A framework for reform

Chapter three

Whatever the nature, focus and extent of reform, all reform stories include three key dimensions – and the degree to which these are appropriately addressed directly impacts the success of the reform itself. 

The three key dimensions are: ​

1. Case for reform​

Whether reform drivers are failures in the current system or shifts in the operating environment, the case for reform sets out compelling analysis of what is preventing the current system from working as it should, and a clear vision for what the future outcomes need to be. ​

2. Theory of change​

A collective view on how sustainable reform will happen in the system. Who needs to change, what needs to change, what levers are most effective, and how will we know when that change is working effectively? This is often informed by history – a deep understanding of how change has happened before, or how it has not. ​

3. Successful delivery​

A coherent programme of changes that create the future capabilities and system, and decommission the previous system. This requires a skilled team and strong, courageous leadership to go on the journey, as well as a method to engage and collaborate with system participants at all levels along the way.​​

Case study: Neoliberal reforms ​

The significance and breadth of reforms implemented during the 1980s-90s era, and their lasting impact, make for an interesting case study in the context of our reform framework. Within two decades, across Labour and successive National Government terms, Aotearoa experienced an overhaul of our economic and welfare systems. Noted by global media outlets at the time as the world’s most progressive reform agenda, the reforms resulted in a fundamental shift in our nation’s economic and social narrative. ​

During the long constitutional journey of New Zealand from a British dependency in 1840, a crown colony in 1841, a self-governing colony in 1852, a Dominion in 1903, and a constitutionally independent nation since 1986, the relationship of Māori to the state, like all real relationships, has been a matter of celebration, dispute and political inconsistency. ​

When major restructuring of the state and the economy commenced in 1984, there were a number of elements of the reformation process that supported both national economic objectives as well as Māori aspirations. As it happened, the major goals of the reforms — reduced state dependency, devolution, and deregulation — were also necessary preconditions for greater Māori independence, tribal redevelopment, and service delivery to Māori by Māori.​

Ultimately, the notion of shared responsibility and importance of government intervention to support the social and economic health of many was replaced with a preference for the trickle down of wealth and citizens taking personal responsibility for their welfare. The nature of government intervention was forever changed, and the impacts are still felt today. ​

Case for reform ​

The catalyst for market radicalisation at the time is best explained in the context of Government policy and reform in the years prior. Between 1930 and 1980, the economy was highly controlled by finance and trade regulations, extensive social welfare support where Government intervention was available to most citizens, and a number of assets within the transport and energy sectors were state owned. By the 1970s, Aotearoa had one of the lowest unemployment rates in the world and most New Zealanders enjoyed high standards of living. ​

However, this era of great prosperity came to an end in the mid-1980s. Global economic shocks caused Aotearoa to fall into an economic recession, and the impacts were widespread. Unemployment hit record high levels, and debt and inflation were growing. This spurred a singular, widespread vision: improve economic outlook. Citizens and businesses witnessed a chronic failure by Government to deliver financial and welfare outcomes in a declining economy, and the Government saw an opportunity in the changing context and environment surrounding the economic and welfare systems – these were ultimately the drivers of change that created the backdrop for Government to pursue radical reform and begin to tell a different story about how a nation builds prosperity. 

The basis of our economic and welfare systems prior to the recession, Keynesian-welfare theory, was deemed a root cause of failure to deliver outcomes. The paradigm was no longer considered a useful tool to enable economic growth. Financial aid and tax redistribution were no longer affordable or effective buffers against the impacts of recession, and economic protectionism through financial and trade regulation was seen to inhibit rather than enable markets. Equally, the Government’s control over wages, currency and trade was seen to disproportionately grant economic power and decision rights to the Government rather than Aotearoa businesses. ​​

Theory of change ​

Perhaps the most effective vehicle for enabling dramatic change at the time was the narrative built on the root causes of failure at the time. Prior to the election of the fourth Labour Government in 1984, Labour politicians were particularly outspoken against the Government of the day’s welfare state and economic tinkering. This narrative sowed the seed for the Party’s election, drove its radical reform agenda, and was picked up by the successive National Government. Change was required at every level in order to bring economic reinvigoration to life – individuals, political and economic elites, narrative, and in time, economic results, drove a shift in mindsets and behaviours. Arguably, the consistent deployment of the neoliberal narrative, and overhaul of rules and incentives through amending market and tax regulations and reducing financial aid, allowed Government to implement punctuated change in a sustainable manner.

Opposition to the narrative was minimal. Notable at the time was Jim Anderton’s dissent against his own Party’s agenda. Despite his best efforts to gather a mass of political discord, he eventually resigned.5  Commentators suspect that citizens were too overwhelmed by the pace of change to propose much of an opposition, however, sources have suggested the Māori population was less passive and complacent about the neoliberal reforms than the Pakeha population.6 The narrative became so effective that it outlasted its original authors. For example, public support for economic protectionism and income and wealth distribution consistently declined between 1990-2005.7 Indeed, neoliberal theory is present in some party policy even today. ​​

Successful delivery ​

When considering the ingredients of successful reform implementation, the degree of coherence across the neoliberal reforms is significant. Leaders from both sides of the political spectrum hung their hat on a similar vision, set of drivers and root causes. Significant employment, health, trade, tax, welfare, and privatisation reforms were implemented, all in the name of improving Aotearoa’s economic outlook. Our neoliberal era is perhaps the strongest example of a coherent shared vision and narrative. ​

From the mid-1980s, alongside the various economic and social reforms, a restructuring of the public sector began. Gradual decentralisation occurred to create a more effective and efficient public sector, and in alignment with the broader narrative, was deemed necessary to appropriately manage public expenditure. The restructure marked the beginnings of New Public Management in Aotearoa. Intriguingly, when we reflect on the sheer volume of reform pushed through government as part of the neoliberal reform wave, it could be argued that the highly centralised structure of the public service prior to the introduction of New Public Management best allowed for rapid, punctuated change to be implemented. The centralised model enabled interdepartmental cooperation and coordination and shared resourcing: sustainability through an integrated approach to reform implementation. Indeed, complaints of the war on public sector talent may have their origin in the late 1990s when, after the restructures, competition between departments for staff was prevalent enough to trigger salary hikes across the public sector.8 ​​

Conclusion ​

Aotearoa’s neoliberal reforms have had a lasting impact on our economy and welfare system. Although they were successful in rejuvenating our economy at a time of global recession, the reforms are considered to have caused poor outcomes for our most vulnerable communities.9 Nonetheless, the reforms demonstrate the lasting impact a coherent reform narrative can have on political, social and economic outcomes.

Deloitte Director, Cassandra Favager, on our framework for reform.

Case study: Reserve Bank​

The reform of the Reserve Bank in 1989 is frequently cited as one of Aotearoa’s most successful reforms. At the time, the legislation was ‘world leading’ regarding the degree of independence it granted to the Reserve Bank, and inspired subsequent reforms in overseas jurisdictions.10 The reform itself was relatively non-controversial, and has until recent times brought about lasting, consistent financial results – namely a sustained inflation rate. What, then, is so special about the Reserve Bank Act 1989?​

Case for reform

Prior to the introduction of the Reserve Bank Act 1989, the Government had complete control of the fixed level at which the New Zealand Dollar (NZD) was set against the United States Dollar (USD). In 1984, this arrangement caused a foreign exchange crisis when, prior to its election, information was leaked that the Labour Party intended to devalue the NZD should the Party be elected. Speculators acted on this indication, selling off NZD and purchasing foreign currency with the intent of selling for a profit when the NZD devaluation occurred. Declining system performance was the main driver of the Reserve Bank reform and ultimately, the nature of the reform meant it folded neatly into the Government’s neoliberal reform agenda focused on stabilising and rejuvenating the economy. ​

The distribution of power and decision-making rights in Aotearoa’s public finance system before the reform was perhaps the most significant root cause of the system’s declining performance. Prior to the change, the Bank was at the whim of the Minister of Finance, who had the power to direct the Bank to follow policy without publicly releasing the order. In addition, the Bank was not required to report on its implementation of monetary policy. The lack of public scrutiny and accountability was considered dangerous for the economy. The way the system operated was the second root cause. There was ‘no clear objective for monetary policy’, meaning that policy could be ‘aimed at a number of conflicting objectives’.11 The reform directly addressed these concerns, with the explicit intent of ‘improving performance through clearer objectives and increased accountability’.12 ​

Theory of change ​

The actors required to deliver the reform were wholly institutional and political. The roles of the Reserve Bank and Government in relation to monetary policy were amended, with the Government incentivised to relinquish some of the controls it held over the Bank, given it believed the reform was considered a vessel for greater economic stability and had politically sponsored the changes.  Similarly, the levers were rather linear. Governance and decision rights changed to introduce greater checks and balances. It is likely the nature of the change is one of the reasons the Reserve Bank Act is considered successful and sustained. While the degree of change was significant, the scale of change and complexities were constrained to a single financial institution. ​

Successful delivery

Changes implemented as part of the Reserve Bank reform were specifically designed to be long-term in nature. This may well be the cause of the reform’s sustainability. Some of the main reform objectives included achieving and maintaining the general level of prices, thereby removing economic uncertainties. The changes also meant the economy was more resilient and better protected against economic shocks. Ultimately, the reform succeeded in achieving these aims. Until very recently, the Reserve Bank has sustained a consistent rate of inflation. ​

It is perhaps no coincidence that the authors behind the reform were the same leaders behind the beginning of Aotearoa’s neoliberal reform wave. David Lange and Roger Douglas delivered much of the same narrative for this reform as those designed to overhaul Keynesian theory in other sectors: out with the old, in with the new, to best improve our nation’s economic health. In this case, however, the clear nature of economic failures regarding the financial system’s performance — the 1984 foreign currency and constitutional crisis — provided a straightforward justification for the reform, perhaps the strongest case for change and root causes of any neoliberal reform at the time. 

Conclusion ​

A clear driver and set of root causes certainly provided the Government with an environment ripe for change, and it was not difficult to fold the amendments to the financial system into the Government’s broader set of neoliberal reforms aimed at strengthening the economy. This momentum enabled changes to Aotearoa’s financial system that, while significant, were fundamentally constrained to a small group of actors, a single institution, and a linear set of levers. The nature of these changes, coupled with the long term aims of the reform, made for swift, effective and sustainable economic outcomes. ​

As with all recipes for success, the magic is both a factor of the quality of the ingredients and how those ingredients come together.

Case study: Auckland Supercity​

In the late 2000s, the Auckland region was locked in a debate around its future - should it submit to a reform of governance resulting in a unitary council, or remain as a fragmented collection of local and regional councils and associated entities?​

Case for reform ​

The case for reform was built largely on frustration around the lack of collective action from the eight predecessor councils around major issues facing the city, and the difficulty aligning and coordinating key policies across the boundaries that existed at the time. Even transport, which was already separated into a distinct Auckland Regional Transport Authority, did not have all the necessary levers at its disposal to deliver integrated transport outcomes to Auckland.​​

Without leadership, Auckland was risking irrelevancy and having its place as a Pacific world city left to chance. It was time to take a more deliberate approach to designing the governance of a future Auckland, which was left to a Royal Commission in 2007.​

Theory of change ​

The Royal Commission’s report in 2009 was extensive and transformative. They recognised that no small change would effectively address fundamental issues, which included:​

  • Lack of representation of the population, particularly Māori, but also in terms of the regional distribution of elected members​.
  • Lack of vision, leading to Auckland being pulled in multiple directions at once​.
  • Lack of leadership, on issues that required councils to have a voice and set direction​.
  • Lack of accountability, to key stakeholders and to the public​.
  • Lack of focus, through different structures and ways of delivering services and work programmes​.
  • Lack of integration, which led to sub-scale responses to problems that were regionally, and often nationally, important.​

Many of the Royal Commission’s recommendations attracted criticism, from the scale and accountabilities of the council-controlled organisations (CCOs), to the size and shape of the electoral boundaries, and in fact the extent and boundaries of the whole city. Large-scale change like this was always going to be contentious, but the Royal Commission's work held up remarkably well, including through a change of government in 2008. ​

It was clear that the Auckland reform could not be achieved in a single step, and not even a single Act of Parliament was sufficient. This change was going to take time.​

Successful delivery ​​

A four-step process was used to bring about the Auckland reform:​

  • First, planning and preparations were undertaken, including introducing the legislation to create the foundations for the changes that were to follow. Many enabling steps were required, including plans for the new council elections.​
  • Second, an Auckland Transition Agency was created to establish the new structures, processes, and systems for Auckland Council alongside the existing councils. This built the framework for the new council and populated it, and created the transition plans that would bring it to life.
  • Third, on 1 November 2010 the “launch” of Auckland Council took place with the newly-elected members and a set of new organisations in place to support them, including the council itself, and its CCOs.​
  • Finally, the most important step has been the progressive implementation of new policies, practices, and approaches to Auckland’s challenges over a sustained period –  now more than a decade – reflecting a period of change proportionate to the scale of change.

Conclusion 

Like many reforms, the Auckland reform has been long-lasting, costly, contentious, and has consumed vast amounts of effort. However, it has also been broad-based, crossed political boundaries, generally well-supported, and when reflecting on the problems of the preceding decade and its desired outcomes, has largely delivered on the promise of a successful reform.​

The value to Aucklanders has been a transformation in their city over the last 12 years. Fundamental issues remain, with inequities, poverty, housing, health, and social cohesion presenting real challenges for today’s Auckland. But those would likely have been even worse if Auckland governance had not been subject to comprehensive and effective reform.

“The amalgamation of Auckland was an  example of a reform after a Royal Commission Report and would not have happened but for central governments' intervention. Some argued this reform would destroy local government, but it actually worked incredibly well and has been sustained. You cannot run 1/3 of the country’s population with eight different councils. Reform was necessary on an objective assessment of the facts because the status quo was not working.” 

Phil Goff, Mayor of Auckland ​