Danyl McLauchlan on Unjarndycing the State

Danyl McLauchlan writes:

Modern politics is riddled with principal-agent problems. When I talk to people about Let’s Get Wellington Moving – the doomed, now cancelled $7.4 billion mega infrastructure project that only delivered a pedestrian crossing while it spent $100,000 a week on consultants – they describe a very Jarndyce-like process. Endless rounds of consultation and engagement between the regional, city and central government and other stakeholders, all facilitated by private sector providers gorging themselves on those consulting fees. The principals were the ratepayers and taxpayers, who wanted their rates and taxes to go towards building stuff – but this wasn’t in the interests of the agents managing the rounds of consultation and planning. They benefited by keeping the Jarndyce loop rolling.

One of the reasons people on the left believe states outperform markets at allocating resources is that there’s lots of zero-sum competition in free market economies. Everyone is wasting money conducting marketing campaigns against one another, suing each other, new inventions can’t be shared because inventors want to protect their copyright. Under socialism the state can just put all its resources into creating value. But a classic right-wing critique of the state is that if a company in a free market makes bad decisions and destroys too much value they’ll fail and go out of business, whereas badly run public sector organisations can just fail, and fail in perpetuity – they always have the resources of the state to draw upon to fail some more. New Zealand seems to have found a way to combine both failure modes simultaneously: public sector organisations locked into zero-sum processes that destroy value – they spend a fortune on marketing! – but can’t ever go bankrupt.  

A rare achievement.

If you looked at the under-examined assumptions behind Ardernism I suspect a strong belief in the infallibility of state bureaucracies would lie at the heart of it: any problem can be solved if you give the experts running the relevant ministry more money and tell them to be kind. 

A good summary.

One of the reasons our neoliberal revolution failed to generate the wealth its advocates promised is that markets aren’t magical. They need regulation to function properly: otherwise, you just wind up with an economy dominated by monopolies and cartels, ie the New Zealand economy.

I agree regulation is often needed for markets, but the challenge is getting the degree of regulation right. Stopping vertically integrated monopolies is a good thing for example.