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The budget 2017: The argument for treating the government like a business

The 2017 budget has been announced, and everyone is now a little bit wiser about the different areas precious taxpayer money is being divvied up into.

In terms of the business sector, $372 million is going towards creating a more ‘innovative’ New Zealand via the Endeavour Research Fund, R&D at Callaghan Innovation, tertiary subsidies and university research funds.

However, one piece of information that is missing from the announcement is an assessment of the previous budgets’ outcomes. Or as the Morgan Foundation’s Jess Berentson-Shaw calls it over at The Spinoff, The Ministry for Does It Fucking Work?

As in, do the policies put in place each year at budget time actually achieve some tangible results citizens can look over?

After all, when it comes to business, investors want to see proof of where the money is going and whether they’re getting a return on investment.

But when it comes to the collective country’s money – with every citizen contributing as an investor – the process is far less rigid.

New Zealand Initative chief economist Eric Crampton says it’s one of the main problems with government spending.

“Other than the stuff that the government’s been trying to do through the Investment Approach framework, there’s very little post-evaluation of whether spending is achieving the objectives that were set when the spending decision was made,” he says.

“We really should be demanding more. There’s some support within the bureaucracy for better outcomes-based measurement, but too many places that seem resistant. I understand that Treasury/Superu had to overcome obstacles even to get the spreadsheet up that lists the outcomes and how they could be measured.”

The Opportunities Party leader Gareth Morgan says though the government isn’t great at providing results of its investments, there aren’t many options on hand to assess with.

“Generally, [the government] trips over when comparing its outcomes to the counterfactual. That is, what else would the money have been spent on, and what would have been a reasonable outcome from that expenditure? Yet, this is really the only way to judge whether the particular intervention being discussed was superior to all others possible,” Morgan says.

Measuring complexities

With so many different areas for spending to be divided up into, it begs the question of whether it is actually possible to measure the outcomes.

Many wealthy business people who have been accustomed to accountability in executive roles take that approach to other areas, such as philanthropy. Bill and Melinda Gates are famous for looking for the best return on investment, rather than tipping money into a hole (as they wrote in their 2017 letter to Berkshire Hathaway’s Warren Buffett, who donated the bulk of his fortune). And a fellow Microsoft alumnus, ex-CEO Steve Ballmer, recently created a site called USAFacts that tracks and analyses 30 years’ worth of data from federal, state, and local governments in the USA.

He told Freakonomics, “I thought it would be interesting to paint government and what it does and what it takes in from its citizens, what it puts out and what kind of outcomes it gets, not by adjectives, but by the numbers. If I’m a citizen, I don’t want to know just where the government got its money, from whom and where it’s spent. [I want to know,] is it working at all. Or, at least, what activity is it generating?”

The site provides some data on outcomes, but is harder pressed to link spending and regulatory measures to the outcomes achieved.

In New Zealand, the government already publishes its Better Public Services targets, with the Treasury and Superu publishing the aforementioned spreadsheet that tracks these targets.

The government’s integrated data approach (using big data it holds to track and evaluate outcomes of government interventions and relating that to long-term fiscal liabilities) is world-leading, Crampton says, but there’s a lot more it could be doing to expand on it.

“There are all kinds of small-scale projects going on that would be amenable to evaluation; it’s hard to tell which projects are being evaluated. New Zealand’s integrated data infrastructure should make it easier to track outcomes in New Zealand than it is in the United States,” he says.

Morgan says it is even possible to show outcomes for investments in more complex areas like social services by benchmarking outcomes against other initiatives that have been tried in the past (that trial and error approach is something economist Tim Harford advocates and believes is not fully embraced by politicians).

“Of course, they won’t be simple bottom line impacts as with business, because the objective is often multi-faceted and certainly a lot more complex than a simple dollar value bottom line. But it’s still measurable in most cases,” he says.

Crampton agrees, saying not every outcome of every programme can be collected, but there are proxies that can be made – even in complicated areas like social services.

“So suppose that you were evaluating an intervention targeting family violence – for example. You can’t observe everything that goes on in a home. But you should expect that the intervention, if successful, would have led to fewer police call-outs to the address, fewer notifications to the Ministry for Vulnerable Children, and perhaps improved educational outcomes for the kids. Those latter things are all tracked.”

Changing voter mindsets

Though the alignment of business and government is usually frowned upon (we’re looking at you, Donald Trump) perhaps it would pay for New Zealanders to treat their elected body more like a business.

As in, they need to take a hard stance and request to see evidence of what their money is doing.

If they are complacent, nothing will change, Crampton says.

 “Ultimately, we don’t get this fixed unless the demand comes from voters. And too many voters just reckon caring is evidenced by spending, not by making sure that each dollar goes to the place where it can do the most good.” 

Elly is Idealog's editor and resident dog enthusiast. She enjoys travelling, tea, good books, and writing about exciting ideas and cool entrepreneurs.

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