Robert MacCulloch: Red tape tripping up honest Kiwis

The government requirement for hair salons to have at least three separate sinks may be good for hygiene but it comes at significant cost.

Trustworthy culture should be rewarded with more relaxed rules but harsher penalties for baddies.

Regulatory questions are grabbing the headlines these days. How should one regulate health and safety? What about the banks and financial advisers? Not to mention the environment? Are so many building rules really necessary? How can the Resource Management Act be improved?

Many occupations are being regulated. For example, hair salons are required by the Government to have "a shampoo sink, a cleansing sink for cleaning equipment and a wash hand basin". Maybe this is good for hygiene, but it sure will put up the cost of your hair cut. Do the benefits of these kinds of rules outweigh the costs? No one knows, since few principles are applied when it comes to regulating in New Zealand.

Often the cry is heard that since other countries are regulating in particular ways, we should do the same. Surely the British or Americans must have thought about these things? Or maybe even the Australians? Can't we photocopy their rules? Unfortunately transplanting what works in one country to another is fraught with difficulty. One of the reasons this approach can lead to disaster is that cultures differ greatly around the globe. And a nation's institutions need to be consistent with its cultural values and beliefs for things to work out.

So what should be the strategy of our political parties when it comes to regulation? First, accept the fact that New Zealand is ranked as being the least corrupt country in the world, as measured by Transparency International. Second, accept the fact that NZ enjoys one of the highest levels of inter-personal trust in the world. The Gallup Poll asks "Imagine you lost your wallet holding your identification and address and it was found by someone else. Do you think your wallet would be returned to you if it were found by a stranger?" NZ topped the globe in terms of the highest proportion of people who said they thought their wallet would be returned.

The Legatum Institute also ranks NZ as number one, out of 142 nations, in terms of "social capital". In other words, more Kiwis donated to a charity, helped a stranger, relied on friends and family for help, volunteered their time, or were confident in the trust of others, compared to any other nationality.

Our politicians, both left and right, should then ask the question, "What does an optimal set of regulations look like in a country whose culture is characterised by an exceptionally honest bunch of government officials and an extremely socially-minded private sector?" Here is an answer, and there is a lot of influential international evidence to back it up.

Don't frustrate the legitimate efforts of our mostly caring population to seek opportunity and success by bogging us down in a quagmire of complex rules. Instead encourage decent Kiwis to do more of the good that they are already doing and give us the freedom to be more creative by limiting the regulatory burden compared to other, less honest, nations. Most New Zealand businesses are run by good people, voluntarily doing way more than the rest of the world in terms of looking out for others. It is not an opinion that Kiwis care. It is a fact reported by, amongst others, Transparency International, the Gallup Organization and Legatum Institute.

Our political parties should also promote, aside from non-burdensome regulations, whose benefits outweigh their costs, stronger enforcement and bigger penalties for those bad types who break the rules that are in place. A ton of red tape is not needed to make it clear that finance companies are not allowed to con their investors, that mining companies are not allowed to hurt their workers through taking inadequate safety precautions and that the building industry is not allowed to cheat its clients by selling them leaky houses. Yet a group of wrongdoers in those industries did get away with a slap on the hand; hid behind the corporate veil; and held on to their profits and ill-gotten gains even when caught out. The baddies should have been held to account way more.

In summary, all political parties should strive to prevent New Zealand from becoming a place with too many rules and too weak disciplines on the rule-breakers, which are well-known characteristics of poor and corrupt countries. In these kinds of societies the people who are honest don't do as well as the people who are dishonest. So our aim should be to reduce the burgeoning volume of red tape and, at the same time, more strongly prosecute those who seek to abuse the freedoms granted under this kind of two-dimensional policy.

Politicians of all ideological colours should ensure that the design of our regulatory state takes advantage of Kiwis' greatest cultural strength; the strength that most people in this country already do the "right thing" without having to be ordered to by a patronising government.

Professor Robert MacCulloch holds the Matthew S. Abel chair in macroeconomics at the University of Auckland business school.