In 2022, the Ministry of Education learnt its Wellington head office on Bowen St – just across the road from Parliament – was earthquake prone, meeting only 25% of the recently updated building standards. The site was quickly closed, although there was a mini-scandal three months later when it emerged it was still fully lit at night, wasting $21,000.
The speed of the evacuation when bureaucratic lives were in peril compared poorly with the recent revelation that the same ministry failed to inform Wellington Girls’ College – also just down the road from Parliament – that its largest teaching block was at 15% of the standard, placing the occupants at considerable risk in the event of a quake. The school says the ministry effectively withheld this information from it for four years.
It’s been a bad year for education. The ministry is under the same cost pressures as the rest of the public sector, but it paid external consultants $715,000 to manage a restructuring process resulting in 700 job cuts which is now on hold. This raised eyebrows in the Beehive – what is the large and handsomely paid senior leadership team there for, exactly, if not for restructuring their own organisation?
The Employment Relations Authority then determined that the process followed was unlawful.
Before that, the government revealed that a ministry project to relocate two schools had seen a near 400% cost blowout, from $63 million to $300m. As well, Secretary for Education Iona Holsted was criticised by the Royal Commission of Inquiry into Abuse in Care over previous public service work.
Oligarchic Capture
There’s a gloomy theory from 20th century political science that’s often described as “the iron law of oligarchy”. Imagine a large state-run organisation in which 90% of the employees are good people dedicated to faithfully serving the public, but the remaining 10% pour all their time and energy into ruthlessly advancing their own careers. Over time, the organisation will come to be controlled by the ruthless 10% and it’ll increasingly serve their interests rather than the public’s.
When funding is cut, the result is, inevitably, the amoral leadership purging their well-meaning but powerless subordinates. Recent events and the findings of the royal commission suggest that oligarchic capture is widespread across the state sector.
Left-wing political parties believe the problem of oligarchy – insofar as it even exists – can be solved via effective governance: boards and ministers exercising oversight, promoting the good people ahead of the bad. For a right-wing party such as Act, the answer is to minimise the state and rely on markets and courts to solve social problems.
It’s hard to have much confidence in either solution, so the National Party plans to spend its time in government implementing a mysterious third thing it calls social investment.
Every year, the government borrows money by selling bonds – financial instruments that pay out a profitable return over a specific time period. Under the social investment framework, the government will sell a special class of bond with a higher payout – but the money is released only if the bondholder has delivered on a measurable social outcome specified in the original purchase. This might be related to education, health, welfare or criminal justice: a bond might pay out if the bondholder improves literacy and numeracy rates in a target population, delivers a number of vaccinations in a geographic region or reduces reoffending rates in a cohort of prisoners.
These are quantifiable results that can be tracked via the government’s massive integrated data infrastructure.
There’s a growing body of evidence suggesting many state-funded welfare interventions have no sustained effect: social investment transfers the risk of failed interventions to private providers, creating a financial incentive to deliver programmes that work. At least in theory.
The previous government wanted the state to be kind, but this is a lot to ask from sprawling bureaucracies that are indifferent to the risk of schoolchildren being crushed in an earthquake. The state is “the coldest of all cold monsters”, as one philosopher put it, but it is not indifferent to money.
A student injured in a building collapse might impose lifelong costs on the taxpayer via ongoing medical care, welfare payments, forgone tax revenue, but none of this cost is visible to the Ministry of Education. It’s carried by health, welfare, IRD. The aim of social investment is to force ministries and departments to “see” their charges as people living lives ‒ rather than inconvenient case files ‒ by translating those lives into long-term assets and liabilities.
The framework is the brainchild of Sir Bill English, who once famously described prisons as a moral and fiscal failure, and it aims to create fiscal incentives for the state to be moral. His protégé, Finance Minister Nicola Willis, is an ardent believer; Christopher Luxon is a convert. Because the bonds will be a form of sovereign debt, they’ll be nearly impossible for a future Labour government to dishonour: all it could do is stop issuing new ones.
Risk or reward?
What could go wrong? Many things. The bonds might be too high risk for the providers, or the state might overestimate the value of an intervention and pay out more than its worth.
There will be disputes about measuring the efficacy of programmes, moral arguments against the privatisation of social welfare and investors profiteering from vulnerable populations. Some of National’s high-profile policies – often designed to generate media coverage and boost it in the polls rather than deliver results (benefit crackdowns, boot camps) – would surely fail to meet the standards of its own investment framework.
The 2008 Global Financial Crisis illustrated the dangers of financialisation: it can create perverse incentives that are difficult to anticipate but lead to catastrophic outcomes.
But it might work! In a state successfully transformed by social investment there would still be a public service but it would look more like an investment fund: crunching data, brokering contracts, managing uncertainty and risk.
It wouldn’t be kind – the finance sector is not celebrated for its humanitarianism. But it would try to keep school children alive if there was money in it, and that could only be an improvement on the current model.
