Steve Maharey: A new balance is needed

If nations like ours should have learned one thing during their history, it is that to be successful we need a dynamic market economy and strong public institutions and a vibrant community.

It is sad, therefore, to read articles like the one from Ruth Richardson (Policy settings need seismic shift) perpetuating yesterday's argument about the size of the public sector. Size does matter. But when it comes to the public sector, its size should be decided by the role it plays in our lives. What history tells us is that there are roles that are best carried out by the market, by the public sector and by the community. We need to ensure that each plays its part. This is not a rigid arrangement. Adjustments have to be undertaken from time to time according to circumstances.

Commentators such as Ms Richardson don't see the world this way. For them the market is almost always right to extent that if the public sector does have a role to play it should behave as much as possible like the market.

For Ms Richardson the public sector is, as Ronald Reagan once argued, the problem. It was not the market (ignore Lehmans and Hanover) that caused the global economic and financial crises, it was the public sector. The public sector is incapable of responding to a crisis when it happens (exclude Scandinavia and the BRICs nations). Public services are monopolies that can be better delivered by a competitive market (don't mention health care in the United States).

I mention these points not to enter an argument with Ms Richardson there would be nothing more futile for us both. Rather, I simply want to note that these flimsy criticisms lead us nowhere. They are based on blind faith.

To avoid any accusation of blind faith on my part let me emphasise that I am not arguing that the public sector is always right. In fact, as we shall see in a moment, I agree with Mrs Richardson that change is required to meet current challenges. The difference is that I would like to see change on a wider front. Let me say how wide.

The market is a very effective tool. With the minimum of organisation it relies on self-interest to bring together people, businesses, households and resources to produce goods and services. But it can't do everything we need.

The public sector is better at ensuring efficiency, fairness and sustainability. It complements the private sector by providing public goods such as infrastructure, scientific research and market regulation; ensuring a fair distribution of income and providing a road out of poverty; and promoting the sustainability of the earth's resources.

But, as Robert Putnam has noted, societies' do not get strong because they are rich, they get rich because they are strong. It is important that our communities have strong families, shared values and the social capital that comes from strong links between everyone in the community.

A dynamic market economy linked to strong public institutions and a vibrant community makes for the kind of society we all aspire to. It is a question of getting the balance right so we can respond to changing circumstances such as we are experiencing now.

At the moment we are out of balance. Challenged by the Global Financial Crisis too many people have taken to blaming the public sector for our problems. The unreformed market is seen as the saviour and we are already beginning to see the signs of a housing bubble appearing because too little has changed since the crisis began.

Change in our understanding of the market is required. We need less focus on finance capitalism and more on productive entrepreneurship. In other words, playing with money has to be replaced by making things of real value.

To assist this, the public sector will have to change along with everything else. There are things it can learn from the private sector where a shift to flexible specialisation has been taking place. In essence this means having the capability to move quickly in response to shifting customer preferences. The public sector should follow suit so it can respond to increasing diversity.

And the community needs to be brought back into the picture. Decades of dominance by the market and the state have reduced the role of the community. It needs to reinvent itself in ways that will allow it to be effective in a modern context. Taking on the role of social innovation and entrepreneurship might be one such reinvention.

Ms Richardson closes her article declaring that our times scream for an understanding that a change in the public sector is needed. I agree that loud noises should be made about the need for change. But we will be defeated if we focus on one sector of our society in isolation.

Everything needs our attention. A new balance is needed. If we do not get on with it our chances of the 21st century being as kind to New Zealand as the 20th will be slim. We have been squandering change opportunities for some time.

* Steve Maharey is Vice-Chancellor of Massey University, a sociologist and former Cabinet Minister