The recession is going to change everything else in New Zealand. Why shouldn’t it change the shape and nature of our public sector too?

In case you’ve missed the main message: the tradable sector of our economy – the real driver of sustainable growth in New Zealand – has been in recession for the past five years. No wonder we’re in trouble.

The sector that produces the goods and services we export to the rest of the world and that competes with imports for your purchasing power at home actually shrunk around 10% over the last five years. If we want it to grow, something else has to make way – like central and local government spending.

John Key, Bill English, Treasury secretary John Whitehead and State Services Commissioner Ian Rennie have been trying to hammer the message home to public servants this month. This week, local government will get it one more time from the Minister for ratepayers, Rodney Hide. But as my grannie used to say: there’s none so deaf as those who do not want to hear.

Hide’s call for the councils to refocus on providing their "core" services has already produced a predictable response from Mike Reid of Local Government New Zealand. It starts with the words “why defining core services is a dumb idea”, then reminds us how much local government services have changed over the years [remember when councils ran abattoirs and fire brigades], and closes with the assertion “parliament does not know best in all circumstances.”

There was a similar response from the Public Service Association national secretary Brenda Pilott. She is rapidly wheeling out her organisation’s seven point plan for improving public sector performance. It starts with “taking privatization off the agenda”, moves through “a moratorium on restructurings”, and bluntly rejects the increasingly common practice of “performance-related pay”.

The PSA glides on through an apple pie agenda of “giving citizens a voice”, “listening to front line public sector workers”, and “respecting the professionalism of public sector workers”, before climaxing with a rallying cry for a return to “a single approach to [pay and conditions] bargaining” and “a simpler and common approach to pay across the public service agencies”.

Treasury secretary Whitehead has become the lightning rod for most of the opponents of further public sector reform. His critics question his right to speak publicly on the subject and accuse him of championing more privatization in the provision of public sector services. They are wrong on both counts.

First, he was assigned by the previous government to work with the State Services Commissioner and the Auditor-General on new performance reporting and monitoring processes for state agencies. Second, the Treasury is routinely tasked with assessing the merits of their funding cases.

Third, Whitehead did not say – as Radio New Zealand news reported – that “out-sourcing some state services would help boost the sector’s productivity”. His speech was far more circumspect.

 

“It may be about stopping some things – and this can be difficult, particularly when it means making tough calls about staff. It might be about starting others. But nothing should be off the table: for example, contracting out delivery as we do with some social services and others – like Australia – do with private prisons, may be more effective. It also means we can compare the price and results of different ways of doing things and choose the best mix options.”

 

The most interesting common ground to emerge in the debate inspired by Whitehead’s speech is on the inadequacy of existing public service productivity and performance measurement.

Pilott and the PSA say: “We don’t have an accurate picture of how the public sector is performing in the productivity stakes. Some things – for example, social work with families – cannot be easily measured…”

Rennie of the SSC says: “Currently, performance information and reporting is of variable qualify. This is of concern to central agencies and the OAG [Office of the Auditor General]…”

Whitehead at the Treasury says: “Currently, we don’t have good performance information. A weakness of our system is that we haven’t put the effort needed into linking the resources we receive to the goods and services we deliver and the results we are trying to achieve.”

Anyone who has read a state agency’s statement of intent or annual report in the past decade knows the weakness of the logic chains that are frequently used to link expenditure, activities and outputs to desired outcomes.

It is a flimsy basis on which the government will spend $62 billion of your money this year. This is poorly measured foundation on which they forecasting that our government will incur a deficit of perhaps $12 billion to see the country through the recession. And this is one of the major reasons why the non-tradable, purely domestic sector of our economy has grown by 15% over the past five years while the vital tradable sector shrank by 10%.

We are now the second most debt-burdened nations in the developed world. We are in this predicament because of our poor trading performance, our debt-fueled housing boom, and a decade of large increases in government spending.

The need for reform to produce a more focused, efficient and productive public sector is unarguable when you consider some of the other statistics that Whitehead produced to back his case for change.

Public sector spending – that's local and central government – amounts to 45% of our gross domestic product. Core Crown spending has increased by nearly $25 billion since 2002 and the number of core public sector employees has increased by 44% between 2000 and 2007.

We are plunging into a future where the government will follow the private sector into debt, and we still don’t have the performance measures to show if we are getting productivity improvements or real value gains from the growth of our public sector.

It is time for a serious reality check.

Comments (17)

by Tim Watkin on July 27, 2009
Tim Watkin

David, what makes you say that for the private sector to grow the public sector has to "make way"? Can the private sector only grow by taking over the work done by the public sector? Isn't there enough opportunity for thewm to grow by creating new products and services, adding new value, and finding new export markets?

As important as good measurement is, I'm always a wee bit nervous when people talk about reviewing the performance of social services. Trying to measure social work is a bit like 'dancing about architecture', isn't it? How do you review the outcome of domestic abuse, say? A child being 'safe for now', might be as good an outcome as can be hoped for. Success could be keeping the abuser away... or the children in the house getting jobs and being productive members of society... or simply them not abusing their own families... or the mother getting off the DPB... or staying on it and getting her kids educated... You get my point. How do you measure departmental success or a staff member's performance?

And final question – I'm full of questions this morning! – can anyone tell me how big the public [corrected] sector was in the 60s and 70s and by how much it was cut in the 80s and 90s. I'd love to be able to put that 44% growth since 2000 in context...

 

by Totara on July 27, 2009
Totara

Is it an apple pie agenda or simply commonsense for the PSA to say we should to talk to the people who deliver public services about improving the delivery of those services.

Surely if a Formula One team wants its car to go faster the first person to talk to is the driver.

It’s also a cheap shot to say the union is simply ‘gliding on’ when it puts together a list of seven things needed to improve public sector performance.

In compiling its list, the PSA is drawing on the knowledge of public sector workers, the people behind the wheel of our public services.

They are the experts in this area and to dismiss their views out of hand smacks of political bias and ideology.

New Zealanders have had their fill of being the lab rats for free market mad scientists.

They’re also going through the worst recession since the thirties which was created by the private not the public sector.

Rather than unleash another round of free market madness why don’t we look at the PSA’s list of seven practical, evidence-based proposals on how we can improve the public sector.

by David Beatson on July 27, 2009
David Beatson

Totara - I call one section of the PSA's seven point plan apple pie agenda, because it contains set of suggestions that are quite natural to any credible quest for performance improvement -fundamental  processes, rather than action points. As to the public sector's blamelessness in the US derivatives disaster - all I can say is there were regulators around, they had powers to investigate, they chose to be asleep at the helm.

Tim -  There is always competition for resources in any economy. If someone wins - someone else loses. If the public sector grew when the tradeable sector was shrinking, then we have to ask if the resources were flowing in the right direction if we want sustainable growth.

As for measuring the effectiveness of social service investment: is there no definition of the effect we want it to have - and is that not measurable in some way? If a funded intervention has no discernable impact on the problem it was intended to address, is it worth continuing? It may be hard - but it is not impossible to produce the perfect measure, and we can certainly do better than we do now when social intervention programmes can be introduced without even an attempt at establishing a monitoring and evaluation process as a part of the initial prescription.

As for measuring a staff member's performance - well maybe we ask their clients, their managers, and their peers how effective they are -- the class 360 review. Maybe we even ask staff members to work with managers to establish and agree key performance measures, goals to be achieved, timeframes for achievement, training and development to be provided and undertaken. I've worked in this kind of environment - and it was pretty good.

On your last question, Tim, I haven't a clue but I fear that even if you got the numbers you want, you won't necessarily get the answer you need.

 

by David Beatson on July 27, 2009
David Beatson

Correction: It may be hard to produce the perfect measure, but it is not impossible to produce a reasonable measure, was what I was trying to say before I hit "submit" instead of "preview". Pardon me.

by Greg Comfort on July 27, 2009
Greg Comfort

Re: someone please put it in context.

Tim, you must be one of the few journalists left who asks such questions. Good on ya mate.

Yes please, can someone put some context to the platitudes we are constantly fed by this current government, and others, of how the previous government "increased public spending" (implied meaning: wasted) to ridiculous levels, yet no one tells us how much the previous National government had cut from public spending in its nine year term. Are we back where we started? Is this a good level or a bad one? Are we getting good value for the spending?

For instance, I've noticed in recent years people telling me how much better it is to deal with IRD, both on the phone and through their web site. Although not perfect, it feels IRD have improved their service in recent years. Are we to go back to the bad old days of phones ringing forever and difficulty finding information about taxation?

And thanks to some top level direction from the previous administration, amongst other influences of course, we now have a stronger art, literature, and music sector in this country.

I too am concerned that the moment things look tough for us, our values and higher aims as a nation seem to have gone out the window as everything gets measured in terms of money. Not value, or service, or usefulness. Just dollars.

There's an old saying that you get what you measure. If we measure everything in terms of money, we run the risk of only valuing money. That's not a legacy I wish to leave my children.

Tim, can you get a guest economist (maybe Brian Easton?) to give us some perspective?

by Tim Watkin on July 27, 2009
Tim Watkin

Greg, a good moment to remind us of the 'we get what we measure' saying. So measure carefully.

David, from family members I know working in the public sector, there seems to be plenty of monitoring and measuring. A teacher, for example, gets feedback from everyone from parents at parent-teacher meetings all the way up to ERO. In fact, I thought one of the complaints these days was that there were too many peope hired to review and not enough to get on and do. Of course we need to measure and learn, cut away what's not working... but you'd know better than me from your time in Wellington that these things are much, much harder than they look.

by David Beatson on July 27, 2009
David Beatson

Tim, the real flaws are in the contracting system at the agency to minister level, rather than on the shop-floor. Ministers want their government's great ideas and visions translated into reality - but it takes expert negotiation of an implementation contract to ensure that the easy output measures [the activities required to deliver the programme] don't replace the difficult outcome measurement [the objective to be achieved] where so many extraneous factors, beyond an agency's control, have to be taken into account. Unfortunately, there aren't too many experts around to ensure appropriate performance monitoring and measurement are included in the statements of intent that Ministers sign off - and there's little come-back after that happens. Fortunately, most of the new contracting occurs at the margins of agency activity. Unfortunately, in most cases, the core stuff - the bulk of agency business - just gets carried over, without any zero-based review to determine if it's still needed, isn't working, or could be delivered more effectively. So when times get tough - and your tradeable sector is shrinking while your public sector keeps growing - somethings got to give. I'm in favour of having good evaluation processes in place to ensure the right things get stopped and the right things get started. We haven't got one - and we probably never have had one.

by Claire Browning on July 28, 2009
Claire Browning

can anyone tell me how big the private sector was in the 60s and 70s and by how much it was cut in the 80s and 90s. I'd love to be able to put that 44% growth since 2000 in context...

Tim - at least one other journalist asked the question, assuming it was in fact the public sector you meant. 

From the Business section of last Saturday’s Weekend Post (not online), according to "one highly experienced public servant" - the core public service payroll, at its peak post-WWII, topped 80,000 fulltime and casual workers in the 1980s.  By 2000, that had been slashed to 29,000 - its lowest level since WWII.  Again in the words of the "highly experienced public servant", “Fifty thousand jobs seemed to have vanished down the plughole but, in fact, something like half went into SOEs, Crown research institutes and other forms of public employment. Probably only half of them were lost, but nobody actually knows.”

It is around 43,000 now.

by stuart munro on July 28, 2009
stuart munro

I think we need to be a little more specific than terms like "the tradable sector of our economy – the real driver of sustainable growth". Are we including tradeable financial instruments like credit default swaps? They're not very productive.

The truth is, the NZ economy is on it's last legs, and tired old nostrums like the 'export led recovery' aren't going to cut the mustard any more.

A responsible government would conduct a sector by sector review, identifying core industries and taking significant action to reverse the decline.

This government will slap some on some lipstick and skimpy regulatory regimes, and solicit foreign investors in the faint hope of directorships further down the line.

It will evidently take a lynch mob on the steps of parliament to remind them of their duty.

by David Beatson on July 28, 2009
David Beatson

Claire, Tim, et al - For what it's worth I've found a Treasury paper showing that in 2000 the total number of jobs filled in the Central Government sector [including trading enterprises] was 248,143 - and by 2004 the number had increased to 278,831. I am trying to obtain numbers from Statistics New Zealand for earlier and later years to try and get a picture of the trend since 1985.

by Andrew R on July 28, 2009
Andrew R

From the PSA briefing to the incoming government:

The PSA has consistently argued that, although there has been significant growth in the public 
service since 1999: 
• It was necessary to rebuild capacity after a decade in which public services were subject to 
the policies of the ‘sinking lid’ and ‘fiscal neutrality’. The capacity of our public services was 
substantially weakened by 1999 as evidenced by a number of high-profile problems of which 
the Cave Creek disaster, the delay in vote counting in that election, and the need for some 
departments to contract out the writing of briefings to incoming ministers were only the most 
high profile. 
• At 45,934 (43,569 FTE) in 2007 the public service still only represents 2.1 per cent of employees 
in NZ, compared with 4.5 per cent in 1990. 
• The overwhelming bulk of new positions have gone into the frontline (e.g. prison officers to 
staff new prisons, frontline immigration officers) and to support new programmes (e.g. new 
positions at Inland Revenue to support KiwiSaver). 
• With the increase in e-delivery, the location of some of the frontline has changed from 
community-based roles to engine-room roles with professionals employed to create, maintain 
and deliver e-services. 
• Only 41 per cent of public service staff are employed in Wellington (including frontline staff 
servicing the citizens of the region) while the other 59 per cent are employed in other regions 
or overseas. 
• In the overall state sector the number of jobs went from 245,201 (17.4 per cent of employees 
in New Zealand) in 1999 to 335,012 (15 per cent of employees in New Zealand) in June 2008. 
• The Organisation for Economic Co-operation and Development (OECD) has consistently ranked 
New Zealand’s public service as smaller than the average in industrialised democracies.

by Tim Watkin on July 28, 2009
Tim Watkin

Claire, David and Andrew, thanks for those numbers. Interesting that the growing public sector numbers you quote Andrew represent a shrinking percentage of the overall workforce. That's not the impression I've been getting lately. It'll be interesting to see what Stats has going further back, David.

by David Beatson on July 29, 2009
David Beatson

Andrew - thanks for your contribution. Where can I get a copy of the full PSA brief to the incoming government? However, we also need to focus on Whitehead's central argument for lifting public sector productivity, Here's what he said:

"To help New Zealand compete internationally and lower costs to exporters, we have to raise the quality of public spending and ensure the lion's share of increased national resources goes not to the public but the private sectors. Every dollar that is spenf by the public sector is a dollar that is not spent on business investment, or left in taxpayers' pockets, or saved."

There's plenty ot meat for debate here ...

by Greg Comfort on July 29, 2009
Greg Comfort

Ka pai mahi / good work, David, Andrew and Claire. Thanks for digging those numbers up for us. It does indeed look like a difficult thing to measure, which is even more reason for us to ask for clarification from politicians ranting about state sector spending by previous governments.

Surprised to see in the Press this morning that NZ's population has grown by 20% since 1990. Seems a lot. Maybe that's why the precentage of state sector employees in New Zealand has reduced between 1999 and 2008?

by Glenn Barclay on July 29, 2009
Glenn Barclay

David, for your information the briefing can be found on the PSA website on http://www.psa.org.nz/Publications/Briefingstotheincominggovernment.aspx

 

by J Keenan on July 30, 2009
J Keenan

I'm willing to bet that there will be one thing left "off the table" with this focus on productivity, the public service and the export sector.

It will be absolutely no repeat no change to monetary policy, i.e. lets not give the Reserve Bank any effective tools and although we are a commodities based exporter nation don't even think about looking at the floating dollar.

Yes NZ and the increasingly disaffected National party backbone (Farmers / small business owners) it is the "bloated" yet undefinable big bad public service, not the current 65c to the USD that is the root of all evil for exporters and productivity as a whole.

So who benefits from the floating NZ dollar? And at who's expense?

And do they also stand to benefit from framing the problem towards the state sector?

by on July 12, 2010
Anonymous

[Spam. Redacted.]

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