The kerfuffle over the budget leaks precipitated a public exposure of a simmering concern about the quality of Treasury’s work.
Before the substantive issue which this column is about – whether there has been a deterioration in the economic advice given to the government – a paragraph about the budget leaks.
The traditional concern about budget confidentiality has been that having early knowledge of some announcements – including tax changes and financial decisions – might be an advantage. Leaking spending plans is not of the same significance and, over the years, there have been many public announcements, before the event, of what would once have been budget secrets. Today the issue of confidentiality is more a matter of the government managing its public relations than the danger of insider trading. The worry about the recent leak was the implication that perhaps the Treasury systems were such that something really secret (such as an excise tax change) could be leaked. But that aside, the leak was a bit like a fashion failure gentlemen don't mention in public but discreetly point out the need for an adjustment. National was not so discreet; instructively the political issue deteriorated into how the adjustment was handled.
Within the economics community this ‘leak’ triggered some public statements about the quality of the Treasury economics. The connection with the leak is tenuous, but it has opened to the public an economists’ private discussion. Here is what Tony Burdon, who recently left the Treasury, wrote and here is what Eric Crampton, of the New Zealand Initiative, wrote. Journalists who approached other economists say that many agreed broadly with the criticisms but they were unwilling to go public.
The Minister of Finance, Grant Robertson, took up the challenge at a meeting I was at. He said he was satisfied with the advice he was getting and went on to commend the Treasury staff for better representing the public. (The economist on my right whispered ‘He means their average IQ is closer to 100'.) I think Robertson meant greater diversity in ethnic and gender terms and that they had graduated in a wider variety of disciplines than just economics (and accounting, but I know less about this part of the story).
That is the source of the economics profession’s grumbles. The quality and quantity of their economists is being dumbed down (but not to an IQ of 100, unless one is joking). That does not mean that all the critics are antagonistic to other disciplines. In Henry Lang’s day in the 1960s and 1970s, Treasury had a policy that one third of their new recruits could be ‘non-relevant’, but they had to be ‘firsts’ when this top grade in a four-year degree was of a much higher standard than today.
The problem was nicely put by Keynes when he said ‘practical men [and women] who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist’. Too many untrained economists in the Treasury and the place becomes dominated by the defunct.
This is nicely illustrated by British politics whose leadership is dominated by Oxford graduates. Apparently, if one did a degree in Philosophy, Politics and Economics, the politician is likely to be a Remainer as far as Britain and the EU is concerned. Majoring in another subject raises the likelihood that the politician is a Leaver. That does not prove that Leave is a bad deal, but it does explain the appalling standards of analysis of the leading Leavers and their neglect of the downside impacts of leaving on the British economy and Britain’s place in the world.
One Treasury solution to the non-relevant’s under-training was that the non-relevant would do economics courses at university while working there. A nice illustration was Roger Kerr, later the Chief Executive of the Business Roundtable. He came to Treasury with a Masters degree in French (after a stint in the Ministry of Foreign Affairs). He then took part-time a BCA in economics and (if I recall correctly) did some honours papers as well. He was not everybody’s cup of tea, but a career path of a double major and five or more years of university training is not a bad one.
A university degree in economics is, by itself, insufficient to make an economic adviser. An economics teacher or researcher ‘yes’, but most university teachers are ill-equipped to teach the nitty-gritty of economic advice.
The limitations of the academy are nicely illustrated by a university-based book on social investment a subject which was fashionable a couple of years ago before wellbeing became popular. I do not think it contains a single example of a social investment evaluation. What strikes one is that if it had, for there is a long history of evaluating social projects especially in the health sector, the discussion would have focussed on some troubling aspects of the social investment approach. Instead one was reminded of the academic who taught sixty-nine ways to make love but had never kissed anybody.
The merit of good university training is that it provides the economic technical foundations necessary to be a good policy adviser. Once well-prepared graduates could go into a government agency and receive a conscious program of in-service training to develop them into economic advisers. That does not seem to happen today.
An article by Simon Chapple, director of the Institute for Governance and Policy Studies, indicates the extent of the problem. Ostensibly he is concerned about the appointment of the new Treasury Secretary. I have yet to meet an economist who doubts that she is a very competent economist, but she is an outsider, not just to the Treasury but to New Zealand. (One retired chief executive said to me that it took him more than three years to come to grips with an agency he came to from outside – even though he had had a long history of working with the department.)
The new appointment means that three of the last four Treasury Secretaries have been outside appointments. Chapple’s underlying concern is that Treasury seems no longer to be developing the skills and experiences of its staff as it did once. Nor is the problem confined to Treasury. There is an animated ‘beltway’ discussion about its problems but mention the Ministry of Business, Innovation and Enterprise and you get a despairing sigh. The impression is that MoBIE’s origins were a megalomaniac but thoughtless grab for power by a politician and that division after division is functioning poorly.
The government has announced that it is going to replace the State Sector Act by a new Public Service Act. Among the proposed changes and platitudes there is not a mention of career development. Yet ultimately the quality of public servants is far more important than structures – and that quality has to be developed. Henry Lang showed how to do it, but it takes time, resources and a long-term vision.
Staff quality is, however, not a priority of generic managers because addressing that would undermine their status. Economists celebrate that a professional has been appointed to head the Treasury.