Colin James: Seeking value in the state

How do you get economic growth down? Have a drought. How do you get it up? Get yourself a cornucopia of metals, gas and oil.

A drought in this country cuts deep into GDP. A drought in Australia does not have much effect because agriculture is a relatively small part of the economy.

Australia has vast mineral and petroleum riches. New Zealand's supply is not in that league.

So, all other things being equal, Australia's economy will grow faster than ours. To reverse that, we will need to make the other things unequal.

That is John Key's challenge as he prepares for a major speech on "growth" on April 4. Don Brash keeps promising to catch up with Australia. Key has to say how.

Essentially, Key has to find:

* Activities where New Zealand is superior.

* Better investors and managers than Australia's.

* Superior policy settings.

Key's political job is to focus on the last.

The easy politics is to retreat into ideology: lower taxes, less regulation, a free labour market, a developer's charter instead of the Resource Management Act, a smaller state.

By and large, Key shuns the easy politics.

He recognises the electoral risk in too narrow a focus. But one easy hit he has been making is the "bulging state sector".

"Bureaucracy is spiralling out of control and New Zealanders are paying for it with ever-increasing taxes," he said in January.

"Employee numbers in the wider state sector have increased by 14 per cent, from 265,000 in 1997 to 302,000 last year."

Last week, he blasted "bloated Government departments" for pushing up the price of Wellington office space.

Last year's Budget, he noted, provided for 6500 more jobs (excluding doctors, nurses and university teachers) over the next four years.

The corollary is: fire large numbers of them. His objective: "An effective and efficient state sector."

For business, there is obvious value in the first. Fewer state servants mean lower taxes.

But there is also real value for business in the second: if the state is efficient taxes can be lower and, if it is effective, the taxes are not just a drag on the productive sector.

Key will find as a minister that an "effective and efficient state sector" has long preoccupied those who run it.

The state sector reforms of the 1980s - which generally made the sector more efficient - divorced policy work from regulatory and service delivery activities.

In parts of the state sector, policy was disconnected from experience and/or policy units fell below critical mass. In addition, agencies developed a "silo" mentality, focused on what they individually did to the detriment of co-ordinating their activities.

This fragmentation has worried state bosses and politicians since the mid-1990s. Heather Roy, an Act list MP, bemoaned a lack of co-ordination of social services at her party's conference two weeks back.

Ethical standards also slipped in the Crown entities and in the lower reaches of some departments. A standards board was set up to restate what was expected.

Four years ago, there was also a far-reaching "review of the centre".

As a result, State Services Commissioner Mark Prebble's mandate - previously covering only the 35 core departments - was widened in legislation last year to cover Crown entities and some other agencies and so improve consistency and co-ordination. Together, these make up the "state services".

(State-owned enterprises, tertiary education institutions and parliamentary agencies are still outside his purview. About 110,000 of Key's figure are in this "wider state sector" and so some of his bloat is commercial expansion by the SOEs.)

Last week, Prebble promulgated a goal requiring state service agencies to "work closely together". He added six "development goals": to be an employer of choice; to hire top people and keep upskilling them; to use networks and internet technologies to improve services and access; to "manage for outcomes" through co-ordination; to work together to ensure people get to the right agency and get the right services; and to build trust.

Let's focus on two.

State services boffins have long debated how to switch the focus from "outputs" - agencies doing what they are paid to do, regardless of effect - to "outcomes" - getting measurable results.

Many outcomes, particularly in the social field, require co-operation among agencies. One barrier to this - the rigid "vote" system which divides the Budget among agencies - was removed by legislation last year which enables multi-agency votes. (National voted against it.)

In recent years, agencies have begun to develop teams and one-stop shops at local level.

Heartland Services in the Ministry of Social Development was set up to do that in rural areas.

That aims to make the state more effective; not just more bangs for the buck but potentially real bangs for the buck instead of palliatives and paper-shuffling.

But more important to business is the first goal, "excellent people" - especially those who do the research, write the papers and generate the legislation.

Ideology alone cannot drive a government. Ideology needs to be tested against reality and translated into a workable policy.

That needs capable officials. Of which there are a fair number. But there are also a fair number - probably a much larger number - of mediocre officials.

Mediocre officials generate mediocre policy. Mediocre policy is bad for business.

And there is only so much a minister can do to make up for mediocrity.

The answer is not simply "no policy".

One example will suffice: the single economic market with Australia, which should be good for business, requires a lot of policy work and it should not all be done in Canberra.

So just firing state servants is not the answer. Nor is hiring droves of them, as the Government has done.

Instead, hire top-notch people who do good work and pay them enough to keep them. Key agrees: "Smaller is often better."

If, that is, we do want superior policy settings to Australia's to start to close the gap Key and Brash fret about so much.