Sunday, May 02, 2010

This is how it should be done

[Edited for relevance.]

This is what gets me about those on the "decent" left*: they somehow seem to think—in a way that is almost comically deluded—that our government can keep on spending nearly £200 billion more than it takes in tax; they continue to think that, somehow, yet more money can be squeezed out of the very tiny number of very rich people to prop up the left's ailing socialist state; to these people, the state can just happily carry on spending vast amounts of money and employing huge numbers of pointless bureaucrats without there being any bad consequences.

Worse still are those on the left who think that all of this can continue and for us to see an increase in civil liberties. They are, to a man and woman, absolutely barking.

Being a charitable Devil, I like to imagine—in my more sanguine moments—that all of the above occurs simply because they cannot see another way through. Which is why I like to link to articles like this one by ex-New Zealand minister Maurice P. McTigue. The whole thing is so good that I would love to quote it in full—instead, I shall simply highlight some particularly striking passages, starting with McTigue's illustration of the plight that led to New Zealand's wholesale rehabilitation.
New Zealand’s per capita income in the period prior to the late 1950s was right around number three in the world, behind the United States and Canada. But by 1984, its per capita income had sunk to 27th in the world, alongside Portugal and Turkey. Not only that, but our unemployment rate was 11.6 percent, we’d had 23 successive years of deficits (sometimes ranging as high as 40 percent of GDP), our debt had grown to 65 percent of GDP, and our credit ratings were continually being downgraded. Government spending was a full 44 percent of GDP, investment capital was exiting in huge quantities, and government controls and micromanagement were pervasive at every level of the economy. We had foreign exchange controls that meant I couldn’t buy a subscription to The Economist magazine without the permission of the Minister of Finance. I couldn’t buy shares in a foreign company without surrendering my citizenship. There were price controls on all goods and services, on all shops and on all service industries. There were wage controls and wage freezes. I couldn’t pay my employees more—or pay them bonuses—if I wanted to. There were import controls on the goods that I could bring into the country. There were massive levels of subsidies on industries in order to keep them viable. Young people were leaving in droves.

So, New Zealand was in an even worse state than this country currently is—nearer, in fact, to how it was in the seventies. So, what to do?
When a reform government was elected in 1984, it identified three problems: too much spending, too much taxing and too much government. The question was how to cut spending and taxes and diminish government’s role in the economy. Well, the first thing you have to do in this situation is to figure out what you’re getting for dollars spent. Towards this end, we implemented a new policy whereby money wouldn’t simply be allocated to government agencies; instead, there would be a purchase contract with the senior executives of those agencies that clearly delineated what was expected in return for the money. Those who headed up government agencies were now chosen on the basis of a worldwide search and received term contracts—five years with a possible extension of another three years. The only ground for their removal was non-performance, so a newly-elected government couldn’t simply throw them out as had happened with civil servants under the old system. And of course, with those kinds of incentives, agency heads—like CEOs in the private sector—made certain that the next tier of people had very clear objectives that they were expected to achieve as well.

The first purchase that we made from every agency was policy advice. That policy advice was meant to produce a vigorous debate between the government and the agency heads about how to achieve goals like reducing hunger and homelessness. This didn’t mean, by the way, how government could feed or house more people—that’s not important. What’s important is the extent to which hunger and homelessness are actually reduced. In other words, we made it clear that what’s important is not how many people are on welfare, but how many people get off welfare and into independent living.

As we started to work through this process, we also asked some fundamental questions of the agencies. The first question was, “What are you doing?” The second question was, “What should you be doing?” Based on the answers, we then said, “Eliminate what you shouldn’t be doing”—that is, if you are doing something that clearly is not a responsibility of the government, stop doing it. Then we asked the final question: “Who should be paying—the taxpayer, the user, the consumer, or the industry?” We asked this because, in many instances, the taxpayers were subsidizing things that did not benefit them. And if you take the cost of services away from actual consumers and users, you promote overuse and devalue whatever it is that you’re doing.

When we started this process with the Department of Transportation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee. In the latter case, most of what the department did was construction and engineering, and there are plenty of people who can do that without government involvement. And if you say to me, “But you killed all those jobs!”—well, that’s just not true. The government stopped employing people in those jobs, but the need for the jobs didn’t disappear. I visited some of the forestry workers some months after they’d lost their government jobs, and they were quite happy. They told me that they were now earning about three times what they used to earn—on top of which, they were surprised to learn that they could do about 60 percent more than they used to! The same lesson applies to the other jobs I mentioned.

McTigue then goes into some detail about the abolition of the farming subsidies, which I shall encourage you to read for yourselves. He then moves on to education—an area of particular interest for me.
New Zealand had an education system that was failing as well. It was failing about 30 percent of its children—especially those in lower socio-economic areas. We had put more and more money into education for 20 years, and achieved worse and worse results.

It cost us twice as much to get a poorer result than we did 20 years previously with much less money. So we decided to rethink what we were doing here as well. The first thing we did was to identify where the dollars were going that we were pouring into education. We hired international consultants (because we didn’t trust our own departments to do it), and they reported that for every dollar we were spending on education, 70 cents was being swallowed up by administration.

Right now, the Local Education Authorities are swallowing about one pound in every three that the UK government spends on education. On administration.
Once we heard this, we immediately eliminated all of the Boards of Education in the country. Every single school came under the control of a board of trustees elected by the parents of the children at that school, and by nobody else. We gave schools a block of money based on the number of students that went to them, with no strings attached. At the same time, we told the parents that they had an absolute right to choose where their children would go to school. It is absolutely obnoxious to me that anybody would tell parents that they must send their children to a bad school. We converted 4,500 schools to this new system all on the same day.

Excellent. This is, of course, very similar to the voucher system that I have proposed for years. The one question that has vexed me is whether people should be allowed to use their vouchers to fund private education—surely you'd get a mass exodus away from the public schools?
But we went even further: We made it possible for privately owned schools to be funded in exactly the same way as publicly owned schools, giving parents the ability to spend their education dollars wherever they chose. Again, everybody predicted that there would be a major exodus of students from the public to the private schools, because the private schools showed an academic advantage of 14 to 15 percent. It didn’t happen, however, because the differential between schools disappeared in about 18-24 months. Why? Because all of a sudden teachers realized that if they lost their students, they would lose their funding; and if they lost their funding, they would lose their jobs. Eighty-five percent of our students went to public schools at the beginning of this process. That fell to only about 84 percent over the first year or so of our reforms. But three years later, 87 percent of the students were going to public schools.

OK, that's good—but the numbers of children attending the public schools is not the point of the exercise. The point of all of this is to educate—so, how did they do?
More importantly, we moved from being about 14 or 15 percent below our international peers to being about 14 or 15 percent above our international peers in terms of educational attainment.

Ah. So a massive success then. Excellent!

And the left's reason for opposing similar measures in the UK is... Well, perhaps Left Outside will enlighten me. Because, according to him, I "will never change the world in anyway you want": that loss, of course, is not mine but the children—those who he claims to represent—whose futures will be ruined by his filthy bigotry.

Still, at least the left can claim that taxing people is a great thing, eh? You know, hitting the rich as hard as possible so that the poor can be supported...?
When we in New Zealand looked at our revenue gathering process, we found the system extremely complicated in a way that distorted business as well as private decisions. So we asked ourselves some questions: Was our tax system concerned with collecting revenue? Was it concerned with collecting revenue and also delivering social services? Or was it concerned with collecting revenue, delivering social services and changing behavior, all three? We decided that the social services and behavioral components didn’t have any place in a rational system of taxation. So we resolved that we would have only two mechanisms for gathering revenue—a tax on income and a tax on consumption—and that we would simplify those mechanisms and lower the rates as much as we possibly could. We lowered the high income tax rate from 66 to 33 percent, and set that flat rate for high-income earners. In addition, we brought the low end down from 38 to 19 percent, which became the flat rate for low-income earners. We then set a consumption tax rate of 10 percent and eliminated all other taxes—capital gains taxes, property taxes, etc. We carefully designed this system to produce exactly the same revenue as we were getting before and presented it to the public as a zero sum game. But what actually happened was that we received 20 percent more revenue than before. Why? We hadn’t allowed for the increase in voluntary compliance. If tax rates are low, taxpayers won’t employ high priced lawyers and accountants to find loopholes. Indeed, every country that I’ve looked at in the world that has dramatically simplified and lowered its tax rates has ended up with more revenue, not less.

Oh dear, poor lefties.

But what about regulation? Nosemonkey, for one, points out that even if we left the EU, we would still have to have lots of regulations and, as such, the benefits would be negligible. How can one cut swathes through forty years (and more) of government regulation?
What about regulations? The regulatory power is customarily delegated to non-elected officials who then constrain the people’s liberties with little or no accountability. These regulations are extremely difficult to eliminate once they are in place. But we found a way: We simply rewrote the statutes on which they were based. For instance, we rewrote the environmental laws, transforming them into the Resource Management Act—reducing a law that was 25 inches thick to 348 pages. We rewrote the tax code, all of the farm acts, and the occupational safety and health acts. To do this, we brought our brightest brains together and told them to pretend that there was no pre-existing law and that they should create for us the best possible environment for industry to thrive. We then marketed it in terms of what it would save in taxes. These new laws, in effect, repealed the old, which meant that all existing regulations died—the whole lot, every single one.

There is a lot more for you to peruse over at the Hillsdale College site—and I really recommend that you read the whole article. For your humble Devil, it is incredibly inspiring for two main reasons.

The first, inevitably, is that it demonstrates that those measures for which I have argued actually work in the real world.

The second is that McTigue and his colleagues recognised that there was a problem—something that the vast majority of people in Britain still have not—and they then had the foresight to understand the solutions, and the conviction and the courage to carry them out.

McTigue makes the whole thing sound laughably easy—which I am sure that it was not—and fun, which I think that it might have been. And, at the end of the whole exercise, that government had measurably improved the lives of its citizens—by getting the fuck out of their lives.

This example shows that one can change the world (or, at least, your own small part of it) and that to change it in the way that I would do so is precisely the way change that is needed.

The New Zealanders voted for less government, and they got more freedom and more prosperity.

There is always hope.

* By which I mean, of course, those who aren't actively Communists.


Roger Thornhill said...


Alas, I doubt they do. They are too tied up in the SocDem centrist "path of least resistance and most votes" meme.

Clarissa said...

After reading it when you first posted it, I forwarded the link to my family under the heading 'All is perhaps not lost...' as I knew they'd like it.

Mum, an active member of the Tory party in her constituency, forwarded it to the PPC (Rebecca Harris) suggesting she might like to wave it under Cameron's nose. :)