Ganesh Nana argues that an intergenerational wellbeing framework provides an opportunity for both arms of government to be aligned towards a common objective. Funding, however, remains the elephant in the room. He was speaking at the SOLGM Summit in Queenstown.
Local government plays a critical role in terms of the range of policies and decisions that affect the people of Aotearoa. It is indeed reassuring (and exciting) that the four wellbeings are being returned to the purpose of local government. The four wellbeings now need to be used to explicitly guide and underpin such decision-making.
It is pertinent to explore just how restricted and narrow previous decision-making processes have been. There are many shortcomings to the ‘value for money’ perspective for such decisions. And framing critical decision-making using simplistic benefit-cost ratio calculations similarly omits the multi-faceted nature of the many challenges confronting twenty-first century Aotearoa.
In particular, the concept of ‘value’ is something we need to discuss and agree, rather than assume it is the market dollar equivalent of whatever we are trading. For example, an hour of time of our office cleaner is costed at $20.55 (yes, we are a living wage employer). This is the value of labour that is used in the benefit-cost ratio calculations.
But, an hour of their time looking after their children isn’t costed at all – and so implicitly has no ‘value’ in such calculations. In effect, the value of looking after one’s tamariki is ignored.
This is not just an academic argument, as it frames people’s expectations, behaviours and policy decisions. Another, more insidious example, was a recent tweet from The Economist magazine. “If as many women as men worked in India, the world’s biggest democracy would be 27 percent richer”.
The underlying message here is that the mahi women complete is not (as) valuable. Equally, unpaid work is not valued (or invisible) to the policy and decision-maker because it doesn’t feature in the ‘value for money’ template.
The negation of non-market, or unpaid, work – whether as volunteers or in caring roles – is a value judgement that needs to be made explicit. If we as a community are comfortable with such a judgement (assumption) then so be it. But I suspect, more likely, that many are unaware of this assumption.
Economic Impact Assessments (EIAs) adopt increased (or multiplied) GDP as the primary yardstick of benefits from a proposal. However, GDP also implicitly follows this value judgement by only including market transactions.
The wellbeing framework provides an opportunity to instil a balanced perspective on objectives. Indeed, it allows us to be more explicit in our objectives and brings to the surface assumptions that previously lay blurred or hidden.
Of significance in the return of the four wellbeings is the phrase “… of communities in the current and for the future”. This sits well with the shorthand ‘intergenerational wellbeing’, which The Treasury’s Living Standards Framework is adopting.
In contrast, an additional deficiency of GDP is its focus on today, implicitly at the expense of tomorrow. GDP remains silent on how the value gained today is created. Future social or environmental costs (for example) are excluded, as GDP is a measure of today’s (or this year’s) income.
Ironically, even if the GDP gained jeopardised future economic prospects and productivity, the EIA would likely ignore that too.
In essence, the acknowledgement of impacts (positive and negative) in the distant future is a feature that we have not addressed well in this country. A practical example of this short-term bias in our measurement, policy and decision-making frameworks is embedded in our benefit-cost models in the form of a discount rate. This rate reduces the importance of future benefits (compared to current) in any calculation.
The default discount rate in the Treasury CBAx model and also in NZTA calculations is six percent per annum real (i.e. after price inflation). This means that if a project is expected to reap $100 of putea (funds) in 30 years’ time, the calculations will only value this at $17.
The inherent bias in this framework is clearly in conflict with any inter-generational perspective. Indeed, anything but a low discount rate would be anathema to the concept of intergenerational wellbeing.
The wellbeing framework provides an opportunity to instil a balanced perspective on objectives. It allows us to be more explicit in our objectives.
In implementation terms, I suggest the four wellbeings be used to address four points.
Firstly, in any policy or decision-making assessment, interrogate or critique what has been defined or assumed as value. Sometimes the narrative may be in terms of ‘return on investment’, in which case this begs the question, how has ‘return’ been defined? Whether it is value or return, if narrow definitions are adopted, then what has been excluded (implicitly) from your assessment? And why?
Broader definitions may encompass concepts of strengthening the resilience of future communities, or a sense of belonging. Consequently, we may have to become comfortable with measurements that may not be in dollar terms.
Secondly, we must acknowledge potentially excluded sections of the population. A focus on ratepayer value, for example, excludes non-ratepayer individuals and households. For example, renters, youth, the young, students and transient population groups may be overlooked by a ratepayer focus.
Future generations similarly risk being excluded in this vein. A discount rate approach can also effectively exclude future generations.
Thirdly, all assessments should subject the ‘do nothing’ option to equally rigorous consideration. Sometimes viewed variously as the ‘default’, ‘easy’ or ’cheap’ decision, do nothing (affectionately known by policy geeks as the counter-factual) also needs to be assessed against each of the four wellbeings. Similarly, consideration of excluded populations and definitions of value are equally critical here.
Fourthly, assessments have to cut across silos and acknowledge the mutual dependencies of the four wellbeings. For example, if social, environmental and/or cultural outcomes are disrupted, then economic wellbeing is jeopardised. Conversely, positive environmental outcomes can be supported by engaged and connected social and cultural structures with allied economic performances.
Changing the model
This framework sets the scene for us to move away from our one-dimensional model of prosperity, which started with pronouncements on improving productivity. Such a model envisaged a simple uni-directional transmission from higher productivity, to higher profitability, and then on to higher pay for all. After 30 years of trying, this model has failed.
Perhaps now, along with the four wellbeings, we will embrace a more multi-faceted model, where productivity, profitability and pay are simultaneously dependent on each other. Clearly, a more sophisticated model is required given the increasingly challenging world we confront.
Our country, and its economy, are currently sitting precariously on several burning platforms. Some are simmering, some are smouldering but some are outright sizzling.
There is, for example: climate change; the relentless march of laboratory-grown meat; the increasing nationalism around the globe resulting in rising trade protectionism; the heightened questioning of the legitimacy of the economic system as growing inequality makes its mark; demographic upheaval across both age and ethnicity dimensions; provincial stresses as populations migrate to larger urban centres; and the presence of cryptocurrencies, robots and more.
Many look to central government for leadership on responses to these issues. However, more often than not, the implementation of policies (and management of side-effects) will be for local government to grapple with.
For this reason, it is critical that the relatively artificial boundary between local and central government is eliminated. Both arms of government need to be aligned towards a common objective. The (intergenerational) wellbeing framework provides a unique opportunity for such an alignment.
Of course, the elephant in the room is funding. A shared understanding of objectives (wellbeing) is a good start. But, a clear recognition and admission that the local government funding model is neither sustainable nor fit for purpose would be major progress for us to tackle these burning platforms. And so, meaningful reform of local government funding would follow.
This is a pre-requisite to enable both central and local arms of government to together pursue the economic, environmental, social and cultural wellbeing of present and future communities of Aotearoa.
• Ganesh Nana is chief economist at Business and Economic Research Limited (BERL). email@example.com
This article was first published in the November 2018 issue of NZ Local Government Magazine.