That was my immediate reaction yesterday when someone asked my view of Reserve Bank Governor Adrian Orr’s latest public comments, on the Christchurch rebuild, PPPs, government infrastructure spending, and so on.
Here was just a sample of what the Reserve Bank Governor said, as reported by Stuff’s Hamish Rutherford
Orr, who is now the governor of the Reserve Bank, made an enthusiastic plea for New Zealand to embrace “third party capital” – a reference to public private partnerships – as a means of boosting investment in infrastructure.
“This country, we’ve gone through the lowest ever global interest rates, we’re in good fiscal health. Why aren’t we investing?” Orr said in an interview.
“Personally, as a citizen of New Zealand I’m very pleased to see public investment being planned and trying to get underway, and I’m even more pleased as a citizen of the world that third party capital is increasingly being allowed to be part of the public infrastructure investment.”
Orr acknowledged he was giving a plug for his former employer, the NZ Super Fund
He goes on to complain about the rebuild process, and the lack of investment opportunities for NZSF, about public procurement processes, even weighing on the woes of Fletcher Building.
As I’ve said before, if having left the NZSF job he was now retired – or even just joining the ranks of company directors and consultants – there would be no problem with him expressing his views.
But he is a public servant. And as Governor of the Reserve Bank he personally exercises an extraordinary degree of power, singlehandedly making the monetary policy decisions, as well as exercising a huge range of regulatory powers over banks, insurance companies and other non-bank deposit-takers. He is the most powerful unelected individual in New Zealand. In the areas Parliament has empowered him.
But the stuff he was talking about in his interview yesterday was – again – none of his official business. He is welcome to his personal views, but when he speaks publically he should be speaking only on the things he has official responsibility for. Either that, or change jobs and make a run for Parliament. As someone observed to me recently, too often Orr sounds as if he would really prefer to be Minister of Finance. But he isn’t. He has no popular mandate, and responsibilities only as specifically laid down in various bits of legislation (primarily the Reserve Bank Act).
Why does it matter? Because if the public is to be confident in delegating huge amounts of power to unelected officials, they also need to be confident that those unelected officials aren’t misusing that power, or the pulpit it can provide, to pursue personal or political agendas.
I’ve written several posts recently about the new book, Unelected Power, by former Bank of England Deputy Governor Paul Tucker. Touching on some of these sorts of issues, Tucker notes that in his time at the top of the Bank of England he never knew the personal politics of his senior colleagues, and he was glad of that. Perhaps that is just the famed English reserve, but it is something to reflect on here. I’ve written previously about Don Brash overstepping that mark – in a way that really soured relations between the Bank and the then government. Arguably Orr’s case is worse, both because he is weighing in on immediately relevant political issues, including more or less directly attacking the stewardship of the previous government, and because he is overtly on the same side as the current government. When (as central bank Governor) you openly disagree with the current government on general policy issues it might still be unwise and very wrong , but at least no one thinks you are in league with the government. The whole case for an independent central bank, is so that they can act independently, in those specific areas Parliament has asked them to handle. The Christchurch rebuild, PPPs, infrastructure finance more generally, are not among those responsibilities. Nor, for that matter, is “giving a plug” for the Governor’s former employer.
When the initial Stuff story appeared, I was a bit surprised the journalist didn’t seem to have sought a comment from the Opposition Finance spokesperson, who as it happens is also a Christchurch MP. You just do not see anything like this degree of overt political comment from central bank Governors in other advanced economies, and one of Paul Tucker’s other points is that delegating power to independent agencies really only works well if the legislature is effective in scrutinising and holding it to account the independent agency, including ensuring that it is (a) doing its job, and (b) only doing its job (in other words, sticking to the mandate democratically elected people have given them). Parliamentary scrutiny of the Reserve Bank was very weak under the previous government, and appears to be no better now. There is still no word from Amy Adams about the Governor flagrantly overstepping the bounds.
But a few hours later, her colleague Gerry Brownlee came out swinging at the Governor. I don’t often agree with Mr Brownlee, but on this occasion his remarks seemed both forthright and to the point. He was “incensed”
Brownlee said he was “incensed” by the comments which he believes mischaracterised the situation. As Canterbury Earthquake Recovery Minister he visited the fund about investment options but were told were not on the scale the fund needed.
“It certainly looks like the Reserve Bank governor has bought into the current Government’s mantra that everything the previous government did was wrong and everyone should join in in saying so.
“And I think that’s a very dangerous position for him to be in.”
When a senior MP describes himself as “incensed” by comments made by the central bank Governor – especially when they aren’t about things in the Governor’s remit – it is time for the grown-ups in the room to wake up and do something about the situation. When the Governor so undermines confidence in himself, he weakens his own position, he weakens the Bank, and that is potentially damaging for the country.
I’m still a bit puzzled by what game the Governor is playing.
It could be that he just hasn’t yet adjusted to his new role. In various earlier incarnations he was chief economist for the National Bank and for Westpac. In roles like that part of his job was to say to provocative stuff in an interesting way, to get coverage for him and his bank. Back in the spotlight now, with every serious media outlet only too happy to report his every word, perhaps he just hasn’t adjusted yet. I find that a little hard to credit, for various reasons, including that he is 55 not 35, has already spent eleven years as a public sector CEO, and that yesterday’s remarks weren’t the first time he’s overstepped.
Perhaps, too, he just sees no connection between the comments he makes on climate change, infrastructure finance, the Christchurch rebuild, PPPs etc and his day job. But he’d have to be extraordinarily naive to believe that, and he isn’t. His views are reported because he is the Governor, not as “Adrian Orr, citizen of Devenport [or wherever he now lives]”. Another really senior unelected role is that of the Chief Justice: just think of the outrage if she were out giving speeches and interviews on all manner of political issues, unrelated to the administration of justice. That is a measure of how wrong Orr’s current stance is – and he wields more power personally than the Chief Justice.
And that leaves the even more unwelcome possibility that, in some sense, Orr is playing politics. A former colleague put it to me the other day that “Orr is a political animal, par excellence”. I’m sure he is only ever uttering his own genuinely-held views, and I’m not sure he is even that good a political player (on the evidence of the last few weeks) but look at his incentives. The Governor has a huge number of turf battles to fight and win this year, around the various stages of the review of the Reserve Bank Act. Will the Bank keep prudential responsibilities in house? Even if so, will the policymaking powers stay with the Governor, move to a committee, or be removed back to the Minister? What sort of people will be appointed to the new Monetary Policy Committee, and what sorts of constraints will the Minister put on their freedom to challenge the Governor? Might tighter budgetary constraints be put on the Bank, or regular (properly-resourced)_ provisions for external reviews be established? And so on.
And how to win those battles? Good quality analysis and advice goes only so far. Orr might reasonably conclude that things are more likely to go his way, if the Minister and his Cabinet colleagues (and parties outside Cabinet) smile benevolently on the Governor and think of him as “one of us”.
I’m not fully persuaded this is the bulk of the story either. Orr has, after all, been a public servant for the last 15 years, and if his approach is all about political game-playing and seeking leverage with ministers, you’d have to think he’d have the art down pat better than the overtly political stuff on display in recent weeks. There has to be a risk that, whatever his intentions, he has overstepped the mark so far and so often, so early, that at least some in government might be having a case of buyer’s remorse, wondering quite what they have got themselves into with this new Governor – who might be “sound” ideologically, but seems to lack that deeper sort of soundness the nation should be able to count on.
Whatever the explanation, it needs to stop.
When there was speculation last year as to who might be the next Governor, one reason on my list of factors counting against Adrian Orr was precisely that he was a strong character, given to speaking his mind, and one whom the Board (and specifically the Board chair) might find hard to keep on a leash. The same thought might, I speculated, worry a new Minister of Finance. Of course, in the Board’s case it has become increasingly clear that they see themselves as facilitators for, and defenders of, the Governor, not needing to do anything to hold him to account. But if they really care at all about the institution, and about good governance in New Zealand, they need to call the Governor to order now.
I noted earlier my surprise that the Opposition finance spokesperson had not commented on the way the Governor is operating. Neither, it appears, has the Minister of Finance. Perhaps it would be worth some journalist asking the Minister for his comments, even if only to record him refusing to comment, washing his hands of any responsibility (for the conduct of someone he appointed, in an agency he is responsible for).
The Governor is damaging himself, and he is damaging the institution. It is early days and there is still time for a course correction, but it needs to happen now, and to be decisive. It isn’t, after all, as if the Governor is without messes to clear up in his own areas of responsibility (eg here and here). And leave politics – including public finance, infrastructure, climate change or whatever – to those we’ve elected.
(I have deliberately avoided engaging with the content of the Governor’s comments. Even if I fully agreed with him, they would still be unwise and quite inappropriate, and it is the process point – good governance – that matters most.)
UPDATE: I notice that issues about Orr’s remarks are beginning to be highlighted elsewhere.
UPDATE 2: Rereading the post I wrote when Orr’s appointment was first announced, there is nothing (positive or otherwise) in it I’d resile from now, and some of the potential areas of concern touched on then already seem to be being realised.
UPDATE 3: For those who don’t normally read the comments here, I suggest at least looking at the one by former Reserve Bank official, Geof Mortlock.
UPDATE 4: The Minister of Finance has indeed refused to comment.