Policymaking in a hyperglobalised world

Speech to a conference of the Industry Training Federation and Polytechnics, 31 July 2014

First, some context. We are living through a turbulent decade.

One element is the coming of age of a disruptive technology, digital technology, which is turning a hyperglobalised world into one that is hyperconnected and hyperdatamined and which is rapidly and radically transforming how goods and services – no longer distinct categories, by the way – are designed, funded, made and marketed, how children are educated and how adults add to their skills and how illness and disability can be diagnosed and treated, for example with nerve interference devices and gene manipulation. These changes open extraordinary new opportunities but also pose major issues of privacy and trust, ethics and ownership of ideas. We are only beginning to get an inkling of the extent and complexity of those issues, let alone write laws for them or develop social customs to manage them and even when we do, they go quickly out of date.

This disruptive technological change is a principal driver of major social change, including, critically, in the nature of work, akin to the change driven by the industrial revolution but very many times faster. This will in turn drive big changes in our politics and policy imperatives.

Moreover, this disruptive technological change comes during the aftermath of a disjunctive shock, which we have nicknamed, antiseptically but incompletely, the global financial crisis. This gross failure of the financial system, itself hyperconnected and maybe ungovernable, has reignited first-principles debate on the political economy, a debate which spreads across economic, political, policy and social theory and practice. The Friedmanite orthodoxy of the past 40 years no longer satisfies even some of its earlier disciples. Fiscal and monetary authorities in old rich countries have behaved in highly unorthodox ways. We might even be on the cusp of a deeper change of thinking as in the Malthus/Smith/Marx era but we don’t need to go that far to recognise that we will not return to the status-quo-ante of 2008, though we can’t yet know what the status-quo-post will be. A symptom of that turmoil is the rise of populism of widely varying sorts in the old rich northern hemisphere countries in response to stress and resentment.

These mind-jarring, tectonic shifts come at a time when the global economic and political map is being redrawn in favour of China and other “emerging-economy” countries, when globalisation of people is enriching, diversifying and disrupting societies (300 million live outside the borders of the countries they were born in), relocating jobs and, combined with the technological change, redefining “work” and its rewards, when life-sustaining ecosystems are being destabilised and other resources put under strain and when war has been reframed in ways that make it difficult to work out who the enemy is, as we have seen in Afghanistan and are seeing in the Levant (Syria and Iraq). This geopolitical and geo-economic rebalancing has radically changed the sourcing and destination of our trade and inbound tourism.

We are in a very different world from 20 years ago and probably a very different one from 20 years hence.

How is this relevant to policy?

1. Nation-states’ scope for policy action is constrained by the greater global interdependency and interconnectedness. For example, in the 1930s the Labour government was able to ensure, by regulating the labour market and making union membership compulsory, coupled with protection from imports, that nearly everyone could have a job and nearly every job paid enough to maintain a household – and this held good for around four decades. Nowadays, there is a fierce argument over the practicality of enforcing on employers a “living wage” that is on its own well short of enough to maintain a household: businesses would be uncompetitive and over time general welfare would fall. More broadly, because “emerging-economy” countries provide less government assistance to their citizens and, though they are likely to increase that assistance, are most unlikely to raise it to north-European levels with which we normally compare ourselves, that will constrain future options for assistance here. That still leaves space for distinct national policies and programmes but requires them to be rigorously designed and implemented.

2. Taxes are becoming harder to collect. Global companies, especially those operating in the cybersphere, can more readily transfer profits or “head offices” to lower-tax jurisdictions – some New Zealand-founded companies apparently have done this – and consumers can more readily buy goods online and escape GST. That will require major tax policy and management changes over the next decade. It may constrain government investment and spending options.

3. Foreign policy management is much more complex than in the less tightly interdependent and interconnected world of 20 years ago and the consequences of failure potentially higher in terms of national security and prosperity. New Zealand’s only influence with other countries, as a mini-nation with no military or economic power, is its reputation as a good global citizen, for example in peacemaking, trade policy and climate change. That requires strategic policy and a high-quality foreign service and ministers who back it.

4. Policy for 1990s factories won’t do in the 2020s. Additive manufacturing (better known as 3D printing but that term is now considered primitive) is likely to shift the actual manufacture of a widening range of things close to the point of sale or use; the “trade” will be in the software and raw materials. How will you stop (or tax) the importation and use of undesirable items, for example, guns? Electronic monitoring systems and robots which can multitask and respond to circumstances are beginning to transform factory management, drastically reducing the numbers of processing operatives needed, not just in developed economies but also in China and India.

5. Policy for old “skills” won’t do in the 2020s. The ability to respond is likely to be a growing factor in employment, in doing the work and in employers’ expectations when hiring. This is often greatly overstated, especially by digital-sector enthusiasts and proselytes. But employment which requires flexible, adaptable, innovative employees is likely to grow and employers may seek such people for other jobs. So the critical test of effective policy will be that pupils acquire the skills that are needed to learn skills for the next job – that is, the skill-to-be-skilled. As I put it in an Otago Daily Times column in March, that includes the capacity to learn constantly, including from others, and to process information, plus an ability to collaborate: a “big ego and a small ego at the same time”, as New York Times columnist Tom Friedman put it. If, as now, large and growing numbers do not have that foundational skill-to-be-skilled they will be stuck on very low or minimum wages at best and our society will be increasingly fractious, which is economically as well as socially damaging.

6. Digital technology poses opportunities and challenges for public agencies. The opportunities are for efficiency, collaboration and sharing of data, swifter, more accurate delivery of services and connectedness into international practices, experiences and innovations and easier access to agencies for citizens. Challenges include: keeping up with digital citizens’ expectation of instant responses; protection of privacy and management of data; intellectual property registration and protection; regulation of industries, firms and individuals which adopt and adapt fast-changing digital technologies; the impact of those technologies on a wide range of what were settled facts, as was the continuous upward trend in per capita car-kilometres; in education, readier access to foreign-supplied services, such as online educational courses which individuals tap into for customised learning outside the formal system but which institutions can use to supplement in-person teaching (including “flipped classrooms”).

So what are the logical principles for policy in this changing environment?

1. Strategic thinking and tactical flexibility are both critical. Most policy aims to fix an immediate matter, especially if politically problematic. And the rapidly changing global and technological environments require flexible and fast responses. But flexible and fast responses need to be within a strategic envelope. The Treasury does long-term fiscal projections which are politely ignored by policy advisers and politicians locked into three-year cycles. Departments and agencies (at least, some of them) are now developing “narratives” (read “strategies”) on a four-year horizon, intended to form the basis for a whole-of-public-service briefing to the whole incoming government post-election. If they were anchored in the context of the long-term fiscal forecasts (and they do not seem to me to be), advice might start to become strategic. But “strategic” thinking must be periodically reassessed against changing evidence, especially after a disjunctive shock or against the effects of a disruptive technology, and there must be tactical flexibility and response.

2. Good policy requires cross-agency collaboration. The best example of cross-agency collaboration so far is the “justice pipeline” but it is tightly limited in scope. A wider application is in the 10 initial “results” developed in 2013 which point down a collaborative path. In education, is institutional separation out of date?

3. Strong tactical responses require innovation. This means enlisting more than policy analysts in the development and implementation of policy, about which I say more further down.

4. Rigorous, science-based evidence is critical. Sir Peter Gluckman last year [The role of evidence in policy formation and implementation, Office of the Prime Minister’s Science Advisory Committee, September 2013] set out the criteria for effective use of science – both the physical and social sciences – in evidence that is used to develop policy options. His main point was that the “evidence” must be rigorous and often it is not. He urged a standard set of protocols on obtaining and using expert scientific advice, which is often complex. He is now appointing departmental science advisers. Of course, politicians have to adapt officials’ advice to fit within public acceptability but the stronger the scientific backing the stronger the case for politicians to build that public acceptability. The good news in the education sector is the appointment of a chief science adviser to the Ministry of Education and the good news within that good news is that the appointee is Stuart McNaughton, who is abreast of, and an internationally respected contributor to, international theory and practice. The other good news is that Peter Hughes is the boss, tough, sensible, open to the new evidence and making some progress with the recalcitrant primary teachers union.

5. New and existing law must achieve the purported objectives. That requires rigorous, you might say ruthless, assessment before and after new legislation and regulation. This is the subject of an extensive report issued by the Productivity Commission two weeks back and will be a focus of the Key-English government if it gets a third term. This is much more easily said than done and the current mechanisms are haphazard and poorly implemented. In brief the commission found, as I said in my Otago Daily Times column last week, fragmented work, misplaced resources, fuzzy focus, poor communication, disruptive restructures, inadequate quality and quantity of staff and over-detailed primary legislation (acts) which Parliament can’t find the time to fix. Two-thirds of “regulator chief executives reported they often work with outdated or not fit-for-purpose law. Parliament’s regulations review committee has too few MPs and hardly any staff. Funding cuts have killed the Law Commission’s legislation oversight. Regulatory agencies “face challenges in attracting, training and retaining key staff”. The Treasury and the State Services Commission aren’t providing necessary support. The commission recommended “a system of peer reviews” by panels of senior regulatory leaders, tougher and more active supervision of agencies, coordination of and cooperation by agencies and setting “goals and priorities for the system as a whole”, overseen by a senior minister and with “intellectual leadership”.

6. Opportunity is a better basis for good policy than problem. Politicians and public servants like problems. Problems justify their existence because they can come up with solutions (which may or may not actually address the problem) and once the solution is in place that is the end of the matter. A focus on opportunities invites positive, forward-looking initiatives and innovation to make the most of the opportunities. That should be recognisable to businesses and therefore logically the institutions that feed people into the businesses. Note that schooling is changing in ways only dreamt of a decade ago. Pupils (and, with them, their parents) can stay connected to the school and its learning platforms; more teaching can be at the tutorial/one-to-one level and the classroom can be “flipped” to more learning away from the classroom. The oblong-box classroom doesn’t work well in when the need is for innovative, learn-from-each-other, high-quality teachers who are valued as professionals like lawyers and accountants, not as out-of-sight child-minders. If you want a glimpse of that future-in-the-present, go to the decile 1-3 Manaiakalaani group of schools, a hive of social entrepreneurship backed by business cash and acumen that has had flat-footed policymakers running to catch up.

6a. The biggest opportunity is in the child’s first three years. In a hyperglobalised world there is no leeway for waste and the biggest waste now is in people who don’t get a good start in life – nutritionally, emotionally and cognitively – are so are not educable to the best of their capacity, don’t contribute to the workforce as well as they could or don’t contribute at all and cost us in health, mental health, delinquency and maybe crime later. The remarkable “Hutchison report” of the parliamentary health committee last November set out the challenge and some direction. The evidence is compelling from the globally unique Dunedin longitudinal study and the science of epigenetics and nutrition that the most effective investment is in the pre-birth and immediately post-birth years; remedying a bad start later is expensive and often incomplete. But knowing when to do something is not the same as knowing what to do: this is very difficult policy.

7. An investment approach toughens policy thinking. Investment generates an asset which is still around in the future; spending consumes a service and the money is gone. One way of applying this is to work out the cost of not doing something (specifically someone becoming a lifelong beneficiary), which gives a putative – and eventually actual – return on doing something that averts that cost. Focusing on a child’s very early years is an investment. Not successfully intervening with kids euphemistically called “at risk” in the zero-to-3 age zone has heavy subsequent educational, health, social and “justice” costs plus the cost of a lost member of the productive, taxpaying workforce. The government aims to extend this actuarial/investment approach, which I think is its most important innovation so far, to other policy areas if it gets a third term. But to extend this approach will require rigorous inquiry, very good actuarial data and evidence of what works, constantly and ruthlessly monitored. That is hard policy to get right.

8. Who pays and who gains? Education is usually thought of as an investment, with a dividend to the whole of society of more productive members of the workforce and contributors to a cohesive society and a dividend to individuals in higher lifetime earnings and a sense of membership of their society. (At least, it used to be a route to higher earnings. There is now some doubt about some certificates.) But what is the private-public cost-benefit breakdown now, especially in expensive post-compulsory “education”? Through the 1990s policymakers believed there was benefit to the whole economy of more people getting more qualifications so taxpayer money was spent on the subsidy and on subsidised loans to students. This has been partially qualified by an insistence on actual completion of courses, which is essentially a more targeted volume approach, and, more recently, by an attempt to channel more people into technical, scientific and engineering study by adjusting subsidies. But policymakers might usefully ask if the return on the taxpayers’ investment is adequate or if they are over-subsidising or under-subsidising the private gains. That is not a simple calculation. The timeframes are not clear. Many expensively subsidised people take their talents and taxpaying capacity to other countries. In reverse, some return with capital and valuable experience. And some foreigners come here to study (and subsidise the underfunded institutions) or, if already skilled, to work and pay taxes here. That is hard policy to get right.

9. How should policy respond to special interests? Special interests are (usually) up with the play and ahead of the public and have more at stake (to gain or lose) than individual members of the public. Managing the who-pays-who-gains balance between special interests and the wider public interest is a major issue for policy-making in a democracy, which is predicated on equal citizenship, a topic I have explored this year in a note for the Institute for Governance and Policy Studies. Also, too much concession to special interests can lead to counterproductive swings in policy. So in vocational education policy are businesses and other employers special interests or do their interests serve a wider interest? The twentieth-century “factory” school system turned out people ready to be apprentices or otherwise employed. Businesses paid taxes and got a supply of workers. In this century the arrangements are far more complex: industry training organisations, regional and metropolitan polytechnics, schemes covering the transition from school or polytechnic into work and schemes that reach back into the institutions and forward into businesses. Businesses pay for industry training organisations to do some of the training that used to be done on the job and some of the school or polytechnic training is done in the businesses. Job churn is greater and faster than 20 years ago, which requires periodic re-learning from 20 to 65 for which the “skill-to-be-skilled” is vital.

10. Policy is for more than policy analysts and politicians. The public-private distinction of the past 35 years is out of date and obstructive. Rigorously assembling evidence, evaluating legislation and regulations against their purported objectives and judging a government programme by the return on investment and complex cost-benefit assessments needs more than departmental policy analysts. Most do not have all the necessary skills, knowledge and aptitudes or the capacity for innovation and they are not allowed to take the risks inherent in innovation. Experts, stakeholders and interest groups and not-for-profits can widen the pool of expertise and knowledge. Working groups including private sector experts have fed influentially into policy development on capital markets, tax and welfare. The Land and Water Forum of 59 interest groups ranging from farmers and electricity generators, through industry and local government to recreational and environmental groups and iwi generated a consensus on policy foundations for use and management of freshwater which has buy-in from most political parties. Better arrangements with not-for-profits than the current over-legalised contracting could boost innovation and improve service delivery in social assistance and environmental protection and restoration.

11. Customisation is a must. In the digital age of generations Y and Zero there is a strong, embedded presumption that goods and services will be customised. In education that suggests a complex two-way customisation: of learning for students and of trained workers for employers. That requires innovation in the institutions, constructive involvement of businesses and other employers and their sector organisations, coupled with a modest recognition that their special interests do not trump the special interests of others and a will to adapt by officials and politicians.

12. Durable policy requires public buy-in. This does not mean pandering to focus groups or skilful political marketing or just waiting for an eventual acquiescence in a status quo. It does mean developing mechanisms beyond the customary consultation, testing with stakeholders and then leisurely adjustment by courts. Examples of such mechanisms are citizens assemblies and juries, deliberative polling and some use of referendums. Younger generations are likely to assume of this “participatory democracy” than older, more acquiescent generations did.

Pull that together:

• We live in turbulent times, technologically and in the rebalancing of global power, which is having and will continue to have a profound impact on New Zealand, including its education system and which both limits the scope for some policy action and demands policy action on other fronts.
• The principal skill needed by individuals in this rapidly changing world is the ability to think and adjust, the “skill-to-be-skilled”. To maximise that skill-to-be-skilled requires a more intense focus on the first three years of life.
• Policy and resultant law needs to be founded on strong science-based evidence and geared to the purported objectives. There must be a measurable, sound return on investment. Cross-agency cooperation in policy development and implementation is critical and policy responses to digital technology advances need to be fast and continuous but within a strategic envelope. That will require involvement of outsiders, including foreign experts, in policy formation. And it requires public buy-in.
• In education its requires reassessment of the relative private and public costs and benefits, institutional integration and integration with businesses. There must be two-way customisation.

So, some guidelines for outsiders:
• Develop relationships with relevant officials in all departments and all relevant political party spokespeople and ministers.
• Present a case that stacks up on sound scientific and other well-grounded evidence, is innovative and promises a real return on investment.
• Present a case that stacks up on national interest grounds, not special interest grounds. That is, the balance between private and public costs and benefits must be well founded so the public will buy in. Involve the public.
• Go outside the sectoral box. Southern Cross and some other health sector interest groups are considering a voluntary consensus-seeking forum similar to the Land and Water Forum. A single interest group’s policy win is always vulnerable to being trumped later by another single interest group, especially with a change of government, and rightly so in a democracy. A full consensus of all interest groups involved in a topic area would make a compelling policy case.
• Present a case based on opportunity. Officials will be uncomfortable but the public won’t be.
• And don’t think a policy is for keeps. This is a fast-moving world and policy has to keep up.