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Home / Whanganui Chronicle

Prime performance preferred

By Steve Baron
Whanganui Chronicle·
12 Dec, 2013 06:35 PM4 mins to read

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Part of obtaining a university economics degree is to understand a concept called moral hazard.

A moral hazard occurs when the actions of one party change to the detriment of another after a financial transaction has taken place. Another aspect of moral hazard is the principal-agent problem where one party, called an agent, acts on behalf of another party, the principal.

These concepts highlight a dilemma - how to motivate an agent to act in the best interests of the principal, rather than in the agent's best interests.

It's a dilemma we face here in Wanganui when we voters (the principal) attempt to get our councillors (agents) to turn up to council meetings - something we expect of them, given we remunerate them accordingly in the hope our city will be managed in the most effective way possible.

The problem is that when one or more of these councillors don't take full responsibility for the consequences of their actions (or inactions in this instance), this leaves other councillors to take on more responsibility for the decisions that are made.

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It may also mean there is less diverse thought and scrutinising involved in the decision-making process. It also means that voters feel "screwed", to put it in colloquial terms.

In the business world, mechanisms have been designed to align the interests of agents and principals, such as commissions, profit sharing, performance measurement and the threat of termination.

In the political world we need to find other alternatives to ensure prime performance.

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For a start, we need to monitor our elected representatives better than we do at present.

While the Fourth Estate, the media, is partly responsible for making politicians accountable, it's also the responsibility of the district council itself to monitor all councillors.

One option could be to regularly publish attendance records, and make them easily accessible through the council website, a practice that is becoming more common around the world. Many are also providing access to ePetitions as an easy method for citizens to convey important issues to the attention of the mayor and council - both of these propositions are sadly missing from the Wanganui District Council website.

While some are suggesting meeting allowances as an obvious answer to the problem of non-attendance, most local authorities in New Zealand have moved away from paying meeting allowances because it is very difficult to predict exactly how many meetings will be held.

Another aspect is that not every councillor can turn up to every meeting, even if he or she wanted to. Often council work requires them to be out of town, for example, or to attend other important meetings, and genuine illness can also prevent them from attending. In these instances it would be unfair to reduce a councillor's pay.

New Zealand could also adopt a political tool used in the United States and Switzerland to keep representatives in line - the recall referendum. This allows voters to sack a mayor or councillor in between elections, when voters are dissatisfied with their performance.

Think of California, US, Governor Gray Davis, who was replaced by Arnold Schwarzenegger in a Californian recall referendum in 2003. Once the required numbers of signatures have been collected to trigger the recall referendum, the whole electorate gets to decide the outcome.

The theory behind this is that voters should retain the right to control their elected representatives, even after they have been elected.

Perhaps the threat of losing their jobs before their three-year term is up is the motivation some might need to fully perform their duties.

Imagine the embarrassment to a mayor or councillor if they were thrown out of office before the end of their term.

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How often has it been used? In the US, between January 1996 and the end of 2001, recall referendums were initiated against the mayor of 4 per cent of cities, and against councillors in 5 per cent of cities, with the mayor being recalled in 17 per cent of the referendums and councillors in 29 per cent.

Perhaps voters might also be prepared to offer a bonus to elected officials if they ever manage to balance the budget without increasing debt.

A performance incentive - now there's food for thought.

Steve Baron is a Wanganui based political scientist, co-editor of the book 'People Power' and founder of Better Democracy NZ

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