KEY REFERENCES Barker, F. C., Buckle, R. A., & St Clair, R. W. (2008, June). Roles of fiscal policy in New Zealand. Working Paper No. 08-02. Wellington: The Treasury. Brook, A.-M. (2013). Making fiscal policy more stabilising in the next upturn: Challenges and options. New Zealand Economic Papers, 47(1), 71–94. Buckle, R. A., & Cruickshank, A. A. (2014). The requirements for fiscal sustainability in New Zealand. New Zealand Economic Papers, 48(2), 111–128. Evans, L., Grimes, G., Wilkinson, B., & Teece, D. (1996). Economic reform in New Zealand 1984–95: The pursuit of efficiency. Journal of Economic Literature, 34(December), 1856–1902. Janssen, J. (2001, June). New Zealand’s fiscal policy framework: Experience and evolution. New Zealand Treasury Working Paper Working paper no. 01/25. Wellington: The Treasury. New Zealand Public Finance Act. (1989). Wellington. Reprint as at 28 September 2017, p. 149. Robertson, H. G. (2018). Budget 2018: Fiscal strategy report (p. 29). Wellington: New Zealand Government. Scott, G. (1995). New Zealand’s Fiscal Responsibility Act. Agenda: A Journal of Policy Analysis and Reform, 2(1), 3–16. The Treasury. (2013, July). Affording our future: Statement on New Zealand’s long-term fiscal position (p. 71). Wellington: The Treasury. The Treasury. (2018, May). Budget economic and fiscal update (p. 142). Wellington: The Treasury. Wells, G. (1996). Fiscal policy, Chapter 7. In B. Silverstone, A. Bollard, & R. Lattimore (Eds.), A study of economic reform: The case of New Zealand (pp. 215–245). Amsterdam: Elsevier.

OTHER REFERENCES Alesina, A. (2000). The political economy of the budget surplus in the US. Journal of Economic Perspectives, 14, 3–19. Alesina, A., & Perotti, R. (1995). The political economy of budget deficits. IMF Staff Papers, 42(1), 1–31. Ball, C., & Creedy, J. (2014a). Population ageing and the growth of income and consumption tax revenue. New Zealand Economic Papers, 48(2), 169–182.

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Ball, C., & Creedy, J. (2014b), Tax policy with uncertain future costs: Some simple models. New Zealand Economic Papers, 48(2), 240–253. Ball, C., Creedy, J., & Scobie, G. (2016). How uncertain are long-run fiscal projections? Non-parametric stochastic modelling for New Zealand. Australian Economic Review, 49, 59–76. Bascand, G., & Dunstan, K. (2014). New Zealand’s demographics and population ageing. New Zealand Economic Papers, 48(2), 129–138. Bean, C. (2009). The meaning of internal balance thirty years on. The Economic Journal, 119, F442–F460. Beetsma, R., & Debrun, X. (Eds.). (2018). Fiscal councils: Watchdogs or lapdogs? Vox EU Org. Retrieved from https://voxeu.org/content/independent-fiscal-councils-watchdogs-or-lapdog Bell, M., & Rodway, P. (2014). Treasury’s 2013 long-term fiscal statement: Assumptions and projections. New Zealand Economic Papers, 48(2), 139–152. Blyth, C. (1987). The economists’ perspective of economic liberalisation, Chapter 1. In A. Bollard & R. A. Buckle (Eds.), Economic liberalisation in New Zealand (pp. 3–24). Wellington: Allen & Unwin/Port Nicholson Press. Bollard, A. (1993). Economic consequences of electoral reform. Discussion Paper No. 38. New Zealand Institute of Economic Research, Wellington. Bollard, A., & Buckle, R. A. (Eds.). (1987). Economic liberalisation in New Zealand. Wellington: Allen & Unwin/Port Nicholson Press. Bose, D., Philip, R., & Sullivan, R. (2016). Returning to surplus: New Zealand’s Post-GFC fiscal consolidation experience. New Zealand Working paper no. 16-05. Wellington: The Treasury. Buchanan, J. M., Rowley, C. K., & Tollison, R. D. (1987). Deficits. Oxford: Basil Blackwell. Buchanan, J. M., & Wagner, R. E. (1987). Democracy in deficit. New York, NY: Academic Press. Buckle, R. A. (1987). Sequencing and the role of the foreign exchange market, Chapter 11. In A. Bollard & R. A. Buckle (Eds.), Economic liberalisation in New Zealand (pp. 236–260). Wellington: Allen & Unwin/Port Nicholson Press. Buckle, R. A. (2018, October). A quarter of a century of fiscal responsibility: The origins and evolution of fiscal policy governance and institutional arrangements in New Zealand, 1994 to 2018. Working Paper No. 13/2018. Chair in Public Finance, Victoria University of Wellington, Wellington. Buckle, R. A., & Creedy, J. (2014). Population ageing and long-run fiscal sustainability in New Zealand. New Zealand Economic Papers, 48(2), 105–110. Buckle, R. A., & Drew, A. (Eds.). (2006, October). Testing stabilisation policy limits in a small open economy: Proceedings from a macroeconomic forum (p. 200). Wellington: Reserve Bank of New Zealand and The Treasury. Buckle, R. A., & Stemp, P. J. (1991). Reserve Bank autonomy and the credibility of monetary policy: A game-theoretic approach. New Zealand Economic Papers, 25(1), 51–85. Cecchetti, S. G. (2018). Monetary, prudential and fiscal policy: How much coordination is needed? New Zealand Economic Papers, 52(3), 251–276. Controller and Auditor-General. (2017, July). Commentary on He Tirohanga Mokopuna: 2016 Statement on the Long-Term Fiscal Position (p. 48). Wellington: Office of the Auditor-General. Creedy, J., & Scobie, G. (2017). Debt projections and fiscal sustainability with feedback effects. New Zealand Economic Papers, 51(3), 237–261. Cullen, H. M., & Mallard, H. T. (2003, August). Public Finance (State Sector Management) Bill 2003, Pre-introduction parliamentary briefing (p. 27). Wellington: NZ Government. Earthquake Commission. (2017, October). Briefing to the incoming minister responsible for the Earthquake Commission (p. 46). Wellington: Earthquake Commission. European Commission. (2006). Fiscal policy in good times, Part IV of Public Finances in the EU–2006. Retrieved from http://ec.europa.eu/economy_finance/publications/publication7927_en.pdf Fleming, D. A., Noy, I., Pastor-Paz, J., & Owen, S. (2018, July). Public insurance and climate change (part one): Past trends in weather-related insurance in New Zealand. Working Paper No. 18-09. Motu, Wellington. Fookes, C. (2011, June). Modelling shocks to New Zealand’s fiscal position. Working Paper No. 11/02. Wellington: New Zealand Treasury. Frame, D., Rosier, S., Carey-Smith, T., Harrington, L., & Dean, S. (2017). Estimating financial costs of climate change in New Zealand. Wellington: New Zealand Climate Change Research Institute and NIWA.

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Gemmell, N., Gill, D., & Nguyen, L. (2018). Modelling public expenditure growth in New Zealand, 1972–2015. New Zealand Economic Papers, 53(3), 215–244. doi:10.1080/00779954.2018.1458330 Gill, D. (2019). The Fiscal Responsibility Act 1994: The astonishing success of a weak non-binding policy instrument. In J. Luetjens, M. Mintrom, & P. Hart (Eds.), Successful public policy: Lessons from Australia and New Zealand. Canberra: ANU Press. Greenwood, R., Hanson, S. G., Rudolph, J. S., & Summers, L. H. (2014). Government debt management at the zero lower bound. Working Paper No. 5. Hutchins Centre on Fiscal and Monetary Policy, Washington, DC. International Monetary Fund. (2007). Manual on fiscal transparency. Retrieved from http://www.imf. org/external/np/fad/trans/manual/sec02b.htm International Monetary Fund. (2018). The Fiscal Transparency Code 2014. Retrieved from http://www. imf.org/external/np/fad/trans/ Janssen, J. (2015, 25 March). The New Zealand experience, paper presented at structural reforms and fiscal consolidation: Trade-offs or complements? A symposium held at the Federal Ministry of Finance, Berlin. Janssen, J. (2018, July). The start of a conversation on the value of New Zealand’s financial/physical capital. Discussion Paper No. 18/07. New Zealand Treasury Living Standards Series, Wellington. Mears, T., Blick, G., Hampton, T., & Janssen, J. (2010, November). Fiscal institutions in New Zealand and the question of a spending cap. Working Paper No. 10-07. New Zealand Treasury, Wellington. New Zealand Business Roundtable. (1994, February). Submission to the Finance & Expenditure Committee of the House of Representatives on the Fiscal Responsibility Bill, Wellington. New Zealand Productivity Commission. (2018a, August). Improving state sector productivity (p. 68). Wellington: New Zealand Productivity Commission. New Zealand Productivity Commission. (2018b, August). Measuring state sector productivity (p. 72). Wellington: New Zealand Productivity Commission. OECD. (2015). Achieving prudent debt targets using fiscal rules. Policy Note No 28, OECD Economics Department. Retrieved from http://www.oecd.org/eco/Achieving-prudent-debt-targets-usingfiscal-rules-OECD-policy-note-28.pdf OECD. (2017). How’s life? 2017: Measuring well-being. Paris: OECD Publishing. Office for Budget Responsibility. (2018, July). Fiscal sustainability report 2018 (p. 160). London: Office for Budget Responsibility. Retrieved from https://www.gov.uk/government/publications Report of the Finance and Expenditure Committee. (1994). Report of the Finance and Expenditure Committee on the Fiscal Responsibility Bill, First Session, Forty-forth Parliament (Hon. Ruth Richardson, Chair), New Zealand House of Representatives, 1.3A. Sargent, T. J., & Wallace, N. (1984). Some unpleasant monetarist arithmetic. In B. Griffiths & G. E. Woods (Eds.), Monetarism in the United Kingdom (pp. 15–41). London: MacMillan. Scott, G. (2001). Public sector management in New Zealand: Lessons and challenges. Wellington: New Zealand Business Round Table. Silverstone, B., Bollard, A., & Lattimore, R. (Eds.). (1996). A study of economic reform: The case of New Zealand. Amsterdam: Elsevier. Smith, C. (2018, June). Monitoring intergenerational wellbeing. Kōtātā Insight Paper. Wellington: New Zealand Treasury Living Standards Dashboard. Smith, C., Hall, V. B., & Janssen, J. (2013). New Zealand’s macroeconomic imbalances – causes and remedies: Guest editors’ introduction. New Zealand Economic Papers, 47(1), 1–7. Ter-Minassian, T. (2014, May). Report on an External review of the Treasury’s fiscal policy advice (p. 90). Washington, DC. The Treasury. (1995). Fiscal Responsibility Act 1994: An explanation (pp. 1–31). Wellington: The Treasury. The Treasury. (2012, March). Regulatory impact statement: Amendment to the fiscal responsibility provisions (Part 2 of the PFA). Wellington: The Treasury. The Treasury. (2018a, March). He Puna Hao Patiki: 2018 Investment Statement. Wellington: The Treasury. The Treasury. (2018b). The Treasury approach to the Living Standards Framework. Wellington: The Treasury. Todd Task Force on Private Provision for Retirement. (1992, December). Private provision for retirement: The way forward. Wellington: Todd Task Force on Private Provision for Retirement.

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Wells, G. (1987). The changing focus of fiscal policy, Chapter 13. In A. Bollard, & R. A. Buckle (Eds.), Economic liberalisation in New Zealand (pp. 283–298). Wellington, NZ: Allen & Unwin/Port Nicholson Press. Wilkinson, B. (2004). Restraining leviathan: A review of the Fiscal Responsibility Act 1994. Wellington: New Zealand Business Round Table. Wilkinson, B. (2018). Fit for purpose? Are Kiwis getting the government they deserve? (p. 66). Wellington: The New Zealand Initiative. Wilkinson, B., & Acharya, K. (2014). Guarding the public purse: faster growth, greater fiscal discipline (p. 88). Wellington: The New Zealand Initiative.

CHAPTER 11 MONETARY POLICY GOVERNANCE AND INFLATION TARGETING IN NEW ZEALAND Robert A. Buckle

1. INTRODUCTION Thirty years ago, New Zealand developed an innovative approach to monetary policy governance. This approach specified price stability as the primary function of monetary policy and operational independence for the central bank. These features and other governance innovations were introduced by the Reserve Bank of New Zealand (RBNZ) Act 1989 which became operative in February 1990. This new approach was prompted by several decades of high price inflation, the social costs it inflicted, and the failure to achieve a sustained reduction in the rate of inflation. During the preceding two decades, NZ’s inflation rate typically exceeded the average rate of other developed countries. Although NZ’s inflation rate started to decline following widespread economic reforms in the late 1980s, it continued to fall sharply after the RBNZ Act 1989 and adoption of inflation targeting. Since 1990, New Zealand has achieved sustained low inflation that has rarely exceeded average Organisation for Economic Co-operation and Development (OECD) inflation (Fig. 1). The success of this new approach to monetary policy governance attracted global attention and spawned the spread of inflation targeting to other countries.

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Fig. 1.  New Zealand and OECD Inflation: 1971–2018. Note: This figure shows year-on-year annual percentage changes in the Consumers’ price indexes (CPI) for NZ and the OECD, at quarterly intervals. Data sources: NZ CPI data are from the RBNZ. OECD data are the OECD’s weighted average inflation rate for OECD countries.

This chapter discusses the historical origins of the RBNZ Act 1989 and inflation targeting, explains the governance arrangements, and how monetary policy has evolved during the past 30 years.1 It reviews evidence of the impact of New Zealand’s governance of monetary policy, and explains recent changes these governance arrangements.

2. HISTORICAL BACKGROUND TO THE RBNZ ACT 1989 The RBNZ Act 1989 was part of a broader suite of policy reforms introduced in NZ between the mid-1980s and mid-1990s that sought to make public sector organisations more accountable (see Chapter 8). This was achieved by specifying clearer objectives, clarifying the responsibilities of those tasked with the management of these organisations, and improving reporting standards (see Evans, Grimes, Wilkinson, & Teece, 1996). These features are evident in the RBNZ Act 1989. The design of this Act was also influenced by international experience with inflation policy and developments in theories of monetary policy design and practice. 2.1. New Zealand’s Earlier Inflation Policy Failures Prior to March 1985, NZ had for the most part maintained a fixed exchange rate. The economy was characterised by high levels of import protection which

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reduced competition in product markets, a highly unionised labour market and centralised wage setting procedures which resulted in rigid wage relativities, and a high degree of price and wage indexation. International price shocks, particularly import prices, were quickly transmitted through the economy via a pricewage-price spiral. The ability to achieve low inflation was also comprised by fiscal policy (see Chapter 10). Monetary policy was characterised by multiple objectives with no clear statement of priorities. The RBNZ Act (1964) required the Minister of Finance to direct monetary policy: […] to the maintenance and promotion of economic and social welfare in New Zealand having regard to the desirability of promoting the highest degree of production, trade, and employment and of maintaining a stable internal price level.

This contributed to a lack of transparency and accountability and created opportunities for governments to manipulate monetary policy and to direct it at any short-term problems confronting them, and to use monetary policy for political gain by inducing short-lived economic expansions prior to elections. Pervasive financial regulations resulted in extensive credit rationing with relatively low interest rates. Foreign exchange controls were intended to prevent capital outflows seeking higher returns from overseas investments, but gradual deterioration in the effectiveness of these controls undermined the impact and credibility of monetary policy. Grimes (1996, p. 251) described the consequences of this system: New Zealand had effectively been running an inflation treadmill. Strong domestic inflation pressures, in large part driven by fiscal policy and an accommodating monetary policy, caused Government to devalue the exchange rate to maintain international competitiveness, but the devaluations then fed back into domestic inflationary pressures, so causing further devaluations and further inflation.

Initial monetary policy reforms during the mid to late-1980s were included in wider financial reforms as part of a suite of extensive policy reforms following a change of government in mid-1984 (Harper & Karacaoglu, 1987).2 The aim was to improve control over monetary conditions while ensuring policy implementation did not impede development of efficient financial markets. These initial reforms included floating the currency in March 1985 and a move away from regulatory controls such as reserve ratio requirements and credit growth guidelines towards market-based open market operations and periodic government stock tenders (Grimes, 1996). Despite these reforms, two factors were impeding progress. One was the multiple targets for monetary policy enshrined in legislation. The other was lack of identification of a monetary policy instrument that provided a stable relationship with inflation because of financial re-intermediation in response to financial reforms (Wong & Grimes, 1992). These problems threatened the credibility of a monetary policy regime designed to target inflation. Earlier failures to stem inflation prompted the new Minister of Finance, following election of a Labour Government in 1984, to instruct the Reserve Bank to design a regime that could both reduce inflation to acceptable levels and withstand

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short-term political opportunism (Singleton, Grimes, Hawke, & Holmes, 2006). The goal was to establish a more time-consistent regime. The RBNZ Act 1989 was the outcome. 2.2. International Influences Among the ideas that helped shape the design of NZ’s monetary policy governance were principles developed by Tinbergen (1952) and Mundell (1962) that pertain to policy more generally. According to Tinbergen’s principle, to attain a given number of independent policy targets, there must be at least an equal number of policy instruments. Mundell’s principle of effective market classification proposes that policies should be paired with the objectives on which they have the most influence. Also influential were ideas advanced by Phelps (1968), Friedman (1968), and Lucas (1972) that changed understanding of short and long-run trade-offs for monetary policy. Research on policy credibility was also influential. If monetary policy were assigned to achieve and maintain low inflation, the cost of doing so and the ability to sustain this would be jeopardised if the policy goal was not consistent over future periods and therefore not credible.3 This was a lesson from the experience of the USA Federal Reserve Board during the Volker disinflation. The Federal Reserve Board’s Open Market Committee (FOMC) was concerned that the reversal of monetary policy to one designed to reduce inflation would lack credibility. This episode showed that monetary policy could induce a significant reduction in inflation, but subsequent research shows that the output and employment costs were, as the FOMC expected, harmed by weak policy credibility (Goodfriend & King, 2005). The problem of time-inconsistency and implications for credibility of monetary policy was a concern of the new Minister of Finance (Brash, 2002, p. 3), was debated in NZ (see Buckle, 1988), and the international literature on this issue influenced the design of the RBNZ Act 1989 (see Evans et al., 1996; Grimes, 1996). The challenge was to design a policy framework that would ensure the public knew the ex ante incentives and constraints of the monetary authority, and these remained unchanged and are expected to remain unchanged ex post. The approach adopted by NZ was to legislate a commitment to price stability, eliminate multiple targets, and appoint a Governor prepared to sign a performance contract that included an inflation target, but where the Governor has discretion over the choice of policy instrument. The contractual obligations were specified in published Policy Targets Agreements (PTAs).

3. KEY FEATURES OF THE RBNZ ACT 1989 The 1989 Act was designed to provide greater separation of central bank operations from political influence, establish a single objective for monetary policy, and ensure accountability for the achievement of low inflation.4 It contained the following key features: (i) a clear (single) target, (ii) transparent policy objective setting, (iii) a requirement to publish specific targets, (iv) operational independence

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in the conduct of monetary policy for the Bank, and (v) accountability (Evans et al., 1996, p. 1864).5 The single target was specified in Section 8 of the Act as follows: ‘The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices’ (RBNZ Act 1989). The Act did not define the meaning of ‘stability in the general level of prices’. It required that on the appointment of a new Bank Governor (for a term of five years), the Governor and the Minister of Finance must agree on specific targets. Section 9 of the Act required these to be specified in a PTA compatible with the Act and publicly released. The Bank Governor, rather than its Board of Directors, was made responsible for the achievement of the targets specified in the PTA. Transparency was further enhanced by a requirement that the Governor release a Monetary Policy Statement (MPS) at least every six months. The Act originally specified a clear single policy target, but it did not specify the policy instruments to be applied in pursuit of this target. The Act imposed conditions that the Bank must satisfy when implementing monetary policy. Section 10 of the Act stated that: In formulating and implementing monetary policy, the Bank shall: (a) have regard to the efficiency and soundness of the financial system, and (b) consult with, and give advice to, the Government and such persons or organisations as the Bank considers can assist it to achieve and maintain the economic objective of monetary policy. (RBNZ Act 1989)

Other conditions were also usually specified in PTAs (discussed in section 4). Operational independence and the conditions the Bank must satisfy when implementing monetary policy are important because monetary policy instruments can vary in their economic, social, and distributional effects, and hence the choice of instrument could be politically sensitive. Operational independence provides protection from political direction of the implementation of monetary policy. Furthermore, the preferred instrument will depend on prevailing financial market conditions and the terms of the PTA. An informed choice of instrument requires research capability, a thorough understanding of financial markets, and knowledge of international best practice. Central Banks are typically well placed to satisfy these requirements. Accountability was further strengthened by Sections 52 to 63 of the Act which established a Board of Directors and required the Board to monitor and provide oversight of the Bank’s operations and policy decisions. The Board could recommend that the Minister of Finance remove the Governor due to inadequate performance. This part of the Act also required the Bank to have regard to any policy direction issued by the Minister in relation to government policies; each year the Governor of the Bank frequently appears before the Finance and Expenditure Committee of Parliament. The monetary policy governance arrangements introduced by the RBNZ Act 1989 influenced central bank governance in other countries. A strong commitment to price stability, public announcement of a numerical target for inflation, and a high degree of transparency and accountability have come to characterise inflation targeting regimes globally (Mishkin & Savastano, 2001).

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4. OPERATION OF MONETARY POLICY: GOVERNANCE, MANAGEMENT, AND IMPLEMENTATION 4.1. The Relationships Between the Minister, Board, Governor, and Policy Committees The minister of Finance’s expectations of the Board’s role are conveyed by a ‘Letter of Expectations’. This letter specifies that the Board assess the Bank’s performance across a range of functions, including monetary policy and the maintenance of a sound and efficient financial system. After each of the Bank’s monetary policy decisions, the Board has access to all background papers considered during the decision-making processes, and it conducts ex post reviews of this material and how the Bank has responded to economic developments. The role and functioning of the Board have evolved. Following recommendations in a review by Svensson (2001), Board meetings are chaired by a non-­ executive member of the Board (rather than the Governor as was the case previously), and non-executive members prepare an independent report each year which assesses the performance of the Bank in carrying out its functions. This is published as a separate statement in the RBNZ Annual Report (see, e.g., Quigley & Vautier, 2018). Although the NZ system was described as implying the Governor was a ‘single decision maker’, the decision process was more nuanced than this implies. Section 10 of the Act required the Bank to consult with persons or organisations it considers can assist it to achieve and maintain the objectives of monetary policy. The Bank developed a practice of holding Board meetings in different parts of the country and meeting with members of the community. It also established an internal Official Cash Rate Advisory Group to advise the Governor (Bollard & Karagedikli, 2006, p. 6). This Group included two external advisors and its advice, although not published, was scrutinised by the Board after Official Cash Rate (OCR) decisions were made. A Governing Committee within the Bank was established in 2013 to make major policy decisions, following similar developments by the Bank of Canada, which also had a single decision-maker model. This Committee comprised the four governors, it reviewed all major monetary and financial policy matters falling under the Bank’s responsibilities, including decisions on monetary policy, and was informed by several policy committees, each chaired by a governor (Wheeler, 2014, pp. 10–11). Nevertheless, the Governor retained a casting vote and had sole decision-making power. 4.2. PTAs as a Contract Between the Government and the RBNZ Governor Monetary policy operational independence involved a marked shift of responsibility for monetary policy implementation from the Minister of Finance to the central bank Governor. The objectives of monetary policy nevertheless remained the prerogative of elected Governments. The PTAs required by Section 9 of the Act are an agreement between the Minister of Finance and the Governor specifying these objectives. This arrangement was influenced by the approach adopted

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to reform the wider public sector at the time, giving public sector managers the authority to manage, and making them directly accountable (see Reddell, 1999). The first PTA was signed on 2 March 1990, shortly after the 1989 Act came into force. Since then, there have been 12 further PTAs either because of the appointment of a new Governor, a change of government or Minister of Finance, or an agreed change in the parameters following changing circumstances (RBNZ, 2018). Many of the changes were relatively minor, but there have been some significant changes such as the introduction of secondary objectives, changes to the numerical values of the ceiling, floor and midpoint of the inflation target band, changes to the measure of inflation, and changes to the timeframe over which the inflation target is to be met (RBNZ, 2000a). Section 41(1) of the Act explicitly assigned responsibility for achieving the targets set out in the PTA. It states, ‘It is the duty of the Governor to ensure that the Bank carries out the functions imposed on it by this Act’. Section 49 titled ‘Removal of the Governor from office’ made it clear that failure to achieve targets can be a reason to remove a Governor. These sections have been modified by recent legislative changes to include responsibilities of the Governor as Chair of the new Monetary Policy Committee (MPC) (RBNZ (Monetary Policy) Amendment Act, 2018). From 1990 until 1996, the PTAs included a statement like that in the 1996 PTA: The policy targets are established on the understanding that the monetary policy instruments available to the Bank are adequate to achieve the objective. The Governor shall inform the Minister if he considers that any changes in the availability or effectiveness of these policy instruments impair the conduct of monetary policy. The Minister and the Governor may then set new policy targets. (RBNZ, 2018)

Statements to this effect were dropped from the 1997 and all subsequent PTAs. To date, no PTA has been renegotiated other than when there was a change of government or on the completion of a Governor’s term which is either renewed or a new Governor is appointed. 4.3. PTAs and the Evolution Towards Flexible Inflation Targeting An important result developed by Taylor (1979) that has influenced modern monetary policy is that in the presence of cost push inflation, or supply-side shocks to prices, there exists a short-run trade-off between inflation volatility and output volatility.6 The policy framework developed in Clarida, Galí, and Gertler (1999) builds on this insight and shows that the presence of supply shocks does not necessarily render inflation targeting suboptimal. As Walsh (1995) explains, inflation targeting is optimal if the critical inflation target is a function of supply shocks but independent of demand shocks. This has been the approach taken in many of the PTAs signed between the Governor and Minister of Finance (described in Section 4.4) which provided some flexibility in the pursuit of price stability. Improved policy credibility and reduced inflation and inflation expectations have also enhanced the scope for a more flexible approach to inflation targeting

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by the Bank (Bollard, 2002). McDermott and Williams (2018, p. 6) describe this evolution as follows: As the Bank established its credibility in achieving its inflation target, we could allow some volatility in realised inflation in order to offset some volatility elsewhere in the economy. In practice, this means that interest rates have generally been adjusted more slowly. And in this sense, the Bank has increasingly paid regard to the wider economy despite having a consistent overall objective of price stability specified in the Act.

This transition towards more ‘flexible’ inflation targeting in New Zealand reflected the evolution of practice that was taking place internationally and was considered consistent with the way best international practice had developed (Svensson, 1997a, 2001). Nevertheless, ‘price stability’ remained the paramount goal, as explained by Bollard and Ng (2008, p. 6): a monetary policy that loses sight of the importance of price stability will probably contribute to large economic cycles as inflation gets out of hand and then needs to be reined in with an economic crunch.

4.4. PTAs and Secondary Objectives The introduction of secondary objectives, notably with respect to the treatment of supply shocks and subsequent requirements pertaining to the volatility of real economic variables, interest rates, and exchange rates, has been a feature of successive PTAs. Although price stability was made the ‘primary function’ of monetary policy from the outset and until 2018, PTAs explicitly recognised that inflation targets may need to be changed in the face of supply-side shocks. The following statement in the December 1999 PTA is typical of the type of statement included in all PTAs from 1990 until 2017: There is a range of events that can have a significant temporary impact on inflation as measured by the CPI and mask the underlying trend in prices which is the proper focus of monetary policy. These events may even lead to inflation outcomes outside the target range. Such disturbances include, for example, shifts in the aggregate price level because of exceptional movements in the prices of commodities traded in world markets, changes in indirect taxes, significant government policy changes that directly affect prices, or a natural disaster affecting a major part of the economy. (RBNZ, 2018)

A feature of the 2002 PTA was that it couched the inflation target explicitly in terms of the future rate of inflation, with the requirement that the ‘policy target shall be to keep future CPI inflation outcomes between 1 per cent and 3 per cent on average over the medium term’. Bollard (2002, p. 44) explained this required that ‘monetary policy should be forward-looking and avoid getting distracted by transitory fluctuations to the inflation rate’. The justification was that after low inflation had been achieved and expectations had adapted to the low inflation environment, people are less likely to view price fluctuations as the start of a resurgence of inflation. The forward-looking approach to inflation targeting is also consistent with one of the conditions identified by Clarida et al. (1999) that optimal policy requires the central bank to aim for convergence of inflation to its target over time. This also became a feature of inflation targeting internationally (Svensson, 1997b).

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Nevertheless, some secondary conditions had the potential to constrain monetary policy. The December 1999 PTA (signed by Governor Brash) and subsequent PTAs introduced restrictions on the behaviour of interest rates and exchange rates which Lewis and McDermott (2016) observe is not usual international7 practice. This imposes a constraint on policy since interest rates and exchange rates are important primary channels by which monetary policy influences inflation in small open economies. These restrictions also imply there may arise circumstances when the Bank does not have full operational discretion. For example, exchange rates will be volatile when underlying determinants are volatile, such as volatile commodity prices in NZ’s case (Buckle, Kim, Kirkham, McLellan, & Sharma, 2007; Chen & Rogoff, 2003; Munro, 2004). Therefore, restrictions on the exchange rate or interest rates would normally transfer the impact of such shocks to other variables (West, 2003). To ameliorate this potential conflict, government approved in March 2004 a scheme that would enable the Bank to directly intervene in the foreign exchange market. Eckhold and Hunt (2005) explain that this scheme allowed the Bank, subject to publicly disclosed criteria agreed with the Minister of Finance, to use its discretion to intervene at the extremes of the exchange rate cycle. The emphasis on a flexible approach to inflation targeting and a stronger eye on real economic activity was taken a step further in the March 2018 PTA signed by Governor Orr. Although explicit reference to specific types of supply shocks was dropped for the first time, it included an additional secondary objective to avoid ‘unnecessary’ instability in employment and required the Bank to pursue ‘flexible inflation targeting’ (RBNZ, 2018). What is more, in addition to price stability the Governor was required to ensure the Bank contributes to ‘supporting maximum sustainable employment within the economy’. 4.5. PTAs and Inflation Targets More flexible inflation targeting can also be achieved by the way the inflation target is specified. The first numerical target was introduced in the first PTA signed in March 1990. It recognised that NZ had for some years been experiencing high inflation and it allowed a period of transition by requiring the Bank to implement monetary policy with the intention of achieving price stability by the end of 1992. Annual inflation in the range of 0–2 per cent was to represent price stability. Inflation was to be kept within that range from the end of 1992 until the conclusion of the Governor’s term of office which was 31 August 1993. The statement also required that monetary conditions at the end of the Governor’s term should be consistent with sustaining price stability thereafter. The target band remained at 0–2 per cent until a new PTA was signed in December 1996, which widened the band to 0–3 per cent. This range prevailed until the September 2002 PTA which lifted the lower bound and narrowed the range to 1 to 3 per cent. In September 2012, reference to the midpoint of the target band was added to the PTA. It required the Bank to maintain ‘a focus on keeping future average inflation near the 2 percent target midpoint’. (RBNZ, 2018). This clause was intended to anchor inflation expectations at 2 per cent and

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signal that when inflation approaches the upper or lower bound it will more likely cause a policy reaction (Kendall & Ng, 2013). Fig. 2 shows the inflation target bands that were agreed in successive PTAs, which were specified as annual rates of inflation. It shows inflation declined rapidly after the introduction of the Act and by December 1991 had moved to within the 0–2 per cent medium term target, which was quicker than expected when the first PTA was signed. Thereafter the trend rate remained within the target bands until early 2012, apart from the occasional large spike arising from supply-side shocks. From 2012 until the end of 2016, inflation fluctuated around the 1 per cent lower bound with two periods of persistence below this point. Since then, the average rate has returned to within the target band. Deviations of inflation outside the target range since 1989 have been due primarily to the type of supply-side shocks mentioned in PTAs. For example, comments in MPSs suggest that the global decline in oil prices from mid-2014 to early 2016 contributed to the Bank under-estimating the duration of this impact on NZ inflation. This provoked criticism of the Bank and concern that monetary policy was unduly tight.

Fig. 2.  New Zealand Inflation and Inflation Targets: 1990–2019. Data sources: Inflation data are from the RBNZ Statistics database sourced from https://www.rbnz.govt.nz/statistics. Inflation target bands are taken from the PTAs (RBNZ, 2018) and Lewis and McDermott (2017). The target inflation index is the Statistics New Zealand All Groups CPI from March 1990 to December 1997 and March 2000 to September 2018. The price index for the period March 1998 to December 1999 is the Statistics New Zealand CPIX (CPI excluding credit services).

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Several issues are important in determining target bands and whether to change them. Unrealistic inflation target bands could have adverse political implications and affect the sustainability of an inflation targeting regime (Granville, 2013) and accentuate the potential for conflict between flexibility and accountability (Dalziel, 1997). Uncertainty about inflation targets has the potential to worsen macroeconomic performance (Orphanides & Williams, 2005). Steady increases in inflation target bands might also generate inflation creep. The importance of inflation expectations to NZ price and wage dynamics (Karagedikli & McDermott, 2018), coupled with their sensitivity to the target rate (Lewis & McDermott, 2016), suggest decisions about the inflation target range need to take account of the implications for monetary policy credibility and the cost of reversing high inflation once it sets in. To date, inflation creep has been avoided in NZ despite increased flexibility and the introduction of more secondary objectives in PTAs. Maintaining price stability does not mean keeping the price of every item stable. The Bank’s task is to allow relative price changes to occur while avoiding ­second-round inflationary effects (Bollard, 2002, p. 42). Nevertheless, the behaviour of asset prices, particularly house prices, has sometimes provoked criticism of the RBNZ’s approach to inflation targeting. There have been three such periods since inflation targeting was introduced. One of those periods was in 2013 when house price inflation was high, but CPI inflation was low. To resolve this policy conundrum, the RBNZ introduced loan-to-value ratios (LVRs) applying to residential lending as an additional policy instrument (Wheeler, 2013). The LVRs proved to be effective, particularly in the largest city (Auckland) which had experienced the highest rate of house price inflation (Armstrong, Skilling, & Yao, 2018).

5. THE SEARCH FOR SUITABLE POLICY INSTRUMENTS Policy credibility also requires a central bank to have the technical means to manage price inflation. Floating the exchange rate in 1985 was a crucial step, but financial market deregulation during the late 1980s and the ensuing re-­ intermediation process disrupted the information value of historical relationships between monetary variables and their reliability as guides for policy (Evans et al., 1996; Grimes, 1996). This prompted the Bank to move away from relying on monetary aggregates and to search for policy instruments that provided more reliable leverage over inflation. The most appropriate policy instrument was something the Bank had to learn during the early years of inflation targeting. 5.1. The Evolution of Monetary Policy Instruments The first major change to monetary policy implementation was the introduction in 1986 of another quantity-based system via the management of a target supply of Settlement Cash Balances (SCBs).8 To influence interest rates, the Bank could change the level of SCBs, the overnight rates it charged commercial banks, or the discount rate. Competition between commercial banks for settlement cash would influence interest rates. Although the operating target was SCBs, the exchange rate was viewed as the intermediate target to influence inflation.

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This small open-economy approach involved calibrating the operating target (SCBs) to influence the intermediate target (exchange rate) to achieve the ultimate target, a forecast inflation rate (Grimes & Wong, 1994). This system proved to be inadequate for several reasons. Financial market participants found it difficult to identify a predictable relationship between changes in monetary policy and short-term market interest rates. A procedure of regular monetary policy announcements commenting on whether market interest rates and the exchange rate were at levels commensurate with achieving price stability was introduced to supplement the liquidity channel. The RBNZ (2000b, paragraph 11) explained: This additional guidance – ‘signalling’ as it came to be known – turned out to be very powerful. Relying on the threat (explicit or implicit) to adjust the cash target if necessary, signalling became the centrepiece of monetary policy implementation for the next 10 years until the introduction of the OCR in 1999.9

Nevertheless, during the early 1990s, the Bank was still finding it difficult to establish reliable relationships between interest rates and inflation. It continued to rely on a checklist of indicators to monitor monetary conditions to guide policy, of which interest rates and the exchange rate were by the mid-1990s the main indicators. Eventually, this became formalised in a Monetary Conditions Index (MCI) which served as the operating guide for monetary policy. The MCI involved a formal trade-off between the exchange rate and 90-day interest rates, where the weights attached to these components reflected the Bank’s view of their relative impact on inflation. However, the use of the MCI as a guide to policy and as a signal to financial markets proved to be inappropriate and was used for only 18 months from June 1997 to March 1999 before being replaced by the introduction of the OCR.10 In February 1999, the Bank adopted the internationally more conventional OCR system. Under this system, interest rates on the Bank’s standing facilities determine the overnight interest rates over which borrowing and lending rates between the commercial banks will normally range. The OCR enables the Bank to control overnight interest rates and influence the yield curve without involving large open market operations. In this system, the Bank offers to lend at a margin above the announced OCR and agrees to accept deposits at a margin below the OCR. These two rates set the limits of the corridor within which the overnight cash rate fluctuates.11 Guender and Wu (2012) concluded that the OCR has the advantage that it is transparent, efficient and easy to understand; it sends a clear signal to the market about the desired level of interest rates at the short end of the maturity spectrum of the yield curve; and it allows expectations about the future course of monetary policy to influence current interest rates. Through its influence on the structure of interest rates, the OCR can influence inflation by altering aggregate demand and the exchange rate. The OCR system combined with the quarterly MPS is the system of monetary policy implementation that has prevailed from 1999 to this day. Following the outbreak of the global financial crisis (GFC), several countries reduced their policy interest rates to zero or close to zero. This limited the scope

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for the use of conventional interest rate policies to provide further stimulus to their economies and prompted the development of alternative monetary policy instruments. These alternative instruments have included negative policy interest rates, forward guidance, targeted term lending to the banking sector, large-scale asset purchases (or ‘quantitative easing’), purchasing foreign assets, and policy sequencing (Bernanke, 2017, pp. 4–19). Although estimates of NZ’s neutral policy interest rate (the rate considered neither expansionary or contractionary) suggest it has steadily declined since the GFC (Richardson & Williams, 2015), to date the Bank has been able to continue to use the OCR as its primary policy instrument coupled with communication that has included signalling about the future path of the OCR (a form of ‘forward guidance’). The Bank has to date, not had to resort to the use of alternative policy instruments.12 One lesson from the RBNZ experience is that when designing monetary policy governance, it is important that policy instruments are not prescribed by legislation. Economic and financial markets evolve and therefore the most appropriate policy instrument can change over time, and a central bank must be able to move quickly to design and introduce suitable instruments. 5.2. Prudential Policy Adaptation The focus of this chapter is on monetary policy and not prudential policy, which warrants more space than can be afforded here. Nevertheless, financial stability requirements are an important part of the RBNZ Act. Policy developments in this area can be categorised as: either (i) micro-prudential, which are designed to protect the financial stability of individual institutions and tend to give attention to capital requirements; or (ii) macroprudential, which are designed to protect system-wide financial stability. The initial approach by the RBNZ to prudential policy during the 1990s was to rely on market discipline and self-disclosure. But as Wheeler (2014, p. 12) points out, many central banks and financial regulatory authorities have turned to macro-prudential policies to reduce risks to financial stability and to complement monetary policy. This has been evident in NZ.13 After 2002, the prudential supervision department was re-established, and an emphasis was placed on ensuring the health of the financial system, clarifying rules of behaviour and monitoring. Local incorporation was part of this process, introduced to prevent surrendering financial system regulation to overseas regulatory authorities, particularly the Australian Prudential Regulation Authority. This change in prudential policy did not involve a change to the Act, but there was a change in the interpretation of the responsibilities of the Bank. The Bank wanted to ensure that NZ took responsibility for the NZ financial system. The motivation was to ensure the system was sound and the Bank was able to ameliorate risks of contagion effects of individual bank failures. There was also a concern that NZ deposit holders of foreign owned banks operating in NZ would not necessarily be treated in the same way as deposit holders who are resident in the home country of the foreign banks.

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The role of the RBNZ was to set the rules for the way financial institutions, including the large Australian-based banks, operated within NZ. The way in which the NZ financial system managed to negotiate its way through the global financial crises is perhaps testimony to the value of this change in prudential policy. For instance, the RBNZ took a relatively more conservative approach to defining what they accepted as commercial bank capital. The Bank tended to accept equity but was particularly cautious in viewing other financial instruments as forms of capital. The type of financial assets that became toxic overseas were discouraged by the RBNZ, even if not formally banned. The post-GFC phase involved further adaptation. This included the provision of signals of liquidity distortions and risks and an emphasis on macro-prudential issues. The motivation was again system-wide financial stability. The focus shifted from the structure of the liabilities to the composition of commercial bank assets. The RBNZ had observed that by earlier pinning down the liabilities side of the commercial bank balance sheets, these banks had responded by increasing risk on the assets side of their balance sheets to maintain adequate returns on their assets. As an example of the Bank’s response, in October 2013, LVRs were applied to bank lending for housing to mitigate risks to the financial system (Armstrong et al., 2018).

6. THE IMPACT OF CENTRAL BANK OPERATIONAL AUTONOMY AND INFLATION TARGETING Other countries soon followed NZ’s example to formally mandate inflation targeting (IT) as the priority for monetary policy and to enhance central bank operational autonomy. By the late 1990s, there was a consensus developing that the primary aim of monetary policy should be to control inflation (Bernanke & Mishkin, 1997). By 2015, there were 36 countries assigning monetary policy to IT (Samarina et al., 2014; Schmidt-Hebbel & Carrasco, 2016). The initial growth came from developed economies and since the late 1990s the highest adoption rate has been by emerging economies. The only countries to abandon IT are Finland, Spain, and the Slovak Republic on joining the European Union. Governance arrangements that provide central banks with operational autonomy and mandate inflation targeting as the primary goal are intended to improve transparency and accountability and avoid time-inconsistent monetary policy. These improvements are in turn expected to reduce inflation volatility, anchor inflation expectations, and protect central bank credibility, as well as improving the short-run inflation-output volatility trade-off enabling output to be stabilised with reduced inflation volatility. Countries that adopted inflation targeting generally saw their inflation decline (Walsh, 2009, Table 1, 203). However, a consensus has not been reached as to whether the outcomes for inflation targeting countries are significantly better than those achieved by countries with different monetary policy regimes. Samarina et al. (2014) suggest the reasons for the conflicting results are that studies use different country samples, time periods, inflation targeting adoption dates and research

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methodologies. Another possible reason why there is little discernible difference between the inflation outcomes of developed countries that are declared as inflation targeting and those that are not is there may now be little difference between these regimes (Walsh, 2009). With respect to the New Zealand experience, there is a range of research showing that the behaviour of NZ economic variables since the adoption of inflation targeting is consistent with the predictions of the time-inconsistency literature. Fig. 3 shows the standard deviations (s.d.) of NZ CPI inflation and real gross domestic product (GDP) growth since the introduction of the RBNZ Act 1989 and inflation targeting. It shows a clear long-run decline in the annual combinations of output and inflation volatility. This is consistent with Grimes (2014a) who shows that since the adoption of inflation targeting and the governance arrangements laid out by the 1989 Act, inflation persistence and output persistence in NZ have declined, implying inflation and output volatility have declined. This reduction in volatility has been associated with an increase in real GDP growth.

Fig. 3.  New Zealand Inflation and Output Volatility During Inflation Targeting. Note: This figure shows the five-year moving average of the standard deviation of NZ annual CPI inflation and real GDP growth at quarterly intervals. For instance, the point M:1994 is the five-year moving average s.d. for the annual growth from June 1989 to March 1994. Data sources: CPI data are from the RBNZ and GDP data are from the Federal Reserve Economic Database: https://fred. stlouisfed.org/series/NAEXKP01NZQ189S#0.

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Fig. 3 and the results reported by Grimes do not control for other potential influences on inflation and output volatility. Research that endeavours to do this is reported in Buckle, Kim, and McLellan (2003) for the period 1983 to 2001. They conclude that since the adoption of inflation targeting, monetary policy has tended to reduce the volatility of NZ inflation and real GDP. Sustained low inflation (Fig. 1) and simultaneous declines in inflation and output volatility (Fig. 3) in NZ are consistent with enhanced monetary policy credibility, so that shocks that move inflation away from target can be brought back to target with less cost in terms of output volatility. There is other research that is consistent with this interpretation. Fischer and Orr (1994) and Hutchison and Walsh (1998) provide evidence of improved monetary policy credibility during the early years of inflation targeting in NZ. Berument and Froyen (2015) find that the responses of longer-term interest rates to innovations in the NZ and Australian monetary policy interest rates, declined following the introduction of inflation targeting. Their results are consistent with long-term inflation expectations being more firmly anchored under inflation targeting.

7. REVIEWS AND CONTEMPORARY ISSUES The NZ monetary policy regime has been subjected to several formal enquiries, including by Svensson (2001), and by Parliamentary Select Committee enquiries (see RBNZ, 2007)14. The Bank has benefitted from regular International Monetary Fund and OECD country reviews and regular visiting international scholars. Prior to the global financial crisis, the Bank and Treasury hosted a forum inviting overseas specialists to review NZ’s monetary and fiscal governance frameworks (Buckle & Drew, 2006). The consensus was that they were sound and among the tasks assigned to monetary policy, inflation targeting should have priority. Cecchetti (2018) concluded in a post-GFC review of the most efficient assignment of monetary, fiscal, and prudential policies in NZ, that the pre-GFC consensus largely holds: monetary policy should retain its focus on price stability. Nevertheless, the GFC prompted fresh questioning of the merits of inflation targeting. The priorities for monetary policy, the merits of continuing to target low inflation, the priorities for monetary policy, and the degree of operational autonomy of central banks are issues that continue to be questioned in the aftermath of the GFC. Sustained low inflation has also brought political and technical challenges to central bank governance and inflation targeting (Bernanke, 2017; Constâncio, 2017; Spencer, 2017). It is in this context the Labour-led Government elected in 2017, sponsored another review of the Act. Following completion of Phase I of this review (Robertson, 2017; The Treasury, 2018a), amendments were made to the Act that include: (i) adding support of maximum sustainable employment alongside price stability as an objective of monetary policy; (ii) requiring that monetary policy decisions be made by a MPC which is to include a minority of external members appointed by the Minister of Finance; and (iii) introducing remits for the MPC to replace PTAs and specifying the objectives of monetary policy and the operating

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objectives of the MPC to be signed by the Minister of Finance and the Governor who chairs the MPC15.The first remit was signed by the Minister and Governor Orr, effective from 1 April 201916. It sets out the employment and price stability objectives and the charter that will govern the decision-making process of the new MPC. The style of the Remit is like recent PTAs and requires the MPC to also: have regard to the efficiency and soundness of the financial system; avoid unnecessary instability in output, interest rates and the exchange rate; and, discount events that have only transitory effects on inflation, setting policy with a medium term orientation. (RBNZ, 2019)

With regard to the primary objectives of monetary price, there are countries that mandate price stability as the primary objective of monetary policy (e.g., UK and Sweden) and some where a dual objective applies, such as Australia and USA (whose legislation predates the introduction of formal inflation targeting)17. The Treasury (2018b, p. 14) reasoned that although inflation targeting can also stabilise employment and the provisions in PTAs could enable the Bank to look through temporary supply shocks, the inclusion of an employment objective in the Act ‘would provide a more durable approach than the PTA – as otherwise the Minister of Finance and Governor could revert to strict inflation targeting without wider public discussion’. The Independent Expert Advisory Panel Report (Snively, Edey, & Karacaoglu, 2018) also supported the inclusion of an employment objective for similar reasons and argued that legislating the ‘dual’ objectives would further clarify the Government’s expectations regarding monetary policy. The proposal to create an MPC with external representation was influenced by similar committees used by other central banks (The Treasury, 2018b), and by the expectation that external members will provide greater challenge and diversity of perspectives to the decision-making process and ensure that a formal committee process prevails in the future (Snively et al., 2018, p. 5). Transparency has been enhanced by requiring that the MPC publish a record of its meetings including the factors influencing its decision and the balance of votes when a consensus is not reached.

8. CONCLUSION Thirty years have elapsed since the RBNZ Act 1989 ushered in a new approach to monetary policy for NZ. This new approach succeeded where previous methods used to control inflation had failed. It has delivered sustained low inflation and fostered a more stable NZ economy. The success of inflation targeting and the governance arrangements in NZ influenced changes to central banking practice globally. A characteristic of NZ’s monetary policy governance and inflation targeting regime has been its evolution and its adaptation to changing circumstances and lessons from other inflation targeting central banks. This adaptation has involved improvements to the design of monetary policy instruments, modifications to price indices and targets, a movement towards a more flexible approach to inflation targeting, and increased consultation and transparency.

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NZ has recently undertaken another review of its monetary policy governance framework. The suite of changes includes adding employment as an additional monetary policy priority alongside price stability and changing the decision-­ making process. Some of these features are evident in monetary policy governance structures in other countries. From being a trend-setter in monetary policy governance at the start of the 1990s, NZ is again modifying its framework by adopting some of the monetary policy governance features of other countries.

NOTES 1.  A more comprehensive account of the origins and evolution of New Zealand’s monetary policy governance arrangements and inflation targeting experience is available on Buckle (2019). 2.  For comprehensive explanations of the NZ economic reforms of the late 1980s and early 1990s, see Bollard and Buckle (1987), Silverstone, Bollard, and Lattimore (1996), and Evans et al. (1996). 3.  The concept of the time-inconsistency of optimal plans was developed by Kydland and Prescott (1977), and its relevance to monetary policy was illustrated by Barro and Gordon (1983) and Backus and Driffill (1985). 4.  See also Archer (1997) who explains this framework within the context of the rules versus discretion approach to monetary policy 5.  Independence of the Bank needs to be interpreted with care. ‘Independence’ in the context of the RBNZ Act 1989 aligns closely with Bernanke’s (2017, pp. 29–36) four elements of central bank independence. 6.  Walsh (1998) describes this trade-off and how it relates to the earlier idea of a short-run Phillips-curve trade-off between inflation and output. It is clearly one of the key relationships that underpins the RBNZ approach to inflation targeting (see Bollard & Karagedikli, 2006, fig. 4, p. 14). 7. The inclusion of these restrictions followed a period during the mid-1990s when the Bank faced inflationary pressures, rising house prices and an appreciating exchange rate which prompted criticism of the inflation targeting regime (see Singleton et al., 2006, chapter 6). 8.  SCBs are commercial bank deposits held with the RBNZ used for the daily settlement of payments. 9.  Guthrie and Wright (2000) tested the effectiveness of the Bank’s signalling strategy, or ‘open mouth operations’ and concluded the Bank was able to influence market interest rates without necessarily any liquidity or open market operations taking place. This was a practice applied by several other countries with similar effects (Borio, 1997). 10.  Engelbrecht and Loomes (2002) found the MCI was not effective at communicating the Bank’s monetary policy stance to financial markets. 11. An explanation of the OCR system is retrieved from https://www.rbnz.govt.nz/ education/for-teachersand-students/the-official-cash-rate-in-action. 12.  Drought, Perry, and Richardson (2018) discuss alternative monetary policy instruments. 13.  See also Grimes (2014b) for a discussion of prudential policy developments in NZ. 14.  Grimes (2001) provides a summary of initial RBNZ responses to Svensson’s review. 15.  Phase II of this Review is considering the prudential role of the RBNZ. 16. The additional employment objective was included in the first PTA signed by Governor Orr in 2018. 17. Snively et al. (2018, Appendix 1, 33–39) provide a description of the goals of monetary policy, and Wadsworth (2017) compares inflation-targeting frameworks for a selection of developed economies.

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ACKNOWLEDGEMENTS I am grateful to Alan Bollard, Don Brash, John Creedy, Norman Gemmell, Arthur Grimes, Viv Hall, Özer Karagedikli, Robert Kirkby, John McDermott, Grant Scobie, and Grant Spencer for helpful discussions during the preparation of this chapter, and to Evan Berman and Girol Karacaoglu for editorial ­suggestions.

KEY REFERENCES Bollard, A., & Karagedikli, Ö. (2006, January). Inflation targeting in the New Zealand experience and some lessons. Paper presented at the inflation targeting performance and challenges conference by the Central Bank of the Republic of Turkey, Istanbul. Buckle, R. A. (2019). New Zealand’s thirty-year experience with inflation targeting: The origins, evolution and impact of a monetary policy innovation. History of Economics Review 73(1), 47–84. doi:10.1080/10370196.2019.1672614 Clarida, R., Galí, J., & Gertler, M. (1999). The science of monetary policy: A new Keynesian perspective. Journal of Economic Literature, 37(4), 1661–1707. Grimes, A. (1996). Monetary policy. In B. Silverstone, A. Bollard, & R. Lattimore (Eds.), A study of economic reform: The case of New Zealand (pp. 247–278). Amsterdam: Elsevier. Grimes, A. (2014a). Inflation targeting: 25 years’ experience of the Pioneer, NZ-UK Link Foundation Visiting Professorship Lecture delivered at the Bank of England. Working Paper No. 14-02. Motu Economic and Public Policy Research, Wellington. Reserve Bank of New Zealand (Monetary Policy) Amendment Act 2018. (2018, December 20). Retrieved from http://www.legislation.govt.nz/act/public/2018/0059/latest/LMS65426.html Reserve Bank of New Zealand Act (1989). Reprint as at 1 January 2016, p. 200. Singleton, J., Grimes, A., Hawke, G., & Holmes, F. (2006). Innovation and independence: The Reserve Bank of New Zealand 1973–2002 (p. 340). Auckland: Auckland University Press. Walsh, C. E. (2009). Inflation targeting: What have we learned? International Finance, 12(2), 195–233. Wheeler, G. (2014, December). Reflections on 25 years of Inflation Targeting, a speech delivered to a Reserve Bank of New Zealand and International Journal of Central Banking conference, Wellington, p. 17. Retrieved from https://www.rbnz.govt.nz/research-andpublications/ speeches/2014/speech2014-11-28

OTHER REFERENCES Archer, D. J. (1997). The New Zealand approach to rules and discretion in monetary policy. Journal of Monetary Economics, 39(1), 3–15. Armstrong, J., Skilling, H., & Yao, F. (2018, April). Loan-to-value ratio restrictions and house prices. Discussion Paper Series No. DP 2018/05. Reserve Bank of New Zealand, Wellington. Backus, D., & Driffill, J. (1985). Inflation and reputation. American Economic Review, 75, 530–538. Barro, R., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics, 12, 101–121. Bernanke, B. S. (2017, October). Monetary policy in a new era, prepared for a conference on Rethinking Macroeconomic Policy (p. 48). Washington, DC: Peterson Institute. Bernanke, B. S., & Mishkin, F. (1997). Inflation targeting: A new framework for monetary policy? Journal of Economic Perspectives, 11(2), 97–116. Berument, H., & Froyen, R. T. (2015). Monetary policy and interest rates under inflation targeting in Australia and New Zealand. New Zealand Economic Papers, 49(2), 171–188. Bollard, A. (2002, November). The evolution of monetary policy in New Zealand, Speech to the Rotary Club of Wellington. Reprinted in Reserve Bank of New Zealand Bulletin, 65(4), 42–45.

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Bollard, A., & Buckle, R. A. (Eds.). (1987). Economic liberalisation in New Zealand. Wellington: Allen & Unwin/Port Nicholson Press. Bollard, A., & Ng, T. (2008). Flexibility and the limits to inflation targeting. Reserve Bank of New Zealand Bulletin, 71(3), 5–13. Borio, C. E. V. (1997). The implementation of monetary policy in industrial countries: A survey. Economic Paper No. 47. Basel: Bank for International Settlements. Brash, D. (2002, January). Inflation targeting 14 years on. Speech delivered at the American Economics Association Annual Conference, Atlanta, p. 13+ii. Buckle, R. A. (1988, September). Expectations and credibility in the disinflation process. Discussion Paper No. 33. New Zealand Institute of Economic Research, Wellington. Buckle, R. A., & Drew, A. (Eds.). (2006, October). Testing stabilisation policy limits in a small open economy: Proceedings from a macroeconomic forum (p. 200). Wellington: Reserve Bank of New Zealand and The Treasury. Buckle, R. A., Kim, K., Kirkham, H., McLellan, N., & Sharma, J. (2007). A structural VAR business cycle model for a volatile small open economy. Economic Modelling, 24, 990–1017. Buckle, R. A., Kim, K., & McLellan, N. (2003, June). The impact of monetary policy on New Zealand business cycles and inflation variability. Working Paper No. 03/09. The Treasury, Wellington. Cecchetti, S. G. (2018). Monetary, prudential and fiscal policy: How much coordination is needed? New Zealand Economic Papers, 52(3), 251–276. Chen, Y., & Rogoff, K. (2003). Commodity currencies. Journal of International Economics, 60(1), 133–160. Constâncio, V. (2017, September 21–22). Understanding and overcoming low inflation. Presentation at a European Central Bank Conference on Understanding inflation: lessons from the past, lessons for the future? Frankfurt am Main. Dalziel, P. (1997). Setting the Reserve Bank’s target: The New Zealand debate. Agenda, 4(3), 285–296. Drought, S., Perry, R., & Richardson, A. (2018). Aspects of implementing unconventional monetary policy in New Zealand. Reserve Bank of New Zealand Bulletin, 81(4), 3–22. Eckhold, K., & Hunt, C. (2005). What drives the New Zealand dollar? Reserve Bank of New Zealand Bulletin, 68(1), 12–22. Engelbrecht, H-J., & Loomes, R. (2002). The unintended consequences of using an MCI as an operational monetary policy target in New Zealand: Suggestive evidence from rolling regressions. New Zealand Economic Papers, 36(2), 217–233. Evans, L., Grimes, G., & Wilkinson, B., & Teece, D. (1996). Economic reform in New Zealand 1984–95: The pursuit of efficiency. Journal of Economic Literature, 34(December), 1856–1902. Fischer, A. M., & Orr, A. B. (1994, Spring). Monetary policy credibility and price uncertainty: The New Zealand experience of inflation targeting. OECD Studies No. 22, Paris: OECD. Friedman, M. (1968). The role of monetary policy. American Economic Review, 58, 1–17. Goodfriend, M., & King, R. G. (2005). The incredible Volker disinflation. Journal of Monetary Economics, 52, 981–1015. Granville, B. (2013). Remembering inflation. Princeton, NJ: Princeton University Press. Grimes, A. (2001). Review of New Zealand monetary policy. Agenda, 8(4), 303–320. Grimes, A. (2014b). How prudent are macroprudential policies? NZ-UK Link Foundation Visiting Professorship Lecture delivered at London School of Economics. Working Paper No. 14-02. Motu Economic and Public Policy Research, Wellington. Grimes, A., & Wong, J. (1994). The role of the exchange rate in New Zealand monetary policy. In R. Glick & M. Hutchison (Eds.), Exchange Rate Policy and Interdependence: Perspectives from the Pacific Basin (pp. 176–197). Cambridge: Cambridge University Press. Guender, A. V., & Wu, A. G. J. (2012). Operating procedures and the expectations theory of the term structure of interest rates: The New Zealand experience from 1989 to 2008. Applied Financial Economics, 22(14), 1181–1192. Guthrie, G., & Wright, J. (2000). Open mouth operations. Journal of Monetary Economics, 46, 489–516. Harper, D. A., & Karacaoglu, G. (1987). Financial policy reform in New Zealand, Chapter 10. In A. Bollard & R. A. Buckle (Eds.), Economic liberalisation in New Zealand (pp. 206–235). Wellington: Allen & Unwin/Port Nicholson Press. Hutchison, M. M., & Walsh, C. E. (1998). The output-inflation trade-off and central bank reform: Evidence from New Zealand. The Economic Journal, 108(May), 703–725.

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Karagedikli, Ö., & McDermott, C. J. (2018). Inflation expectations and low inflation in New Zealand. New Zealand Economic Papers, 52(3), 277–288. doi:10.1080/00779954.2017.1348386 Kendall, R., & Ng, T. (2013). The 2012 policy targets agreement: An evolution in flexible inflation targeting in New Zealand. Reserve Bank of New Zealand Bulletin, 76, 3–12. Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85, 473–492. Lewis, M., & McDermott, C. J. (2016). “New Zealand’s experience with changing its inflation target and the impact on inflation expectations. New Zealand Economic Papers, 50(3), 343–361. Lucas, R. E. (1972). Expectations and the neutrality of money. Journal of Economic Theory, 4, 1022– 1124. McDermott, C. J., & Williams, R. (2018, April). Inflation targeting in New Zealand: An experience in evolution. A speech delivered to the Reserve Bank of Australia conference on Central Bank frameworks, Sydney, Australia. Mishkin, F. S. & Savastano, M. (2001). Monetary policies for Latin America. Journal of Development Economics, 66(2), 415–444. Mundell, R. A. (1962, March). The appropriate use of monetary and fiscal policy for internal and external stability. Staff Papers. International Monetary Fund. Munro, A. (2004). What drives the New Zealand dollar? Reserve Bank of New Zealand Bulletin, 67(2), 21–34. Orphanides, A., & Williams, J. C. (2005). Imperfect knowledge, inflation expectations, and monetary policy. In B. S. Bernanke & M. Woodford (Eds.), The inflation targeting debate. Chicago, IL: National Bureau of Economic Research. Phelps, E. S. (1968). Money-wage dynamics and labour-market equilibrium. Journal of Political Economy, 76, 678–711. Quigley, N., & Vautier, K. (2018). Board of Director’s Report for the year ended 30 June 2018. Annual Report, Reserve Bank of New Zealand, Wellington. Retrieved from https://www.rbnz.govt.nz/-/ media/ReserveBank/Files/Publications/Annual%20Reports/annual-report-2018.pdf Reddell, M. (1999). Origins and early development of the inflation target. Reserve Bank of New Zealand Bulletin, 62(3), 63–71. Reserve Bank of New Zealand (RBNZ). (2000a). The evolution of policy targets agreements. Supporting paper for the Independent Review of the Operation of Monetary Policy. Retrieved from https://www.rbnz.govt.nz/monetary-policy/about-monetarypolicy/independent-reviewof-the-operation-of-monetary-policy-2/the-evolution-ofpolicy-targets-agreements Reserve Bank of New Zealand (RBNZ). (2000b). The evolution of monetary policy implementation, Supporting paper for the Independent Review of the Operation of Monetary Policy. Retrieved from https://www.rbnz.govt.nz/monetary-policy/aboutmonetary-policy/independent-reviewof-the-operation-of-monetary-policy-2/theevolution-of-monetary-policy-implementation Reserve Bank of New Zealand (RBNZ). (2007). Supporting Paper A1 Monetary policy framework and goals (pp. 24–35). Wellington: Select Committee submission, Reserve Bank of New Zealand. Reserve Bank of New Zealand (RBNZ). (2018). Policy targets agreements. Retrieved from https://www. rbnz.govt.nz/monetary-policy/policy-targets-agreements Reserve Bank of New Zealand (RBNZ). (2019, February 14). The remit for the Monetary Policy Committee. Retrieved from https://www.rbnz.govt.nz/-/media/ReserveBank/Files/ Monetary%20policy/About%20monetary%20policy/Remitfor-the-Monetary-PolicyCommittee-April-2019.pdf ?revision=a5783e23-a90b-43d58769-75c448eef89b Richardson, A., & Williams, R. (2015, September). Estimating New Zealand’s neutral interest rate. Analytical Note No. AN2015/05. Reserve Bank of New Zealand, Wellington. Robertson, H. G. (2017, November). Review of Reserve Bank Act announced as policy targets agreement re-signed. Retrieved from https://www.beehive.govt.nz/release/review-reserve-bank-actannounced-policy-targetsagreement-re-signed Samarina, A., Terpstra, M., & De Haan, J. (2014). Inflation targeting and inflation performance: a comparative analysis. Applied Economics, 46(1), 41–56. Schmidt-Hebbel, K., & Carrasco, M. (2016). The past and future of inflation targeting: Implications for emerging-market and developing economies. In C. Ghate & K. M. Kletzer (Eds.), Monetary policy in India: A modern macroeconomic perspective (pp. 583–622). Springer.

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Silverstone, B., Bollard, A., & Lattimore, R. (Eds.). (1996). A study of economic reform: The case of New Zealand. Amsterdam: Elsevier. Snively, S., Edey, M., & Karacaoglu, G. (2018, March). Review of the Reserve Bank Act: Independent Expert Advisory Panel Report to the Minister of Finance on Phase 1 of the Review (p. 47). Wellington: The Treasury. Spencer, G. (2017, December 5). Low inflation and its implications for monetary policy, speech to the Institute of Directors, Auckland. Retrieved from https://www.rbnz.govt.nz/-/media/ ReserveBank/Files/Publications/Speeches/2017/Lowinflation-and-its-implications-formonetary-policy.pdf Svensson, L. E. O. (1997a, November). Inflation targeting in an open economy: Strict or flexible inflation targeting? Public Lecture, Victoria University of Wellington. Reprinted in Victoria Economic Commentaries, March, pp. 15–21. Svensson, L. E. O. (1997b). Inflation forecast targeting: implementing and monitoring inflation targets. European Economic Review, 41, 1111–1146. Svensson, L. E. O. (2001, February). Independent review of the operation of monetary policy in New Zealand: Report to the Minister of Finance, The Institute for International Economic Studies, Stockholm University, Stockholm. Retrieved from http://www.treasury.govt.nz/monpolreview/ default.htm Taylor, J. B. (1979). Estimation and control of a macroeconomic model with rational expectations. Econometrica, 47, 1267–1286. The Treasury. (2018a, June 13). Reviewing the Reserve Bank Act. Retrieved from https://treasury.govt. nz/news-and-events/reviews-consultation/reviewing-reserve-bankact The Treasury. (2018b). Reserve Bank Act Review, Regulatory Impact Statement (p. 65). Wellington: The Treasury Tinbergen, J. (1952). On the Theory of Economic Policy (p. 78). Amsterdam: North-Holland. Wadsworth, A. (2017). An international comparison of inflation-targeting frameworks. Reserve Bank of New Zealand Bulletin, 80(8), 4–34. Walsh, C. E. (1995). Is New Zealand’s Reserve Bank Act of 1989 an Optimal Central Bank Contract? Journal of Money, Credit and Banking, 27(4), 1179–1191. Walsh, C. E. (1998, February 6). The new inflation-output trade-off. Federal Reserve Bank of San Francisco Economic Letter, 1998-04. West, K. D. (2003). Monetary policy and the volatility of real exchange rates in New Zealand. New Zealand Economic Papers, 37(2), 175–196. Wheeler, G. (2013, August 20). The introduction of macro-prudential policy. Speech delivered to University of Otago, Dunedin, p. 16. Wong, J., & Grimes, A. (1992). The New Zealand monetary aggregates. In Reserve Bank of New Zealand, Monetary policy and the New Zealand financial system (3rd ed.). Wellington: Reserve Bank of New Zealand.

CHAPTER 12 DIGITAL GOVERNMENT: LEADERSHIP, INNOVATION AND INTEGRATION Elizabeth Eppel and Barbara Allen

INTRODUCTION Around the world, what people do with digital technologies is shaping societies. While most countries now use digital government in many of its forms, New Zealand (NZ) has been among the leaders and early adopters. It also actively participates in groups of countries that share experiences and leadership in digital government. For example, NZ is a founding member of the ‘D9 group’,1 a growing group of digitally advanced nations that share the goal of harnessing digital technology and new ways of working to improve citizens’ lives. This group was originally the D5: Estonia, Israel, South Korea, New Zealand, and the UK, later joined by Canada, Uruguay, Mexico, and Portugal. This is not a list of the largest or the richest countries. Their adoption of digital technologies has been guided by such principles as focussing on and addressing: user needs; adopting ‘open’ standards, sources, and government connectivity; using open markets in their sourcing; and teaching children to code, for example. This chapter examines NZ’s experiences with the adoption of information and communication technologies (ICTs) in government. It provides a case study that might assist others in their journey. In part of the chapter, we explore the catalysts and reasons for NZ being one of the early adopters, supported by the public management reforms highlighted in Chapter 8. The topics traversed in this chapter have sometimes been referred to as, ‘use of ICTs in government or e-government’. Much has been promised about capability of ICTs to transform the world of public management (e.g. Bellamy & Taylor, 1994; Dunleavy, Margetts, Bastow, & Tinkler, 2006; A.M.B. Lips, Taylor, &

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Organ, 2009; Dunleavy et al. 2006; Weerakkody & Reddick, 2013), but achieving transformation is elusive (O’Neill, 2009) and many challenges for public management remain. Over the last 30 years, the lives of people and the digital technologies they use have become almost inseparable. Today, 93.8% of NZ’s population are regular Internet users, the rate of non-use (5.6%) is declining, and 70% of the population access the Internet at least daily using between two and four devices (Diaz, Hedges, Karimikia, & Techatassanasoontorn, 2018). Internet and digital applications and devices have become an integral part of public governance and are likely to become more so. It has made some aspects of the world in which governments now operate very different. In the first part of the chapter, we identify themes that have assisted this relatively small and resource-constrained country to become a quick adapter, as well as quick adopter, of the use of digital technologies in government. The institutional barriers to adoption of ICTs have been low since the public management reforms of the 1980s. The strengths of what has occurred and is still occurring in NZ lie in quick learning from adoption, all-of-government (AOG) leadership of the development of strategy, and adaptation of ICTs to improve public sector governance and service delivery, as well as to meet the evolving needs of citizens. In the second part of the chapter, we dive a little more deeply into the ‘sediments’ of NZ’s 30-year public management experiences, providing a range of cases. We end the chapter by highlighting some enduring challenges and how NZ is responding to them.

PUBLIC SECTOR-WIDE STRATEGY, GOALS, AND LEADERSHIP As in many countries, NZ’s early uses of ICTs in government were fragmented and piecemeal. A whole-of-government approach was missing initially and as a consequence each government entity went to the market as a single organisation, or often only a single business unit, seeking its solution for achieving greater efficiency. Users of these early ICT systems experienced something different from each department and the systems did not work together well from a user or an outcome perspective, if at all. NZ’s strategic and whole-of-government approach to policy and practice in digital government has been shaped by the past 30 years. The first attempt at a more strategic approach was an e-government strategy released in 2001. The vision was not just about efficiency, but also improving the quality of government services, and creating opportunities for greater public participation in government. As a result of this strategy, more effort and investment was made in a whole-of-government approach and government-wide services. In 2009, motivated in part by fiscal constraints created by the Global Financial Crisis, a new whole-of-government strategic focus on getting results from public spending placed redoubled emphasis on digital service innovation. This 2009 strategy was underpinned by collaboration across government to be more citizen centric and achieve better outcomes for New Zealanders. The government set achievement

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targets in a number of areas and, significantly for the growth of digital government, two of these focussed on the design of, and access to, government services to improve the interactions that businesses and the public have with government through improved digital services (Better Public Services, BPS, 2013). Digital solutions as a way of achieving results was further reinforced by a new ICT Strategy and Action Plan for New Zealand in 2013 (DIA, 2013). The strategy called on government organisations, as a collective, to embrace technology, and transform the services and systems of the public sector using ICT. In keeping with this, AOG, more strategic, approach to digital government, the notion of ‘functional leadership’ to work across government was adopted. A government chief information officer2 was appointed to drive the ICT strategy and an integrated ICT workplan for public services. The new approach also embraced agility, acknowledging the changing nature of ICT, and enabling new funding and reprioritisation subjected to this more strategic oversight (DIA, 2013). Arguably, neither the evolution above nor the themes we draw out below are wholly NZ-made. Much has been borrowed from abroad and adapted and improved upon to fit the NZ context. The following themes have helped guide this relatively small and resource-constrained country to become a quick adapter, as well as quick adopter, of the use of digital technologies in government. Benefits Realisation Controller and Auditor General (2012) conducted an inquiry into six projects, ranging in cost from a few hundred thousand dollars to tens of millions of dollars, to exemplify the factors that had contributed to successful completion and benefits realisation. The shift in tack to focus on successful projects was to seek common contributors to successful outcomes rather than focussing on failures which are often less illustrative of what could have been done instead. Benefits realisation, as part of a wider public sector drive for efficiency, was defined as the active managing of, planning for, and delivery of results through ICT-enabled projects. It involves continuously planning, reviewing, reporting, and updating the benefits being, and to be, realised (see Fig. 1). Government emphasis on innovation, doing more with the same or fewer resources, as well as achieving results (Key, 2012), created an operational environment encouraging a focus on the achievement of tangible benefits from investment in new ICT infrastructure. The Auditor General concluded that successful projects realise benefits because they:

• understand their environment and make the most of circumstances; • use a business-led, flexible, and agile approach; • have strong support from leaders and senior managers; • work effectively with the right people, including end-users; • use the right technology tools; and • monitor, and understand the benefits of, what they are achieving (Controller and Auditor General, 2012).

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Fig. 1.  Using Information and Communication Technologies to Realise Benefits. Source: Controller and Auditor General (2012, p. 50).

The benefits realisation process aids in achieving ‘value for money’ from ICT use. Projects are held to considerable scrutiny ensuring that they add to public value by ensuring that they focus on achieving the outcomes they are being

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designed for. Business case guidelines and other checks and balances set up around the procurement of ICTs continue to evolve and focus on achieving benefit realisation (NZ Treasury, 2016). The Ministry of Business, Innovation and Employment (MBIE, 2019) provides significant guidance with respect to ICT through its Government Procurement Rules (4th edition), with other direction and advice available related to specialised procurement and using different kinds of contracts. Security and Privacy New Zealanders care about the privacy of their personal information, such as health and financial information. For the most part, they are also pragmatists, willing to share their personal information with government agencies and trusted businesses such as banks, in return for convenient access to services (A.M.B. Lips et al., 2015). Accidental public access to individuals’ personal data has occurred on a small number of occasions, and at every occurrence there has been public outrage that the public organisation’s systems were not more secure, followed by immediate remedial action and reassurances by the agencies involved. Maintaining public trust in government organisations is of paramount importance for citizens to continue in their willingness to share personal information. NZ’s Privacy Act sets out 12 privacy principles which govern the use of personal information by the public and the private sectors (Privacy Commissioner, n.d.-a). The NZ Privacy Commissioner (n.d.) has been an important player in helping to establish codes of practice and in improving the digital operations of government organisations to enable them to share information across departments while still giving effect to these 12 principles. Issues of data ownership, stewardship and security, trustworthiness, and its use and reuse are related to the above. As part of its vision for advancing digital government services, in 2013 the Ministers of Finance and Statistics brought together a group of informed people from the public and the private sectors and research communities to explore the potential benefits and risks for NZ of sharing, linking, and using data (NZ Data Futures Forum, 2014). One of the principles included maintaining trust and building ‘privacy by design’ into digital services from the outset. Digital Inclusion With the emphasis given by the government in 2009 for more digital service innovation, the readiness of citizens for this approach needed to have a sharper focus. To have the public sector embrace the benefits of digital technologies to deliver more effective whole-of-government services for citizens and businesses, as well as for the development of the economy, it was clear that access to and use of the Internet and digital devices which varied considerably across the population would have to be addressed (A.M.B. Lips, Eppel, Cunningham, & Hopkins-Burns, 2010; A.M.B. Lips et al., 2015).

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Although Internet use was widespread, there was concern about the level of skills needed to use the Internet effectively and some groups such as Māori, Pacific peoples, seniors, those on lower incomes and less educated were more likely to be missing out. The education sector is seen as an obvious place to intervene to lift digital access and skills for using the Internet. This sector has remained central to initiatives aimed at eliminating digital divides and we still see differences in the access of some students from lower socio-economic backgrounds and ethnicities (M. Lips et al., 2017). Government has invested in infrastructure to deliver broadband Internet to schools, and to assist adoption and integration of digital technologies into the school curriculum. Two new learning areas were added to the curriculum applying to all children in 2016: (1) computational thinking and (2) designing and developing digital outcomes. Students in secondary schools can specialise in these areas (NZ Curriculum/Technology, 2017). Government also supported a Computers in Homes initiative to get computers into homes in low socio-economic areas and now through its equitable digital access initiative is encouraging partnerships to support students to have the Internet at home (Ministry of Education, n.d.). Digital inclusion is an ongoing focus for whole-of-government work led by the chief digital officer in the DIA (2019a, 2019b). Despite these efforts, digital inclusion across all age groups, peoples, and economic backgrounds in NZ is an area of ongoing strategic focus and intervention (DIA, 2019). Collaborating on Strategy and Getting the Most Out of Data Government-wide ICT strategy is continuously revisited and updated, made ‘fit for purpose’ with evolving ICT opportunities and challenges and government policy agendas. To achieve strategic renewal, government regularly looks to partners beyond government. The D9 collaboration with other governments mentioned in the introduction is one example of this. Similarly, the Data Futures Forum (DFF, 2014), made up of private sector, public sector, and academic thought leaders, having first scanned the global literature to identify the potential benefits and risks related to data futures, proposed four guiding principles to enable NZ to unlock the value of its data assets: value, inclusion, trust, and control. The Forum said that NZ needed to give priority to developing a robust datause ecosystem, underpinned by agile, responsive institutions and effective rules of the game to support data use. They recommended:

• Establishing an independent data council to act as guardians of the system, •

advising government and data users, developing best practice guidance to implement the principles, and promoting data use. Reviewing the information legislation to achieve a more coherent and responsive data-use ecosystem, including specific changes to legislation in the short term to provide for mandatory proactive release, extension of information-sharing beyond central government, better definition of personal data, and protections against re-identification of anonymised data (DFF, 2014).

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In 2014, NZ also joined the global Open Data Partnership, an international group of countries aimed at fostering good governance and improving relationships between citizens and their states. This action demonstrates the way in which a geographically isolated, small state can leverage its global connections to further domestic agendas such as efficiency, innovation, and greater use of technology towards improving government services. In its 2014–2016 Open Government Action Plan, NZ adopted the global grand challenges of improving public services, increasing public integrity, and more effectively managing public resources. The work plan endorsed by government had four areas of focus, listed below, guided by principles of: centrally led, collaboratively delivered; customer centricity; trust and confidence; simplify by design; share by default; and openness and transparency. The four areas of focus were: 1. Services are digital by default: Government information and services must be joined-up and easy to access through common customer-centric digital channels. 2. Information to be managed as an asset: Information and data are at the core of all government services, and government is the guardian of this asset on behalf of the NZ public. Exercising this responsibility, while making more effective use of this critical resource, is at the heart of transforming government services for citizens and businesses. 3. Investment and capability are to be shared: Government’s investment in information and technology must be integrated, leveraging common capabilities to deliver effective and efficient public service. 4. Leadership and culture change focussed on delivery of strategy: Leadership and culture change are needed to give effect to the strategy. Change needs to be delivered collaboratively, with delegated decision rights and clear accountabilities that connect at a system level. Having had its performance against it first plan independently reviewed (Booth, 2018), NZ is now embarked on its next stage of challenges towards open government.

Procurement and Delivery of Government Services Without effective procurement, achieving any of the aforementioned elements (e.g. security and privacy, digital inclusion, and getting the most out of data) is not possible. Increasingly recognised as critical to getting digital government right, procurement is a key component of the Open Government Partnership and is a firm commitment under the Third National Action Plan 2018–2020 (Open Government Partnership New Zealand, n.d.-a). Commitment 12 – Open Procurement – taking effect in October 2019, will mean that government-awarded contract data will be published in a user-friendly way making it possible to analyse what contracts government agencies are awarding, what the expected spend is, and which businesses have been awarded contracts (Open Government

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Partnership New Zealand, n.d.). To date, this has been exceedingly difficult data to obtain, though previously technically publicly available on the Government Electronic Tenders Service. In recent years, adoption of electronic procurement was driven by both the need for increased efficiency in procurement processes and by the international context that included the requirement for e-enabled procurement processes for trade under the World Trade Organization Agreement on Government Procurement. Increased comparison to other regions (e.g. contract data have been much more transparent in areas of Australia, than in NZ) and integration of procurement into a growing number of trade agreements has put pressure on the NZ government to continue to learn, adopt, and adapt it processes. Leadership of procurement has evolved – the chief executive of MBIE serves as functional lead for AoG procurement and recently a functional leadership procurement team has been created to ensure collaboration across agencies and to drive change and innovation. The Auditor General is currently examining the relationships between MBIE as ‘functional lead’ of procurement and the government chief digital officer’s role as the functional lead in ICT procurement – to assess and consider how collaboration can work to address the high-risk nature of ICT procurement. Procurement processes are often criticised as barriers to innovation, but emphasis on streamlining and engaging ICT to itself ‘become the procurement process’ has changed the landscape significantly over recent years. It was recognised in the 2013–2017 Government ICT Strategy and Action Plan that ‘procurement timescales are too long and costly, often squeezing out all but the largest suppliers’. Streamlining procurement remained a key priority in the 2018 ICT Strategy, as efforts to adapt processes, and innovate through procurement, gained momentum. Taking an ‘information as assets’ approach has led to the use of syndicated procurement agreements whereby the assets are moved off the Crown balance sheet altogether, using a Cloud Desktop-as-a-Service initiative. Syndicated agreements involve a number of organisations agreeing to purchase together, taking advantage of economies of scale as well as leveraging new Internet cloud-based standard technology platforms. Typically, however, technology investment planning has considered information essentially as technology infrastructure, tied down by highly- (if not over-) specified contracts, and ending up as legacy systems that continue to be used past their lifespan. New patches on old systems to try and fulfil changing policy objectives through additional functionality create an increasingly complex, out-of-date infrastructure that cannot respond to departmental requirements and growing customer demands for Internet-based services. Through AoG contracts, agencies are able to simplify their own procurement processes, as well as acquiring security assurance, leading to reduced costs and time involved at the agency level. The arguments for having these types of contracts and common sets of procurement agreements involve the viewpoint that where the market can see the ‘Government as a client of one’ there are benefits to

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be accrued – creating potential scale in the market to invest in new delivery models. It is also argued that this will allow government to engage with the market to co-design and co-deliver innovative digital solutions. However, the D9 Charter’s working principles say that ‘open markets’ in government procurement need to create true competition for companies regardless of size, and must encourage and support companies at start-up, and promote economic growth through open markets. True competition is problematic when it comes to increasing the numbers of AoG contracts and syndicated agreements, because it purposefully reduces the number of actors the government deals with. Small companies in NZ struggle with not only access to government procurement but also with entering the supply chains that are set up to assuage the problem of big companies winning all the business.3 There are interesting partnerships emerging to begin to deal with the problems of market access, as well as lack of government risk-taking behaviour and support for start-ups. A recent example is Creative HQ, a partnership with the Wellington Regional Development Agency, that functions as incubator and support for small tech businesses, recently adding acceleration and innovation programmes as well. The Lightning Lab GovTech is another example. It is a three-month business support programme with the MBIE, taking 10 teams through an intensive process to develop innovation in the public sector – aiming to deliver seamless digital public services. Another good example is the recent ‘Procurement Hack’ whereby 70 participants from across the state sector and ICT supply community met under the auspices of the Organisation for Economic Co-operation and Development E-Leaders Transforming Procurement Hack. These and similar efforts are directed towards helping government make procurement easier, inclusive, and more transparent for all. NZ is participating in forming a Procurement Playbook emphasising greater transparency, open data, and sharing platforms and components. While these partnership arrangements are excellent examples of moving towards better functioning ICT procurement, nevertheless, the fundamental contradictions remain with regard to competitive open markets that inevitably benefit large companies, and the ability of small companies to access government markets in a way that allows them to remain agile and innovative. Government’s ICT strategies are lacking in terms of how to balance off the need for massive information infrastructure investments, and the imperative of nurturing a world-class small business ICT marketplace. The NZ Government’s current revision of the Government Procurement Rules, that includes a new focus on ‘broader outcomes’, may contribute to improving the situation for small and medium enterprises. In the shorter term, a further evolution comes in the form of the ‘Marketplace’, a newly developed process that is making it, ‘easier, quicker and more cost-effective for government to access a full range of digital capabilities and for suppliers to deliver them’ (DIA, 2019). Agencies can procure public cloud services themselves from a ‘marketplace’ portal, with security assurances provided, allowing suppliers to develop and offer

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innovative services and become suppliers to government in a straightforward way. The first channel provides public cloud services, across services such as analytics and business intelligence, collaborative working, creative design and publishing, marketing and project management, and planning. The plan is for the ‘marketplace’ to ultimately be available to other sectors, services, and industries. The set of changes as explored here demonstrate the embeddedness of digital in public management related to how government plans for and obtains goods and services. NZ is adopting, adapting, and creating new intersections between the private sector (e.g. the ‘marketplace’) and government. The ways in which we learn from doing, such as cases presented in the next section, will be key in terms of adapting the procurement function and procurement policy for the future.

CASES: LEARNING ALONG THE WAY In this section, we present some illustrative cases in a chronologically linear sequence, to show how NZ’s public management and use of digital technologies have co-evolved as lessons that NZ digital government learnt, often the hard way, through mis-steps and mistakes. In narrating these cases, we show the evolution of digital technology capabilities, changing directions and challenges in public management, and the socio-technical adaptation that occurs in the process of the adoption of digital technologies. We accomplish this ‘untangling’ by drilling down into these interdependent processes to see them in action at five time points over the last 30 years. Time Stamp Zero – Late 1980s: New Public Management and Internet Era Government Arrive Together NZ joined the global Internet in 1989. This timing coincided with a major reform of the country’s public management system. Starting in 1988, NZ created new legislation, organisational and institutional structures and processes of the type that are often labelled new public management (NPM) (Boston, Martin, Pallot, & Walsh, 1991). There was an explosion of single purpose government organisations, as well as increased use of third party organisations to deliver government services. For example, in 1989, the education sector changed from having a multi-function Department of Education that did everything – from policy advice and design, through to implementation, funding, and owning educational institutions like schools and tertiary institutions. After 1989, it was converted to seven central government organisations, each involved in an aspect of policy design, implementation, regulation or funding, plus 3,500-odd separate education delivery organisations, each with their own governance body, and able to make management decisions about the use of digital tools in their operations. The payment of teachers is an example of an ICT service that was outsourced to contracted, non-government organisations (NGOs). The ICT systems needed to manage the flows of data needed to make the payments though the banks to individual teachers, belonged to these usually private sector organisations and they might also be

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carrying out similar services for other organizations. The case study of Novopay, in Time stamp 4 – 2010, illustrates some of the issues faced as a result of outsourcing in the instance of teacher payroll. A pattern of organisational and decision-making fragmentation, typical of anglophone countries (Pollitt & Bouckaert, 2017), was replicated across the public sector, and mirrored in its pattern of ICT adoption. Narrowly focussed organisations became a new norm, each with their own ICT systems. This was made easy because former administrative procedures and rules for controlling expenditure were relaxed, now that public organisations were required to manage what they did within a pre-specified purchase agreement and chief executives had managerial freedom over how to deliver on the services required of them. In this environment, a thousand new digital solutions blossomed. The siloed services and ICT systems from this era still exist and have proved difficult to eradicate and NZ is unlikely to be alone in this. An example from the tertiary education sector illustrates the pitfalls created by the organisation centric and un-joined up NPM landscape and one way this was overcome eventually. Time Stamp 1 – 1990s: Organisational Silos, Digital Substitution, and the Student Loan Scheme Up until the late 1980s, the uses of digital technologies in government were limited and the public was yet to embrace digital technologies in their everyday lives. The big areas of government income and expenditure such as taxes, welfare benefits, and education funding were typically managed as backroom operations on programmed mainframe computers that required expert programmers to input data and interpret their output. Information creation, processing, and storage were largely through manual, paper-based processes. The arrival of the Internet and more widespread use of personal computers, within government organisations, businesses, organisations funded by government to deliver services, and in the community, opened up new opportunities to substitute digital creation, processing, and/or outputs for existing areas of government practice. The development of New Zealand’s Student Loan Scheme in 1991, coincided with these ICT developments and the early stages of NZ’s public sector reforms. What happened illustrates the consequences of no overall digital strategy or plan, and an absence of leadership and oversight of digital developments across government and the consequences of siloed decision making on ICT systems. An income-contingent universal student loans scheme was introduced in 1992 as part of comprehensive policy changes in tertiary education. Three government agencies were involved in this policy.

• The Ministry of •

Education (MoE) was responsible for policy design and monitoring of the policy, with the costs of the loan scheme coming from vote education.4 The Ministry of Social Development (MSD) was given responsibility for loan applications and loan payments, as part of the implementation and the initial interface with students and the tertiary institutions. This was because the work

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of making payments to individuals based on rules of eligibility was deemed to be like other areas of government business that were within the scope of MSD’s other work. MSD designed a new bespoke ICT system to manage their responsibilities and a new brand, Studylink, to distinguish this new function. A loan application covered one calendar year even when students were enrolled in multiyear courses such as two-year diplomas or three-year degrees. Students had to reapply in subsequent years. Eligibility for the loan was checked against a register of enrolments and courses and the tertiary institutions with accredited courses, provided by the MoE. MSD’s systems calculated and made payments to individual students, kept track of total borrowings for each student in the calendar year, calculated the interest charges for the year, and added these to the loan. At the end of the year, the total debt for each student was transferred as a historical file to the other implementation agency, the Inland Revenue Department (IRD). Cabinet nominated IRD as the agency responsible for the collection of loan and interest repayments because of the income-contingent requirement for repayments. The rationale related to IRD’s tax collection role, although IRD initially built a system to manage student loan debt and repayments that was separate from its other income tax-related systems. Students were required to make minimum income-contingent repayments against their loan, starting at a threshold income. Loan debt is not required to be fully paid back in any specific timeframe, and was written off in the eventuality that there was debt remaining at death or declared bankruptcy.

The total borrowings under the student loan scheme grew rapidly to become a significant sum that needed to be accounted for in the government’s forecasts of expenditure, and outstanding debts to be repaid to government in subsequent years. This requirement meant that the MoE needed a third system to model loans draw-downs and repayments, and enable it to report to Treasury and Parliament on the total real value of the loan scheme on the government’s balance sheet. This system also served a secondary purpose of being able to model the cost of any changes to the loan scheme policy the government might be considering at any point in time. At various times, there have been changes to amounts available, interest rates, and income thresholds for repayment, all of which affect the total amounts borrowed, the operating costs of the scheme, and forecasts of future debt and repayments. None of the three separate organisation-based systems described above could interface easily with the others, and therefore the utility from a whole-ofgovernment perspective was low. At best, there could be export of batch files from one system to the other when needed, but the data provided this way was always at a static point-in-time, not dynamic real time. It was difficult for a student loan borrower to get a full, real-time picture of their total debt and amount owing including interest. This was because for most recent students their debt was held in two systems (their current loan at MSD, and any past loans that had been

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transferred for repayment at IRD). Furthermore, because interest when being charged was accruing daily, the total if not paid immediately would soon change with added interest calculated daily. After a decade of disgruntlement among holders of student loan debt, a further system change was led by IRD as a collaborative project to enable user needs to be served by these separate systems. In 2012, an Internet-based portal created a functional front-end system that could draw on real-time borrowing data from MSD in a nightly upload of current loans, and combine this with IRD-held data on debt and to-date repayments held in two different IRD systems (loan debts and loan repayments via salary deductions). The result was that borrowers, for the first time since the inception of the Student Loan Scheme in 1992, could get a real-time picture of all their loan borrowings and the amount still owing at any time. We note four important lessons about digital governance in this period, as illustrated by the above case. First, digital solutions were designed as simple substitutions to replace a formerly manual process. Business cases for IT developments were built around assumptions of efficiencies to be gained from a simple substitution of people and paper-based systems with computer-based electronic inputs/processes and outputs. Second, there was often poor scoping and project management of the digital application. Benefit realisation for the overall business process was not a focus. Third, there was little consideration of how the digitisation of a process within a single organisation would affect the rest of the organisation’s business processes, let alone the joined-up relationships and business processes across government. As a result the ICT process did not always perform as expected because interorganisational interdependencies were not accounted for. Fourth, primary users and the citizens’ perspectives were largely missing. While efficiencies in a step in a business process might have been achieved, whole business process and service innovation was rare. Time Stamp 2 – Late 1990s: Ambitious Business Process Transformation – NZ Police Integrated Crime Information System As the possibilities for government business transformation became more apparent as the 1990s progressed, some public sector organisations developed quite ambitious plans, to replace traditional work processes more comprehensively with ICT-enabled systems. These ICT projects aimed to go beyond simply substituting for existing processes. Consequently, some projects in this era unintendedly became the ‘bleeding edge’ of ICT adoption (Small, 2000) because the solutions were unproven and business case approval process did not require a phased approach. The experience of the NZ Police in the 1990s is well studied and illustrative of the pitfalls to be avoided when seeking business process transformation. The NZ Police had worked on developing a new crime analysis system from the early 1990s and, from this activity, emerged the concept of National Crime Information System, to deal with a range of policing needs that were taking shape at the time. Essentially Police wanted to replace their reliance on an old mainframe national database, accessible only by experts, with one that put the

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electronic information on personal computers in local police stations and in the hands of frontline Police, by using the power of emerging new hardware and software. By 1992, an articulation of these needs was incorporated in a request for information, responded to by 62 parties, and later a request for proposals (RFP) from vendors to supply Police with ICT solutions. Police’s concept and vision for what became known as Integrated Crime Information System (INCIS) was consistent and integrated with the Police Five-year Strategic Plan published in 1993, developed around Community Oriented Policing. The selected vendor was to supply hardware and software to meet Police’s multifaceted, modern-policing, information requirements. Police recognised the concept of an ‘off-ramp’ which would allow them to exit the project if it did not progress satisfactorily. Unfortunately the off-ramp option was not used soon enough. The name INCIS in NZ has become infamous as a ‘failed’ ICT project. A contract was signed with IBM in 1994. Five years later in 1999, the INCIS project was disestablished, significantly over initial cost and planned delivery time, and without completion of all the planned deliverables.5 The Ministerial Inquiry into INCIS (Small, 2000) concluded that although the project was high risk, the sound concept behind it should have been capable of being achieved. The INCIS project should have used conventional technology; separated contractual obligations for the delivery of infrastructure from the delivery of applications; adopted an appropriate form of contract with the delivery of business benefits in modules; had a sound governance and management; proper resources, skills, and experience; effective quality and risk management; and proper change control. These lessons from INCIS were subsequently built into national policy and process guidelines for the management of large ICT projects, in the hope that it would avert such failures occurring again. INCIS was not the only project to fail to realise its anticipated benefits. There were other similarly ambitious projects in the health sector that under-delivered on their promises and took more time and money than anticipated. Gauld and Goldfinch (2006) identified four enthusiasms that contributed to ICT failures in this early period. First, idolisation of the benefits of ICT by public servants. Second, a kind of technophilia in which more and better technology was seen as a fix for all problems. Third, feigned or genuine belief of sales people in the lauded benefits of their company’s ICT products. Fourth, the faddism of the times that led managers to uncritically believe that the ICT-enabled solution would in fact deliver cost savings in the short term, as well as long-term benefits, without necessarily having a well-informed, detailed, and realistic plan for how this would happen. The lessons of this period led to improved business case processes and a focus on the business outcome to be achieved through phased steps with review and exit processes built into procurement contracts. Time Stamp 3 – 2000s: More Widespread Adoption and Digital by Default By 2000, the potential benefits to be achieved through the use of the Internet and digital processing were widely appreciated across government organisations.

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Digital solutions moved from backroom, after-the-fact processing and data storage, to frontline, interactive processing. The Auditor General’s assessment of what had been learned from a number of ICT projects that had not gone as planned or suffered cost over-run, focussed in particular on strengthening the roles of ministers, chief executives, and parliamentarians through select committees in the oversight of projects (Controller and Auditor General, 2000). In particular, public organisation chief executives’ attention was drawn to the need for an independent quality assurance process, reporting directly to the chief executive, and contract arrangements that work in the interests of the Crown. Such contracts must establish a legal environment with suppliers that can stand the test of the duration of the contract and any subsequent support contracts, ensuring that delivery of the business objectives remains central and that risks are identified and managed. A fine line is needed between a contract that is too inflexible to enable adaptation as changes occur along the way, and one that is too flexible, allowing for escalation of expectations, delivery times, and costs. Also desirable are specific project roles such as project sponsor, project manager, and contract manager, each with a particular complementary focus. The Auditor General and the INCIS Ministerial Inquiry also recommended improvements in the monitoring and oversight of larger IT projects by government’s central agencies (Treasury, State Services Commission, and Department of Prime Minister and Cabinet), to ensure IT projects delivered or exited in a timely way. The Auditor General summed up that a ‘successful project always emphasises what [the completed project] will do rather than what the IT project is’ [our emphasis]. Monitoring now occurs for all large IT projects. Process improvements, including new Guidelines for the Management and Monitoring of Major IT Projects (State Services Commission, 2001), new business case requirements to more clearly identify organisational outcomes to be met, and Gateway Reviews of major capital projects, were developed and refined iteratively over the next decade by the central agencies as new lessons were learned. The evolution of such structured and codified processes enabled public sector-wide adoption of ICTs to proceed apace. From 2000, more ambitious change management processes were routinely scoped as phased projects with more clearly defined milestones, allowing stocktake against intended outcomes and exit points. Leadership of ICT developments across the public sector began to get more focussed and better resourced. Yet early developments that might be better done on a whole-of-public sector approach, such as user authentication and sign-in, still struggled in the NZ NPM-type public management environment to escape the conflicting priorities and decision making of individual organisations and therefore were difficult to achieve (Williams, forthcoming). In this period, NZ’s ICT strategy had yet to embrace its later whole-of-government and citizen-centric approaches. Time Stamp 4 – 2010: Benefit Realisation and Focus on What the ICT Will Do SmartGate, implemented by New Zealand Customs, and Novopay, implemented by the MoE, illustrate very different outcomes from projects developed in the era

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of austerity since 2010, in which government placed an increased emphasis on efficiency and innovation. SmartGate maximised benefits realisation from an IT project, while Novopay failed to deliver on the expected benefits. The full costs of Novopay, including the significant damage to trust in the public sector organisation involved, remain unquantified (Jack & Wevers, 2013). (A) SmartGate – A Case of Benefits Realised SmartGate is an automated passenger clearance system that is available to eligible passport holders arriving at and leaving major international airports in NZ, and arriving at Australia’s eight international airports. New Zealand Customs Service (Customs), the agency responsible for SmartGate, is the government’s agent at the border, where it carries out activities on behalf of many other government agencies. SmartGate’s introduction had immediate and downstream implications for these agencies. In NZ, SmartGate was developed as a response to the government’s wish to provide a better, smoother experience for travellers. It was seen as helping to make the processing of international travellers at the border more effective and efficient. At special kiosks, SmartGate reads a microchip embedded in passports, and uses stored biometric data and photo-matching technology to validate passports and travellers to provide accurate and fast automated clearance. In March 2009, Cabinet endorsed Customs’ plan to build SmartGate, initially for Australian and NZ passport holders only. In December 2009, the first SmartGate went into service in Auckland. It was progressively installed in the arrival and departure halls of Auckland, Wellington, and Christchurch airports. In August 2011, SmartGate was fully operational in the three airports. By May 2012, Customs was using 22 gates and 54 kiosks continuously. SmartGate’s capital cost was $15.9 million. Its operating cost is $7.4 million a year. Several factors helped Customs to design and roll out the first SmartGate so quickly. One was the political and organisational priority accorded to SmartGate. Because the Prime Minister and Cabinet had prioritised SmartGate, it was also a priority for the Customs chief executive and the organisation. The project team was able to rely on Customs obtaining and allocating the resources it needed to complete the job on time. The project also benefitted from: alignment of the result to be achieved through SmartGate with Custom’s organisational strategy, and organisational commitment; organisation-wide planning; sound project management methodology; and choosing the best people to do the job; the project manager saw this as the most important factor in the project’s success. A second factor allowing Customs to design and roll out SmartGate effectively and on time, was Customs’ close relationship with the Australian Customs and Border Protection Service that had already implemented a similar device. Drawing on Australia’s experience, Customs was quickly able to access how well SmartGate could work in NZ, and integrate with Customs’ CusMod database which was configured differently from the Australian equivalent. A third factor which allowed Customs to design and roll out SmartGate effectively and on time was collaboration with other business partners. These included

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organisations within government (for whom Customs carries out some business at the border), non-government partners such as the airlines and airports where SmartGate was expected to work, and the vendor Morpho. By working collaboratively, Customs had better relationships with the organisations, learning from their operational experience and commitments from them to prepare business improvement strategies to make the most of SmartGate. SmartGate delivered on the government’s vision for an improved experience for trans-Tasman travellers, in line with Australia’s automated border processes, a vital step towards the vision of a ‘domestic-like’ travel experience between Australia and NZ. The primary processing (of passengers at airports) is more accurate; the cost of primary processing of arriving passengers has fallen, freeing up resources for assessing more complex risks. More arriving passengers are using SmartGate; more passengers were processed with no need for extra staffing or space; and automating passenger processing to make it faster, more accurate, and more cost-efficient, has allowed Customs to focus staff on managing risks at airports and other high-risk border protection areas. From the start, Customs focussed on monitoring SmartGate’s performance and making changes to bring about more benefits. Beyond the achievement of the project deliverables, Customs actively monitored the other benefits realised from SmartGate. The SmartGate project programme manager said: ‘We picked a strategy and now we are aiming to derive the fullest value from it’. Customs’ benefits realisation plan stretched to well beyond the formal life of the project. Customs saw the SmartGate technology as a platform on which to build its next phase of business changes. Benefits realisation in ICT processes like SmartGate is best seen as an adaptive and emergent process. SmartGate’s initial success was a catalyst for Customs to think further about how to exploit its capability, uptake, and performance to do things differently. For further information on the Smartgate case see Controller and Auditor General (2012) and Eppel and Lips (2016). (B) Novopay – A Case of Unrealised Benefits Novopay had a very different outcome. Unlike Smartgate, it was not a project driven by what it would do – or benefits realisation. Novopay was an IT solution intended to pay 110,000 teachers and others, on 15 different employment agreements, in 2,500 schools, a total of around $3.4 billion annually. In 2004, the MoE released a RFP for ‘schools payroll’ to replace the aging infrastructure then outsourced to Datacom since the 1990s. Service Centre, Pay Clerk Services, for individual schools were intended to continue with the existing providers. Synergy/Talent 2 were selected as the preferred vendor and the project to deliver the new school payroll became known as Novopay. Novopay went live and performed its first pay run in September 2012. By this time, Novopay was designed to be a completely outsourced solution, replacing both the Datacom and Pay Clerk Service Centre components of the previous arrangements. The project had cost materially more than originally estimated, and the go-live date was a year later than originally planned. While many of the payees received the correct pay, a significant number did not, causing serious reputational damage and further costs to the MoE. Failure to quickly and

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satisfactorily resolve the issues caused ministers to initiate an inquiry in 2013 (Jack & Wevers, 2013). What went wrong is a complex interplay of issues, which the Ministerial Inquiry authors pointed out could have been averted if the lessons from the INCIS Inquiry a decade earlier had been attended to adequately (Jack & Wevers, 2013). These included that the Go Live decision was confirmed when it was clear that not all testing had been completed; systems development was continuing through the code freeze right up to Go Live; the sector was not sufficiently ready; and the service centre had failed some of its tests and was not sufficiently ready. On paper, the owner of the Novapay project, the MoE, had ticked all the boxes in terms of its project management and governance, yet it seemed blind about the outcome it was trying to achieve and the business processes involved. In hindsight, most foolhardy was that a contingency agreement drawn up with the existing payroll system operator, Datacom was allowed to lapse. Since the initiation of Novopay project, Datacom had upgraded their existing system (mainly to enable it to deliver satisfactorily to its other clients), and could have continued under the agreement to service the education payroll for a negotiable period. An ‘inadequate quality of governance’ was named by the Ministerial review into Novopay, as a major failing for not exercising an option in response to breaches of contract conditions when the contractor missed milestones as early as 2010. Other factors underplayed in the Ministerial review were business process changes between the initial scoping of the project and initial RFP, and the final project. Particularly problematic was the inclusion of the parts of the business process originally done by service centres on behalf of schools. The project made untested assumptions about the capability of all schools, no matter how small and inadequately resourced to do this part of the processing for themselves. Significantly, there appears to have been no clear or single view of the business process being replaced, or a detailed view of what the new business process would look like and this only became apparent during testing of this part of the process very late in the project when go-live decision had become inevitable. That is, the failure of Novopay might have been a failure in governance, but it was also a failure in knowing what Novopay needed to do in sufficient detail to understand whether the project could deliver the benefits it needed to or not. For a fuller description of this case see Eppel (2018). Time Stamp 5 – Post-2012: Moving Citizens and Users to the Centre of ICT Projects The last example we draw on illustrates the more recently sharpened, AOG, emphasis to make citizens and users a central focus of how digital projects are designed and delivered. The ‘life events’ approach is led by the DIA. The name refers to the information and services that cross between multiple organisations and agencies regarding significant life experiences for New Zealanders, such as the birth of a child. At such times, there are many significant actions and interactions undertaken with government organisations, agencies, and NGOs.

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In designing digital services for a ‘life event’, unlike the earlier example of student loans, the government agency doing the public management function takes a back seat. What the DIA have planned with the government agencies involved is to streamline these interactions and help customers easily navigate the process to get what they need. To date the approach incorporates:

• SmartStart: relating to the birth of a child. • Te Hokinga ā Wairua – End of Life Service: relating to the death of a person. • Te tono mō tētahi pukamana mārena – Apply for a Marriage Licence: relating to applications for marriage licences.

SmartStart was the first ‘life event’ project and digital service to be released. This service has received a considerable amount of praise and a number of awards, following its release at the end of 2016, including awards from Institute of Public Administration New Zealand (IPANZ) and the Best Citizen Engagement Award at the Govinsider Innovation Awards (DIA, 2013). In 2017, and not too long after the SmartStart release, Te Hokinga ā Wairua – End of Life Service and then Te tono mō tētahi pukamana mārena – Apply for a Marriage Licence services were also made available to the public. For each new set of services, the application has a similar look and feel, and is designed around the questions and needs for government services citizen might have. Work is currently underway to bring events related to education into the approach, such as leaving school and starting work.

CONCLUSION: LESSONS LEARNED AND ENDURING THEMES The digital governance experiences above, drawn from 30 years of practice of integrating ICTs into public management in NZ, illustrate some important lessons for other public management jurisdictions which we named in the first section of this chapter: a need for strategy, leadership, coherence, joined-up governance and government, effective procurement and management processes, and citizen centricity. These lessons were important in NZ and may be relevant for other jurisdictions embarking on these kinds of developments. As one of the D9 group of countries, NZ is committed to harnessing the benefits of digital technologies in governance. New digital technologies and possibilities for the use by people and governments will continue to present new challenges for public policy and management around the world. Many of these are positive in the effects they might have on the outcomes of public management, but not all. There are enduring and new issues for governments and societies about how embracing digital tools in the business of government leads to a well-functioning public sector, improved services, and good governance.

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NZ’s early experiences highlight the detrimental effect of the absence of a digital strategy for public management, and the absence of whole-of-government leadership. Because public management is a building block of public governance and applied by many government agencies, there is a need for coherence and a joined-up governance and government approach. The benefits of collaboration across government agencies were seen in the SmartGate example. INCIS and Novopay illustrate the importance of effective governance, procurement, and management processes built around a clear understanding of what a digital government project will do. Finally, designing with citizen centricity at the forefront is a promising approach for giving citizens the kinds of digital public services they want. At the time of writing this chapter, NZ’s digital strategy was undergoing a further update to take into account the ongoing need for adaptation of public management to respond to the challenges of a digital world (DIA, n.d.-a). Issues concerning the government’s role in the governance and management of digital identity are under consideration. The whole-of-government approach is led by the chief digital officer who works with a lead group of department chief executives and is supported by an across government functional unit in the DIA (n.d.-a). A chief data Steward is part of this team and is charged with ensuring that the government gets the most value it can from the data it holds (StatsNZ, n.d.-a). New digitally enabled possibilities are emerging, such as artificial intelligence in all its modes. For example, enhanced automation, natural language processing, machine learning, and chatbots are already beginning to influence how government agencies are thinking about improving the efficiency and effectiveness of their services. Other emerging issues include transparency of algorithms used in data combination and reuse, so that citizens can better understand complex profiles that can be generated through advanced automation and machine learning used in tailoring better services to individuals. There are also likely to be new ethical dilemmas for government to consider as these newer technologies are deployed. There is much that is typical in NZ’s journey towards effective government in the digital era. Preeminent lessons for other jurisdictions are the need for wholeof-government leadership and strategy, while maintaining the agility to see effectiveness and innovation more locally; focus on the customer/client/citizens and the outcomes; and ongoing adaptation and learning as you go. Most important of all is openness to learning from mistakes, learning from others and regular reassessment of progress, and updating of strategy in this fast-moving area of government.

NOTES 1.  D9 or Digital 9 is a group of counties collaborating and sharing practices to improve digital government. See: https://www.digital.govt.nz/digital-government/international-partnerships/ the-digital-9/. 2.  Later renamed as the government chief digital officer. See https://www.digital.govt. nz/digital-government/leadership-and-governance/government-chief-digital-officer-gcdo/. 3.  Interview with Wellington Regional Development Agency. 4.  ‘Vote education’ is the total money the NZ Parliament agrees to spend in its Budget for Education in any financial year.

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5.  The concept of what Police was trying to achieve in terms of business transformation remained sound and relatively unchanged throughout the project (Small, 2000). What happened in the process of Police trying to realise their vision, and why, has been the subject of much analysis, including Gauld and Goldfinch (2006) and Small (2000), and has been captured as a Case Study (Tyson, 2005; Westaway, 2005a, 2005b). Details of enduring relevance are available in these sources.

REFERENCES Bellamy, C., & Taylor, J. A. (1994). Introduction: Exploring IT in public administration – Towards the information policy? Public Administration, 72, 1–12. Better Public Services (BPS). (2017). Results 9 and 10. Retrieved from https://ssc.govt.nz/resources/bpsinteraction-with-govt/#result9; https://ssc.govt.nz/resources/bps-interaction-with-govt/#result10 Booth, K. (2018). Independent reporting mechanism (IRM): New Zealand end-of-term report 2016–2018. Wellington: Open Government Partnership Trust New Zealand, Wellington. Retrieved from https://www.opengovpartnership.org/wp-content/uploads/2019/03/New-Zealand_End-Term_ Report_2016-2018.pdf Boston, J., Martin, G. L., Pallot, J., & Walsh, P. (Eds.). (1991). Reshaping the state: New Zealand’s bureaucratic revolution. Auckland: Oxford University Press. Controller and Auditor General. (2000). Governance and oversight of large information technology projects. Wellington: Office of the Controller and Auditor General. Retrieved from https://www. oag.govt.nz/2000/it-oversight Controller and Auditor General. (2012). Realising benefits from six public sector technology projects. Wellington: Controller and Auditor General. Retrieved from https://www.oag.govt.nz/2012/ realising-benefits/docs/realising-benefits.pdf NZ Data Futures Forum (DFF). (2014). Harnessing the economic and social power of data. Retrieved from http://datafutures.co.nz/assets/Uploads/Data-Futures-FORUM-NZDFF-harness-thepower.pdf Department of Internal Affairs (DIA). (2013). Government ICT Strategy and Action Plan to 2017. Wellington: Department of Internal Affairs. Retrieved from http://planetmaori.com/Files/ Content/2014/NZ_Government_ICT_Strategy_and_Action_Plan_to_2017.pdf. Accessed on March 1, 2020 Department of Internal Affairs (DIA). (2019a). Digital inclusion action plan. Retrieved from https:// www.digital.govt.nz/digital-government/digital-transformation/digital-inclusion/2019-actionplan-building-the-foundations/ Department of Internal Affairs (DIA). (2019b). Te Mahere mō te Whakaurunga Matihiko [The digital inclusion blueprint]. Wellington: Department of Internal Affairs. Retrieved from https://www.digital.govt. nz/digital-government/digital-transformation/digital-inclusion/digital-inclusion-blueprint/ Department of Internal Affairs (DIA). (2019c). Suppliers invited to apply for marketplace beta test programme. Retrieved from https://www.digital.govt.nz/news/suppliers-invited-to-apply-formarketplace-beta-test-programme/ Department of Internal Affairs (DIA). (n.d.-a). Government ICT strategy. Retrieved from https://www. digital.govt.nz/digital-government/strategy/government-ict-strategy/ Department of Internal Affairs (DIA). (n.d.-b). Digital leadership and governance. Retrieved from https://www.digital.govt.nz/digital-government/leadership-and-governance/ Diaz, A., Hedges, M. R., Karimikia, H., & Techatassanasoontorn, A. (2018). World internet project: The internet in New Zealand 2017. Auckland, NZ: New Zealand Work Research Institute, AUT. Dunleavy, P., Margetts, H., Bastow S., & Tinkler, J. (2006). Digital era governance: IT corporations, the state, and E-government. Oxford: Oxford University Press. Eppel, E. (2018). Retrieved from https://www.victoria.ac.nz/sog/researchcentres/egovt/researchprojects/case-studies Eppel, E., & Lips, M. (2016). Unpacking the black box of successful ICT-enabled service transformation: How to join up the vertical, the horizontal and the technical. Public Money & Management, 36(1), 39–46. doi:10.1080/09540962.2016.1103417

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Gauld, R., & Goldfinch, S. (2006). Dangerous enthusiasms: E-government, computer failure and information system development. Dunedin: Otago University Press. Jack, M., & Wevers, M. (2013). Report of the ministerial inquiry into Novopay. Wellington: Ministry of Education. Retrieved from http://www.education.govt.nz/assets/Documents/Ministry/ Information-releases/Novopay-information-release/MIN130501InquiryReport.pdf Key, J. (2012). Better public services – Speech to Auckland Chamber of Commerce. Retrieved from http://www.beehive.govt.nz/speech/better-public-services-speech-auckland-chamber-commerce Lips, A. M. B., Eppel, E., Barlow, L., Lofgren, B., Lofgren, K., & Sim, D. (2015). Kiwis managing their online identity information: Second and final research report – Interview findings, focus group findings and project recommendations. Victoria University. Chair in Digital Government, Victoria University of Wellington Retrieved from http://www.victoria.ac.nz/sog/researchcentres/egovt Lips, A. M. B., Eppel, E., Cunningham, A., & Hopkins-Burns, V. (2010). Public attitudes to the sharing of personal information in the course of online public service provision. Wellington: Victoria University of Wellington. Lips, A. M. B., Taylor, J. A., & Organ, J. (2009). Managing citizen identity information in e-government service relationships in the UK: The emergence of a surveillance state or a service state? Public Management Review, 11(6), 833–856. Lips, M., Eppel, E., McRae, H., Starkey, L., Sylvester, A., Parore, P., & Barlow, L. (2017). Understanding children’s use and experience with digital technologies. Final Report. Chair in Digital Government, Victoria University of Wellington Retrieved from https://www.victoria. ac.nz/sog/researchcentres/egovt/research-projects#diginatives Ministry of Business, Innovation and Employment (MBIE). (2019). Government procurement rules (4th ed.). Retrieved from https://www.procurement.govt.nz/procurement/principles-and-rules/ government-procurement-rules/ Ministry of Education. (n.d.) Equitable digital access for students. Retrieved from http://education. govt.nz/news/equitable-digital-access-for-students/ NZ Curriculum/Technology. (2017). Retrieved from http://nzcurriculum.tki.org.nz/The-New-ZealandCurriculum/Technology NZ Treasury. (2016). Managing benefits from projects and programmes: Guide for practitioners. Retrieved from https://treasury.govt.nz/publications/guide/managing-benefits-projects-andprogrammes-guide-practitioners O’Neill, R. R. (2009). E-government: Transformation of public governance in New Zealand?. Ph.D. thesis, Victoria University of Wellington, Wellington, NZ. Open Government Partnership New Zealand. (n.d.-a). Third national action plan 2018–2020. Retrieved from https://www.ogp.org.nz/new-zealands-plan/third-national-action-plan-2018-2020/ Open Government Partnership New Zealand. (n.d.-b). Third national action plan 2018–2020. Progress report to: January–March 2019. Retrieved from https://www.ogp.org.nz/assets/ New-Zealand-Plan/Third-National-Action-Plan/OGP-Update-Progress-reports-to-April2019/4194f1d59d/2nd-Quarter-Report-commitment-12-PDF.pdf Pollitt, C., & Bouckaert, G. (2017). Public management reform: A comparative analysis – Into the age of austerity (4th ed.). Oxford: Oxford University Press. Privacy Commissioner. (n.d.-a). A quick tour of the privacy principles. Retrieved from https://www. privacy.org.nz/news-and-publications/guidance-resources/a-quick-tour-of-the-privacy-principles/ Privacy Commissioner. (n.d.-b). Resources for agencies. Retrieved from https://www.privacy.org.nz/ privacy-for-agencies/privacy-resources-for-agencies/essential-resources-for-agencies/ Small, F. (2000). Ministerial inquiry into INCIS. Wellington: Ministry of Justice. State Services Commission. (2001). Guidance for the managing and monitoring of large IT projects. Wellington: State Services Commission. Retrieved from http://www.ssc.govt.nz/sites/all/files/ monitoring-guidance_0.pdf StatsNZ. (n.d.). Data leadership. Retrieved from https://www.stats.govt.nz/about-us/data-leadership/ Tyson, J. (2005). Integrated National Crime Information System (INCIS). Part C. ANZSOG Case Study Library, 2005-30.3. Retrieved from https://www.anzsog.edu.au/resource-library Westaway, J. (2005a). Integrated National Crime Information System (INCIS). Part A. ANZOG Case Library, 2005-30.1. Retrieved from https://www.anzsog.edu.au/resource-library/case-library/ incis-the-integrated-national-crime-information-system-a-2005-2030-2001

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Westaway, J. (2005b). Integrated National Crime Information System (INCIS). Part B. ANZSOG Case Study Library, 2005-30.2. Retrieved from https://www.anzsog.edu.au/resource-library Weerakkody, V., & Reddick, C. G. (Eds.). (2013). Public sector transformation through e-government: Experiences from Europe and North America. London: Routledge. Williams, R. (Forthcoming). Surmounting boundaries: Closing the governance gap. (Doctor of Government). Wellington: Victoria University of Wellington.

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CHAPTER 13 ENVIRONMENTAL GOVERNANCE – ARE WE MAKING THE GRADE? Marie Doole and Fleur Maseyk

INTRODUCTION New Zealand has an international reputation as a natural, unspoiled country, known for its majestic, cinematographic landscapes. This implies that New Zealand is a model of environmental governance that successfully safeguards its natural resources in light of human and economic development. While this in no small way reflects New Zealand’s highly successful tourism advertising campaigns that have traded heavily on our natural capital1 (e.g. 100% Pure), the reality is more complicated and at times paradoxical. For example, New Zealand also has an unenviable record of extinct species, and an extremely high proportion of species threatened with extinction (Bradshaw, Giam, & Sodhi, 2010), but it also has one of the largest proportions of protected land in the world (Brown, Stephens, Peart, & Fedder, 2015), with the land area managed as public conservation land comprising 32% (8.5 million ha) of the country (Department of Conservation, 2014). New Zealand’s agricultural economy is heavily reliant on our natural resources, but also impacts the environment in not so positive ways. This chapter examines New Zealand’s environmental governance with respect to adequately safeguarding its natural resources as pressure from economic development continues. It assesses what New Zealand has achieved in environmental governance, its capacity to exercise good environmental governance, and how New Zealand is addressing key environmental challenges. On balance, we are concerned that there is much yet to do. While there are surely positive things to take away from the New Zealand experience, in some ways New Zealand might also serve as a cautionary tale.

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The following initial sections discuss the New Zealand environment governance framework and its capacity for executing such governance. Later sections examine governance in, respectively, public, private, and Māori lands. As to the latter, we acknowledge several centuries of indigenous occupation followed by a brutal colonial history to a present-day bubbling tension involving indigenous rights (see Chapter 4) which make for a fascinating context for environmental governance; leading to new forms of co-management and some examples of return of assets to Māori and recognition of mana whenua and kaitiakitanga in the context of environmental management. New Zealand is today heavily reliant on two key industries: tourism and the export of primary products. Agriculture, horticulture, and forestry make up half our export earnings of $70.9 billion (Ministry for the Environment & Stats NZ, 2018). This reliance on primary industry (and in particular agriculture) makes New Zealand unique in the Organisation for Economic Co-operation and Development (OECD) compared with similar sized nations. However, this comes at considerable cost to the country’s natural capital stocks. The 2017 OECD report concludes that ‘New Zealand’s growth model, largely based on exporting primary products, has started to show its environmental limits with increased greenhouse gas emissions, diffuse freshwater pollution and threats to biodiversity.’ However, tourism is actually New Zealand’s biggest earner, and is heavily reliant on the outdoors and nature and the image of a clean green nation.

THE STATE OF THE NEW ZEALAND ENVIRONMENT New Zealand has been isolated from other landmasses for more than 80 million years, was among the last places in the world to be settled by humans (Wilmshurst, Anderson, Higham, & Worthy, 2008), and is a home to flora and fauna which are highly unique – the majority of species found here are found nowhere else in the world (Brown et al., 2015). With the arrival of humans to New Zealand ca. 800 years ago came a rapid and drastic transformation that included extensive loss of indigenous vegetation cover and species extinctions (Ewers et al., 2016; McGlone, 1989; Wilmshurst et al., 2008). This biological transformation started with Māori who cleared forest and hunted several species to extinction and was accelerated with the waves of post-Māori settlement starting in the early 1800s. The relatively recent arrival of humans has meant that the transformation of New Zealand is one of the most detailed examples of human induced ecological change in the world (Sullivan, Kelly, & Ladley, 2010). Compared with pre-human cover, only 40% of native forest and less than 10% of wetland habitat remain. More than 70 species are extinct, and a further 40% of bird species, 38% of plant species, 85% of lizard species and 74% of freshwater fish species are threatened or at risk of extinction (Brown et al., 2015). Many of New Zealand’s threatened species are continuing to decline despite considerable conservation effort (Hare et al., 2019).

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The pattern of native vegetation loss was non-random, with the most extensive and fastest clearance occurring in the lowland areas of the country where landform, soil fertility, climate, and accessibility made them highly favourable for conversion to farmland and to locate the growing settlements. In contrast, the majority of remaining remnant native vegetation cover is found in the hill country and mountainous areas of the country with the least economic potential. This non-random pattern of clearance and retention has resulted in the type of species, habitats, and ecosystems remaining being unequally represented by those that occur in the least productive areas of the country. It has also resulted in a socio-political environment of inequity whereby urgency to protect what remains can be perceived to be placing unfair onus on those landowners who did not benefit from their own or historic land conversion to the same degree, but will have to shoulder opportunity costs and management obligations into the future. Humans also brought with them exotic species, the invasive of which have wreaked havoc on New Zealand’s unique biodiversity. New Zealand’s animals and plants evolved in the absence of mammals and are highly vulnerable to predation by rats, stoats, ferrets, and weasels, and browse by introduced herbivores such as deer and goats. The omnivorous Tasmanian brushtail possum has notoriously placed immense pressure on New Zealand’s forests from the top down by browsing leaves and flowers and bottom up by browsing on seeds and young plants. Possums are also known to eat eggs, young chicks, and birds sitting on the nest. Invasive plant species, many of them garden ‘escapees’, have transformed native ecosystems, by outcompeting and replacing native species and interrupting ecological processes. Surrounding land use and many specific management practices can also have a detrimental impact on remaining indigenous biodiversity – particularly intensification of agriculture which often involves further clearance of native vegetation, including threatened wetland habitat, to maximise land use or allow passage of travelling irrigators. The decline in water quality associated with agriculture (Parliamentary Commissioner for the Environment (PCE), 2015) continues to degrade habitat for aquatic species also. As elsewhere in the world, New Zealand’s environmental indicators are primarily indicating decline (Ministry for the Environment & Stats NZ, 2018, 2019). The sixth report to United Nation’s Convention on Biological Diversity set out that although there have been areas of recovery in our native wildlife and habitats, the general trend is one of decline. For instance, it showed that 95 of the 3,917 threatened species have improved in conservation status. However, this was mostly due to new information being discovered, rather than successful management interventions, and in the same period, the conservation status of 316 species has declined. For 927 known species, their conservation status has been assessed only once and therefore the information is insufficient to enable trends to be established. This implies that New Zealand conservation and management efforts cannot be focussed solely on public conservation land, and that environmental governance systems that operate on private land must successfully balance the inevitable resource contests that come with a focus on food and fibre production

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with the need to preserve and maintain a wider range of ecosystem services.2 The imperative to address this tension is increasing as we reach, or exceed, environmental limits.

NEW ZEALAND ENVIRONMENTAL GOVERNANCE The drivers of the above declines are predictable and powerful and contesting them requires good governance. As is widely accepted in many countries, governments are typically charged with the task of protecting the public goods in a way that is cohesive, and so as to control the efforts of resource users to achieve environmental goals. At the heart of environmental governance lies the ‘collective action’ problem that those standing to lose from broad environmental decline are less motivated to argue against the driver of loss than those motivated by extracting public wealth for private benefit (Brown et al., 2015). The modern-day legislative framework is a patchwork of Acts that overlap in addressing different environmental issues. The overarching environmental statute of the RMA aspires to sustainably manage natural and physical resources above all other outcomes, while more specific legislation looks to safeguard protected places (e.g. Conservation Act 1987), individual species (e.g. Wildlife Act 1953), and institute processes to manage and evaluate monitoring and reporting on environmental outcomes (e.g. Environmental Reporting Act 2015). In addition to these statutes, a wide variety of legislation is managed that addresses bespoke matters (e.g. freshwater fisheries). Table 1 shows relevant legislation for New Zealand, and their key purposes. Table 1.  Key Environmental Legislation and Implementing Agencies. Legislation Resource Management Act 1991

Biosecurity Act 1993

Local Government Act 2002 Environment Reporting Act 2015 Conservation Act 1987 National Parks Act 1977 Marine Mammal Protection Act 1978 Marine Reserves Act 1971 Wildlife Act 1953 Source: The authors.

Key Purposes

Main Implementing Agency/ Agencies

A framework act covering a broad range Ministry for the Environment of matters, including the management Regional and local councils (Specific roles for a range of use and development of all land of other agencies) Provides a framework for the Ministry for Primary management of invasive species Industries Regional councils Provides for the democratic governance Regional and local councils of local areas Legislation setting out the regular and Ministry for the Environment compulsory national reporting on the environment Various legislation focussed on Department of Conservation protection of conservation areas and species

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Much energy has gone in to designing and redesigning institutional arrangements for environmental governance. There is a plethora of legislation and multiple agencies charged with different roles. The vintage of the legislation is highly variable, meaning Acts that operate in similar spaces are often born out of radically different thinking (see Box 1). For example, the preservationist ideals inherent in the Conservation Act 1987 contrasts – at times sharply – with the focus Box 1. Managing Indigenous Fisheries New Zealand is a home to more than 50 species of indigenous freshwater fish, most of which are diadromous meaning their lifecycle requires both fresh and salt water, and therefore the ability to traverse upward stretches of small streams to the ocean unimpeded is critical for the survival of these species (Joy & Death, 2013). Almost three quarters of freshwater fish are threatened with extinction (Dunn et al., 2017), including 80% of the species that collectively make up ‘whitebait’ – the juvenile form of fish. Whitebait is considered a delicacy, and its harvest an annual ritual for many New Zealanders. Whitebait is widely consumed, but poorly understood. Many of the significant research gaps associated with the species that comprise whitebait were identified in 1991 and persist today (see McDowall, 1991). The research gaps mean that it is difficult to accurately estimate the absolute and relative impact of the various pressures on the species’, and difficult also to accurately demonstrate state and trends associated with each species (such as the populations of target species in areas where fishing occurs). Against this uncertain backdrop, the controls of the whitebait fishery are limited. The whitebait fishery is primarily managed by the country’s central conservation agency – the Department of Conservation in association with regional councils. In practice, the management of the fishery favours extractive interests over conservation interests in the face of uncertainty and controls are minimal. The fish themselves are not protected under the Wildlife Act 1953. There are no controls on harvest and no obligations to disclose the quantum of a harvest in any way. Therefore, we do not know much about their life cycle, how many are taken via harvest, the persistence of those that escape the nets and the overall health of the population – a highly opaque context within which to manage a fishery for threatened species. By contrast, the exotic brown trout (considered one of the 100 most invasive species in the world) is afforded significant levels of protection and it is unlawful to either catch a trout in the absence of a permit or even to sell it. The trout fishery is administered by Fish and Game New Zealand, a statutory agency that is funded via licence fees for the catch of game species. Enforcement is strict and generally supported by the regulated community. This strange situation means an exotic invasive species effectively enjoys protection in the habitat of those species that are indigenous and that it

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predates upon. The differing treatment of these two examples arose from different times. The legislative supremacy of trout was born out of the effectiveness of the early acclimatisation societies3 (which modern statutory entity Fish and Game now takes the place of) in barracking and continuing to barrack for the species within its concern. Indigenous freshwater fish have had no such long-term advocacy associated with them, and greater protection of them – even temporary – often has numerous rivals (­ including Fish and Game itself). In 2019, a long-awaited rethink on the protection levels afforded to our freshwater fish was been initiated. The Department of Conservation is consulting on a Bill before Parliament [the Conservation (Indigenous Freshwater Fish) Amendment Bill 2018] that is intended to improve the prospect of habitat protection for indigenous freshwater fish and enable other protection measures (such as mechanical damage to fish in drainage schemes etc.).

of the Resource Management Act 1991 on ‘sustainable management’. To implement these Acts, an array of present-day agencies exists, including three central government agencies with strong environmental protection roles (Department of Conservation, Environmental Protection Authority, and the Ministry for the Environment). In addition, local government (made up of 78 local bodies) is tasked with specific environmental responsibilities in a highly devolved system of land and freshwater use management. There is no strong strategic oversight of environmental management, and no single agency has a system stewardship role. A recent review of the history of environmental politics in New Zealand illustrates through a plethora of examples that these comprehensive governance structures although laudable, typically fail to achieve necessary change on the ground (see Knight, 2018). A number of factors contribute to this failure including: the agencies or legislation reflecting the sensibilities of the time of their establishment or enactment; power imbalances whereby ministries responsible for economic development are higher up the political hierarchy than those charged with environmental responsibilities; and fragmentation of responsibilities. More simplistically, inadequate resourcing for the size and complexity of the job and the age-old tensions of competing interests and values also play a key role in compromising environmental outcomes. The interplay between central and local government as regards environmental management is also worth highlighting. The use of land, freshwater, and coastal areas is primarily managed by local government, in a devolutionary governance model that is unusual compared with many similar jurisdictions. This high level of devolution is also coupled with limited national oversight, the ramifications of which are manifold and are addressed here where relevant to the case studies. Of special importance is the relationship with Māori. With the signing of the Treaty of Waitangi, British Sovereignty was proclaimed over all of New Zealand,

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and Māori were awarded the same protection as British subjects and were guaranteed undisturbed possession of lands, forests, fisheries, and other possessions as long as it was their desire to retain them. Breaches of The Treaty occurred almost immediately, and the relationship between the Crown and Māori has always been fraught (see Chapter 4). Māori experienced significant and widespread land alienation. This prevented Māori access to resources and opportunity, which had dire consequences for both the economic empowerment for Māori and the ability for iwi (the largest unit of social grouping or tribe) to express kaitiakitanga (guardianship) for the areas over which they were mana whenua (indigenous people who have territorial rights over land. However, The Treaty affords Māori a role in environment governance that, by legal rights, extend far beyond being merely a ‘stakeholder’. The Treaty defines Crown and Māori as being equal partners, elevating the position of iwi (tribes) and hapū (social groupings within tribes) well above other participants. In recent decades, a number of Treaty settlements have been finalised4 that have seen the return of some land, assets and financial compensation to a number of iwi. This is changing the face of environmental management in New Zealand but many governance challenges remain, particularly in light of differing world views, social aspirations, or acceptable levels of pollution or degradation between Treaty partners or the agencies which represent them. Evaluating environmental governance is a complex endeavour and we do not suggest our review is exhaustive. Comprehensive guidelines are absent and the relevant law rarely articulates measurable objectives, but Bennett and Satterfield (2018) recently developed a practical framework for environmental governance. The four key objectives are: 1. Effectiveness (supports maintenance of system integrity and functioning); 2. Equitable (employs inclusive processes and produces fair outcomes); 3. Responsive (enables adaptation to diverse contexts and changing conditions); and 4. Robust (ensures functioning institutions persist, maintain performance, and cope with perturbations and crises) (Bennet & Satterfield, 2018). In our opinion, these are relevant criteria for assessing environmental good governance and we posit what good governance of biodiversity and ecosystems involves for public and private (including Māori) land using them as a base. The following evaluation pays special attention to the protection of biodiversity and ecosystem functions on public, private, and Māori land. Each context has particular issues that we will focus on, and then pull together the common themes in the discussion. Some of these may also be relevant to other contexts such as marine management, but we do not address those here. The focus is on biodiversity and ecosystem function as these underpin ecological processes and the provision of the full range of ecosystem services from which we extract cultural, environmental, social, and economic benefits and values.

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PUBLIC LAND – NATIONAL TREASURES IN THE SAFEST OF HANDS? Good governance of biodiversity and ecosystems on public land involves:

• Maintenance of biodiversity to ensure that habitats and species persist, and • • •

their conservation status is maintained or improved over the long term (effectiveness); Managing features protected on these lands in a way that appropriately recognises the aspirations and values of stakeholders (equitable); Responds appropriately and effectively to changing needs (responsive); and Rests on sound analysis of conservation performance reporting (robust).

New Zealand boasts one of the highest proportions of protected land in the world. National treasures such as the World Heritage Site Tongariro National Park comprising the triple complex of Mounts Ngāuruhoe, Tongariro, and Ruapehu on the volcanic plateau of the central North Island; the splendour of the wild south west coast of the South Island (Fiordland) and many of the kauri (Agathis australis) forests of the sub-tropical north of the country are legally protected for future generations. Habitats and species that have disappeared from or struggle to persist on private land find some safety and security in public ownership. The existence and access to such wilderness places form a critical dimension of the value proposition for New Zealand as a tourism destination. Public protection removes to a large extent the threat of direct loss and impact, which is vital to New Zealand achieving both international and domestic biodiversity goals. The large proportion of public conservation land includes the majority (62%) of the remaining indigenous vegetation (Norton & Pannell, 2018). However, this large area of protected land is skewed in its representation of the country’s indigenous ecosystems and is largely concentrated in the ‘backcountry’ – montane areas and hill country not well suited to other land use, with much less representation in the more fertile lowland areas of the country. Just under half (49%) of the land above 500 m is protected as public conservation land, but only 18% of the land below 500 m is (Norton & Miller, 2000). However, land use change occurs, and even protected areas are from time to time targeted for development. The types of development that have the potential to erode the natural values of protected areas include, but are not limited to, activities provided for within those areas (development activities such as roads for which concession can be sought from the managing agency); perimeter encroachment by adjacent land uses; and the provision of infrastructure for use purposes (e.g. tourism infrastructure). In addition, the pervasive threat of invasive species almost universally exists in some form, and how it is managed is more related to management input than tenure. New Zealand has been a world leader in pest control and threatened species management (Blackie et al., 2013, Burns, Innes, & Day, 2012; Clout, 2001; Clout & Saunders, 1995; Russell, Innes, Brown, & Byrom, 2015). Pioneering work in species recovery, island restoration, and the development of pest-free

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fenced sanctuaries established New Zealand rightfully as a bastion of conservation innovation. This knowledge and experience is routinely disseminated by the involvement of New Zealand scientists and conservation management experts on conservation programmes for species and habitats around the world. Despite this decorated history, the management of public land in New Zealand has always struggled with poor resourcing. For public lands to effectively protect biodiversity, sustained funding and support for meaningful management must exist, in addition to appropriate administration of the more direct threats discussed above. The management of ecosystem function, as opposed to species conservation, is typically underfunded and politically unpopular, despite how crucial it is to everyday life. Given the large area set aside as public conservation land in New Zealand, the management burden is significant, substantial, and costly. Funding and capacity for the Department of Conservation to conduct conservation work experienced a steady decline in recent years. With the change of government in 2017, the funding for publicly led conservation work has increased sharply, but is yet to counter the magnitude of the decrease in previous years. Management of invasive species demands targeted and specialised interventions including shooting to cull populations of herbivores, large-scale aerial poison drops or systematic deployment of bait stations to reduce populations (e.g. possums and rats), and intensive trapping around known nest sites to prevent predation of eggs and young birds. As New Zealand’s expanse of public conservation land is largely confined to the more mountainous regions of the country, much of this pest control effort occurs in rugged and remote environments. Effective pest management demands significant technical expertise and a consistent and reliable funding framework as the benefits of pest control are quickly undone by interruptions. Managing the many complex pressures on biodiversity demands an inclusive approach to setting a way forward, and cannot be confined to public land. In 1999, the New Zealand Biodiversity Strategy (NZBS) was developed and released as a response to the Convention on Biological Diversity 2000, to which New Zealand was a signatory. The NZBS was remarkable in its scope and ambitious in its goals. However, its gravitas quickly ebbed, and over the subsequent 19 years successive governments pushed it farther from strategic decision-making and attempted to replace the NZBS with much less ambitious documents more than once (e.g. the Threatened Species Strategy released in 2017 for consultation purposes). In the intervening two decades since the release of the inaugural NZBS, many local government agencies have developed biodiversity strategy documents of varying quality, scope, and ambition. While many councils are responsible for public reserves, these local biodiversity strategies also include biodiversity on private land. The motivation for these strategies was often a desire to work collaboratively with communities, environmental groups, and industry interests; and was commonly preferred over the more contentious approach of regulating biodiversity protection. Local biodiversity strategies were typically strong on voluntary methods of implementation. The weak direction and leadership at a national scale was doubtless a key stumbling block for local and regional

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agencies, as many of the changes needed were outside their control (e.g. introduction of economic instruments). In October 2018, the Minister for Conservation announced that the NZBS would be reviewed and a discussion document (Te Koiroa o te Koiora) was released for public consultation in August 2019. Good environmental reporting should accurately reflect state and trend of environmental indicators at appropriate intervals and be structured in such a way as to invoke an appropriate management response where one is required. While some monitoring and reporting exists, overall New Zealand has a poor record of conservation performance reporting, which makes it very difficult to know the risks that species and habitats are facing, the success or otherwise of different management interventions, the state and trend of individual species, groups of species and habitats, and other important information. The limited availability of long-term datasets is not unique to New Zealand but is a key barrier to effective management. Despite New Zealand having such an unenviable record of extinction, and a large number of species threatened or at risk of extinction, there is also no legal requirement for any agency to take action when a species becomes more imperilled (i.e. moving from being not threatened to threatened, or to a higher threat class). Many species prevalent just a generation ago, now face a very uncertain future and New Zealand’s current environment governance structures lack any requirement for any agency to take accountability for such declines, nor does it compel any action in response. This contrasts with jurisdictions such as the United States where under the Endangered Species Act 1973, the classification of a species as being threatened triggers a legislative response. Developing a more robust and responsive legal framework for the protection of wildlife and habitats has been the subject of much advocacy, but to date action has been limited (Seabrook-Davison, 2010). New Zealand ranks among the world’s best at setting aside terrestrial lands for conservation purposes, but struggles to maintain the political priority required to ensure their management reflects their value. For New Zealand to maintain an international reputation for conservation management, greater and more strategic public spending on the management of these precious areas will be required. Such areas are the first line of defence against species extinction, and provide havens and refugia for the unique and precious wildlife. If threats cannot be better curtailed however, they are inadequate on their own.

PRIVATE LAND – THE RIGHT TO DEVELOP AGAINST THE NEED TO CONSERVE Good governance of private land involves:

• Managing biodiversity system integrity on private land (effectiveness) • Deftly ensuring that landowner rights and responsibilities are fairly balanced and fairly spread across different land uses and locations (equitable) • Responsive to changing needs, including increasing rareness of a biodiversity and reducing risks to ensure persistence over the long term (responsive) • Robustly monitoring the performance of management interventions.

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The high proportion of land in private ownership means that the management practices implemented by landowners do have very real national scale impacts. Thus, land management on private land is a critical component of environmental governance in New Zealand. Approximately 40% of remaining indigenous vegetation cover occurs on private land, most of which (25%) falls on sheep and beef farms in the hill country (Norton & Pannell, 2018). This indigenous biodiversity remaining on private land is largely unprotected, and that remaining in areas where historic loss has been the greatest is both of considerable conservation value and highest risk of further loss (Cieraad, Walker, Price, & Barringer, 2015; Walker, Price, Rutledge, Stephens, & Lee, 2006). Thus, protecting and enhancing biodiversity on private land will be needed to safeguard the nation’s biodiversity – both in the hill country where indigenous vegetation cover on private land represents a considerable proportion of the total remaining cover, and in lowland areas where what little remains is of high conservation value. Critically, in many places, simply protecting what is left will not be adequate to halt the decline and the reintroduction of indigenous vegetation will be required. The pattern of rapid land use change on private land that characterised the colonial period of New Zealand’s history has continued, and the overall trend is one of decline and destruction of natural resources, including biodiversity. Notwithstanding, there been some quite remarkable voluntary endeavours to protect indigenous biodiversity on private land (see Box 2). Although impressive, this landowner-driven protection represents only a small portion of remaining indigenous vegetation on private land (Norton & Pannell, 2018). Despite a groundswell in community effort, the lack of environmental governance and national recognition is not only undermining positive actions but fails to adequately manage and protect resources.

Box 2.  New Zealand’s Conservation Achievements on Private Land – and How Far Have They Got Us? Throughout New Zealand, landowners are voluntarily undertaking measures to protect and enhance indigenous biodiversity on their properties. One example of this is the high uptake of Queen Elizabeth II Trust Open Space Conservation Covenants which legally protect areas of indigenous biodiversity on-farm in perpetuity. At June 2016, there were a total of 4,626 protected open spaces (including registered covenants, approved covenants, and formal agreements), covering 182,677 ha (QEII National Trust, 2017). While undoubtable impressive, this represents only a small proportion of the remaining indigenous vegetation on private land. For example, of the nearly 3 million ha of indigenous vegetation present on sheep and beef farms in New Zealand, only 3% is protected by a QEII Covenant (Norton & Pannell, 2018).

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Many landowners also undertake pest or weed control in some form on their land, either as a condition of a covenant, in compliance with a regional pest management strategy (administered by regional councils under the Biosecurity Act 1993), or purely voluntarily. Such positive management actions by individual landowners are often encouraged or substantially supported by local government initiatives such as coordination of riparian fencing and planting programmes, and provision of funding for fencing of wetlands, waterways, and bush blocks. Self-organised community land-care groups are also investing substantial effort and resource into local projects throughout the country (Peters, Hamilton, & Eames, 2015). In several regions of New Zealand, the reintroduction of indigenous biodiversity is being used as a tool to mitigate externalities of land use and land management practices; driven largely by local government supported voluntary programmes, industry standards or both [e.g. Taranaki region’s riparian programme (Taranaki Regional Council, (TRC), 2011)]. Such programmes have been credited with transforming landscapes (TRC, 2011), particularly those that have been most denuded of indigenous woody vegetation (e.g. lowland areas of New Zealand). Farmers who partook in the Taranaki programme also perceived and experienced a wide-range of benefits and values including economic and social as well as environmental (Maseyk, Dominati, White, & Mackay, 2017). There is a notable preference to favour a friendly face of local government (council) and a ‘working together’ approach over one seen to be draconian and prescriptive. There is no doubt that working together towards common goals can achieve good outcomes for biodiversity, however this does need to be supported by a backdrop of policies that provide necessary levels of protection for increasingly scarce resources. Such a mixedmethod approach is commonly described as using a ‘carrot and stick’. New Zealand’s environmental compliance record (Brown, 2017) and decline in environmental indicators across the board (Ministry for the Environment & Stats NZ, 2019) highlights that the ‘carrot’ has been insufficient and that the lack of effective use of the ‘stick’ has come at a great cost. It has also acted to arguably shift the burden for addressing biodiversity decline to the under-resourced and distracted populous and away from government (at all levels) and the tax take.

Obligations of landowners regarding environmental management are relatively scant, particularly so considering the critical role biodiversity plays in sustaining the provision of ecosystem services which contribute to our existence and well-being, and the ecological significance of many of the fragments of remaining habitat in private ownership. The continued decline of indigenous biodiversity in New Zealand illustrates that relying on voluntary action has failed (Bradshaw et al., 2010; Brown et al., 2015), not least because current policies are inadequate

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and because they fail to resonate with those who the responsibility has been effectively devolved to (Maseyk, Dominati, & Mackay, 2019). Operating in parallel to this comparative lack of regulation, has been a pervasive promotion of continued economic growth, the pursuit of which put further pressures on the very declining resources fundamental to the country’s ability to produce primary products. For example, the National Government’s Growth Agenda (Ministry of Business Innovation & Employment, 2012) included a goal to double the value of agricultural sector exports by 2025. An ambitious goal that included the expansion of dairy farming to increase the volume of milk solids produced. The same government also allocated NZ$14.5 million from 2011 to 2014 to assist regional councils to address water quality issues within seven priority waterbodies under the Fresh Start for Fresh Water Clean Up Fund (Ministry for the Environment, 2016), and the contestable Freshwater Improvement Fund of NZ$100 million over ten years was launched in 2016 (Beehive, 2016). These initiatives send very clear messages that prioritise economic development and growth, and suggest ‘we can have our cake and eat it too’; with a bit of publicly funded effort into clean-up, we can continue to externalise environmental harm and privatise the profits. Side-stepping basic duty of care responsibilities on private land also continues to enforce the dichotomy of thinking prevalent in the New Zealand psyche, whereby conservation belongs on public lands, and that on private land is of little value; and its persistence is at the whim of the landowner. The view that private land is no place for indigenous biodiversity is short-sighted in that it overlooks not only the value of biodiversity to the function of these areas, but also the role these areas play in the larger landscape (Maseyk & Dominati, 2019). To date, our environmental governance has also entrenched this stark separation between conservation land and production land. Water was a key issue during the 2017 election campaign with a notable increase in community engagement in, and concern for, improved management of the water resource. In all, 80% of New Zealanders were shown to want action to improve water quality (Ministry for the Environment & Ministry for Primary Industries, 2018). The current government has a clear mandate to take action on freshwater management and undertook a number of initiatives in the early months after coming to power. This included winding-down public subsidies for large-scale irrigation schemes and developing a new approach to the Crown/ Māori relationship to freshwater (Ministry for the Environment & Ministry for Primary Industries, 2018). Despite this community groundswell of expectations around water management, policy direction in the form of a recently amended National Policy Statement on Freshwater,5 and several regional councils attempting to embed environmental limits in their regional resource management plans, there continues to be resistance to restrictions and regulation at the industry sector-level and on the behalf of individual landowners. This is even more the case for species and ecosystems, which either, unlike water, suffer from being perceived less of a common good and more something that occurs at a point in time and space and which become bundled in with property and use rights, or are considered a ‘nice to have’. Agricultural interests have been particularly reluctant to have resource

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use controlled. Their powerful economic and political standing has enabled the sector to aggressively protect their interests, sometimes by occupying a significant proportion of elected seats in local government. Responding to increased risks via voluntary, regulatory, or economic measures (or more typically a combination) is the defining feature of good governance of biodiversity. The primary check on private property rights in terms of environmental matters is the RMA. This framework Act provides for councils at regional and local levels to develop rules and voluntary programmes to achieve a range of aims outlined in sections 5–7 of the Act. Ambiguity and inconsistent regulatory protection (Maseyk & Gerbeaux, 2015) has resulted in a small subset of defined sites of indigenous vegetation and habitats determined to be ‘significant’ subject to regulatory protection, while the remainder remains vulnerable to development. By mirroring our poor performance on public conservation land, monitoring of the performance of biodiversity policy and the state and trend of biodiversity values on private land has also been patchy. Some local authorities undertake some monitoring of some measures, but it is not uncommon for there to be a complete lack of biodiversity monitoring on private land; including where resource consents to impact on a resource may be in play. The newly developed environmental monitoring and reporting framework (pursuant to the Environmental Reporting Act 2015) lacks robust national level biodiversity data (that is sufficiently finegrained or relevant to enable management decision-making to occur) and a reliance on the ‘case study’ approach whereby data from certain regions are used to illustrate a particular issue. Biodiversity monitoring at a regional and local level is costly and is inconsistently applied, largely by wealthier local governments in more populated regions. The decisions that landowners make often have significant implications for the nation’s natural capital, including biodiversity, at local through to regional scales. Experience to date indicates that the existing toolbox may be insufficient (Brown, 2016). A combination of coherent regulation and effective use of economic instruments, combined with complementary approaches such as advice to landowners is likely what is required. This has been well understood for a long time, but true transformative energy has been difficult to generate in a political environment so protective of private property rights. Political gumption may be needed to disrupt governance with change-making instruments such as taxes and levies that incentivise environmental good (see, e.g., Stephens, Greenhalgh, Brown, & Daigneault, 2016).

MĀORI LAND – HISTORICAL ALIENATION PERPETUATED THROUGH ENVIRONMENTAL PROTECTION LEGISLATION? At the time of the signing of English and Te Reo Māori versions of The Treaty of Waitangi / Te Tiriti o Waitangi in 1840, Māori owned more than 27 million ha of the country. Just 12 years later that figure had nearly halved to less than 15.5 million ha (Durie. 1998). By 1920, only a little over 2 million ha remained in traditional

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ownership. This reduction in domain was so rapid that the cultural implications among others were – and continue to be – dire. Māori land at present constitutes approximately 5–6% of the total land area of New Zealand (c. 1.5 million ha), and primary production constitutes a relatively small but growing percentage of the activities carried out over that area (Statistics New Zealand, 2018). Much of the land is poor quality (as in, unsuitable for agriculture, or isolated etc.), as raupatu (land confiscation) was particularly focussed on high-value land (Temara, 2011). Land remaining in (typically communal) Māori ownership has commonly not undergone the same intensity of land conversion as other privately owned lands. The reasons for this are myriad, and include the intergenerational social impacts of urbanisation, the fragmentation of and restricted access to tribal lands, and the loss of social cohesion and connections to place. Thus, a significant proportion of remaining indigenous vegetation cover occurs on Māori owned land (Stephenson, 2001). Some of this land is protected by way of conservation covenant via the Ngā Whenua Rāhui programme,6 administered by a bespoke wing of the Department of Conservation, but the remainder is largely unprotected. If the definition of effective governance is that system function and integrity is maintained, then the retention of large tracts of habitat is a positive. However, this has occurred mainly through systematic economic disempowerment of Māori; leaving them unable to resource development of their lands, thus enabling native habitats to persist. Furthermore, Māori lands, and the resources on them, are increasingly becoming a buffer to mitigate poor land management and resource degradation elsewhere. Taken in isolation of social and cultural issues, or obligations under The Treaty these remaining areas of biodiversity can be regionally, or nationally important and a priority for protection. In purely biological terms, this goal has in part been achieved, but the context for achieving that goal is relevant to the next governance point – equity. More modern strategies to maintain ecosystem function can enable conservation at the expense of appropriate recognition of cultural values. A range of innovative governance approaches have been developed in respect of this challenge, including the granting of legal personhood to natural features.7 There is more work to do to address underlying inequalities and structural barriers to co-governance that New Zealand is yet to energetically embrace. Iwi and hapū therefore face a further challenge beyond merely getting their land back, as they come up against land use restrictions brought about due to the scarcity of biodiversity and indigenous vegetation cover remaining across the country. Via environmentally motivated restrictions, Māori are once again being denied access to resource use and economic development that others have profited greatly from. Examples include restrictions on clearing native habitat, the inability to undertake intensification of land use and limiting harvest of traditional food and fibre sources. For Māori, the retention of conservation outcomes and sustainable management of natural resources is a key component of mātauranga Māori (the Māori way of being and engaging in the world) and expressing kaitiakitanga. However, biodiversity and conservation policy has typically been developed and implemented with scant regard for Te Ao Māori (the Māori world view and values). As a consequence,

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conservation outcomes have often come at the cost of other values and these tradeoffs occur as, and contribute to, a myriad of intertwined social and economic factors. Past approaches of environmental governance can therefore contribute to generating a further layer of deprivation and unequal land use rights, the only difference being that conservation is now the driver, and in this sense, could be just another consequence of the long-arm of colonisation (‘conservation colonisation’).

DISCUSSION AND CONCLUSION To summarise New Zealand’s current environmental governance, public lands are the protected domain of a significant proportion of biodiversity, cultural and scenic/landscape values, there exists a dedicated conservation agency, and a slew of relevant legislation is in place. However, an unstable funding environment and systemic weakening of key government departments have constrained effective management. On private land, there is sustained tension between the desire to extract economic gain and need to manage scarce resources. There is no doubt that New Zealand can boast of some, localised conservation successes, but the task of refereeing between public goods and private aspirations is almost entirely devolved to local councils, which are often populated by powerful local and national vested interests (McNeill, 2008). New Zealand’s contemporary systems of governance struggle to enshrine their even minimal duty of care. Finally, management of Māori land struggles between recognising those places as a stronghold of indigenous biodiversity, while at the same time as being often the only access to economic development many whānau (social groupings within hapū or extended family units) and hapū have. We identify five key areas where NZ could respond to the governance challenges raised: 1. Recognising the unique cultural context of a binding Treaty between Māori and Pākehā (non-Māori). 2. Providing brave leadership, strategy, and vision. 3. Developing an appropriate range of tools. 4. Improving environmental monitoring and reporting. 5. Improving compliance monitoring and enforcement. We briefly explain on these areas below. It stands to reason that following Treaty settlements, iwi will be looking to use their asset base and explore opportunities for economic development. Allowing for development of Māori owned land while enforcing restrictions elsewhere will also require careful navigation as other sectors may fail to understand the nuances of providing opportunities to address past injustices, and instead interpret such efforts as providing advantages to some and not others. New Zealand has embraced strategic planning for biodiversity protection with some gusto. A long history of strategic approaches has resulted in a plethora of contemporary plans and strategies throughout the myriad agencies with

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biodiversity protection responsibilities. There are emerging opportunities for improvement, including current progress of long-awaited national guidance on the protection of indigenous biodiversity promulgated under the RMA to guide the otherwise highly devolved implementation of the Act by local government. Over the past two years, a collaborative process has been administered by the Ministry for the Environment. The process has brought together a subset of representatives of industry and environmental groups (alongside observers from central and local government) to write recommendations for the Proposed National Policy Statement on Indigenous Biodiversity (NPSIB). While the Proposed NPSIB is currently still in the process of public consultation, and should it survive the everpresent barrier of vested interests, it has the potential to drive a more consistent and effective regime for biodiversity protection, most particularly on private land. The drawdown of natural capital stocks such as soil and water, and the benefit from the ecosystem services that flow from these stocks, typically occurs with no price attached for the resource user. A stronger focus on requiring resource users to internalise their environmental costs would likely drive more positive outcomes. Indeed, the OECD has previously pointed out New Zealand’s very low uptake of economic instruments in environmental management (OECD, 2007). While there have been some attempts to incorporate economic mechanisms in environmental management (see, e.g, the nutrient cap and trade system currently active in the Lake Taupo catchment, in the central North Island, Duhon, McDonald, & Kerr, 2015), such systems are often difficult to administer at local levels and carry high transaction costs. Part of the reason for low use of economic instruments in environmental management, is likely to be the degree of devolution of responsibility. Therefore, bringing more such mechanisms in is likely to require centralised focus and resourcing, such as from the Ministry for the Environment. In 2017, the newly elected government established a Tax Working Group (TWG) to look at the structure, fairness, and balance of New Zealand’s tax system. The TWG (2019) released their recommendations, which includes a framework targeted at environmental and ecological outcomes. This includes some actions which are not too far from current practice (e.g. use of tax deductions for costs associated with securing protection of covenants), but also recommendations that some or all environmental tax revenue be used to help fund a transition of a more sustainable circular economy; and that over the longer term new tools such as an environmental footprint tax or natural capital enhancement tax be considered. The recommendations of the TWG represent an imminent opportunity to increase the use of taxation along with other tools to address ­environmental issues. In 2015, New Zealand finally introduced compulsory national environmental reporting. The Environmental Reporting Act 2015 introduced the requirement for a rolling reporting sequence of each of the five domains (air, climate, marine, land, and freshwater) being reported on once in a three-year period (a report every six months), plus an overarching environmental report that covers all domains. The regime is administered by both the Ministry for the Environment and Statistics New Zealand. This regime introduction was a positive step forward, but work remains in ensuring the data collected and reported upon is meaningful

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and at an appropriate scale to inform decision-making. Furthermore, the data must sufficiently track progress across all environmental media of interest. At present, most data relate to freshwater, with very much less being available for biodiversity, particularly in marine ecosystems. This requires both investment in short and long-term monitoring to inform management, and political gumption to take the actions such data should provoke. The aspirations of law and policy are often not realised on the ground due to a range of reasons, one of which being the compliance gap. In environmental law, the compliance gap can often be very large indeed – in part due to the collective action problem previously outlined. In the RMA space, the environmental enforcement role is almost wholly devolved to regional and local councils, which allocate very different levels of priority to the task of following on environmental requirements. In the past few years, several improvements have occurred, notably the developing of guiding documents within the regional sector, and the release of over-arching guidance by the Ministry for the Environment (the development of a regional sector monitoring framework for compliance work including a regular national report, the ‘Best practice guidelines for compliance, monitoring and enforcement under the Resource Management Act 1991’). The latter document for the first time sets out requirements for agencies implementing the RMA and provides a sense of the expectations of the councils in areas such as resourcing, information management, clear and independent decision-making, and cost recovery. Greater transparency – and therefore enhanced accountability – will be the ultimate check on discretion in public policy and improvements in enforcement of environmental policy and l­egislation is heralded. In sum, New Zealand has had mixed success in environmental governance. Many great things have been achieved through dogged determination of individuals and organisations; nevertheless, overall the picture is one of decline. This reflects that our taste for developing strategies and plans is unmatched on the ground, where genuine, well-funded and meaningful conservation interventions are required over the long term. Much can be learned from New Zealand’s story of biodiversity loss, and hopefully – in time – much can also be learned from our effective response to these challenges. Mustering that will and that action will require courageous political leadership, the use of a much wider array of instruments to drive behaviour change, and a final shedding of our colonial mentality.

NOTES 1.  Natural capital is the abiotic and biotic elements of nature, and all physical, biological, and chemical processes (Mace, Hails, Cryle, Harlow, & Clarke, 2015). Natural resources (e.g. water, soil, vegetation, species, and air) are stocks of natural capital and this includes, but is not restricted to, indigenous species and ecosystems typically captured by biodiversity conservation objectives. 2.  Ecosystem services are the benefits flowing from natural capital stocks consumed or used by humans to sustain or advance wellbeing. This includes the goods generated by ecosystems that people value. 3.  Acclimatisation Societies were established in the 1860s by early colonial settlers with the purpose of introducing non-native species with the hope they would acclimatise to New Zealand’s environmental conditions and establish self-supporting populations in the wild.

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4.  Treaty settlements are negotiated by Te Kāhui Whakatau (Treaty Settlements) within Te Arawhiti (The Office for Māori Crown Relations). Te Kāhui Whakatau reports to the Minister for Treaty of Waitangi Negotiations. 5.  The Resource Management Act 1991 provides for national policy statements to be released by central government to provide guidance on how matters of national importance should or shall be managed. The National Policy Statement on Freshwater is one such instrument and has been regularly revised since release in 2011. 6. Ngā Whenua Rāhui is a funding programme administrated by the Department of Conservation for the purposes of providing protection for indigenous biodiversity on Māori land through the use of 25-year renewable kawenata (covenants). The programme honours the rights guaranteed to Māori landowners under Te Tiriti o Waitangi and the 25-year duration of the kawenta ensures tino rangatiratanga (sovereignty and self-­determination) is retained for future generations. 7. For example, the Te Awa Tupua (Whanganui River Claims Settlement) Bill 2017 confers legal personality on the Whanganui River in recognition of the special ancestral relationship between the Whanganui River and Whanganui iwi; and the Te Urewera Act 2014 declared that Te Urewera (a large lowland forest in central North Island and formally a National Park) is a legal entity, and no longer vested in the Crown. Legal entities have all the same rights, powers, duties, and liabilities of a legal person.

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Peters, M. A., Hamilton, D., & Eames, C. (2015). Action on the ground: A review of community environmental groups’ restoration objectives, activities and partnerships in New Zealand. New Zealand Journal of Ecology, 39(2), 179–189. QEII National Trust. (2017). Retrieved from http://www.openspace.org.nz/Site/Publications_resources/ Annual_statistics_maps_and_graphs.aspx. Accessed on November 14, 2017. Russell, J. C., Innes, J. G., Brown, P. H., & Byrom, A. E. (2015). Predator-free New Zealand: Conservation country. BioScience, 65(5), 520–525. Seabrook-Davison, M. (2010). An evaluation of the conservation of New Zealand’s threatened biodiversity: Management, species recovery and legislation. PhD thesis. Massey University, Auckland. Stephens, T., Greenhalgh, S., Brown, M. A., & Daigneault, A. (2016). Enhancing the tax system to halt the decline of nature in New Zealand. Policy Quarterly, 12(1), 26–34. Stephenson, J. (2001). Recognising Rangatiratanga in resource management for Māori Land: A Need for a New Set of Arrangements? NZ Journal of Environmental Law, 5, 159–193. Sullivan, J. J., Kelly, D., & Ladley, J. (2010). Feathers to fur: The status of New Zealand ecological research in 2009. New Zealand Journal of Ecology, 34(1), 1–5. Tax Working Group (TWG). (2019). Future of tax. Final Report Volume 1. Recommendations. Tax Working Group Te Awheawhe Tāke, Wellington, New Zealand. Taranaki Regional Council (TRC). (2011). Transforming Taranaki. The Taranaki Riparian Management Programme. Stratford: TRC (Taranaki Regional Council). Temara, P. (2011). A Maori World View: The Connection and Identification with the Environment. In Wai 796, The Report on the Management of the Petroleum Resource (ch02, pp. 23–37). Wellington: Legislation Direct. Retrieved from http://www.waitangitribunal.gvt.nz/ Walker, S., Price, R., Rutledge, D., Stephens, R. T. T., & Lee, W. G. (2006). Recent loss of indigenous cover in New Zealand. New Zealand Journal of Ecology, 30, 169–177. Wilmshurst, J. M., Anderson, A. J., Higham, T. F. G., & Worthy, T. H. (2008). Dating the late prehistoric dispersal of Polynesians to New Zealand using the commensal Pacific rat. PNAS, 105(22), 7676–7680.

FURTHER READING Pawson, E., & Brooking, T. (Eds.). (2002). Environmental Histories of New Zealand. Melbourne: Oxford University Press. Vitalis, V. (2007). Agricultural subsidy reform and its implications for sustainable development: The New Zealand experience. Environmental Sciences, 4(1), 21–40.

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CHAPTER 14 QUEST: NEW ZEALAND PUBLIC SECTOR REFORM SINCE 2000 Iain Rennie

Quest (definition): ‘A long search for something that is difficult to find’.1

1. INTRODUCTION Public sector reform in the 2000s has largely sought to improve upon rather than fundamentally relitigate earlier reforms. A public sector manager transported in time from the 1990s to the mid-2010s would find the public sector environment and managerial toolkit to be readily recognisable. Understandings around the roles of public sector managers in terms of their ability to make decisions around resources, staff and deliver services to the public were little changed. Similarly, the accountability frameworks and system within which unelected public officials operate have endured. In contrast, that same time-travelling manager would have found that their managerial environment had radically altered had they moved from the 1970s to the 1990s. The reform period from the mid-1980s (discussed in Chapter 8) fundamentally shifted the paradigms of governance, control and accountability in the public sector from what had existed previously. New Zealand public sector reform since 2000 has been striking because of the differences in the substance of reform and the ways in which reform was undertaken compared to the earlier period. Reform in the 1980s and 1990s was rapid, intellectually highly coherent and driven by a powerful authorising environment of reformist governments working closely with public servants, particularly in the Treasury. In contrast, reform since 2000 has operated within a variety of contexts and authorising environments.

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The re-emergence of sustained fiscal deficits following the Global Financial Crisis (GFC) and the Canterbury earthquakes spurred reform as government sought to improve public services in a fiscally constrained environment. On the other hand, generally benign fiscal circumstances, reflected in sustained fiscal surpluses, through the early 2000s until the GFC and, again, from the mid-2010s, reduced the urgency to seek change. The difference in fiscal environments over the past two decades has contributed to the stop–start character of public sector reform. The notion of quest is an apt description of the intellectual challenges that reformers have faced in determining the most effective ways to make change. The intellectual self-confidence and certainty that characterised change in the 1980s and 1990s is much less evident in more recent reform episodes. This is reflected in competing reform narratives and different ways in which reform has been undertaken since 2000. This chapter looks to outline the principal threads of public sector reform in the 2000s. The varying approaches to reform means that defining a few elements of change risks over-simplifying what has been at times a messy, fitful but innovative period. Three distinct and related themes stand out. First, there has been a consistent desire to focus the public sector more strongly around better outcomes for the community, particularly in the social policy domain. Secondly, the concept of stewardship has emerged and has resonated more powerfully with public sector managers over the past two decades. At a high level, stewardship can be taken to mean a focus on the longer-term health of an organisation or a system of related organisations or functions. Thirdly, new approaches to accountability have been explored. Effective accountability is critical for incentivising managers to take care, to reward and sanction performance in a fair and proportionate manner, and to learn from successes and failures. Across each of these threads of reform, a number of tools have been developed to support politicians and public sector managers to work in the desired direction of reforms. Necessarily, this chapter outlines several of these tools by way of illustration rather than to provide a complete inventory of the contemporary public sector manager’s toolkit. Following a review of the significant reforms, investments and innovations made over the past two decades, the chapter offers an assessment of the sustainability of change made to date, and the challenges that further reform is likely to need to address in coming years.

2. THE CONTEXT FOR REFORM At first blush, further significant public sector reform in New Zealand during the 2000s should not have automatically been expected. The very wide-ranging changes of the 1980s and 1990s were relatively recent. New Zealand’s public sector has been well regarded internationally through this period. For example, in 2019, the International Civil Service Effectiveness Index, prepared in a collaboration between the Blavatnik School of Government, Oxford University, and the Institute for Government placed New Zealand’s civil service second highest, behind the United Kingdom.2 New Zealand has consistently ranked very highly

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in Transparency International’s Corruption Perceptions Index (see Chapter 9). Notwithstanding New Zealand’s low levels of GDP per capita relative to many Organisation for Economic Cooperation and Development (OECD) countries, the overall wellbeing of New Zealanders ranks well, ranking 11th on the OECD’s Better Life Index (2017) (see Chapter 7).3 Despite these strengths, through the 2000s several areas of concern or poor performance persuaded both political and bureaucratic leaders to look to improvements in New Zealand’s public sector performance. While outcomes for the population generally are respectable, pockets of persistent and deep disadvantage exist. In 2011, the Better Public Services Advisory Group in its report to the New Zealand Government noted a number of areas of concern. Indicators of disadvantage include:

• While New Zealand spent more than 20% more of its GDP on law and order • •

than the average OECD country, levels of victimisation, burglary and assaults were at least 40% above the OECD average. Nearly one student in three left school without having gained the skills necessary to succeed in a modern economy. While New Zealand spent more than the OECD average on health, infant mortality rates were 7% higher than the OECD average and Maori infant mortality was over 30% higher than the OECD average.4

While the fiscal situation of the 2000s was generally much better than during the economic and fiscal crisis of the 1980s, the fiscal situation deteriorated rapidly from 2008. Initially, the impact of the GFC led to a marked deterioration in the fiscal position, and Government’s responsibilities to support the recovery in Canterbury, following large and destructive earthquakes in 2010 and 2011, compounded the worsening of the fiscal position. From 1994 to 2008, there were 15 successive years of operating surpluses, and net public debt fell to around 5% of GDP in 2008. However, six years of operating deficits followed and net public debt rose significantly, reaching 25.5% of GDP in 2013. The environment of heightened fiscal constraint following the GFC led government to set new expectations on government agencies. Agencies were expected to look to increase the effectiveness of their programmes to maintain or increase the levels of public services delivered, and to generate efficiencies from their existing operations – ‘more for less’. An objective of public sector reform was therefore to support, at a system-wide level, the government’s objective to improve the fiscal position alongside improving the effectiveness of public services. By the early 2000s, within the public sector, the case for reform was assisted by frustrations with aspects of the workings of the public sector since the reforms of the 1980s and 1990s. These frustrations included perceived difficulties for staff to move across the public sector to pursue new career opportunities, the paucity of structured professional and leadership development, and the lack of systematic dissemination of good practice across the public sector. The autonomy provided to individual agencies to develop operating models and to introduce corporate systems meant that there was little standardisation of systems and processes. Together with a large number of generally small agencies, a lack of

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standardisation impeded the capacity for agencies to work together, and opportunities for government to generate efficiencies and service improvements from economies of scale and scope were lost. More generally, the focus on individual agencies and the inability to have developed a parallel strong system-wide perspective created a sense of a loss of a wider public sector identity, including a growing concern that there was less understanding and acceptance of formerly widely held public sector values. The Labour-led Government elected in 1999 commissioned a review of the public sector, The Review of the Centre. In 2001 that review contained a summary of recent reviews of the public management system and it is striking how many of those narratives both recognised the strengths of the earlier reform period but pointed to a common set of weaknesses within the public management system. These narratives included:

• Public Management in New Zealand (Boston, Martin, Pallot, & Walsh) 1996. • •

This noted the absence of an effective strategy for the development of senior managers, and the problem of institutionalising Public Service ethics in a context of significant change, growing agency cultures and high staff turnover. The Spirit of Reform (Schick) 1996. In his engagement with the Review of the Centre, Schick emphasised his concerns about the relationship between Ministers and Chief Executives, capability with respect to leadership, and fragmentation arising from large numbers of agencies and policy/operation splits. Public Sector Management in New Zealand (Scott) 2001. Scott identified a number of areas of the system that needed to operate more effectively. These included the need for central agencies to provide leadership to ensure a stronger outcome focus, improving capability including senior management succession, and strengthening values and ethos.5

3. THE PURSUIT OF IMPROVED OUTCOMES A focus on outcomes had been intended to be part of the earlier reform programme. However, in contrast to many other parts of that programme, gaining traction around outcomes at either the organisation level or system-wide had not been successful. There were some successes, in areas such as road safety funding and funding some employment services.6 In these cases, defining outcomes in practical and measurable terms that aligned with service delivery are likely to have been important explanations for their success. However, more broadly, the indirect linkages between the levers within the control of public servants and desired national outcomes together with the long timeframes over which changes in these outcomes are likely to become apparent have been challenges for outcomes management and especially around accountability for outcomes. In addition, explanations such as the lack of consistent political and bureaucratic leadership in promoting an outcomes focus, and a lack of systematic capability building to execute an outcomes focus, are also likely to have been important in accounting for a lack of progress around outcome management. Recent years have seen renewed efforts to improve the system’s outcome focus. The focus of these initiatives has varied. In part, this reflects different

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understandings of the barriers to a stronger outcomes focus. These understandings of the barriers may not be mutually exclusive but the emphasis placed on different explanations has shaped different reform pathways. The barriers include:

• Difficulties

•

in achieving political alignment around strategic priorities. Governments seek to improve the nation’s wellbeing in many ways. It has proven difficult to develop consistent, deeply-held, explicit understandings across Cabinets about the outcomes that matter most, especially when those outcomes span different ministers and different ministerial portfolios. Alignment can be made more difficult when ministers represent different political parties as has been the case since the introduction of the Mixed Member Proportion (MMP) electoral system in 1996. The long-standing practice of highly fragmented ministerial portfolios in New Zealand significantly exacerbate this problem. In July 2019, 72 ministerial portfolios were held by 27 Ministers within or outside the Cabinet.7 The absence of strategic clarity at the political level leads to potentially divergent and conflicting agendas being pursued by individual ministers, and a lack of clear understanding at officials’ level about the weight to be placed on various government or ministerial priorities. High‐cost coordination across the public sector. Especially across the social sector, it has been challenging for public servants to mobilise effectively around key outcomes. In part, this mirrors the challenges of achieving political alignment. It is hard to coordinate effectively when it is not clear what needs to be coordinated. The structure of the public sector can also increase the costs of coordination with a large number of public sector entities. The large number of public sector entities within a small but highly centralised administrative system has been a characteristic of the New Zealand system for many decades. In September 2019, there were 34 Public Service departments and departmental agencies. In addition, many public services or regulatory functions are delivered by different types of Crown Entities. These have been established at some distance from Ministers and the Public Service and generally have their own boards which are responsible for the organisation’s governance. As with Public Service departments, there are a large number of Crown Entities – 46 Crown Agents, 15 Autonomous Crown Entities and 17 Independent Crown Entities (ICEs).8 Beyond Public Service departments, there are a myriad of other state sector organisations, including State-owned Enterprises, tertiary education institutions, offices of Parliament, assorted other trusts, councils, companies, subsidiaries and over 2,400 schools. The challenge of coordination is not only created by fragmentation but also by culture. While Crown entities may have particular functions that they are required to exercise independently from Ministers (as in fact do all Public Service Chief Executives), a general culture of independence from government can make it difficult to work with other public sector agencies when that is necessary. Finally, interoperability can be more difficult in an environment where there is a lack of standardisation around operating models and key assets such as administrative data.

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• Unduly strong centralisation of service delivery characteristics. This narrative

•

places weight on the need for tailoring service delivery to those experiencing the most disadvantage, and harnessing local information and networks to produce better social or economic outcomes. This approach emphasises increasing place-based delivery and decision-making, devolving more autonomy to regional managers, and an openness to forming innovative joint ventures locally including local government, iwi, NGOs and the private sector. The Review of the Centre (2001) highlighted increased decentralisation of decision-making and better regional coordination as an important element to improve the outcomes-focus.9 Conversely, advocates of this narrative are sceptical about the likely effectiveness of greater coordination of public services driven from head offices. Accountability mechanisms that impede an outcome focus. In this narrative, the focus on outcomes is limited because of the way in which accountability mechanisms have tended to operate. Traditional parliamentary accountability emphasises the accountability of individual ministers to parliament. Ministers are asked questions in Parliament that relate to their own portfolio and are examined by Select Committees on their Votes. As most outcomes are likely to require action across portfolios and Ministers, traditional accountability mechanisms can therefore reinforce vertical rather than networked accountability frameworks. Similarly, expectations of Chief Executives, and their performance assessments, have emphasised each Chief Executive’s responsibilities to lead his or her agency and their relationship with the Chief Executive’s Responsible Minister, rather than their contribution to working towards better outcomes across an ecosystem of public agencies. The annual budget is organised into individual ministerial portfolio ‘Votes’. Given the very large number of ministerial portfolios in New Zealand, resource allocation can reinforce a ‘siloed’ approach across government.

4. THE TOOLKIT TO IMPROVE THE FOCUS ON OUTCOMES Through the 2000s, political and bureaucratic leaders explored a range of mechanisms through which the public sector has sought to strengthen its focus on outcomes. This section discusses these experiences and the consequent successes and failures. Out of this experience has been the emergence of a ‘toolkit’, or set of mechanisms, to enable the achievement of better national outcomes that can be deployed according to the circumstances and policymaker preferences. Reducing Fragmentation through Structural Change A tool to improve an outcome focus is to consolidate the large number of public agencies. The logic behind this approach is that the costs of coordination across agencies is likely to fall with a smaller number of agencies. This approach also requires the assumption that coordination across different functions within a single agency can occur at a lower cost than coordination across agencies.

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Both the Review of the Centre (2001) and the Better Public Services Advisory Group Report (2011) recommended that structural change should be used to improve an outcome focus. The Review of the Centre recommended a process of structural consolidation looking at Crown entities, the effectiveness of policy/ operations splits, small agencies and sectors where there were ministerial concerns about performance or alignment.10 The Better Public Services Advisory Group Report flagged the desirability of agency consolidation but emphasised standardisation (e.g. accommodation rationalisation) or the consolidation of common functions (e.g. corporate services or policy advice), given the disruption and potential expense of full-scale consolidation.11 Following the Review of the Centre, several reviews were undertaken to consider structural change with limited results. In 2001, the Ministry of Social Policy, a policy-focussed agency, was merged with the service delivery agency, the Department of Work and Income, to form the Ministry of Social Development (MSD). In 2003, the Department for Courts was merged into the Ministry of Justice. Later in the decade, three significant agency consolidations occurred. From 2009 to 2011, the Department of Internal Affairs (DIA) increased its portfolio of technology and information-related functions with the acquisition of the wholeof-government Information, Communications and Technology (ICT) function from the State Services Commission (SSC), and the mergers of Archives New Zealand and the National Library into DIA. The public sector’s primary industry functions were consolidated in 2011 with the merger of the Ministry of Fisheries and Food Safety New Zealand into the Ministry of Agriculture and Forestry to form the Ministry of Primary Industries (MPI). In 2012, to create a broader business-focussed ministry, the Ministry of Business, Innovation and Employment (MBIE) was formed from the Ministry of Economic Development, the Department of Labour, the Ministry of Science and Innovation, and the Department of Building and Housing. While significant rationalisation of head office accommodation was achieved with the formation of the Property Management Centre of Excellence located, first, in MSD and then as the Government Property Group in MBIE, little progress was made in consolidating common functions as suggested by the Better Public Services Advisory Group, or in the earlier calls from the Review of the Centre to look at Crown entity and small agency rationalisation. Several factors help to explain the spasmodic and generally unenthusiastic use of structural change as a tool to improve an outcomes focus. First, in many areas, an outcome focus will practically require ongoing working across organisational boundaries even after consolidation. Therefore, the coordination benefits from aligning fewer agencies are likely to be limited. For example, the expanded MSD is still required to work closely with agencies from education, justice, and health sectors to progress stronger social sector outcomes. Secondly, the consequence of a lack of standardisation across core ICT, Human Resource and payroll functions since the 1980s reforms means that significant agency rationalisation implies significant integration of different corporate systems. This can be costly, distracts management from outward-facing priorities,

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and means that efficient internal coordination and alignment can be impeded as legacy system issues are addressed. Thirdly, the formation of broader-ranging agencies can come at a cost of perceived or real responsiveness from the communities that they are serving. In addition, individual ministers may feel that a department serving multiple ministers may not be sufficiently responsive to, or prioritise sufficiently highly, the programme of the individual minister. After the 2017 General Election, the incoming government decided to create branded units on the MPI platform that recreated the names held by former standalone agencies (e.g. Ministry of Fisheries, Ministry of Forestry). This parallels the challenges that successive governments have faced to reduce the very large number of ministerial portfolios. Finally, the machinery of government has centrifugal as well as centripetal dynamics. Fragmentation continues to occur as the creation of a standalone agency is a common response to the failure of an organisational function or to focus the Public Service on key government priorities. For example, Worksafe, the health and safety regulatory authority, was established in 2013 from regulatory functions that had been housed previously in the Department of Labour and then MBIE. The establishment of the new agency followed the recommendations of the Royal Commission into the 2010 Pike River Mine disaster that was critical of the Department of Labour’s historical stewardship of its health and safety function. Similarly, the 2017 creation of Oranga Tamariki from the Child, Youth and Family component of MSD, followed criticism of the culture, focus and operating model adopted by MSD in respect of children in state care and other children at risk in the community. The Use of Interagency Targets to Improve Outcomes Better Public Services Advisory Group (2011) comprising leaders from the public, private and not-for-profit sectors, recommended that sectors mobilise specified results, deliberately tackling complex issues or matters that might fall between the responsibilities and accountabilities of individual agencies.12 The way in which the Group’s recommendations were implemented consciously sought to address a number of the barriers that had previously impeded the development of an outcome focus. In 2012, Cabinet agreed to a set of 10 results (the Better Public Services Results Programme). This articulated a Cabinet-wide agreement on the highest priorities for service delivery improvement across public service agencies. The assumption was made that the Public Service was more likely to deliver if it was very clear on the government’s priorities. Cabinet agreed that progress would be reported to the public regularly (i.e. every six months) to strengthen the accountability on both Ministers and Chief Executives to focus effort and demonstrate progress. The results chosen largely focussed on social sector performance concerns (e.g. reducing crime rates and the rate of reoffending, increasing the number of 18-year olds leaving school with educational qualifications and increasing infant immunisation rates), although two results set expectations around improved performance for transactional services (e.g. improving the ease with which government transactions could be completed in a digital environment and providing a one-stop online shop for all government advice and support to business).

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In contrast with previous outcome initiatives that had looked towards a comprehensive set of outcomes across government, the choice of 10 results specified in terms of intermediate outcomes sought to increase the political and bureaucratic focus applied to them by limiting the number of complex problems competing for the attention of ministers and senior public servants. Limiting the number of outcomes chosen recognised the need for ministers and public servants to explore different ways of working. Choosing a relatively small set of outcomes can be seen as a change in the management approach more focused on managing the risks around experimentation and learning. Cabinet appointed a lead minister for groups of related results. This was a relatively novel approach in the New Zealand environment, and can be seen as a means to provide leadership and support cohesion and alignment across large and sometimes diverse groupings of ministers. The State Services Commissioner mirrored the approach taken to organise ministers by appointing a lead Chief Executive. The Commissioner also modified the performance assessment process for Chief Executives. Initially, the lead Chief Executive was held responsible for the success or failures of the group of agencies responsible for meeting a specific result’s target. Over time, and as the understandings around collective ownership became widely understood and supported across Chief Executives, the Chief Executives of the group of agencies accountable for a specific result were held collectively responsible for meeting the target. These innovations can be seen as seeking to introduce a collective accountability as a counterweight to the required individual and agency focus of other elements of the Chief Executive performance management process. The transparent approach taken to selecting results, choosing progress indicators and publishing six-monthly updates on progress can be seen through a number of lenses. Government and public sector agencies were holding themselves to account but not primarily through the traditional route of parliamentary accountability. Transparent and publicly available reporting permitted media and stakeholder groups interested in the result areas to scrutinise performance and to make public comment. At one level, the BPS experience can be interpreted as a ‘top-down’ and Wellingtoncentred approach to improve national outcomes. Much of the energy to drive this initiative came from groups of Ministers and senior officials working purposely together. However, an unintended and positive consequence of the Results process was improved engagement with front-line staff around priorities and outcomes. In many cases, the intended results and the need for purposeful collaboration connected well with the values and professional motivations of public servants. In addition, some of the results areas, especially in the justice area, established regionally based groups of officials to monitor progress at a regional level and make changes to local service delivery within existing delegation frameworks. A recent evaluation of the results programme concluded that, […] we are left with the conclusion that the management approach contributed to the improvement in the 10 results initiatives. Indeed, in some cases the improvements were so rapid that a new issue emerged. The targets would be achieved too early. Those that don’t quite meet their targets will still have impressive stories to tell.13

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The designers of the Better Public Services Results programme were aware of the potential shortcomings of target-based approaches to performance improvement and sought to mitigate the risks in the design of the programme. Ministers and public servants were initally uncertain about the reliability and robustness of indicators of progress towards the desired outcome. Setting progress indicators creates incentives for agencies to focus on inframarginal shifts in performance (e.g. moving segments of a population from just below to just above a threshold) rather than focussing on the hardest areas of disadvantage that may yield to larger improvements in overall community wellbeing. Some indicators of progress were replaced over time in light of experience or further analysis. Priorities also shifted over time as progress was made and new areas of concern arose. The Results programme was thus refreshed in 2017, five years after the initial results programme was launched, with a mix of existing results, respecified results, and results that reflected new priorities. The incoming Labour-led Government, elected in 2017, changed the approach of using a small set of outcomes as a focus for action across portfolios and agencies. Instead, the Government announced Our Plan in September 2018 which organises the Government’s priorities under three themes – growing economy, wellbeing of New Zealanders and making New Zealand proud – and organises the Government’s work programme under each theme, with indicators of progress to be developed and published. There is continuity between these approaches, namely Cabinet agreement to a set of priorities, setting progress indicators with periodic, public reporting. However, the differing approaches towards an outcome focus taken between the previous and current governments illustrate the ongoing discussion about the most effective approach to focus on outcomes as a whole-of-government focus. The differences include varying weights that are placed on the relative costs and benefits of a broad versus narrow focus on outcomes, the best way to specify outcomes (i.e. ultimate vs intermediate outcomes), and how best to organise ministerial and bureaucratic effort and accountability. Place‐based Initiatives (PBI) to Improve Outcomes As noted above, one thread of the reform debate centres on the extent to which stronger outcomes should be pursued through PBI harnessing local and official information, improving frontline coordination, and ultimately making more decisions around the allocation of government funding, choices of service delivery mix and provision at the local level. New Zealand government is characterised by a dominant central government layer. Within the OECD, only Ireland has a higher share of central government spending as a proportion of general government spending.14 A move to a greater emphasis on devolved, place-based decision-making, particular with respect to social service provision, is therefore challenging in terms of understandings around systems of decision-making and accountability. By contrast, as noted above, the Better Public Service Results Programme can be seen as a largely topdown approach to improve outcomes by aligning ministerial and ‘head office’ bureaucratic levers to improve outcomes across New Zealand.

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Given this context, the 2000s can be seen as a period of experiments with placebased approaches to better outcomes, to complement existing national approaches to service delivery. For example, in 2009 and 2010, the Green (i.e. options discussion) and White Papers for Vulnerable Children highlighted deficiencies in child-centred outcomes arising from poor local coordination and information sharing. In response, MSD, later Oranga Tamariki, piloted and over time extended a network of Children’s Teams. These teams developed a single plan to help and support children at risk of abuse or neglect. The plan coordinated all the relevant practitioner and professional input from iwi, health, education and social services at a local level. Ten teams were established across a number of rural, provincial and urban localities where there are significant populations of at-risk children.15 Evaluations of the experiences of Children’s Teams is being used to transition this pilot approach into the new, community-based business models that Oranga Tamariki is currently developing. In 2016, three PBIs to address social issues and improve outcomes for children and young people (0–24 year olds) were launched. The three areas chosen to pilot this approach – Northland, South Auckland and Gisborne/Wairoa – were based on the number and proportion of children and young people at risk. Each group identifies the specific age groups within its area for priority and has a mandate to make changes to services and processes to improve outcomes. Each PBI has an independent chair and has local community, iwi and agency representation. A ministry provides support at the local level, and the Social Investment Agency (SIA, 2018) provides support with data and evaluation.16 At practitioner level, there is growing acceptance that better outcomes require stronger focus on outcomes at both national and place-based level. However, there is considerable debate about the emphasis on different approaches and the appropriate extent of devolution of responsibilities at a place-based level. As such, the balance between national and place-based approaches and the frameworks to guide the selection of such tools is not settled among practitioners. The Use of Data to Drive Stronger Outcomes A stronger focus on outcomes requires more attention paid to measurement issues and the use of data to identify priorities for attention, and to the integration of different types of information to provide insight into how best to improve wellbeing for the community. As discussed in Chapter 11, prior to the 2000s, there was limited effort to integrate data sets with a view to improve public services. A barrier to an outcomes-focus has been the fragmented nature of administrative data, with individual agencies responsible for their collection and maintenance. In recent years, there have been a series of systematic ways used towards integrating anonymised administrative data, and to create capabilities within the public sector that support agencies to better invest in social wellbeing. Examples include:

• The creation of the Integrated Data Infrastructure (IDI) within Statistics New

Zealand. This is a large research database available to researchers and government agencies around life events related to such issues as education, income, migration, health and justice. It does not identify individuals, and draws on

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data from government agencies, Non-government Organisations (NGOs), and Statistics New Zealand surveys.17 The establishment of the Social Investment Agency (SIA). Initially, set up as the Social Investment Unit within MSD, the SIA was set up as a departmental agency in 2017. The SIA can be seen as a system-wide centre of expertise that helps to design frameworks and architecture for agencies, to be able to use data to invest in social wellbeing, to trial new approaches, and to provide advice across the system. The creation of an Analytics and Insights Unit within the New Zealand Treasury. The unit seeks to use information from the IDI to support the advice of the Treasury. In addition, the Unit has created Insights (https://insights. apps.treasury.govt.nz), an online interactive data analysis website that seeks to make information from the IDI more accessible to a wider practitioner audience. Examples include tools to explore outcomes for youth and the dynamics of population change at a local level in New Zealand.

Chapter 8 discusses the emergence of a broad range of initiatives that seek to integrate social services to drive improved national outcomes. These represent the work programme, described as ‘Social Investment’ that span a broad range of initiatives from using actuarial analyses of long-term fiscal cost, new approaches to evaluate budget initiatives and locally-based networks of service delivery. This work programme has been at the heart of social service delivery innovation and has been critically enabled by the active stewardship of administrative data. While there remains debate about how best to express and work towards better outcomes, there is widespread agreement that the integration and use of data is a critical public capability that needs to be maintained across time. In that sense, the innovations around data and how data capability can be built and stewarded are likely to be one of the enduring features of the past decade’s reform programme.

5. THE RISE OF STEWARDSHIP Public sector managers face strong incentives to deal with urgent matters at hand. They have a constitutional obligation to support the government of the day as it designs and implements its programme. Ministers are likely to prioritise urgent matters of public and political importance. Added weight is given to this need in New Zealand with a short election cycle of only three years. Public sector managers also face expectations from stakeholders and the media to address immediate issues. All Chief Executives in the Public Service are on fixed-term contracts of no more than five years in duration. Responsiveness to the here-and-now is a critical part of a well-functioning civil service. However, the focus on the present can come at a significant cost if it precludes consideration of the longer term. This includes the maintenance of the agency’s assets, or the assets that it is managing on behalf of the Crown, the development of capability within the agency, and the capacity of the agency to be in position to offer professional, free and frank advice to future governments. In addition, significant investment and transformational projects can span many years and cover the terms

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Four-year Excellence Horizon

What is the agency’s performance challenge?

Delivery of Government Priorities

How well is the agency responding to Government Priorities?

Delivery of Core Business

In each Core Business area, how well does the agency deliver value to its customers and New Zealanders? In each Core Business area, how well does the agency demonstrate increased value over time? How well does the agency exercise its stewardship role over regulation?

Organisational Management

How well is the agency positioned to deliver now and in the future? Leadership and Direction • Purpose, Vision and Strategy • Leadership and Governance • Values, Behaviour and Culture • Review

Delivery for Customers and New Zealanders • Customers • Operating Model • Collaboration and Partnerships • Experiences of the Public

Relationships • Engagement with Ministers • Sector Contribution

People Development • Leadership and Workforce Development • Management of People Performance • Engagement with Staff

Financial and Resource Management • Asset Management • Information Management • Financial Management • Risk Management

Fig. 1.  The Performance Improvement Framework. Source: SSC (2015).

of multiple Ministers, Chief Executives and Senior Managers. Maintaining a consistent stewardship of these types of projects can be challenging, given the strength of the short-term incentives facing politicians and public sector managers. The 2000s have seen the development of a number of tools to focus on the capacity of the public sector to fulfil its stewardship responsibilities. During my term as State Services Commissioner, I introduced a public-service wide tool, the Performance Improvement Framework (PIF) to support Chief Executives to improve their organisation’s capability, to disseminate good practice more efficiently across the Public Service and, by publishing the PIF reviews, to account for the Public Service’s stewardship responsibilities. The PIF drew on existing international and public sector frameworks and adapted them to New Zealand circumstances. The innovative characteristics of the PIF was to place a citizen focus at the heart of the analysis and to take a forward-looking perspective to

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assess the performance of the organisation. Reviews were undertaken by a cadre of external reviewers that were engaged collectively as a learning, expert community and the reviews were published by the State Services Commission. Individual PIF Reviews were then distilled to draw out good practice learnings that were documented and discussed with senior public servants through a series of ‘masterclasses’. For example, in 2013, the State Services Commission published a report summarising the conclusions of 21 Performance Improvement Framework (PIF) reviews conducted between 2010 and 2012, entitled ‘Getting To Great’.18 A 2017 independent report on the PIF commissioned by the State Services Commission provided a generally positive assessment of the value of the PIF and its ability to evolve and adapt over the period following its introduction in 2009. However, perhaps presciently, it noted the importance of stability in political and bureaucratic leadership in providing an environment in which the PIF was permitted to develop and learn from experience. Since 2016, the combination of a change in State Services Commissioner and government has led to a much reduced focus on the PIF as evidenced by a decline in the number of reports undertaken. The need to lean against an undue focus on the near-term may also be inferred from the 2018 Investment Statement prepared by the Treasury, a reporting mechanism to assess the public sector’s stewardship of public assets. These Investment Statements, as with the PIF, have noted the focus on the here-and-now at the expense of the longer-term. For example, in respect of the Social Portfolio of assets owned by the New Zealand Government, the Treasury made the following comment: Four sectors representing $62.77 billion or 38.6% of the Social Portfolio’s asset base have aged assets that adversely impact performance: Housing – the housing portfolio is aged with approximately 40% of assets greater • Social than 50 years old. – District Health Boards are reporting around 19%, by book value, of assets • Healthcare in ‘poor’ or ‘very poor’ condition. However, the healthcare sector is quantifying the exact extent of the issue.

– a large proportion of the portfolio is relatively aged with 38% of school build• Education ings 50 years old or older. Inconsistent maintenance across the portfolio has resulted in some assets in poor condition.

– defence assets continue to fall below condition targets. This is to be partially • Defence addressed through the Defence Estate Regeneration Programme. 19

Independent Stewardship Reporting Recent examples of agencies reporting on stewardship matters independent of government relate to the Treasury’s reporting on the long-term fiscal position and the state of the New Zealand Government’s assets and the Ministry of the Environment’s and Statistics New Zealand’s periodic reporting on the state of the environment. In these instances, reporting has been given statutory backing and is therefore more likely to be sustained through changes in political and bureaucratic leadership. For example, in 2004 the Public Finance Act was amended to require (Section 26N) the Treasury to prepare no more than four years apart a long-term fiscal report relating to a period of 40 years. The first Long-Term Fiscal Statement (LTFS) was published in 2006 and four reports in total have been published. Long-term

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reporting complements short- to medium-term reporting of the Government’s fiscal intentions that is reported annually in the Budget documentation. The LTFS is able to identify and report on risks and potential changes to the fiscal situation that may not be as apparent in shorter-term reporting. Examples of issues that are able to be, and have been, highlighted include the impact of demographic change on the fiscal position or discussion of fiscal risks arising from climate change. The requirement for the Treasury to exercise its best professional judgement in preparing the long-term fiscal outlooks and discussion of fiscal risk over the longer term makes clear that responsibility for the statement lies with the Treasury rather than the government of the day. As such the LTFS can be seen as supporting the capacity of the Treasury to advise successive governments, not just the government of the day, on an issue that is important to public welfare and is a core function of the Treasury. From 2015 to 2017 the Treasury also published regular assessments around the delivery of major public sector projects. This included Treasury’s judgements and expressions of confidence regarding the delivery of each project. This innovation drew inspiration from similar reporting in the United Kingdom. Given the inherently high risk nature of some major projects and their longevity from planning to final completion, this particular reporting is valuable from a stewardship perspective. However, no Treasury major project delivery assessments have been published since 2017. The demise of public reporting on major projects in contrast to the legislatively backed reporting referred to above highlights one important lesson from the experience relating to stewardship reporting. Legislative requirements for stewardship reporting are an important protection from changed ministerial or agency priorities, or different tolerances for the publication of important but at times uncomfortable assessments. Legislative Backing for Stewardship Responsibilities In 2013, the State Sector Act was amended (Section 32 c and d) to insert explicit stewardship responsibilities among the primary responsibilities of Public Service Chief Executives. The change to the Act recognised two types of stewardship – stewardship of the department and stewardship of the Crown’s and department’s assets and liabilities and legislation that the department administered. Departmental stewardship was defined in broad terms to encompass the medium- to long-term sustainability of the department, its organisational health, and its capability and capacity to offer free and frank advice to successive governments. At one level, these changes made explicit the stewardship responsibilities that many Chief Executives would have understood implicitly to be among their responsibilities

6. ACCOUNTABILITY The Importance of Effective Accountability and Challenges in Modern Government Effective accountability lies at the heart of the capacity of the public sector to deliver what is sought from it and its ability to learn from experience. Strong

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accountability generates incentives for responsible individuals to act in the interests of the public. A recent report on public accountability in the United Kingdom summarised accountability as, At its heart, accountability is about a relationship between those responsible for something, and those who have a role in passing judgement on how well that responsibility has been discharged. When accountability works well, it enables a degree of feedback between the Government and the public that it serves.20

Seen through this perspective, a well-functioning accountability system acts to support trust in government by the public. A strong accountability system should include:

• Clarity on the outputs and outcomes to be delivered. • Adequate information to judge the extent to which expected outputs and outcomes have been delivered. • Fair and proportionate rewards and sanctions for good performance and failure. • Support for responsible individuals and the wider system to learn from experience and appropriately innovate in the future.

New Zealand’s accountability system has many aspects and, over a long period of time, many institutions have been developed to provide assurance that public agencies are appropriately held to account. From the perspective of public sector managers, the critical elements of the system are:

• The responsibilities of Ministers and State Agencies to account to Parliament for their performance. • The responsibility of State Agencies within the various legal frameworks to deliver on the expectations of Ministers. • The accountability of Chief Executives to their employer – the State Services •

• •

Commissioner in the case of Public Service Chief Executives and generally Crown Entity boards for Crown Entity Chief Executives. A range of agencies that support Ministers (e.g. central agencies) or Parliament (e.g. Office of the Auditor-General) in their accountability roles or provide assurance that agencies comply with important legal obligations (e.g. Office of the Ombudsman in respect of the Official Information Act, the Privacy Commissioner in respect of the Privacy Act). The operation of the Official Information Act (OIA) 1982 that has a default setting that information held by public institutions is generally made available on request to individual members of the public, media, political parties and community groups. The operation of the media to scrutinise the actions of politicians and agencies, and to report and comment to the public on those actions.

Public sector managers are highly aware and sensitive to the elements of the accountability system. Providing that system with information and analysis is a

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high priority for state servants, and significant resource is committed to the provision of information for accountability purposes. For example, in the first year of the current government’s term, the principal opposition parliamentary party asked Ministers 42,221 written parliamentary questions.21 Similarly, in 2018, 110 agencies completed 33,657 OIA requests. In addition, the New Zealand Police and New Zealand Defence Force completed a further 30,135 OIA requests over the course of 2018.22 Notwithstanding the number of institutions that seek to hold public institutions to account, and very large amounts of information that are generated for this purpose, current accountability systems display significant weaknesses in holding government to account in the context of the more complex environment in which governments and public sector managers increasingly operate. Accountability mechanisms also struggle to systematically demonstrate the evenhanded approach to assessing performance implied by the characteristics of an effective accountability system described above. The increasing focus on outcomes, as well as the emergence of stewardship, is an important element of public sector management, challenge traditional assumptions around accountability. A focus on outcomes frequently requires purposeful collaboration across ministerial portfolios and agency boundaries. Improving outcomes for currently disadvantaged sections of the community may require the formation of new and innovative joint ventures with local authorities, iwi, NGOs and the private sector. Some of these partners may be delivering services funded by central government. The complex and sometimes unstable relationship between government intervention and improved outcomes emphasises the importance of experimentation, evaluation and consequent adaptation. Stewardship requires a dynamic perspective where service delivery or organisational transformation is seen as occurring over time. Therefore, critical decisions in the design and execution of transformations may occur over the term of successive ministers and public sector leaders. By contrast, traditional accountability mechanisms have been based around more linear concepts of accountability. Individual ministers answer in Parliament for the resources under their direct control, and for the issues and agencies for which they have direct responsibility. Accountability mechanisms are strong in scrutinising short-term performance, especially when failure in the near term is apparent. Department performance is reviewed by select committees with a focus on the year past. The adversarial nature of partisan political debate and robust media scrutiny encourages a focus on poor performance, a blunt approach to accountability (e.g. ‘heads must roll’), and the specifics of particular cases as opposed to learnings of a broader application. In contrast, much less emphasis is placed on rewarding and learning from good performance or adopting a proportionate and fair approach to assessing performance. As discussed above, the development of the PIF in the 2000s was a conscious effort to emphasise the importance of agency and system learnings from assessments of agency performance. In addition, New Zealand institutions have evolved in ways that are challenging to the operation of an effective accountability system. The New Zealand

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Parliament is unicameral and relatively small in contrast to other jurisdictions with a dominant central government. The Parliament is required to scrutinise the actions of the executive and make laws. Since the advent of the MMP electoral system in 1996, governments frequently have had to secure the support of a number of parliamentary parties to pass legislation and this has heightened the importance of the law-making process. Members of Parliament and select committees have relatively modest resources to support them in their scrutiny function. Turnover of legislators occurs at a rapid rate. Of the Members of Parliament who were elected in the 2011 election, less than half remained at the end of 2018. The consequence of high turnover is a loss of institutional knowledge around issues that evolve over time, and reduced understanding and knowledge around the roles and capacities of public sector agencies. Also, like many media organisations across the world, New Zealand media have faced disruption to their traditional business models. As a consequence of changing technologies, resourcing has diminished for in-depth investigations of medium-term issues. However, the ubiquity of internetbased technologies is permitting public sector agencies to provide information to the public at very low marginal cost, and for interested individuals to access that information very easily. Accountability to the public without mediation through Parliament and media is more possible than would have been traditionally the case. Evolving Approaches to Accountability Public Transparency. Making government data available to the public by default in the 2000s has been seen as important on several levels. It allows individual and community groups to directly maximise the value they can obtain from taxpayerfunded data without first requiring permission or needing mediation through a government agency. It allows information that is relevant to the accountability of governments and public agencies to be made directly available to the public. Data.govt.nz was launched in November 2009 as the portal to access these data sets. In 2019, nearly 6,600 data sets contributed from 158 agencies are available on data.govt.nz.23 As more data sets have been made available, New Zealand has used some of its emerging stewardship tools to ensure the sustainable growth of open data as a core element of contemporary accountability. In 2017, the Government Statistician was appointed as Government Chief Data Steward (GCDS) to establish system-wide responsibility for this function, and the GCDS published the first Data Strategy and Roadmap in December 2018.24 The increasing focus on stewardship within government has resulted in greater reporting around stewardship as public sector leaders have sought to demonstrate their accountability for these types of issues. Direct reporting to the public on stewardship concerns has been a common approach to seek to improve information to the public, and to seek more and better-informed discussion around medium-term issues. A more traditional approach may have been to publish this reporting through Parliament. The Treasury publishes the Investment Statement and LTFS directly. The SSC proactively releases PIF reports on government agencies, undertaken by external lead reviewers to demonstrate the importance that individual public

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sector leaders place on stewardship of the organisation, and the State Services Commissioner’s responsibility to support stronger performance across the public sector system. Transparency has been used to focus attention on systemically risky issues even when such transparency has been uncomfortable to the government of the day. As noted above, major projects may not receive appropriate focus given the various stages that they can move through over extended time frames, and the inherent over-optimism biases of ministers and officials who undertake such projects. Between 2015 and 2017, the New Zealand Treasury released the assessment provided to government on the status of major government projects. In the case of some projects undertaken as part of Canterbury’s recovery from the 2010 and 2011 earthquakes, the relevant Minister publicly disagreed with the Treasury’s assessment on more than one occasion.25 Similarly, the introduction of the Better Public Services targets in 2012 was done in such a way that the government of the day sought to be transparent with the public about the highest priorities that the government as a whole was setting for the improvement of public services. This was complemented by a commitment for regular, six-monthly reporting of progress against the specified targets even when such reporting would inevitably highlight setbacks or disappointing progress from time to time. This approach to accountability at a whole-of-government level contrasts with much of the siloed scrutiny of performance that occurs in a parliamentary context. As noted above, the OIA is an important underpinning of transparency in the New Zealand public sector system. Through the 2000s, some Ministers and Agencies have sought to follow the OIA’s spirit of transparency through proactive releases of information or advice rather than responding to specific requests for information. In 2018, the Government announced that it would routinely release Cabinet papers lodged after 1 January 2019 within 30 working days of Cabinet’s decision until there were good grounds for withholding part or all of the papers.26 In addition, the internal and external meetings of Cabinet Ministers were routinely released from February 2019.27 The SSC started to collect information in 2015 on the performance of public agencies in meeting their obligations under the OIA and have released this information six-monthly since 2016. Evolving Accountability Mechanisms to Support Outcomes and Stewardship and a Strong Accountability Culture. The discussion around outcomes above noted that an innovation of the Better Public Services programme was an effort to create mechanisms that could support a sense of collective accountability across Ministers and Chief Executives. In the case of Ministers, the Prime Minister appointed a lead Minister for each of the connected result groups but set out a clear expectation that the group of Ministers were expected to support each other and would be held accountable for their collective success or failure. Similarly, the SSCer sought to inject a strong sense of collective responsibility for progress on results into each Chief Executive’s individual performance expectations and assessment. The period through the 2000s also saw an increased focus on the performance management of Chief Executives in the Public Service as a means to make more nuanced judgements on performance. Historically, performance management could

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be used effectively to deal with demonstrable cases of strong performance or significant under-performance. Strong performers could be encouraged to apply for more complex or larger Chief Executive roles or reappointed for longer terms. Visible examples of under-performance could lead to the Chief Executive vacating their role. From 2008, a variety of approaches were developed to support leaders to develop and to signal more nuanced assessments of performance. This included providing organisational or personal performance feedback more frequently. Changes were also made in the structure of performance-related pay to recognise system and stewardship responsibilities. However, in 2018, performancerelated pay was removed from the package of Public Service Chief Executives. This reflected a view that performance-related pay would work against greater collaboration between Chief Executives. Time will tell whether this move is at the expense of providing regular, constructive, performance-related feedback to Chief Executives and a reduction in the accountability of Chief Executives for the lapses in departmental performance that inevitably occur. Within the system of parliamentary accountability, some select committees sought to recognise the trend of government agencies working much more closely together. For example, some committees have invited a sectoral grouping of agencies to attend for the departmental review process as opposed to inviting individual agencies to separate sessions.

7. CONCLUSION: REFLECTIONS After nearly two decades of experimentation, there is reasonable evidence to suggest that the importance of working for outcomes is much better understood and supported by politicians and public servants. The application remains uneven and much more partial than desired but the basic tools of publicly announced outcomes, transparent reporting, and much more joined-up use of government information to assess priorities and monitor progress are now well practised. A key test has been the continued evolution of an outcomes progress under the leadership of the government elected in 2017. While the government has not continued with many of the approaches initiated by its predecessor, the announcement of Our Plan, legislating the requirements for governments to specify outcomes with respect to child poverty, and the introduction of an outcomes-focus to the annual Budget through the development of a Wellbeing Budget signal that a focus on outcomes is likely to continue. In a similar vein, the way in which information on various aspects of public sector stewardship continues to increase, and the continued development of tools to assign stewardship responsibilities, is a positive and necessary development in response to significant evidence of long-standing shortcomings in respect of a range of stewardship responsibilities. Notwithstanding the tangible progress over recent years, successfully tackling many of the remaining barriers will require a more rigorous identification of the public sector’s underlying performance issues and an open assessment of the successes and failures of the broad range of public sector reform initiatives pursued

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over the past two decades. Considerable effort continues to be placed on joining-up agencies to improve strategic alignment and improving national outcomes. Indeed, the current proposals to amend the State Sector Act including new structural tools to facilitate better bureaucratic coordination is motivated by a desire to foster greater collaboration. However, no progress has been made to reduce the proliferation and fragmentation of ministerial portfolios and to align at the political level competing and, at times, conflicting priorities. Better bureaucratic coordination cannot substitute for consistent, deep strategic political alignment. More deeply, the desire to pursue collaboration to generate more agreement around the difficult economic, social and environmental issues that New Zealand governments face may itself be misplaced. Rather than seeking to reduce and remove the contest between competing perspectives, it may be better to invest energy in ensuring that the contest occurs transparently and efficiently. Similarly, the relative failure of machinery of government and wider structural changes and the limits of the reach of Wellington-led reform initiatives noted in this chapter may point us in a fruitful direction for future reform. The long history and cultural acceptance of a strong layer of central government that was successful through the period of nation building in the nineteenth and twentieth centuries is likely to need significant adaptation to successfully tackle the issues that New Zealand faces over the remaining decades of the twenty-first century. Issues, such as national security, will continue to require skill and capability exercised across central government agencies. However, successfully tackling geographically centred social disparities and successfully dealing with the realities of limitations around natural resource use require a significant cultural and capability shift to shift decision making and accountability much closer to the local level just as it will require government to partner more effectively with other layers of government, iwi and NGOs. This challenge requires innovation in the technical models of service delivery and accountability but, most importantly, it requires a major cultural shift in the public sector towards devolution and greater innovation. Finally, the constitutional setting of the public sector is outside the scope of this chapter. However, the understandings of the relationships of ministers and public servants and the accountability and stewardship responsibilities of public servants will be an important back-drop to the future progress of reform. Traditional understandings of vicarious ministerial responsibility, the accountability of public servants and the value of a professional and also politically impartial public service are under question. As political turnover increases and the pressures on politicians to deliver at pace around very complex issues increases so do the supposed benefits of a professional and, at very senior levels, aligned public sector to improve responsiveness. Developments in Australia in this general direction do not go unnoticed. The time is approaching when these issues will require open and rigorous debate rather than honouring, in the breach, traditional norms and practices that are less accepted than in the past. New Zealand is a small jurisdiction with thin layers of political and bureaucratic capacity and capability relative to larger advanced countries. In addition, there is significant turnover in political and bureaucratic institutional knowledge as individual leaders come and go over relatively short periods of

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time. This environment risks a rapid loss of the learnings gained through periods of reform unless conscious attention is made to evaluate experience and to document lessons learned. The challenge of disseminating innovation and good practice systematically remains a critical issue for future reform periods.

NOTES 1.  Cambridge English Dictionary. 2.  The International Civil Service Effectiveness (InCISE) Index 2017. Institute for Government. 3.  OECD (2017). 4.  Better Public Services Advisory Group Report (2011, p. 15). 5.  The Review of the Centre, New Zealand Government, 2001, Appendix 3, pp.45–49. 6.  Kibblewhite, A., and Ussher, C., Outcomes focussed management in New Zealand, OECD Journal on Budgeting, 1, 2002. https:doi.org/10.1787/budget-v1-art23-en 7.  Ministerial List 14 November 2018, New Zealand. 8.  State Services Commission, New Zealand’s state sector – the organisations, www.ssc. govt.nz. 9.  The Review of the Centre, p. 23. 10.  The Review of the Centre, p. 28. 11.  Better Public Services Advisory Group Report (2011, p. 7). 12.  Better Public Services Advisory Group Report, The Review of the Centre, p. 6. Also Rennnie and Berman (2018). 13.  Scott & Boyd (2017). 14.  OECD (2018), p. 82. 15.  Oranga Tamariki, Children’s Teams, www.orangatamariki.govt.nz. 16.  Social Investment agency, Place‐Based Initiatives, www.sia.govt.nz. 17.  IDI, www.stats.govt.nz. 18.  Getting to Great; Lead Reviewer Insights from the Performance Improvement Framework, April 2013. Retrieved from https://ssc.govt.nz/assets/SSC-Site-Assets/IntegrityEthics-and-Standards/PIF/pif-core-guide-3-apr13.pdf. 19.  The Treasury (2018, p. 49). 20.  Guerin, McCrae, & Shepheard (2018), p. 2. 21.  Radio New Zealand, National’s written question blitz, 20 November 2018. 22.  SSC (2018, 2019). 23.  Data.govt.nz, Statistics New Zealand/Department of Internal Affairs. 24.  Department of Statistics, Data Strategy and Roadmap, December 2018. 25.  Radio New Zealand, Brownlee shrugs off ‘trite’ Treasury report on Christchurch, 1 December 2015; New Zealand Herald, Gerry Brownlee blasts Treasury’s convention centre report, 22 September 2016. 26.  Minister of State Services (Open Government) 18 September 2018. 27.  Minister of State Services (Open Government), 10 December 2018.

REFERENCES Allen, B., Berman, E., Cantal, C., Eppel, E., Jackson, B., Lofgren, K., Macauley, M., & Plimmer, G. (2017, October 2). Independent review of the Performance Improvement Framework: Main report and key messages. Wellington: Victoria School of Government. Retrieved from http://www.ssc. govt.nz/performance-improvement-framework Better Public Services Advisory Group. (2011). Better Public Services Advisory Group Report. Retrieved from https://www.ssc.govt.nz/sites/allfiles/bps-report-nov2011_0.pdf Blavatnik School of Government, Oxford University, Institute for Government. (2019). The International Civil Service (InCISE) Index. London: Institute for Government.

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Boston, J., Martin, J., Pallot, J., & Walsh, P. (1996). Public management: The New Zealand model. Auckland: Oxford University Press. Dormer, R., & Gill, D. (2010). Managing for performance in New Zealand’s public service: A loosely coupled framework? In Proceedings. https://doi.org/10.1108/136830410111027445 Gemmell, N., Gill, D., & Nguyen, L. (n.d.). Modelling public expenditure growth in New Zealand 1972-2015. New Zealand Economic Papers. Retrieved from https://wwwtandfonline.com/doi/ful l/10.1080/00779954.2018.1458330 Gill, D. (n.d.).The iron cage recreated. The performance management of state organisations in New Zealand. Institute of Policy Studies. Retrieved from https://ojs.victoria.ac.nz Gill, D. (2008). By accident or design: Changes in the structure of the state sector in New Zealand. Policy Quarterly. https://doi.org/10.26686/pq.v4i2.4257 Guerin, B., McCrae, J., & Shepheard, M. (2018). Accountability in modern government: Recommendations for change. London: Institute for Government. Kibblewhite, A., & Ussher, C. (2002). Outcome-focussed Management in New Zealand. OECD Journal on Budgeting, 1. Lodge, M., & Gill, D. (2010). Toward a New Era of administrative reform? The myth of Post-NPM in New Zealand, Governance, 2010. Retrieved from https://onlinelibrary.wiley.com/doi/ full/10.1111/j.1468-0491.2010 Organisation for Economic Cooperation and Development (OECD). (2017). Better Life Index. Paris: OECD. Organisation for Economic Cooperation and Development (OECD). (2018). Government at a Glance 2017. Paris: OECD. Productivity Commission. (2014). Regulatory institutions and practices. Wellington: Productivity Commission. Rennie, C., & Berman, E. (2018). Leadership and public sector reform in New Zealand. In E. Berman (Ed.), Leadership and public sector reform in Asian countries (pp. 255–284). Bingley: Emerald Publishers. Review of the Centre Advisory Group. (2001). Report of the Advisory Group on the Review of the Centre. Wellington: State Services Commission. Schick, A. (1996). The spirit of reform. Wellington: State Services Commission. Scott, G. (2001). Public management in New Zealand. Wellington: New Zealand Business Roundtable. Scott, R., & Boyd, R. (2017). Interagency performance targets: A case study of New Zealand’s Results Programme. IBM Center for the Business of Government. Retrieved from www.businessofgovernment.org Social Investment Agency. (2018). Place-based initiatives. Retrieved from https://www.sia.govt.nz State Services Commission (SSC). (2004). Getting better at managing for shared outcomes. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2013a). Designing and growing innovation capability: A case study. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2013b). Getting to Great 1: Lead reviewer insights from the Performance Improvement Framework. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2014). Getting to Great 2: Your map to navigating the straits of internal leadership. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2015). Performance Improvement Framework and lead questions. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2016a). Direction and priorities for system stewardship. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2016b). Talent management toolkit: Overview of contents for key audiences. Retrieved from https://www.ssc.govt.nz State Services Commission (SSC). (2019). Official Information Act (OIA) statistics. Retrieved from https://www.ssc.govt.nz The Treasury. (2018). He Puna Hao Pataki: 2018 Investment Statement: Investing for wellbeing. Retrieved from https://www.treasury.govt.nz Victoria University of Wellington (VUW). (2017). Independent review of the Performance Improvement Framework. Wellington: VUW, School of Government.

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ABOUT THE AUTHORS Barbara Allen is a Senior Lecturer with the School of Government at the Victoria University of Wellington. Her research interests are in public procurement, performance management, and digital governance. She has held positions at Warwick University, the University of Birmingham, and the University of Nottingham. She was an Air Force Logistics Officer in the Canadian Military having attended the Royal Military College of Canada. She has contributed to journals such as Government Information Quarterly, Public Money and Management, and the Journal of Public Procurement. She is actively working with the policy sector providing advice and commentary on a range of issues, especially strategic procurement policy. She is a Member of the Editorial Board for the Australian Journal of Public Administration. She has a PhD in Public Policy from Carleton University, Canada. Maria Bargh (Te Arawa, Ngāti Awa) is an Associate Professor in Te Kawa a Māui/ Māori Studies, Victoria University of Wellington. Her research interests focus on Māori politics including constitutional change and Māori representation, voting in local and general elections, and the Māori economy including hidden and diverse economies such as Māori in the private military industry. Her books include Māori and Parliament (2010) and Resistance: An Indigenous Response to Neoliberalism (2007) and A Hidden Economy (2015). She also researches on matters related to Māori resources, such as freshwater, mining, and renewable energy. Robert A. Buckle is a Professor Emeritus at the Victoria University of Wellington (VUW), New Zealand. His career spans academia, public policy, and the corporate sector. He was Pro Vice-Chancellor and the Dean of Victoria Business School at VUW from 2008 to 2017, has held academic positions at VUW and been a visiting economist at overseas universities, research institutes, and the OECD. His research and teaching are in business cycles, economic growth, fiscal, monetary, and education policy. He has held several public policy advisory positions, including Principal Adviser at New Zealand Treasury from 2000 to 2008, the Chair of the Economic Committee of Asia Pacific Economic Cooperation in 2007 and 2008, the Chair of the Government Tax Working Group in 2009 and 2010, and the Chair of the External Panel for the Treasury Long-Term Fiscal Statement in 2012. He was awarded the NZIER New Zealand ‘Economist of the Year’ in 2003, and a recipient of the VUW award for Public Contribution. In 2014, he was made an Officer of the New Zealand Order of Merit (ONZM) for contributions to business and education. Marie Doole (nee Brown) is a Practice Leader with The Catalyst Group, a multi-disciplinary company providing strategic and environmental management advice. She has 15 years’ experience in natural resource management, including 303

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compliance monitoring and enforcement, policy development, and more latterly as a researcher and reviewer involved in a number of national-level projects. Her work in environmental policy includes being the lead author of the landmark book on the fight to save New Zealand’s wildlife, Vanishing Nature: Facing New Zealand’s Biodiversity Crisis. She has a particular interest in innovative governance mechanisms, and a recent publication includes an analysis of the potential for biodiversity banking in New Zealand. She is a former Senior Policy Analyst with the Environmental Defence Society, New Zealand. Marie has a PhD from the University of Waikato in environmental law and ecology and is a Senior Associate with Victoria University’s Institute of Governance and Policy Studies. Elizabeth Eppel is a Senior Research and Teaching Fellow in the School of Government, Victoria University of Wellington, New Zealand. Her research interests are complexity in public policy processes, governance networks, collaborative governance, and digital government. She has researched information sharing across government using digital technologies, citizen attitudes to sharing information with government and using digital technologies, and children’s experiences of using internet-enabled technologies. She has over 20 years’ experience as a senior public servant, including 12 years’ experience at deputy secretary level in the Ministry of Education, during which she oversaw the introduction of some major digital systems in the education sector. She is a Member of the Editorial Board for the journal Information Polity. Arthur Grimes holds the Chair of Wellbeing and Public Policy at the Victoria University of Wellington (VUW) School of Government. Prior positions include Chairman of the Reserve Bank of New Zealand, Board Member of the Financial Markets Authority, Director of the Institute of Policy Studies (VUW), Chief Executive of Southpac, and Chief Economist at both the Reserve Bank of New Zealand and the National Bank of New Zealand. He has a PhD in Economics from the London School of Economics. Recognition of his contributions to economics and public policy include the NZIER Economics Award, Distinguished Alumni award from University of Waikato, the NZ-UK Link Visiting Professorship (to University of London), and the Sayers Prize in Monetary Economics from University of London. His current research focusses on the economics of wellbeing and public policy, and on urban economics (including housing and infrastructure). Gary Hawke retired from the Victoria University of Wellington, as a Professor of Economic History and the Head of the School of Government. He has written on topics of the economic history of New Zealand, international trade, education, tariffs, railroads, and central banking. He has been a Visiting Fellow at Stanford University in the United States, All Souls’ College, Oxford in the United Kingdom, at the Australian National University in Australia, and with a number of institutions in Japan. He is a Fellow of the Royal Society of New Zealand and a Member of the Academic Advisory Council of the Economic Research Institute for ASEAN and East Asia. He was awarded a CNZM (Companion, New Zealand Order of Merit) in 2008 for services to education and economics.

About the Authors

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Colin James was for 45 years a Political Journalist and is a Life Member of the parliamentary press gallery and the E Tu Union. He is a Senior Associate at the Institute for Governance and Policy Studies, Victoria University of Wellington School of Government, and is a Fellow of the Institute of Public Administration. He has contributed to long-range strategic projections for several government agencies. He has written eight books. He has an honorary doctorate from the Victoria University of Wellington. Carwyn Jones (Ngāti Kahungunu) is an Associate Professor at the Faculty of Law at Victoria University of Wellington. His primary research interests relate to the Treaty of Waitangi and Indigenous legal traditions, and he has published numerous articles on these topics. He has authored New Treaty, New Tradition – Reconciling New Zealand and Māori Law (2016) and one of the editors of Indigenous Peoples and the State: International Perspectives on the Treaty of Waitangi (2018). He has edited both the Māori Law Review and AlterNative – an international journal of Indigenous peoples. Fleur Maseyk is a Practice Leader with The Catalyst Group, a multi-­disciplinary company providing strategic and environmental management advice. She has over 20 years of expertise in conservation and natural resource management. Most recently, she has focussed on biodiversity policy and strategic plans, biodiversity offsets, applying a natural capital focussed ecosystems approach to land use decision-making, and increasing biodiversity in production landscapes. She has prepared submissions and presented expert evidence into a number of hearing processes, published a number of papers in national and international journals, and has a track record of linking science, policy, and implementation to create workable solutions. She has a PhD from the University of Queensland in natural resource management and conservation decision making. Les Oxley is a Professor of Economics at the University of Waikato’s Management School. His research interests include economic history; the economics of innovation; energy economics; environmental economics and economic wellbeing, and time series econometrics. He was the Chair of the Business and Economics Panel of the 2018 Performance-Based Research Fund (PBRF) New Zealand research assessment exercise. He is a Co-editor-in-chief and Joint Founding Editor of the Wiley, Journal of Economic Surveys. He has published on a wide range of topics and has just completed his sixth Marsdenfunded research project. Mubashir Qasim is a Scientist (Analytics) at the Research and Development Department of Livestock Improvement Corporation. His research interests include a broad range of topics around the economics of intertemporal sustainability and well-being, comprehensive system of national accounts, disruptive technologies, closed loop economies, artificial intelligence, predictive analytics, and natural language processing. He has won several scholarships including Marsden funding during his PhD project. He has published on a broad range of topics and is currently involved in Te Punaha Matatini funded research projects.

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ABOUT THE AUTHORS

Michael Reddell spent 30 + years doing economic analysis and policy advice in a range of public sector institutions. Most of that time was at the Reserve Bank of New Zealand, where he had several roles, including as Head of Financial Markets. In other parts of his career, he was resident economic adviser to the central banks of Papua New Guinea and Zambia. He spent two years as Alternate Executive Director on the Board of the International Monetary Fund and two years as Special Adviser at The Treasury. He now writes about economic issues, including New Zealand productivity performance, at www.croakingcassandra.com. Iain Rennie CNZM served as the New Zealand’s State Services Commissioner and the Head of State Services from 2008 to 2016. As the head of New Zealand’s Public Service during this period, he oversaw the development and implementation of a range of significant reform initiatives in the New Zealand public sector, including the introduction of results-based management for critical government priorities, the development of systematic talent identification and management across the public sector and the introduction of initiatives to support the ongoing performance improvement of the public sector. Prior to his term as State Services Commissioner, he worked in the New Zealand Treasury and the Department of Prime Minister and Cabinet. He was a Deputy Secretary to the Treasury between 1997 and 2007 leading, first, the Treasury’s Budget and Macroeconomic Branch and then the Treasury’s Regulatory and Tax Policy Branch. Since 2017, he has consulted on a range of public policy and public management issues both in New Zealand and internationally. His clients have included the International Monetary Fund, World Bank, Asian Development Bank, Western Australian Government, and New Zealand Treasury. Graham Scott is a Former Official of the New Zealand government and a political candidate. He became Secretary of the New Zealand Treasury in 1986, and held that post until 1993. He later headed the Health Funding Authority in New Zealand and the Central Regional Health Authority. He was the executive chairman of Southern Cross Advisors Limited. In the 1995 Queen’s Birthday Honours, he was made a Companion of the Order of the Bath, for public services. In the 2005 New Zealand General Elections, he was ranked fifth place on ACT New Zealand’s party list, but the party did not gain enough votes for him to enter the New Zealand Parliament. Frank Scrimgeour is a Professor of Economics, University of Waikato. His research focusses on the economics of agriculture and the environment, regional economics, and financial economics. He is an Editor-in-chief for the Australian Journal of Agricultural and Resource Economics (Volumes 61–64). He is a past President of the New Zealand Agricultural and Resource Economics Society and of the New Zealand Association of Economists. He is committed to research informed teaching and research that informs economic policy and business practice. Suzanne Snively, ONZM, is a strategic macro-economist with applied experience across the public, private and voluntary sectors. She has been a regular analyst and commentator on New Zealand’s economic position, including commentary on the impact of policy and practice to strengthen integrity systems

About the Authors

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both in combatting corruption while building a more sustainable economy and supporting wellbeing. She has been Chair of Transparency International New Zealand for nearly 9 years. Suzanne has taught Ethical Governance at graduate level and is currently a member of the Advisory Board for the Victoria University of Wellington Brian Picot Chair in Ethical Leadership. Her first governance role was as a Director on the Board of the Reserve Bank of New Zealand (New Zealand’s Central Bank). Her recent Directorships include the Army Leadership Board, Health Research Council, Whanau Ora Commissioning Agency and New Zealand Opera. As the chair or member of several risk management committees, Suzanne focuses on strategic opportunities as well as risks. She currently chairs the Independent Expert Advisory Panel reviewing the Reserve Bank of New Zealand Act.