New Zealand has long enjoyed its reputation as one of the world's most transparent and business-friendly nations. Does it deserve this reputation? Surely, we should be doing better anyway?
Take New Zealand’s flattering ranking for the absence of corruption. In 2023, Transparency International ranked New Zealand as the third least corrupt of 180 countries. Denmark was first, Finland second.
There are orange lights. New Zealand’s score and ranking were higher in 2022. Surveyed confidence in the integrity of NZ government systems fell between 2022 and 2023. Recall too the Auditor-General’s repeated warnings in recent years of public money being spent without adequate accountability. Add to this the public concerns in 2024 about the integrity of gathering 2023 census information and violation of election campaigning anti-bribery laws.
What about ease of doing business? In its last survey, the World Bank ranked New Zealand as the easiest place to do business of 80 countries.
That top ranking has long seemed problematic. It could well be justified for the ease of registering a new business. But what then?
The Paris-based OECD ranks New Zealand as having the most hostile regime towards foreign direct investment of its 38 member countries. It also ranks us in the bottom half for the quality of our product market regulation. And neither measure assesses the red tape costs and delays involved in getting a resource consent for new housing and other needed infrastructure.
Businesses and farmers can tell many war stories about the difficulties of obtaining a resource consent in New Zealand.
Our Resource Management Act creates strong incentives to frustrate rather than facilitate progress. The applicant is the only person to bear the cost of delays directly.
A culture of delay punctuated by costly requests for further information easily becomes the norm.
The most visible symptom of the cost of delay is New Zealand’s affordable housing problem. Land for housing has been made artificially scarce.
It is not just property developers who struggle to cope with bureaucratic quagmires, shifting goalposts, and byzantine and potentially extortionate consultation requirements.
The cumulative consequences outside housing are less visible. New Zealanders’ relatively low average productivity per hour worked is a visible indicator of a problem, but we do not know how much of that is due to poor-quality regulation.
Consider the case of a company that we call "Kiwi Innovations." This is not its real name for an obvious reason; it cannot risk getting offside with regulators with discretionary powers.
Kiwi Innovations spent the better part of a decade attempting to establish a factory that would create jobs and export earnings in a part of New Zealand that badly needs more income and employment.
The company's journey starts with the local authority granting the resource consent many years ago. The authority’s decision was appealed. The company was not at fault, but a court annulled the consent.
The company reapplied with a modestly-amended proposal. To its horror, it found that this meant its application had to start from scratch. Years had been lost, money had gone down the drain.
Further delays followed. Deadline-extending requests for further information appear to be hard-wired into the current system. Staff turnover as the years go by and lost files can reverse what had seemed to be progress.
Four years after the original consent, the local authority rejected the re-application. The company was told it should hire a planner who knew the system.
The company had naively thought that information about the project should suffice. But in a discretionary system content is not enough. Pitch matters, and pitch requires a paid guide. The planners come to know who is influential within consenting teams, what the precedents are and which arguments count.
The company hired a planner and this made a difference, even though the project content was the same.
The implications are serious. When laws and regulations are unnecessarily complex and decisions about trade-offs between competing considerations are inherently arbitrary people do not know what will be permitted. Some will find it easier to invest elsewhere, or not at all.
The understandable reluctance of supplicant businesses to speak out against regulatory excesses perpetuates the problems.
Fortunately, the current government is working on the problem and is aware of all the above issues. What we do not know is what remedies it will announce.
It would be good to see a lot less emphasis on imposing outcomes and much more on clarifying property rights. Inadequate property rights are at the heart of the twin problems of insufficient development (e.g. opposition to new housing) and over-exploitation (as in the tragedies of the commons).
When people have to offer to buy the property whose use they wish to dictate they are confronted with the lost value to the community of getting their way. This venerable approach would solve many, but not all, disputes over land use. It should be a central part of any solution.
To read the full article on the NZ Herald website, click here.