Successful reform: past lessons, future challenges

Gary Banks, the chairman of Australia’s highly regarded Productivity Commission, is a valued colleague and good friend of New Zealand.

Last week he gave an important speech with the above title on economic reform in Australia.

It comes at a time when the Gillard government is struggling to establish its reform credentials.  Both major parties in Australia compete to embrace the Hawke-Keating-Howard reform legacy, unlike their counterparts here which often distance themselves from a similarly successful reform programme (even though they have kept in place its main elements).

Gary began by reflecting on the current climate of opinion about reform:

Paul Kelly, Australia’s pre-eminent policy journalist and chronicler of our reform history over the past three decades, asserted earlier this year that “the historic post-1983 reform era is terminated”. Ross Garnaut, one of the most policy-influential academics of that era, recently made the following assessment: “Economic policy since the GST [2001] has been characterised by change, rather than productivity enhancing reform”. He went further: “Attempts at major reforms have failed comprehensively and poisoned the well for further reform for a considerable while”.

 He observed:

If ‘productivity enhancing’ reform is indeed becoming a no-goer, Australia is in for a tough time. For a start, this would make it harder for us to meet the fiscal challenges of the Global Financial Crisis in the short term and, in the long term, the ageing of the population. We would also struggle to meet the demands and costs of more sustainable resource use and desirable environmental rectification. Australians may again start to see international competition and globalisation as threats rather than opportunities. And our capacity to raise the living standards of Indigenous and other disadvantaged members of the community would be weakened when it needs to be strengthened.

Explaining the importance of productivity growth, he said:

Productivity enhancing reform is so crucial to our economic (and social) futures because productivity growth itself – the ability to get more out of a country’s resources – is the mainstay of economic progress …  If, as the Nobel Laureate Paul Krugman has famously put it, ‘in the long run productivity is nearly everything’ Australia’s prospects currently may not appear very promising. Following a stellar performance in the 1990s, driven in large part by the structural reforms initiated in the previous decade, our productivity growth in the early 2000s fell back to its long term average.

Putting numbers on the productivity challenge, Gary commented:

… if (labour) productivity growth could just get back to the long-run average rate of 1.75 per cent that preceded the 2004-2008 cycle, rather than the 1.6 per cent average growth assumed in Treasury’s latest Inter-generational Report, then, abstracting from changes in the rate of employment and investment, per capita incomes would be 6 per cent higher by 2050. And if we could reclaim the 2 per cent average annual growth recorded in the 1990s in a sustainable way – admittedly a big ask – Australia’s GDP would be some $400 billion larger than otherwise, with per capita incomes 17 per cent higher (worth nearly $19,000 per person in today’s dollars).

New Zealand’s productivity growth was actually a little better than Australia’s from 1992-2000 following its earlier reforms, but declined more dramatically than Australia’s in the past decade with the changed policy approach of the last Labour government.

Gary noted that according to the dictionary, ‘reform’ means “change for the better”, but quoted Nicolo Machievelli’s famous remark about its challenges:

There is nothing more difficult to carry out, more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all who profit from the old order, and only lukewarm defenders in those who would benefit from the new.

He talked about where the backing for Australia’s reforms came from:

Support was strongest among the professional policy cadre – within government, academia and the ‘commentariat’, including opinion media. But there was also strong support from peak business, and to some extent from community organisations, depending on the reforms. Broader ‘public opinion’, if not actively supportive, was at least not actively hostile.

In New Zealand’s case, support from academics and the media, with some exceptions, was notable by its absence.

And a little further on in the speech, Gary Banks added:

Leaders with the right vision for a better Australia and the skills to realise it, were fundamental to all the individual ‘success factors’ just described – they could be said to be have been the ultimate success factor.

He ended by listing some of the priority areas for reform in Australia today:

One key dimension is the budgetary constraints that governments face in the aftermath of the Global Crisis.  The combination of fiscal constraints from the Global Financial Crisis and structural pressures from the mining boom suggests that the productivity enhancing reforms that deserve some priority right now are those that can reduce business costs and enhance the economy’s supply-side responsiveness, while being ‘fiscally parsimonious’.

In addition:

Regulatory proposals that would have pervasive effects across the economy need particular scrutiny, especially those impacting on the markets for labour and capital, and key infrastructural inputs to production such as transport (not forgetting coastal shipping), energy, telecommunications and water … Among these, industrial relations regulation is arguably the most crucial to get right. Whether productivity growth comes from working harder or working ‘smarter’, people in workplaces are central to it. The incentives they face and how well their skills are deployed and redeployed in the multitude of enterprises that make up our economy underpins its aggregate performance.

Practically all of this agenda and more applies to New Zealand.  (Water reform, for example, has not even got off the ground whereas it has been underway in Australia for two decades.)

The full speech is here.

A speech with similar themes is this one, Reigniting Reform in Australia and New Zealand, given by Hugh Morgan, president of the Business Council of New Zealand, to a New Zealand Business Roundtable retreat in 2004.


1 thought on “Successful reform: past lessons, future challenges

  1. Saving New Zealand- The objective here is the improvement of political and crown leadership

    Obtaining the Competitive Advantage

    1. We need to produce a strategic plan like the Porter Report on how New Zealand can create a competitive advantage and climb out of debt, rebuild our assets, employ our people and offer a stable democratic environment to pass onto our children.

    2. In order to do that we need clear focus on understanding how we can shift our nation into a work mode of maximising the returns of the resources we have.

    3. And we need to fully understand why we have failed.

    The Next Step

    In the coming years food production is going to be critical all around the world. Already we can see a movement of capital from equities into commodities as investors begin to corner assets with real use rather than paper value.

    The only problem I see in creating a strategic report is finding decision makers in Parliament who have the requisite clever skills and to understand and implement it.

    A report of that type presented to the skill base of men in the board of BHP, I wouldn’t worry. But with parliament it is of serious concern. It is their political management that has brought New Zealand onto it’s knees.

    In my 25 years of business all around the world I have often sat in boardrooms of highly successful companies. And watching their leadership style I often compare it to what I have seen with politicians who are running parliament and New Zealand into the ground. Our politicians run the country like a naughty kids club would.

    The Fiduciary Rules Needed to Save New Zealand

    Government is a trust structure. It is owned by the people. Its leadership team are selected by political process and they gain control of that trust structure. They are the nation’s most important managers.

    A Politician’s role is fiduciary. A key foundation characteristic of a fiduciary is they are a person who bring professional excellence to the relationship. That is where people get the confidence from to confer the power to them as you do with say a doctor. They are also selfless and owe a duty of care to those entrusting them to the responsibility of the job.

    But unlike all other fiduciaries that are legally accountable, politicians and judges have immunity which allows them legal permission to fail and they can get away with it leaving the damage behind. And we see this damage year after year.

    The immunity problem is something people face all around the world face. Some countries are much worst than others. But slowly people are beginning to connect the dots between poor political service and immunity which holds onto an ancient law that suggests the King can do no wrong in the service of the people. But they do fail and that is the problem.

    A fiduciary duty is an ethics based legal relationship of trust and confidence between us the people and the politicians we entrust running the management of our nation.

    So Where is the Transparency and the Accountability?

    Politicians rather naively and arrogantly if you have a problem with the government they suggest you have the right to protest- with your vote. Those who have been a victim of government action understand they want a more direct method of exposing the incompetence.

    Vital to democracy are checks and balances. It is something we appear to have missing with crown immunity because it is being used to stop inquiries.

    I prefer the jury system. It is a long-standing fundamental safeguard and is better positioned to protect human rights.

    Under a new transparency system it is proposed we apply this system for ensuring fiduciary duty is performed, and not abused and hidden away.

    That is, if a politician or a judge does not perform their fiduciary duty, or allows a conflict of interest, or blatantly betrays the trust and abuses their power, a person can apply to a constitutional jury of randomly selected people from the populace, to determine whether there has been a failure of their fiduciary duty on an ex-parte basis.

    Once in possession of that order the Minister or judge is served with the order and if they fail to respond a second application could be made to another jury seeking an order to suspend both the salary and power of the defendant who has failed to comply.

    Currently, judge’s and politicians peers determine whether there has been a failure or not. That is the cover-up system.

    Over a period of time, relationships at the upper echelons can become fraught with hidden conflicts of interests, and this is commonly known as corruption. Currently, there is no avenue for people to address corruption.

    The Objective here is the Improvement of Political and Crown Leadership

    In other words, raising the quality and accountability to a fiduciary standard instead of what we have been getting which is destroying our nation.

    My first concern is New Zealand. Political parties and politicians over the years have been influenced by outside commercial interests. Debt is climbing, businesses closing, unemployment is growing, inflation is hurting family budgets, deposit holders have lost billions of dollars; the courts and justice system are failing.

    Then when victims and concerned people look to parliament for help and direction our politicians are not interested in matters that don’t gain them votes. Or they are too busy either fighting or laughing.

    In this paper I suggest members or new members of political parties like National, Labour, ACT, United Future, Progressive Party, Maori Party, NZ First, and Greens change the party policy on Crown and Judicial immunity.

    And from party policy it then becomes fixed with the candidates and so we then get legislative changes.

    Then we have a very different political dynamic. Battle won- better political leadership through transparency and accountability.

    I am sure all agree it is needed to save our country from the destruction our most important fiduciaries have inflicted on us over the last 30 years.

    Christopher Wingate

    Further reading-

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