Embracing high performance government

By Kevin Avram
web posted October 9, 2000

In 1938, New Zealand had an average per person income that was 92 per cent of the US level. By the mid-1980s that number had slid to around 50 per cent. The country was in an economic quagmire.

Things were so bad that many New Zealanders thought revitalizing the nation would be impossible. Yet within a span of ten or twelve years, the country went from a public policy backwater to a cutting edge practitioner of competitive, high performance government. In fact, a few years ago the World Economic Forum rated New Zealand as having a more competitive economy than the US. The story of how that took place is rather intriguing.

It started when a group of reform-minded individuals were elected to the national Parliament. Farm subsidies were ended. Corporate welfare and import tariffs that protected inefficient domestic manufacturers also came to an end. Income tax rates were cut in half and a national sales tax was introduced - the idea being that it's smarter to tax consumption than production.

Government began to act much the way a general contractor does when building a house or construction project. Measurable goals were put in place for each government department or agency along with a means to gauge performance. The focus became that of delivering outputs, or specific levels of service.

In many cases, private professional management companies from around the world were invited to submit a bid stating how much money they would charge to achieve specific objectives within a department or agency over a fixed time line. And wherever it was cheaper, the actual providing of government service was contracted to private companies.

New legislation required national government departments, agencies, and local governments to use the same accrual-based accounting system used by the private sector. This one change created transparency, meaning that the cost to run a specific government service could be easily compared with what that service would cost in the private sector.

The number of people directly employed by government fell from almost 90,000 to 34,000. About a third of them retired and another third became contractors back to the government. In some cases, departments that used to employ thousands of people ended up with fewer than 25 or 50 employees who became contract managers that purchased services from competing suppliers.

The cost savings were enormous.

School reform started with the elimination of almost all of the education bureaucracy. School boards were also eliminated and compulsory unionism was banished. Under the new system, parents elected a board of trustees to govern each school. Thus the principal became a genuine chief executive officer. The government's role was to evaluate performance and publish the results. Financial savings were so dramatic that many schools were able to greatly reduce class size, hike teacher pay, and still have money left over.

Entire regulatory agencies were eliminated. In the area of worker safety, for example, the entire bureaucratic rulebook was thrown out and the department was trashed in favor of what was called the common sense rule, that being: "If there was an injury at a work place, should a normal person acting with common sense have known enough to foresee the problem?" Instead of more workers being hurt due to a complete absence of government safety regulation, the number of workplace injuries actually declined by more than 30 per cent.

In 1999, a coalition government consisting of the traditional labor interest groups and greens did come back into power. It has wisely chosen not to scuttle the core reforms that underlie competitive transparent service delivery in government. However, they foolishly bumped up tax rates and brought back some union-friendly labor laws. The price for doing so has been substantial and is undoubtedly reflected in the recent plummet of the New Zealand dollar to less than 40 US cents.

The betting now is that this is a one-term government, meaning that this could be the last hurrah for the old union interests that took back power from the modernizers and reformers who orchestrated the high performance system that continues 'til today.

In any case, we have plenty to learn from New Zealand's core public sector reforms.

The Niobrara Institute is a member of the State Policy Network - an affiliation of state-based think tanks and policy organizations that are committed to the principles of constitutional government, market-oriented solutions, and values that are consistent with the writings of America's Founding Fathers. Avram serves as Executive Vice President of The Niobrara Institute.

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