Last week the heads of Kiwirail appeared before the transport and infrastructure select committee where they revealed they’d spent $424 million on the project to replace the Interislander ferry and port, most of it on planning, design and project management. The project has now been cancelled because of the astonishing cost blowout. This has become a familiar story in New Zealand politics: builds vital to the national interest being cancelled after long delays and incredible costs without anything being delivered: Auckland Light Rail, Let’s Get Wellington Moving, the Lake Onslow Hydro scheme. Here’s the same problem on a smaller scale:

A frustrated Dunedin principal says there is nothing to show for the $750,000 spent planning new classrooms over the past five years by the Ministry of Education . . . Andersons Bay School principal Pauline Simpson said her school was promised a four-classroom teaching block and hall and that was cut back to two classrooms and a hall with a design change at the 11th hour.

The change would mean the build was back to square one, she said. A ministry spokesman said it had already spent $750,000 on the project on costs for planning, design, consents and investigation works. Ms Simpson said Andersons Bay’s project was at the consent stage and all the planning had been done. All that was left was the build itself. "I feel like there is an incredible amount of money being spent on our project to date and there is not a single thing to show for it."

I suspect this era will take a place in the storied political mythology of the nation, alongside the hubris of Think Big and the ponzi scheme of the Rogernomics share market. “Oh yes, the 2020s – that was when the country’s infrastructure was literally falling apart and instead of rebuilding it they just wasted billions of dollars on bureaucracy.” And I feel despair whenever I see Labour and Green politicians defending these projects and demanding more funding. Obviously, the state has to build things – LOTS of things – but right now, infrastructure investment feels like a scam: the funds get spent, nothing gets built, no one is quite sure where the money went and the auditor-general keeps issuing blistering reports about the terrible political processes and terrible reporting across the state sector. These seem like important problems to solve before pouring more cash into the Cook Strait.

In Bleak House there’s a famous literary legal case called Jarndyce v Jarndyce. It’s a long-running probate dispute contesting a large fortune:

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, over the course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant, who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled, has grown up, possessed himself of a real horse, and trotted away into the other world. Fair wards of court have faded into mothers and grandmothers; a long procession of Chancellors has come in and gone out.

The case ends when the lawyers have consumed the entire estate via their legal fees. Dickens isn’t just hating on the legal profession here: he’s describing a phenomenon political scientists refer to as “the principal-agent problem.” The lawyers are agents who are supposed to act in the interests of their clients – the principals – but of course, they act against them to maximise their own gains.

Modern politics is riddled with principal-agent problems. When I talk to people about Let’s Get Wellington Moving – the doomed, now cancelled $7.4 billion mega infrastructure project that only delivered a pedestrian crossing while it spent $100,000 a week on consultants – they describe a very Jarndyce-like process. Endless rounds of consultation and engagement between the regional, city and central government and other stakeholders, all facilitated by private sector providers gorging themselves on those consulting fees. The principals were the ratepayers and taxpayers, who wanted their rates and taxes to go towards building stuff – but this wasn’t in the interests of the agents managing the rounds of consultation and planning. They benefited by keeping the Jarndyce loop rolling.

One of the reasons people on the left believe states outperform markets at allocating resources is that there’s lots of zero-sum competition in free market economies. Everyone is wasting money conducting marketing campaigns against one another, suing each other, new inventions can’t be shared because inventors want to protect their copyright. Under socialism the state can just put all its resources into creating value. But a classic right-wing critique of the state is that if a company in a free market makes bad decisions and destroys too much value they’ll fail and go out of business, whereas badly run public sector organisations can just fail, and fail in perpetuity – they always have the resources of the state to draw upon to fail some more. New Zealand seems to have found a way to combine both failure modes simultaneously: public sector organisations locked into zero-sum processes that destroy value – they spend a fortune on marketing! – but can’t ever go bankrupt.  

Identifying principal-agent problems is associated with public choice theory, a branch of economics that takes the assumption of the neoclassical models – everyone and everything is a self-interested rational actor – and applies them to politics. It’s popular on the right: for the public choice theorists government agencies maximise budgets the same way private sector companies maximise profits. But unlike the private sector, they have no incentive to minimise costs. In the same way a consumer-facing company tells customers they need to buy their product, public sector agencies release reports, deliver briefings and leak to media, warning that they desperately need more funding – a LOT more – because terrible things will happen if they don’t get it. 

Left-wing economists hate the public choice theorists. The prevailing left-wing model of state entities is that they’re Weberian bureaucracies: efficient, rational, rule-bound, professional, meritocratic; a universal class dedicated to serving the nation. If you looked at the under-examined assumptions behind Ardernism I suspect a strong belief in the infallibility of state bureaucracies would lie at the heart of it: any problem can be solved if you give the experts running the relevant ministry more money and tell them to be kind. Maybe this framework used to be credible, but it’s hard to look at our modern political ecosystem: the torrents of campaign donations, the lobbyists, the corporate structures of our agencies, the consultants advising them, the (invariably well-connected) private sector providers that deliver the services, the regulatory capture, the revolving door between industry and government, the pervasive secrecy, the lack of targeting or meaningful reporting – and think “What a perfectly efficient and infallible Weberian bureaucracy.”

One of the reasons our neoliberal revolution failed to generate the wealth its advocates promised is that markets aren’t magical. They need regulation to function properly: otherwise, you just wind up with an economy dominated by monopolies and cartels, ie the New Zealand economy. It feels like the left has wound up in a similar space: assuming that its preferred mechanism for value creation is magical rather than contingent on good governance and proper oversight. A left-wing political operative recently pointed out to me that the Labour government gave Oranga Tamariki everything they asked for, everything that was recommended, and the organisation seems worse than ever – which makes sense if you assume a profound gap between what agencies want, and what they need to perform well. Public choice theory doesn’t mean you can’t have an effective state sector – that’s how some right-wing politicians like to interpret it, but we live in a nation whose infrastructure was built by the state. Good things are obviously possible. But as states become larger and more complex the principal-agent problem becomes dominant. This makes it harder to do things – but politicians who pretend it isn’t there seem to find they can’t do anything at all.

Danyl McLauchlan writes about politics, economics, science and philosophy – mostly for the Listener, for whom he’s their weekly political columnist. He is also the author of two novels and a recent essay collection, Tranquillity and Ruin.

This article can be republished for free under a Creative Commons copyright-free license. Attributions should include a link to the Democracy Project (https://democracyproject.nz)

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Two of the most significant policy disputes in the run-up to New Zealand’s 2023 election took place within our major parties rather than between them. In May Christopher Luxon pulled out of the cross-party agreement on housing densification - a policy developed by his own deputy leader - and in July Chris Hipkins confirmed he’d killed Labour’s plans to introduce a wealth or capital gains tax, a scheme developed by his finance and revenue ministers.

There are internal squabbles in every movement but these two carry enormous significance. National is supposed to be the party of free markets - but here they are pulling out of a bi-partisan agreement to deregulate the housing market (the government currently spends about $2 billion a year on the accommodation supplement to subsidise the cost of housing because the market is so broken). While Labour is supposed to be the party of, y’know - labour, but here they are continuing to exempt capital from the tax system and offsetting the cost by increasing the tax burden on middle-income earners.

These are important issues. Housing is “the everything problem” - so many health, welfare, education and macroeconomic issues are downstream from the housing crisis, while international economic agencies like the OECD and IMF have been screaming at us for decades to patch up our economy by fixing our broken tax system. But this was the election in which our political leaders declared, very loudly, that they weren’t here to fix the nation’s deep and evident problems. They were here to ensure that things remained broken and they were prepared to go against the nominal values of their own parties to do so.

A recent Radio New Zealand analysis of political donations found that the property industry has lavished $1.3 million on National since 2021, and points out that their policies - restoring tax deductibility for landlords; scaling back the bright-line test - will deliver hundreds of millions to the sector. And consider Labour’s key fiscal policy this election: the GST exemption on fruit and vegetables. It was heavily criticised by economists who pointed out that the bulk of the gains would go to the supermarket duopoly instead of consumers. Another RNZ investigation described the close relationships between Labour and the supermarkets: Jacinda Ardern’s former deputy press secretary is head of public relations for Woolworths; Chris Hipkins’ Chief of Staff was a lobbyist for the sector - he famously resigned a day before taking up his role in the Prime Minister’s Office - and he arranged dinners between Countdown executives and ministers, including Grant Robertson. No one can say that all this money and influence bought any specific policy or benefited an individual company. But if we look at the major parties and ask “Who do they really represent and why?” the answer repeatedly points to the contamination of our politics by money and vested interests.

There’s this inevitable post-election argument playing out about whether Labour were too left-wing or too centrist. To me this feels like the wrong framework. Take free dental care. This was a good left-wing policy - in theory - but even if Labour somehow won the election it felt inevitable that by 2026 Hipkins would be struggling to explain how he’d spent billions of dollars on the scheme without delivering any actual dental treatment to anyone (“As I’ve indicated we’ve faced some challenges but we’re making great progress.”). Did a single voter believe that this promise would be kept?

One day after the election the New Zealand Herald reported that the Ministry of Social Development was spending $36 million on an online job search platform: part of its multi-billion dollar Te Pae Tawhiti scheme. Treasury strongly advised against this, noting that unemployed people already used existing platforms like Seek and Student Job Search, and heavily criticising the lack of policy analysis around the scheme. The government approved it anyway: The work will be delivered by private sector providers and the Herald noted:

In 2021-22, the last financial year for which the figures are public, MSD spent $15m on consultants and contractors for work on Te Pae Tawhiti. Of that, $5.9m went on Accenture “business improvement specialists” and $5.5m on PwC “business improvement specialists”.

Is this left-wing? Superficially yes: the state is spending money on the welfare system. But . . . is it? This is a recurring theme of the last government: some worthy-sounding progressive project - climate, public transport, mental health funding, water infrastructure reform  - is eventually unveiled as a revenue stream for the private sector, delivering negligible benefits to the public. Whose interests are really being represented here?

My contention is that this government was simultaneously too centrist and not centrist enough and I predict the next government will be the same. Instead of an economy that is built around either an interventionist state or free markets we have a hybrid of private and public sector solutions that never seem to solve anything; they deliver little value to the public, vast profits to private sector providers and high salaries to the senior public servants provisioning them, who seem to be completely unaccountable - no matter how dire their performance. There aren’t traditional left-wing or right-wing solutions to this. What are the left going to change about the public sector that will turn it into an efficient mechanism for building things and serving the public? What will the right change about our economy that will grow productivity and introduce competition into sectors like banking and groceries?

The alternative to our current model of oligarchic centrism is a model I think of as alt-centrism because I can’t think of a better term. The alt-centrist manifesto demands:

●      A high quality public sector that delivers services like health, education, welfare and a criminal justice system, and builds and maintains the infrastructure required to support a modern nation-state. It delivers this by setting clear targets, monitoring the quality of its spend to ensure it is delivering value and recalibrating when it isn’t. And all of this is done in an accountable and transparent manner. There is not, for eg a vast communications apparatus designed to conceal each agency’s activities from the public. Ministers and their staff do not collaborate to suppress statistics about the performance of the health and education systems and then lie about it. The corrections department should not, eg, let convicted murderers out on electronic monitoring when they know the monitors don’t work. And so on.

●      Competitive free markets. This innovative new economic model - proposed in 1776, but which New Zealand has mostly failed to adopt, preferring a commercial sector dominated by cartels, private monopolies, price-fixing and rent-seeking - would allow developers to construct new homes when house prices were high. It would incentivise new supermarkets to enter the grocery sector - and it would be illegal for the current duopoly to use anti-competitive tactics to prevent this. Overpriced domestic building materials would have to compete against cheaper imports. Investors could put their money into innovative well-run companies that made great products instead of whatever firm had the best lobbyists able to extract the most corporate welfare.

●      A low-rate, broad based tax system including a tax on either land or capital, so that the tax system isn’t deliberately distorting the entire economy and the government doesn’t need to covertly increase everyone’s income taxes every year to compensate for the gigantic hole in the revenue stream. .

●      More politicians! The number of seats in the House has been fixed at around 120 since the mid 1990s and our population has increased by about 1.5 million since then. People are cynical about MPs - and they should be - but they’re the only people in the political system who are even vaguely incentivised to act in the interests of the wider public. There should be more of them. But their operational funding needs to be ring-fenced, compelling them to spend it on policy work not consumer marketing (so that they know what they want to do when they enter government instead of convening a torrent of working groups to figure this out).

●      And we need reform around donations, lobbying and conflicts of interest - all enforced by a (competent) independent body that investigates and prosecutes political corruption. And the legislation around this needs to be written by the judiciary, not the politicians.

New Zealand is a liberal-democratic-free market-social welfare state - Francis Fukuyama’s End of History model. But - as Fukuyama pointed out - all of the institutions that make the model work are vulnerable to oligarchic capture. Over time the people who manage them reorient them towards their own self-interest. The best we can do is monitor them and reform things when they get too corrupt and dysfunctional.

I believe they’re getting too corrupt and dysfunctional. Transparency International, the NGO devoted to fighting global corruption ranks New Zealand second equal least corrupt nation in the world (behind Finland and alongside Denmark) in its perceptions of corruption survey. Yet, hilariously, RNZ reported earlier this year that the New Zealand branch of Transparency is quietly being funded and resourced by the state security services - the SIS and GCSB - alongside the big consulting firms: KPMG, Deloitte and PwC. And they’ve engaged a secret group of lobbyists to advise them on ethics in the lobbying industry. This is such an overwrought metaphor for our political culture: murky collaborations of state, private sector and NGOs fraught with conflicts of interest and concealed behind screens of public relations gibberish. Everything is compromised, captured; slowly transforming into the opposite of whatever it’s supposed to be. The party of labour privileges capital over labour; the free market party is anti-free market. The transparency watchdog is opaque and bankrolled by corporations and intelligence agencies.

Alt-centrism is the banal yet radical notion that our economic and political systems should work the way they’re supposed to. I’m not sure what this looks like in practical terms (occupying the public service commissioner’s office until he agrees to assess the value of public spending? Handing out copies of Caro’s Power Broker and Burnham’s Managerial Revolution on street corners?) I suspect it looks like David Parker when he stood down as revenue minister rather than promote a tax policy neither he - nor, one suspects, anyone else in his caucus - believed in. Politics is the art of compromise; parties can’t work if someone flounces off every time the leadership makes a concession to political reality. But there’s a difference between compromising a party’s principles and abandoning them - and it’s appropriate for MPs, members and other influential actors to raise their voices or exit their organisations when they see this happening.

Are there many votes available to politicians or parties adopting an alt-centrist platform? Probably not. They’d antagonise thousands of the wealthiest and most influential people in the country while any gains from the changes would come slowly; in the teeth of fierce resistance.  But listening to the valedictory speeches at the end of the last parliament I was struck by the hollowness of so many political careers, even as described by the MPs themselves. They sat on some committees, went on a speaker’s tour; maybe made it to a ministerial office where they implemented the policy agenda imposed on them by their officials and their party. There are a few exceptions to this. But not very many. And these careers come at enormous cost: long hours, intense scrutiny, weeks away from their families. If politicians and their parties aren’t there to do difficult things in the interests of the public, why are they there at all?

Danyl McLauchlan works at Victoria University of Wellington’s School of Biology. He writes about politics, economics, science and philosophy – mostly for the Listener. He is also the author of two novels and a recent essay collection, Tranquillity and Ruin.

This article can be republished for free under a Creative Commons copyright-free license. Attributions should include a link to the Democracy Project (https://democracyproject.nz)

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