Dialogue: Preserve us from this committee

Whatever possesses someone to imagine that decisions are best made by a committee?

We have all sat on committees. They work best as sounding boards for a good, clear-headed individual who makes the call and carries the can.

A decision truly reached by a committee is likely to be a dreadful thing, a tentative reconciliation of conflicting suggestions, each of them more sensible than the compromise the committee makes.

Committees make the kind of decisions that, afterwards, even those who were there struggle to explain. And nobody need personally take the blame.

Some people would like to see Don Brash replaced by a committee, mostly the same people who occasionally press him to relax the grip on inflation for the sake of a brief business stimulus or fictional wage rises or jobs or a lower dollar. As Mike Moore used to add, what about dental hygiene?

With a statute giving him sole responsibility and a single goal, the governor of the Reserve Bank brought inflation down from double figures to near zero and kept it there for a decade.

Time enough, said Labour and the Alliance, to review the way he had done it.

They went to Sweden, bastion of social democracy, and engaged Professor Lars E.O. Svensson from the University of Stockholm. He has been talking to people here since last May. His report released this week shows he is in awe of Don Brash.

Yet he suggests that when the good doctor's term expires in a couple of years, we should transfer his statutory responsibility to a committee.

The professor offers two reasons: the governor will be a hard act to follow, and other countries (such as Sweden) do it by committee. The second point will probably carry more weight in this country.

We could never be accused of excessively appreciating our outstanding performers, even when they are noted among central bankers internationally. But suggest that most countries do something differently and you can count on the Kiwi cringe.

It would be an absurd conceit to ignore international practice but equally foolish to let it overwhelm our own judgment of our circumstances.

It cannot be said too often. Look at a map, and look at a scatter graph that plots countries by per capita wealth and the sophistication of their products. Countries tend to rank high or low on both axes, with two exceptions.

Australia and New Zealand are out to one side, oddballs, enjoying First-World wealth on Third-World exports. And Australia has more going for it than we do.

To sustain this living standard, we have to extract the absolute maximum value from all the human and natural resources we have. Others may be able to afford to meddle and muddle with market and monetary signals to investment. We can't.

Don Brash will be a hard act to follow. Professor Svensson says, "The current arrangement with a single decision-maker works very well. This is to a large extent because of the exceptional qualities of the current governor ... "

"Another governor may not, to the same extent, encourage open and comprehensive discussion and advice ...

"Another governor may not cope as well with the pressure, criticism and even abuse that seem to go with the territory, and may, in difficult times and under high pressure, lose confidence and let policy go awry ... "

And he is not persuaded that a governor who lost his or her grip could be dismissed as readily as the contract implies. Monetary decisions take time to show their effects and external events can confuse the picture.

None of that strikes me as a good reason to give the job to a committee, even an internal committee of Reserve Bank officials, which is what the professor proposes.

If another governor might not be as candid as this one, a committee would likely be be even less candid. If the next governor might not be as good under pressure and criticism, imagine how a committee would handle it.

And despite the lags between monetary decisions and their effect, a governor who lost the confidence of the Government could quickly be removed. Even Dr Brash had to formally explain when inflation crept above the target a couple of times in the 1990s.

Professor Svensson criticises him for cracking down too late in 1992-1993 and being too slow to ease before the Asian crisis of 1997. The contention in both cases is that he was too slow to change direction. Would a committee be quicker?

The report also criticised the short-lived monetary conditions index, ignoring that it was introduced to convince unbelieving money markets that the bank really did not have a floor under the dollar. It succeeded in that purpose, if nothing else.

An over-valued exchange rate is always likely with a strong anti-inflation policy in a poor economy. Labour and the Alliance have fixed that problem simply by coming to power.

Those who regard monetarism as the devil's own policy are sitting comfortably in Beehive suites and there seems no enthusiasm for Professor Svensson's Monetary Policy Committee. But you never know.

Right now, with the domestic economy strong but the wider outlook downcast, the governor has been typically frank that he is not sure what to do. Many are urging him to lower the base interest rate for no other reason than the United States and Australian central bankers have done so.

That would be the safest course if you wanted to avoid criticism. That is what a committee would do.

I do not think Dr Brash will, and I think he will be right.