Full marks to the dynamic Simon Walker of the British Venture Capital Association, who brought his fellow New Zealander Sir Roger Douglas over to explain how to turn around a failing economy and overblown government That's what he did as NZ Finance Minister in just three short years in the 1980s. Even though he was a Labour Minister, he ripped into trade protections and subsidies, ended exchange controls, cut the deficit, halved income tax, let markets and not the state lead development, and brought honesty and transparency to government accounting.
His key messages? Act decisively, and act quickly. You only get one shot at this. Don't give the special-interest groups time to band together and drag you down.
The only durable changes are the big structural ones: prune a bit off programmes here and there and before you know it, they will sprout again even more vigourously. No upper limit of 25% or even 40% cuts for Douglas. He says you need to ask whether each function and department should exist at all. Their real cost is not the central staff bill, but all the ongoing expenditure programmes they dream up for themselves and others to do. So decide what functions you really have to provide; cut out the inessential programmes and departments entirely; then see how those core functions are best provided, and by whom.
Package your reforms, says Douglas, so that people can see you are protecting the most vital government functions, and can see a chink of light even through the dark days of tax rises and spending cuts. And communicating your plans is vital.You need good people clearly briefing journalists and MPs so they know what your clear objectives are and how you are working towards them. And be frank: tell them the downside as well as the upside, so they are prepared for it when it hits.
Douglas says his biggest boost came from making state programmes properly commercialised, and giving local managers the power to manage. Some state enterprises halved in size because managers knew that most of the jobs were non-jobs, and productivity soared. 'Able people had been trapped in jobs that didn't use their talents,' says Douglas.
Civil servants were put on five-year contracts and performance pay – overspending shuddered to a halt because civil servants lost money if they overspent. Ministers and chief executives would agree employment contracts, pay, pensions and so on for their own workforce – ending the bureaucratic 'grade' culture. And any pensions promised to civil servants had to be fully funded.
You can read more about New Zealand's reforms – known as Rogernomics – in our report The Kiwi Effect.
