Investing, not spending. A tougher way of thinking

The day after the election John Key said child poverty was his third-term priority target. Next day Bill English laid down the law to public sector chiefs about using a targeted “investment approach” to ease this political discomfort.

Investment, by contrast with spending, implies a dividend. That tougher way of thinking could, if boldly applied, significantly reframe policy decision-making — not just about “poverty” but across public policy out to the environment.

Whether it does will depend on how ministers and public servants apply it. Do they calculate the investment as opening up opportunity or just as a fiscal matter (saving money)? Do they focus on long-term or short-term returns?

The investment approach comes from the Accident Compensation Corporations’ actuarial assessments of the cost of people staying long-term on compensation and the return on averting that.

This is not just kicking people off compensation, though ACC got much tougher and some got treated badly. It was predicated on a finding that there was a point of no return after which someone is much more likely to resist leaving compensation for work or to have lost the confidence to.

The Welfare Working Group picked it up, deep in its report in early 2011, where few focused. The cabinet quietly adopted it in mid-2011 in its teenager initiative.

It has since applied it to sole parents. Again, there have been rough experiences but also upside ones.

The investment approach is arguably this government’s most important innovation, as I have written here in the past.

In the early 2000s then Ministry of Social Development boss Peter Hughes pushed it. Minister Steve Maharey enthused. Helen Clark did not. Some in Labour now are edging towards the Maharey view.

Critics bother about ministers’ motivation and moralising.

The actuarial calculation is fiscally oriented — what money can be saved in the future. So to critics its application to welfare looked like short-sighted, short-term cost-cutting.

Ministers, especially Key and Paula Bennett, moralised about the uplifting power of work. There is evidence that being able to fend for oneself is a psychological plus and some climb up the wage ladder once on it. But for many the pay was very low and posed child care issues and so in net monetary terms they could be worse off.

For children, a parent’s very low wages, like a low benefit, means going without some necessities. That is poverty — now an embarrassment and, in 2017, possibly some lost votes.

So English wants a big shift in delivery of social assistance through the next two years.

That includes housing because a child in a damp, cold, crammed house is deprived of a necessity. There are hospital costs when they get unnecessarily sick. High rents in a broken housing market cut parents’ disposable income and cut other necessities.

That, plus a distaste for local planning “zealots”, as English calls them, and a faith that community agencies could manage publicly-owned houses better, has led him to take the Housing New Zealand Corporation portfolio.

Insiders say the agency has lifted its game and modern houses I have seen are much better designed. Insiders say English is also behind the play on local planning.

More generally, English says public agencies are geared to countrywide, uniform responses — they have “large-scale production systems” — and don’t have the finer-grained data to precisely target the 5-7 per cent most in need. He cites the Auckland City Mission as a model.

Agencies are also “minister-centred”, he says, when they need to be “customer-centred” (again probably overstating his case).

He wants Work and Income to be able to buy hospital services for beneficiaries, as ACC does.

All this sounds tightly oriented to fiscal savings. English defends that on the ground that there is “big, fat low-hanging fruit” to be plucked.

“Low-hanging fruit” sounds short-term-ist. Similarly, universities and polytechnics complain that Tertiary Education Minister Steven Joyce is short- focused.

A deeper issue is that a “low-hanging fruit” focus doesn’t look beyond “problem” to “opportunity”.

Of course, it is harder to quantify the investment return from the upside — for example, from a child becoming able to learn, getting aspiration, getting a job, paying taxes and bringing up children also able to learn, get jobs and pay taxes.

But it limits the investment approach’s potential. Take environment and climate change policy, where ministers focus mainly on short-term “cost”. A longer-term, opportunity focus might include drawing on the huge renewable electricity generating capacity already consented, but not acted on, to get vehicles off oil.

Don’t get excited but there is a glimmer of that sort of thinking. More on that in a future column.

For now, English’s investment project fits Key’s repeated comments to me that he wants his legacy to be what he does for disadvantaged children. His “child poverty” line was not just politics.