While there have been decades of complaints – from all sides – about the workings of the Resource Management Act (RMA), replacing is proving difficult. The Coalition Government is making another attempt.
To help answer the question, I am going to use the economic lens of the Coase Theorem, set out by Ronald Coase who was the 1991 Nobel economics laureate ‘for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy’.
One form of the theorem is that providing property rights are fully allocated and transaction costs are zero, the ultimate use of a resource in a market economy is independent of how the rights were initially allocated. What the theorem means is that the final use of a piece of land will be irrespective of who initially owned it. So, the RMA (or whatever) will hardly necessary, if the underlying conditions are met.
I am not going to prove the theorem or explore its intricacies. The point for this column’s purposes is that it highlights the importance of property rights and transaction costs in the way that markets work.
That we should keep transaction costs to a minimum is a no-brainer (unless you belong to one of the professions which benefit from the litigation). The focus on the replacement to the RMA has been an attempt to reduce those costs and the time it takes to make a decision (which is another transaction cost). Many see the issue as clumsy administrative design but there is a deeper problem.
Who possesses the relevant property rights? We could, I suppose, compile a sort of doomsday book which listed all the property rights involved. That task would be impractically enormous. So, the law sets down a process to identify the property rights. It is an exercise which takes up time and money – transaction costs.
You may be surprised that the property rights of a resource are not well specified. Is not, for instance, a person’s house their castle with which they can do what they like? As minister responsible Chris Bishop said, ‘your land is your land, until you affect other people.’
Unfortunately the last five words complicate the issue. (I give an example as a footnote.) In practice there are restrictions on what you can do to your property because that may affect others. You may also have joined with your neighbours in challenging a consent on some local development. In effect, you are claiming a property right on the resource. One of the roles of the various hearings is to decide how valid such claims are.
The issue becomes even more difficult when the use of an environmental resource is the issue. Individuals may have strong views on these – perhaps some landscape is precious to them, perhaps it is a heritage building. Again, they are claiming what amounts to a property right.
A particularly difficult issue involves Māori claims of kaitiakitanga (guardianship, protection, stewardship) in their rohe. They are claiming a general property right. Traditionally a Māori community transferred ownership of some of its property, it never transferred kaitiakitanga. Today Māori insist they never relinquished it when their lands were involuntarily taken from them. I leave it to anthropologists, historians, the Waitangi Tribunal and the courts to decide what happened when the transactions were voluntary. (Many transactions were ambiguously ‘voluntary’.)
The current RMA recognises to some degree the implicit kaitiakitanga property right Māori hold in regard to resources. The identification and application of that right adds to transaction costs. As occurs when you attempt to restrict your neighbour or when you, in particular, and greenies, in general, make claims about the future of some environmental or heritage resource. (A further complication is that the sustainability requirements in the RMA give, in effect, property rights to future generations.)
Economists do not have any great expertise in the initial allocation of property rights. Indeed the Coase Theorem says economists interested only in efficiency do not need to. (Any insights they have on equity are shared with many other disciplines.)
Observe that an easy resolution to reducing transaction costs is to eliminate some of the property rights implicit in the RMA. That seems to be one of the changes in the Coalition proposals. And of course, if some property rights are eliminated then other ones are strengthened. It is a kind of privatisation – some people are to lose their property rights (or those they think they have) without compensation.
When the minister talks about ‘property rights’, he is referring only to private property rights, Collective ones are barely mentioned. Expect a lot of public dispute when the Coalition proposals are progressed.
To put the issue in a wider context. One of the ongoing features of economic change over the last few centuries is the replacement of community processes and decision-making (and hence property rights) by individualistic ones. Economics has a theory which suggests that this change increases material output (say, measured by GDP), although the redistribution consequences may be judged inequitable. You will find echoes of this theory in the Coalition’s defence of their resource management proposals. (Recall Keynes’ practical men and women being unwitting slaves of defunct economists.) One of the features of the Coalition’s economic management is the prioritisation of material output over the wider notion of wellbeing that the Ardern-Hipkins Government was pursuing.
As this column has argued, material output is not the same as community wellbeing. It is a political choice which public policy pursues; the Coalition Government knows its answer.
Footnote: As in the case of healthcare, RMA reports focus on failure and rarely mention successes. I did exactly this when I reported that a friend’s elderly garage was munted by an earthquake. He wanted to demolish it so that it did not crash onto a neighbouring property. The consent took a long time. (Fortunately, an earthquake in the interim did not do the demolition, despite it having no consent.) My friend was irritated by the clumsiness of the procedure. But the bare fact he wanted to demolish the garage could disguise a range of other scenarios which affected his neighbour negatively. (I leave your imagination to write the comic novel.) How was the consenting authority to know? And if there was no ‘consenting’ process, how were neighbours to obtain redress if their interests were damaged?