NZI - Insights 16/2015 | Wild forecast for Britain | Making private prisons palatable

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Insights 16: 8 May 2015

A wild forecast for Britain

Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz

Britain went to the polls yesterday but it could be a while until we know the result. It may take even longer until we know what the result means.

As we send out this Insights newsletter, votes are still being counted across the United Kingdom. The national exit polls show a surprise lead for Prime Minister David Cameron's Conservatives. None of the opinion polls before the election had predicted anything like that.

However, exit polls could turn out to be unreliable because we are not dealing with a two-party system any more. Nor are we dealing with a uniform swing but with diverse developments in different regions, further complicated by tactical voting.

Which is to say that commenting on the UK election at this stage is highly speculative. Let me do it anyway.

It is still possible if not likely that Britain will be left with a hung parliament, potentially leading to a minority government led by either of the two main parties. We can also expect Scotland to be dominated by the Scottish Nationalists (SNP).

From here on, strange possibilities arise. Should Labour manage to enter into an arrangement with the SNP (unlikely but not impossible), it could well pave the way towards a second referendum on Scottish independence.

This would not be without its ironies: Should Scotland eventually secede, Labour would lose power in Westminster to the Conservatives. A new Conservative government might then lead the rump-UK to leave the European Union – while Scotland would be trying to join it.

The other, more likely possibility is for the Conservatives to lead a minority government. That would not be straightforward either as the Conservatives would need to cobble together support from their Liberal Democrats coalition partner and bring in some extra support from Northern Irish MPs and maybe even the United Kingdom Independence Party. Not the most likely of political bedfellows.

Such a Conservative-led government might not last long. But the Tories would not be unhappy about that since Labour would sink into chaos after their poor election result. After all, their wipe-out in Scotland and the failure of their recent lurch to the left would create leadership discussions.

Britain would go back to the polls, perhaps this time producing an absolute Conservative parliamentary majority. Of course, Prime Minister David Cameron may then still have to conduct his promised ‘In or Out?’ referendum on EU membership.

So in summary, it’s complicated. Unless, of course, exit polls are right and allow a continuation of the Conservative-Liberal Democrats coalition by the narrowest of margins.

Eventually, once all the political dust has settled and Britain gets a stable government, we could talk about some more interesting questions. Such as how to deal with £1.5 trillion of public debt or a budget deficit larger than Greece’s.

But that requires even more speculation than predicting the election result.

Making private prisons palatable

Jenesa Jeram | Research Assistant | jenesa.jeram@nzinitiative.org.nz

For anyone interested in how the private sector may be involved in improving social outcomes, Corrections Minister Sam Lotu-Iiga’s interview on TV3’s The Nation is a must watch.

The interview, which focussed on private prisons, is revealing. Not because it illustrates well-balanced arguments regarding the strengths and weaknesses of private prisons, but because the interviewer, Lisa Owen, brings up nearly every common objection against privatisation.

While it is easy to simply dismiss the interview based on either Owen’s abrasive questioning, or Lotu-Iiga’s unpreparedness, the interview reveals the difficulties ministers face in trying new solutions to resolve old and complex problems.

Performance-based contracting with private parties, particularly when there are multiple contracts and relationships involved, can pose notable challenges for the relevant minister.

After all, who is responsible when something goes wrong? Ministers are expected to improve outcomes in their portfolio, but face strong scrutiny whenever they try something new and promising.

It is understandable, then, that ministers would want to monitor results closely, and have a strong hand in activities and operations, as they will ultimately be held accountable for the outcomes. They would also need to have confidence that the successful outcomes are achieved legitimately, rather than by private parties gaming the system.

Some may also find the idea of financially incentivising service providers to achieve outcomes, or making a profit from prisoners’ work unpalatable, even if it improves the lives of society’s most vulnerable. Again, ministers must be prepared to defend what has proven to be effective.

However, if the private party has been contracted to achieve outcomes, over-monitoring or overly-prescriptive contracting could restrict their freedom and flexibility to innovate.

There must also be an understanding that there are some interventions, which may be successful in achieving social outcomes, but don’t look good. Ministers must be prepared to defend such practices. For example, allowing phones in cells, or enabling access to educational software, may be successful in reducing recidivism (and therefore saving taxpayer dollars), but challenge the public’s perception of prison as punishment.

The New Zealand Initiative has recently completed a report on one form of performance-based contracting, known as Social Impact Bonds. The Ministry of Health is currently developing a pilot for the model. In carrying out research for this report, Dr Bryce Wilkinson and I found that while the potential for Social Impact Bonds to greatly improve social outcomes is real, challenges like those listed above remain.

Stay tuned next week to hear more about our report and our findings.

If you have an interest in Social Impact Bonds, please get in touch with us to receive a copy of the report.

Why, why, why? Housing supply

Rose Patterson | Research Fellow | rose.patterson@nzinitiative.org.nz

This week the price of an average house in Auckland reached the $800,000 mark. The housing problem must be solved and small children might just have the answers to achieve this.

Well, at least the questions. Anyone who has ever spent time with a 3-year-old can quickly tire of the question, “Why?” Kids are often relentless in their quest to explain why things are the way they are. “Because I said so” just doesn’t seem to cut it.

But adults should learn from children’s curious minds. To find solutions for problems, such as rapidly rising property prices, or that too many children live in crowded, damp, cold, mouldy houses, the question “why” should be asked, over and over, even if it gets annoying.

Poorer households spend a much greater proportion of their income on housing, and this is likely exacerbated by these absurdly accelerating house prices. The property price problem, and the poor quality housing problem, are very likely linked. A 2013 BRANZ report found that 87% of households with incomes below $20,000 needed immediate repairs to their homes.

Accomplished researcher Philippa Howden-Chapman has spent her career quantifying the size of the housing and poverty problem and its flow-on effects on health problems and educational achievement.

One estimate cited in a 2013 paper by Howden-Chapman is that improving housing conditions would reduce rheumatic fever by two thirds. She also outlines intervention studies showing that lifting housing standards improves these outcomes.

But before solutions are considered, policy makers must keep digging away with that childlike question, why. Howden-Chapman answers the first why, acknowledging “the effects of the Auckland housing shortage”. But why is there a shortage?

One answer is excessive demand. Those dreaming of the quarter acre should, according to some, settle for less. And speculators know that if they sit on a house, the price will go up without them having to lift a finger to improve the quality and real value of the house. If policy makers intervene at this point, it is to curb demand. But more reasons need to be sought.

Why do the prices keep going up? As outlined in our work on housing affordability, there is too much demand relative to supply. Why? Artificial restrictions on building up, and out. The Initiative has successfully shifted the debate here. This is a supply problem.

And the Initiative’s next series of research will ask why local councils are restricting land supply. The incentives for development are clearly not right. The question is why.

To find solutions to these problems, it is essential to keep asking why.

On The Record

Green economy needs minerals, Jason Krupp, The National Business Review, 8 May 2015.
All that glitters is not a golden visa, Dr Oliver Hartwich, Business Spectator, 7 May 2015.
Should New Zealand put its citizenship up for sale?, Dr Oliver Hartwich, The Paul Henry Show, 5 May 2015.
Australian senator proposes selling citizenship, 3 News, 5 May 2015.
Research paper sells dairy down the river, The National Business Review, 5 May 2015.
The NZ Initiative’s Rose Patterson argues that critical thinking is needed on the claim that early childhood education quality issues are due to the increase in private provision of ECE, Rose Patterson, Interest.co.nz, 4 May 2015.
Eric Crampton: Child flag vote, Dr Eric Crampton, Newstalk ZB, 1 May 2015.

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