On Newshub Nation: Lisa Owen interviews author Max Rashbrooke 15/09/18

Lisa Owen: A new book called ‘Government for the Public Good’ is posing the question, ‘Who does it better — the free market or the government?’ Journalist and author Max Rashbrooke makes the argument for a more active administration or what some people may call ‘a nanny state’. He joins me now. Hi, Max. This is a long-running debate, obviously, so is there a definitive answer as to whether the free market is better or the government is better?

Max Rashbrooke: Well, I think what we’ve seen in the last 40 years is a dominance of the idea that the free market does things better. You know, that it’s more efficient, that it’s more effective— the competition drives better results. I don’t think we’ve stopped and looked hard enough at the answers there, because most people just cherry-pick their examples around Mt Eden and Serco whatever. So, what I’ve done in the book is I’ve really run the ruler over those claims about, ‘Has privatisation, outsourcing delivered better services?’ And the answer is, generally, no, it hasn’t. Classic government action is much more effective than, I think, we’ve been led to believe.

To be clear, are you specifically talking about services that would be regarded as being for the collective good like health, education, justice, prison supply — things like that?

Yeah, I think it’s principally those areas in the last 40 years people have tried to make work as markets, things that were classically government-provided before that. That’s been the big shift in the last 30 to 40 years, and that’s what I’m saying, principally, hasn’t worked. Now, there are examples where it has worked. You know, no one wants to go back to the days when the Post Office provided all our telecommunication services, but mostly that privatisation and outsourcing drive has failed to deliver on its promise of better services at lower price.

But what measure are you using in judging this, because you can imagine there will be some people shouting at the television at this point, won’t there? And they will argue that what you’re talking about is an ideology. It’s not a science, so what measure are you judging by?

Look, in every one of these fields, there’s different questions, right? There are different measures — you’ve got different measures in health, you’ve got different measures in education — but in each of these fields there is a huge body of research that allows you to answer the question. The problem is we don’t often look at or present that stuff. You take charter schools, for example, the tiny evidence base for New Zealand, but from the US there’s 20 years of really careful research about — do charter schools deliver better educational results? So, that’s the measure there. The answer is really clear from the reviews of all the evidence — they say, ‘There is no evidence that charter schools are delivering educational gains better than traditional public schools.’ That’s a direct quote.

But that raises the question, whether you can take an enormous charter school in America and take the results from that and say that, all things being equal, that will be the outcome in New Zealand. Does that compare to a tiny little school in Northland who is operating as a charter school?

Some things will always vary from country to country, sure. But you have to think about— There are basic principles that underlie all these things, right? And the principle behind charter schools, which is the same with partnership schools, is fundamentally, you know, if you have schools competing, that will drive up results. And, actually, the evidence is really clear — and it’s clear across the board — that systems where you have collaborative schools work better, because they share knowledge better. High performing schools can share that knowledge with others. Schools that are struggling can get help. If you have schools that are competing with each other, it’s very hard for that good practice to spread, so you get a less effective system overall.

Okay, if we accept the premise of your book, your conclusions, here’s the conundrum. We’re 10 years on from the collapse of the financial sector that, arguably, made people start to rethink the free market, yet people are not flocking to support more government, and they would— well, critics would hold up Brexit and the election of President Trump to argue that we’ve lost faith in traditional government institutions. Do you agree with that?

I think people have. And that’s a big motivation for the book, actually. Because I think what has happened in the last 30, 40 years is that the idea that government is effective has been constantly run down and constantly denigrated. And so people— even people who, you know, might want government to do certain things, there’s really good evidence that they just don’t think that government does a good job of solving those collective problems, of achieving those collective goals. And so what I’m doing with the book is trying to say, ‘Well, no, actually, there’s a lot of evidence in the other direction.’

Yeah, but there are examples where governments have failed miserably — arguably, a local example would be the whole meth testing industry and $100 million wasted testing state houses. So governments do fail in policy areas monumentally, you could argue.

Oh, look, I’m definitely not saying that government is perfect. We live in an imperfect world. All the things we deal with are created by people, so everything is deeply imperfect. But it’s a question of, in an imperfect world, what things work better. You know, what will deliver us the best possible results. My argument is very often, it’s classic government action.

All right, well, let’s look at a couple of examples, because there were interesting examples in the book. One of the areas that you looked at — climate change and changing consumer behaviour, subsidies for switching to electric cars. And they’re doing this in France, you say, basically giving people the equivalent of $20,000 New Zealand dollars to ditch their petrol car and get an electric one. Why should taxpayers carry the burden of that?

Because the classic argument for subsidising something is there are what you’d call ‘spill over benefits’ — what economists call ‘externalities’. It’s not just an advantage to that person to have an electric car, we’re all better off, because we all benefit from the reduced emissions. Now, there are still problems, in the sense that if you subsidise electric cars, it will go disproportionately to people who are already reasonably well off, because they’re the buyers of cars. I’m not saying there aren’t any counter-arguments, but that’s the justification, typically, for subsidies.

And that’s the downside, isn’t it? Because sometimes you can do something for the collective good and it will still hurt a group within that collective. And in that case, the Productivity Commission has identified that, well, poor people will pay the higher price for that change in policy.

Sure, but there’s lots of offsetting things you can do – I mean, anything that will increase costs for people at the lower end of the spectrum. You can increase payments, say, through the benefit system to offset that. And I think more generally, if you look at the need to adapt to climate change, there’s a huge role for government there, because the people who will be worst affected are people in the traditional extractive industries that are going to disappear. A lot of people in relatively low-paid work, people whose skills that they have now won’t be so relevant in the future, they’re not just going to seamlessly redeploy themselves into new jobs in the way that a free market purist would tell you. The evidence is that people have to be helped into new jobs and they have to be retrained. They need a lot of support for all of us collectively, and so that’s another classic role for government.

There’s a chapter devoted to income inequality, and obviously welfare can be a contentious issue. You look at some of the things that the government could do if it wanted to provide more intervention. I just want to explain a couple of them very briefly. So, one would be a wealth-matching scheme where, say, kids could put up to 200 bucks into a bank account every year; the government will match that – only poor kids – so when they get to their teenage years, they’ve got a lump sum of money that they could use to acquire assets. Another one is bring back the inheritance tax. So you can get the first $200,000 for a free hit and then get taxed after that. Are those policies not political suicide?

I don’t think so. Not necessarily. The inheritance taxes right now probably aren’t very popular, but that’s partly because there’s been taxes on the person who’s just died. And my proposal in the book is that you tax the recipients, and there’s a really obvious fairness argument there. I mean, yes, people want to be able to pass something on to their children, and that’s absolutely normal and natural, but it’s also obviously unfair that some people get gifts that they haven’t worked for and there are lots of kids from poorer families who don’t get anything. And so the combination of those two proposals is you have some low-level tax on some people who are lucky enough to get gifts over $200,000, and you use that to set up the saving schemes for poor kids, and so that’s giving them a decent start in life that they won’t get through inheritance.

Mm. It’s very interesting, and there’s so much more to talk about, because you think there should be more citizens involved in making these decisions as well. This is in the book Government for Public Good. Max Rashbrooke is the author. Thanks for joining us this morning.

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