No to another mega-Ministry

One of the ideas getting traction within the Government is the idea of merging the Ministry for the Environment (MfE), Ministry of Housing and Urban Development (MHUD) and the Ministry of Transport (MoT) into a mega agency. The “logic” behind it is threefold:

• More integrated policy thinking that will not only enable more housing to be built, but also the infrastructure to support it;

• Diluting the de-growth and pro-central planning culture of MfE (which most recently decided it was appropriate to submit on the Regulatory Standards Bill);

• Saving money (through administrative rationing).

This is a mistake, because its theoretical basis is rooted in some assumptions that don’t bear close scrutiny. Working backwards the notion that mega-departments are more efficient is largely a chimera. The larger the bureaucracy the slower it works and the less responsive it is, and it more difficult it is to retain specialised knowledge and experience as it gets swamped within multiple layers of management. Treasury likes mega-agencies for two reasons:

• Fewer managers is said to be more efficient;

• Fewer agencies makes them easier to monitor and hold accountable.

Unfortunately, this ignores the behavioural responses of public servants to this sort of structure. In a large department it becomes harder to get the attention of the top layers of management. In some cases that can help, because clever and competent public servants can get on with their work unbothered by the chief executive or deputies, but that also means the less clever and competent have their work not subject to the same scrutiny. The Adam Smith Institute in the UK has called for the UK Home Office to be broken up for exactly that reason. The incremental savings of a few fewer managers (which is disputable when you look at the structure of MBIE – New Zealand’s existing mega-Ministry – which has large units, with branches under them and sub-branches) is lost when there is significant failure both in delivery and public policy.  

The UK already has had experience merging Transport, Environment and Local Government, from 1997 until 2002. Transport was split out again because the cultures of the agencies clashed internally, slowing down progress and making it difficult to get institutional focus on major reforms.  

Australia by contrast does have a mega-agency responsibility for transport policy at the Commonwealth level, in an organisation called DITRDCA (Department of Infrastructure, Transport, Regional Development, Culture and the Arts), which struggles to retain institutional knowledge in any segments of its activity. However, as a Federation, many of the functions in those sectors are carried out by States and Territories, so it is less of a day to day concern. Similar mega agencies do not exist at the State level.

The benefit of smaller agencies is that they can be nimble and responsive, and can pivot quickly when policy priorities change.  They can readily collaborate and work together with each other, if there is clear project leadership across agencies. The idea that collaboration within a large agency, with managers and branches with their own interests is necessarily easier than between smaller agencies is largely theoretical, because it depends on the individuals. Bear in mind MoT implemented radical restructuring of ports, airports, land transport funding, the governance and delivery of urban passenger transport all as a small agency, stripping down its functions over the years.  It's not clear what radical reforms MBIE as a major agency has done, and it is abundantly clear that DIA, with its de facto oversight of the water sector (i.e. next to none) did little until the Ardern Government saw it as a way to bail out local government and start to implement the principles of He Puapua (which remains on ice). 

On the second point, the idea that a key reason to merge agencies is to dilute the culture of the one you don’t like, or which is corrosive to government policy is not a good way of diluting the poison, because it spreads the poison across a wider field. The answer for the Ministry for the Environment is not to merge it, but to cull its responsibilities and split what remains among other agencies.

The Partnerships, Investment and Enablement business group should be abolished because Government should not be seeking to “tangibly shift mindsets and change behaviours in New Zealand through effective partnering and engagement within the public and private sectors”. The culture of MfE is anti-development, anti-growth and it the behaviours that need changing are those ones.  

At best the Environmental Management and Adaptation business group should be placed within the Department of Internal Affairs to work with local government, specifically regional councils on their statutory function, and the Climate Change Mitigation and Resource Efficiency business group should be part of MBIE, which has oversight of economic regulation of natural resources.  

It is so obvious that the next time a Labour-led Government takes power, almost certainly with the Greens, that a Ministry of Housing, Infrastructure and the Environment would be rebranded into a Ministry of Sustainable Development or the like. The culture that would be dominant will be the one inherited from MfE and will seek to decimate private provision of housing, as well as turn transport policy into one big behavioural change programme that treats active travel and public transport as being good, at any cost, while treating private motoring and the movement of freight by road as being malignant. 

One of the legacies of Labour Governments is that they implement structural reform of Government that National Governments rarely reverse.  Don’t forget the optics of splitting MfE (“integrating environment across policy”) may not be great and of course the Opposition will cry that it is about decimating the environment, but the public largely will not care (other than the ones who vote Green anyway). Splitting MfE into Internal Affairs and MBIE will dilute MfE’s culture because it divides it. Merging it with MHUD and MoT keeps it intact, despite pleas from some that it will dilute the priority of the environment, it will place it in the centre of two agencies seeking to resolve issues that are, in part because of the prioritisation of the environment through the RMA that stops stuff being built.

The MHUD is essentially an oversight agency for Kainga Ora, as well as the regulator of rental housing and other accommodation. The synergies with the MoT are weak, especially given MoT’s functions range from monitoring the land transport funding and regulatory sector, through to the economic functions of all transport modes. There is little that MHUD can bring to aviation policy, and indeed most of the transport policy issues affecting MHUD are undertaken by local government. 

If there is a case for a merge, then MBIE makes more sense for MoT than MHUD, because MBIE does look after network industries in infrastructure, such as energy and communications, but that was tried before in the late 1990s and ultimately abandoned. 

So the idea of merging agencies should be put in the bin. There is a better case for reviewing their functions and determining whether some should exist at all, and if so, who is better placed to manage them.  Putting climate change policy in the DIA or MBIE is likely to be preferable than having it dominating housing and transport.

Merging MfE, MHUD and MoT smells of something that the Greens or TOP (remember them?) would advocate. MfE is by far the agency with the most dominant culture, and it is one that is philosophically antagonistic to the Government it is meant to be serving.  It should not poison housing and transport policy with that culture. 

The Government should run a mile from it.

Wellington is in a funk

The general election has knocked Wellington for six and has put a great deal of public servants and more than a few in the consultancy-industrial complex in a funk, because philosophically and culturally, the change in government has shown up the gulf between them and the government. It has also demonstrated two major issues:

• The dearth of strategic and intellectual grunt in much of the public sector;

• The ideological chasm between many of the (largely young and relatively new) public servants, and the Government they have vowed to serve.

I moved back to Wellington last year after a considerable absence, and I noticed quite a few changes, and there have been a lot more since the election. Not in the sense of the urban form (that hasn’t changed dramatically), nor infrastructure (setting aside the leaks everywhere), but rather in the culture and capability of the public service, and those who provide some degree of heft in fundamental public policy analysis are in short supply.

I spent ten years in the Wellington public service before leaving it (and the country) to be a consultant.  When I first joined it was clear there was a significant cohort of senior and leadership talent in parts of the public service in particular that were formidable in their intellectual capability, commitment to ideological neutrality and interest in an evidence based approached to public policy. Sure there were differences, but overwhelmingly there was one key factor, a deep understanding of what they did and did not know, and what they could not know.  I saw this in The Treasury and the economic sector-based departments, such as what was then the Ministry of Commerce (since morphed into MBIE) and Ministry of Transport.  There was a bit less in the Department of Internal Affairs, but it was still there.  The more social policy-oriented agencies were somewhat different. Health, Education and Environment had less experience of structural reform, and still believed they could be the repositories of all that is best practice in their sectors.  The departments responsible for oversight and regulation of business and the productive sectors knew differently.  

They all knew that, by and large, they had no idea how much of the economy worked in any detail.  These were people who looked at the likes of the telecommunications sector and wouldn’t even pretend to know the details of the technology being used, because it mostly didn’t matter (unless it was related to something the government had to do, like auction radio spectrum for mobile phone use). Nor did they pretend they knew what the cost or price of inputs were, if markets were competitive or not falling between the cracks of the role of the Commerce Commission.  After all, history is replete with examples of how neither bureaucrats nor most politicians have the faintest idea about what changes in technology or markets will come next.  There were bureaucrats who knew that.  I recall sitting in a meeting room in 1997 with a manager at the Ministry of Commerce, who got the IT Department to set up a demonstration of a free application called Real Audio which was streaming radio programmes from across the world.  He said at that moment “this is the future and it will disrupt everything we do in broadcasting, it’s a matter of time”, this was when politicians were mainly fretting about the use of dial-up internet to access pornography.  That manager was right of course, but at the time the Ministry of Commerce was responsible for broadcasting policy, alongside telecommunications, IT and energy policy. Broadcasting is now within the purview of the Ministry of Culture, Heritage and the Arts, which is not an organisation with a primary culture of business and innovation. 

The beginning of change in that culture happened under the Clark Government, which was much more pro-active and wanted to “do more”.  However, that Government did get plenty of advice around the limitation of the public service to actually know what was best for particular sectors (except of course the social sectors, which acted much more as intermediaries between the strong professional producer sector interests and the government, especially since more than a few people in the social public sector would switch employments with the professional producer lobby). While the Key Government paused that change, the Ardern/Hipkins Government put it into overdrive, and the Luxon Government will be seeing the signs of it.

The election of Tamatha Paul as MP of Wellington Central and Julie Anne Genter as MP for Rongotai provides a sign of what has happened to the Wellington public service in that time.  It's a far cry from Richard Prebble being elected in Wellington Central in 1996, and the time when it was seen as a marginal seat between National and Labour. No more.  The public sector has seen retirement of many men and women who were part of both the Muldoon era of extraordinary central planning, and the Lange/Palmer/Moore/Bolger era of dismantling central planning and instituting more direct accountability in the public sector for results, and in taking political and bureaucratic decision making away from trading enterprises, ranging from the Post Office to the Railways and Electricity Department.  Those people have retired, moved away or passed away. Some remain from the 90s, but are increasingly pushed aside by the well-meaning, but shallow culture around promoting “new perspectives” around “diversity”, which does not include depth or breadth or critical thinking (not in the post-modernist sense) in public policy.  The Wellington public service grew enormously in the past six years, drawing upon enthusiastic graduates, predominantly coming with support for the Government of the day, bringing with them a leftwing ideological framework, which are not just the traditional enthusiasm for state-intervention and suspicion and cynicism about private enterprise, but rather the wholesale cultural revolution in how they think about the state, society and stratification of the country into people categorised as oppressive, oppressed or allies of the oppressed. MP Debbie Ngarewa-Packer characterised it as being Tangata Whenua, Tangata Tiriti and everyone else (the racists). So a combination of left-wing enthusiasm for state intervention, regulation, spending and taxation, with an suspicion around the interests and the views of significant portions of the public, including those of more senior civil servants, because of identity factors (e.g. race, sex, gender).  None of that would matter one iota if they could put that to one side and be highly competent public policy analysts, but that competence is wanting, and it’s clear from plenty of people engaging with the well-meaning, but lacking historical knowledge and being weak on analytical capability.

As a result the mood today in many government departments, particularly the more social and environmental policy oriented ones, is one of fear and depression, as a workforce of relatively young public servants, most of whom did not vote for this government, struggle to cope with being asked to implement policies they don’t agree with. Some act professionally, and it is to the credit of some that they seem to have delivered the Government’s “First 100 day” plan. Few are obstructive, clearly one or two are choosing to leak, but many of them are moping about, worrying about becoming unemployed and are openly, to their like-minded colleagues, unhappy about the choice of voters.

When I was a public servant I was generally not happy with any government that was elected, on a lot of issues, but when it came to the sectors I worked in (and there were a few), I put it all to one side. People knew what my politics was, but I also knew what high quality public policy was as well.  You serve Ministers, you seek to achieve their policy objectives, you analyse alternatives and you implement what Ministers want.  You give free and frank advice, and they either take it, or they continue to do what they want to do, and you can simply say they were told, if the consequences don’t turn out how they wanted. That’s not the mood in Wellington now.

Of course it will change. Although there is significant scope to scale down the numbers of people doing policy in government in Wellington, the scope to scale down the depth and breadth is small, because there is a distinct lack of talented, capable and clever people, who put aside their personal political biases in favour of evidence-based policy advice.  Most importantly, there are few who will admit to Ministers “we don’t really know how to do that” or “we don’t know how that part of the economy works” or “we don’t have the knowledge or experience on that issue Minister”.

I’ll take one example in a field I know something about. “The Aotearoa New Zealand Freight and Supply Chain Strategy”. I’m frankly gobsmacked that a lot of people clearly pulled together something which smacks of the sort of central planning NZ had done away with in the 1980s. The idea that MoT is steward of the freight and supply chain system is so laughable as to be a joke.  There is no remote hope that the Chief Executive of MoT, let alone almost any of the staff, would know how to arrange the consignment of freight from any producer to customers or outlets.  There is relatively little about productivity and competition, yet 62 pages has been dedicated to a “strategy” which has as its main challenge not labour shortages (which have been a major issue), but climate change. Nine immediate actions are proposed, all of which are either about more planning or lowering emissions. It’s a manifesto for central planners.  Nobody was willing to tell Ministers that “we don’t know much about any of this, and we have no visibility into how businesses and transport firms arrange and price their services, or invest in capital”, or if they did the response was “find out, collect data”!

Where does this lead a public service that ought to be focused on delivering on an agenda that many of its staff disagree with?  It's not easy, particularly as getting talent to work in Wellington is tough nowadays.  However the government appears willing to lean down the state sector (albeit not enough), which should provide ample opportunities to send blinkered ideologues with mediocre intellectual grunt to a new life not serving a government they hate. 

There are three strategies that might help as well:

1. Cull activities in Ministries and Departments to enable competent people to focus on the priorities of the new Government. This has already started, but the competent people need to be placed on high-profile, high-risk projects of reform and delivery. This require line-by-line scrutiny of the work programmes of each Ministry, Department and agency, to strike out what isn’t needed. Then offer redundancies to those no longer needed.

2. Don’t be afraid to restructure. Who would trust the Ministry of Education to implement Charter Schools any more than you would have trusted the Post Office to implement a competing mobile phone network or the Railways Department to implement a competing trucking firm? Treasury likes consolidation, but smaller, nimbler agencies can be more responsive, and incentivised to be focused.

3. Push for cultural change in the public service. This means focusing once again on accountability, transparency, delivery and efficiency, and recognising the limits of knowledge and capability. Hayek’s “Fatal Conceit” concept would be a helpful one to promote.  Encouraging understanding of concepts around markets, competition and the "law of unintended consequences" and to be concerned about capture by interests, whether they be business, producer unions or lobbyists, even those with purportedly "altruistic" motives.

4.      Better link the public/consumers to the supply of the services provided by the state to them.  Give them incentives to perform.  This used to be done by setting up SOEs, but the scope for that is largely spent.