The subject of the April 2004 issue of “Imprimis”, a mailing I receive monthly from highly recommended Hillsdale College is “Rolling Back Government Lessons from New Zealand”. The author is former New Zealand Cabinet Minister, Maurice P. McTigue. His message was part of a series of lectures on campus on “The Conditions of Free-Market Capitalism.” I quote this Distinguished Visiting Scholar as follows:
“What we are seeing around the world at the moment is what I would call a silent revolution, reflected in a change in how people view government accountability. The old idea of accountability simply held that government should spend money in accordance with appropriations. The new accountability is based on asking “What did we get in public benefits as a result of the expenditure of this money?” This is a question that has always been asked in business, but has not been the norm for governments. This was the basis of successful reforms in my own county of New Zealand. When a reform government was elected in 1984, it identified three problems: too much spending, too much taxing and too much government. First you have to see what you are getting for dollars spent. Towards this end we implemented a new policy whereby money wouldn’t simply be allocated to government agencies, instead there would be a purchase contract with the senior executives of those agencies that clearly delineated what was expected in return for the money. Those who headed up government agencies were now chosen on the basis of a worldwide search and received term contracts- five years with a possible extension of another three years. The only grounds for their removal were non-performance, so a newly elected government couldn’t simply throw them out as had happened to civil servants under the old system.
The first purchase we made from every agency was policy advice. That policy advice was meant to produce a vigorous debate between the government and the agency heads about how to achieve goals like reducing hunger and homelessness. I didn’t mean, by the way, how the government could feed or house more people – that’s not important. What’s important is the extent to which hunger and homelessness are actually reduced In other words, we made it clear that what’s important is not how many people are on welfare, but how many people get off welfare and into independent living.
The fundamental first question was “What are you doing”, the second question was “What should you be doing?” Based on the answers, we then said “Eliminate what you shouldn’t be doing” that is if you are doing something that clearly is not a responsibility of government, stop doing it. Then we asked the final question: Who should be paying – the taxpayer, the user, the consumer, or the industry?” We asked this because, in many instances, the taxpayers were subsiding things that did not benefit them. And if you take the costs of services away from actual consumers and users, you promote overuse and devalue whatever it is you are doing.
When we started this process with the Department of Transportation, it had 5600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Minster of Works, we had 28,000 employees. When we finished, it had one. In the latter case, most of what the department did was construction and engineering, and there are plenty of people who can do that without government involvement. When we sold off the things that government shouldn’t be doing, productivity went up and the cost of services went down. We did that to about 35 agencies that used to cost us a combined one billion dollars per year, now they produced about one billion dollars per year in revenue and taxes.
In 1984 New Zealand sheep farmers were receiving about 44% of their income from government subsidies. We did away with all sheep subsidies within one year. The sheep farmers were unhappy, but once they accepted the sheep subsides weren’t coming back, they put together a team. Its major product was lamb and lamb was selling for about $12.00 per carcass. Go into the best restaurants in the U. S or New Zealand today and you will be paying $35 to $60 per pound.
New Zealand had an education system that was failing as well. It was failing about 30% of its children-especially those in lower socio-economic areas. We had put more and more money into education for 20 years and re received worse and worse results. The first thing we did was identify where the dollars were pouring into education. We hired international consultants (because we didn’t trust our own departments to do it) and they reported that 70 cents of every dollar was being swallowed up on administration. Once we learned this we eliminated all the board of Education in the country. Every single school came under the control of a board of trustees elected by the parents of the children at the school, and by nobody else. We gave the schools a block of money based on the number of students that went to them, with NO strings attached. At the same time we told the parents that they had an absolute right to choose were their children would go to school. It is absolutely obnoxious to me that anybody would tell parents that they must send their children to a bad school. We converted 4500 schools to this new system all in one day. We made it possible for privately owned schools to be funded in exactly the same way as publicly owned schools, giving parents the ability to spend their education dollars wherever they chose. Everyone predicted that their would be a mass exodus of students from the public schools to the private schools. It didn’t happen because the differential between schools disappeared in about 18-24 months. Why? Because teachers realized that if they lost their students, they would lose their funding; and if they lost their funding, they would lose their jobs. We moved from being about 15% below our international peer and rose to about 15% above our international peers in terms of educational attainment.
We resolved that we would have only two mechanisms for gathering revenue – a tax on income and a tax on consumption. We lowered the high income tax rate from 66 to 33% and the low end from 38 to 19%. We set a consumption rate of 10% and eliminated all other taxes, capital gains taxes, property taxes, ect. We carefully designed this system to produce exactly the same revenues we were getting before and presented it to the public as a zero sum game. But what actually happened was that we received 20% more revenue than before. Why? We hadn’t allowed for the increase in voluntary compliance. If tax rates are low, taxpayers won’t employ high priced lawyers and accountants to find loopholes.
We solved our deer problem by telling our farming community that they could catch and farm the deer as long as they would keep them within an eight foot high fence. And we haven’t spent a dollar on that day forward and New Zealand now supplies the world with 40% of the world market in venison. By applying common sense, we turned a liability into an asset.
One last story, we abolished the whole system of drivers licenses expirations and a license is good until the age of 74 after which an annual medical test is required. We abolished a whole department. (New Zealand requires everyone to have an identity card)
Now consider this: In the United States, there are currently 178 federal programs designed to help people get back to work. They cost 8.4 billion dollars and 2.4 million people are employed as a result of them. If we took the most effective three programs out of these 178 and put the 8.4 billion into them alone, the result would be likely that 14.7 million people would find jobs. The status quo cost America over 11 million jobs. The kind of new thinking would build into the system a consequence for the administrator who is responsible for this failure of sound stewardship of taxpayer dollars. It is this direction our government needs to move.”
No, I’m not moving to New Zealand but I like their way or thinking. We are almost totally out of control with big government, bloated bureaucracies and entrenched elected officials. Anyone with more information on the success of New Zealand or other democracies that are reducing and simplifying our public management systems, please blog on this site. In the meantime, point out to me where I could help make county government more effective at less cost realizing that approximately 70% of our 100 million dollar budget goes for salaries and benefits.
To receive copies of Imprimis write to Hillsdale College, 33 East College St. Hillsdale, Michigan or call 800/437-2268.
(In the interest of holding your attention, I had to leave out most of his comments. But the idea of privatizing more government activities of at least letting the private sector bid on more works considered untouchable by power brokers and unions, is not new. Our problems in the U.S. are problems of entrenchment and power. Not an easy problem to overcome but the public will demand that government will become less unwieldy and costly and sinks under the sheer weight of bureaucracy abuse).
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