Will NZ Treasury's living standards framework achieve its goals?

Last week the New Zealand Treasury released a paper providing a ‘living standards framework’. Treasury describes it as ‘a descriptive framework of the factors that it considers are essential to national well-being’.


In launching the framework the Treasury Secretary, John Whitehead, certainly did not try to hide the fact that an important objective of the exercise, as he sees it, is to bring about a shift in the way NZ Treasury is perceived externally. He said:

‘Misperceptions of the role Treasury has played since the 1980s have limited our ability to be persuasive when talking about what matters most for living standards. Some have never got beyond believing that we are the root of all New Zealand’s economic evils. Others see us as little more than the defenders of fiscal virtue …’.

I find that baffling. In the 1980s the NZ Treasury played an important role in saving that country from economic ruin. Why is that not more widely understood and appreciated in New Zealand? That is something about New Zealand that may be beyond my understanding. So I think I should confine myself here to looking at the living standards framework in its own terms.

Treasury states what the framework is intended for as follows:

‘The Framework is intended to help Treasury consistently provide Ministers robust, theoretically-grounded and evidenced-based advice that aims to improve the lives of all New Zealanders.’

Yeah, OK, but what is the intended purpose of the framework? Treasury sets the general context by stating its overall goal as being to work for higher living standards for all New Zealanders. Seen in that context the purpose of the framework must be to monitor progress toward higher living standards of New Zealanders. However, I can’t find the purpose stated in such terms in the document. In fact, as I discuss a little later, the concept of progress doesn’t get much attention in the document.

What factors should Treasury look at in monitoring progress toward higher living standards of New Zealanders? The answer given by the framework is to look at a broad range of material and non-material determinants of living standards, including: conventional measures of income and wealth; freedoms, rights and capabilities; and self-assessed subjective measures of wellbeing (as a cross-check). The other two factors to be looked at are: the distribution of living standards across different groups in society; and the sustainability of living standards over time.

It seems to me that the use of sustainability as a major heading puts a rather negative focus on the whole exercise – assuming that I am correct in suggesting that the intended purpose is to monitor progress toward higher living standards. An analyst who is asked to assess whether current living standards are sustainable will consider some important issues, but is unlikely to give much attention to the question of whether living standards are improving to the same extent of those in comparable countries and if not, why not. I can understand that a lot of people in New Zealand would respond favourably to the word ‘sustainability’, but it should be possible to accommodate their legitimate interests within a discussion of factors affecting progress toward higher living standards.

The Treasury’s emphasis on sustainability rather than progress is relevant to concerns I raised in my last post, which was about the OECD’s ‘better life index’. In that post I expressed concern that if well-being indicators suggest that people in a country like New Zealand tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government concerned to become complacent about establishing conditions more favourable to further improvement of living standards. The Treasury’s living standards framework does not dispel that concern.

I don’t have any great concerns about the other factors that the Treasury is planning to monitor. However, there are a couple of omissions that seem to me to be significant. First, in considering subjective well-being, in my view attention should be given to perceived improvements in life over the last five years, which can be calculated from Gallup World Poll data. The concept is discussed briefly in an earlier post on this blog. During the first decade of this century the perception of improvement in life of both New Zealanders and Australians seems to have been somewhat greater than was usual for people in other countries with comparable economic growth rates.

Second, it would be hard to find a better indicator of relative living standards as perceived by New Zealanders and Australians than net emigration to Australia. Net emigration to Australia seems to me to be a highly reliable indicator because the preferences that people show about where they live must be heavily based on their assessments of living standards. Figure 1.2 in the second report of the 2025 Taskforce (p. 16) shows net emigration to Australia has increased broadly in line with the growing income gap between the two countries since the 1970s.

Before finishing I want to comment on the capital stocks and flows approach adopted in the paper. It seems to me that this approach provides an extremely useful framework for considering relevant issues. My overall view is that, despite some shortcomings, NZ Treasury’s living standards framework is generally OK and most of the background material is informative and well-written.

Postscript:
John Whitehead has given his permission for me to publish the following response:

‘I appreciated your article. For the record, I wasn’t saying that many of the attitudes about what we (I definitely include myself) did I the 1980s were necessary correct, just that they existed. (In fact I made the point in a television interview the same week that I thought the steps we took were broadly the right ones, although we certainly learned from both errors and successes on the way through. ) My point – missed in a lot of commentary – is that Treasury has for a long time taken a broader view of living standards than we are usually credited with: the stocks and flows framework etc was an attempt to describe this more explicitly. The media of course has largely ignored this point, claiming instead that it is some kind of (dramatic) shift.’

I had intended to publish that response without comment, but I want to note for the record that on the basis of my own personal experience I support John’s claim that NZ Treasury has for a long time taken a broad view of living standards. When I worked there as an advisor in the early 1990s one of the issues I was asked to work on was factors affecting social cohesion, including widespread opportunity, security and respect for institutions. That work led, indirectly, to my interest in some of the topics that I pursue on this blog.

Does the OECD's 'better life index' sound like fun?

I am not sure the OECD’s better life index is meant to be fun. But I have had some fun playing with it. The index is interactive. The fun comes from giving different weight to 11 different criteria (or topics as they are described by the OECD) and then observing how this affects rankings of well-being of OECD countries.


The criteria used in the index are: housing, income, jobs, community (individuals’ perceptions of the quality of their support networks), education, environment (air pollution by tiny particulate matter), governance (voting and transparency), health, life satisfaction, safety (assaults and homicide) and work-life balance (working mothers, total hours worked and leisure).

Under the default setting, with all criteria being given equal weight, the countries that come out on top are Australia, New Zealand, Canada and Sweden. If you suppress all criteria other than income, Luxembourg is a long way ahead of the field, followed by the United States and Switzerland. The income measure used in the study (reflecting household financial income and wealth) has Australia in 14th place and New Zealand in 25th place.

The substantial difference between the outcomes of these weighting systems is interesting. In a previous post I observed that all well-being indicators tend to tell similar stories about well-being levels in different countries. The two observations are actually consistent. My research covered a larger number of countries, including many poor countries as well as the wealthy democracies of the OECD. Well-being indicators tend to tell a similar story when wealthy countries are compared with poor countries, but can tell different stories when wealthy countries are compared to each other.

Equal weighting of a range of indicators and a focus on income alone seems to me to be equally arbitrary approaches to well-being comparisons. Well-being is obviously affected by factors other than income, but it would be difficult to argue that all relevant factors are equally important. Value judgements have to be made to determine appropriate weights. An appropriate weighting system might be derived by conducting surveys to obtain weights reflecting the values of people in different countries. Alternatively, surveys could be used to obtain weights reflecting the values of people with different political views in particular countries, or across the whole of the OECD.

In the absence of such survey evidence, I have looked at the rankings for three somewhat extreme political groups drawn from my own imagination: Scrooges, Socioholics and Warm Fuzzies. As I imagine them, all three groups perceive governance and safety as being important to well-being. The Scrooges add income as the only additional factor. The Socioholics add housing, jobs, education and health in addition to income. The Warm Fuzzies exclude income and all the additional factors added by the Socioholics, but replace those factors with community, environment, life satisfaction and work-life balance.

So, which countries come out on top of the welfare rankings according to the values of these three political groups?

Scrooges: The countries that come out on top are Australia, Luxembourg and the United States. New Zealand is placed about 8th, behind Sweden, Austria, Canada and UK.

Socioholics: Australia and Canada come out on top, followed by New Zealand and the United States.

Warm Fuzzies: Australia, Denmark and Sweden are on top, followed by New Zealand, Canada and Norway.

What do I get out of this? My main observation is that Australia seems to come out fairly well, whatever coloured political lenses you use. The well-being of New Zealanders also looks fairly good, particularly if you adopt either a Socioholic or Warm Fuzzy perspective.

Having had some fun, the more serious question that comes to mind is whether a focus on the OECD’s well-being indicators (and other similar constructions) is likely to distract political attention away from much-needed economic reforms to improve the economic strength of some economies. For example, if well-being indicators suggest that people in some lovely country (New Zealand comes to mind) tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government of that country to become complacent about establishing conditions more favourable to further improvement of living standards.

Postscript

Roger Kerr, executive director of the New Zealand Business Roundtable, has commented on the OECD's well-being index here (with a reference to this blog).

My subsequent posts on the OECD's well-being index are:
Do well-being indicators all tend to tell similar stories about OECD countries?
and
How could the OECD's well-being indicators be improved?

I would also like to draw attention to posts by David Giles on his 'Econometrics Beat' blog: here and here.

Has preventative health care become code for paternalism?

‘The Taskforce says that prevention is everyone’s business – and we call on the state, territory and local governments, on non-government and peak organisations, health professionals and practitioners, communities, families and on individuals to contribute towards making Australia the healthiest country by 2020.’ (Extract from ‘Taking Preventative Action’, the federal government’s response to the Report of the National Preventative Health Taskforce).

I find the sentiments in the quoted passage objectionable for two reasons. First, preventative health care is not ‘everyone’s business’. Individual adults have primary responsibility for their own preventative health care because no-one is better able to exercise that responsibility than they are. Individuals who are persuaded that preventative health care is a collective responsibility could be expected to look increasingly to the various levels of government, non-government organisations, health professionals and practitioners, communities and families – everyone except themselves - to accept responsibility for what they eat, drink and inhale.

Second, the goal of making Australia the healthiest country by 2020 is being put forward as though it is self-evidently desirable collective good that should be pursued by any and every means available to everyone. The goal is not self-evidently desirable. Individual health is not a collective good. And the end does not justify the means that are being proposed to pursue it.

If you delve behind the spin about making Australia the healthiest country my 2020, the underlying goal seems to be to raise average life expectancy in Australia to the highest level in the world by reducing the incidence of chronic disease. What does this entail? It would be hard to object to the goal of enabling individual Australians to reduce their risk of chronic disease. The problem is that the government’s strategy is more about achieving national goals than providing better opportunities for individuals - more about behaviour modification than about ‘enabling’ individuals to reduce their health risks.

The government claims that analysis of ‘the drivers of preventable chronic disease demonstrates that a small number of modifiable risk factors are responsible for the greatest share of the burden’. The behavioural risk factors led by obesity, tobacco and alcohol apparently account for nearly one-third of Australia’s total burden of disease and injury. The chronic conditions for which some of these factors are implicated include heart disease, stroke, kidney disease, arthritis, osteoporosis, lung cancer, colorectal cancer, depression and oral health problems.

Since these risk factors stem from individual lifestyles it is obviously desirable for individuals to be aware of them. There may be a role for governments in provision of this information. Perhaps governments should also be involved in helping people in various ways to live more healthy lifestyles. It is questionable how far governments should go down this path, but it is difficult to object to modest efforts by governments to improve opportunities for people to live healthier lifestyles.

However, rather than helping people to help themselves the federal government has chosen the path of Skinnerian behaviour modification. It has chosen to drive changes in behaviour through what it describes as the ‘world’s strongest tobacco crackdown’. (This is one instance when I hope the government doesn’t actually mean what it says – some people in Bhutan have apparently been jailed recently for possession of more than small amounts of tobacco products.) The government’s strategy also involves ‘changing the culture of binge drinking’ and ‘tackling obesity’, but in this post I will focus on smoking.

Some of the tactics being used in the tobacco crackdown involve information and persuasion but there is also an element of punishment involved. The tobacco excise has been increased to over $10 for a packet of 30 cigarettes and legislation is proposed to require cigarettes to be sold in plain packaging. It seems to me that this amounts to persecution of smokers and their families. It will reduce the amount of household budgets available to be spent on other products and encourage some to avoid excise by obtaining tobacco from illegal sources.

As a former smoker, I am probably more strongly against smoking than most people who have never smoked. I encourage other people to quit smoking and discourage young people from taking up the habit. But having given up smoking several times, I know how hard this can be. Governments have no basis on which to judge that people are not in their right mind if they consider that the pleasures they might obtain from additional years of life are not worth the pain of giving up smoking.

In my view this question of whether smokers are capable of judging what is in their own best interests is at the crux of the matter. The politicians and bureaucrats who seek to modify the behaviour of smokers may see themselves as enhancing the capability of these people to have lives that they ‘have reason to value’, in accordance with well-being criteria proposed by Amartya Sen. If so, their attitudes highlight a major problem with Sen’s approach. Governments have no business deciding what kinds of lives individuals have reason to value.

Is Australia's mateship ethic being lost in the big cities?

This question was raised by Shona in a guest post about volunteering in the eastern suburbs of Sydney. I don’t feel qualified to provide an authoritative answer, but that feeling does not always prevent me from providing comments on other matters outside my area of expertise. Perhaps someone will tell me if my comments are wide of the mark.


Mateship was identified by Russel Ward as an important component of the ‘Australian identity’ – the ideas about themselves that Australians tend to identify with - in his book, ‘The Australian Legend’, first published in 1958. Ward suggested that this mateship ethic stemmed mainly from the loneliness of life in the Australian inland. In his later book, ‘Australia’, Ward explained mateship in these terms:

‘In reaction to their loneliness, to the sundering distances and to the harshness of nature, men tended to help and trust each other. This is not to claim of course that Australians are in fact notably more altruistic than other people, but merely that they tend to value collective aid and mutual aid more highly than do, for example, Americans; just as they value less highly rugged individualism’ (1967: 9).

I am not entirely comfortable with those comparisons with America. I agree that Australians probably do tend to place less value on rugged individualism than do Americans. For example, surveys show that the percentage of Australians who consider it to be important to encourage children to develop qualities of both independence and determination is lower than in the US. However, Ward himself claimed that ‘fierce independence’ was a component of Australian identity. Ward also observed in ‘Australia’ that in the third quarter of the 19th century Australian political sentiment was ‘strongly individualistic and not markedly either collectivist or nationalist’ (p 79).

Has the propensity of Australians to form voluntary associations for mutual benefit been any greater than that of Americans? I doubt it. Remember the observations of Alexis de Tocqueville in ‘Democracy in America’ (published in 1835) :

‘Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools’ (II, 2, V).

Ward seems to be on firmer ground in suggesting that the early dominance of large-scale grazing properties in the Australia farm sector (in contrast to the dominance of smaller-holder agriculture in the US frontier until about 1870) led to a situation where much of the work was done by people – shearers, drovers etc. – who did not perceive their interests to be closely aligned with those of property owners (p. 60). This can be linked to the subsequent development of trade unions, major strikes, the rise of the Australian Labor Party and the advance of state collectivism – which tended to displace voluntary associations for mutual benefit.

It is worth noting at this point that mateship has a downside as well as an upside. The downside of mateship is that it can mean ‘looking after your mates’ at the expense of other people. For a long time this aspect of mateship supported racial discrimination, compulsory unionism and abuse of trade union power, high trade barriers protecting some industries at the expense of others, discrimination against women and various forms of corruption. Some aspects of this negative form of mateship are still evident in the activities of some interest groups, as well as some politicians, unionists, businessmen and public servants in the big cities as well as the rest of the country.

At last I think I am now ready to focus on the positive side of the mateship ethic and the specific question of whether it has been lost in the big cities. Volunteering is more common among those living in parts of the states outside the capital cities (38% of those surveyed by the ABS in 2006 versus 32% for the capital cities). When I look more closely, however, the difference is most marked in Victoria and New South Wales and non-existent in Queensland - the state with the highest average rate of volunteering (38%). In both Sydney and Melbourne, 30%, of those surveyed were engaged in volunteering, but in the rest of the two states the proportion was 41% in Victoria and 37% in New South Wales.

There are strong reasons based on self-interest to expect rates of volunteering to be higher in small rural communities than in major capital cities. In a small rural communities people are exposed to greater risk of natural disasters such as bush fires and floods and depend to a larger extent on voluntary help from each other to avoid harm to their families when disaster threatens. In most small communities people who had a reputation for free-riding (sponging on their mates) would probably not be denied help in the event of disaster, but few people would be prepared to take that chance.

Would people in Sydney and Melbourne show a strong spirit of mateship if these cities were threatened by a major disaster? I’m not sure. When a substantial part of Queensland was flooded earlier this year, it was obvious that many people in the rural areas showed great acts of kindness to each other. As the flood waters approached Brisbane I wondered whether this community spirit would be replaced by an attitude of just helping family and close friends. Such concerns were unwarranted. After the flooding many people in Brisbane volunteered spontaneously to help strangers to clean up their properties. This suggests to me that the best aspects of the mateship ethic is still alive and well in Brisbane. I can’t be as confident that people would help each other to the same extent in the event of a disaster in Sydney or Melbourne – but I hope I am being too pessimistic.

Postscript:
I rarely write a postscript so soon after writing an article. However, after checking the World Values Survey data on qualities that parents consider important in children I found that the situation has turned around between 2000 and 2006/7 surveys. In the later survey 64% of Australians identified independence as a desirable child quality versus 54% in the US. The percentages identifying determination/perseverence as desirable were 50% among Australians and 40% among Americans. That suggests to me that Australians might now place a higher value on rugged individualism than US citizens.

A comparison of active membership of voluntary organizations in the US and Australia does not suggest that volunteering is more important in one than the other. Americans are about twice as likely as Australians to be active members of a church, but Australians are about twice as likely as Americans to be active members of a sporting organization. (That lines up with the view that sport is the national religion of Australia). Active membership of 'Arts, music and educational' organizations and charitable organizations is much the same in both countries.