by
R. W. M. Johnson
The public choice model contends that there is creative tension between government, bureaucracy and interest groups. The characteristics of the political and bureaucratic groups are epitomised by the following quotations from Tulloch (1983):
The politician should be best thought of as a businessman. He is in the business of trying to make money by being elected to office instead of trying to make money by selling products to you. He is primarily engaged in making a living by selling policies to people and he changes them just as readily as a businessman does. We don't expect businessmen to continue selling the same car for twenty years, and we are sometimes a little indignant when we discover that politicians have been selling the same policy for twenty years - but generally they do shift positions rapidly.
Bureaucrats are concerned with their own well-being...Bureaucrats are much like other men ... They are, like the rest of us, to some extent interested in the public good and in helping their fellow men; but, like the rest of us, they put far more time and attention into their private concerns ... In making a decision about some matter, (he) is likely to give more weight to the effect of his decision on his personal career than on the nation as a whole...Bureaucrats are not pressed to work hard and be efficient...They can avoid pressure from above because they cannot be fired...
More recently, Roger Douglas has put it (Evening Post,18 June):
...when given responsibility for business, Ministers were inevitably captured by the objectives of that business, thereby taking their eyes off the bigger picture...successive Transport Ministers ... were captured by the objectives of Air NZ when it was a government department, rather than focussing on aviation policy for the country.
The three way inter-relationships between the groups is characterised by information flows and contacts between the groups and by rewards or favours bestowed as in the diagram. Pressure group activity works on both the other two groups and seeks favourable outcomes to their advantage. In this paper beneficiaries will be defined quite broadly to include more altruistic groups like environmentalists.
The government political sector draws on public policy advice from the bureaucracy some of which is recognised to be self-interested. Information passes up to political decision makers in the form of reports and advice and passes down to the bureaucracy in the form of political agendas and general direction of public policy.
Political decision makers are seen to be part altruistic and part selfish. The altruistic part is a loosely defined concept called the national interest. The selfish part is seen to be the need to get re elected and the need to satisfy some constituency that supports the representatives individually or supports the general thrust of the political group concerned.
Some writers call this interdependent system the political market and seek to find economic reasons for the different behaviour of the respective groups (Johnson 1991).
Politicians can achieve their goals by being elected to office and bestowing favours. Bureaucrats achieve their own preferences and goals which they can achieve by enlarging the size and budgets of their agencies. Interest groups act behalf of individuals in getting favourable policies passed in the legislature. The political market is a kind of clearing house where the collective expression of individual preferences is aggregated. Resources are allocated according to the political process and not an economic one.
Information is a tool in the political market. It has characteristics of scarcity, it can be bought and sold, it can be withdrawn or withheld, and it may also exhibit public good characteristics. Pressure group activity can be seen as supplying strategic information to power holders to influence decision making. Bureaucrats have to draw on the private sector for a lot of their background information. Statistical departments exist do take on this task collectively. Holders of information have extra power to utilise in bargaining processes.
Some political decision makers are particularly fond of talking about the quality of information in terms of quality decisions and the quality of their financial management. By the latter they mean a responsible fiscal policy compatible with other objectives. The public good characteristics of information relate to its free availability to all once made public and also to its key role in explaining government policies to the electorate. The latter process is subject to the same control and manipulative factors as information derived from private sources.
In this paper we discuss pressure group behaviour in terms of rent-seeking and criteria that might identify particular cases of resource transfers arising from rent-seeking. We look at different ways in which pressure can be applied and the rewards that can be sought. We look at the changing constitutional situation and ask whether this will affect the behaviour of the main parties in the political market. Will there be major changes to the bureaucratic structure and will there be changes in the ways information flows to decision makers?
Interest group behaviour is a classic form of rent-seeking. Rents occur when the normal competitive forces at work in the economy cannot reduce or eliminate the particular situation creating the rent. Such institutional factors may be created by government as in the case of barriers to entry to a profession or business, or may be some form of natural advantage that cannot be competed away. We are interested in government created rents arising from pressure from constituent bodies or individuals seeking their own advantage. Pressure groups are a recognised feature of modern society and considerable effort is put into promoting their activities.
For the purpose of analysing and understanding specific policy initiatives I have developed a set of criteria that should help identify whether a particular policy may be instrumental in creating rents for specific groups or individuals (Johnson 1994):
The need for this kind of approach arises from the fact that government policy making is a mixture of the altruistic and the selfish. We need to establish whether transfers actually took place. Experience shows that problems have to be dealt with and new policies established. However, the resulting decisions may have redistributive effects that mayor may not have been anticipated. Redistributive questions are not easy to analyse and difficult to quantify. Political viewpoints may include those of important constituents but these may well be submerged in a mass of other detail. Some redistributive effects happen by accident.
What is important is whether the pressure group's efforts have some alignment with the existing direction of government policy. A conservative government has some sympathy with business and farmers and a Labour government has sympathies with organised labour and minorities. From this start the opportunity exists for the pressure group to provide information, directly address official representatives, make party contributions and otherwise try to influence the course of policy. In our political system there is certainly an openness to points of view but also many impediments to finally achieving a change in policy.
In other countries, political appointments to the bureaucracy are utilised to increase the responsiveness of newly elected governments to its constituencies. In our system this opportunity is not present, though it has to be wondered how much contractual systems for chief executives will bring about more involvement in the political process. In our tradition, political appointments to statutory bodies, ambassadorships, public boards and the like fulfil this role for patronage. That these appointments provide some opportunity to influence the course of events is without question, but such representations as they may make will always be merged with that of others through policy advice or select committee hearings or some such.
The other strategy is to work through the media. As with the case with environmentalism, discussed below, the indirect way of influencing government policy is through public opinion. This kind of pressure is very difficult for politicians to withstand especially where public opinion is ready and able to be mobilised. As public choice indicates, pressure groups have grown up to specialise in this role and will use the available information selectively and efficiently.
It has also to be noted that media reporters tend to attribute changes in policy to reported efforts made by pressure groups (see, for example, Jesson's chapter in Gold 1991). Political favours are constantly reported but difficult to verify. There have been cases, such as the Marginal Lands Board, where such observations have been verified.
In my experience, redistributive effects usually result from policies which had some other goal. In the 1960s and 1970s export growth was the national goal and increased investment in farming was seen as desirable. As farm investment was a matter of private decision making (through the propensity to save) the stated policy direction required an increase in farm incomes. The policy means of achieving this was a taxpayer subsidy (a second best solution) when it would have been preferable to have made adjustments to the exchange rate (a first best solution). The net effect was a wealth transfer to the farm sector.
Or take the example of the establishment of individual fish quotas. In this case, the successful holders are enriched by the policy mechanism used at the expense of other fishers who did not get quota. The redistributive effect is the result of the more important policy objective (conserving fish stocks) being sought.
Political science writing tends to reinforce the media view. If class conflicts do not dominate politics, at least overtly or in the minds of most participants, sectional rivalries between more narrowly defined economic interests seem to lie at the heart of many of the most contentious policy debates
(Gold 1991, p.7). This author sees the main debate between organised labour, employers and farmers.
All three groups - organised labour, farmers and employers - are competitors for government attention and largesse, and none,
as taxpayers, can be indifferent to large favours accorded to any other group at their expense.
Another political scientist, Vowles, states that business organisations such as the Merchants Association had little need to change during the reforms of the 1980s. Their approaches to Ministers and officials were invariably accepted, and consultation on key matters of concern, such as the Goods and Service Tax, were real and meaningful
(Gold 1991, p.356). This is very naive and most unlikely.
In discussing the decline in consultation with pressure groups in 1984, Vowles does come to a conclusion which seems fair and reasonable ...by emphasising the need to govern in the interests of all, and defining its role as a rule maker rather than as an active participant in a bargaining process, the state has sought to distance itself from the cut and thrust of distributional conflict between the major organised interests
( Gold 1991, p.361).
The argument that government does have a wider responsibility to the community to counter the pressures from the interest groups is promoted by the political scientists. Mulgan traces these arguments to the theory of countervailing power
associated with the work of J.K. Galbraith (1952). Electoral fortunes depend on the votes of the rich as well as the poor
and on the individuals who make the sectional interests. Therefore politicians have the incentive as well as the moral need to look to the fortunes of the many rather than those of the few (Gold 1991, p.525).
Mulgan comments on the situation post 1984:
the fourth Labour government's attitude ... was articulated in terms of the neo-liberal critique of lobbying which sees interest group influence as the attempt by powerful groups to gain unjustified privileges or to seek rent by capturing publicly-enforced monopolies. For neo-liberals, such as Hayek and Buchanan, the role of government should be confined to the public interest which they define as providing public goods, that is non-excludable goods available to all, such as roads or clean air, and enforcing the rules of contract and fair competition which underline a free market...; this critique... differs from the countervailing theory which encourages governments to intervene on behalf of weak sectional interests as well as the public interest...; countervailing theory recognises the legitimacy of sectional interests groups but requires that all sectional interests, as well as the public interest, should have a fair share of political influence...; neo-liberalism...rejects the legitimacy of any sectional pressure on government and confines the role of government to protecting the public interest
(Gold 1991, p.526).
I examine this case as it is based more on the conflict of ideas rather than transfers of wealth. During the mid 1980s the government departments concerned with natural resources were re-organised by the incoming Labour Government. The environmental lobby was concerned to separate the policy making functions of the departments from their role as trading departments. They believed that the environmental interest was subservient to the trading interest. The Labour Government was prepared to listen. The Treasury sided with the environmentalists presumably to seek a reduction in the power base of the respective departments and also to reduce the fiscal drain on government resources. The only opposition came from the departments themselves!
Through the latter years of the Labour Government, resource law was extensively reviewed and a draft Resource Management Bill prepared. The National Government reviewed the bill and eventually had it passed in mid 1991. In this case there was extensive consultation with the environmental lobby and wider local administration groups as they would have to administer the Act. The environmentalists succeeded in getting a very strong bottom line ethic into the Act (clause 5(2)), but were not successful in getting additional restrictions on the mining lobby. The implications for farmers of the environmentalist's proposals were not widely canvassed and only now are becoming more widely appreciated.
The Treasury influence is shown in a strong underpinning of property right theory in the management of resources, which would predispose more market solutions to resource problems than environmentalists would prefer. The strong emphasis on avoiding, remedying or mitigating any adverse effects of activities on the environment also suggests a strong Treasury influence. The implication is that the environmental effects of undertaking an activity should be assessed by the developer. In turn he will have to show who is going to bear the costs of mitigating such effects. This is the nearest the Act gets to identifying user or polluter pays.
This case shows that pressure groups operate in the area of ideas as well as in terms of transfers of wealth. Their objectives can be achieved by the same kind on processes in both instances. The environmental groups use the media, they approach politicians, they sidle up to bureaucrats, and they develop a constituency which turns out to be difficult to withstand. When success is achieved they then infiltrate the very government bodies that previously held them at bay.
In general, this case demonstrates that criteria based on wealth transfers alone are too narrow for an explanatory model of government decision making and that a wider political model of the system should be sought. This can be found in the work of Lowi (1972), and Olson (1965) and others which I have discussed elsewhere (Johnson 1994).
The basic model holds that bureaucrats are empire builders and dominated by self-interest. This is expressed in such objectives as maximising their budgets and improving their conditions of service. In New Zealand it has surfaced as an apparent rigidity to change and an unwillingness to take new governments seriously. It has also surfaced as departments becoming too big in relation to others and their activities have been difficult to control.
As a result of these perceptions, the Labour Government put great effort into the State Sector Act and the Public Finance Act so as to achieve a weakening of the power of departments and greater control from the elected representatives. It is not clear whether they were driven by the precepts of public choice theory or just had bitter memories of the first months of the 1972-75 period of government!
I believe that the bureaucracy does have a key role in the decision making process but that this lies elsewhere to the above. It is the information role that is important (see diagram) for a number of reasons. First, matters are too complex for decision makers at the political level to take everything on board. Second, experts have to be employed in their various fields. Third, information has to be gathered and processed. Fourth, some balance or sense has to be exuded out of the information and pressures that are generated around the politicians. Fifth, departments are the repository or corporate memory of past policy decisions.
It is a separate matter whether the state needs to administer all the programmes past and present politicians have created. As is well recognised, there is no compulsive reason for the state to be involved in many programmes and the modern tendency is to create SOEs or privatise as many of these former government services as possible.
There is then a core bureaucracy that is needed to run the modern state and its influence will be reflected in the quality of the programmes put forward and the background analysis it undertakes. The public choice model (and experience) suggests that it will need to listen to the pressure groups of whatever sort to do this core job properly. It will arbitrate between different points of view but will be subservient to political requirements. A current weakness may be that this key role will be made subservient to the contractual situation between Minister and chief executive. It seems that the typical department needs to be quite clear what it believes its primary goals are and be able to hold to them when under pressure.
The New Zealand public service is built on the principle of neutrality. Advice to Ministers should be able to be made on a free and non-partisan basis. Policies, once decided, should be administered faithfully and as efficiently as possible. This independence has already been weakened by the State Sector Act with its contract system for chief executives with Ministers of the day, and could be weakened further by the introduction of MMP. At election time there would be a considerable period while coalitions were sorted out when the bureaucracy would have no part to play. Once a government was formed coalition partners would want access to public service policy advice on an equal footing. Minor parties in a coalition might want a junior finance minister or at least access to the information and quality advice that Treasury provides. Indeed how could a budget be formulated without consulting the minor parties?
In putting up legislation, a broad range of parties may need briefing from civil servants if coalitions are changing. Another departure could be different coalition ministers following different agendas through their departments. There could be a weakening of the collective responsibility of the coalition government. Departments would find themselves estranged from other departments and also responsible for carrying and presenting individual agendas to Cabinet. Some would say we are already well down this path since the system of officials committees was abandoned in the 1980s.
A different threat to departments is that of amalgamation. It has been suggested that there could be only four departments by the year 2010 compared with the 30 or so now. Underlying this would be an increased drive to privatisation especially in health, education, energy and broadcasting. There would be left a Department of Services, a Department for Positive and Negative Taxation, a Department of Social Services, and a Department of Quality Assurance. Each department would have three ministers as a board answerable to Parliament. As a result the tax revenue could be reduced to around 25 percent of GDP instead of the current 37 percent. This proposal would certainly help solve the coordination issue though the pressure at the top could be rather fantastic. However, entrenched interests in each mega-corporate may make coordination an extremely drawn out and costly process.
It has been suggested that a new department of coordination would be require under MMP. Public servants could continue to stand apart and give free and frank advice while a new body dealt with the compromises, the massaging of information, and the final advice to ministers. This sounds like an enhanced Prime Minister's office to me though it could take the form of enhanced ministerial suites or a new stand-alone body! Enhanced ministerial suites would be the death to some departments as they would lose control of the information and advice process so we can expect some opposition to this outcome. Alternatively, ministerial suites could be placed in departments as in the United Kingdom.
A strand of the public choice paradigm is that politicians should be more responsible to their constituencies so that the rights of the individual are protected. Reform is needed to make sure that voting procedures, party systems and policy making are more responsive to the groups who represent and are willing to protect individual rights. In New Zealand the needs of individuals and groups seem to be forgotten between elections. We have first-past the-post elections; a one-house parliament; a Cabinet system of government and (previously) a disregard for promises made and groups represented. As far as the public is concerned there is a general distrust of all people who take part in the process.
And yet at the same time we have a diminution of pressure group activity compared to other countries and a relative freedom from political appointments to the senior public service and state agencies.
Also the focus on the national interest is fairly well preserved by present systems and could be said to serve the public quite well.
And yet the public have voted in two referendums for a change to the system. The two-stage procedure certainly looked curious. The first referendum asked whether the voters wished to change the system and offered a choice of four options: * supplementary member, * single transferable vote, * mixed member proportional, and, * preferential voting. A large majority voted for change (85 percent) and a clear preference was shown for mixed member proportional representation (71 percent). The second referendum offered the choice of first-past-the-post (FPP) and mixed member proportional representation (MMP).
That the public chose MMP with its candidate lists and enlarged single house either indicates a total ignorance of how politics works or they so distrusted the present crop of politicians that they voted for change anyway on the basis that anything else must be better!
The MMP system will certainly bring about changes to the electorate system, the selection of candidates, the balance of power in the house, the selection of cabinet and others. These changes are not discussed here. What I want to do is to reflect back on the triangular relationship posed at the beginning of this paper and discuss how MMP will affect these.
It is not inevitable that no one party will get an outright majority. However, it has been postulated that coalition governments would only be likely to reach agreement on issues with compromise on all sides. As a broad range of views will be presented, interest group pressure would have to be applied across the board to be effective. Information provision would have to be treated likewise. It is conceivable that pressure group activity may have to extend backwards into the party groups. This would give them some say in party manifestos (if such are to continue).
Political donations would have to be more evenly spread among the parties particularly as the outcome of elections could become more uncertain. This all assumes coalitions are inevitable.
Representation at the regional level will change. The reduction of electorates will see larger areas in each electorate and more impersonal representation. List candidates will not represent any particular area at all. The dual vote system suggests that two teams will be formed; one that concentrates on national policy matters and the other on electorate policy (will they have the same pay?).
This then raises a bit of a conundrum as to what electorate policy is? It has to be something in order for electoral seat holders to be re-elected. Morgan suggest (NBR May 9) that a contest will ensue between local government structures and electorate oriented political parties as to whose domain it is. Would some form of electorate government replace local government? Would the central political parties need to invade the local government parties? As it stands at present the vote going to the electorate member is largely wasted except to make up numbers in the lobbies at the centre. Morgan goes on to say that the whole concept of electorate representation can be done away with under MMP. Indeed it is interesting that in South Africa an election has been held with no electorates at all but only lists classified by parties.
What of environmental issues? Here I believe the lobby groups will need to have a double pronged information policy aimed at both the the elected members and the public. Decisions at the centre will be muted except in circumstances where there is a clear lead in public opinion. In some countries environmental parties have contested elections and in some cases have held the balance of power in coalitions. In New Zealand these forces are submerged in the Alliance at present but could well separate out under pressure.
On economic issues, much depends on the ongoing course of disengagement of governments from the economy. Recent developments in New Zealand have reduced the power of the lobbyists as there is less government intervention to create rent-seeking situations. The days of import licensing are long gone though presumably there is some lobby that benefits from floating exchange rates, managed interest rates and inflation rates, and privatisation policies.
Scrimgeour and Pasour (1994) maintain there are still three areas in agricultural policy where significant distortions continue to exist. They refer to price distortion in marketing boards, private benefits masquerading as public benefits in Research and Development, and the moral hazard effects of disaster relief. They maintain that there are significant gains from further deregulation as these policies impose considerable costs on the economy. But because it is not possible to clearly identify a significant group of beneficiaries, and opposition to change is very vocal from the groups likely to be affected, the urge to reform has diminished. They maintain it is important to provide information about winners and losers and the benefits of change.
On social issues, there is plenty to discuss. Powerful lobbies exist in health, education and social welfare. Professional groups have a great deal to say about matters that affect them. Yet all along the government seems to take an altruistic view of the social problems of the day doing its best with the resources that society is prepared to yield up to it to do the job. It seems unlikely to me that any particular group gains significantly from the present mix of policies.
Galbraith, J.K. (1952), American Capitalism-the Concept of Countervailing Power, Houghton Mifflin, Boston.
Gold, H. (1991), New Zealand Politics in Perspective, Longman Paul Limited, Auckland.
Johnson, D.B. (1991), Public Choice: An Introduction to the New Political Economy, Bristlecone Books, California.
Johnson, R.W.M. (1994), 'The National Interest, Westminster, and Public Choice' Presidential Address to the Australian Agricultural Economics Society, Victoria University of Wellington.
Lowi, T.J. (1972), 'Four Systems of Policy, politics and Choice', Public Administration Review, 30 314-325.
Olson, M. (1965), The Logic of Collective Action, Harvard University Press, Cambridge.
Scrimgeour, F.G. and de Pasour E.C. (1994), 'The Public Choice Revolution and New Zealand Farm Policy', Review of Marketing and Agricultural Economics, 62(2).
Tulloch, G. (1983) , 'Public Choice and Regulation', in The Economics of Bureaucracy and Statutory Authorities, Centre for Independent Studies, St Leonards, NSW.