Volume 11 – Issue 2 – May 2015

Global Development in the Twenty-first Century Predictive Analytics for Policy and Practice: Ross Garnaut 3 reflections from the criminal justice system with commentaries by Tim Hughes 37 Gary Hawke 15 Decentralisation: does the New Zealand Economic Policy, External and Internal, local government system measure up? and Public Policy Mike Reid 45 Grant M. Scobie 20 Growing Community Housing: challenges Commentary on ‘Global Development for government policy and community providers in the Twenty-first Century’ Richard Norman and Bernard Teahan 54 Geoff Bertram 23 Protecting the Rights of Future Generations: Garnaut versus Piketty: are constitutional mechanisms an answer? inequality in the coming century Jonathan Boston and Thomas Stuart 60 The Inequality Debate: the neglected role Governance of National Parks at the of residential sorting Crossroads: New Zealand’s silent reform Philip S. Morrison 72 Valentina Dinica 26 Editorial Note This issue of Policy Quarterly leads with a stimulating Second, despite the available scientific evidence, contribution by the distinguished Australian economist, political resistance to concerted mitigation efforts Professor Ross Garnaut. Professor Garnaut was remains strong in some countries. In the US, many Volume 11 – Issue 2 – May 2015 the 2015 Sir Frank Holmes Fellow in Public Policy, influential Republicans continue to live in denial, with Policy Quarterly (PQ) is targeted at readers hosted by the Institute for Governance and Policy the Chair of the Senate’s Committee on Environment in the public sector, including politicians and Studies in the School of Government at Victoria and Public Works, Jim Inhofe, maintaining that their staff, public servants and a wide variety of University of Wellington. The article in this issue is anthropogenic climate change is a ‘hoax’. Closer to professions, together with others interested in based on his Sir Frank Holmes Memorial Lecture on New Zealand, the Australian Prime Minister, Tony public issues. Its length and style are intended 25 February on ‘Global Development in the Twenty- Abbott, wants his country to be an ‘energy superpower’ to make the journal accessible to busy readers. First Century’. Given the nature and significance of – not a renewable energy superpower, but a fossil The journal welcomes contributions of Professor Garnaut’s lecture, it seemed fitting to invite fuel superpower. In his view, there are ‘few things about 4,000 words, written on any topic several leading New Zealand economists to offer their more damaging to our future than leaving coal in the relating to governance, public policy and management. Articles submitted will be reflections. Accordingly, I am delighted to publish ground’. At the opening of a new $4.2 billion Caval reviewed by members of the journal’s Editorial commentaries by Emeritus Professor Gary Hawke, Ridge coalmine in Queensland in mid-October 2014, he Board and/or by selected reviewers, depending Dr Grant Scobie and Dr Geoff Bertram. I have invited declared that ‘coal is good for humanity’, ‘vital for the on the topic. Although issues will not usually Professor Garnaut to respond to these commentaries, future energy needs of the world’ and should not be have single themes, special issues may be if he wishes, and any such response will be carried in demonized. The opening marked, he asserted, ‘a great published from time to time on specific or the August issue. day for the world’ … ‘The trajectory should be up and general themes, perhaps to mark significant Professor Garnaut has made an immense up and up in the years and decades to come’. No, he events. In such cases, and on other occasions, contribution to public life in Australia over many was not referring to global temperatures! Nor did he contributions may be invited from particular decades – as an academic, senior policy adviser, mention carbon capture and storage. people. diplomat and businessman. He has also been an Fortunately, Abbott’s vision of a coal-driven Subscriptions: The journal is available in PDF influential voice on a range of important international future for Australia looks increasingly untenable. For format on the Institute for Governance and Policy Studies (IGPS) website: http://igps. policy issues, not least trade liberalization and one thing, China is in the process of pursuing a new victoria.ac.nz/publications/publications/list/10. anthropogenic climate change. economic paradigm where low-carbon technologies Readers who wish to receive it by email should On the latter topic, his article in Policy Quarterly will ultimately be dominant. For another, a growing register as PQ subscribers [email protected]. highlights both the gravity of the problem, but also number of major international banks – such as This service is free. the potential for global greenhouse gas emissions to Barclays, Citi, HSBC, Morgan Stanley and BNP For all subscription and membership be reduced rapidly over the next few decades. One Paribus – are refusing to fund large new coal mines in enquiries please e-mail [email protected] or reason for such optimism is the decline in the short- Australia, including the related infrastructure for such post to Institute for Government and Policy to-medium term costs of climate change mitigation mines (e.g. railway networks and port facilities). Studies, P.O. Box 600, Wellington. – certainly relative to the costs projected by most Meanwhile, in New Zealand the National-led Electronic Access: The IGPS directs analysts only a few years ago. As Garnaut points out, government has an unconditional target to reduce interested individuals to its website: www.igps. ‘the costs of new, low-carbon technologies are falling greenhouse gas emissions by 50% by 2050 compared victoria.ac.nz where details of the Institute’s publications and upcoming events can be faster than anticipated, especially with large-scale with 1990 levels. Unfortunately, it has no long-term found. production of capital goods in China and deployment in strategy to achieve this target – as Adrian Macey (our Permission: In the interest of promoting debate many countries’. The cost of solar power, in particular, former Climate Change Ambassador) pointed out in a and wider dissemination, the IGPS encourages has declined dramatically in recent years, and both previous issue of Policy Quarterly. Not merely has the use of all or part of the papers appearing in solar and wind power are now competitive with modern government rendered the emissions trading scheme PQ, where there is no element of commercial coal and gas-powered electricity plants in many largely ineffective, it continues to support various gain. Appropriate acknowledgement of both countries. Further substantial falls in the cost of some high-emissions initiatives, such as the expansion of author and source should be made in all cases. renewable energy sources are expected. Ultimately, dairying, increased tourism and deep-sea oil and gas The IGPS retains copyright. Please direct this will be highly important, not least politically, since exploration. At some point – and possibly soon – the requests for permission to reprint articles from it will undermine one of the core objections to swift conflict between the goals of a high carbon future this publication to [email protected]. decarbonisation of the energy and transport sectors. and a low-carbon future will become politically Co-Editors: Jonathan Boston and Bill Ryan Editorial Board: Guy Beatson, David Bromell, Against such optimism, two matters deserve unsustainable. Valentina Dinica, Don Gray, Gerald Minnee, note. First, with almost every passing week the news Aside from the stimulating contributions of Mike Reid and Andrea Schollmann. from scientists on the harmful impacts of climate Professor Garnaut and his commentators, this issue ISSN: 2324-1098 (Print) change gets grimmer. Recent findings suggest that of Policy Quarterly also includes important articles on ISSN: 2324-1101 (Online) parts of the East Antarctic and West Antarctic ice a range of other contemporary policy concerns. These Volume 11, Issue 2 – May 2015 sheets are melting more quickly than previously include the governance of our National Parks in an Copy Editor: Rachel Barrowman estimated. Several teams of scientists, for instance, era of increasing commercial imperatives, the use of Design & Layout: Aleck Yee have concluded that a collapse of the West Antarctic predictive analytics in policy-making, the nature and Cover design: Aleck Yee ice sheet has already commenced, and may well be implications of governmental decentralisation, the Production: Alltex Design unstoppable. A rise in the sea level from this source future of social housing, protecting the interests of Proof Reader: Vic Lipski alone could exceed three meters. Meanwhile, there are future generations, and the implications of residential currently droughts of historic proportions in California sorting for inequality. I trust that all readers find and Brazil, and projected El Niño conditions during something in this issue to stimulate their hearts, minds 2015 could well contribute to severe bleaching of many and imaginations! coral reefs with damaging implications for the marine environment globally. Jonathan Boston (Co-editor) Ross Garnaut

Global Development in the Twenty- New Zealand in the 1980s through to the early years first Century of this century. I discussed Asia–Pacific cooperation with I am glad to be here at Victoria University of Wellington Frank on many occasions giving this lecture in honour of Professor Sir Frank Holmes. in Australia, New Zealand Frank hosted my first visit to New Zealand 40 years ago, and elsewhere in the Asia­ when, with Les Castle, he organised an early conference in the –Pacific. Frank was more Pacific Trade and Development series that continues today. comfortable with preferential Four years later he was the leader of the New Zealand group trade than I ever became, and that joined John Crawford, Peter Drysdale, Stuart Harris we learned about another and me at the Pacific Community Seminar at the Australian view from each other. We National University, a precursor of the Pacific Economic can all be grateful for Frank’s Cooperation Council, and therefore a forebear of APEC. contribution to ensuring Frank made large contributions to the establishment and that New Zealand was a extension of closer economic relations between Australia and participant in the deepening of Asia–Pacific economic Ross Garnaut is Professorial Research Fellow in Economics at the University of Melbourne. He was the 2015 Sir Frank Holmes Visiting Fellow in Policy Studies at Victoria University of Wellington. He has published widely on a diverse range of economic issues, including development economics, integration through the last macroeconomics, trade policy, climate change policy, the Australian economy and China‟s economic development. quarter of the 20th into the This article is based on the text of the fourth Sir Frank Holmes Memorial Lecture delivered at Victoria University on 25 February 2015. current century.

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 3 Global Development in the Twenty-first Century

In a different field, I remember extensive monetary union would push us towards economics to an unsettled world after the discussions with Frank about currency more systematic analysis of stabilising Second World War (Condliffe, 1951). union with Australia around the turn fiscal policy as preparation for monetary of the century. Our host institution this union. That would be no bad thing. Modern economic growth and its maturation evening, then the Institute of Policy Frank Holmes was a New Zealand Tonight I am going to argue that there is Studies at Victoria, had just published leader of what my recent book, Dog some prospect that the 21st century will his book with Arthur Grimes and Roger Days: Australia after the Boom, calls see most of humanity living at material Bowden, An ANZAC Dollar (Holmes, the independent centre of the polity standards that are broadly comparable Grimes and Bowden, 2000). This took (Garnaut, 2013). He saw great value in with those of the developed countries. Frank back to his 1950s roots in public careful and transparent analysis of the I call that the maturation of modern policy, working on money and banking. public interest, separate from any vested economic growth. I see the maturation His proposal for currency union with or partisan political interest. The success of modern economic growth as the only Australia was dismissed too swiftly by of public policy in any democracy in these stable end-point of the process that began leaders of Australian policy institutions troubled times depends on the strength in Britain a quarter of a millennium ago. that then were justifiably pleased at having of a strong independent centre. Any outcome short of that is not a resting avoided recession through a few turbulent Younger people here this evening may place, but a point of disequilibrium and years in the Asia–Pacific economies when need reminding of how natural it is to disruption. We do not know to what New Zealand had twice succumbed. raise the big issues in global development heights the increase in productivity and New Zealand was to have one more in New Zealand. Just 50 or so metres from living standards will take the developed recession avoided by Australia, in the here, in the Cabinet room of the Old countries from now on, but whatever aftermath of the great crash of 2008. It Government Buildings we are reminded they may be, the maturation of economic is now riding higher, as my own country of the contributions of the New Zealand growth will involve most of humanity living at that level. I will provide some evidence this ... I am going to argue that there is evening that capital may become much more abundant and labour much some prospect that the 21st century will more scarce through the 21st century, see most of humanity living at material supporting the maturation of global development. The same forces – abundant standards that are broadly comparable capital and scarce labour – that support rapid growth in living standards in the with those of the developed countries. developing countries will make it possible to secure relatively equitable distribution of income in the world as a whole and eventually in each of its parts. grapples with the end of the China governments of the late 19th and early But the maturation of global resources boom. Macroeconomic stability 20th centuries to ideas that were then at development has to climb over some is an elusive goal for a small economy the frontier of thinking about developed daunting barriers. This evening I briefly with strong export specialisation in countries. We are reminded of William discuss three barriers that at this stage commodities, and I fear that New Pember Reeves, who took knowledge from seem to be particularly challenging: the Zealand’s medium-term future will that Cabinet room into his influential reconciliation of much higher average not be as comfortable as the present. foundational directorship of the London living standards with the maintenance New Zealand has felt more bumps than School of Economics (Reeves, 1902). A of the reasonable climate stability that is Australia since the deep recessions of couple of decades later a young refugee necessary for the continuation of global 1991–92, but Australia is currently feeling from continental Europe’s capitulation economic growth; the avoidance of a bigger bump. There may come a time to Nazism, Karl Popper, found in New economic development success in parts for Australians and New Zealanders to Zealand the place to write one of the of the world being overwhelmed by consider with more open minds the most compelling and important books development failure elsewhere; and the merits of being part of a bit bigger (for on political philosophy to emerge from maintenance of effective government in Australia) or substantially bigger (for the last century (Popper, 1945). And I the public interest in high-income market New Zealand) currency area, joining would include in the great New Zealand economies as wealthier private interests two neighbouring countries of modest contributions to understanding modern become less inhibited and more effective size with integrated labour and financial global development J.B. Condliffe’s in influencing policy. My treatment of the markets, free and intense bilateral trade brilliant and authoritative The Commerce barriers is necessarily brief, so that I do and overlapping cycles in terms of trade. of Nations, written to provide guidance little more than highlight critical issues for The recent experience of the European from the history of economic thought and continuing research.

Page 4 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Modern economic growth is young. are to make sense of the world as a whole. the last quarter of the last century. The We are still learning how it works. Modern I find it useful to think about three groups average is looking a bit stronger in the economic growth is disturbing and of countries: developed, developing 21st century so far. Here we are talking painful. It does not take root anywhere and underdeveloped. In the developed of around a seventh of humanity. We until there is a widely shared view within countries, almost a billion people enjoy find useful insights into this part of the the society that the benefits are worth the the high living standards that come from human development experience in Paul pain. It changes beliefs as well as political full absorption of the benefits and effects Collier’s book The Bottom Billion (2007). and social relationships and institutions. of modern economic growth. For all our Most of the bottom billion are in Africa. It puts down the mighty from their seats problems, the developed countries of Increasing numbers are in the immediate and elevates new elites. It enhances the 2015 are good places to be. I will argue region of Australia and New Zealand. power of states in the territories of which this evening that China is heading rapidly it has taken deep roots, and disturbs the towards a place among the developed Challenges in the developed countries international political order. countries, so we will soon be talking The central challenge arises from the Modern economic growth is about roughly a third of humanity’s seven stagnation in living standards for all but beneficent. In countries which have billion members, with a majority of them the rich in all the substantially-developed enjoyed its fruits for many generations it in China. In the developed countries countries since the great crash of 2008. In raises the material comfort, knowledge, excluding China, average output and the United States, average living standards health, longevity, and capacity for expenditure (the mean of the domestic of people at the median of the income communication across humanity of distribution) has been moving upwards at distribution are no higher, and perhaps most ordinary citizens to levels unknown a snail’s pace in the 21st century; and the lower, now than three decades ago. The to the elites of earlier times. Modern average for ordinary people (the median) cessation of growth in living standards for economic growth is restless. It never stays is no longer moving up at all. ordinary people has several interrelated on one course for long, disturbing what we thought we knew about it with each new turn, and providing great challenges In the United States, average living for every generation. Condliffe’s account of modern economic development from standards of people at the median of the Adam Smith to the Second World War is a income distribution are no higher, and story of events shaping and changing the nature of global development generation perhaps lower, now than three decades by generation (Condliffe, 1951). The challenges of modern economic ago. development are more than usually difficult in the early 21st century. Gone is a contemporary basis for what had become a presumption in the developed The developing countries (without sources. One is a historic slowing of countries, that the majority of people China) contain over half of the world’s productivity growth in the 21st century. in each new generation would enjoy people, with most in South and South A second is the demographic change higher living standards than those in any East Asia and a majority of the rest in that follows from the combination of generation that had lived before. Gone is Latin America. These have placed their increased life expectancy and fertility any basis for assuming that our democratic feet on one or other of the multiple below population-replacement levels that institutions are easily reconciled with the escalators of modern economic is present in all the developed countries. effective operation of a market economy; development and are moving towards Ageing seems to reduce capacity for and that only democracies are able to the income levels and material standards innovation, and to reduce incentives to ride modern economic growth to high of living of the developed countries at invest. A third, influenced by the first two, standards of living. And now, with varying rates. Most countries that get on is a tendency for private savings to run anthropogenic climate change, we see an escalator keep moving, but at different ahead of investment, causing employment more clearly than ever before that failure paces and with occasional jerks in the to fall more rapidly than the labour force. to change the composition of growth to machinery – sometimes with a stalling of A fourth is the effect of globalisation take account of external environmental the mechanism for a few years or even a of production of a wider and wider costs of private decisions will disrupt the decade. range of economic activities, and of the beneficent process. And then there are the underdeveloped deployment of capital. Globalisation has countries, which have not put their feet been helpful to the increase in developed- Three groups of countries on an escalator. In the underdeveloped country as well as global production, Obviously every country is unique, but we countries, on average there was hardly while transferring income from labour have to think in broader categories if we any growth in living standards over in the developed to the developing

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 5 Global Development in the Twenty-first Century countries and of resources from the great crash didn’t end badly in Australia, countries have experienced since the great public revenues to the owners of capital. A and led to recession but not cataclysm crash a combination of rising savings and fifth is a weakening of redistributive fiscal in New Zealand. The better end in the lower business investment, and therefore a interventions to moderate the inequality Tasman neighbours was partly a result tendency towards reduced demand, higher of incomes and wealth that emerges from of quick-footed policy, but that policy unemployment and lower economic market exchange. was only viable because of Australians’ growth. This has been responsible for part While there are differences across special fortune in being beneficiaries of of the widening of inequality. developed countries and time in the the Chinese economic response to the One consequence of higher savings widening of income inequality and the crash (Garnaut, 2013). New Zealand and lower investment is lower interest slowdown in economic growth, the benefited as well from Australia’s fiscal rates. Low official interest rates have similarities are more powerful than the and monetary expansion. been reinforced by ‘quantitative easing’ differences in the 21st century so far. China’s resources boom postponed in, at various times, Britain, continental China is different, as it completes the the effects of declining productivity on Europe, Japan and the United States, ‘catch-up’ with the productivity levels Australian living standards until China’s where central banks are providing assets and living standards of the established pattern of growth changed again from that can be turned into cash as they buy developed countries, but it will be subject about 2011. A new Chinese model of back government bonds from the private to similar pressures and constraints once growth emphasised greater equity in sector. Quantitative easing has been it is there. income distribution and reduced pressure putting more money into the community with a view to reducing interest rates and encouraging business activity. Globalisation has been helpful to the There is a fair bit of evidence that low official short-term interest rates increase in developed-country as well and quantitative easing are a temporary and minor part of a bigger story: that as global production, while transferring we have entered a world in which long- income from labour in the developed to term interest rates are much lower on an ongoing basis than they used to be. the developing countries ... The most commonly traded long-term government security in most countries is a ten-year bond. The interest rates on ten-year bonds are lower in real terms A closer look at productivity growth in the on the natural environment. than they have ever been in almost all of developed countries There are many things we do not the developed countries. On Friday 20 Productivity growth in the developed understand about the marked slowing February 2015, when I was preparing this countries at the frontiers of modern of productivity growth in the developed text, the nominal ten-year bond rate was economic activity has been proceeding less countries. There is even a question of 2.11% in the US; 1.76% in the UK; 0.36% rapidly since 2000 than at any time since the whether we are measuring productivity in Germany; 0.39% in Japan; 2.57% in early days of modern economic development properly. Over recent years and decades Australia; and 3.32% in New Zealand. a quarter of a millennium ago. This has been we have been introduced to new That is the rate, before deducting inflation, the subject of considerable discussion in commodities and new services that greatly at which the private sector is prepared to the economic literature. One famous paper improve the quality of life, without those lend to government on a ten-year basis. has suggested that we may not see again the qualitative factors being influential in the The average in real terms weighted by rises in productivity and therefore of living productivity statistics. size of economy is around zero. We have standards of earlier periods of modern not been in this territory before. economic development (Gordon, 2012). A closer look at low real interest rates and A closer look shows that we were In Australia, New Zealand and deficient demand heading into this unusual territory before other English-speaking countries, as Nevertheless, measured well or poorly, the financial crisis. There is reason to well as Spain, the consequences of low the reality of low and – in the case of doubt whether quantitative easing has productivity growth were masked for a Australia, since 2005 – negative total factor had a large influence on long-term while by an extraordinary housing and productivity growth of the traditional interest rates. Recently we saw long-term consumption boom from the turn of the kind has reduced incentives for business bond rates fall in the United States as century to the great crash of 2008. That investment. Levels of business investment the Federal Reserve brought quantitative was unsustainable. It was funded by our in all of the developed countries have been easing to an end. This suggests to me that banks borrowing abroad in wholesale low this century, and especially since the extraordinarily low contemporary short- markets. It came to an end in cataclysm crash of 2008. This has placed downward term rates reflect perceptions that there in the large developed countries. The pressure on employment. All developed has been a permanent lift in the volume

Page 6 – Policy Quarterly – Volume 11, Issue 2 – May 2015 of long-term savings relative to long-term Figure 1: Short and long-term interest rates investment. The one certain economic 25 consequence of quantitative easing has been to promote capital outflow and a 20 lower exchange rate in the countries in which it has been applied. To illustrate how unusual today’s real 15 long-term interest rates are compared

with anything that has come before ercent P I am taking two graphs from a paper 10 presented in February 2015 by the Bank of England’s chief economist (Haldane, 2015). Figure 1 presents data on nominal 5 sovereign bond rates back to the days when Elizabeth I was raising funds to defend the realm against the Spanish 0 3000 1 1575 1735 1775 1815 1855 1895 1935 1975 Armada. Figure 2 reveals the distinctive BC AD nature of the contemporary real interest Short-term rates Long-term rates rates: near zero. Source: Haldane, 2015 Being in a world of near-zero real interest rates has large consequences. One Figure 2: Long run real rates in advanced and emerging economies is a potentially favourable influence on the 6 distribution of income within societies. The celebrated recent book by the French economist Thomas Piketty, Capital in 5 the Twenty-first Century (2014) has been widely read and discussed in New 4 Zealand, as it has elsewhere (Bertram, 2014, 2015). It has been the best-selling economics book of our time – for the 3 ercent first couple of years after publication, the P best-selling economics book ever. Piketty 2 argues that we are heading towards a world of widening inequality in income distribution because the rate of interest is 1 going to exceed the rate of growth. Those who already own a large amount of capital 0 will be accumulating it at a high interest rate. He presents much historical data -1 which shows a tendency for rates of return 1990 1993 1996 1999 2002 2005 2008 2011 2014 on low-risk investment, like government Emerging Economies Advanced Economies 'World' Real Rate bonds or land, to be around 4–5% in Source: Haldane, 2015 real terms, right back to the 18th century. Piketty asserts that real returns on low-risk century. John Maynard Keynes argued in the taxation of capital if these long-term assets will remain near those that we could expect negligibly low tendencies are to be corrected without levels. With rates of growth (and he has in returns on investment in the long-term political disruption in the democracies. mind mainly rates of growth in developed future – a century forward from when he It is right as well in drawing attention countries) falling below that level, it was writing in the 1930s (Keynes, 1931, to the increasing role of capital in the follows that we will see inequality growing 1936). policy-making process in the developed wider and wider. There is no logical reason Piketty’s challenging analysis is right democracies, which is weakening the why inequality will not come to equal and in drawing attention to large increases in effectiveness of fiscal interventions that exceed that of the Belle Époque in Europe inequality in the distribution of income moderated income inequality in the in the late 19th and early 20th centuries. and wealth in the late 20th and early 21st developed economies in the golden That view puts Piketty at odds with centuries. It is right in drawing attention quarter-century after the Second World the greatest public intellectual of the 20th to the need for international cooperation War. But recent developments in global

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 7 Global Development in the Twenty-first Century

Figure 3: Global growth rates, developed and developing countries difficulties in borrowing abroad. To the 1986 to 2016 extent that weak domestic demand is

10 the product of high savings associated with ageing and population decline, it is prudent for governments to limit the 8 increase in indebtedness, except where debt raises future incomes and capacity 6 to service debt. This has focused attention on public investment in productivity- 4 raising infrastructure at home, and income-earning investment in public infrastructure abroad. Public investment 2 abroad to raise domestic demand and employment is especially important in 0 countries experiencing population decline, where the opportunities for investment -2 in income-generating infrastructure at home are more limited.

-4 Capital outflow to income-generating ‘86‘87‘88‘89‘90‘91‘92‘93‘94‘95‘96‘97‘98‘99‘00‘01‘02‘03‘04‘05‘06‘07‘08‘09‘10‘11‘12‘13‘14‘15‘16 infrastructure investment in developing Developed Countries developinging Countries Trend Trend countries can therefore be helpful to Source: IMF, 2014 maintaining growth in employment capital markets suggest to me that and French champagne, which, in their and output in the developed countries. Keynes is right and Piketty wrong on nature, are available in limited supply. It goes along with low real exchange the particular question that will be most For personal access to these, he may have rates and high net exports. It is a point important in shaping global development had to rely on the tastes of most of the of high complementarity between in the 21st century. population being different from his own. current requirements for prosperity Keynes expects people, and especially Keynes’ world is almost the opposite in the developed countries, and the the wealthy, to save a substantial of the world that Piketty anticipates in requirements for strong growth in the proportion of their incomes in future as his book. developing countries. they have in the past. So, he says, if we If Keynes was right and Piketty wrong The developed country to watch most do not make a mess of modern economic on this one big question, why did inequality closely as an influence on capital flows development with war or unnecessary increase so much in the 21st century to date, from developed to developing countries depressions – and he wrote The Economic as rates of return fell? Because rates of return from now on is China. China already has Consequences of the Peace (1919) to did not fall if we include capital gains, as much larger savings in absolute terms show us how to avoid the former and Picketty does, with good reason. But much than any developed country. Its savings, The General Theory (1936) the latter – of the increase in wealth and income at the investment and capital flows are likely then the long-term future for the global top of the distribution in this century so to dominate global totals in the 2020s at economy is one of abundance of output far that is reasonably measured by Picketty least as thoroughly as those of the United and capital. The abundance will cause reflects once-and-for-all increases in asset States immediately after the Second World the rate of return on capital to fall to low values associated in one way or another War, or the United Kingdom immediately levels. People who have a lot of capital with the decline in interest rates themselves. before the First World War. will not have enormous incomes simply Low interest rates have helped to lift as a result of that ownership. This world investment and growth in employment The developing countries will see ‘the euthanasia of the rentier’. For and output, but have not increased them The average rates of growth in productivity those who are interested in access to the enough to achieve anything like full and output have held up in the developing important things of life there will be an employment. Governments have been countries despite the fall from early in this abundance, so that questions of inequality reluctant to expand expenditure funded by century and the further step down with the will not matter very much. borrowing in response to weak domestic great crash of 2008 in the developed countries. I can’t avoid noting that Keynes demand, despite the unprecedentedly Figure 3 from the International Monetary invented the important concept of low costs of borrowing. This is partly Fund (IMF, 2014) tells the story. Developed- ‘positional goods’, which in their nature motivated by concern over long-term country real purchasing power grew rapidly are available only to some. Keynes’ problems of servicing government debt in the 1980s, but then eased back through personal list of the things that were – a real concern for highly indebted the 1990s to the great crash. Growth since important would have included access countries if there are reasonable prospects 2008 has been at a crawl and is not expected to the London Opera, Russian ballet of a return to higher interest rates or to to change trajectory in the foreseeable future.

Page 8 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Figure 3 demonstrates the marked change India and Indonesia, have experienced temporarily create the statistical illusion in the trajectory of developing relative to budget, and sometimes external payments, of development, but is usually associated developed growth from the beginning of the constraints on growth which have made it with kleptocratic capture of economic 21st century, growing wider from 2008. difficult to provide the infrastructure requir- benefits by a small elite that can corrode Developing Asia was the standout ed for rapid development. This highlights established institutional strengths. performer in the last quarter of the 20th the complementarity between developed The magnitude of the challenge does century, nearly trebling output in the and developing country requirements for not mean that progress is impossible – just 1980s (an increase in real purchasing maintaining strong growth in employment difficult, requiring institutional stability, power of 183.5%), easing a little in the and output in the period ahead. wisely directed institution-building over 1990s with the Asian financial crisis (an long periods, and often intrusive external increase of 144% over the decade) and The underdeveloped countries support. A number of bottom billion accelerating in the early 21st century The bottom billion include all of Australia’s African countries are making headway (an increase of 129% in the eight years and New Zealand’s island neighbours in in the 21st century so far, including to the great crash of 2008). This is an arc of instability, intensifying poverty, Ethiopia with large Chinese support ‘catch-up growth’ in full stride. Asian high fertility and population growth, from for infrastructure and agricultural and developing country growth performance was strongly influenced by China, but has held up despite the deceleration of A number of bottom billion African Chinese growth since 2011 (an increase of 68% between 2008 and 2014). countries are making headway in Latin American was slower than the 21st century so far, including developed-country growth in the 1980s (an increase of 71.5% over the decade), but Ethiopia with large Chinese support held up much better in the 1990s (67%). It accelerated in the early 21st century for infrastructure and agricultural and (an increase of 60% in the eight years to industrial development. 2008). It has eased since the great crash (an increase of 28% in the six years to 2014), having been knocked back more by the end of the China resources boom than by the stagnation in the developed world. Papua New Guinea to Fiji. Collier did not industrial development. The ‘catch-up’ momentum has been include Papua New Guinea in his bottom The bottom billion are more especially powerful in the large Asian billion in 2007, and the persistence then of important than their current numbers developing countries, most importantly, the struggle for good governance within suggest because much higher fertility after China, India and Indonesia. India the leadership justified his hesitation at makes them a rapidly increasing has almost matched China since 2011, that time. Regrettably, there is a Gresham’s proportion of humanity. We could be and may soon do so. Indonesia restored law of corruption in a country with weak confident that the global population will strong growth impressively within a few institutions. When the currency has been be on a downward path within a few years of the 1997–99 crisis and depression, debased, bad money drives out good. The decades despite increasing longevity only and subsequent democratic transition. good is forced out of circulation until there if a large proportion of the bottom billion Most developing countries following has been transformational institutional were headed towards entry into the ranks export-oriented industrialisation strategies change. of the developing countries. were held back to some extent by Chinese My observations from experience of International support for development competition through the 1990s and early development in the island countries of the in the bottom billion must take the 21st century. The new model of Chinese south-west Pacific correspond with those form of transfers rather than income- growth and associated increase in relative of Collier in Africa and support his main earning investments and be justified on Chinese costs and withdrawal from global conclusions. Underdevelopment has its development and security grounds. It markets for labour-intensive goods, and the origins in problems of governance, which can contribute to lower real exchange expansion of opportunities for developing are far-reaching and intractable. Making rates and net exports, and therefore to countries for a wide range of goods and headway on the problems of governance employment in the developed countries, services in the China market itself, provide sets a path to development, but it is hard but not to future income for an older a highly favourable environment for growth to get started. Democracy is often an population in the developed countries. in the developing countries, and especially illusion until institutional weaknesses have Whether humanity achieves in developing Asia. been removed by education and drawing the maturation of global economic Unlike China, many of the rapidly grow- on external institutions. The exploitation development with all of its benefits for ing Asian developing countries, including of valuable natural resources can all of humanity depends on getting the

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 9 Global Development in the Twenty-first Century

Figure 4: Levels of total fertility (births per woman), for the world and Bringing global development to maturation major areas, 1970 to 2015 I have outlined powerful forces favouring

7 the maturation of global development in the 21st century, lined up against the three barriers to which I have drawn 6 attention. Most importantly, the slower growth of population and labour force and the prospects of absolute decline later 5 in this century, and the high and rising rate of global savings out of a growing world income hold out the prospect of 4 persistently low costs of capital and high and rising incomes of ordinary people

3 everywhere. These developments are favourable both for the rapid catching up otal fertility (chidren per women) T of the developing and, should domestic 2 conditions permit, underdeveloped countries, and for equitable distribution of the fruits of economic growth. They are 1 reinforced by a tendency for technological 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 change to be capital-augmenting in the World Latin America and Caribbean Europe Asia early 21st century – the prices of capital Africa North America Oceania goods are falling faster than those of Source: United Nations, 2014 consumer goods, so that a given amount Figure 5: Secular trend in global savings rate of capital stretches further. I will run through these favourable

.3 developments for the maturation of global economic growth, and then discuss the three barriers.

.25 Natural increase in population has ceased in the third of humanity in the

.2 developed countries including China. It is rapidly decelerating towards zero in ate the more than half of humanity in the

.15 developing countries. It is decelerating Savings R but remains high in the rapidly

.1 increasing seventh of humanity in the underdeveloped countries. Through a long transition to stable or declining

.05 world population, longer life expectancy can keep population growth positive

0 for generations after fertility has fallen

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 below replacement levels. But in the end it is fertility that drives long-term global Source: Eichengreen, 2015 population and labour force growth. people of the underdeveloped countries is proceeding rapidly in the countries in Figure 4 tells the story of declining onto the economic development escalator. sub-Saharan Africa – a majority of these fertility. It is customary to think That is a hard task. Omitted, we cannot countries – that are not experiencing that fertility of about 2.1 represents even be certain that the proportion of extreme political disorder. Real purchasing replacement level. The true replacement people on earth enjoying high living power more than doubled in sub-Saharan rate falls with reduced female child standards will increase over time, even if Africa between 2000 and 2008 and mortality and rises with natal masculinity. countries like China and Indonesia and increased almost by half in the six years Rising ratios of males to females at birth India are growing strongly. after that. High terms of trade from the in China and South Asia in particular The good news is that the sub-Saharan China resources boom helped, but strong have been the dominant source of a African economic story is looking much growth has survived the shift to the new decrease in the zero population growth stronger in the 21st century so far. Growth model of economic growth in China. level of fertility in recent years.

Page 10 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Fertility in the developed regions of Figure 6: Secular trend in global savings rate the world is now below replacement. It is falling rapidly towards replacement and 2.5 can be expected relatively soon to fall to and below that level in the developing countries. It has fallen from about 6.7 to 4.7 in Africa since 1970, but is still 2 high enough there and in the rest of the bottom billion for the time being to hold fertility in the world as a whole well above 1.5

replacement – about 2.6 at present. rice (1982=1) The experience of global development

and demographic arithmetic tell us elative P that continuation of early 21st-century R economic success in Africa would see 2 global fertility fall below replacement levels within a couple of decades. The global labour force would begin to fall not long after that, and global population .5 1950 1960 1970 1980 1990 2000 2010 reach its peak and begin to decline not long after the middle of the century. Source: Eichengreen, 2015 Figure 5, from a recent paper by Barry Figure 7: Global growth incidence curve 1988 to 2008 Eichengreen (2015), shows the tendency 80 for global savings rates to rise over decades. Low labour force growth and high rates of 70 increase in the stock of capital through 60 rising savings are favourable both for rapid growth in average incomes and for falling 50 inequality. Figure 6, also from Eichengreen, reveals a powerful tendency for the relative 40 costs of capital goods to decline over 30 time. This means that recent economic growth has been capital-augmenting, Cumulative growth rate% 20 with the potential to facilitate rapid global 10 economic growth and increases in the labour share of rising income. 0

How do we reconcile the presence of 510 20 30 40 50 60 70 80 90 95 99 powerful forces promoting low returns to Percentile of the global income distribution Y-axis displays the growth rate of the fractile average income (in 2005 PPP USD). Weighted by population. capital and increasing scarcity of labour Growth incidence evaluated at ventile groups (e.g. bottom 5%); top ventile is split into top 1% and 4% between P95 and P99. and higher labour incomes in the world The horizontal line shows the growth rate in the mean of 24.34% (1.1% p.a.). as a whole, with the tendency towards Source: Lakner and Milanovic, 2013 stagnant or declining standards of living and greater inequality in the developed of 2008, so misses the deterioration in China and the rapidly growing Asian countries to which Piketty has drawn median incomes and widening dispersion developing countries, the top to the 1% attention, and which we have observed is of incomes in developed countries since in developed countries to which Piketty a threat to democratic government? then. draws attention and their counterparts all Reference has already been made to Over the three decades the dispersion over the world. People around the 80th the once-and-for-all contribution made of global incomes as measured by and 90th percentiles – well off on a world to increased inequality of wealth and a global Gini coefficient narrowed scale, corresponding to workers in the income by falling interest rates in the slightly. There were huge variations in developed countries – did poorly, as did early 21st century. Figure 7, prepared by the increase in incomes for people at members of the bottom billion in the low two World Bank researchers (Lakner and different places in the global distribution percentiles of the chart. Milanovic, 2013), helps us to understand of income over the three decades. People So, at the global level, the recent the complex interaction of national near the middle of the distribution and pattern of development has favourable and global developments. It focuses on right at the top did extremely well – the features: developing countries are growing the three decades up to the great crash middle corresponding to workers in strongly and catching up rapidly with the

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 11 Global Development in the Twenty-first Century developed; many in the bottom billion are progress towards the maturation of global strengthening commitment to reducing showing signs of having joined modern development without large reductions use of fossil fuels in the biggest users economic development; and global in carbon intensity would change (Global Commission on the Economy income distribution is not becoming more global temperatures, and therefore have and Climate, 2014; Garnaut, 2014; unequal. There is a problem in developed consequences for other things, to an Chen et al., 2013). Fourth, international countries of domestic demand being extent that was inconsistent with the cooperation on climate change mitigation too weak to maintain full employment domestic and international political has been strengthened as major countries and high economic activity, but the best stability upon which economic growth have groped towards a more practical solution – investment abroad in income- depends (Stern, 2007; Garnaut, 2008, approach built around ‘concerted generating infrastructure with support 2011; Christoff, 2013). unilateral mitigation’ rather than an from high net exports and a low real Radically reducing the carbon unrealistic search for comprehensive, exchange rate – is closely complementary intensity of economic activity has a cost, legally binding agreements. to what is required for growth to remain which itself generates some headwind We are a long way from being on a strong in developing countries. At the for global economic growth, especially trajectory of emissions growth that is likely highest level of generality, humanity has in the early decades of the century. Early to be consistent with the continuation of modern economic growth in the 21st century. But we have travelled far enough The experience of modern economic along the path of reducing the emissions intensity of economic activity in recent growth has taught us that higher and years to be confident that the means are more secure incomes and the greater available to reconcile all of humanity having high standards of living with self-confidence and education of women climate stability. The questions are about the capacity of domestic and international which accompany them lead to large political systems to deploy policies that reductions in fertility. reconcile economic growth with the maintenance of the natural environment that sustains it. On inclusive development across the whole of humanity, as with climate reasonable prospects for the maturation assessments suggested that the costs of change mitigation, recent developments of global development in the 21st reducing carbon intensity to levels that are hopeful on an issue that has the century, with more equitable distribution substantially reduced climate risks were potential to block the maturation of global of greatly increased global incomes. of manageable dimension, especially development. The classical economists if these were achieved through general thought that sustained increases in living Three barriers to maturation of global and economy-wide interventions rather standards of ordinary people were unlikely development than through regulatory action (Cline, because they would generate an increase Let us return to the three barriers to the 1992; Nordhaus, 1994, 2008; Stern, 2007; in population that swamped the increase maturation of global development. Garnaut, 2008, 2011). in production (Malthus, 1798, 1840; First, anthropogenic climate change. Four developments point to Ricardo, 1817). That was more or less Established patterns of consumption substantially lower costs of mitigation how population and living standards had and investment place great pressure on of climate change than suggested by interacted through human history until the environment. The pressure that is earlier assessments. First, a focus on the mid-19th century. The experience of most likely to truncate modern economic energy efficiency has reduced quickly modern economic growth has taught us development through the 21st century and considerably the amount of energy that higher and more secure incomes and is anthropogenic climate change. At applied to each unit of economic activity. the greater self-confidence and education the most optimistic end of the range Electricity use has fallen significantly in of women which accompany them lead of possibilities defined by the science, recent years in all the established develop- to large reductions in fertility. That is the raising of average consumption and ed countries, and electricity intensity followed, with a lag, by slower labour investment levels per person to those has fallen sharply in China. Second, the force growth and, all other things being of the developed countries without costs of new, low-carbon technologies are equal, by increases in labour incomes. radically reducing the carbon emissions falling faster than anticipated, especially On the exclusion of the bottom billion intensity of economic activity would with large-scale production of capital and its effects on global population as create serious headwinds for global goods in China and deployment in many a barrier to the maturation of global development through the second half countries. Third, study of health and development in the 21st century, I once of the 21st century. More likely, steady other co-benefits of decarbonisation is would have been as pessimistic as the

Page 12 – Policy Quarterly – Volume 11, Issue 2 – May 2015 classical economists. The awful arithmetic is productive potential for it, and in of established standards of living for is that the size of the global labour force and successful developing countries. Effective ordinary people. population can continue to rise if a seventh investment abroad will improve the Recent commentators on the role of and growing proportion of humanity economic prospects of developed and vested interests in lowering the quality continues to have high fertility, even if developing countries alike. China has gone of economic policy in the public interest the developed and developing countries furthest in developing the institutions (Stiglitz, 2012; Krugman, 2003; Sachs, together have population decline. The for large increases in international 2012; Garnaut, 2013) have related the recent success of economic growth and the investment, but others may follow. general phenomena highlighted by early stages of declining fertility in much Modern economic growth and Diamond specifically to economic policy. of sub-Saharan Africa gives the developed reconciling equity with growth both These are not new concerns, having been countries the chance to reinforce success require effective government. Sustaining voiced by economists who recognised the with intelligent support. China’s immense high productivity growth requires transformative benefits of democratic increase in trade and investment in Africa government to be strong enough to capitalism. Schumpeter in his classic is controversial. Overall, it seems to have unwind anti-competitive arrangements Capitalism, Socialism and Democracy been effective in reinforcing stronger that accumulate over time in any noted that the means at the disposal of economic performance (Johnston, forthcoming, 2015). The special challenge for Australia The problem of vested interests and New Zealand is that some of the most intractable elements of the bottom corrupting policy-making in the billion are in our own neighbourhood, public interest is not confined to the in Papua New Guinea, the Solomons, Vanuatu and Fiji. It may be that the democracies. barrier to the maturation of modern economic development is removed in the decades ahead, while leaving a deep problem for our immediate region. We economy; to provide a wide range of private interests in a democracy ‘are often have a special responsibility in this region public goods and to tax external costs of used to thwart the will of the people’, and to date have not handled it well. For private decisions in order to reconcile the and ‘to interfere with the working of the the maturation of global development functioning of a market economy with mechanism of competitive leadership’ to be as beneficial for Australia and New continued growth in the public interest; (Schumpeter, 1942). In the early post- Zealand as it is for the world as a whole, and to run fiscal and monetary policy war period Condliffe cautioned that, ‘It we will have to put much greater effort consistently with economic stability. And is always dangerous to entrust the final into understanding what is necessary to effective government is required to run tax decisions of social policy to those who overcome the high barriers to participa- and expenditure policies that constrain stand to gain from an immediate course tion in modern economic development inequality in income distribution of action’ (Condliffe, 1951). What makes in our own backyard. within limits that are consistent with these concerns more immediate today political support for growth-sustaining is the more overt and less constrained Concluding note on political systems policy. This is a huge challenge for the interventions by vested interests in the That leaves the central barrier to the developed countries, and I can do no developed countries’ policy-making maturation of global development: the more than underline its importance in process, their evident success in influencing restoration of effective economic policy my concluding remarks. policy in the early 21st century, and the in the public interest in the old developed Larry Diamond has recently written associated decline in aggregate economic countries, and its establishment in China about a ‘democratic recession’ since 2006 performance and the skewed distribution as a developed country, which will be in the world as a whole, driven partly of incomes and wealth. influential on the quality of government by ‘the decline of democratic efficacy, For the developed countries, and everywhere. energy, and self-confidence in the West’ clearly for my own country, the reform Some of the problems of developed (Diamond, 2015). He notes as integral of democracy has to begin with tight countries since the great crash of 2008 parts of the problem the ever-increasing and effective constraints on corporate, have been exacerbated by failure of costs of election campaigns, and the including trade union, funding of political economic analysis. These are the most surging roles of non-transparent money campaigns and parties. easily corrected. The recent G20 heads in politics. Contemporary democracy in The problem of vested interests of government meeting in Australia developed countries is for the time being corrupting policy-making in the public focused on promotion of higher levels of failing in a struggle against the weight interest is not confined to the democracies. public investment in income-generating of vested interests to implement policies The struggle of a new general secretary, Xi infrastructure – at home, where there that are necessary for the maintenance Jinping, to exclude corrupt influences on

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 13 Global Development in the Twenty-first Century policy has been a dominant political focus Most of the world’s high-income people will or is confined to a few places in which it of the new party and state leadership that then live in a country whose government put down deep roots a long time ago, will came to office in late 2012 and early 2013 professes to govern for the people, but be determined over much the same time. in China. The current Chinese leadership’s avowedly not by the people. The prospects for both the maturation of hopes are more easily exclaimed than Whether humanity sees the maturation global economic growth and government implemented, and it would be surprising of modern economic development by the people will be strongly influenced if they were straightforwardly successful. through the 21st century depends above all by the strength of the independent centre The contemporary association of developed on whether we can find effective systems of the democratic developed countries, countries with democracy will soon change of government for the people through the to which Frank Holmes contributed so if I am right about China joining the ranks 21st century. Whether government by the much in New Zealand. of developed countries through the 2020s. people becomes dominant in the world,

References Bertram, G. (2014) ‘Has Capital in the Twenty-first Century changed Johnston, L. (forthcoming, 2015) ‘Why China’s “new normal” is good anything?’, in The Piketty Phenomenon: New Zealand perspectives, news (for China) in Africa’, in L. Song, R. Garnaut, C. Fang and L. Wellington: Bridget Williams Books Johnston (eds), China’s Domestic Transformation in a Global Context, Bertram, G. (2015) ‘A New Zealand perspective on Thomas Piketty’s Capital Canberra: ANU Press in the Twenty-first Century’, Policy Quarterly, 11 (1), pp.39-46 Keynes, J.M. (1919) The Economic Consequences of the Peace, New Chen, Y.Y., A. Ebenstein, M. Greenstone and H.B. Li (2013) ‘Evidence on York: Harcourt, Brace and Howe the impact of sustained exposure to air pollution on life expectancy Keynes, J.M. (1931) ‘Economic possibilities for our grandchildren’, in from China’s Huai River policy’, Proceedings of National Academy of Essays in Persuasion, London: MacMillan Sciences, 110 (32), pp.12936-41 Keynes, J.M. (1936) The General Theory of Employment, Interest and Christoff, P. (ed.) (2013) Four Degrees of Global Warming: Australia in a Money, London: Palgrave Macmillan hot world, Oxford and New York: Routledge EarthScan Krugman, P. (2003) The Great Unravelling: losing our way in the new Cline, W.R. (1992) The Economics of Global Warming, Washington, DC: century, New York: W.W. Norton Institute for International Economics Lakner, C. and B. Milanovic (2013) Global Income Distribution: from Collier, P. (2007) The Bottom Billion: why the poorest countries are failing the fall of the Berlin Wall to the great recession, World Bank policy and what can be done about it, New York: Oxford University Press research working paper 6719, available at https://openknowledge. Condliffe, J.B. (1951) The Commerce of Nations, London: George Allen worldbank.org/handle/10986/16935 and Unwin Malthus, T.R. (1798) An Essay on Population, London: J. Johnson Diamond, L. (2015) ‘Facing up to the democratic recession’, Journal of Malthus, T.R. (1840) Principles of Political Economy Considered with a Democracy, 26, (1), available at http://www.journalofdemocracy.org/ View to their Practical Application, 1920 edn, London: John Murray article/facing-democratic-recession Nordhaus, W. (1994) Managing the Global Commons: the economics of Eichengreen, B. (2015) Secular Stagnation: the long view, NBER working climate change, Cambridge: MIT Press paper 20836, Cambridge, Mass: National Bureau of Economic Research Nordhaus, W. (2008) A Question of Balance: weighing the options on Garnaut, R. (2008) The Garnaut Climate Change Review, Melbourne: global warming policies, New Haven and London: Yale University Cambridge University Press; Chinese language edition, Beijing: China Press Social Sciences Academic Press Piketty, T. (2014) Capital in the Twenty-first Century, Cambridge, Mass: Garnaut, R. (2011) The Garnaut Review 2011: Australia in the global Belknap Press response to climate change, Melbourne: Cambridge University Press Popper, K. (1945) The Open Society and its Enemies, London: Routledge Garnaut, R. (2013) Dog Days: Australia after the Boom, Melbourne: Black Reeves, W.P. (1902) State Experiments in Australia and New Zealand, Inc Cambridge: Cambridge University Press Garnaut, R. (2014) ‘China’s role in global climate change mitigation’, Ricardo, D. (1817) Principles of Political Economy and Taxation, 1962 China and World Economy Journal, 22 (5), pp.2-18 edn, London: Dent (Everyman) Global Commission on the Economy and Climate (2014) The New Climate Sachs, J. (2012) The Price of Civilisation: virtue and prosperity after the Economy Report, available at http://newclimateeconomy.report/ economic fall, London: Vintage Books Gordon, R.J. (2012) Is U.S. Economic Growth over? Faltering innovation Schumpeter, J. (1942) Capitalism, Socialism and Democracy, 5th edn, confronts the six headwinds, NBER working paper 18315, 1976, London: George Allen and Unwin Cambridge, Mass: National Bureau of Economic Research Stern, N.H. (2007) The Economics of Climate Change: The Stern Review, Haldane, A.G. (2015) ‘Growing fast and slow’, paper presented at Cambridge, Mass: Cambridge University Press University of East Anglia, Norwich, 17 February, available at http:// Stiglitz, J.E. (2012) The Price of Inequality: how today’s divided society www.bankofengland.co.uk/publications/Pages/speeches/2015/797.aspx endangers our future, New York: W.W. Norton and Company Holmes, F., A. Grimes and R. Bowden (2000) An ANZAC Dollar: currency United Nations (2014) The World Population Situation in 2014: a union and business development, Wellington: Institute of Policy concise report, New York: Department of Economic and Social Affairs Studies, Victoria University of Wellington Population Divison, United Nations, available at http://www.un.org/en/ International Monetary Fund (2014) World Economic Outlook October development/desa/population/publications/trends/concise-report2014. 2014: legacies, clouds, uncertainties, Washington, DC, available at shtml http://www.imf.org/external/pubs/ft/weo/2014/02/

Page 14 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Gary Hawke

Economic Policy, External and Internal,

and Public economic theory is most apparent in the concept of ‘maturation’ of economic growth, the eventually spreading of economic growth across all societies, with Policy an implicit end-point when all have a common real per capita income and rate of growth. This is the standard economic Ross Garnaut delivered a Holmes Lecture superbly crafted concept of equilibrium, quickly related to to honour Frank Holmes. With his background in all of both the various long-run tendencies of classical economics and the more recent academic economics, policy development, diplomacy and creations of dynamic equilibria. It is an analytical device; it is not simple-minded business governance, as well as a longstanding personal description. It promotes exploration of acquaintance with Frank, Ross is as well qualified as anybody possible disruption of a smooth transition to equilibrium, and what are offered as for a Holmes Lecture, and he more than delivered on his counter-examples to equilibrium analysis are often misconceived. Ross has used qualifications. a similar device in earlier work: one of Ross’s economic theory is deployed also most of the theorising is implicit. It the most interesting ideas in his work discreetly. Not only does his lecture is, however, sophisticated and carefully on climate change, albeit often ignored, have diagrams but no equations, but developed. Perhaps the influence of was the identification of equal per capita emissions as an equilibrium. Discussion Emeritus Professor Gary Hawke was foundation head of the School of Government, 2003–08. about blame for historic emissions and He is a longstanding member and former chair of the board of the New Zealand Pacific Economic fair entitlements to emission-generating Cooperation Council, Senior Fellow at the New Zealand Institute of Economic Research and member development could fruitfully have been of the Academic Advisory Council of the Economic Research Institute for ASEAN and East Asia (Jakarta). avoided by wider understanding of the

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 15 Economic Policy, External and Internal, and Public Policy role of equal per capita emissions. is an argument that an equilibrating Kuznets then found a generally positive Ross does not always use the process will equate the two, but it is association between population growth equilibrium notion. One area from which interesting mainly for directing attention and growth of real per capita incomes it is absent, more prominent in his earlier to departures from the conditions under (Kuznets, 1966). Fertility caught up with work, and in his most recent book, on which the argument is valid. Accounting declining mortality, and came to dominate the Australian economy (Garnaut, 2013), for capital losses is not simple, and nor the spreading of higher income levels both than in the Holmes Lecture, is the choice are the distributional consequences of within developed countries and as growth of interest rate for evaluating investment funds supporting pension entitlements. spread internationally. projects. High interest rates imply that Following Keynes, Ross sees a likelihood It is not impossible that we will be costs and benefits in the distant future that savings will tend to outrun the desire surprised. Expectations of declining have little impact on current decisions; to invest, although he relies on ageing populations were widespread in the 1930s, their present value is discounted to close rather then satiation. Keynes expected as analysts established that population to zero. That is uncongenial to those material desire to be satisfied so that growth rates had been declining from who advocate attaching weight to the working hours would be diminished, the 19th century, the trend being led in welfare of distant generations (or who but subsequent experience has been rich countries. Then, as now, analysts explained the trend through the rising relative cost of children, their lesser value ... journalistic commentary is dominated as sources of labour and their greater requirements of investment. But from by suggestions that the present the 1940s to the 1960s the trend was generation is unusual in not being able reversed, and a surge in fertility produced the baby boom generation which features to look forward to future generations in current discussion. Analysis of the baby boom is complex, but the central being better off than current experience. intuition is that after the experience of the Great Depression in the 1930s, parents in newly-formed households confidently expected that they would be able to provide children with better starts in life opportunistically use the interests of dominated by rising aspirations at least than they had themselves experienced, distant descendants to justify imposition keeping pace with increased production. sufficiently so as to permit them to have of their own preferences). But choice Should we perhaps expect that the larger families. of the appropriate interest rate is not balance of investment plans and desired Currently, journalistic commentary is arbitrary or even simply a value to savings will also change? Perhaps by an dominated by suggestions that the present be determined by a political process. equilibrating process? generation is unusual in not being able to It involves assessment of community It certainly seems unlikely that there look forward to future generations being preferences with the aid of equilibrium will be any reversal in the demographic better off than current experience. It is devices such as Ross deploys effectively trends which create an expectation for not very secure, but surveys in several elsewhere. There is no simple solution – savings intentions to exceed investment countries suggest that it is widespread. If determining community preferences is plans. The dominant demographic force it is reversed, could we see some repetition inevitably complicated and contentious is fertility and incentives are heavily of the baby boom? Perhaps, but it looks – but imposition of a personal preference weighted towards continued reduction like a very long shot indeed. is no solution. in fertility. The material welfare of Other mechanisms to reverse Interest rates are a major link between households is not promoted by children; declining fertility have been suggested. economic theory and policy analysis. Ross social norms increasingly restrict child Many women who delay childbearing pursues several aspects, all persuasively. labour everywhere; and parents more and until late in their 30s encounter difficulty He very effectively limits any echoes more recognise that the life chances of in conceiving and pregnancy, and medical of Piketty’s argument in the title of his their children depend on expensive inputs, advice is increasingly insistent that the Holmes Lecture, ‘Global development in both time and diversion of household best years for childbearing are much the 21st century’, since he expects interest resources. There is little reason to doubt younger. The direct impact of such advice rates to be low, preferring the analysis of Ross’s expectation of continued spread of a is likely to be small, given widespread Keynes’ ‘Economic possibilities for our general experience of ageing. The ‘modern scepticism of medical authority outside a grandchildren’ (Keynes, 1931, pp.358- economic growth’ about which he writes is strictly clinical context, but an underlying 74). The sufficiency of an excess of not the ‘modern economic growth’ which concern with social institutions which interest rates over the rate of growth to Kuznets discerned as the historical norm constrain childrearing at earlier ages may generate inequality is dubious – there when he was writing nearly 50 years ago. well be strengthened. It has long been

Page 16 – Policy Quarterly – Volume 11, Issue 2 – May 2015 common to contrast Italy and Sweden: there it may be read as favouring those The successful mechanisms are all much in countries where, as in Italy, women who see less a decline in the impact less visible than periodic accounts of are mostly forced to choose either family than changes in its incidence. Economic failed international conferences, which or employment fertility will be lower historians are accustomed to tracing have many of the characteristics of than in countries, such as Sweden, where the productivity gains of the iron and circuses. In Dog Days, Ross observes that employment conditions and accessibility steel industry in the classical industrial informal understandings ‘were probably of child care are more conducive to revolution, observing the introduction more ambitious than they would have combining childrearing with advancement of major technology innovations such as been in a notionally legally binding in a career. The impact of responses the blast furnace, and then recognising agreement negotiated by all countries. such as different gender allocations of that most productivity gains came from Formal negotiations make country responsibilities for childrearing, or flexible incremental improvements between representatives defensive’ (Garnaut, 2013, hours of work, have been limited, and a major innovations rather than directly p.185). His pragmatism is appealing. So substantial impact would have to come from their introduction. We should would be its extension to considering the from changes in occupations such as the expect the same to be true of current future balance of investment and savings law and finance away from using long innovations such as the internet, and the intentions. hours of concentrated work to screen for rapid professional advancement. Quick change cannot be expected. Anybody who follows Asian discussions Hence the demographic trends expected by Ross Garnaut are strongly will be aware that ‘inclusive growth’ based. But perhaps the link between looms much larger there than it does in ageing and economic growth will change? Ross is well aware of possibilities such as standard ‘Western’ discussions. more creative use of mature and aged workers, but, while prejudice should always be challenged, there can be little doubt that age generally reduces both initiative and enthusiasm for change – sensors and robots that are starting to Ross is interested in ‘inclusive and it is effective management of change have significant impacts. We should also development across the whole of rather than ‘structural reform’ that should be careful to avoid assessing technology humanity’. Anybody who follows Asian be the focus. Any weakness in the link trends from trends in machines. Even discussions will be aware that ‘inclusive between ageing and economic growth though technology changes fastest when growth’ looms much larger there than it is likely to be directly in the savings– it involves management of machinery does in standard ‘Western’ discussions. It is investment nexus. through repetitive tasks which can not just a concession to political activists, The proposition that ageing generates readily be taught, the greatest impact or a contrivance which is useful for evading increased desired saving is not unqualified. of technology has historically tended prescriptions for change. Rather, it reflects It is more true of individuals of working to come from organisational changes, an ultimate aim of community-building, ages than it is of the aged, who dissave, and often at a more aggregate level than the construction of a harmonious as well is therefore less than self-evident in the individual firms. These are usually less as prosperous society. Perhaps the single aggregate. Total savings may be unchanged readily observable and more likely to be most important point in the Holmes as those in employment save more but recognised only in retrospect. Lecture is the quotation and discussion the aged dissave more quickly and for Ross gives an optimistic view of around chart 7 taken from the World longer. (In reality, private savings may be future development in any case. He Bank policy research working paper by outweighed by public saving trends.) At an notes especially the impact of technology Lakner and Milanovic. Distributional international level, the extraordinary saving change on carbon emissions, through issues are global, not parochial. Broad of Chinese in recent times and the current improvements in the carbon intensity of trends in technology have generated trends in Chinese economic strategy mean production, cost-reducing innovations incomes for many (but not all) of the that the savings propensity there is likely to in low-carbon technologies, the world’s relatively poor, and the relatively decline, and China is sufficiently large to incentives of desirable health effects, and disadvantaged in the three decades shown affect world totals. realistic mobilisation of international in this chart were ‘people around the Pessimistic expectations about the cooperation. (Ross treats reductions in 80th and 90th percentiles – well off on propensity to invest are usually derived the cost of low-emission technologies a world scale, corresponding to workers from productivity trends, and eventually as part of mitigation and criticises in the developed countries’. Most of the from assessments of technology change. reliance on adaptation at the expense attributions of responsibility to specific The reading is contested. Debate has of mitigation, but the categorisation is government interventions in individual been most intense in the US, and even not important. Technical progress is.) countries look almost trivial.1 Indeed,

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 17 Economic Policy, External and Internal, and Public Policy

Ross saw some parallel with Heinz Arndt’s phenomenal rates, while Chinese demand the collective interest than is now usual for query whether societies for the relief of for dairy products is likely to continue to governments of ‘Western’ economies. genteel ladies were ever socially desirable. grow. An emphasis on services, such as Trust in governments may be However, distributional issues have to be education, is less biased in favour of New engendered in various ways, through taken seriously, for moral reasons and to Zealand, and ‘dairy products’ involves voluntary acquiescence earned by ensure that societies remain conducive to much more than ‘farm products’, with experience or through fear, or perhaps Ross progress. Ross remains optimistic, as is other inputs able to be sourced from was simply relying on older analysis. The implicit in his ‘maturation’ concept. He elsewhere than New Zealand. These are latter possibility seems to be the case with specifically ruled out any suggestion that important direct influences from China, his insistence on the real exchange rate in Africa or anywhere else has to remain but their distributional consequences his criticism of Australian economic policy poor. may well be dwarfed by the subjection in response to the resources boom and To find a single government with major of all low-skilled employment in New the subsequent ‘dog days’. International influence we look to China. Ross draws Zealand and Australia to competition competitiveness is always important, but in on all his diplomatic experience, and the from India and eventually Africa, and the contemporary international economy it cannot be related only to the prices of traded goods and services. Exchange It is easy to endorse Ross’s call for rate changes must also be related to international investment, both valuation strengthening of the ‘independent centre’ of stocks of cross-border capital flows and impacts on revenue flows across borders in the policy community, as Frank from outward and inward international Holmes would certainly do, but we may investment. Ross is surely right that in Australia, as in New Zealand, concern doubt whether the greatest challenge about Chinese investment is mostly xenophobic, just as were earlier worries comes from using political and policy about Japanese investment, or even earlier antagonism to American investment. But institutions for private interests. those international investment flows mean that it is no longer adequate to think only about domestic incomes, the real exchange rate, and competitiveness of exports. knowledge his access has made available increasing competition from the booming Ross’s principal concern is less with to him, to create a very positive picture Chinese education sector for what is now economic policy than with public policy of China’s development. In his book Dog relatively sheltered educated labour in in general. His target is ‘more overt and Days he has more room for qualifications New Zealand and Australia. less constrained interventions by vested than he did in the Holmes Lecture, or In pursuing the implications of interests in the developed countries’ even in the seminar in Wellington where such analyses, Ross puts a lot of weight policy-making process, their evident he discussed China’s new development on exchange rates. He is not afraid to success in influencing policy in the 21st model. The book therefore includes: ‘The use standard ‘Keynesian’ analysis. For century, and the associated decline in big currents of economic development example, he describes the Chinese policy aggregate economic performance and are inherently uncertain. China may fail response to the global financial crisis as the skewed distribution of incomes and in the implementation of its ambitious ‘Keynesian’. The term was originally used wealth’. It is a theme much discussed in the structural reform’ (Gartnaut, 2013, in circumstances such as the Second World US, and Dog Days develops the analysis for p.270). But he is surely right that success War, when community cohesion had a Australia with several persuasive accounts is more likely than any of the scenarios strong extraneous source, and continued of specific interests unduly influencing the painted by those who cannot refrain from in the 1950s and 1960s when the state policy process. The Australian examples expecting Armageddon in some form. was widely accepted as the embodiment of mining interests gaining strategic The implications for Australia and of collective will. It became contested as political positions or manipulating the New Zealand are profound. We benefited the stagflation of the 1970s generated policy process are even more blatant than from Chinese demand, for minerals in more intense rivalry within societies, and any well-documented concerns in the US, the case of Australia, dairy produce in government interventions were as much where the greatest worry is the implicit the case of New Zealand. New Zealand likely to be anticipated and countered as collaboration established through major is now better placed than Australia, since accepted as expressions of collective interest. contributions to campaign funding. China’s ‘new development model’ will The implication if Ross’s analysis of China’s (New Zealand experience is trivial by reduce emphasis on construction and experience is correct is that its government comparison, but it is easy to think of on the ‘metals’ sector, which grew at is more likely to be accepted as acting in phrases like ‘eternal vigilance’. Ross is

Page 18 – Policy Quarterly – Volume 11, Issue 2 – May 2015 concerned about corporate funding of to those who stand to gain from an In all of the employment of economic politics in both Australia and the US, and immediate course of action.’ theory, sophisticated even when not he includes trade union funding in that.) In this regard as in others, Ross entirely convincing, the discussion of It is easy to endorse Ross’s call for skilfully links his interest in Australia economic strategy, and the deeper issues strengthening of the ‘independent centre’ to understanding of the wider world. of public policy, Frank Holmes would in the policy community, as Frank Tension between political and economic have found much to approve in this Holmes would certainly do, but we may development is a standard component lecture, and more to engage with further. doubt whether the greatest challenge of analysis of contemporary China, but We benefit from the interaction of Ross comes from using political and policy it is not often related to worrying trends and Frank. institutions for private interests. There in governance in developed democracies. 1 Hwok-Aun Lee in ‘Some Malaysian inequality measures is now more assertiveness of specific Yet both are concerned with governing more equal than others’ (East Asia Forum, 26 February interests of all kinds, including activists in the interests of the public. Democracy 2015) suggests that ‘Malaysians are simply conflating the general economic environment with inequality’, and this has who dress themselves as guardians of is more than the existence of elections applicability much wider than Malaysia. the public interest, and who exploit any and alternation of power among parties. opportunity to advance their enthusiasm China’s sensitivity to its public, obviously References at the expense of deliberative policy limited in some respects, is shown by Garnaut, R. (2013) Dog Days: Australia after analysis which considers unintended responsiveness to the health effects of the Boom, Collingwood, Vic: Redback consequences and focuses on feasible pollution, and its thinkers will now be Keynes, J.M. (1931) Essays in Persuasion, alternatives rather than some alleged less concerned with American election London: Macmillan (originally published utopia which can be reached in one strategies than with watching whether in the Nation and Athenæum, 11 and 18 easy step. Ross drew to our attention the the Singaporean approach to securing October 1930) caution in Condliffe’s 1951 The Commerce order and harmony as well as material Kuznets, S. (1966) Modern Economic Growth: of Nations: ‘It is always dangerous to prosperity will survive loss of the direct rate, structure and spread, New Haven; entrust the final decisions of social policy influence of Lee Kuan Yew. London: Yale University Press

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Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 19 Grant M. Scobie

Commentary on ‘Global Development in the Twenty-first

economic, social and political forces will shape the way societies develop, and, Century’ critically, how they interact. For this we need to appreciate ‘how the world works’. The Danish physicist Neils Bohr wryly observed: ‘Prediction And Garnaut offers much insight into the economic and political dimensions of is very difficult especially if it’s about the future.’ In that sense, global development. But then comes the Professor Garnaut set himself a very challenging task. How- really hard part: judging what to do and how to do it. What role will national and ever, reflecting the depth of his scholarship, he has not fallen international policies play? What should those policies be? To what extent will they into the trap of prediction. Rather, he has offered nuanced even matter for the long-term outcomes? projections; the difference is more than semantic. Here Garnaut recognises the limits of our understanding and is suitably cautious. In his speech to the Republican State the 21st century are very much in the That productivity gains, complement- Convention in Springfield, Illinois in spirit of this observation. The starting ed by expanded world trade and June 1858, Abraham Lincoln started by point is an understanding of where we capital flows, have been important observing: ‘If we could first know where are now, and Garnaut has drawn on his for underpinning the growth in living we are, and whither we are tending, we wealth of knowledge and experience to standards for much of the world is could then better judge what to do, and establish that starting point. From there undisputed. In recent decades, two key how to do it.’ Garnaut’s reflections on he leads us to ‘whither we are tending’. forces have principally driven the rate global economic prospects in the rest of This requires an understanding of how of economic growth: a rapidly growing labour supply and higher productivity. Grant Scobie, formerly Professor of Economics at the University of Waikato, is with the Treasury. Increasingly, however, we have evidence

Page 20 – Policy Quarterly – Volume 11, Issue 2 – May 2015 that the rate of improvement in Garnaut creates the sense that the But it is not only in Africa and the productivity has been slowing down. And global economy will follow somewhat Middle East that tensions can disrupt that slowing is not solely a phenomenon of evenly along the paths he suggests in the path of economic growth. Garnaut very recent times, but rather one that has each of the three blocks of countries he logically gives centre stage to China in been underway since the 1950s; although identifies. However, it is highly likely that his analysis of world economic growth. here Garnaut rightly acknowledges that the future course will be punctuated with Of its growing importance there can be measurement issues still potentially cloud shocks; we know from the past that this no doubt. Depending on which estimates the true picture of productivity change. has always been the case and it would be you prefer, China is already the world’s Significant impulses to long-term challenging to mount a credible argument largest economy, with some 17% of economic growth have come in the that such shocks will diminish in future. global GDP; its economy is about three past from so-called general purpose We can distinguish two types of times the size of Japan’s and four times technologies (Lispey, Carlaw and Bekar, shocks: natural disasters, and political the size of Germany’s. Of course, this 2005). The standard examples are the perturbations whose origins lie in the very is not a new state of the world. In 1700 steam engine, railroads, the internal process of economic growth. For natural China and India each generated about combustion engine, steel and electricity. disasters we can invest in preparedness, 25% of global GDP; in 1820 China alone These technologies typically lead to avoid policies that favour locating in risky accounted for 33%. fundamental changes in the way societies zones, and improve the systems of rapid A large share of the total growth operate. deployment of emergency relief. The in world GDP recently has been due to More recently, we would surely have to add information technology (ICT) to our list. It is now easier to complete a retail While economic growth has picked up in purchase from 10,000km away than it is to drive 5km on a congested road and then parts of sub-Saharan Africa, the record is search for parking. Brokerage services, accounting, banking and insurance can spotty at best, and the political instability all be effected online from just about that characterises the Ivory Coast, anywhere on the planet at a fraction of the real cost of engaging in physical contact Nigeria, Sudan and the Congo is not with providers. Every aspect of modern life in both the home and commercial worlds an encouraging backdrop for sustained is centred on the use of this technology, growth. the real cost of which continues to fall. And there is good evidence that the adoption of ICT has been widespread, and notably so in the poorer regions of the underdeveloped world. With a smartphone second type represents a greater challenge, China. One view is that sustained high a Masai herdsman can have an eye test and typically has wider ramifications growth in China (and India) will, via and order prescription spectacles, conduct than the more localised impact of natural trade and commodity prices, have positive banking, call for emergency medical aid, disasters. Garnaut acknowledges the spillovers and pull the rest of the world contact family, obtain market prices, challenges for economic growth in the along. However, there may be grounds receive warnings of natural hazards – in Pacific, where failed states have become for some scepticism about whether China short, be as globally connected as a bond the rule. While economic growth has will converge with the income levels of trader in Frankfurt. picked up in parts of sub-Saharan the rich nations, especially by the 2020s We might, therefore, reasonably Africa, the record is spotty at best, and as Garnaut suggests. A recent paper expect that the transfer of technology to the political instability that characterises (Pritchett and Summers, 2014) argues less developed areas will be increasingly the Ivory Coast, Nigeria, Sudan and the that the recent periods of high economic facilitated, resulting in gains in Congo is not an encouraging backdrop for growth in China are to some extent an productivity and leading inexorably sustained growth. But more worrying still aberration. By analysing the data on towards convergence with wealthy nations is the instability in the Middle East, across economic growth across a large sample – ‘the only stable end-point’ of modern North Africa and through Syria, Iraq and of countries, the authors find a strong economic growth, as Garnaut argues. Afghanistan. Today, real per capita GDP reversion to mean, and a tendency among But, despite the technological advances, in Iraq is lower than it was in 1950. The the more rapidly growing economies to we are left with the conundrum so aptly prospects for return to any serious rate of experience sharp discontinuities. They captured by Robert Solow’s 1987 quip: sustainable economic growth across the build a strong case that a) forecasts for ‘You can see the computer age everywhere region would seem remote. continued high rates of growth in China but in the productivity statistics.’ are overly optimistic, and b) China will

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 21 Commentary on ‘Global Development in the Twenty-first Century’ inevitably have those discontinuities, the If China were to succeed in sustaining agricultural prices fell by some 70% probability of which is heightened by its model of governing for, rather than during the 20th century. the presence of an autocratic political by, the people, it would surely become a With little or no possibility for structure. The authors conclude: significant outlier from the association of further expansion in land area, the democracy and economic well-being. world will be fed only through sustained It is impossible to argue that either We simply do not know how the growth in agricultural productivity. China or India have the kinds of interaction of the economic and political New developments in production and ‘quality institutions’ that have been forces will play out in China, but I would processing might well contribute to the associated with the steady dynamic argue that it is unlikely to be resolved required growth of productivity. Precision of growth in the currently high without some ructions along the way. farming, zero tillage, genetic modification, productivity countries. The risks of And given its size, those perturbations, biological control and microbial fertilisers ‘sudden stops’ are much higher with however minor, will inevitably send are just some of the innovations that will weak institutions and organizations waves, varying from ripples to tsunamis, drive future productivity. However, none for policy implementation. China to the wider world economy. We have of this will happen easily; there are both and India have very different already seen the consequences of boom political and environmental challenges. modalities of this risk, but both have and bust arising from changes in the Deforestation, desertification, agricultural tricky paths to continued prosperity. level and pattern of import demand in run-offs, falling ground water levels and (Pritchett and Summers, 2014, p.58) China. Australia is feeling a chill wind as declining water quality are just some of the potential barriers to sustained agricultural productivity growth. A fundamental challenge not mentioned In summary, Garnaut well recognises the headwinds that global economic by Garnaut is the capacity of the world growth may encounter: his top three candidates are climate change, lagging to feed itself. growth among the world’s poorest, and the capture of the policy-making process by vested interests. To those I would add Will China’s growing domination China’s growth strategy moves beyond its the capacity to feed ourselves and, above in world trade lead to calls for greater energy- and metal- intensive phase, while all else, the potential global economic protection in importing countries? China New Zealand has had its own commodity ramifications that might stem from now produces more steel than the rest of boom driven in good measure by exports political perturbations in China. The the world combined, and anti-dumping to China. But these bumps and hollows first will require sustained investment in investigations or cries for protection are could pale into insignificance alongside research and development, supported by already underway in the United States, the ramifications of a major political polices that price resources at marginal the European Union, India, Korea and ‘realignment’. The rest of the world, living social cost and deal with environmental Australia. Such moves have the potential with an enormous economic powerhouse, externalities. Avoiding the second will to result in a weakening of free trade is analogous to Canada cohabiting with require uncanny political management and a consequent slowing of growth and the US. When asked by a journalist from by the Chinese leadership, supported by misallocation of global resources. the US about that relationship, Prime robust global institutions. We can only History suggests that rising incomes Minister Trudeau responded: ‘Living next hope that our understanding of China’s and greater economic freedom go hand to you is in some ways like sleeping with rise to become the major economic and in hand with greater political freedom. an elephant. No matter how friendly and political force in the world will continue Can China continue its unprecedented even-tempered is the beast, if I can call it to be enhanced by those such as Professor economic growth (even at more modest that, one is affected by every twitch and Garnaut. rates) and at the same time manage grunt.’ the inevitable tensions that build as a A fundamental challenge not References consequence of becoming a wealthier, mentioned by Garnaut is the capacity Lipsey, R.G., K.I. Carlaw and C.T. Bekar (2005) more powerful and globally connected of the world to feed itself. To date the General Purpose Technologies and Long- society? Is the Platonic guardians model record has been impressive. In 1961 food term Economic Growth, Oxford: Oxford a political structure for China that is for the global population of 3.5bn came University Press sustainable in the long term? Some might from 1.4bn hectares. Fifty years later Pritchett, L. and L. Summers (2014) Asiaphoria look to the ‘one-party democracy’ of the population had doubled to 7bn and Meets Regression to the Mean, NBER Singapore as a model that China might agricultural land use had risen only to working paper W20573, Cambridge, Mass: emulate – although comparing a city state 1.5bn hectares. The growth of agricultural National Bureau of Economic Research to a nation as enormous and diverse as productivity has been truly remarkable, China would seem to stretch credibility. and has had widespread benefits: real

Page 22 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Geoff Bertram

the wealth/income ratio has a long-run equilibrium at a value of around five or six, while the long-run return on wealth tends to stabilise at a value above the long-run Garnaut growth rate of the economy, producing a society with dramatic and sustained long- run inequality of both wealth and income. All (except the pre-Ricardian Smith) agree that in a closed-economy setting, ‘too versus Piketty much capital’, as Piketty puts it, ‘kills the return on capital’ (Piketty, 2014, p.215). In a key passage in the middle of his inequality in the Holmes Lecture Ross Garnaut singles out the relationship between capital accumulation and income inequality as the ‘question that will be most important coming century in shaping global development in the 21st century’. He argues, echoing Keynes If something cannot go on for ever, states Herbert Stein’s law,1 in the final chapter of The General Theory (Keynes, 1936) that in a world of it will stop. In itself this is not very informative, but it opens abundant capital and output the long- the way to three interesting questions: (1) why can’t it go run rate of return on capital must fall to negligibly low levels. Garnaut interprets on for ever?; (2) where and when will it stop?; and (3) why? Keynes’ position as follows:

Generations of economists have applied this line of inquiry to abundance will cause the rate of the accumulation of wealth (or its narrower version, capital) return on capital to fall to low levels. People who have a lot of capital will and to its close relative, the share of national income going to not have enormous incomes simply as a result of that ownership. This the holders of wealth. Their answers have varied widely. world will see ‘the euthanasia of the Adam Smith in 1776 saw no reason why exploitation of labour, leading to class rentier’. For those who are interested accumulation could not go on for ever. conflict that would destroy capitalism in access to the important things of David Ricardo in 1814 thought that the itself. Keynes in the 1930s predicted life, there will be an abundance, so growing income claim of unproductive ‘euthanasia of the rentier’ as an increasing that questions of inequality will not rentiers would squeeze capitalists’ returns stock of wealth drove down the rate of matter very much. against the immovable barrier of the return. In Solow’s 1956 growth model, subsistence wage, and eventually bring the combination of diminishing returns What, then, should we make of the capitalist growth to a halt, in the process and the physical fact of depreciation led recent increase in inequality? Garnaut putting a limit on wealth. Marx in the to the prediction that the capital–output interprets it as merely a short-run hiccup 1850s thought that accumulation carried ratio would stabilise at an equilibrium due to falling global interest rates. Piketty the seeds of its own destruction: a rising level, with total capital growing only at the views it as empirical evidence in favour of capital–output ratio would drive down economy’s rate of growth. Thomas Piketty his thesis that global inequality is on track the profit rate and trigger intensified takes this one step further by arguing that to return to 18th-century levels. (Garnaut also, in the passage quoted above, proposes Geoff Bertram is a Senior Associate of the Institute for Governance and Policy Studies at Victoria that inequality matters only in relation to University of Wellington. ‘the important things of life’, by which he

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 23 Garnaut versus Piketty: inequality in the coming century seems to mean essentials as distinct from The third is the fact that (as Keynes, investor’ who secures rents on financial luxuries and positional goods. Here I Garnaut and Piketty all acknowledge) assets only so long as capital remains think he strains credibility, both because savings do not all automatically become scarce, so that the rate of interest has to the possession of positional goods is a embodied in new productive capital. be at a level sufficient to attract funds to crucial part of the inequality story, and There are a wide range of forms in which net new investment. Keynes expected his because his assumption that abundance wealth can be accumulated, of which ‘euthanasia of the cumulative oppressive must eventually trickle down to everyone productive capital is only one. Landed power of the capitalist to exploit the requires an unduly big leap of faith.) property and buildings are the most scarcity value of capital’ (p.376) to flow While I agree with Garnaut about the obvious,3 and confer upon their owners from, and depend directly upon, capital importance of the issue, I think he is too the power to collect rent, at a rate of abundance, which if necessary was to quick to suggest that ‘Keynes is right and return which tends to rise rather than fall be secured by direct state investment Piketty wrong’. In this comment I shall try as productive capital accumulates relative sufficient to ensure capital abundance at to explore this in a bit more depth. to land (Ricardo’s point). full employment. Keynes acknowledged, First off, one has to bear in mind the Financial assets such as government though, that rent on land is different, difference between wealth and capital, a bonds are a different form of wealth with because ‘there are intrinsic reasons for the distinction that Piketty has unhelpfully different dynamics: excess current savings scarcity of land’ which do not disappear simply because of capital abundance. Thus, only one category of rentiers Garnaut, following Keynes, views the suffered euthanasia in his account. For the others, Keynes was happy to see large 20th century not as a short-run historical income and inheritance taxes imposed (p.377). Euthanasia by capital abundance, aberration but as the launching pad for in short, was a selective process which a long-run growth path leading to global would leave much wealth untouched in the absence of high tax rates. abundance and greater equality. Second, ‘land’ is shorthand for a large range of bottleneck resources that are inherently in limited supply and hence command sustainable rents in a market obscured by using the term ‘capital’ to drive down the rate of interest at which economy. Social(ist) ownership of these refer to the broader category of ‘wealth’. new loans can be made, but in the process resources could prevent them from Economic growth theories that predict a drive up the value of existing bonds becoming the basis for gross inequality steady (or possibly stationary) state for the issued in the past at higher rates. Garnaut of wealth and income, but under private economy, with a stable equilibrium capital/ attributes the recent rise in inequality to ownership there is no obvious endogenous output ratio, generally conceive of capital this mechanism: ‘much of the increase tendency for their value to decline, nor as an input to the productive process, in wealth and income at the top of the for their ownership to become dispersed, without which growth itself cannot happen. distribution in this century … reflects either of which might bring inequality Therefore, a fall in the rate of return on once-and-for-all increases in asset values down. Hence, those individuals who capital as it accumulates translates into a associated … with the decline in interest secure ownership at the bottlenecks can fall in the incentive to invest, which in turn rates themselves’. Hence, as existing continue to ride the escalator of rising rent slows accumulation itself. loans expire and are rolled over at lower and ‘capital gains’.4 Just as Keynes set aside There are three familiar limitations interest rates, even a very large portfolio this aspect of capital abundance, so does to this story. The first lies in the concept of bonds will yield only a meagre income, Garnaut gloss over the future of land-based of capital itself, the subject of the which leads Garnaut to predict that the rentals and the associated inequalities. ‘Cambridge debate’ in the 1960s, which current level of inequality will prove Third, Piketty’s position has a long- I will not pursue here. The second is the unsustainable in the face of abundance of run historical grounding which puts brute fact of depreciation, which means capital and a low rate of interest. a considerable onus on Garnaut to that in the steady state of, for example, Garnaut may eventually turn out to demonstrate why ‘this time is different’ a Solow economy the rate of return on have been right, but I would nevertheless from the two millennia up to 1900. investment at the margin cannot fall emphasise three factors that add weight In Piketty’s theory of history, the 20th below the rate required to incentivise to Piketty’s side of the debate. century appears as a one-off deviation replacement investment to maintain the First, Keynes’ original discussion from the long-run human propensity capital stock. This in turn puts a limit on of euthanasia of the rentier (Keynes, to create and sustain highly unequal the extent to which diminishing returns 1936, pp.375-7) was far from all- societies. The deviation, in his account, can drive down the rate of return on encompassing. The rentier whose demise was driven by an eruption of new social productive capital.2 he foreshadowed was the ‘functionless and political forces that broke the power

Page 24 – Policy Quarterly – Volume 11, Issue 2 – May 2015 of the old ruling elites and established argument against Piketty persuasive. and expenditure policies that constrain a high-tax, high-wage welfare state and The jury remains out on how the long- inequality in income distribution within mixed economy. Those forces faded in run accumulation story will play, and I limits that are consistent with political the late 20th century in the face of the am uneasy about bringing the authority support for growth-sustaining policy’, resurgence of financial power and neo- of Keynes to bear in support of the seems to support Piketty’s proposal for a liberal ideology, following which the proposition that the currently low interest global wealth tax, and worries about the age-old disequalising forces are back and rates prevailing in the global economy power of vested interests. As did Keynes will consolidate unless democratic forces will necessarily prevail into the long run eight decades ago, Garnaut seems to be revive. Hence Piketty thinks we must – that is, for the coming century – and holding state intervention in reserve, to ‘bet everything on democracy’ (Piketty, translate into a new period of devaluation wield the axe if and when the free market 2014, p.573); that is, on a new wave of of wealth. Keynes’ rentiers certainly had fails to deliver on his long-run vision of deliberate political intervention to block a thin time of it for half a century after euthanasia of the rentier in a world of the disequalising tendency of the market The General Theory in the face of strongly general abundance. I was left wondering economy. interventionist policy in the advanced how long he would be willing to wait Garnaut, following Keynes, views the economies, but the story of recent to see whether the falling interest rate 20th century not as a short-run historical decades has been one of resurrection of (see his Figure 2), on which he lays such aberration but as the launching pad for the rentier and consolidation of their stress, can indeed be sufficient to reverse a long-run growth path leading to global well-funded stranglehold over policy. the recent rise in inequality. abundance and greater equality. In this Laissez-faire, this suggests, is not likely to view, the history of inequality prior to prove the best response to inequality. 1 http://en.wikipedia.org/wiki/Herbert_Stein. 2 Keynes makes this point clearly: ‘it would not be difficult to 1900 is an irrelevant distraction, and the This brings me to the question increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not recent sharp increase in inequality is a of what, if anything, Garnaut thinks mean that the use of capital instruments would cost almost temporary aberration, from which the we ought to do about inequality. His nothing, but only that the return on them would have to cover little more than their exhaustion by wastage and economies of the developed countries are optimism about the long-run equalising obsolescence together with some margin to cover risk and the exercise of skill and judgment’ (Keynes, 1936, p.375). expected to recover of their own accord tendency of the market economy, 3 The dominance of housing as a component of total present- as the rest of the global community and consequent rejection of Piketty’s day wealth is conspicuous in Piketty’s statistics and in the corresponding New Zealand data (see Bertram, 2015) and completes its transitional phase of rapid extrapolation of the recent trend towards fits uneasily with his mathematical model of equilibrium growth and accumulation. inequality, seems to point to a relaxed capital accumulation: see Rognlie, 2015 and Malpass, 2015. I hope, for obvious reasons, that laissez-faire stance. Yet he argues for 4 ‘Capital’ here obviously carries the meaning wealth. Garnaut is right, but I did not find his ‘effective government … to run tax

References Bertram, G. (2015) ‘A New Zealand perspective on Thomas Piketty’s Piketty, T. (2014) Capital in the Twenty-first Century, Cambridge, Mass: Capital in the Twenty-first Century’, Policy Quarterly, 11 (1), pp.39-46 Belknap Press Keynes, J.M. (1936) The General Theory of Employment, Interest and Rognlie, M. (2015) ‘Deciphering the fall and rise in the net capital Money, London: Macmillan share’, draft for Brookings Papers on Economic Activity, March, http:// Malpass, L. (2015) ‘“House and house-nots”: the chart that should www.brookings.edu/~/media/projects/bpea/spring-2015/2015a_ change how we think about inequality’, Sydney Morning Herald, 2 rognlie.pdf April, http://www.smh.com.au/comment/house-and-housenots-the- chart-that-should-change-how-we-think-about-inequality-20150402- 1mchsb.html

Coming In 2015

Liz Richardson Tina Nabatchi Senior Lecturer in Politics Associate Professor of Public The University of Manchester Administration and International Affairs Syracuse University

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 25 Valentina Dinica

Governance of National Parks at the Crossroads New Zealand’s silent reform New Zealand’s national parks are major attractions for human activities. DOC has tourism and recreation, while hosting other commercial argued frequently that its activities considered compatible with that primary role, conservation activities are like grazing, commercial filming and renewable electricity ‘heavily weighted towards production. Commercial activities can only be carried the trapping and poisoning out according to the terms of legal documents referred to of … introduced animals’. as ‘concessions’ (typically, permits, licences and leases). However, ‘less than 25% of There are currently 14 national parks, all managed by the conservation land receives Department of Conservation (DOC). Most of the country’s interventions on key threats, native birds, reptiles, frogs, bats and plants are unique in the with around 8% receiving world, but highly vulnerable to introduced predators and possum, rat and stoat control’ (DOC, 2014a, p.2). Valentina Dinica is a Senior Lecturer in Public Policy in the School of Government, Victoria University of Wellington.

Page 26 – Policy Quarterly – Volume 11, Issue 2 – May 2015 The limited availability of financial Table 1: Budgetary allocations for the Department of Conservation resources is an important obstacle to Allocations per (some) activity, budgeted for implementing the department’s statutory or projected 2013/14 2014/15 biodiversity protection responsibilities. Management of natural heritage including the In the recent past DOC’s budgetary maintenance, restoration and protection of $160.303m allocations have increased slightly every ecosystems, habitats and species $164.936m 37% of the Vote year (Office of the Auditor-General, 2012, Recreational (including tourism-related) pp.14-15). However, Treasury documents facilities and services, and the management $144.993m show that since 2013 there has been a of business concessions $148.564m 34% of the Vote reduction. Table 1 shows the budgetary The protection and conservation management $5.996m allocations for 2013/14 and 2014/15, of historic heritage $5.565m 1% of the Vote and the split between DOC’s main areas of statutory responsibility. The Treasury Working with communities to protect natural $24.346m projections for the years 2015/16–2017/18 and historic resources $25.500m 6% of the Vote indicate that allocations (expressed as Total budgeted $354.877m $338.930m ‘total funding level for planning’) will Source: Treasury, 2014a, pp.2-3 remain almost static in nominal terms.1 sound management of our natural idea seems to have taken the form of a Given that the conservation estate areas produces the life-sustaining quite comprehensive governance reform managed by DOC accounts for a third ecosystem services on which our agenda. The introduction of the term of the country’s area, it is quite clear that lifestyle and prosperity depend. was followed by several changes to the DOC is confronted with a serious financial These are services such as freshwater 1987 Conservation Act and to some sustainability challenge in relation to yield and storage, soil fertility and DOC policies and practices, required by biodiversity conservation, while having a stability, and carbon storage. Tourism the government, to enable easier access wider range of statutory responsibilities is New Zealand’s largest single of businesses to the conservation estate to fulfil, related to ecosystem health, foreign exchange earner, and the (New Zealand Government, 2012, 2013). recreation and tourism infrastructures, destinations for both domestic and In addition, there have been institutional education and advocacy. international visitors are primarily changes, which are still evolving. For The National-led governments since around public conservation lands example, DOC in 2013 went through 2008 and their conservation ministers and waters. The businesses that the most radical restructuring in its have asserted that they are mindful of the support and complement tourism are history. This saw the establishment of importance of biodiversity conservation major contributors to our regional partnerships managers and teams at and ecosystem health (DOC, 2009, p.5). economies and local communities. national and regional level, to refocus Nevertheless, the underlying philosophy, Once we recognise these the department’s priorities towards expressed in government strategies and interdependencies, we can start to public–private collaborations.2 The new policies, is that natural resources can capitalise on them to achieve social, partnership approach aims to increase and should be exploited for increased economic and conservation gains. third-party revenues and to enhance economic prosperity: ‘The Government This gives meaning to the term, ‘the the role of volunteering in biodiversity is helping by encouraging business to use conservation economy’. (DOC, 2009, management (Controller and Auditor- our natural resources more effectively, and p.5) General, 2012; Hardie-Boys, 2010). ensuring they use them responsibly. This Therefore, fundamentally the includes improvements to the resource This text is rather unclear as to the conservation economy is a proposition management systems to enable faster governance arrangements that should by the National-led governments that economic growth while maintaining underpin the conservation economy idea, the expansion of economic activities into strong environmental standards’ (New and the full range of expected outcomes. New Zealand’s conservation estate can Zealand Government, 2013, p.11). In Also unclear is the status of this idea be done in an environmentally friendly relation to this political vision, the term and how it should be referred to. Is it a manner, while addressing the challenges ‘conservation economy’ was formally narrow government programme to be surrounding the financial sustainability introduced by the conservation minister implemented under existing regulations? of biodiversity conservation and the in DOC’s statement of intent for 2009–12 Or is it a political project with significant ecologically sound management of the when he wrote the following: implications for the future governance of estate. This article explains the main the conservation estate? features of the conservation economy In its totality, conservation plays a Section one of this article explains agenda as outlined in key government critical role in validating the ‘clean its connection to broader government documents, presents some findings pure’ brand that is the market strategies. Based on what can be gauged regarding its ongoing implementation advantage on which our producers from government documents published a and implications in terms of governance rely. It is increasingly clear that few years later, the conservation economy changes, and raises some concerns

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 27 Governance of National Parks at the Crossroads: New Zealand’s silent reform regarding the claimed conservation/ guidelines regarding national national parks; representatives of environmental benefits from enhanced park management, and the issue, four conservation boards, regional business access to the conservation estate. monitoring and enforcement of and national user organisations It is argued that, while some governance concessions for business in national (tramping, hunting and fishing changes appear minor and have been parks; organisations), and environmental defended based on efficiency arguments, • a selection of 12 concession contracts and nature non-governmental they may have serious consequences for for tourism in national parks and 12 organisations; representatives of the long-term management of the estate concession applications, to appraise tourism and recreation associations and for the opportunities offered to New the incorporation of biodiversity at national and regional levels, and Zealanders to have a say in it. Given the and environmental objectives/ individual tourism businesses with potential magnitude and implications measures. Concession contracts are concessions in national parks. of this governance reform agenda, it is publicly available only upon request, surprising that so far there have been and the selection was made by the Legal framework features no serious societal debates about the Department of Conservation. Based Currently, the main legal framework for national park management consists of the 1980 National Parks Act, the 1987 ... DOC is confronted with a serious Conservation Act and all legal revisions of these acts. In addition, the 1953 financial sustainability challenge in Wildlife Act is relevant for biodiversity relation to biodiversity conservation, conservation, and some provisions of the Resource Management Act 1991 while having a wider range of statutory are relevant for several environmental sustainability aspects of human impacts responsibilities to fulfil, related to on national parks. Under the 1980 National Parks Act (article 4.1) DOC is ecosystem health, recreation and tourism required to preserve ‘in perpetuity …, for infrastructures, education and advocacy. their intrinsic worth and for the benefit, use, and enjoyment of the public, areas of New Zealand that contain scenery of such distinctive quality, ecological systems, implementation of the conservation on the author’s request, the selection or natural features so beautiful, unique, economy idea, and that media analyses ensured good representation of older or scientifically important that their have remained scarce and narrow in and newer contracts for a diversity preservation is in the national interest’. The scope. of activities and facilities in three hierarchy of objectives for national park The empirical analyses in this article national parks: Mount Aspiring, management by DOC, emerging from focus on national parks, paying special Aoraki/Mount Cook and Westland the legal framework, is clear and, so far, attention to tourism businesses as key Tai Poutini; together with Fiordland, has remained unaltered since the 1980s: concessionaires.3 To support these these national parks form the 1) conserving nature; 2) educating the analyses, a short overview is first offered UNESCO South West New Zealand public; 3) fostering recreation; 4) allowing of the legal framework guiding national Wilderness Heritage Area. Further, for tourism whenever compatible with park governance. ‘Governance’ in this 12 concession applications were nature conservation. article refers to all legal instruments, considered that were publicly notified Under section 6 the 1987 Conservation policies, strategies, management plans, on the DOC website in the period Act the department’s first responsibility is permitting provisions and procedures, July 2013–March 2015 and concerned ‘(a) to manage for conservation purposes, administrative arrangements, public– tourism operations throughout the all land, and all other natural and historic private collaborations/partnerships, conservation estate; resources … (ab) to preserve so far as and societal processes (such as public • publicly available documents is practicable all indigenous freshwater participation in policy processes) and reports regarding DOC’s fisheries, and protect recreational relevant for the particular area(s) of legal responsibilities, budgets, freshwater fisheries and freshwater fish interest (see Meadowcraft et al., 2005 restructuring and performance; and habitats’. While paragraph (a) refers to all and Dinica, 2013, pp.664-5 for more DOC media releases; natural resources, particular emphasis is detailed conceptualisations). In terms of • 42 interviews.4 The response rate given to land and its ecological functions; research methods, the analysis draws on for interview invitations was around water resources seem to require the following sources: 38%. Stakeholders who agreed to protection especially from the standpoint • all relevant conservation and be interviewed included: DOC of ensuring healthy indigenous fisheries environmental laws, policies and staff at head office and in three and recreational fishing. It is important

Page 28 – Policy Quarterly – Volume 11, Issue 2 – May 2015 to note that no reference is made to air available: direct input through (rather p.5). This is a surprising statement, as it quality or climate stability, which can outdated) participatory mechanisms like has nothing in common with the hierarchy affect the quality and productivity of written submissions, public hearings of legally-prescribed objectives for DOC, soils, the quality and availability of water and public meetings; and indirect input particularly with respect to national resources, and the health of many types through conservation boards and the parks. The department incorporated, of terrestrial and aquatic fauna (McGlone New Zealand Conservation Authority, quite faithfully, this political priority and Walker, 2011). From this standpoint, whose members are appointed by the into its work. In the same document it New Zealand’s legal framework on conservation minister from the general stated that, ‘The Department contributes nature protection is dated: it does not public and conservation stakeholders. both directly and indirectly to economic incorporate global policy developments The empirical findings of this study growth, as outlined in the foreword from on climate change and air pollution regarding the design and implementation the Minister of Conservation’ (DOC, mitigation, and lacks a holistic approach of the conservation economy agenda 2009, p.10). to ecosystem health. indicate that it has created significant Since 2009 the National-led Secondly, the department has tensions in national parks governance, governments have designed a Business education and advocacy responsibilities towards the New Zealand public and tourists (sections 6b and 6d); and The hierarchy of objectives for national further, under section 6e of the Act, ‘to the extent that the use of any natural park management by DOC, emerging or historic resource for recreation or from the legal framework, is clear and, tourism is not inconsistent with its conservation, to foster the use of natural so far, has remained unaltered since and historic resources for recreation, and to allow their use for tourism’. the 1980s: 1) conserving nature; Consequently, in the legal hierarchy, recreation is clearly a third responsibility 2) educating the public; 3) fostering for DOC, while support for tourism recreation; 4) allowing for tourism activities and infrastructures comes only fourth, provided that the highest-ranked whenever compatible with nature objective – nature conservation – is not being compromised. conservation. Another important feature of the current legal framework is the hierarchy of planning tools for the management of which risk undermining the following Growth Agenda, which includes a national parks and concessions. De juro, current governance features: programme on Building Natural New Zealand has so far been following • the hierarchy of legally-set objectives Resources. The resources programme is a system whereby concession contracts guiding DOC’s management of led by the ministers of seven ministries or are used as tools for implementing the national parks; departments that are either responsible zoning framework set in national park • the hierarchy and guiding role of for the management of natural resources management plans. Under section 17W management strategies and plans (terrestrial and marine, including water, of the Act, concessions can only be issued that DOC must respect in approving soil and air) or managing economic within the development limits, and concessions for business in national sectors that depend on such resources. under the terms and processes, specified parks; and The group includes the conservation in national park management plans and • the extent and quality of public minister, the environment minister, and higher-order legal/policy tools. In their participation in decision-making the minister responsible for the current turn, national park plans cannot derogate processes, ranging from concessions Tourism Policy Group (the minister for from conservation management plans and to national park plans and strategies. business, innovation and employment). strategies. At the national level, the latter An undated Cabinet paper states that are guided by the 2005 general policy The conservation economy agenda and its the minister of finance and the minister for national parks, which in turn must implications for DOC’s de facto priorities for economic development proposed be consistent with the legal framework In DOC’s 2009–12 statement of intent, ‘to organise the government’s business (Controller and Auditor-General, 2012). the conservation minister wrote that the growth agenda around the following six In terms of public participation document ‘sets out how the Department key inputs and associated policy issues’: in decision-making on concessions of Conservation will contribute to the capital markets, innovation, skilled and national park plans, policies and wellbeing and prosperity of New Zealand- and safe workplaces, infrastructures, strategies, two main mechanisms are ers over the medium term’ (DOC, 2009, export markets, and resources, including

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 29 Governance of National Parks at the Crossroads: New Zealand’s silent reform

‘[p]rimary industries, energy and Government strategies and policies The Conservation Act regulates that resources, land use, water, environment suggest, therefore, a reshuffling of the de whenever concession activities or (including climate change), local facto hierarchy of objectives for DOC, facilities are likely to be high impact and/ government, and conservation’ (Office lifting tourism to the second rank. or be requested for a longer term, the of the Minister for Finance and Office of Parliament’s Local Government and public should be notified and sufficient the Minister for Economic Development, Environment Committee expressed time allowed for responses by means undated, p.5). An the annex to the concerns during the 2010/11 estimates of submissions and public hearings. document summarises a 120-point action hearing for Vote Conservation that ‘the In the pre-2010 version, ‘longer term’ plan which includes: ‘6 month time limit Minister’s priorities, as outlined in the was specified as five years; in the new on consenting medium term projects’; Statement of Intent, were commercially one this has become ten years (revised ‘simplifying planning processes for focussed and inconsistent with the sections 17T[4];[5]). The ten-year term resource management’; and ‘introduce Conservation Act’. This concern was was recommended to DOC in 2006 by offsetting for pre-1990 forest land owners’ shared by a large number of interviewees, the Tourism Industry Association New (p.14). The programme aims to increase particularly environmental and nature Zealand (Tourism Industry Association New Zealand, 2006, pp.20-1). Further, ‘sufficient time’ for public submissions was New Zealand’s legal framework on considered in the past to be 40 working days; in the new system, DOC internal nature protection is dated; it does not procedures allow for only 20 working incorporate global policy developments days (DOC, 2010). It is widely accepted that DOC took a long time to process on climate change and air pollution concession applications, largely due to internal operational processes. In 2010 the mitigation, and lacks a holistic approach department reported that ‘Throughout the organisation there are approximately to ecosystem health. 100 concession applications being processed that have been in the system for over 2 years. Many of these are for low the contribution of all economic sectors NGOs, conservation board members and impact activities’ (DOC, 2010, p.22). This relying on natural resources to 40% of users of national parks. The reshuffling of raises the question: was the shortening national GDP by 2025: this is referred to the legal hierarchy of DOC objectives can of the time allowed for public reaction as ‘greening growth’ or ‘sustained growth also be gauged by looking at the policy by 20 days a necessary legal measure, to from natural resources’ (New Zealand priorities set in 2010–11: the first listed address the problem of processing delays Government, 2012, pp.5-7). is ‘Strengthening DOC’s contribution to by DOC? For the tourism sector, the government tourism: The Destination Management Under the 2010 revision of the aims to ‘Grow the number of new business Framework was developed to help Conservation Act the minister has been opportunities on public conservation increase people’s participation in tourism given discretion on the notification of land in order to deliver increased and outdoor recreation activities in public decisions to grant a permit or licence economic prosperity and conservation conservation areas. It focuses on places for less than ten years, for which the gain’ (New Zealand Government, 2012, that are popular, or have the potential to likely impacts are assessed as high. While p.23, emphasis added). In the 2009–12 be’ (Office of the Clerk of the House of permits may not be for longer than ten statement of intent the conservation Representatives, 2010, p.2). years and are not renewable (section minister wrote: 17Z[2]), leases and licences ‘may be Changes to the 1987 Conservation Act and granted for a term (which shall include I have directed my Department to approaches to public participation all renewals of the lease or licence) not investigate ways in which it can In relation to the new political objectives exceeding 30 years or, where the Minister evolve its approach to tourism. This for DOC, changes to the concessions is satisfied that there are exceptional includes working to streamline the regime have already been implemented by circumstances, for a term not exceeding statutory processes in the granting of means of the 2010 and 2013 amendments 60 years’ (section 17Z[1]). concessions. It is also about planning to the Conservation Act. The amendments Some DOC staff seem to be struggling and developing its recreation were justified by arguments related to with understanding when input from infrastructure in ways and in places DOC’s efficiency in processing concession the conservation boards and the public that are most likely to stimulate allocations, and increased business certainty is required. Two of the four interviewed and support tourism, including by (DOC, 2010, p.7), although many tourism members of conservation boards shifting the focus to more heavily businesses have no sunk investments in mentioned that they seem to receive fewer populated areas. national park/conservation estate lands. concession applications for comment

Page 30 – Policy Quarterly – Volume 11, Issue 2 – May 2015 now compared to the pre-2010 period and Routeburn Walks Ltd was issued a new partnerships staff, appointed since (Respondent A, B). In a recent report on concession to accommodate 40 overnight the 2013 restructuring, are to work ‘with a notified concession application, for a walkers. The report of the ombudsman community groups, iwi, local authorities, five-year permit to take guided walkers stated: private landowners and businesses to across the Tongariro Alpine Crossing, the attract more resources to conservation’ following comments appeared: The decision flew in the face of the (DOC, 2013a). Thus, more is being asked limits set in the newly promulgated of New Zealanders, while less is being The Permissions/SLM Manager Mt Aspiring Plan. There had been offered in terms of participatory rights. provided advice that exceptional a careful and extensive public This happens in a context where circumstances may exist in this consultative process and general international tourists (the predominant situation in regards to publicly endorsement of the provisions of clients of tourism concessionaires) are notifying the application. … the new Plan. As the complainant still referred to by many interviewees The Chief Legal Advisor for the states, the decision to approve the as ‘free-riders’ on the conservation Department has reviewed this increase in overnight guided walker estate’s front country infrastructure application in respect of the numbers makes a ‘mockery’ of the and icon destinations (see definitions planning documents and the need process of public consultation in in DOC, 2011). That infrastructure is for public notification. … The Chief the development of the Plan and funded primarily by taxpayers, while the Legal Advisor has advised that the undermines public participation. backcountry recreation infrastructures application does not meet the test for exceptional circumstances, and that the application should therefore be The culture so far in New Zealand has publicly notified. (DOC, 2015a, p.3) been that if concessionaires avoid, rectify The same report notes that ‘The and mitigate environmental effects, then Tongariro National Park Management Plan states that guiding concessions for all should be fine. the Tongariro Alpine Crossing should be publicly notified’ (ibid.). In December 2014 the Office of the Ombudsman published its report The department was asked to cancel used predominantly by New Zealanders on a complaint from a member of the the concession and to apologise to the remain underfinanced and risk decay Otago Conservation Board regarding conservation board member, and it did so or dismantling (Treasury, 2014b, p.61). the decision of ‘a Department of (DOC, 2015b). The concession fees currently collected Conservation delegate of the Minister The two examples above raise the by DOC from all concession types do of Conservation – to grant a new question of whether the inclination of not represent more than 3–4% of DOC’s concession to Routeburn Walks Ltd, on DOC staff to increase the processing annual budget (based on Treasury, 2014b, terms permitting the concessionaire to speed and number of ‘exceptional p.69). It is unclear how much tourism increase from 24 to 40 the number of circumstance’ concession approvals can concessions contribute to this, but the its overnight guided walkers entering the be explained by problems of professional overall picture is clear: New Zealanders Routeburn Track each day’ (Ombudsman, competence, or by the pressures trickling foot most of the bill for DOC’s expenses. 2014, p.2). The Mount Aspiring National down from the political objectives of the In its 2011–14 statement of intent Park management plan was approved conservation economy agenda. It seems DOC defined as its second medium-term in June 2011 by the New Zealand that the inclination of some permissions priority ‘increasing investment from the Conservation Authority, following a staff to ‘govern by exception’ has not private sector in conservation, with a focus significant participatory process that disappeared with DOC’s public apology on sponsorships and concessions revenue’ included 436 written submissions and in January 2015. (DOC, 2011, p.35). Figure 1 shows the three public hearings. The plan imposed revenue generated by all concessions, ceilings on the total number of overnight How will the conservation economy agenda as well as partnerships, sponsorships walkers on the Routeburn Track and of help solve the problem of sustainably and donations, between 2010 and 2013. independent walkers. The implication funding a holistic environmental These amounts represent extremely low was that no more than 24 people could management of the conservation estate? contributions to DOC’s budgetary needs be accommodated per night through the The department aims to increase the for managing biodiversity conservation monopoly concession held by Routeburn number of New Zealanders volunteering successfully, let alone for a more holistic Walks Ltd. The delegated department for the physical work of biodiversity ecosystem management (see Table 1 for staff decided that despite the ceiling some conservation (also envisaged in the a comparison in terms of budgetary exceptional circumstances would apply, conservation economy agenda). The allocations).

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 31 Governance of National Parks at the Crossroads: New Zealand’s silent reform

Figure 1: Conservation revenue between 2010 and 2013 powerful tool in recognising the market value of forest and water resources, 16 which abound in the conservation

14 estate (Burkharda et al., 2012). However, $14.37 $14.31 $13.91 $13.79 government documents surrounding the 12 $12.65 Business Growth Agenda have so far been

$11.29 $11.23 silent on this. 10 $10.95

8 What does the future hold for the current venue $M Re legal hierarchy of conservation management 6 strategies and national park management plans? 4 If the government aims to address DOC’s financial sustainability through 2 $2.89 $2.71 $2.31 $2.20 more concession allocations, then mass 0 tourism developments in national parks 2010 2011 2012 2013 Financial Year are inevitable, at least in the national Concessions, Leases & Licences Recreational charges parks used intensively by international Retail Sales Partnerships/Sponsorships/Donations tourists. Such a scenario would necessitate

Source: Treasury, 2014a, p.60 a different, more permissive planning framework in terms of conservation Many other economic policy are then borne by taxpayers, through strategies and plans. There are signs that instruments have been proposed by New expenditure of public money, or this shift is already happening through Zealand academics and stakeholders other users, through degradation of parallel processes of: a) the watering (Haque, 2006), but these have so far the conservation experience. Those down of the guiding role of the current received no serious political support. who do not go to the parks pay for national park management plans, and b) A former conservation minister and those who do. And many of the regulatory change proposals and DOC influential member of the post-2009 payers are much worse off financially restructuring to reduce the number of National-led government, Nick Smith, has than many of the non-paying users decision-making points and the available often dismissed the option of introducing – surveys have consistently shown planning documents. national park entry fees, arguing that this that visitors are predominantly from The concession approval which would be illogical given that we do not pay above-average income groups. As is contradicted the Mount Aspiring entry fees to city parks (Kerr, 1998, p.7). so often the case with government National Park plan is just one example. The argument often made (also by many interventions, the implicit income The conservation economy agenda seems tourism businesses interviewed for this transfers are from poor to rich. (Kerr, to have led to a shift in the balance of research project and several conservation 1998, p.7) power between DOC and the tourism board members) is that New Zealanders industry. This shift has also been seen have a birthright to access their nature Another potentially useful financial in other parks, especially Fiordland and areas free of charge. It is not clear how instrument would be that based on the surrounding estate, where two major this relates to the current legal framework, the concept of payment for ecosystem infrastructural tourism projects were and interviews with DOC staff revealed services, in which DOC has been proposed to the conservation minister that there is no common understanding interested for some time. The essence of in 2011–12: a monorail-based project to about whether national park entry fees this concept is that ecosystems provide link Queenstown to Milford Sound (by are feasible under the current laws. benefits – such as purifying waters and boat, monorail and bus); and a road with Nevertheless, in many countries air, ensuring soil productivity and crop tunnel through the park’s backcountry national park fees have been imposed. pollination, and as settings for nature- mountains linking the same areas. Both Often this has been done on a tier system, based tourism – that have quantifiable proposals received positive evaluations with higher fees for international visitors, economic value to identifiable businesses based on internal DOC assessments, and and sometimes offering exemptions to and communities. If these benefits are were open to public submissions following national citizens and residents (Eagels et measured, benefiting businesses can be notification of the intention to grant the al., 2002). Roger Kerr, former executive asked to pay for the ecological services concession. While eventually both were director of the New Zealand Business received. The instrument has already been declined (the former in an election year), Roundtable, argued that: applied successfully overseas (especially they attracted major public interest, seen in developing countries) to help finance in the hundreds of public submissions Free entry is a subsidy. The real biodiversity conservation (Tallis et (mostly in opposition).5 If approved, these resource costs of using national parks al., 2009). So far it has proven to be a projects would have triggered a change in

Page 32 – Policy Quarterly – Volume 11, Issue 2 – May 2015 the Fiordland National Park management governance changes is to increase Association New Zealand was not aware, plan (based on sections 17W[3] and [4] conservation gains from more business by October 2014, of any initiatives that of the 1987 Conservation Act). on the conservation estate. How will would aim to achieve ‘conservation gains’ A DOC media release in September the loss of expertise associated with 140 from tourism concessionaires through 2014 stated that ‘New conservation full-time equivalent positions increase concession contracts or formal public– management strategies (CMSs) for the conservation gains? How is the current private partnerships. Interviewees from Department of Conservation’s Northland legal framework an obstacle towards DOC’s head office also could not point and Waikato regions come into effect achieving biodiversity objectives? A towards any specific implementation today … [These] strategies will guide close inspection of the Conservation plans, suggesting that it is too early for DOC’s work on many levels and Act, in the following section, reveals that that (Respondent C, D, 2013). Reference simplify decision-making on concession important legal tools are available to was made to a DOC webpage listing some applications and operational work the conservation minster to achieve just sponsoring/volunteering businesses, priorities’ (DOC, 2014b). This message that, or even more: to implement wider few of which, however, are tourism suggests that the conservation economy environmental sustainability measures concessionaires. agenda has already started to trickle down through concession contracts. The Building Natural Resources to conservation management strategy programme claimed that allowing more level. It is unclear why such interventions Where are the ‘conservation gains’ from the tourism businesses on the conservation are needed, since the same arguments conservation economy agenda? estate will bring about benefits through were used to justify the 2010 and 2013 While the government has made business involvement in environmental amendments to the Conservation Act. As considerable progress in opening up the protection, biodiversity conservation, these are guidance documents for national conservation estate to businesses through and even the maintenance of tracks park management plans, one should not be surprised to see attempts to include more permissive concession limits and If a government cannot ask companies approval processes when national park carrying out business in national parks plans are up for review (or earlier).6 Following the 2013 radical – a country’s most precious lands – to restructuring of DOC, the number of concession allocation services has use the best available environmental been reduced to four,7 increasing the practices, technologies and renewable distance between monitoring rangers and decision-making. In a 2013 media release resources, and to be proactive on DOC stated, regarding its restructuring: ‘the proposed structure involves: the biodiversity management, then who can removal of DOC’s existing 11 regional conservancy boundaries and replacing it ask to do this? them with six new regions; … the creation of a Conservation Partnerships Group; the disestablishment of 118 regional the governance changes highlighted above, and other facilities (Treasury, 2014b, management and administration roles; the there are no concrete statements from pp.12-13; New Zealand Government, disestablishment of 22 asset management, government members or DOC officials, 2012). Such developments would have planning and inspection positions’ (DOC, and no policy developments or legal been appreciated by the New Zealand 2013b). In addition, as mentioned earlier, initiatives, setting out the latter part of public. From an in-depth examination the 2013 Conservation Board Review led the equation: conservation gains, or wider of 12 ongoing concession contracts and by the current associate minister, Nicky environmental gains, from more tourism 12 notified concession applications, a Wagner, has already proposed lowering concessions in national parks. How is number of key observations emerge the number of conservation management this going to work, in terms of policy with respect to the environmental and strategies to three. and legal tools? What are the quantifiable biodiversity management aspects of One may wonder why it is necessary targets? The only detectable approach tourism concessions. to dismantle the existing legal framework so far is to rely on voluntary initiatives DOC’s requirements in contracts are regarding the conservation strategies, for biodiversity conservation, which typically formulated in terms of ‘don’ts’ national park management plans, primarily concentrate on saving icon rather than ‘do’s’: the concessionaire conservation board membership, and species like the kiwi and tuatara, which should not break any applicable law, accountabilities and public participation, have higher impacts for the marketing strategy or management plan; should and why it is helpful to lay off so many of sponsoring businesses. The appointed not light fires, ‘cut down or damage employees, if the genuine aim of the interviewee for the Tourism Industry any vegetation; or damage any natural

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 33 Governance of National Parks at the Crossroads: New Zealand’s silent reform feature or historic resource on the Land’ effects, then all should be fine. Some here, but its use indicates the respondent’s (DOC, undated, p.12); not dispose of argue that not even this much is done frustration with the situation. The main toilet wastes near water, etc. The ‘do’ properly (Parliamentary Commissioner point raised is, however, a serious one: if requirements are of the type to be for the Environment, 1997; Johnson and the department feels under pressure to expected in any commercial contract: Lloyd, 2000, 2002). However, as the Youth negotiate lower concession fees (as other do deal with rodents and pest insects; Parliament has argued: interviewees believe as well), and the do ‘keep all structures, facilities and voluntary projects are not sufficient for land alterations and their surroundings Businesses could do more than just the work that needs to be done, how can in a clean and tidy condition’; do ‘make rectify damage caused by their own the current arrangements help address adequate provision for suitable sanitary commercial activities. As well as DOC’s financial sustainability problem facilities for the Land if directed by the protecting the conservation estate, around biodiversity conservation? In Grantor and for the disposal of all refuse they could enhance it … In terms its 2014 review of progress with the material’ (ibid., p.12). of behavioural change, it is more Building Natural Resources programme How is the government going to desirable to have businesses commit the government acknowledged that so far achieve ‘greening growth’ or ‘sustained to carrying out conservation action the conservation benefits are scarce: growth from natural resources’ with themselves, rather than just giving such provisions? How is the conservation funding to DOC to do it on their The picture for biodiversity is minister going to achieve ‘conservation behalf, as this is likely to result in a less positive, with numbers of all gain’ with more tourism concessions more meaningful commitment to measured native species considerably (New Zealand Government, 2012, p.23; environmental values by the business, below their pre-human level. There is Treasury, 2014b, p.3)? Section 17 ZG(2) its staff, and its customers. (Youth a mixed picture in recent times, with of the 1987 Conservation Act gives him Parliament, 2013, p.5) some species stabilising and other or her good tools: the minister may continuing to fall. We will continue ‘include in any concession provisions for If a government cannot ask companies to work in partnership with local the concessionaire to carry on activities carrying out business in national parks – councils, businesses and other key relating to the management of any a country’s most precious lands – to use groups to help protect our native conservation area on behalf of the Minister the best available environmental practices, species. (New Zealand Government or at any time enter into any agreement technologies and renewable resources, 2014, p.83) providing for the concessionaire to and to be proactive on biodiversity carry out such activities’. However, management, then who can it ask to do evidence of that is hard to detect. There this? Concluding reflections is not much evidence of meaningful A suitable requirement is found in If more evidence is available on the environmental requirements included in the standard concession contract model conservation and environmental gains of concessions, of the type recommended uploaded at DOC’s website for guiding the conservation economy agenda (more in international guidelines, such as permits, requiring businesses and their than I have been able to gather following actions to be undertaken regularly to clients to adhere to the international two years of intensive research and achieve specific biodiversity conservation ‘leave no trace’ principles at all times interviews), it would be helpful for DOC, outcomes; or the use of renewable energy (see www.leavenotrace.org.nz). A the government and concessionaires to and fuels (at least for some minimum requirement is also included to provide share it with New Zealanders. Whether levels in the business); or requirements environmental and cultural interpretation nature/environmentally-oriented or for the use of the most environmentally to clients. The government seems to be infrastructure maintenance-oriented, friendly methods of waste management, expecting environmental initiatives and concessionaire investments in the wastewater treatment and transportation biodiversity gains to come in the form conservation estate are likely to be highly (Eagles et al., 2009, pp.48-60). Interviews of donations and voluntary measures by valued by the New Zealand public. with concessionaires indicated that concessionaires. However, government Similarly, it would be desirable for DOC interest in environmental measures departments cannot plan work based and concessionaires to develop and apply was not low, but many concessionaires on the expectation of donations. One proper public relations strategies, to said they are unlikely to implement Conservation Board member raised the improve both the frequency and quality them unless required to because their issue of tourism concessionaires trying of communication with members of priority was making a living, and the to negotiate lower concession fees in the public, organised groups and other market in national parks is already too exchange for some voluntary biodiversity stakeholders. competitive to afford voluntary measures measures, arguing that ‘in other countries Political decision-makers could also (Respondents E, F). this would be seen as corruption; in New follow the example of genuine global The culture so far in New Zealand Zealand this is seen as good business leaders in greening commercial activities has been that if concessionaires avoid, sense’ (Respondent A). The term in national parks. For examaple, in rectify and mitigate environmental corruption is perhaps not appropriate the United States in 2011 the National

Page 34 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Park Service, which manages the support for Yellowstone’s continued 6 Currently, concession limits are sometimes used to place ceilings on the number of concessions issued and the overall world’s first national park, Yellowstone, leadership in Environmental number of tourists allowed to access an area (viewed as sensitive, vulnerable or under stress). To enable large-scale initiated in collaboration with tourism Stewardship. (National Park Service, tourism and to accommodate massive infrastructural tourism concessionaires its first strategic plan for undated) projects of the type that have been proposed in Fiordland may require the abandonment of the current system of sustainability. In 2012 the Yellowstone concessions management, or even of the Recreation Opportunity Spectrum planning approach underpinning it. Environmental Coordinating Committee New Zealanders have shown global 7 See http://www.doc.govt.nz/get-involved/apply-for-permits/ published its first annual report, outlining leadership in the past, when they were contacts/). achievements and plans for: leadership, among the first to join the national park energy and reducing greenhouse gases, designation movement. It is not too late Stakeholders interviewed between October communication and education, waste for New Zealand to show, yet again, that 2013 and February 2015: reduction, reducing water and material it can lead the world by managing its • Respondent A, member of consumption, transportation and fuel national parks on the basis of genuine Conservation Board National Park 1 efficiency, environmental purchasing, strong sustainability principles. • Respondent B, member of and the environmental and social Conservation Board National Park 2 performances of tourism concessionaires 1 For 2015/16 the allocation to DOC’s budget is $337.429; that for 2016/17 is $337.960; and that for 2017/18 is • Respondent C, DOC staff and their awards and eco-labels (National $339.064 (Treasury, 2014b, p.45). 2 The top regional position of conservator has been interviewed at the Wellington office Park Service, 2012). The National Park disestablished and replaced by that of partnerships manager. • Respondent D, DOC staff Service explains: 3 Examples of activities for which tourism concessions can be issued are: hiking/walking, boating, kayaking, motorised interviewed at the Wellington office sightseeing or thrill-seeking from air or land, climbing, fauna/ flora appreciation, skiing, caving, fishing and hunting. Some • Respondent E, concessionaire with Recent executive orders and acts activities are not allowed in New Zealand national parks, helicopter-based activities National require the Federal Government to such as jet-skiing. Examples of facilities/infrastructures requiring concessions are: roads, tracks, bridges, huts, Park 1 protect resources through sustainable camping and picnic sites, signage, toilets and shelters. 4 These were carried out in accordance with the terms and • Respondent F, concessionaire with operations and facility adaptation. conditions set down by the Human Ethics Committee of accommodation-based activities The National Park Service Green Victoria University. 5 See http://www.doc.govt.nz/get-involved/have-your-say/ National Park 3 Parks Plan provides further direction all-consultations/2012/dart-passage-tunnel-milford-dart-ltd/ and http://www.doc.govt.nz/get-involved/have-your-say/ for environmental stewardship, and all-consultations/2012/fiordland-link-experience-monorail- has led to a firm commitment and riverstone-holdings-ltd/#report.

References Burkharda, B., R. de Groot, R. Costanzac, R. Seppelt, S.E. Jørgensen DOC (2013b) ‘The Department of Conservation’s strategic direction’, and M. Potschin (2012) ‘Solutions for sustaining natural capital and accessed 31 March 2015 at http://www.doc.govt.nz/about-us/our- ecosystem services’, Ecological Indicators, 21, pp.1-6 policies-and-plans/strategic-direction Conservation Boards Review Panel (2013) Conservation Boards Review: DOC (2013c) ‘Proposed new structure for DOC’, media release, 26 final report of the Conservation Boards Review Panel, November 2013, March, http://www.doc.govt.nz/about-doc/news/speeches-and-opinion- Wellington: Department of Conservation pieces/ proposed-new-structure-for-doc/, accessed on 30 March 2015 Controller and Auditor-General (2012) Department of Conservation: DOC (2014a) Briefing to the Incoming Minister of Conservation, prioritising and partnering to manage biodiversity, Wellington: Office of Wellington: Department of Conservation the Auditor-General DOC (2014b) ‘New DOC guidelines for Northland and Waikato’, media Dinica, V. (2013) ‘International sustainability agreements: are they release, 29 September 2014, http://www.doc.govt.nz/about-doc/news/ politically influential for tourism governance innovations?’, Tourism media-releases/2014/new-doc-guidelines-for-northland-and-waikato/, Analysis: an interdisciplinary journal, 18 (6), pp.663-76 accessed 31 March 2015 DOC (2009) Statement of Intent 2009–2012, Wellington: Department DOC (2015a) ‘Notified concession report to decision maker’, permission of Conservation, accessed 30 March 2015 at http://www.doc.govt. record number: nz/Documents/about-doc/role/policies-and-plans/statement-of-intent/ 39271-GUI, file: PAC-05-06-172, Wellington: Department of statement-of-intent-%282009-2012%29.pdf Conservation DOC (2010) Concessions Reviewing Report, Wellington: Department of DOC (2015b) ‘DOC to develop new guidelines’, 21 July, accessed 28 Conservation, accessed 30 March 2015 at http://www.doc.govt. January 2015 at http://www.doc.govt.nz/news/media-releases/2015/ nz/Documents/about-doc/concessions-and-permits/concessions/ doc-to-develop-new-guidelines/ concessions-processing-review-report.pdf DOC (undated) ‘Concessions contract: lease and licence agreement’, DOC (2011) ‘Destination Management Framework: a new approach to accessed 5 June 2014 at http://www.doc.govt.nz managing destinations’, Wellington: Department of Conservation Eagles, P.F.J., C.M. Baycetich, X. Chen, L. Dong, E. Halpenny, P.B. Kwan, DOC (2013a) ‘DOC proposes changes to increase conservation’, media J. Lenuzzi, X. Wang, H. Xiao and Y. Zhang (2009) Guidelines for release, 26 March, accessed 30 March 2015 at http://www.doc.govt. Planning and Management of Concessions, Licenses and Permits nz/about-doc/news/speeches-and-opinion-pieces/why-doc-is-changing/ for Tourism in Protected Areas, Cambridge, Ontario: University of Waterloo, accessed 2 June 2014 at http://www.areasprotegidas.net/

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 35 Eagles, P.F.J., S.F. McCool and C.D Haynes (2002) Sustainable Tourism Ombudsman (2014) Decision under Ombudsman Act on Department in Protected Areas: guidelines for planning and management, Gland, of Conservation – Routeburn Track Concession, reference letter: Switzerland: World Commission on Protected Areas, accessed June 361523, 19 December 2014, Wellington: Office of the Ombudsman 2014 at http://cmsdata.iucn.org/downloads/pag_008.pdf Parliamentary Commissioner for the Environment (1997) Management of Haque, T. (2006) Funding Recreational Opportunity Provision on the the Environmental Effects Associated with Tourism in New Zealand: New Zealand Conservation Estate, policy perspectives paper 06/07, summary of submissions, Wellington: Parliamentary Commissioner for Wellington: Treasury, accessed 31 March 2014 at http://www. the Environment treasury.govt.nz/publications/research-policy/ppp/2006/06-07/ National Park Service (2012) The Greenstone Sustainability Report 2012 Hardie-Boys, N. (2010) Valuing Community Group Contributions to Yellowstone National Park, accessed 31 March 2015 at http://www. Conservation, science for conservation report 299, Wellington: nps.gov/yell/learn/management/upload/2012-Greenstone-drafted-May- Department of Conservation 2013-small.pdf Johnson, S. and K. Lloyd (2000) ‘Commercial concessions on National Park Service (undated) ‘Commitment to sustainability’, http:// conservation land’, in K. Lloyd (ed.), Managing New Zealand’s Wild www.nps.gov/yell/parkmgmt/sustainability-commitment.htm Lands, proceedings of the FMC Wild Lands Conference, Rotoiti Lodge, New Zealand Government (2012) Building Natural Resources, Business 14–15 October, accessed 2 June 2014 at http://users.actrix.co.nz/ Growth Agenda progress report 2012, Wellington: New Zealand simonjohnson/fmcwlc16.htm Government Johnson, S. and K. Lloyd (2002) ‘Environmental assessment of New Zealand Government (2013) The Business Growth Agenda Progress concessions for tourism and commercial activities under Conservation Report 2013, Wellington: New Zealand Government Act 1987’, Butterworths Resource Management Bulletin, 9, New Zealand Government (2014) The Business Growth Agenda: future pp.100-5, accessed 2 June 2014 at http://users.actrix.co.nz/ directions 2014, Wellington: New Zealand Government simonjohnson/brmb1.htm Tallis, H., R. Goldman, M. Uhl and B. Brosi (2009) ‘Integrating Kerr, R. (1998) ‘Market mechanisms and conservation’, paper presented conservation and development in the field: implementing ecosystem at the Conference on Environmental Justice and Market Mechanisms, service projects’, Frontiers in Ecology and Environment, 7 (1), pp.12- Faculty of Law, University of Auckland 20 Local Government and Environment Committee (2010) ‘2009/10 Tourism Industry Association New Zealand (2006) ‘Concession allocation financial review of the Department of Conservation’, Wellington by the Department of Conservation where supply is limited: McGlone, M. and S. Walker (2011) Potential Effects of Climate Change submission’, accessed 1 July 2007 at www.tianz.org.nz on New Zealand’s Terrestrial Biodiversity and Policy Recommendations Treasury (2014a) ‘The Estimates of Appropriations 2014: Environment for Mitigation, Adaptation and Research, science for conservation sector. Vote Conservation B5, vol 3, accessed 24 August 2014 at report 312, Wellington: Department of Conservation http://www.treasury.govt.nz/budget/2014/estimates/v3/est14-v3- Meadowcroft, J., K.N. Farrell and J. Spangenberg (2005) ‘Developing conser.pdf a framework for sustainability governance in the European Union’, Treasury (2014b) ‘Budget 2014 information release document: International Journal of Sustainable Development, 8 (1/2), pp.3-11 Department of Conservation, July 2014’, accessed 23 August Office of the Auditor General (2012) ‘Financial review briefing to the 2014 at http://www.treasury.govt.nz/downloads/pdfs/b14-info/b14- Local Government and Environment Committee 2010/11 financial 2810032.pdf year’, Wellington: Office of the Auditor General Youth Parliament (2013) Submission to Local Government and Office of the Clerk of the House of Representatives (2010) ‘2009/10 Environment Committee inquiry into whether government should financial review of the Department of Conservation: organisation restrict or permit private business profiting from conservation briefing paper’, Wellington activities, accessed 2 June 2014 at http://www.myd.govt.nz/ Office of the Minister for Finance and Office of the Minister for Economic documents/youth-parliament-/local-government-and-environment- Development (undated) ‘The government’s business growth agenda’, committee-background-paper.pdf accessed 31 March 2015 at http://www.mbie.govt.nz/pdf-library/ what-we-do/business-growth-agenda/

Page 36 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Tim Hughes

Predictive Analytics for Policy and Practice reflections from the criminal justice system The current government is seeking to take the logic of an • carefully consider the optimal degree of targeting for any given service; investment approach to welfare and apply it to other areas • minimise any unintended side effects of expenditure. Like most sectors, the justice sector has a of acting on the basis of predictions; • consider predictive analytics in the programme of work underway to improve its ability to make context of a wider information strategy; good investment decisions; in a justice sector context this • consider prediction in the context of primarily means applying resources where they can best a wider practice framework. While the examples are drawn from reduce the long-term social and economic costs of crime. criminal justice, the lessons are quite general and may help with the broader Good investment decisions are more some practical suggestions for how the move towards greater use of predictive likely made when decision-makers are promise of better predictive analytics analytics in government. For example, provided with quality data analytics. In can be pursued across government while they may be useful to analysts who are particular, there is growing interest in the also minimising the risks. I make six looking to exploit the opportunities use of administrative data to predict which suggestions: provided by the Integrated Data individuals, families and communities are • be specific when communicating Infrastructure at Statistics New Zealand, at high risk of ongoing dysfunction, to predictive statements to decision- or those identified by the New Zealand help the targeting of resources to areas of makers; Data Futures Forum. greatest need. In this article I use examples • consider prediction and response There is little doubt better use of data from the criminal justice system to offer together; with predictive analytics will support the development of better evidence-informed Tim Hughes studied economics at the University of Auckland and has worked in policy roles at the policy and practice, but there are also Department of Corrections and the Ministry of Social Development. He is currently working in the sector investment team at the Ministry of Justice. The views in this article are those of the author and several risks with this approach. Some of do not necessarily reflect those of the Ministry of Justice. these are familiar, such as risks to privacy.

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 37 Predictive Analytics for Policy and Practice: reflections from the criminal justice system

Table 1 is rather the product of a complex and No conduct problems Severe conduct problems stochastic interplay of personal, situational at age 7–9 at age 7–9 and other contextual factors, such as peer Not arrested or convicted between relationships. A recent systematic review ages 18 and 30 453 (89%) 47 (48%) of empirical tests of theory in crime and justice found that few studies managed Arrested or convicted between to explain more than a small proportion ages 18 and 30 55 (11%) 49 (52%) of the variance in crime (Weisburd and Total 508 (100%) 96 (100%) Piquero, 2008). And, unfortunately, it is often the case that the outcomes we would Others are less often discussed, such as convicted between the ages of 18 and most like to predict are those that are the simultaneity between prediction and 30, more had no conduct problems as hardest to predict accurately. For example, response. In this article I elaborate some children (55) than had severe conduct rare crimes such as murder and rape cause of these less familiar risks and suggest problems (49). This implies that targeting more harm than common offences such as how to mitigate them. children with severe conduct problems car theft, but the very rarity of these most has the potential to address at most half serious crimes makes them much harder Suggestion one: be specific when of crime in adulthood. to predict. Predictability depends crucially communicating predictive statements to Further, nearly half of children with on base rates, with low base-rate events decision-makers severe conduct problems did not offend being intrinsically difficult to predict Some predictions are more accurate than at all as adults. And note that ‘any (Gottfredson and Moriarty, 2006). others. This is intuitively obvious when arrest or conviction’ is a very low bar In a low base-rate context, even a we consider the accuracy of the weather for describing someone as an offender; statistical tool that improves substantially forecast one, five or ten days into the future, many of the arrests would likely have on the base rate can still have limited and the difference between predicting high been one-offs, for petty offences. These practical value. For example, a new winds in general over a large area over an subtleties may be lost if non-technical tool was recently developed to support afternoon versus predicting a specific wind readers look at the phrase ‘significant parole officers in Pennsylvania (Berk et speed at a specific location at a specific association between conduct problems al., 2009). The tool predicts the risk of time. Predictions relevant to policy and and later crime’ but are not also provided murder for parolees. 1% of parolees in practice can differ in their accuracy just with information about the strength of Pennsylvania are charged with murder as much as predictions about the weather, that association. This is not a criticism within two years of release. The tool is but this subtlety can sometimes be of the Jakobsen et al. research; merely an able to improve upon this base rate of unintentionally lost in communication to example to illustrate how communication 1%, but among those classified ‘high policy makers and practitioners. between researchers and decision-makers risk’, only 7% were actually charged with For example, consider the familiar can be challenging in the area of risk murder – a false positive rate of 93%. observation that adult offending has its prediction. And more murder charges (185) were roots in childhood disadvantage. This A key challenge for communication is laid against people in the ‘low risk’ group link has been explored using data from to express predictions as fundamentally than in the ‘high risk’ group (137). In the Christchurch Health and Disability probabilistic and uncertain. In the this case, communicating that someone Study, a study of 1,265 people born in example of the children exposed to risk is of ‘high risk’ of committing murder Christchurch in 1977. Using data which factors during childhood, whether or not may be misleading, if it leads someone to tracks these individuals to the age of those risk factors go on to be manifested inaccurately believe that that individual is 30, Jakobsen, Fergusson and Hallwood as offending later in life depends on a 30%, 50% or even more likely to commit (2012) report that there are ‘significant host of contingencies, such as the child’s murder. associations between early conduct degree of success in education, the peers While prediction is particularly problems and later crime’. Table 1 above they associate with during adolescence, difficult in low base-rate situations, it is summarises the data supporting this whether they develop a substance abuse also true that general offending cannot result. problem, whether they succeed in finding be predicted beyond a certain level of It is clear from this table that a much a job, what community they end up living accuracy. As summarised in a recent higher proportion of children with severe in, and so forth (Farrington and Welsh, meta-analysis of risk analysis tools in conduct problems (52%) went on to 2005; Pratt and Cullen, 2000). criminal justice, ‘the view that violence, offend as adults compared to children This is a general problem in criminal sexual or criminal risk can be predicted with no conduct problems (11%). This justice. Prediction is always imperfect, in most cases is not evidence based … is the ‘significant association’ reported because the causes of crime are too risk assessment tools in their current by the researcher. However, this link complex to be fully specified in a form can only be used to roughly classify is far from determinative. It is striking statistical model. Crime does not flow individuals at the group level, and not to that among those who were arrested or deterministically from criminal traits, but safely determine criminal prognosis in an

Page 38 – Policy Quarterly – Volume 11, Issue 2 – May 2015 individual case’ (Fazell et al., 2012, p.5). that by addressing conduct problems, operate in a closed system. Crime leads It is this intermediate level of knowledge later offending will also be reduced. In to responses by government agencies that can pose the most difficulty for fact, the limited evidence we have to date that can themselves affect crime, for both decision-makers. Often we are in the on this topic suggests that while early good and bad. Where these responses are uncomfortable position of knowing intervention can reduce later offending on taken on the basis of actuarial predictions, something more than nothing, but much average, it does so by a relatively modest these reactions can in turn change the less than everything; knowing precisely amount. The meta-analysis undertaken pattern of crime, thus undermining the where on the spectrum of uncertainty by Dekovic et al. (2011) found an average accuracy of the prediction tool that led to we lie in any given predictive context is effect size of intervention before age 12 on the response. essential to making good evidence-based offending after age 18 of 1.26, expressed There are two different problems decisions. as an odds ratio. This means that early these reactions can cause: one where intervention with a group of children interventions reduce risk; and the other Suggestion two: consider prediction and among whom 20% would have offended where interventions intentionally or response together as adults can reduce the proportion who inadvertently increase risk. In most cases, One of the key intuitive promises with actually offend to 17%. This is a real interventions are designed to reduce predictive analytics is that with a better reduction, but is smaller than that which risk. For example, the risk profile of the understanding of where adverse outcomes can be achieved by interventions later prisoners released from prison each year are concentrated, government will better in the life course, such as alcohol and is lower than it would be if it were not for be able to target support where it is most drug treatment (Mitchell, Wilson and the delivery of services such as alcohol needed. But it is not always the case that those we identify as being most likely to experience adverse circumstances are The most useful risk prediction is those on whom effort is best concentrated. unlikely to be about merely sorting the While predictive analytics are useful for this kind of decision, they are arguably good from the bad apples, but rather less important than assessments of what Harcourt (2007), adopting the about understanding complex patterns language of economics, calls elasticity, of continuity and change, turning points, and what correctional psychologists call responsivity: that is, sensitivity to and appropriate interventions. intervention. For example, psychopathy is an important risk factor for reoffending, but there is evidence to suggest that Mackenzie, 2012). and drug treatment, which have good rehabilitation programmes are often less Considering prediction and response evidence to show that they reduce the effective for psychopaths (Tew, Harkins together also helps us to reconceptualise likelihood of reoffending (Department and Dixon, 2013). If we focus only on the risk prediction in a more productive of Corrections, 2013; Mitchell, Wilson risk, and not on the amenability to change way. The most useful risk prediction is and Mackenzie, 2012). In these cases, the of someone with a high psychopathy unlikely to be about merely sorting the problem is that it becomes more difficult rating, we might offer the individual a good from the bad apples, but rather to differentiate between prisoners on the rehabilitation programme to no effect, about understanding complex patterns basis of observed reoffending. whereas a somewhat lower-risk individual of continuity and change, turning So, in some cases, poor predictive might have gained from treatment. Public points, and appropriate interventions. accuracy may be evidence of an effective safety, in other words, might have been For example, we would value a tool that system. For example, the perfect parole better served by targeting support to the specified the best time for a given type system would be one that had a fixed lower-risk individual. of intervention, given previous history threshold of ‘acceptable risk’, and Ultimately, the effectiveness of of intervention, recent changes in family released everyone as soon as they reached intervention with a given group is a situation, etc, or to help guide decisions that threshold and not before. In this separate empirical question that predictive about sequencing of interventions. These situation, everyone released on parole analytics is often not well suited to answer. are fundamentally different predictive would pose exactly the same amount of To continue the example of childhood questions to those posed by an exercise risk, so would be indistinguishable by conduct problems from above, even to merely identify the most prolific and statistical analysis. In this sense, Bushway though there is a correlation between serious offenders. and Smith (2007) argue that an inability childhood conduct problems and later Another important reason to consider to discriminate between risk levels can be offending, it does not immediately follow prediction and response together is that a measure of successful performance, as it (even though it is intuitively reasonable) social processes, including crime, do not

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 39 Predictive Analytics for Policy and Practice: reflections from the criminal justice system indicates that all available information is of the ratchet effect is that it is largely particular types of offending, and so on. being used efficiently. invisible. With a well-calibrated tool, This suggests that it is not safe The perhaps more troubling case those identified as high risk will indeed to assume that more highly targeted is where the response to risk causes offend at a higher rate, thus providing services will always be more effective, if it that risk to increase. There are several clear justification for the tool. But is not in fact possible to target intensive examples of this in the justice system. because of the simultaneity between risk services with sufficient accuracy. The For example, there is some evidence assessment and intervention, it is very more highly targeted an intervention, the that placing prisoners in high-security difficult to separate out the ‘baseline’ or more likely it is to capture only a portion facilities can increase their likelihood ‘natural’ risk of the individual from the of those people, areas and so forth that of committing misconducts (Chen ‘state-generated’ risk that results from will ultimately be involved in crime. The and Shapiro, 2007; Jonson, 2010). It is responses to that risk. appropriate mix between more and less necessary to place certain individuals in More generally, the final reason to targeted interventions is ultimately an high-security conditions to help manage think about prediction and response empirical question which needs to be the consequences of misconduct, such as together is that in a small country our determined on a case-by-case basis, taking by making it more difficult for prisoners analytical resource is precious. Predictive account of the number of false positives to access or manufacture weapons. But analytics on their own do not lead to and false negatives, the cost-per-target of when these more stringent conditions better outcomes. In my view, questions the intervention, and the total number of lead to an increase in the likelihood of of what approaches are most effective people being targeted. We have already assault, then when officials next come to should generally take primacy. I see the seen with the early intervention example that very early intervention can suffer from the limitation of a high number of ... police interventions focused on high- false positives. crime offenders tend to be less effective To take another example, we know that police interventions are more effective than interventions focused on high-crime where they are highly targeted, but also that police interventions focused on high- places, perhaps because place-based crime offenders tend to be less effective prediction is more stable over time than than interventions focused on high-crime places, perhaps because place-based offender-based prediction prediction is more stable over time than offender-based prediction (Lum, Koper and Telep, 2011). For example, where alcohol-related violence is a problem calibrate the security classification system main value of predictive analytics being in an entertainment district, managing they will find that the level of risk among as a tool to help consider how to take serving practices in the local bars may those in higher security has increased. In approaches that have been evaluated as well be more effective than trying to other words, the characteristics of those effective and to make them more effective, directly manage the offenders whose risk prisoners will thus be reinforced in the through improving our ability to target becomes elevated when they drink in classification system. This then makes those services to those who benefit most town, but who otherwise will often not others with those characteristics more from them. pose a major risk. Further, evidence on likely to be placed in high security, which school-based crime prevention suggests then elevates their risk, and so those Suggestion three: carefully consider the that the most effective approach is for characteristics get an even higher loading optimal degree of targeting for any given coordinated behavioural management at the next recalibration, and so on. By this service across the whole school; in the absence stage the prediction tool may accurately Predictive analytics naturally lend of this environmental change, targeted reflect actual problem behaviour, but themselves to the targeting of support. But approaches for high-risk students appear may also, to the extent that the problem more specific predictions are often less to be mostly ineffective (Gottfredson, behaviour is caused by placement in accurate. For example, it is easier to predict Wilson and Nejaka, 2002). high-security conditions, be predicting that Japan will have a certain number of These examples also show how that people with those characteristics will big earthquakes over the next 100 years targeting based on predictive analytics be placed in high security. than to predict that a 7.2 magnitude alone can lead to a policy response that This circularity is described by earthquake will strike tomorrow at 7am appears sensible but is less effective Harcourt (2007) as a ‘ratchet effect’, three kilometres west of Kobe. Similarly, than an alternative – focusing on high- where initial small differences in risk are predictions about crime tend to be less risk individuals instead of places, in the inflated over time by the way the state accurate the more they move from groups policing context, or instead of the school responds to those risks. The quiet danger to individuals, from general offending to environment in the schooling context.

Page 40 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Similarly, in many cases there will Table 2 be a trade-off between accuracy and Long-term Medium-term Short-term the amount of potential harm available Prediction window (e.g. many years) (e.g. a few years) (e.g. a few months) to be avoided, as illustrated in Table 2. Accuracy Lower accuracy Medium accuracy Higher accuracy It is always tempting to think that by intervening earlier, or targeting effort Broad groups, Smaller groups, Small groups, some based on the projected outcomes over Precision level general locations specific locations individuals a period of many years, we will be able Associated Secondary to address concentrated problems more intervention type Primary prevention prevention Tertiary prevention effectively. But in many cases this broader view may come with a cost: a reduction in Potential harm available to be accuracy, and a reduced ability to target avoided Higher potential Medium potential Lower potential with precision. For example, in the case of when in the life course to intervene, evidence that incarceration can in some be the effect of the policy or practice the ideal balance of intervention is cases increase the likelihood of future response on the false positives – those likely to be composed of relatively broad offending (Jonson, 2010), particularly for wrongly identified as at high risk. In a interventions early on, with a growing young offenders (Lambie and Randell, recent review for the Ministry of Social level of intensity as our ability to predict 2013), and that intensive supervision can Development of ethical considerations residual life-cycle offending grows. The increase reoffending compared to regular when applying risk prediction to prevent exact balance is, of course, an empirical supervision (Cochran, Mears and Bales, child maltreatment, Dare (2013) noted the question, and again one that predictive 2014). Certain forms of intervention importance of minimising the burdens analytics cannot answer alone in the intended to reduce reoffending, such as placed on those identified as high risk as absence of evaluation evidence. Scared Straight programmes, actually a prerequisite to ethical use of predictive increase it (Petrosino, Turpin-Petrosino analytics in that context. Suggestion four: minimise any unintended and Buehler, 2013). It is difficult to generalise about side effects of response In addition to these obvious harms, the ethical use of predictive analytics Prediction of risk implies a duty to there is a range of other areas where because the appropriateness depends respond. Where that response can or targeting based on predictive analytics can on the context in which the prediction does cause harm, this raises important potentially have adverse side effects. For is applied, as well as the accuracy of the ethical and practical implications. There example, the potential for stigmatisation prediction. For example, consider the is no shortage of examples in criminal is greater with more targeted approaches, Berk et al. (2009) tool for predicting the justice of responses causing harm. Most and may encourage essentialist thinking likelihood of murder described earlier. directly, sentences are often intended to on the part of front-line practitioners, This tool identified a group of parolees cause harm of a sort by restricting the by which I mean thinking that focuses among whom 7% could be expected to liberty of those convicted of a crime. This largely on individual propensities and commit a murder. This tool is used in may be justified on the grounds of just neglects broader situations and contextual Pennsylvania to determine the degree desserts, but where sentences and orders factors that can also drive or mitigate risk. of parole supervision placed upon each are imposed or modified on the basis of Targeting based on risk may also have individual. In this case, the burden placed predicted risk, such as with preventive the potential to undermine therapeutic on the 93% of people falsely identified detention sentences, and with parole and relationships between practitioners as high risk for murder is fairly low in bail decisions, the potential for ethical and clients, particularly if the service is comparison to the value of preventing dilemmas where predictions are less than mandatory. Whether any response to so many murders. In contrast, if this tool perfect is much greater. predicted harm is voluntary or not is were used to inform parole decisions In addition to these direct harms that also an important consideration, because or home detention sentences, then the are experienced by the offender, there is in many cases a service that is effective burden shouldered by the 93% of false international evidence that certain types if voluntary, such as restorative justice, positives becomes a more difficult thing of justice system responses can lead becomes ineffective if mandated (Bonta to weigh against the murders prevented by to further victimisation, as they have et al., 2006). Targeted attention can lead incapacitating the 7% of true positives. the potential to increase the likelihood to hypervigilance, with greater likelihood of reoffending. For example, a recent of offences being captured and recorded, Suggestion five: consider predictive analytics international meta-analysis suggests that and the related problem of the ratchet in the context of a wider information strategy police decisions to send young offenders effect, discussed earlier. The accuracy and appropriateness of to court can increase their subsequent The potential to cause harms is predictive analytics depend crucially on likelihood of offending (Petrosino, partly a practical matter, but is perhaps the underlying data. If data are inaccurate, Turpin-Petrosino and Guckenburg, 2010). more importantly an ethical issue. An biased or incomplete, then predictive Similarly, there is some international important ethical consideration will often analytics may not only be limited in

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 41 Predictive Analytics for Policy and Practice: reflections from the criminal justice system usefulness, but may be misleading. by Mäori are more likely to be reported the best way to improve our ability to Prediction can only be as good as the (Department of Corrections, 2007). So understand deep patterns of behavioural underlying data. This point almost goes any success in predicting crime as recorded development and prediction. without saying, but is worth reinforcing in official databases may to some extent when it comes to the analysis of simply be success in predicting patterns Suggestion six: consider prediction within government data sets, most of which are of reporting, rather than in predicting the context of a wider practice framework developed for administrative purposes. crime. Similarly, there is evidence that Predictive analytics can support strategic Even basic pieces of data like dates of birth sentencing practice for driving offences decision-making by ministers and senior can be inaccurately reported, particularly varies substantially across court districts managers, but in many cases their main to justice sector agencies, and errors in New Zealand (Goodall and Durrant, value may be in supporting decisions in data recording can multiply when 2013), so risk differentials for offenders on the front line. In the criminal justice various data sets are connected together across the country will to some extent system this can include decisions such as with behind-the-scenes algorithmic reflect differences in court practice. whether to proceed with a prosecution, matching. These data errors compound All of this suggests that a strategy whether to grant bail and whether to on top of the general limits to prediction of increasing reliance on predictive grant parole. In many of these situations, actuarial decision-making tools may have the potential to support better Predictive analytics will help us improve decision-making. An extensive research history consistently shows that while government services and make more unstructured risk assessment typically of a difference to people’s lives. At the performs better than chance, actuarial risk assessment consistently performs same time, predictive analytics has better than either (see, for example, the meta-analyses of Aegosdottir et al., 2006 limitations. and Grove et al., 2000), even if it is usually far from perfect. Actuarial decision-making may also outlined above, adding a further source analytics may need to be matched be a cost-effective approach in some cases. of inaccuracy. by considered investment in data It is unlikely that we would ever want Another important limitation is that capture and storage. The Performance to automate parole decision-making, government data sets capture variables Improvement Framework results show but where lower-stakes decisions can that may be only loosely related to the that most government agencies rate as be accurately made with an algorithm, outcome of interest. For example, two ‘needing development’ when it comes to such as the degree of attention paid of the factors that are most predictive of information management (Te Kawa and by the Department of Corrections to offending are anti-social attitudes and Guerin, 2012), suggesting that greater various people with unpaid fines, then anti-social peer groups (Andrews and use of predictive analytics will need algorithms may be more cost-effective Bonta, 1998). Neither of these factors simultaneous investment in improving than professional judgement. is likely to be captured reliably and data management in most agencies. There are also situations where comprehensively in any government Given that quality analytics need structured tools can help address concerns database. Correlations with variables such investment in quality data, it seems with bias or discrimination. For example, as age and number of court appearances important to consider the expense of there is some evidence that for any given will often be statistically significant, but improving government data sets in offence, and after controlling for factors in many cases these variables will be comparison with funding other forms such as age and offence history, Mäori are less accurate predictors than detailed of data collection. For example, it somewhat more likely to be apprehended, psychological, socio-economic and may be more cost-effective, and more prosecuted and so on (Department of behavioural data. informative, to fund the more detailed Corrections, 2007). This may be for many In general, we can also expect data collection of a quality longitudinal reasons, but it is possible that patterns government data sets to suffer from study, like the Christchurch Health in the use of discretion by practitioners systematic measurement error, because and Disability and Growing Up in New are a contributing factor. In this case, the data is collected for administrative, Zealand studies. Studies such as these are structured decision-making can make not research purposes. We only capture custom-built to capture complex patterns transparent the grounds for treatment, data on people we have to transact with, of continuity and change over the life and help to address any real or perceived and only at the points at which we transact course and identify the most important subjective bias in decision-making. with them. We know, for example, that static and dynamic drivers of risk. Given At the same time, the value of most crimes are not reported (Ministry of the inherent limitations of administrative better prediction depends intricately Justice, 2009), and that crimes committed data, longitudinal research may provide on how that prediction is understood

Page 42 – Policy Quarterly – Volume 11, Issue 2 – May 2015 by practitioners and used to inform people they have chosen to exercise an with extensive procedural protections, decision-making. There is some risk override. Similar to the requirement for such as in court proceedings. Simply that more accurate prediction may be anaesthetists to follow-up with patients to because the stakes are so high for both embraced by practitioners where it identify any side effects and help them to individual liberty and the safety of tallies with their subjective judgements, develop a good intuition for risk, intuitive the community in decisions such as but may be disregarded otherwise. For decision-making is most likely to become whether to impose a preventive detention example, Miller and Maloney (2013) accurate over time with repeated exposure sentence, the limitations of prediction are found that practitioners’ decision- to the consequences of decision-making understood by those working in criminal making can be unrelated to a risk tool’s (Klein, 1998). justice perhaps as much as anyone. As result, even when the risk tool is filled out government seeks to extend the use of accurately. As such, predictive analytics Conclusion predictive analytics to other parts of its will only generate value to the extent Predictive analytics will help us improve business, where the procedural protections that the people who use it have the government services and make more of are often lower and the number of people appropriate skill level to engage critically a difference to people’s lives. At the same affected by policy decisions often greater, with the relevant findings. A structured time, predictive analytics has limitations. the body of knowledge in criminal justice professional judgement approach implies Because of the technical limitations of will perhaps offer insights for other a high degree of skill on the part of prediction, and because the practical and areas where the limits of prediction are decision-makers. If a professional is ethical implications of these limitations not as salient in policy discussions, and going to override the decision implied are often so substantial, a serious and contribute to a more general discussion by a well-validated predictive tool, then ongoing discussion about predictive about predictive analytics. it seems reasonable that they should analytics among policy makers, advisors hold a high level of understanding of the and practice leaders seems warranted. Acknowledgements factors driving the predictive tool and its In this article I have limited discussion Many thanks to the two reviewers for limitations. to criminal justice. The trade-offs in their helpful comments, and also to Paul This suggests that a sensible approach criminal justice are often very substantial, Henderson of the Ministry of Justice, when using predictive analytics to inform such that many of the examples in this Peter Johnston of the Department of practice decisions would be to regularly article will not be as directly relevant to Corrections, Tony Burton and Nick Carroll record and monitor the use of overrides. more prosaic areas of policy. But high- of Treasury, and especially Ross McKay of It may also be useful to provide feedback profile uses of prediction, such as in the Ministry of Social Development for to individual practitioners about their criminal justice, will also tend to attract extensive comments on an earlier draft. use of overrides and the outcomes for the greater scrutiny, and are often associated

References Aegosdottir, S., M. White, P. Spengler, L. Maugherman, R. Cook, C. Cochran, J., D. Mears and W. Bales (2014) ‘Assessing the effectiveness Nichols, G. Lampropoulos, B. Walker, G. Cohen and J. Rush (2006) of correctional sanctions’, Journal of Quantitative Criminology, 30, ‘The meta-analysis of clinical judgement project: fifty-six years pp.317-47 of accumulated research on clinical versus statistical prediction’, Dare, T. (2013) Predictive Risk Modelling and Child Maltreatment: an Counselling Psychologist, 34 (3), pp.341-82 ethical review, paper prepared for Ministry of Social Development, Andrews, D. and J. Bonta (1998) The Psychology of Criminal Conduct, Auckland: University of Auckland Cincinatti: Anderson Dekovic, M., M. Slagt, J. Asscher, L. Boendermaker, V. Eichelsheim and Berk, R., L. Sherman, G. Barnes, E. Kurtz and L. Ahlman (2009) P. Prinzie (2011) ‘Effects of early prevention programmes on adult ‘Forecasting murder within a population of probationers and parolees: criminal offending: a meta-analysis’, Clinical Psychology Review, 31 a high stakes application of statistical learning’, Journal of the Royal (4), pp.532-44 Statistical Society, 172 (1), pp.191-211 Department of Corrections (2007) Over-representation of Mäori in the Bonta, J., R. Jesseman, T. Rugge and R. Cormier (2006) ‘Restorative criminal justice system, Wellington: Department of Corrections justice and recidivism: promises made, promises kept?’, in D. Department of Corrections (2013) Annual Report, Wellington: Department Sullivan and L. Tifft (eds), Handbook of Restorative Justice: a global of Corrections perspective, London: Routledge Farrington, D. and B. Welsh (2006) Saving Children from a Life of Crime, Bushway, S. and J. Smith (2007) ‘Sentencing using statistical treatment Oxford: Oxford University Press rules: what we don’t know can hurt us’, Journal of Quantitative Fazell, S., J. Singh, H. Doll and M. Grann (2012) ‘Use of risk assessment Criminology, 23, pp.377-87 instruments to predict violence and antisocial behaviour in 73 Chen, M. and J. Shapiro (2007) ‘Do harsher prison conditions reduce samples involving 24827 people: systematic review and meta- recidivism? A discontinuity-based approach’, American Law and analysis’, British Medical Journal, 345, July Economic Review, 9 (1), pp.1-29

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Goodall, W. And R. Durrant (2013) ‘Regional variation in sentencing: the Mitchell, O., D. Wilson and D. Mackenzie (2012) The Effectiveness incarceration of aggravated drink drivers in the New Zealand district of Incarceration-based Drug Treatment on Criminal Behaviour: a courts’, Australian and New Zealand Journal of Criminology, 46 (3), systematic review, Campbell Systematic Reviews, 2012: 18 pp.422-47 Petrosino, A., C. Turpin-Petrosino and J. Buehler (2013) Scared Straight Gottfredson, D., D. Wilson and S. Najaka (2002) ‘School-based and Other Juvenile Awareness Programs for Preventing Juvenile crime prevention’, in L. Sherman, D. Farrington, B. Welsh and Delinquency, Campbell Systematic Reviews, 2013: 5 D. MacKenzie (eds), Evidence-based Crime Prevention, London: Petrosino, A., C. Turpin-Petrosino and S. Guckenburg (2010) Formal Routledge System Processing of Juveniles: effects on delinquency, Campbell Gottfredson, S. and L. Moriarty (2006) ‘Statistical risk assessment: old Systematic Reviews, 2010: 1 problems and new applications’, Crime and Delinquency, 52, pp.178- Pratt, T. and F. Cullen (2000) ‘The empirical status of Gottfredson and 200 Hirschi’s general theory of crime: a meta-analysis’, Criminology, 38 Grove, W., D. Zald, B. Lebow, B. Snitz and C. Nelson (2000) ‘Clinical (3), pp.931-64 versus mechanical prediction: a meta-analysis’, Psychological Pratt, T. and F. Cullen (2005) ‘Assessing macro-level predictors and Assessment, 12 (1), pp.19-30 theories of crime: a meta-analysis’, in M. Tonry (ed.), Crime and Harcourt, B. (2007) Against Prediction: profiling, policing and punishing Justice: an annual review of research, Chicago: University of Chicago in an actuarial age, Chicago: University of Chicago Press Press Jakobsen, I.S., D. Fergusson and J.L. Horwood (2012) ‘Early conduct Te Kawa, D. and K. Guerin (2012) ‘Provoking debate and learning problems, school achievement and later crime: findings from a 30- lessons: it is early days, but what does the Performance Improvement year longitudinal study’, New Zealand Journal of Educational Studies, Framework challenge us to think about?, Policy Quarterly, 8 (4), 47 (1), p.123-35 pp.28-36 Jonson, C. (2010) ‘The impact of imprisonment on reoffending: a meta- Tew, J., L. Harkins and L. Dixon (2013) ‘What works in reducing violent analysis’, doctoral dissertation, University of Cincinnati re-offending in psychopathic offenders?’, in L. Craig, L. Dixon and T. Klein, G. (1998) Sources of Power: how people make decisions, Gannon (eds), What Works in Offender Rehabilitation: an evidence- Cambridge, Mass: MIT Press based approach to assessment and treatment, Chichester: Wiley Lambie, I. and I. Randell (2013) ‘The impact of incarceration on juvenile Weisburd, D. and A. Piquero (2008) ‘How well do criminologists explain offenders’, Clinical Psychology Review, 33 (3), pp.448-59 crime? Statistical modelling in published studies’, in M. Tonry (ed.), Lum, C., C. Koper and C. Telep (2011) ‘The evidence-based policing Crime and Justice: an annual review of research, Chicago: University matrix’, Journal of Experimental Criminology, 7 (3), pp.3-26 of Chicago Press Miller, J. and C. Maloney (2013) ‘Practitioner compliance with risk/needs Weisburd, D., C. Telep and A Braga (2010) The Importance of Place in assessment tools: a theoretical and empirical assessment’, Criminal Policing: empirical evidence and policy recommendations. Stockholm: Justice and Behavior, 40 (7), pp.761-37 Swedish National Council for Crime Prevention Ministry of Justice (2009) New Zealand Crime and Safety Survey 2009, Wellington: Ministry of Justice

Page 44 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Mike Reid

Decentralisation does the New Zealand local government system

sign of decreasing. By 2010 almost 95% of the world’s democracies had some measure up? form of elected sub-national government, with the devolution of political, fiscal and Decentralisation continues to be well received as a strategy administrative powers being widespread. Bringing government closer to for improving the governance of countries and delivering the people so as to promote greater more responsive and efficient services. Cheerleaders include participation and active citizenship is an objective that is difficult to oppose. Not multilateral agencies like the World Bank and developed only does it remind us of the origins of democracy and its virtues, it also countries, like England, which seek to reverse years of reinforces stereotypical conceptions of centralisation. Evaluating the effectiveness of decentralised ‘big’ government, namely unresponsive bureaucracies, wasteful spending and models raises the question of what it means to be poorly targeted public services. Yet not ‘decentralised’, and how decentralisation itself is measured. all decentralised governance systems deliver expected improvements in social This article describes the World Bank’s diagnostic framework and economic outcomes for citizens. It is an issue that has led the World Bank for assessing decentralisation and applies the framework to to look at what needs to be in place for the New Zealand local government system. the benefits of decentralisation to be realised. What, for example, distinguishes Alongside globalisation, localisation (the since the turn of the current century a decentralised governance system from demand for local autonomy) has been (Boschmann, 2009; Gemmel, Kneller and a system in which local and regional one of the main forces shaping the world Sanz, 2009). It is a trend that shows no authorities simply deliver responsibilities delegated by higher-order governments? Mike Reid is the Principal Policy Adviser at Local Government New Zealand.

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 45 Decentralisation: does the New Zealand local government system measure up?

Figure 1: Framework for local government discretion and accountability

Local Government Discretion and Accountability

Public Accountability Approaches

Political accountability Administrative accountability • Local council oversight • Bureaucratic hierarchy • Electoral accountability measures • Civil service rules (recall, write-ins, campaign financing, • Procurement practices independent candidates) Financial accountability • Local public funds management

Political Side Supply Fiscal Decentralisation (planning, budgeting, reporting, internal Decentralisation control / audit, external audit) • Separation of • Discretion over powers: Local expenditures administration, • Revenue autonomy parliament, courts • Predictable & rule • Elections Local Governance Outcomes based government • Party systems / party transfers • Responsive, effective, efficient, sustainable services structures • Discretion over • Enhanced political, financial and administrative accountability borrowing • Greater local control over economic development planning & decision-making • Strengthened accountability through greater citizen monitoring and vigilance over power holders

Community-Driven Development / Social Accountability Approaches

• Participatory planning • Participatory monitoring and evaluation • Demand side • Participatory management of • Participatory budgeting investments/projects • Participatory expenditure tracking • Citizen feedback for services (report • Citizen access to information campaigns cards, social audits) Demand Side Demand

Administrative Decentralisation • Regulatory discretion • Procurement discretion • Employment / civil service discretion

Source: Yilmaz, Beris and Serrano-Berthet, 2008, p.3

To answer such questions, the World knowledge of local conditions than higher- Governments (UCLG) in its major Bank has developed what it describes as a level governments and are therefore better comparative study of decentralisation: diagnostic framework, designed to assess placed to provide public services that the potential of a local government system match the preferences of their citizens. Decentralization is … characterized to exercise effective decentralisation. It Because of this proximity they are more by the existence of locally elected examines systems of local government open to scrutiny by local citizens, which authorities, distinct from the through the lens of discretion and should result in more effective, efficient state’s administrative authorities, downward accountability. This article services than if these were provided by and exercising, in the framework applies the World Bank framework to higher-level governments, as well as of the law, their own powers and the New Zealand local government greater innovation.1 In contrast, critics of responsibilities for which they have system to assess its suitability for effective decentralisation argue that competition a degree of self-government … . decentralised governance should a time between councils can lead to a ‘race to the (UCLG, 2008, p.314) come when such an objective is desirable bottom’: for example, councils cutting taxes to national authorities. to attract investment to the point where The UCLG definition stresses the local infrastructure is not maintained and democratic nature of decentralised Defining decentralisation a post-code lottery results.2 governance arrangements, separation Decentralisation tends to be promoted on Definitions of decentralisation vary, from the state apparatus, and the existence the basis that it leads to better social and with many coalescing around the concept of guaranteed powers, functions or economic outcomes for communities (see of fiscal autonomy and the level of fiscal roles. It is underpinned by three distinct UCLG, 2008 and Blöchliger and Égert, discretion able to be exercised by sub- elements: 2013). This is partly explained by the national governments (Gemmell, Kneller Political decentralisation: the range concept of information asymmetry: that and Sanz, 2009). A broader perspective of functions or authority, transferred local governments have a more informed is provided by United Cities and Local

Page 46 – Policy Quarterly – Volume 11, Issue 2 – May 2015 from higher to local levels of Table 1: Local political settings government, which are governed Measures by locally accountable political Institutional separation of New Zealand uses the council-manager form of local representatives: for example, well- powers at the local level government, with a contract-based relationship between defined decision-making powers and governing bodies and chief executives. Councillors manage systems of accountability. management through an annual performance-based contract; Administrative decentralisation: however, governance competence varies and the degree of the way in which programmes are separation can vary according to the size of a local authority. actually administered ‘on the ground’ Recent legislative changes, such as allowing councils to set the number and overall remuneration of staff, may further and may involve measures such as undermine the separation. shifting staff from their respective national ministries and bringing Existence and quality of Local elections are governed by clear statutory provisions them under the control of a local local electoral systems which limit the risk of political influence, such as redistricting. authority, along with necessary The government has recently amended legislation governing administrative support and human the transparency of electoral donations. Campaign expenditure resources functions. limits are in place. Fiscal decentralisation: the ability of Nature of party systems Due to the dominance of local political alliances, national and structures political parties are often less visible at the local level. While local governments to levy local taxes, individuals can be elected on party tickets, the rules governing determine the rate of tax and exercise predetermination effectively rule out the ability to caucus, discretion over the allocation of diminishing their effectiveness. Consequently, councillors are their financial resources – essentially primarily accountable to communities rather than to national the guarantee of fiscal discretion political organisations, with stronger downward accountability. (Boschmann, 2009; Bailey, 1999; UCLG, 2008). Fiscal decentralisation can be measured from the and Serrano-Berthet (2008) argue that Public accountability (the supply side) perspective of spending, revenue, the the failure of some states to achieve the represents the rules which have been set proportion of sub-central revenue in promoted advantages of decentralisation by higher-level governments to provide a general government tax revenue, or is often a result of failing to find the safeguard against the misuse of a council’s the share of sub-central tax revenue balance between the supply and demand discretion. Yet by itself the effectiveness in general government tax revenue. sides of the accountability equation, with of public accountability is limited, and it the result that accountability to citizens is needs to be backed up, and complemented, The assessment model is designed undermined (see Figure 1). by social accountability or community- for assessing the degree to which the The diagnostic framework has driven development (the demand side). three elements are present within a been designed to identify areas of Social accountability refers to the degree specific local government system, as misalignment, where, for example, of direct engagement citizens have with all three are essential if the capacity levels of discretion and accountability their councils, such as the right to make for decentralised governance is to be are insufficient to allow a sub-national submissions and speak directly to council optimised. A correlation is required government to adequately implement or committee meetings. Where public between the assignment of responsibilities the policy and operational matters accountability refers to formal rules, (political decentralisation), the assigned to it (Yilmaz, Beris and Serrano- social accountability operates at the more provision of sufficient resources (fiscal Berthet, 2008). Central to the framework informal level, governing the interaction decentralisation) and the administrative are the three dimensions, political, of institutions with citizens. To be discretion to deliver those responsibilities administrative and fiscal, creating what effective, public and social accountability (Bailey, 1999). the authors describe as ‘discretionary must be downward-focused, with both space’. Discretionary space refers to the acting to strengthen the ability of citizens The diagnostic framework scale of public decision-making available to hold their local governments to One of the challenges facing the World to a local government system which is account, as well as ensuring that councils Bank and other agencies promoting free from direct intervention from senior have the means and incentives to respond decentralisation is to understand why governments. Effective use of this space is to citizen demands. Complementarity, some forms of decentralisation are often dependent upon an accountability once achieved, should be reflected in more successful than others. Are policy system that is downward-focused in more responsive, effective and efficient makers, for example, too focused on both the public and social spheres. The local governments.3 In addition, local fiscal decentralisation without giving framework describes these two spheres services should be more sustainable, more enough attention to the administrative of accountability as public accountability accountable, and provide for more local and political dimensions? Yilmaz, Beris and social accountability. control over decision-making (ibid.).

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 47 Decentralisation: does the New Zealand local government system measure up?

Table 2: Local political accountability who employed the remainder of the staff on their behalf. The new governing Public accountability approach required elected members Ensuring representation of Not practiced in New Zealand local government, to operate at the strategic level, setting disadvantaged groups through quotas although a few councils have established separate outcomes and policies for management and reserve seats Mäori seats. to achieve while at the same time Allowing independent candidates to There are no constraints on the ability of remaining distant from operations and run for office independents to run for office. the implementation of those policies. Influence was to be exercised through Introducing term limits Not practiced in New Zealand. the chief executive’s annual performance Allowing for the recall of elected Not practiced in New Zealand. contract. The second criterion, ideal officials from public office electoral systems, are those that enable the participation of marginalised groups, Ensuring local elected officials have The Local Government Act 2002 sets the provide local politicians with sufficient oversight responsibilities framework by which elected members scrutinise power to influence local outcomes, and and hold management to account. are free from manipulation by higher- Limiting council employees and Council employees can stand for election for the level governments. The third criterion government appointees as elected council that is their employer but must resign addresses the role of national political members from their positions if elected. parties at the local level. On this issue, Yilmaz et al. refer to research suggesting Social accountability that the inclusion of parties at the Ensuring the right of citizens to The local government legislative framework local level can result in policy-making demand public hearings and public includes a range of mechanisms for ensuring being ‘contaminated by patronage and petitions citizens’ voices are heard in planning and clientelism instead of focusing on local decision-making. Polls are optional and not benefits’ (Packel quoted in Yilmaz, Beris binding except for certain electoral-related polls. and Serrano-Berthet, 2008, p.9); the Establishing specific bodies There are no equivalent provisions in the New framework explicitly values a local politics empowering citizens to demand Zealand system, although councils are subject to that is downward-focused (see Table 1). accountability the law and citizens can seek judicial review of The second test in each of the three council decisions. dimensions examines the degree to Using multi-stakeholder forums, citizen Councils have the ability to make use of forums which the accountability framework is juries and forums to increase citizen and citizens’ juries to provide groups and sectors, downward-focused in terms of both influence by specific groups such as youth, with an opportunity to express public and social accountability. These their views. are examined in Table 2. In terms of political decentralisation, Introducing participatory budgeting Participatory budgeting is not practiced, although the New Zealand system scores well for councils are required to undertake formal its political settings. There is a degree of consultation when adopting budgets and many separation of powers between governance use complementary mechanisms to involve under- represented groups. and administration, albeit variable according to size of council; electoral systems are set in legislation and free of The diagnostic framework examines action. Determining the level of political the kind of patronage by higher-level each form of decentralisation, political, decentralisation involves the nature of governments that occurs elsewhere, such administrative and fiscal, from three existing political settings and whether as the ability of governments to adjust perspectives. These are the level of political or not the direction of accountability is the date of council elections so that the discretion held by local politicians (local downward. Three criteria are employed outcomes are likely to be favourable for a settings); the nature of the accountability to assess a local government system’s local political grouping; and electoral processes framework; and the degree to which political settings: the separation of powers; tend to be locally oriented, without a accountability is downward-facing. the nature of the electoral system; and the dominant party presence. Shortcomings, existence of a functioning party system. however, were identified. These are: Political decentralisation In New Zealand the separation • the lack of any mechanism for Within the diagnostic framework, political of powers can be traced back to the recalling elected members (usually decentralisation, the degree of local influence of New Public Management through a petition which, if political discretion and accountability, during the reforms in 1988–89, which successful, triggers an election); is measured by the capacity of local limited governing bodies to the direct • the lack of incentives to encourage elected leaders to exercise independent employment of a chief executive only councils to make greater use of

Page 48 – Policy Quarterly – Volume 11, Issue 2 – May 2015 third-party organisations to oversee Table 3: Administrative settings performance and/or provide policy Measures input, such as citizens’ juries; and • the absence of any form of Autonomy to recruit staff New Zealand councils have full autonomy. participatory budgeting to enable Ability to control staff numbers, New Zealand councils have full control over citizens to set local authority budgets including the authority to remove numbers of staff and tenure. and priorities. surplus staff The model also highlighted two other Autonomy to set pay levels for staff New Zealand councils have full autonomy to set shortcomings: the lack of quota seats for and pay staff from their own budgets pay levels (which reflect market realities) and are minority and/or disadvantaged groups, required to fund salaries from their own budgets. and the absence of term limits. Although neither of these features is present in New Discretion to procure and administer Councils have the flexibility to develop Zealand local government, other options services procurement strategies and set levels of service, are available, to address the shortcomings. although in some policy arenas national standards For example, councils have the ability to may exist. appoint citizens, such as minority group Authority to control career New Zealand councils, through their chief representatives, to council committees; management, such as to shift staff executives, have full discretion, within national establish advisory groups; and adopt a to de-concentrated units within the employment law, to manage the allocation of staff proportional voting system (STV: single organisation and career development. transferable vote). Proportional systems Control over their own performance Internal performance management of staff is are regarded as more representative management under the control of councils and their chief than the more commonly used first- executives. Some council activities are required past-the-post electoral system. There is to meet standards or benchmarks set by central also a process for creating Mäori wards, government. although not a process that councils, or Mäori, can implement easily. While the model promotes term limits as a way of purpose for local government, also work govern their own procurement strengthening downward accountability, to diminish elected members’ discretion. arrangements (within the context of there is considerable debate about the Added to local government’s lack of any national standards) and control and value of term limits, and as an approach constitutional status, the overall effect of manage their workforces. In addition, to avoid elite capture it is primarily these changes is to further undermine councils need the authority to issue relevant to emerging rather than mature downward accountability. generally enforceable regulations on democracies.4 Similarly, changes to the reorganisation public issues within their jurisdictions Despite a history of strong political provisions which appear to be weighted (also subject to higher-level government discretion and the downward trend in in favour of the creation of much laws) which reflect local concerns and both political and social accountability, larger local authorities risk diminishing address local threats to health and well- recent legislative changes represent a risk citizens’ influence. Larger councils tend being. This requires an ability to make to local political discretion. Amendments to be less responsive to citizens’ wishes, decisions about fundamental aspects of to the Local Government Act 2002 in increase the distance between citizens their internal administration and December 2012 gave the minister of and their political representatives, and performance. The diagnostic framework local government an extensive suite of reduce the effectiveness of both voice identifies critical settings, which are intervention powers, such as the power to and exit (moving out of a local authority described in Table 3. appoint commissioners or call an election area) (Slack and Cote, 2014). It is also Administrative decentralisation where he or she believes there has been increasingly common for other legislation is critical if decentralised governance a substantial governance failure, or a to include provisions that allow ministers arrangements are to deliver expected council is unable or unwilling to perform to overrule specific council decisions: for efficiency and responsiveness. Without its functions and duties. Arguably, example, decisions about the number and it there are risks that officials will fail the additional intervention powers location of aquaculture farms. The overall to implement their councils’ policies have weakened downward political picture is one of a system with strong responsively, and, as Yilmaz, Beris and accountability and undermined at least historic levels of political accountability Serrano-Berthet suggest, the result part of the local government sector’s which are gradually diminishing. can be a ‘situation where field officers ability to exercise effective decentralised maintain strong links with their original governance, should that ever become Administrative decentralisation line ministries, thereby enjoying some an option. Other changes, such as the If decentralisation is to work local insulation against local control’ (Yilmaz, introduction of a list of core services that governments need sufficient administrative Beris and Serrano-Berthet, p.17). must be considered and a more restricted autonomy to enforce regulatory decisions, Strengthening downward accountability

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 49 Decentralisation: does the New Zealand local government system measure up?

Table 4: Local administrative accountability is one way of addressing the principal Public accountability agent problem (see Table 4). The New Zealand system of local Accountability structures within the Councils are required to establish annual government scores well against the criteria bureaucratic hierarchy performance agreements with their chief for administrative decentralisation. executives. Councils have a clearly defined range of Independent bodies able to conduct New Zealand councils are subject to supervision by-law-making powers and a conditional administrative audits by both the Office of the Ombudsman and the ability for enforcing by-laws. They are Office of the Auditor-General. in charge of their own procurement Administrative courts able to review New Zealand councils are subject to judicial policies and practices and an increasing councils’ regulatory and administrative review. number are now posting information decisions about successful tenders online. In most cases councils can determine their own Social accountability levels of service, although the increasing Openness of information to allow The Local Government Official Information Act use of national standards is gradually citizen monitoring operates on the assumption that all information diminishing discretion in some areas, is public except for in a narrow range of especially in regulatory functions. Councils circumstances, e.g. commercial sensitivity. also have full control of employment Satisfaction surveys provide decision-makers and remuneration. In terms of public with information about local perceptions of their and social accountability, councils are services. subject to scrutiny by the Office of the Monitoring procurement and It is increasingly common for councils to provide Auditor-General, which reports annually implementation of contracts details of tenders and successful bidders on their to Parliament with the results of its audit websites. of council annual reports, and the Local Monitoring local service provision Councils set performance targets annually and Government Official Information Act report on performance in their annual reports. ensures citizens have access to public information. Most councils also undertake resident satisfaction surveys, with the Table 5: Fiscal settings resulting information also utilised in Measures their performance management systems. Expenditure assignment should New Zealand councils have the discretion to set enable councils to set and allocate budgets and determine spending levels to meet Fiscal decentralisation budgets sufficient to meet their statutory roles and community expectations, Without the appropriate fiscal instruments responsibilities. within a financially prudent framework; however, and the discretion to use them, reliance on a single taxing power, rates, can act as decentralisation is ‘doomed’ (Yilmaz, a constraint on the ability to raise sufficient revenue Beris and Serrano-Berthet, 2008). Fiscal to meet community needs. decentralisation represents the degree Revenue assignment should be Councils have a single taxing power covering to which local governments have the sufficient to meet local government’s land and property. They have discretion to set tax fiscal capacity to fulfil their allocated roles and responsibilities rates, define the tax base (property-related) and responsibilities and whether the scope administer the collection of taxes. Since 1958 of their decision-making responsibilities there have been at least seven funding reviews that corresponds to the breadth of their duties have recommended that councils should be given and responsibilities. The diagnostic additional revenue sources. framework employs four criteria to Financing the fiscal gap Fiscal transfers are not used; however, there is a assess the local fiscal settings of a system: hypothecated fund for roading and public transport expenditure assignment roles; revenue which pays for both national and local roads.6 The assignment; intergovernmental transfers rates rebate scheme, which assists low-income (fiscal gap); and infrastructure funding. home owners to pay rates, is a form of supply-side transfer mechanism. A strong case exists for some Expenditure assignment. form of equalisation scheme. Decentralisation requires that higher- level governments assign a substantial Options for financing infrastructure Councils have wide discretion for financing range of expenditure responsibilities infrastructure, including public–private to local governments, along with partnerships; however, road tolling can only be used sufficient autonomy for them to with the agreement of the government.7 respond to local circumstances. In

Page 50 – Policy Quarterly – Volume 11, Issue 2 – May 2015 addition, a well-defined institutional Table 6: Local fiscal accountability framework with clearly defined roles Public accountability and responsibilities for each sphere of government is required. This helps Strengthening capability for public A wide range of accredited courses and training clarify accountability and reduces budgeting and financial management opportunities exist for financial managers in local the risk of local agencies of higher- in local government systems government and elected members. Most councils level governments attempting to have audit and risk committees. constrain councils’ autonomy and Setting standards for the control of Payments from the hypothecated transport fund responsiveness. inter-governmental transfers are allocated according to a transparent formula developed in consultation with local government. Revenue assignment. Local government accountability is Publishing transfer figures Yes. enhanced when the services they Making audit results public Yes. provide are funded from their own tax base (Oates, 1972; Bailey, Clear rules for borrowing Yes. 1999). Consequently, councils Rules for hard-based budget Councils are required by law to balance their need access to at least one tax base, constraints budgets on an accrual basis. They must also adopt along with the ability to set the tax a revenue strategy which sets out planned increases rate and administer the revenue in council taxes for the coming decade. collection. Any efforts by higher-level Social accountability governments to constrain revenue- raising ability are likely to result in Making budgets and end-of-year Councils are required to publish audited annual inefficient investment decisions. financial statements publicly reports by the end of October each year. Audit available results are reported to Parliament by the Office of The fiscal gap. Because fiscal transfers the Auditor-General. from higher-level to lower-level Participatory budgeting practices No. governments have implications for fiscal autonomy, consideration must Participatory budget-tracking Budgetary reporting arrangements are up to each be given to the design of any transfer processes council. The normal practice is for councillors to be provided with a quarterly financial update. instruments. Transfers can often leave Councils must now report progress annually against little room for local decision-making a nationally determined set of six prudent financial and priority-setting, and can result benchmarks, such as debt servicing as a proportion in perverse incentives. For example, of expenditure. Before each election councils must councils receiving transfers might publish a ‘pre-election’ report summarising key be tempted to blame any under- financial performance data. performance on the funding agency, thus undermining accountability. two methods that are most consistent or coherent doctrine for making specific with downward accountability are allocation choices (Bush, 1980), an Financing infrastructure. Having market discipline and cooperative issue which Yilmaz, Bersi and Serrano- the ability to make financing arrangements. Berthet (p. 21) note can become a source choices when planning to invest in of tension which, if not resolved, can infrastructure is an essential element As a general principle a local constrain local autonomy. of fiscal autonomy and downward government system should be provided In terms of revenue assignment, accountability. On the other with the necessary taxing and councils currently have wide discretion hand, financing choices can create funding powers to fulfil its functional to define their various forms of property macroeconomic risks: for example, responsibilities, with a correspondence tax and administer revenue collection; the level of sub-national debt. There between the two. Questions, however, can however, concerns are frequently raised are four generally used methods for be asked as to whether this is the case about whether property taxes are sufficient limiting local government borrowing, in New Zealand, with local government to fund local government and its services. some with greater consequences responsible for 10.5% of all public If these concerns are not addressed, New for fiscal decentralisation than expenditure but receiving only 8.3% of Zealand’s level of fiscal decentralisation others. These are the use of market all public revenue, a ratio that suggests is likely to decline. Fiscal accountability discipline, cooperative arrangements the presence of a vertical fiscal imbalance. also requires that public funds are between local and central Indeed, the allocation of responsibilities managed transparently and prudently governments, rule-based controls, between the two spheres of government and that decision-making is accountable. and administrative constraints. The has been incremental, without rational Criteria for assessing whether or not local

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 51 Decentralisation: does the New Zealand local government system measure up? government’s fiscal decision-making is government extensive ministerial inter- Since reform in 1988–89, local downwardly accountable are applied in vention powers. Among the factors government has arguably been well placed Table 6. that can trigger the use of these powers to take on greater responsibilities and In terms of the diagnostic is the failure of a council to achieve exercise decentralised governance. The framework, fiscal accountability is the government’s prudent financial councils that emerged from reorganisation generally strong. Councils have broad benchmarks over time. While at one level and modernisation had greater strategic financial discretionary powers, including this might be very reasonable grounds capacity than their predecessors, as access to a range of funding options for intervention, the history of local well as a requirement to operate in for infrastructure construction and government in New Zealand over the a more consultative and accountable maintenance, ranging from bank debt past century provides little justification, manner. Twenty-five years on, the sector to bonds. Borrowing is regulated by and, while the financial benchmarks still conforms relatively well with the market discipline and the requirement themselves should strengthen downward criteria employed in the diagnostic to develop, after consultation, a financial accountability, there is uncertainty about framework; however, recent changes are strategy which includes debt limits. In the manner in which ministers will undermining downward accountability addition to having built up considerable respond to the information, and that by diminishing local discretion and expertise and experience in long-term in itself affects the way in which local increasing national oversight. In addition, financial planning and management, decision-makers feel able to exercise the problem of local government’s lack many councils are now credit-rated. discretion. of constitutional certainty remains to Many have audit and risk committees, be addressed. For New Zealand local and financial information is publicly Conclusion government to meet the levels of pubic available. Councils publish draft annual As an option for arranging public affairs, and social accountability recommended plans and budgets which are subject decentralisation continues to be popular, by the diagnostic framework, a new to community consultation, as well as with supporters arguing that it has the constitutional arrangement for local annual reports which are audited, with potential to improve the efficiency of the government is required: one that gives the results tabled in Parliament. Public public sector, strengthen social cohesion greater certainty and predictability to its and social accountability frameworks are and promote long-term economic role, functions and powers, and protects both downward-focused. development and growth (Oates, 1972; against what often appear to be poorly Participatory budgeting, however, Gemmell, Kneller and Sanz, 2009). For a considered changes to its core legislation. is not practiced, although councils country to achieve these benefits, its local Without such moves there appears little undertake formal consultative procedures government system needs to be able to likelihood of any change to New Zealand’s to seek community views on budget and exercise political, administrative and fiscal ranking as the most centralised state in operational priorities. In fact, recent discretion. Indeed, as Bailey emphasises, the OECD. changes have removed the requirement true local government will only exist ‘when 1 The evidence in favour of decentralisation will be looked at in to consult annually on the setting of democratically elected bodies have well more detail in a subsequent article. council budgets; consultation is only defined discretionary powers to provide 2 Post-code lottery refers to situations where a person’s access to public services depends on where they live and the required where a council decides to services to their citizens and finance them capacity of their local government to provide services that might be taken for granted in more well-off communities. make a material variation to its ten-year with the proceeds of one or more exclusive 3 A New Zealand example of complementarity might be financial strategy. Many of the financial local taxes of which they can determine the requirements to deliver a balanced budget (public accountability) and provide opportunities for citizens decision-making constraints under which the base and/or rate of tax (Bailey, to engage in the process of setting priorities (social councils operate, such as the adoption of 1999, p.224). This requires a legislative accountability). 4 Furthermore, local authority elections tend to result in a a ten-year financial strategy, the balanced framework that provides local politicians turnover of elected members of between 35% and 40%, probably reducing the need to consider term limits. budget requirement and the funding of not only with the responsibilities to 5 As long as council debt is not guaranteed by national depreciation, would appear to make it achieve local outcomes, but also with the governments (as is the case in New Zealand), banks will ensure councils’ credit worthiness when considering requests difficult to introduce a pure participatory necessary decision-making discretion for credit. 6 Local government currently receives 47% of the National budgeting approach, as a significant and policy levers. As the framework is Land Transport Fund, with the remaining 53% used to fund proportion of council expenditure is designed to highlight, decentralisation state highways, road safety, etc. Councils own and operate 87% of roads. literally ‘pre-allocated’. is unlikely to achieve expected benefits 7 A large proportion of council debt is provided by the Local Downward accountability is also if not accompanied by the right fiscal, Government Funding Agency, a council-owned trading company which has the ability to raise international bonds diminished by recent legislative changes administrative and political settings. and lend at less than market interest rates. that have given the minister of local

References Bailey, S.J. (1999) Local Government Economics: principles and practice, Blöchliger, H. and B. Égert (2013) Decentralisation and Economic Basingstoke: Palgrave Macmillan Growth – part 2: the impact on economic activity, OECD working

Page 52 – Policy Quarterly – Volume 11, Issue 2 – May 2015 papers on fiscal federalism, 15, Paris: OECD, http://dx.doi. Lyons, M. (2007) Place-shaping: a shared ambition for the future of local org/10.1787/5k4559gp7pzw-en government, final report, London: The Stationery Office Boschmann, N. (2009) Fiscal Decentralisation and Options for Donor Oates, W. (1972) Fiscal Federalism, New York: Harcourt Brace Jovanovic Harmonisation, Berlin: Development Partners Working Group on Local Productivity Commission (2012) Towards Better Local Regulation: draft Governance and Decentralization report, Wellington: New Zealand Productivity Commission, available Bush, G.W.A. (1980) Local Government Politics in New Zealand, at www.productivity.govt.nz Auckland; Sydney: George Allen and Unwin Royal Commission on Social Policy (1988) Towards a Fair and Just Chandler, J. (2008) ‘Liberal justifications for local government in Britain: Society, Wellington: Royal Commission on Social Policy the triumph of expediency over ethics’, Political Studies, 56, pp.355- Slack, E. and A. Cote (2014) Comparative Urban Governance, Toronto: 73 Munk School of Global Affairs, University of Toronto Cohen, J. and S. Peterson (1996) Methodological Issues in the Analysis Taylor, M. (2014) ‘Devolve to a more equitable system’, Local of Decentralisation, development discussion paper 555, Cambridge, Government Chronicle, 22 April Mass: Harvard Institute of International Development, Harvard UCLG (2008) Decentralization and Local Democracy in the World: first University global report by United Cities and Local Governments, Barcelona: Gemmell, N., R. Kneller and I. Sanz (2009) Fiscal Decentralization and United Cities and Local Governments; World Bank Economic Growth in OECD Countries: matching spending with revenue Yilmaz, S., Y. Beris and R. Serrano-Berthet (2008) Local Government decentralzsation, accessed November 2013 from http://www.ief.es/ Discretion and Accountability: a diagnostic framework for local documentos/recursos/publicaciones/papeles_trabajo/2009_06.pdf governance, local governance and accountability series, 113, July, Heseltine, M. (2012) No Stone Unturned: in pursuit of growth, accessed Washington, DC: World Bank January 2013 from https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/34648/12-1213-no-stone-unturned-in- pursuit-of-growth.pdf What is your passion? Follow your passion. Make your difference. Get up-to- date. Learn with great people. Start Now With a refreshed 4-Course professional Fully revamped Public Management courses certificate in the School Managing for Results /Managing People / Managing Public Resources Leading Change in Public and Community Organisations of Government Brand new Public Management and Public Policy courses Governance and Governing/ State, Economy and Society/ Policy and Management Practice Fully revamped Public Policy courses Analysis and Advising / Policy Methods and Practice/ Economics and Policy/ Policy Workshop

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Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 53 Richard Norman and Bernard Teahan Growing Community

Currently the government-owned Housing New Zealand owns or manages 68,700 rental units (Housing New Zealand, Housing 2013), compared with about 5,000 in the community sector (Figenshow, 2014). Depending on whether the government also increases its housing stock, the challenges for government’s goal, advocated by the minister of housing, Nick Smith, is for community organisations to increase their house numbers to 15,000, three times the government policy current number. We believe this target and the project goals can be achieved only if the government decides to offer Housing New Zealand houses at less than 40% of and community their balance sheet valuation, and decides to provide community organisations with considerable discretion about how they providers manage their assets. This conclusion is based on the experience of Trust House A government goal that one fifth of New Zealand’s social Limited, based in Masterton, which bought 541 houses from the government housing will be provided by community housing providers in 1999 and has since been one of the largest providers of community housing. by 2020 received a setback in March 2015. One of New One of the authors of this article, Bernard Zealand’s largest community organisations, the Salvation Teahan, until recently chief executive of Trust House, negotiated this sale in 1999, Army, announced that it lacked the expertise, infrastructure and can reflect on 15 years of practical and resources and was not sure the lives of tenants would be management of this community asset. The other author, Richard Norman, was improved by its becoming a housing provider. involved in the founding of the Wellington Housing Trust, recently renamed Dwell. Richard Norman is head of the human resources and industrial relations specialisation in the School As an ordinary member of this trust, he of Management at Victoria University of Wellington, and was founding co-director of the Australia and has marvelled at the determination of that New Zealand School of Government case programme. organisation’s trustees and managers to Bernard Teahan was Chief Executive of Trust House Ltd between 1978 – 2002, and 2007 – 2013, and is currently a writer/researcher on community enterprise. navigate regularly changing government

Page 54 – Policy Quarterly – Volume 11, Issue 2 – May 2015 policies on housing in order to build up Agenda for change rentals. House ‘warrants of fitness’ would a stock of 27 owned and 10 managed Choice, contestability, innovation and set ‘minimum standards for a range of houses.1 However, this trust has grown access to a wider pool of capital were given house conditions for social housing’ at the rate of less than one unit per year as reasons for a change in approach in (Smith, 2013). These initiatives were to over its history and still depends on a the 2011 Budget. A Cabinet paper by the ensure the standard of housing offered government loan at zero interest in order Offices of the Minister of Housing and was adequate and would protect taxpayer to be financially sustainable. the Minister of Finance proposed that investment in community providers. Our analysis draws on fieldwork third-party community housing providers Organisations which did not meet the carried out between November 2013 and supply 15,000 – 20,000 houses within 10–15 new standards would not be supported March 2014 by Ferne Cheetham and Jack years. The Housing Shareholders’ Advisory by the government financially, nor would Tolley, holders of summer scholarships Group found that ‘there is not enough state they be accredited, in effect a warning to supported by Trust House and Victoria housing to satisfy demand’, and often the potential tenants. University of Wellington. ‘housing stock is mismatched to demand’. The income-related rent subsidy Increases in Crown expenditure on social would allow tenants to pay no more than Social housing: definition, key participants housing were seen as ‘unsustainable’, with 25% of their income in rent, with the and recent changes spending almost doubling from 2001/02 to rest paid by the government. This was Social housing is provided for those who 2008/09 (Housing Shareholders’ Advisory intended to remove the current inequity would not be able to house themselves Group, 2010, p.31). A regulatory impact and create ‘a level playing field between sustainably in the mainstream market statement emphasised that the ‘increasing HNZ [Housing New Zealand] and non- (Housing Shareholders’ Advisory Group, 2010, p.11). Tenants have needs ranging from disability to disadvantage, often The income-related rent subsidy would resulting in lack of employment or low- income work. Affordable housing is allow tenants to pay no more than 25% defined as that where ‘a household spends no more than 30% of its gross income of their income in rent, the rest paid by on housing costs, whether for rent or the government. mortgage’ (ibid., p13). Social housing is usually rental accommodation, offered at a rate that is below market value. A market rent is defined as the rent ‘a willing landlord demand is likely to create fiscal pressures in government providers’ (Ministry of might reasonably expect to receive and a the future that may be difficult to manage Business Innovation and Employment, willing tenant might reasonably expect under the current state provider model’ 2013). to pay in comparison with rent levels for (Ministry of Business, Innovation and The opposition Labour Party objected similar properties in similar areas’.2 Employment, 2013, p.3). that the Act, ‘instead of baking a bigger In New Zealand, ‘state housing’, pie … focuses on who is baking the provided by the central government, The Social Housing Reform Act 2013 pie, and how it is cut up’ (Social Service began between 1905 and 1910, when The Social Housing Reform (Housing Committee, 2013). ‘It wants Housing 126 ‘workers’ dwellings’ were built in Restructuring and Tenancy Matters New Zealand to operate only as a Wellington and Auckland (Schrader, 2005, Amendment) Act was passed in November landlord, effectively, and not as a social p.16). More houses were built in the 1930s 2013 and came into effect in April 2014. agency’, argued Green MP Holly Walker and particularly after the Second World It promotes competition in the social in the first reading debate in the House War, when the state housing waiting housing market by formally recognising (Walker, 2013). While opposition parties list had ‘swelled to over 30,000’ (ibid., community housing providers. In his supported the opening up of the social p.41). Central government dominance opening address when the bill was housing market to community providers, of social housing here contrasts with introduced, Nick Smith described the they were concerned that Housing New Britain and Australia, where governments intention of the legislation: ‘To implement Zealand would be driven out of the have encouraged community and local a substantive shift in Government housing market, at a cost to the tenant (ibid.). government providers. Housing provided assistance from a State housing model to They also suggested that the Act was by the state primarily aims to assist those a social housing model.’ The legislation likely to reduce the prominence of the with high needs, while the rest of the set out a framework for third parties social support element of Housing New social housing sector is expected to cater to ‘manage risk, provide protections to Zealand (ibid.; Twyford, 2013). to a broader range of needs (Housing providers, tenants and the government, New Zealand, 2013, p.9). This includes and to ensure objectives are met’. There Housing New Zealand niche providers who cater to people with would be voluntary accreditation of Housing New Zealand’s mission statement specific disabilities or backgrounds. providers eligible for income-related emphasises that the organisation is mostly

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 55 Growing Community Housing: challenges for government policy and community providers concerned with ‘high-needs’ clients. stores, a hydroelectricity scheme and a $3 million annually in community The challenges it faces include demand large housing portfolio. The governance grants. It has been a major funder of outstripping its ability to provide housing, body of the trust is made up of seven community infrastructure, including the the need to develop an effective framework directors appointed by the shareholders Masterton swimming complex, Henley to support ‘successful’ tenants’ move out (predominantly the Masterton Licensing Lake, Rathkeale theatre and the Clareville of state housing, growing segregation Trust), at least two of whom must hockey turfs. between state and private housing, and an be ‘outside’ directors appointed for In the financial year to March 2014, increasing body of people not quite of high their commercial expertise. Today it Trust House recorded sales of $40 need that Housing New Zealand cannot still operates in the spirit of the 1947 million, held assets of $74 million, of support (Housing Shareholders’ Advisory legislation, although this is no longer which the housing estate was valued at Group, 2010). The 2013 legislative changes required by law: as former chairman $52 million, and made an operational are intended to alleviate many if not all of Brian Bourke put it in an interview, the profit before one-off impairments and these challenges (Smith, 2013). trust has a responsibility to ‘sell alcohol revaluations of $2.3 million. This was a with care’ (Bourke, 2013). considerably lower profit than the average Trust House Limited In 1985 Trust House began diversifying during the previous ten years, reflecting Background in order to use resources and skills built strong competition in the liquor and Trust House Limited is a community up over 40 years, and also to prepare for entertainment markets. enterprise based in Masterton, with the likelihood that it would lose its limited A housing estate valued at $52 million … A glance at the balance sheet for Trust With all costs taken into account, and House in 2014 seems to indicate that this community organisation has benefited leaving aside the non-cash valuations of enormously from the political decision the balance sheet, there has been little or of the government in 1999 to sell it a portfolio of houses at $10.4 million, no net cash return for Trust House from which at the time was a sale price of 40% of the valuation placed on them housing. by Quotable Value, the government’s valuation agency. The reality, however, is that the profitability of a stock of former Wairarapa its prime community of monopoly benefit for selling alcohol in state houses is restricted by the amount of interest, and satellite interests in Flaxmere its Masterton-based area. This monopoly maintenance required and the expectation (a suburb of Hastings) and Rimutaka. The was indeed voted out in a local poll in that a community provider will charge charitable company in its present form was 1995, enabling supermarkets and other modest rentals and provide support established in 1997 but its roots go back major liquor sales outlets to compete. The for tenants whose housing options are to the 1947 Masterton Licensing Trust community housing purchase in 1999 very limited. The operational return on Act, when electors voted to allow the sale was a major diversification, and a result investment even at the purchase price of of alcohol again after prohibiting it since of a sales strategy of the then National $10.4 million has been very low. Trust 1908 (for the history of trust see Masterton government, initiated by the minister of House’s annual reports for the years 2003– Licensing Trust, 1997 and Trust House housing, Murray McCully, and supported 07 show segment results for the housing Community Enterprise, 2008). Elected by the deputy prime minister and MP for estate. The average annual cash profit after trustees representing the community Wairarapa, Wyatt Creech. The purchase interest and operating expenses for these were to oversee the sale of alcohol ‘in the of 541 state houses was a significant five years was $1,093,000. But this was interests of the public well-being’. The Act change in strategic direction for Trust prior to capital expenditure, depreciation also provided authority to distribute profits House, which had no prior experience and loan repayments. The average annual to the community in support of their in housing, but did have considerable capital expenditure was $385,000, much of activities.3 The trust is a body corporate, experience with the management of which was for maintenance (for example, independent of the state, and in its form major property developments and the painting of a house). A reasonable modelled on North England’s Carlisle State support for community facilities. As part estimate of annual depreciation would be Management Scheme.4 of its commercial operations, Trust House $500,000. For the years 2008–13 segment Currently Trust House operates built and continues to manage the Solway accounting was no longer required, but, to and manages 20 business units, from Park complex, still Masterton’s largest the knowledge of the authors, the results Wellington in the south to Hastings and most upmarket hotel and conference for these years would be similar. in the north. These include hotels, facility. Trust House currently employs With all costs taken into account, and restaurants, bars and their associated around 290 people and has during the leaving aside the non-cash valuations of gaming halls, community stores, bottle past ten years distributed approximately the balance sheet, there has been little or

Page 56 – Policy Quarterly – Volume 11, Issue 2 – May 2015 no net cash return for Trust House from Wellington Housing Trust/Dwell Housing tenants to be part of their community so housing. The Wellington Housing Trust was they are not ‘stigmatised on the basis of The housing portfolio in the context formed in 1981, originally as the Mount their housing choice or housing tenure’ of the trust’s activities overall shows Victoria Housing Trust. Like Trust House, (Scholey, 2014). as 70% of its assets, yet generates only it offers rental accommodation at lower Initially housing purchases by the 12% of its revenue and is managed than market value. This allows people Wellington Housing Trust were funded by approximately 3% of total staff (a on low incomes to have their housing through the government’s community specialist group of four supported by needs met and still live in the central housing improvement programme, which corporate office functions). city. Currently the Wellington Housing provided low-interest loans. Following Even at a 60% discount on official Trust has 27 owned and 10 managed the successful purchase, renovation and values in 1999, it has proved challenging properties in Wellington city, all rented at tenancy of two properties in Mt Victoria, to manage the portfolio at much more ‘70% or less of market value’ (Wellington the trust decided to expand and in 1982 than break-even. Trust House has sold Housing Trust, 2012a). It is governed set an ambitious goal of acquiring 50 some houses largely to better equate by a board of trustees and employs staff houses over the next five years (Schrader, supply with demand. Lack of growth is members who carry out the day-to-day 2006, pp.11, 21). That target is only certainly in part a result of the housing management and administration of the now, 30 years later, within reach. Recent being in a part of the country which has had little or no economic growth, or has reduced in population (particularly ... the experiences of the [both Trust in Dannevirke); but the economics of managing a portfolio of houses is clearly House and the Dwell Housing Trust] a challenge even for a well-established demonstrate that the goal of a further community organisation. On taking over ownership of the 10,000 houses in community ownership houses, Trust House adopted a policy of ensuring that rents remained in the within five years will remain political lower quartile of rents, and of setting rhetoric ... ‘a clear line in the sand’ to not permit rent arrears or property damage, while supporting tenants to go to Work and Income or budgeting services for housing portfolio. During 2014 it merged building has included two major projects help, and of responding quickly to with Mahora House, a one-house trust, in Newtown, with the aim of developing maintenance calls (Whitehead, 2013). to form Dwell Housing Trust, with the houses that are ‘comfortable, inexpensive Community ownership has enabled Trust intention of expanding services to the and healthy to live in’ (Slocombe, 2012, House to be quicker and more flexible wider Wellington region. p.14). In 2010 the trust built four homes about decisions about upgrades than The Wellington Housing Trust was on Adelaide Road, which were ‘fitted could be expected from a large national created to address the gentrification of with high standards of insulation, double organisation. Initially many of the houses Mt Victoria, which was having the effect glazing and energy efficient heat pumps’ had poor fencing, which was hazardous of pushing low-income tenants out of (ibid., p.16). It received a $300,000 grant for families with young children. Trust central city accommodation (Schrader, from Housing New Zealand to assist House decided to provide the materials 2006, p.6). It was originally a co- with funding the project, which was and specifications, and tenants built the operative, with members being tenants, conditional on the trust ‘owning the fences themselves (Whitehead, 2013). It supporters and local residents (ibid., developed property for a period of 25 also provided curtains for insulation and p.11). The members appointed trustees years following building completion and privacy, and paved driveways. As stated in who would manage the properties, … using the development in line with Trust House’s history, A Turbulent Decade, including the purchasing and financing the purposes of the Trust’ (Wellington ‘the Housing Estate has been managed to of new properties. The trust did not want Housing Trust, 2012a, p.21). local needs where rentals, upgrades and to be ‘merely’ a landlord, but also provide Following its merger with Mahora processes are tailored closely to local social services, support and develop a House, the renamed Dwell Housing Trust conditions’ (Trust House Community community feeling for their tenants again aims to expand, having floated the Enterprise, 2008, p.29). Trust House has (ibid., p.28). The current director, Alison ambitious goal of managing 500 houses. also maintained a very high occupancy Cadman, sees housing as a fundamental rate, averaging in the range of 95–98%, human right and thinks it can be vital Barriers and issues a result of close management by the in helping people ‘get back on their feet’ Both Trust House and the Dwell Housing small team of specialists focusing on the (Cadman, 2014 ). Chairman Paul Scholey Trust are interested in increasing their housing portfolio. also sees a role of the trust as supporting housing numbers and taking part in

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 57 Growing Community Housing: challenges for government policy and community providers the government’s target of a threefold an interest-free loan from Housing New subsidy) and governments will no doubt expansion of the community housing Zealand of $1,826,579 (at 30 June 2014). be keen to limit such burdens. How they sector. The current chief executive of If the interest rate for even the most might achieve this objective is uncertain. Trust House believes it could comfortably secure low-cost mortgages was applied, But if the financial constraints imposed manage 2,000 houses; Dwell aspires to the trust would clearly not be financially by governments become inhibiting, one run 500. However, the experiences of sustainable. of the key benefits of local community the two organisations demonstrate that flexibility – namely, to be able to relate the goal of a further 10,000 houses in Income-related rents for community housing to individual needs – will be under community ownership within five years Extending income-related rent (IRR) pressure. will remain political rhetoric unless the subsidies for community housing is government decides to sell current houses attractive, at least on the face of it. Without Conclusion at less than 40% of the value shown on doubt, tenants with a low income, such Will, then, the new legislation and rules the government’s balance sheet. Given as a single-income beneficiary, stand to achieve the desired threefold increase significant inflation in house prices gain. To take an example: if the rent for in community housing? The answer to since 1999, the discount, depending on their home is assessed at $150 per week, that revolves around a complex equation the property market, might need to be a single-income beneficiary eligible for about the point at which the government significantly more than the 60% discount IRR would pay about $70 per week. The chooses to provide support for housing. gained by Trust House. government would subsidise the other The policy changes of the 2013 legislation reflect the government’s efforts to reduce deficits and review assets. Housing is one of the government’s Housing is one of the government’s largest balance sheet ‘assets’, valued at largest balance sheet ‘assets’, valued at $17 billion, but that valuation reflects the extent to which house prices have inflated $17 billion, but that valuation reflects beyond the ability of those on low and middle incomes to afford to buy. Such the extent to which house prices have house price inflation in effect creates the inflated beyond the ability of those on low pressure for social development subsidies such as income-related rentals. and middle incomes to afford to buy. The extension of income-related rents to community providers, while desirable, will not enable the sector to take on the As noted, net returns from managing $80. If IRR did not apply and instead the risk of long-term returns from properties housing have been so limited that Trust accommodation supplement was payable, whose real value is almost certainly less House’s only significant financial benefit it is likely that the government subsidy than the 40% of the official valuation has occurred when houses are sold. would be around $55, thus requiring the at which Trust House bought houses Growth has not been limited by lack of tenant to pay $25 more. In the context in 1999. Existing and new community management capability or a sufficiently of the individual’s total income, this is a housing operators are right to be wary in strong balance sheet to borrow funds. sizable difference. their consideration of the government’s During a period of considerable upheaval The benefit to community housing invitation to be involved in social in the liquor industry and loss of its providers, however, is more problematical. housing. These providers will be involved former monopoly on sales, the trust has In the example above they receive no in significant capital investment for long- survived and grown. The gains for the benefit. There is, of course, the benefit term delivery of housing – and if house trust, its community and tenants have of a happier tenant under less financial price inflation continues, providers will been in its ability to respond flexibly to stress, which given their community face the same equation as Trust House or tenant needs, operating so far without care objectives, is significant. But, as the government, of increasingly valuable income-related rentals, which currently highlighted in this article, community balance sheets which are not real cash, seem to involve considerable bureaucratic housing providers are under financial while subsidised rentals place providers scrutiny. performance constraints. To ease these at risk of future changes of government The Wellington Housing Trust has pressures they will wish to lift rents closer policy. grown very slowly over its 33 years of to market rates. An additional $10 per Having a more diverse group of existence and today owns only 27 houses, week, to say $160, as in the example above, social housing providers can, as the Trust and is dependent for financial viability on over a number of tenants will improve House experience has shown, result in a no-interest government loan. The trust their profitability. But the cost of such an more customised local provision. For had a modest trading profit of $38,716 for increase will impose an additional fiscal this to happen, the government needs to the June 2014 year, while benefiting from burden on the government (via a higher tackle this issue with the approach taken

Page 58 – Policy Quarterly – Volume 11, Issue 2 – May 2015 to the establishment of state-owned If the government is seriously to realistic prices that enable community enterprises in the 1980s, where assets expect community organisations to be a organisations to operate professionally were transferred as realistic valuations to major part of the provision of housing, and for the long term, this policy is likely new entities which were given freedom to it needs to budget for its major support to be either rhetoric without action, or manage. The freedom to manage in the on the basis of a write-down of the value lead to small community organisations housing sector requires a balance between of its over-inflated housing asset, which overextending themselves. business and community goals, but this can make it possible for community 1 See Dwell Housing Trust 2014 annual report at www.dwell. is the type of balance which Trust House organisations to do as Trust House has org.nz. has been managing since the late 1940s, for the past 15 years – find flexible, 2 http://tenancy.govt.nz/market-rent. 3 Section 307 of the Sale and Supply of Alcohol Act 2012, and is a ‘social enterprise’ model which community-focused, innovative ways which provides the present enabling authority, is a mirror of the original Act. seeks to combine the best of business-like of providing social housing. Without 4 For a detailed study of this unique scheme see Seabury processes and community goals. such political willingness to negotiate (2007).

References Bourke, B. (2013) Interviewed by F. Cheetham and J. Tolley, 16 Parliamentary Debates, 16 May, vol. 492, Wellington: New Zealand December Government Cadman, A. (2014) Interviewed by F. Cheetham and J. Tolley, 22 Social Service Committee (2013) Social Housing Reform (Housing January Restructuring and Tenancy Matters Amendment) Bill, as reported from Figenshow, S. (2014) Interviewed by F. Cheetham and J. Tolley, 17 the Social Services Committee: commentary, Wellington: New Zealand January Government Housing New Zealand (2013) Annual Report 2012/13, Wellington: Trust House Community Enterprise (2008) A Turbulent Decade: Housing New Zealand recollections and a history of the Masterton Licensing Trust and Trust Housing Shareholders’ Advisory Group (2010) Home and Housed: a House, 1990–2007, Masterton: Masterton Licensing Trust and Trust vision for social housing in New Zealand, Housing Shareholders’ House Advisory Group Trust House Community Enterprise (2014) Annual Report 2014, Masterton Licensing Trust (1997) A Matter of Trust: celebrating 50 years Masterton: Trust House Community Enterprise of community ownership: Masterton Licensing Trust, 1947–1997, Twyford, P. (2013) Social Housing Reform (Housing Restructuring and Masterton: Masterton Licensing Trust Tenancy Matters Amendment) Bill – First Reading, New Zealand Ministry of Business, Innovation and Employment (2013) Regulatory Parliamentary Debates, 16 May, vol. 492, Wellington: New Zealand Impact Statement: social housing reform programme, Welllington: Government Ministry of Business, Innovation and Employment Walker, H. (2013) Social Housing Reform (Housing Restructuring and Scholey, P. (2014) Interviewed by F. Cheetham, 5 February Tenancy Matters Amendment) Bill – First Reading, New Zealand Schrader, B. (2005) We Call It Home: a history of state housing in New Parliamentary Debates, 16 May, vol. 492, Wellington: New Zealand Zealand, Auckland: Reed Books Government Seabury, O. (2007), The Carlisle State Management Scheme: its ethos Wellington Housing Trust (2012a) Annual Report, Wellington: Wellington and architecture, Carlisle: Bookcase Housing Trust Schrader, B. (2006) More Than a Landlord, Wellington: Wellington Wellington Housing Trust (2012b) Strategic Plan 2012–2017, Wellington: Housing Trust Wellington Housing Trust Slocombe, L. (2012) More Than a Landlord 2007–2012, Wellington: Wellington Housing Trust (undated) ‘About us’, http://www.wht.org.nz/ Wellington Housing Trust aboutus.html, accessed 17 January 2014 Smith, N. (2013) Social Housing Reform (Housing Restructuring and Whitehead, A. (2013) Interviewed by F. Cheetham and J. Tolley, 16 Tenancy Matters Amendment) Bill – First Reading, New Zealand December

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 59 Jonathan Boston and Thomas Stuart

Protecting the Rights of Future Generations are constitutional mechanisms and irreversible’ damage to critical biophysical systems at a planetary level, for an answer? example via anthropogenic 3 The nature of the problem climate change . But flawed In recent decades, concern has been mounting over whether environmental stewardship is democratic governments have the necessary incentives not the only problem. There and capabilities to protect the long-term interests of their is also much anxiety in many citizens1, particularly their future citizens. Both the academic democracies about poor literature on governance and everyday political discourse are long-term fiscal management, replete with talk of ‘short-termism’, ‘political myopia’, ‘policy inadequate investment short-sightedness’, a ‘presentist bias’ and weak ‘anticipatory in public infrastructure, governance2. Such concerns have been intensified by the insufficient planning for the growing capacity of humanity to cause ‘severe, pervasive consequences of an ageing population, and deficiencies Jonathan Boston is Professor of Public Policy at Victoria University of Wellington. Thomas Stuart is a student at Victoria University of Wellington and has served as a research assistant and tutor. with respect to early

Page 60 – Policy Quarterly – Volume 11, Issue 2 – May 2015 intervention programmes and emergency to certain systemic flaws, pathologies choose between the next election and the preparedness, as well as unsatisfactory and asymmetries within the democratic next generation, it’s clear what usually management of ethnic, religious and process.4 Among these are the following: happens’. Or to quote Al Gore, ‘the future socio-economic cleavages. In short, there • a tendency for voters to have whispers while the present shouts’ (Gore, are many serious threats to fiscal, social positive time preferences (i.e. they 1992, p.170). and environmental sustainability. are moderately impatient and prefer Such asymmetries in the democratic There are multiple reasons why long- something today rather than in the process would not matter if humanity term interests are often poorly protected. distant future); lacked the capacity to inflict harm – and In the case of global public goods, such as • relatively short electoral cycles in especially irreversible harm – on people the atmosphere and the oceans, effective which vote-maximising politicians living in the future. Nor would the long-term protection requires coordinated have strong incentives to discount the challenge be as great if the policies required international action. But multilateral future; to secure long-term benefits (whether cooperation is frequently thwarted by • the often disproportionate power economic, social or environmental in weak international institutions, the exercised by vested interests with form) involved no imposition of costs or doctrine of territorial sovereignty, national predominantly short-term priorities; losses (e.g. extra fiscal expenditure and self-interest, and deep ideological and • the difficulty of ensuring that related increased tax burdens) on people geopolitical divisions (Ward, 2011). In decision-makers do not renege on living today. Yet, because short-term short, spatial and inter-sectoral conflicts future-related promises (variously sacrifices are often required, protecting have slowed the adoption of effective referred to as the ‘compliance’ or the interests of future generations is policy responses. ‘time inconsistency’ problem); politically challenging. To compound But efforts to tackle policy problems with long time horizons, whether global or local in scale, face other challenges. The most formidable of these are distributional Long-term policy issues are at a conflicts of an inter-temporal nature: that constant risk of being neglected in the is, conflicts regarding the proper allocation of benefits and burdens over extended face of current and near-term concerns, periods of time. Such conflicts typically involve two distinct, yet overlapping, which seem more pressing and trade-offs: a clash between the interests immediate. of current and future citizens, and a clash between the interests of citizens’ current selves and their future selves. If policy makers prioritise short-term interests • deep ideological divisions over the matters, the costs of ‘policy investments’– over long-term interests, there is an best solutions even when the nature for instance, pre-funding future pension obvious risk that those living in the future of the policy problem is widely costs, reducing greenhouse gas emissions will be worse off in some way. How, then, recognised; and or helping to lower rates of obesity – are might long-term interests, and especially • the fact that future generations have typically certain, real and visible, whereas the interests of future generations, be no voice, vote or bargaining power, the promised benefits are frequently properly protected? yet will be profoundly affected uncertain, intangible or invisible (Boston by the policy choices of current and Lempp, 2011; Jacobs, 2011). If voters Asymmetries in the democratic process governments (see Boston and Lempp, are uncertain about the benefits – perhaps National democratic institutions, despite 2011). because they distrust governments their many virtues, often struggle to Hence, whatever advantages future or doubt their capacity to deliver, or cope with policy problems involving persons may come to possess in the because the relevant causal chains are significant inter-temporal trade-offs. This future, today they face the disadvantage highly complex and opaque – they will is particularly the case when timeframes of being abstract, remote, disembodied be understandably reluctant to support are decadal or more in nature and where and dependent. They are utterly reliant such investments (Jacobs and Matthews, the negative impacts of proposed policies on current generations to represent 2012). Yet if governments do not invest (or a failure to act) appear distant and and protect their interests; yet there adequately for the longer term, future therefore inconsequential. Long-term is no corresponding dependence of citizens will be worse off. policy issues are at a constant risk of being current voters on people living in the There is a further complication. neglected in the face of current and near- future (Timlin, 2012). Normal political Inter-temporal conflicts take different term concerns, which seem more pressing accountabilities and reciprocities thus forms. Sometimes they involve a non- and immediate. The lack of effective long- do not apply. As Warren Buffet (1977) simultaneous exchange between ‘goods’ term governance is due, or so it is argued, once stated: ‘when human politicians that are part of a similar system of value

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 61 Protecting the Rights of Future Generations: are constitutional mechanisms an answer?

(e.g. upfront financial costs in return for Who are ‘future generations’? First, there are good ethical reasons future financial benefits). Other times the If the term ‘present generations’ is limited for placing a high, and equal, moral exchange is between ‘goods’ constituting to those alive today (including their ‘future value on all human beings irrespective of different systems of value (e.g. near- selves’), then the term ‘future generations’ when or where they are born. As Rawls term financial costs in return for the must logically refer to all those born has argued, ‘from a moral point of view, better long-term protection of important after today, regardless of where or when. there are no grounds for discounting environmental ‘goods’). The latter types On this basis, significant overlaps are future well-being on the basis of pure of non-simultaneous exchange are inevitable: future generations will co- time preference’ (Rawls, 1972, p.287). particularly difficult because the ‘goods’ exist with current generations, often over Hence, people living in the future should in question are non-commensurable long stretches of time and in a constantly be valued equally to those alive today. and the hoped-for benefits may have few evolving manner. For the purposes of this An alternative view, under which, for advocates in the policy process. discussion, we are concerned with the example, people in the future are deemed How should the problem of well-being of all those who will be alive at to be of less value, is difficult to defend protecting long-term interests be some future point in time, including the morally or logically. addressed? Are there any feasible and distant future. This includes the ‘future Secondly, it is unlikely that the effective ‘solutions’? And are there selves’ of people alive today, some of ‘interests’ or ‘needs’ of people living in ways of countering the inter-temporal whom are likely to live well into the 22nd the future will change dramatically, at asymmetries evident in contemporary century. Their long-term interests ought least over the next century or so, from democracies without generating new and to be protected, not only the interests of those of people living today. Of course, unintended problems? This article briefly those who are as yet unborn. the further we venture into the future, the more difficult it becomes to know what humanity will need. Even planet Earth, ... there are good ethical reasons for for instance, may cease to be essential for human life. Yet, even then, it is reasonable placing a high, and equal, moral value on to assume that citizens in the far future will continue to value Earth as their all human beings irrespective of when or original home planet and for its many where they are born. life-supporting qualities (Mank, 2009). Thirdly, assuming that the interests of future generations are broadly congruent with those of humanity today, what might outlines four possible approaches, giving But such a stance immediately begs such interests include? With little doubt, particular attention to proposals to many more questions. For instance, one such interest will be preserving a protect the interests of future generations what exactly are the ‘interests’ of future physical environment that is fit for human by constraining the decisions of policy generations? Are they the same as the health, flourishing and well-being (Ekeli, makers, both now and in the future, interests of present generations, or 2007). This in turn implies that pollution through constitutional means. While might they be different? Further, should levels must be within ‘safe’ thresholds, that such reforms have been championed by the focus be on the ‘interests’ of future high levels of biodiversity are maintained, various international bodies, interest generations, or on their ‘needs’ or ‘rights’ and that there is sufficient fertile soil to groups and scholars, we acknowledge (Ward, 2011)? Additionally, how should enable the production of an adequate that they are not without limitations the ‘interests’ (‘needs’ or ‘rights’) of future quantity of food (Rockström et al., 2009). and drawbacks. Accordingly, we also generations be balanced against the Aside from a healthy environment, future outline a number of other constraining ‘interests’ (‘needs’ or ‘rights’) of present generations will almost certainly also have mechanisms (or ‘commitment devices’, generations? Aside from this, there are an interest in sound and sustainable public as they are sometimes called) which important questions about whether, and finances, proper planning for disasters, may serve a similar purpose. While we to what extent, policy makers should the mitigation of serious risks, the consider the options for constitutional discount the future (Caney, 2008, 2009) maintenance of democratic institutions reform across a range of democratic and over the implications of following and basic liberties, the provision of public jurisdictions, we pay particular attention a ‘precautionary’ approach to the goods and services, and the preservation to the specific constitutional context of management of future risks. Such issues of their cultural heritage. New Zealand, which, unlike almost all are complex and daunting. There are Fourthly, the words ‘interests’, other democracies, lacks an entrenched many different philosophical approaches ‘needs’ and ‘rights’ have different (albeit constitution with the status of supreme and a plethora of competing principles. overlapping) meanings. As implied above, law. But first let us clarify what is meant It is not possible to address such matters the term ‘interests’ has a relatively broad by ‘future generations’ and the nature of here in any detail, but several brief meaning, covering both general and their ‘interests’, ‘needs’ and ‘rights’. comments are in order. specific matters, some of which are vital

Page 62 – Policy Quarterly – Volume 11, Issue 2 – May 2015 for the maintenance of human life, while In what ways might future generations’ to be preserved if an increasing number others are more relevant to the enjoyment interests be protected? of vital decision-rights are no longer the of life. The term ‘needs’ refers to things To the extent that the interests (needs responsibility of elected representatives? that are more ethically demanding, or of or rights) of future generations are not A second option is to increase the a higher moral order, than ‘interests’. If adequately protected by contemporary incentives for democratically-elected something is a ‘need’, then it is essential democratic institutions, there are at least officials to consider the interests of future for the particular purpose in question. four broad options available, each of generations (Boston and Lempp, 2011). If the need is not satisfied, there will be which rests on a distinctive intervention One possibility under this approach significant loss or harm. ‘Rights’ refer to logic (or set of logics). Such options are would be to enhance the ‘voice’ of the morally justifiable claims, often based on not mutually exclusive. All four could future by establishing new institutions specific human ‘needs’. If accorded legal be applied simultaneously, although not (or strengthening existing institutions) status, such rights will be both morally necessarily in the same policy domain. which have future-oriented missions and and legally binding. Having said this, The four options are: responsibilities. Examples might include few rights can be regarded as absolute or 1. insulating decision-making from a Parliamentary Committee for the unconditional (Feinberg, 1973) and the short-term democratic pressures; Future (as in Finland), a Parliamentary use of ‘rights’ in a legal context is highly 2. incentivising elected decision-makers Commissioner for Future Generations (as contested. Moreover, since rights are often to give greater priority to long-term in Hungary), a Sustainable Development in conflict, they must be balanced against considerations; Commission (as previously in Britain) or a each other – and against other morally 3. enhancing the capacity of elected Commission for the Future (as previously relevant considerations. decision-makers to think about and in New Zealand). More radical proposals Fifthly, it is sometimes objected that plan for the long term; and could include establishing, perhaps via a ascribing rights to future generations is neither legitimate nor practical because ‘rights’ can only be assigned when there The challenge ... is how to ensure that are clearly identifiable interests to protect. policy makers pursue a consistent long- Non-existing individuals, it is argued, cannot be granted moral or legal rights term strategy over time and are not because there is no defined right-holder and no consensus on the specific rights deflected from a prudent policy path, they ought to possess. Sceptics argue that a specific legal obligation to protect once adopted ... future generations cannot and should not be placed on present generations or their governments. Against these objections, 4. constraining the policy choices random ballot, an additional legislative defenders of the notion that future available to elected decision-makers, chamber with specific responsibilities to generations should be accorded rights especially in relation to issues with promote measures designed to protect argue that such rights are not individual significant long-term impacts. the interests of future generations. rights but rather ‘generational rights’, The first option is to shift decision- But many of these ideas have already ‘group-specific rights’ or ‘community rights on important policy issues been implemented somewhere in the rights’ (United Nations General Assembly, away from democratically-elected democratic world and their effectiveness, 2013). Hence, they are decoupled from officials to independent bodies and/or thus far, has been limited. Moreover, the strict requirement for an identifiable global institutions. The aim here is to many future-oriented institutions have right-holder. From this standpoint, the insulate decisions from the short-term not survived. values or interests being ‘protected do pressures and biases of the democratic A third option is to enhance the not depend upon knowing the kinds of process. Such an approach is already capacity of governments to think long- individuals that may exist or the numbers widely employed across the democratic term, to undertake various kinds of in any given future generation’ (Brown world with respect to many regulatory foresight activities and to engage in Weiss, 1992, p.24). Although relatively matters and the oversight of monetary ‘anticipatory governance’ (Fuerth, 2012). few international or domestic legal policy. But such a strategy poses serious By building such capacity, it is argued, instruments currently refer to, or clearly questions. What decision-rights should governments would have a deeper protect, the rights of future generations be transferred to non-elected bodies? knowledge of long-term risks, threats and (Brown Weiss, 1989; Ward, 2011), there What assurance is there that the decisions vulnerabilities and thus would be better are plausible ways of incorporating the of such bodies will better protect the equipped to plan for the future. Under language of ‘rights’ in such instruments interests of future generations? And how this approach, governments should and doing so in a manner which is are important values, such as democratic strengthen their investment in strategic meaningful, fair and effective. control, accountability and legitimacy, foresight, establish long-term think tanks,

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 63 Protecting the Rights of Future Generations: are constitutional mechanisms an answer? and improve their capability in areas like At one end of the spectrum, they include being costly to change). Yet if the device strategic planning, urban planning and constitutional provisions that are designed is to be durable, there must also be the infrastructure management. Yet many to limit the actions of future decision- flexibility for policy makers to respond governments have already implemented makers and are deliberately difficult to to unexpected contingencies. Designing such strategies, and, again, their change or circumvent (see Holmes, 1988; devices that strike a sensible balance effectiveness is by no means clear. Sunstein, 1988). For instance, such devices between these contrary imperatives The fourth and final option is to are frequently used to safeguard the requires skill and dexterity. In the end, constrain the decisions of democratically- interests and rights of minority groups in governments can only constrain their elected officials in various ways. As noted the face of intolerant majorities by giving successors to a modest degree. Whereas earlier, among the problems afflicting power to the judiciary to strike down laws Odysseus in Homer’s epic poem could democratic processes in relation to that breach basic rights. At the other end rely on others to limit his future agency, inter-temporal trade-offs are those of of the spectrum are such things as election governments always retain the power to ‘compliance’ and ‘time inconsistency’. promises and verbal commitments. unbind themselves – even if it may be The challenge, in brief, is how to ensure The latter are reinforced by the risk of difficult and politically costly. that policy makers pursue a consistent embarrassment, shame and the loss of While each of the four options is long-term strategy over time and are not credibility if they are not upheld. worthy of consideration, our focus here is deflected from a prudent policy path, once Between these two extremes are a on constraining solutions, and in particular adopted, by short-term electoral pressures wide range of mechanisms: incorporating constraining democratically-elected decision-makers by giving constitutional protection to future generations. In what Whereas Odysseus in Homer’s epic poem follows, we consider how the interests of future generations have been given could rely on others to limit his future expression in democratic constitutions, the agency, governments always retain the advantages and disadvantages of the various approaches available, and the possibility of power to unbind themselves - even if it granting constitutional protection to future may be difficult and politically costly. generations in New Zealand. How can constitutions protect future generations? A constitution is the fundamental or other temptations. The literatures particular protections, procedures or building block of a nation’s legal system. in the fields of social psychology and requirements into legislation; establishing It defines the powers and responsibilities behavioural economics suggest that one institutions with long-term missions; of the various executive, legislative and solution may lie in using ‘commitment negotiating bipartisan or multi-party judicial institutions, the relationship devices’, as these can be powerful drivers agreements on important long-term between citizens, and, most importantly, of human behaviour (Bryan et al., 2010; policy issues; and designing policies and the relationship between citizens and the Hagemann, 2011; Sunstein, 1988, 2014). programmes in ways that make them state (Hiskes, 2009). Constitutions are The aim of such devices is to bind more difficult politically to alter – for not, however, consistent across borders, decision-makers to particular courses instance, establishing endowments and cultures or legal systems. They differ of action, thereby helping to mitigate trust funds, creating social insurance greatly in terms of their supremacy, any problems arising from inconsistent arrangements based on individualised, entrenchment and form. On the one or fluctuating motives, a weak will or earnings-related benefits, and so forth. hand, many constitutions are written, countervailing external pressures. Of relevance to this article, it is common entrenched and supreme. This means that Commitment devices are relevant in New Zealand (and many other they are formally incorporated in law, can to all spheres of life, but are particularly jurisdictions) for the interests and needs be amended only with a supermajority applicable where the policy pay-offs of future generations to be given limited and take precedence over ordinary may contribute to decisions dominated recognition in ordinary statutes: e.g. the legislation (Ekeli, 2007). On the other by short-term expediency. They work Local Government Act 2002 (sections 10 hand, some constitutions, such as New by limiting actors’ future discretion or and 14) and the Resource Management Zealand’s, are found not in one document by reinforcing their desire to exercise Act 1991 (section 5). but in many documents, conventions and self-restraint – whether by increasing If the aim of the commitment device judicial decisions, none of which enjoy the rewards for good behaviour or by is to help encourage a consistent pattern the status of supreme law (Palmer, 2006). penalising bad behaviour (or both). of behaviour over time, then the device Yet, regardless of the particular features of Commitment devices are common in needs to be workable and credible and constitutions, they all perform the same politics, although the term is rarely used. impose a genuine constraint (e.g. by dual roles of regulating relationships and

Page 64 – Policy Quarterly – Volume 11, Issue 2 – May 2015 limiting government power (Keith, 2008). the level of recognition is limited.6 Switzerland and Ukraine. But in other Such roles make constitutions an ideal The large number of references in cases, including Bolivia, Cuba, Ecuador, space in which to promote the interests international law indicates that global France, Germany, Poland, South Africa of future generations (Gosseries, 2008; governance is fundamentally guided by a and Sweden, national constitutions Hayward, 2005). By their nature, they concern for the long-term well-being of contain substantive provisions regarding guarantee rights for citizens today and humanity. That said, in most cases such future generations. The constitution of into the future (Hiskes, 2009). Developing references are contained in preambles or Bolivia, for example, provides that among explicit constitutional recognition for in statements of objectives rather than the purposes and functions of the state are future generations, therefore, has the the operative text of such instruments. the ‘responsible use of natural resources, potential to ensure that rights today are They are thus purely aspirational and do the promotion of industrialisation, and not unduly valued over rights tomorrow. not place legally enforceable obligations the conservation of the environment With the inclusion of appropriate on states. In some cases there are specific for the welfare of current and future wording, a constitution can give future duties requiring states to protect future generations’. Similarly, the constitution generations greater moral and legal generations. The UNESCO Convention for of Ecuador requires the state to ‘exercise status and increase the extent to which the Protection of the World Cultural and sovereignty over biodiversity, whose executive, legislative and judicial bodies Natural Heritage (1972) requires all states administration and management shall be consider the long-term consequences to ensure the ‘protection, conservation, conducted on the basis of responsibility of their actions (Wright, 1990). In a presentation and transmission to future between generations’. Both provisions democracy with a written constitution, such a provision would bind successive generations of legislators to account for ... the international community has not future interests; in a democracy like New Zealand with an unwritten constitution sought to extend, at least in a significant it would give added legal recognition way, any of the human rights universally to future generations and, depending on the specific wording, could elevate accorded to current generations to future their interests to the level of enforceable fundamental rights. generations ...

Do constitutions protect future generations at present? There are references to ‘future generations’ generations of identified cultural and are worded to encourage positive action in numerous domestic and international natural heritage … situated on their on behalf of the state; but there is no legal instruments. For instance, at the territory’ (article 4), and the United Nations guarantee of rights. international level, a recent survey by Declaration on the Rights of Indigenous By contrast, the South African Ward (2011) identified no fewer than Peoples (2007) grants indigenous peoples constitution states that everyone has the 45 references to ‘future generations’ in a the ‘right to transmit to future generations ‘right to have the environment protected, wide range of binding and non-binding their histories, languages, oral traditions, for the benefit of present and future instruments. While this is positive, the philosophies, writing systems and generations, through reasonable legislative majority of these instruments deal solely literatures’ (article 13). On the whole, and other measures’. Similarly, the Andorran with environmental matters, such as the however, the international community has constitution guarantees ‘an environment protection of wild fauna and flora, the not sought to extend, at least in a significant fit for life for the coming generations’. climate system, the marine environment way, any of the human rights universally These constitutions recognise the interests and biological diversity.5 Such agreements accorded to current generations to future of future generations more fundamentally, include the United Nations Framework generations (Ward, 2011). in a way that is enforceable in the courts. Convention on Climate Change (1992), Turning to the national level, over 20 Yet, probably to avoid undue uncertainty the United Nations Convention on countries (and several states and provinces) or constraints on future parliaments, they Biological Diversity (1992) and the have incorporated protections for future tie this right closely to environmental Joint Convention on the Safety of Spent generations in their constitutions (see protection. It is uncommon for a Fuel Management and on the Safety of IHRC and SEHN, 2008; McLeod, 2013; constitution to protect future generations Radioactive Waste Management (2001). United Nations General Assembly, 2013; of their own accord, independent of Although ‘future generations’ also feature World Future Council, 2010). As in the environmental considerations. While a in a number of international agreements international arena, often such provisions small number of nations do have such and declarations dealing with diverse are contained in the preamble and are protection, the relevant provisions are subjects like peace and security, education, essentially aspirational – as, for instance, worded as statements of policy rather cultural heritage and scientific matters, in Armenia, the Czech Republic, Estonia, than as fundamental rights. In Estonia,

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 65 Protecting the Rights of Future Generations: are constitutional mechanisms an answer? for instance, the constitution’s preamble the Ecuadorian constitution, the Supreme 2008). Thomas Jefferson, for one, was an declares that ‘[the state] shall serve Court of Justice of Nueva Loja found in outspoken critic of such constitutional to protect international and external favour of the coalition and held Chevron rigidity. In his view: peace and provide security for the social liable for $8.6 billion in damages. progress and general benefit of present At the state level in the United a generation may bind itself as long and future generations’. This provides a States there has also been some judicial as its majority continues in life; positive direction for agenda setting, but it recognition of the rights of future when that has disappeared, another has little practical or judicial value; there generations. In Montana and Hawaii, majority is in place, holds all the is no ambit for enforcement if it is not where environmental protections rights and powers their predecessors complied with. for future generations have been once held, and may change their laws constitutionally safeguarded (albeit and institutions to suit themselves.7 How effective are these constitutional broadly) since the 1970s, the Supreme protections? Court of each state has upheld the rights While this perspective fails to account Currently, almost all of the provisions in of future generations (Raffensperger, adequately for intergenerational issues, national constitutions concerning future 2003). In Montana, the Supreme Court including the need to protect a world with generations are rather vague, and, as a held that Montanans have the right ‘planetary boundaries’ and finite resources result, provide little guidance for judges to prevent irreversible harm before it from severe and irreversible damage in cases brought before the courts (Ekeli, occurs, while in Hawaii a precautionary (Rockström et al., 2009), it highlights the 2007). In Norway, the Supreme Court principle has been adopted in protecting fact that constitutional protections can be has not once referred to the provision resources for future generations. While a double-edged sword (Gosseries, 2008). in the constitution protecting future such outcomes are to be welcomed, they In Westminster systems of democracy, generations, despite its introduction more are the exception rather than the norm. constitutional rigidity is limited by the doctrine of parliamentary supremacy. This doctrine holds that current parliaments can At the state level in the United States only bind future parliaments on matters of ‘manner and form’; they cannot limit their there has also been some judicial autonomy substantively (Eleftheriadis, 2009). In other systems, however, recognition of the rights of future procedures for amending constitutional generations. provisions must not be so restrictive that they make it almost impossible for future generations to adopt new or revised provisions as needs and circumstances change. That said, if any constitutionally guaranteed rights are to be effective, they than 20 years ago. How can constitutional protections for future must have some level of supremacy and There have been a handful of cases generations be drafted effectively? should not be easily trodden on by future in which constitutional protections When considering how constitutional parliaments. for future generations have been provisions might be utilised to protect future To date, policy makers in most successfully invoked in a court of law, generations, there is a fundamental tension democracies have been cautious but they are few and far between. In the at work. On the one hand, incorporating about future generations’ rights, case of Minors Oposa v Secretary of the substantive guarantees has the potential to favouring legislative sovereignty over Department of Environment and Natural protect later generations from the actions intergenerational protection. They have Resources (1994), the Supreme Court of the generations preceding them. Yet, on focused on providing broad statements of the Philippines held that a group of the other hand, the more that constitutional of policy rather than endowing future schoolchildren had standing to challenge protection is relied on for such purposes, generations with specific rights. timber leasing of old-growth forests ‘for the more the generational sovereignty Admittedly, incorporating general themselves, for others of their generation of future legislatures is undermined statements of policy in a constitution can and for the succeeding generations’ (Sunstein, 1988; Thompson, 2005). In provide a useful reference point and serve (Mank, 2009). In the Chevron–Texaco other words, constitutions (through as an interpretive aid, but such approaches (Pollution) Case (2010), an international a variety of amendment restrictions) do not facilitate legal enforcement or coalition of environmental activists reduce the freedom of each generation of bind later parliaments (Timlin, 2012). invoked Ecuador’s constitutional rights of decision-makers to adopt their own rules. While constitutional policy-making nature in a case against Chevron regarding They subject future generations to the laws should never be rash, it should strive to oil contamination in the Ecuadorian of the past, creating constitutional rigidity develop provisions that serve the purpose rainforest (Cress, 2012). Relying in part on and resistance to change (Gosseries, for which they are intended. Hence, such

Page 66 – Policy Quarterly – Volume 11, Issue 2 – May 2015 provisions should be designed in ways This right includes but is not limited presently tangible, and are often difficult that give genuine additional protection to: the enjoyment of clean air, pure to remedy or redress. to future generations, rather than merely water, and scenic lands; freedom Fortunately, however, this is not the paying them lip service. They should from unwanted exposure to toxic end of the road. Courts in many parts of strive to change behaviours and policy chemicals and other contaminants; the world have expressed a willingness settings, to extend time horizons, and and a secure climate. (IHRC and to depart from these more traditional to alter the priorities of legislators and SEHN, 2008, p.10) standing principles in respect of new governmental decision-makers. rights of action which fit awkwardly Accordingly, in our view serious Such a provision is specific enough into the common law model (ibid.). In consideration should be given to to guide judges, yet sufficiently broad to New Zealand, the standing requirement incorporating specific ‘rights’ for future avoid confinement to a narrow set of facts. is largely gone for judicial review generations which can be effectively However, it is not complete in isolation. claims, and in the US, Congress has upheld in the courts. Framing The IHRC emphasises that a constitution relaxed the requirements of imminence constitutional protection in terms of must also clearly highlight that the rights and redressability in respect of claims rights would provide an avenue for current of future generations are to be weighed regarding environmental impact citizens to hold the state to account for its equally with other fundamental rights statements, claims regarding the Freedom actions, potentially giving the courts the and must specify who has standing to of Information Act, claims brought on power to strike down legislation which enforce the right, to what standard and behalf of a state, and more generally clearly threatens the specified rights. against whom. where procedural injury is concerned. In this context, the International This, however, is no easy task. The In Massachusetts v EPA (2007), a judicial Human Rights Clinic (IHRC and SEHN, traditional doctrine of standing, which review of the Environmental Protection 2008) has identified criteria to guide governs who can bring proceedings Agency’s refusal to regulate tailpipe the drafting of such provisions and has proposed some suggested wording. The IHRC places considerable emphasis on There have been a handful of cases striking an appropriate balance between a general, open-ended right and a specific, in which constitutional protections articulated and enforceable right. An overly broad or general right might be for future generations have been ignored and difficult to enforce, while successfully invoked in a court of law, rights that are too specific may be easily circumvented. Highly specific rights may but they are few and far between. indicate to would-be violators that the courts are unlikely to enforce violations unless they fall under the relevant, tight wording of the constitutional provision. before a court of law, appears to rule emissions, the US Supreme Court They may also unintentionally serve as out altogether the possibility of invoking considered redressability to be a matter of a temporal restraint, as new scientific the rights of future generation in courts. degree rather than a minimum standard discoveries and technological advances Before being granted standing, plaintiffs and relaxed the standard of imminence may not be adequately accounted for must demonstrate that they have suffered to include the long-term effects of in any narrow list of applications. The an imminent injury-in-fact which is climate change. This was a landmark IHRC further emphasises that any such caused by the defendant’s conduct and decision, establishing beyond doubt that provision must be compatible with widely which is redressable through the remedy Congress has the power to relax the shared notions of distributive justice and they seek (Mank, 2009). In other words, traditional requirements of imminence principles of sustainable development. this doctrine requires plaintiffs to and redressability. It also indicated a This includes ensuring that the needs of demonstrate a ‘real-world’ tangible harm broader trend of judicial willingness to the present generation are met without as well as a legal cause of action, to prove relax standing requirements in respect compromising the ability of future some degree of imminence in respect of environmental and procedural generations to meet their own needs. of that harm, and to show a ‘personal claims (Mank, 2009). This more flexible The particular wording proposed stake in the outcome’ before their claim approach can be traced back to the case by the IHRC is tied to environmental can proceed (ibid.). This high standard, of Lujan v. Defenders of Wildlife (1992), in protection, and is as follows: aimed at avoiding generalised grievance which Justice Kennedy commented that: claims, is impossible to meet in respect of Present and future generations of the rights of future generations. By their as government programs and policies citizens of the state have the right to very nature, such rights protect long- become more complex and far an ecologically healthy environment. term interests which are not imminent or reaching, we must be sensitive to the

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 67 Protecting the Rights of Future Generations: are constitutional mechanisms an answer?

articulation of new rights of action is that it is flexible and capable of adapting first written constitution (Glazebrook, that do not have clear analogs in to changing circumstances. It lacks much 2011). Although such rights would need our common law tradition . . . In of the rigidity of other constitutions, to be carefully and contextually worded, my view, Congress has the power to and there are few entrenched provisions. providing sufficient detail regarding en- define injuries and articulate chains In such a constitutional landscape, forceability and the state’s obligations, of causation that will give rise to incorporating a fundamental right the IHRC’s guidelines should provide a a case or controversy where none relating to the environment, and more useful starting point. existed before. generally protecting the interests of future generations, would be relatively Alternatives to constitutional recognition While a constitutional right protecting simple and would not unduly constrain Incorporating the rights of future future generations fits awkwardly in the subsequent parliaments. generations into national constitutions common law tradition, it is a ‘new right of Currently, no such clause exists in is not the only way to help protect action’ for which allowance could be made. New Zealand legislation, nor is one in the and enhance the well-being of future If a statutory body, such as a Parliamentary pipeline. In fact, New Zealand is among generations. As noted earlier, other kinds Commission for the Future, was granted only 16 countries that have failed thus far of constraints – or commitment devices – specific sole authority to take legal action to recognise and provide for the right to a are available. Such devices will not impose when the rights of future generations healthy environment in their constitution constitutional limitations on current were at risk of being violated, it would (Browning, 2013). For a state which prides or future legislatures, but they will help to constrain decisions in other ways or change the incentives facing policy makers: ... New Zealand is among only 16 for example, by imposing new reporting obligations on government, by enhancing countries that have failed thus far the quality of information on the likely to recognise and provide for the right long-term impacts of policy choices, by increasing the extent of advocacy on to a healthy environment in their behalf of future generations, and, more generally, by enhancing the extent to constitution ... which governments can be held politically accountable for decisions (or non- decisions) with major long-term impacts. eliminate any confusion regarding the itself on constitutional flexibility, our Examples of such devices include: breadth and scope of standing. However, constitution arrangements are, at least in • public agencies with ‘guardianship- such institutions are rare and sometimes certain respects, surprisingly outdated. type’ roles in relation to future ineffective. Thus, constitutional provisions An obvious way forward would be to generations; also need to make allowance, clearly and incorporate a new provision in the existing • advisory bodies with responsibilities carefully, for public plaintiffs or genuine Bill of Rights Act. In our view, there to promote sustainable development; interest groups to bring claims on behalf would be merit in including such a clause, • parliamentary committees with of their successors. provided it is consistent with the IHRC’s specific duties to consider long-term recommendations. In principle, this could issues; How might future generations be protected protect future generations in the same way • legislative requirements for in New Zealand’s constitution? as the Act does other rights, such as free governments to produce regular New Zealand is one of only three speech or freedom of religion. reports on their efforts to protect democracies in the world without a An analysis of the merits of a written citizens’ long-term interests (e.g. formal written constitution (Chen, 2011). constitution is not possible here. Never- posterity impact statements); and There is no supreme law permitting the theless, many New Zealand academics • incorporating specific requirements judiciary to strike down legislation, and and legal practitioners are strong advo- into domestic statutes: for instance, the New Zealand Bill of Rights Act 1990 cates for such a step.5 Moreover, a recent recent amendments to New Zealand’s offers only limited legal recourse to citizens consultation conducted by the Constitu- State Sector Act 1988 (section who believe they have been wronged by tional Advisory Panel (2013) has identi- 32) impose specific ‘stewardship’ the state – most particularly because it fied that intergenerational equity is one responsibilities on departmental chief cannot be used to strike down primary of the key themes in public discussions of executives. legislation (Palmer and Palmer, 2004). New Zealand’s constitution. If a reform None of these mechanisms, whether Any constitutional protection for future of New Zealand’s constitution were ini- individually or in combination, generations will apply very differently to tiated, it could provide a unique oppor- represents a fully effective solution to countries with written constitutions. The tunity to incorporate the rights of future the inter-temporal asymmetries evident benefit of New Zealand’s model, however, generations explicitly into New Zealand’s in democratic processes. But, if well-

Page 68 – Policy Quarterly – Volume 11, Issue 2 – May 2015 designed, they have the potential to shift of ensuring that the present needs of Conclusion the balance in the direction of future citizens are met without compromising Adequately protecting both the long-term interests, albeit modestly. There is space the ability of future citizens to meet interests of current citizens and the interests here for only a few brief comments on their needs. It sets ambitious long-term of future citizens is vitally important. several of these measures. goals, introduces national indicators for At present, there are good reasons Internationally, the best known measuring well-being, establishes a Future for doubting whether contemporary examples of ‘guardianship-type’ bodies Generations Commissioner to serve as democratic institutions have sufficiently include the Commission for Future an advocate for future generations, and strong incentives to achieve this objective. Generations in Israel (2001–06) and requires the preparation of well-being That being the case, further reforms will be the Parliamentary Commissioner plans across the local government sector. required to avoid policy decisions that are for Future Generations in Hungary It will be interesting to observe how this excessively biased in favour of the present. (2007–). The former commission was legislation, once enacted and operative, Somehow, the political voice representing mandated to review legislation and alters decision-making processes and future interests must be increased beyond regulations with implications for future outcomes. Potentially, it may provide a a mere whisper, especially where there are generations and to provide advice to feasible and effective model for other risks of irreversible harm. the Knesset on all matters pertaining governments, whether national or sub- This article has outlined a range of to future generations. It has since been national, to adopt. possible responses, giving particular abolished. The Hungarian commissioner Currently, New Zealand has no attention to the idea of incorporating is one of four parliamentary ombudsmen and is charged with safeguarding the constitutional right of citizens to a healthy ... we acknowledge that efforts to protect environment, investigating citizens’ complaints regarding environmental the interests (needs and/or rights) of issues, advocating on behalf of long- future generations through constitutional term sustainability, and undertaking research on sustainability issues. Despite mechanisms raise serious philosophical the benefit of these institutions in theory, their effectiveness in practice has proved and legal issues. to be limited. This is partly the result of funding constraints; but it is also attributable to their limited powers and a lack of constitutional protection, as public institution specifically responsible additional protection for future witnessed by the abolition of the Israeli for future generations. Nevertheless, generations in constitutional documents. commission after only five years. the Parliamentary Commissioner for We acknowledge that such an approach National initiatives of a slightly the Environment, established in 1986, has limitations. For instance, while different nature, focusing instead on partly serves this function, at least in constitutional protections have the sustainable development, are another terms of environmental matters. The potential to reduce certain kinds of possibility. Examples include the British commissioner has investigative, advisory harm to future generations, they do not Sustainable Development Commission and auditing roles, with the broad aim necessarily increase the incentives on (which was abolished after a decade in of improving environmental governance policy makers to undertake the sorts of 2011), the German Parliamentary Advisory (Gopel, 2011; Hawke, 1997). The mandate policy investments necessary to secure Council on Sustainable Development, the of the Parliamentary Commissioner for future benefits (e.g. via expenditure Brazilian Commission on Environment the Environment includes reviewing on public infrastructure, education or and Sustainable Development, and the the effectiveness of environmental research). Hence, they are by no means Welsh Commissioner for Sustainable planning and management, as well as sufficient. Further, we acknowledge that Futures. The Welsh example is investigating issues where significant efforts to protect the interests (needs of particular interest because the environmental impacts are likely. It has and/or rights) of future generations government has a legal duty to promote been suggested from time to time that through constitutional mechanisms sustainable development. Indeed, the the commissioner’s responsibilities could raise serious philosophical and legal government is in the process of enacting be extended to include a general duty issues. Nevertheless, they also provide a Well-being of Future Generations to promote and protect the interests of a unique opportunity to effect change (Wales) Bill, which the commissioner future generations. However, this would on a fundamental level and to shift the played an integral role in drafting (Welsh substantially broaden the role of the balance more in favour of longer-term Government, 2014). The bill aims to Office, and without a large increase in considerations. embed the principle of sustainability at resources and capabilities could weaken Standing back from the particulars, all levels of government, with the aim its current mission. three matters need emphasis. First, the

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 69 Protecting the Rights of Future Generations: are constitutional mechanisms an answer? evidence suggests that if greater weight is deep uncertainty and complicated trade- North American Agreement on Environmental Cooperation (1993), Antarctic Treaty (1959) and the United Nations to be given by democratic policy makers offs. Hence, responses must be adaptive Convention on the Law of the Sea (1982). 6 See, for instance, the Council of Europe Convention for the to the interests of future generations, and experimental: we are in the realm of Protection of the Architectural Heritage of Europe (1985), action will be required on multiple trial and error. But we must hope that Charter of Fundamental Rights of the European Union (2000), Vienna Declaration and Programme of Action, World fronts. In effect, a whole-of-government our errors are neither too large nor too Conference on Human Rights (1993), UNESCO Universal Declaration on Bioethics and Human Rights (2005), United approach is needed, with initiatives at permanent in their effects. Nations Declaration on the Rights of Indigenous Peoples (2007) and the UNESCO Universal Declaration on the different governmental levels drawing Human Genome and Human Rights (1997). 1 See Oxford Martin Commission, 2013 7 Thomas Jefferson, Letter to Major J. Cartwright (5 June on a range of institutional, regulatory 2 Fuerth, 2012; Jacobs, 2011; Read, 2012; Thompson, 1824). and other policy tools. Second, there 2005; Ward, 2011 8 For a discussion of the arguments for and against a written 3 IPCC, 2014 constitution, see Chen (2011). is no one ‘correct’ solution, nor any 4 There is no suggestion that non-democratic regimes are silver bullets. Responses must have due any better than democracies at protecting the interests of future generations. Indeed, much of the available evidence, Acknowledgements regard to the constitutional, political especially in relation to environmental sustainability and resource management, suggests that they are worse. The authors would like to thank Matthew and cultural context of each jurisdiction 5 See, for instance, the Convention on International Trade in and be designed accordingly. Finally, the Endangered Species of Wild Fauna and Flora (CITES, 1975), Palmer, Dean Knight and Mark Prebble African Convention on the Conservation of Nature and Natural for their helpful comments on an earlier challenge of inter-temporal governance is Resources (1968), Bonn Convention on the Conservation of Migratory Species of Wild Animals (1979), ASEAN Agreement version of this article. profoundly complex. Policy makers face on the Conservation of Nature and Natural Resources (1985),

References Boston, J. and F. Lempp (2011) ‘Climate change: explaining and solving Fuerth, L. with E. Faber (2012) Anticipatory Governance: practical the mismatch between scientific urgency and political inertia’, upgrades – equipping the executive branch to cope with increasing Accounting, Auditing and Accountability Journal, 24, (8), pp.1000-21 speed and complexity of major challenges, Washington, DC: Elliott Brown Weiss, E. (1989) In Fairness to Future Generations: international School of International Affairs, George Washington University law, common patrimony, and intergenerational equity, Tokyo: United Glazebrook, S. (2011) ‘Keeping it clean and green: the case for Nations University constitutional environmental protection rights’, in C. Morris, J. Boston Brown Weiss, E. (1992) ‘In fairness to future generations and sustainable and P. Butler (eds), Reconstituting the Constitution, Berlin: Springer development’, American University International Law Review, 8, (1), Gopel, M. (2011) ‘Guarding our future: how to protect future pp.19-26 generations’, Solutions, 1 (6), pp.1-8 Browning, C. (2003) The Constitution Conservation: Forest & Bird Gore, A. (1992) Earth in the Balance: ecology and the human spirit, New submission, Wellington: Forest & Bird York: Houghton Mifflin Bryan, G. et al. (2010) ‘Commitment devices’, Annual Review of Gosseries, A. (2008) ‘Constitutions and future generations’, The Good Economics, 2, pp.671-98 Society, 17 (2), pp.32-7 Buffet, W. (1977) http://warrenbuffettoninvestment.com/how-inflation- Hagemann, R. (2011) ‘How can fiscal councils strengthen fiscal swindles-the-equity-investor performance’, OECD Journal: Economic Studies, 1, pp.75-98 Caney, S. (2008) ‘Human rights, climate change, and discounting’, Hawke, G. (ed.) (1997) Guardians for the Environment, Wellington: Environmental Politics, 17, (4), pp. 536-55 Institute of Policy Studies, Victoria University of Wellington Caney, S. (2009) ‘Climate change and the future: discounting for time, Hayward, T. (2005) Constitutional Environmental Rights, New York: wealth, and risk’, Journal of Social Philosophy, 40, (2), pp.163-86 Oxford University Press Chen, M. (2011) ‘The advantages and disadvantages of a supreme Hiskes, R. (2009) The Human Right to a Green Future: environmental constitution for New Zealand: the problem with pragmatic rights and intergenerational justice, New York: Cambridge University constitutional evolution’, in C. Morris, J. Boston and P. Butler (eds), Press Reconstituting the Constitution, Berlin: Springer Holmes, S. (1988) ‘Precommitment and the paradox of democracy’, in Chevron Corp v Donziger, et al., case no.11-CV-0691 (LAK) J. Elster and R. Slagstad (eds), Constitutionalism and Democracy, Commissioner for Sustainable Futures (2014) An Interim Report from Cambridge: Cambridge University Press thePpilot National Conversation on ‘The Wales We Want’, Cardiff: IHRC and SEHN (2008) An Environmental Right for Future Generations: Sustain Wales model state constitutional provisions and model statute, Cambridge, Constitutional Advisory Panel (2013) New Zealand’s Constitution: a report Mass: International Human Rights Clinic of Harvard Law School and on a conversation, Wellington: New Zealand Government Science and Environmental Health Network Cress, C. (2012) Republic of Ecuador v. Chevron Corporation: obstacles to IPCC (2014) Climate Change 2014: Synthesis Report, Intergovernmental U.S. recognition of a foreign judgment in a landmark environmental Panel on Climate Change justice case, University of North Carolina School of Law Jacobs, A. (2011) Governing for the Long Term, Cambridge: Cambridge Ekeli, K.S. (2007) ‘Green constitutionalism: the constitutional protection University Press of future generations’, Ratio Juris, 20, (3), pp.378-401 Jacobs, A. and J. Matthews (2012) ‘Why do citizens discount the future? Eleftheriadis, P. (2009) ‘Parliamentary sovereignty and the constitution’, Public opinion and the timing of policy consequences’, British Journal Canadian Journal of Law and Jurisprudence, 22 (2), pp.1-24 of Political Science, 42, pp.903-35 Feinberg, J. (1973) Social Philosophy, New Jersey: Prentice-Hall

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Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 71 Philip S. Morrison

The Inequality Debate the neglected role of residential sorting

‘To seek “causes” of poverty … is to enter an intellectual dead end because poverty has no causes. Only prosperity has causes.’ (Jacobs, 1969, p.118, cited in Piachaud, 2002, p.1)

One of the curious features of recent writing on income the income distribution inequality is the scant attention paid to the geography of and hence further income inequality, to the spatial separation of rich and poor. While (and wealth) inequality. The it is recognised that social capital can be enhanced by broader purpose is to suggest residential sorting into more homogeneous groups, there that the way we organise is longstanding concern that this same residential sorting ourselves geographically may may exacerbate existing inequality by inhibiting the social contribute to how unequal mobility of the poor (Turner and Fortuny, 2009).1 The we are, as well as how more perspective I want to advance here differs from the standard unequal we may become in ‘neighbourhood effects’ literature by focusing not on those the future. What remains central in both the living in poor neighbourhoods, but instead on the benefits conventional ‘neighbourhood effects’ residential sorting may yield for the rich – the way in which literature and in the perspective I advance here is the concept of externalities, location decisions redistribute income to the upper end of or spillover effects: the unpriced consequences of the actions of proximate Philip Morrison is Professor of Human Geography in the School of Geography, Environment and others. Externalities are particularly acute Earth Sciences, Victoria University of Wellington. in urban settings because agglomeration builds on the advantages generated by

Page 72 – Policy Quarterly – Volume 11, Issue 2 – May 2015 positive externalities. At the same time, little attention (both in New Zealand disappointing: not only the lukewarm remarkably little attention has been paid and overseas). The first is the lack effects documented in the ‘moving to to the possible influence the distribution of consistent evidence of negative opportunity’ experiment (Ellen and of externalities has on the distribution of consequences. Despite the presence of Turner, 2003), but also the documented (real) incomes.2 The neglect in the New elegant theoretical models of residential re-sorting that has taken place in projects Zealand case is surprising for at least two sorting, most researchers have found it specifically designed to cater for mixed reasons. Firstly, there have been marked very difficult to assemble the econometric income groups (Lupton and Fuller, 2009; increases in income inequality in New evidence demonstrating consistent causal Smith, 2002). There appear to be few Zealand since the 1970s, as the previous links between sorting, income inequality well-documented benefits to either high issue of Policy Quarterly has recounted. and social mobility. As a recent review or low income groups from attempts at Secondly, repeated studies internationally delicately put it, ‘Despite the important income-mixing. have documented the way that rising policy implications and a large theoretical One of the reasons it has been so income inequality has translated into literature that assumes the existence of difficult to reverse residential sorting increased levels of income segregation human capital externalities, the empirical even at the scale of the neighbourhood is within the city.3 literature on the magnitude of these that in democratic societies the freedom In the following discussion I refer externalities is still young’ and it is ‘still to decide where to live, and hence who to the relative lack of attention given to too early to draw definitive conclusions to live next to, is deeply engrained as a the spatial in recent writing on income on the size’ (Moretti, 2003).6 ‘right’, as freedom of choice. Free choice inequality. I then turn to the geography of inequality in New Zealand, but instead of focusing on the geography of ... when we observe those who are disadvantage I turn instead to the other end of the income distribution, to the actually able to exercise choice, we find geography of affluence.4 I then illustrate they place considerable weight on spatial with reference to one mechanism, the choice of schools. At the end of the article proximity to others like themselves, I point to a new world of micro data and geographic identifiers and enhanced data as well as the associated wealth and access which may facilitate future testing educational opportunities that more of a number of hypotheses. affluent locations provide. The neglect of residential sorting The voluminous literature on ‘neighbourhood effects’ has been driven primarily by concerns over poverty, but has In one of the few longitudinal studies of residential location by those with the received relatively little attention from those in which income growth over periods means forms an important part of the trying to understand income inequality. up to ten years was traced across the full aspirational goals of New Zealanders, a For example, in one of the best known range of neighbourhoods, its UK authors majority of whom not only favour less attempts to address the consequences of concluded that, far from ‘otherwise- (rather than more) redistribution of inequality, The Spirit Level, the authors identical people living in different areas income, but do so to a higher degree today devote less than 1% of their volume to hav[ing] different prospects’, we find than people in most other comparable the fact that the rich and poor live in quite ‘no evidence of a negative relationship countries (Morrison, 2015). different locations (Wilkinson and Pickett, between neighbourhood and subsequent At the same time, when we observe 2009).5 A recent treatment of inequality in income growth’ (Bolster et al., 2007, pp.1, those who are actually able to exercise New Zealand also largely ignores the fact 3). On the contrary, several studies point choice, we find they place considerable that we live in a spatially segmented society. to the positive effects of the ‘specialised weight on spatial proximity to others While the editor of Inequality: a New neighbourhoods’ that result from like themselves, as well as the associated Zealand crisis (Rashbrooke, 2013) began by residential sorting, noting how social wealth and educational opportunities recounting the geography of inequality in homogeneity facilitates communication that more affluent locations provide. Wellington, the geography lesson ended as and job-matching (Cheshire, 2007). In their revealed preference, high- abruptly as it began, leaving each author in Attention has also been drawn to income households believe sorting into the collection recounting life in an aspatial the negative psychological effects of successively higher-priced sections of the world. heightened income relativities present in housing market will be to their financial There are two persuasive reasons mixed neighbourhoods (Luttmer, 2005). benefit, that it will help support their why the distributional implications Second, the experience with mixed relative social position, will enhance of residential sorting have received neighbourhoods themselves has been personal safety and bolster the chances

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 73 The Inequality Debate: the neglected role of residential sorting that their children will continue to enjoy assertions about the underlying processes superior amenities. Not only is their upward social mobility. By contrast, which generate the uneven geography of wealth enhanced, but ensures that local the poor rarely choose where they live. income: first, the way in which ‘greater classrooms are inhabited by better- Sitting at the bottom of a rank-ordered social distances become translated into prepared students motivated by a shared distribution of neighbourhoods, any greater geographical segregation between set of values and behavioural norms, and ‘choice’ is applied only to a residual set of rich and poor in more unequal societies’, taught in higher-quality facilities which leftovers discounted by higher household and second, the way that ‘these processes can often attract superior teachers. As incomes or provided, in a small fraction [of residential segregation] feed back into evidence, UK researchers found ‘that of the housing stock, by the state. further reductions in social mobility’ higher levels of residential segregation In order to understand the (Wilkinson and Pickett, 2009, pp.162-3).7 do seem to encourage more unequal distributional consequences of spatial Their thesis, in other words, is that the outcomes – but they do so primarily by sorting and the possible impact it might more unequal the society, the greater the boosting performance at the top end, have on income inequality, we are, degree of spatial sorting by income and while exerting a mildly positive influence therefore, more likely to learn more by the more likely that sorting contributes to also on achievements at the median shifting our attention to the residential further income inequality. level’ (Gordon and Monastiriotis, 2006, behaviour of higher-income households The circular, cumulative intent of pp.233-4). It is timely, therefore, to turn and to the net positive externalities they Wilkinson and Pickett’s argument is from the geography of deprivation to the generate from their spatial sorting. I persuasive. At its centre is the institution geography of affluence. begin with the conventional geography of private property and its ability to The geography of affluence Today more than ever the affluent are A more recent attempt to monitor spatial locating in metropolitan areas. From a recently developed index we learn that patterns of income concentration in over half of all affluent area units were located in Auckland, which is a much New Zealand has drawn on records higher proportion than the third of the of individual households, under population housed there.8 Well under a third of the affluent (28%) were located in confidentiality, from the New Zealand Wellington, which is also higher than that city’s share of the country’s population.9 census (1996, 2001 and 2006. Under 10% were located in Christchurch. 90% of all affluent areas, therefore, are located in one of the three main urban of deprivation, and then address the exclude. Property ownership enables centres of New Zealand, which is much contemporary geography of affluence. the consumption of housing services higher than the share of all the high at mutually-exclusive locations: my deprivation deciles (NZDep10) area units The geography of deprivation ownership and occupancy of space located in the same cities.10 Degrees of Deprivation in New Zealand: an precludes yours (and vice versa). Few A more recent attempt to monitor atlas of socio-economic difference gave New other forms of consumption are capable spatial patterns of income concentration Zealanders their first real appreciation of such a high degree of exclusion; our in New Zealand has drawn on records of areal deprivation in their country cars share the road, much of our eating of individual households, under (Crampton, Salmond and Kirkpatrick, is done publicly, and a great deal of confidentiality, from the New Zealand 2004; Crampton et al., 2000; White et our recreation still takes place in public census (1996, 2001 and 2006). Specifically, al., 2008), as did similar publications settings. It is this mutually-exclusive Maré et al. applied a statistical measure in the UK and the US (Dorling and characteristic of housing consumption of spatial concentration (within one Rees, 2003; Glasmeier, 2006). However, which makes housing and hence real kilometre) to three household income the New Zealand atlas was assembled estate particularly attractive to the rich, groups (below $20,000, $20–55,000 not to understand either the process of who exclude not simply because they can and above $55,000) in Auckland (Maré, residential sorting itself nor its social but because of the advantages they believe Coleman and Pinkerton, 2011). Figure 1 consequences. Instead, it was designed they will accrue as a result. In other words, reproduces their map. The darker shading to assist in the delivery of services to the institution of private property allows indicates the greater spatial concentration disadvantaged areas (White et al., 2008, those with choice to harvest a range of of the top third of the household income p.14). By contrast, in the short section of positive externalities to their exclusive distribution in 2006.11 As they observe, The Spirit Level in which Wilkinson and benefit. The result is neighbourhoods ‘[h]igh income earners and those in Pickett address the presence of residential with a more homogeneous local households with high equivalised sorting they make two quite central culture, higher-quality housing and household income displayed the greatest

Page 74 – Policy Quarterly – Volume 11, Issue 2 – May 2015 Figure 1: Residential segregation in the Auckland urban Figure 2: Residential segregation in the Auckland urban area of the top third of household income area by the bottom third of the household income distribution, 2006 distribution, 2006

Getis and Ord Measure of Concentration 1km Getis and Ord Measure of Concentration 1km Group: HH income above $55K Group: HH income below $20K

(1.96, 15.4] (2394) (1.96, 12.6] (2371) (-1.96, 1.96] (2889) (-1.96, 1.96] (4204) (-9.9, -1.96] (3248) (-9.3, -1.96] (1956) (No data (100) (No data (100)

Source: Mare et al., 2012, Figure 4, p.45 Source: Mare et al., 2012, Figure 4, p.45 sorting, and the highest degree of spatial Identifying distributional consequences of Several studies have now documented autocorrelation’ (Maré et al., 2012).12 residential sorting the impact of the education reforms on By contrast, Figure 2 maps the The affluent concentrate spatially relative levels of access and the way the concentration of low-income households within cities to do more than exploit the deregulation has allowed ‘communities (the bottom third), which is almost the advantages of homogeneity.14 One of the of wealth seek to maintain a quality of photographic negative of Figure 1, for main reasons is to gain access to higher- life’ and ‘clear systems of privilege’ by it shows the relatively poor households quality education through the local controlling school district boundaries’ concentrating in quite separate parts of the housing market. This has been increasingly (Thomson, 2010, p.421). Thomson’s maps Auckland urban area. Taken overall, the possible since the New Zealand education of schools with and without enrolment spatial clustering is U-shaped in income, ‘market’ was deregulated through the schemes (Figure 6, p.437) closely match with the greatest spatial concentration Tomorrow’s Schools reforms of the late Maré’s Figure 1 above showing the being experienced by the relatively rich 1980s, which gave local parents first concentration of affluence, and the and relatively poor households.13 choice for schools within their zone, while juxtaposition serves as a reminder of the It is one thing to quantify the degree also enabling them to look elsewhere if intimate relationship between wealth and of residential sorting using spatial they preferred (McCulloch, 1991, p.160). control over enrolment into higher-decile statistics, and quite another to identify This effectively allowed quality education schools. its consequences in distributional terms. to be purchased through the housing Machin’s recent review of the What we cannot tell from Figures 1 and market. These developments motivated international evidence records a 2, for example, is how much clustering Hugh Lauder and David Hughes, who had surprising degree of agreement over the benefits those at the top of the income been researching Christchurch schools, effect proximity to higher performing distribution. I now turn to this question, to suggest a ‘more rigorous approach to schools has on housing prices: between using the spatial relationship between zoning … in order to help equalize the 3 and 4% (Machin, 2011, Table 2, p.726). the housing and education markets as an “social class mix” of different schools, and In a closer analysis of the Christchurch example. hence to improve education and equity experience, Gibson and Boe-Gibson outcomes’ (Lauder and Hughes, 1990).15 examine the relationship between school

Policy Quarterly – Volume 11, Issue 2 – May 2015 – Page 75 The Inequality Debate: the neglected role of residential sorting performance and house prices, showing inequality at the high-income end of the data and the econometric methods used that ‘a standard deviation increase in income distribution, and this is one of to analyse them should not be applied performance, as measured by pass rates the reasons for looking more closely at to the distributional issues raised in this in NCEA examinations, raises house the connection between geography and article. prices by 6.4%, all else the same’ (Gibson affluence. and Boe-Gibson, 2014, p.18). This higher How might we learn more? It is clear Conclusions price threshold apparent in New Zealand from recent examination of New Zealand This article has addressed a paradox. is, they argue, a reflection of ‘special work in the socio-economic sciences On one hand researchers worldwide features of schools in New Zealand such that we now have much greater access have found it extremely difficult to as their ability to set their own attendance to data at the level of the individual, consistently identify the negative effects boundaries and the absence of locally- in large numbers and often, in the case of living in poor neighbourhoods, over funded schools that aid sorting across of the population census, to all the and above the personal difficulties faced communities’. Even though schools may enumerated population. These relatively by the residents who self-select into those nominally be ‘free’, students from poorer new developments have been coupled neighbourhoods. On the other hand, neighbourhoods continue to matter immensely to those at the affluent end There is every reason to expect that of the income spectrum. The revealed preference of high-income, high-wealth these geographic advantages, such households for residing with others like as access to better schools and highly themselves speaks to the substantial net benefits they expect to accrue from such appreciating housing sub-markets, end decisions. There is every reason to expect that these geographic advantages, such up moving many households further as access to better schools and highly appreciating housing sub-markets, end up the income distribution and thereby up moving many households further contributing to greater inequality. up the income distribution and thereby contributing to greater inequality.

1 The classic studies advancing this view (in the US) are summarised in Kremer’s introduction to his interrogation households face more restricted schooling with a much wider array of information of the empirical evidence (Kremer, 1997). Kremer himself argues for minimal distributional implications of residential opportunities than do wealthier students, on location, at a variety of scales which sorting based on narrow assumptions. However, once a wider set of behavioural implications of socio-economic positioning being constrained through the housing can be exploited via GIS technology. is recognised (the relationship between education and fertility market. (ibid.) In addition, we now have a range of for example), much stronger negative distributional and social mobility consequences of residential sorting emerge purposeful surveys that provide insight (Fernandez and Rogerson, 2001). Research implications into behaviours we have not previously 2 Treasury undertook some exploratory work along these lines in the early 2000s with a New Zealand-wide focus The point made early on in this article been able to document. Alesina and La (Treasury, 2001a, 2001b, 2001c). Epidemiologists have explored spatial variations in health on several occasions, was that almost all studies of the impact Ferrara, for example, have demonstrated often concluding that neighbourhood deprivation plays a of geographic sorting on welfare have for the US an ability to combine the role (Blakely et al., 2003). By contrast, economists have only recently become interested in spatial variations in involved attempts to measure the negative rich information on social connectivity socio-economic conditions (Maré, Mawson and Timmins, 2001). Geographers have written on segregation for decades, effects of living in poor neighbourhoods. and participation now collected through but have tended to be more concerned with patterns than Not only did this vast body of research their country’s General Social Surveys policy (Johnston, Poulsen and Forrest, 2005), as have sociologists (Grbic, Ishizawa and Crothers, 2010). What not produce results that were convincing with specific geographically identified is salient about this literature in general is its disciplinary in their own terms, but many may have neighbourhoods (Alesina and La Ferrara, fragmentation. With some notable exceptions, authors from different disciplines rarely speak to each other, which underemphasised the positive impacts 2000), a linking which has recently been makes it particularly difficult for policy analysts to assemble a coherent account of residential sorting and its possible of so-called ‘specialised’ or economically replicated in New Zealand (Torshizian and consequences. homogenous neighbourhoods regardless Grimes, 2014). Similar linkages have been 3 This argument is well documented, especially in new settler countries, including the US (Jargowsky, 1996, 1997), of income. carried out in work at the University of Canada (Hulchanski, 2007; Myles and Picot, 2000; Ross et al., 2004) and Australia (Hunter and Gregory, 1996; Hunter, The approach I have taken here is Canterbury (Clark and Kim, 2012a) and 2003). quite different. Instead of being motivated in a study of home ownership (Roskruge 4 The spatial argument I advance parallels the aggregate historical argument (Piketty, 2014) in locating a major cause by understanding poverty, I have et al., 2010), to name but a few. What of increasing income inequality at the top end of the income approached the geography as a possible these examples illustrate is that it is now distribution. 5 Only two of 331 pages of The Spirit Level are devoted contributor to understanding growing technically possible to gain a policy- to the geography of inequality and just over two pages to geographic segregation (Wilkinson and Pickett, 2009, income inequality. The rise in income relevant understanding of the behaviour pp.162-3). inequality over the last two decades or of particular groups as they relate to 6 Several other reviews come to similar conclusions (Durlauf, 2004; Slater, 2013) so has been primarily due to increasing location. There is no reason why these 7 In support of both points, they draw on UK research in the

Page 76 – Policy Quarterly – Volume 11, Issue 2 – May 2015 early 2000s (Dorling and Rees, 2003) and on late 1990s 12 Detailed results of spatial clustering for the three income Acknowledgements research in the USA (Jargowsky, 1996) as well as the groups, both personal and household incomes, are reported highly influential work of William Julius Wilson (Wilson, in their Table 2 and 3 for the Auckland urban area as a An earlier version of this article was 1987). They also draw on the links other authors make whole (global measures of concentration), as well as locally between income inequality, residential segregation and its in shorter distance measures. They find that ‘[s]egregation presented at ‘Inequality: causes and consequences (Lobmayer and Wilkinson, 2002; Mayer, was somewhat stronger for residents at the upper end of consequences’, a public conference hosted 2001; Waitzman and Smith, 1998). the [education …] qualification and personal and household 8 In an extension of his earlier spatial decomposition of income income distributions than for low income residents and by the Institute for Governance and inequality (Martin, 1997), Barry Martin developed an those with no qualifications’. In an earlier paper they also Policy Studies at Victoria University of ‘affluence index’, in which each of Statistics New Zealand’s found that ‘high-income immigrants are more clustered than area units is characterised by the proportion of households immigrants generally’ (Pinkerton, Maré and Poot, 2011). Wellington, 19 June 2014. I acknowledge with high income, income from investments, business or 13 When household income is used there are actually two rents, or a household member having high qualifications or levels of sorting that take place, sorting into households the comments received at the time and a managerial or professional occupation: http://popbytes. (one- and two-person households, for example) and the subsequent conversations with other co.nz/. The affluence index uses households, as opposed sorting of households across neighbourhoods. These two to the deprivation index which uses spatial aggregates of levels of sorting are closely related (Callister, 2001; Russell participants, including Brian Easton, individuals. Each census area unit is assigned an average et al., 2004). There is therefore some division in the composite score based on these four attributes and those literature over the degree to which it is appropriate to model Kristie Carter, Cathy Wylie, Tim Hazledine in the top 10% of the 1800 area units, with the highest residential sorting on the basis of individuals or households. and Max Rashbrooke. I am grateful to scores (the tenth decile), are deemed affluent. The scores are As the Maré et al. paper notes, ‘focusing on individuals is a computed for the 13-year period covered by the 2001–13 common approach in studies of residential location’ (Maré Barry Martin for allowing me to refer to censuses (Martin, 2008). et al., 2012, p.33; Cutler and Glaeser, 1997; Reardon et his recent affluence index, and to Dave 9 Such evidence is now common in many countries, as al., 2008), but comparable studies based on the household Moretti’s discussion of recent trends in the geographic reflect the relevance of household decision-making for Maré and colleagues from Motu and to the distribution of human capital across cities shows (Moretti, location choice (Bayer and McMillan, 2012; Iceland et 2003). Several New Zealand scholars have also drawn al., 2010; Jargowsky and Kim, 2005). In the Motu work, editors of New Zealand Population Review attention to this concentraton of the rich in metropolitan New ‘Household income was estimated by aggregating incomes for permission to reproduce Figures 1 and Zealand (Alimi, Maré and Poot, 2013; Karagedikli, Maré within a dwelling and adjusting for the number of people, and Poot, 2000; Market Economics Ltd, 2011). There is and was equivalised by dividing total household income 2. Several others were very generous in corresponding concern that regional policies being developed by the square root of the number of individuals’ (Maré et in New Zealand are unlikely to address ‘the challenges al., 2012, p.32). The modelling of residential sorting by commenting on the penultimate version of what seems to be growing regional inequality’, for ‘a characteristic was done on the basis of individuals with of this article, including Dave Maré, Paul significant loss is taking place in demographic terms across household income treated as a (shared) characteristic of more than a third of the country’s non-city local areas’ (Nel, individuals within a household (ibid, p.33). Callister, Bill Clark, Brian Easton, Guy 2015, pp.12-15). 14 Recent New Zealand examples illustrate the positive effects Salmond, Jonathan Boston and Max 10 The distribution of high-deprivation areas in New Zealand is of homogeneity on social capital formation, in terms of not the distribution of highly deprived individuals. The same volunteering (Clark and Kim, 2012b) and contributions to Rashbrooke. As always the responsibility is true of the affluent. In both cases the NZDep index is a local schools (Armstrong and Clark, 2013). measure of the area, not any given individual. 15 That different levels of access prevail when it comes to remains with the author. 11 The purpose of the Getis G* statistic mapped in Figures purchasing point-of-sale services such as education and 1 and 2 is to test whether a particular location and its health is well recognised by government, which has for surrounding areas (meshblocks in this instance) constitute many years funded programmes designed to compensate the a cluster of higher (or lower) than average values on the poor living in specific locations for their lack of market-place variable of interest, household income in this case (Rogerson, demand in both health and education. 2001, p.174).

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