Now for social entrepreneurs

The factory state is dead. But the state still grows. How come? And what will future governments do about it?

The theory has been that in developed economies large-scale mass-produced state activity delivered by large monoliths would follow the private-sector mass-production factory into oblivion. British Conservative party leader David Cameron gushed, by video, to the National party conference in August about a coming “post-bureaucratic age”.

Delegates lapped it up. One of the party’s bitches this election is that the numbers of “bureaucrats” have grown wildly, at the expense of front-line staff. Large savings are anticipated, with which to finance generous tax cuts.

One response to that is that as a proportion of GDP the state sector’s spending has changed little over the term of the Labour government, despite huge money increases.

A second is that numbers of “bureaucrats” — managers, administrators, accountants, lawyers, communications staff, policy analysts and so on — have grown in proportion to growth in staff generally — and that staff numbers have grown through absorbing other departments or Crown entities from outside the core and replacing outside contractors with (cheaper) in-house positions, plus new programmes mandated by ministers.

The Ministry of Social Development (MSD), for example, says it “employs fewer staff today to undertake the activities it was responsible for in 2001”. Moreover, the Treasury has accepted that around 10 per cent of those who have moved off benefits into work have done so because of MSD’s work, not the tight labour market.

The National party says it can trim the state sector — and particularly the core public services. It needs to, to be convincing that it can offer larger tax cuts than the present government’s programme without running the Budget into dangerous deficit.

Trim doesn’t mean a razor gang, leader John Key insists. His old employer, Merrill Lynch used to cut staff in downturns by equal proportions in all departments and countries, regardless of whether they were doing well or badly. This was counterproductive, lowering morale and performance.

So no swingeing cuts in numbers across the public sector: Key says numbers would be capped. He sometimes adds that natural attrition (around 8-9 per cent a year) would give scope for some reduction.

Bill English says National’s plan is to prioritise the results it wants and shuffle staff into those activities. From comments he and his colleagues have made, communications staff, policy analysts and administrators might readily deduce they would be on the shuffle (and attrition?) list. But they would have time to adjust: it would be likely to take English two years to firm up the priorities and start moving people in earnest.

Where relevant, English would aim also to assess value for money by economic return. Judging by the MSD example, he may find that option applies more widely than he thinks.

But where National would aim to make a real difference would be in dealing with non-government organisations (NGOs) and “social entrepreneurs” — people with a similar innovative and risk-taking mentality to entrepreneurs in the private sector. Some are even found within state departments.

Labour began a social entrepreneur programme in the early 2000s but shut it down after a couple of mini-scandals. That missed the point. If a government is to fund entrepreneurs, it has to accept that some will go wrong and some will fail. That is the nature of entrepreneurship.

The trick is to get the most out of innovative ideas and energy, wherever they are. A big NGO with long-term guaranteed funding and a semi-permanent slice of the action can end up stodgier than a nimble department. Over-detailed contracts, short-term funding and tight auditing stifle innovation. So do jumpy ministers.

So there has to be some contestability but not so much that NGOs can’t develop a strategic path and not so open that a department ends up dealing with hundreds of NGOs, as MSD does. English is conscious there is no simple or universal formula. He looks for a constructive tension between continuity of funding and openness to new ideas.

In fact the government has been edging down English’s route with its Pathways to Partnership programme. Helen Clark now sometimes talks of “social entrepreneurs”. So the difference if the government changes is more likely to be in speed than direction.

It doesn’t amount to an heroic “post-bureaucratic age”. But it does say the factory state is on the way out. Right on cue for the “customised” rising generation.