Greg Clydesdale: Captured Ministers and the Government’s Economic Goals

When Helen Clark came to power, she stated that she intended to raise the New Zealand economy to the top half of OECD.  When she came to power, New Zealand was ranked 19th. Not only did we fail to advance but NZ actually went backwards.  By the time she had left, we had fallen to 22nd.  

National have come to power with similar ambitious targets, but can we have faith in the ministers and bureaucrats behind their policy?  To give you an example of the bureaucrat’s ability to deliver innovation and economic growth, I will refer to a policy from the previous government.

In 2022, the Ministry of Business, Innovation and Employment introduced a new program to stimulate innovation in the tourism industry.  Entitled the “Innovation Programme for Tourism Recovery” it offered $54 million in grants for projects that would enhance the NZ tourism experience.  

The program suffered from poor design.  For example, it expected applicants to already have any consents, which simply would not be possible in the time frame offered.  Second, it did not acknowledge that for highly innovative, land-based products, consents could be the area where help was most needed.  

A third problem was the organisation of the scheme.  To avoid conflicts of interest, MBIE sub-contracted external organisations to consult with applicants, but this created an extra organisation layer that separated policy makers from applicants which, in turn, inhibited information flow and the chance for improvements.

The program failed miserably and was closed down without being completed. Of the $54 million allocated, $52.4 million was returned to Treasury.  This failed program churned through $1.4 million in administrative costs.

What was clear is the staff at MBIE had no idea how innovation operates in this industry and this raises serious concerns for the current governments ambitious economic targets.

I recently wrote to the current Minister under the Official Information Act asking what strategy they have in place so that tourism contributes to the government’s economic goals. I was referred to the ‘strategic Intentions 2023-28’ sections of the MBIE website and was thoroughly underwhelmed.  

It is clear that the people driving New Zealand’s tourism policy have little idea about industrial development.  One reason for this is industry education.  To give an example of the people providing tourism education, consider a former Otago Professor who has published a great deal on the negative effects of tourism on climate change.  

The professor has publicly stated that he sees no benefit in attracting high-net worth tourists to New Zealand stating “I’ve seen no evidence for that”.  He could not see any advantage from earning $500 a night instead of $50, consequently he preferred to attract students and back-packers.  

One university I worked at offered a programme in tourism management but it contained very few business papers.  There was plenty of sociology and other papers with an emphasis on protecting the environment.  As one student said to me regarding environment protection – ‘That’s what it’s all about”.

Obviously, it is a good thing to protect the environment but when students say ‘that’s what it’s about it”, it raises the possibility that students, and future bureaucrats, end up with an anti-development mentality.  It is also notable that the program had no training on business strategy.

I saw similar results in agricultural training.  For example, students often complained to me that lecturers made them feel bad about having a career in farming.  One student even told me how she argued with her father because he did not believe that agriculture was bad for the planet.

This is the training that our university’s provide to future bureaucrats.  In the last election, it was noticeable that the nation turned to the right, except in Wellington, the home of bureaucrats who create our tourism policy.  This creates a situation in which a right-wing government is reliant on left-wing bureaucrats for policy design and implementation.  

One tactic used by bureaucrats is “agenda setting” whereby the bureaucrats determine what information a Minister has access to.  In that way, it ensures that the bureaucrat’s options are chosen.  Innovation relies on openness to new information, but the tourism bureaucrats are keeping a tight control on what information a minister has access to.  

Bureaucrats are not the only ones who can manipulate ministers to their own ends.   Economists have long noted a process called ‘political capture’ in which industry can dominate policy formation.  This does not suggest that ministers should not listen to industry – on the contrary, they are vital source of information.  However, ministers need to be aware of their limits.

We can see this in tourism under the current minister.  Industry want to reduce seasonality in tourism.  That is to say, most tourists come in summer which leaves capacity under-utilised for the rest of the year.  If the industry, with government support, focuses on attracting people in the off-season, this would result in higher profits and better capacity utilisation.  With this in mind, the government is focusing on ‘settings’ and marketing. 

However, attracting tourists to Christchurch in June is hardly the best way to establish NZ as a high value destination.  In fact, it could dramatically diminish New Zealand’s reputation.  What is needed is a more strategic approach to tourism planning, but this has been long absent from tourism policy.

If we are to attract, tourists in winter, we need to offer a genuine winter tourism, something we can easily do given the Southern Alps, but we do not have one genuine alpine village in the alps above the snow line.  To earn the sort of revenue that Switzerland earns in winter, we need to offer a product that matches theirs.  However, bureaucrats are trained to limit any development that affects the environment.  They also show a poor awareness of how innovation and industrial development actually happens.

Of course, a strong minister can exert more influence, but the quality of ministers varies.  The previous tourism minister, Stuart Nash claimed that ministers fall into three categories. He said there are some ministers who are “engaged, enabled, and informed”.  There are others who rely heavily on their staff and finally, there are a small number of MPs who “just don’t have the capability, capacity, or competency to be an effective politician at the Cabinet level”

Sadly, I cannot see our tourism industry contributing much to the government’s economic goals.  The bureaucrats in this industry have revealed that they don’t understand innovation and development, yet our ministers continue to place faith in them.

Dr Clydesdale's expertise centres on the drivers of wealth and welfare including creativity, entrepreneurship and economic growth. His methodology differs to other economists in that he draws significantly on psychology and economic history. He is the author of six books. Those aimed at the popular market include Waves of Prosperity: India, China and the West; The Art of Business: How the Chinese got rich and The Politically Correct Economy which examines how political correctness is undermining the New Zealand economy.