Secretary to the Treasury

Gabs Makhlouf finishes as Secretary to the Treasury tomorrow, and there is still no sign of the SSC report on his conduct in the “Budget leak” affair. (Although the State Services Commission doesn’t really seem to live in the 21st century –  when it publishes press releases it seems not to put them on its website simultaneously with sending them out to the favoured list of journalists –  so it is always possible it is in fact out.)   Even if the report finally emerges in the next day or so, they’ve basically run out the clock. And that would, surely, be convenient for everyone –  government, SSC, Makhlouf, and the public sector CEs club –  except those actually seriously concerned about accountability in public life.

But yesterday we did finally get an announcement of an appointment of a new Secretary to the Treasury.   The job was advertised more than six months ago  (the fact that there would be a vacancy on Friday was known three years ago), suggesting that SSC had some difficulty finding a good person for the job.  In a well-functioning organisation/system, there would have been at least two or three really impressive, and pretty obvious, internal contenders (not necessarily internal to The Treasury, but to the New Zealand public service) and it wouldn’t have taken that long for a decision to have been made in favour of one of them.  A decision would have been announced several months ago, and the chosen person would have taken office on Friday.    Serious questions should be asked –  but no doubt won’t be answered –  about the process, and (more fundamentally) about the state of the upper levels of the public service (supposedly developed and nurtured by first Iain Rennie and now Peter Hughes) when twice in succession, SSC has chosen to turn to outsiders, with no knowledge or experience of New Zealand, to fill the premier position in the New Zealand public service.  Successful organisations mostly appoint from within.

Of course, The Treasury isn’t a high-performing organisation these days –  use any standard you like, but including stakeholder surveys, reviews of the technical quality of policy, the perspectives of capable staff who have now left, or even just the telling anecdotes (someone told me the other day about their dealings with Treasury social policy analysts, who reportedly struggled with the difference between average and marginal).  There are some good stories too, and some very able people, but few now view it with the mix of fear and awe that once characterised official Wellington. But the degradation of the public sector institutions’ isn’t unique to The Treasury –  after all, if it were just a Treasury problem, it shouldn’t have been hard to find a new Secretary to the Treasury from elsewhere in the high-performing policy parts of the public sector.

But what to make of the new appointee, Dr McLiesh?   The only honest answer is that it is very hard to know, and only time will tell.   That isn’t really good enough, in someone stepping the role –  in Peter Hughes’s own words –  in which they will be (not the organisation, but the individual)

“is the principal economic advisor to the Minister of Finance and the Government.”

It appears that very few people in New Zealand –  at least those in a position to comment – know her, and so we are left having to take Peter Hughes on trust. But then he was the person who reappointed Gabs Makhlouf, and that choice doesn’t inspire much confidence (even less now than at the time it happened).[UPDATE:SSC has got in touch and pointed out that the reappointment decision was made by Iain Rennie.]

I may be in a small minority here –  although I suspect not –  in that, however able someone is, I just don’t think it is appropriate to be recruiting foreigners –  especially not ones with no background in or experience of New Zealand – for such critical and sensitive roles.  Few other countries –  at least ones that had got beyond either colonial status or complete dysfunction –  would, and we shouldn’t.    Countries have interests that are, at times, in conflict with those of other countries, and that is true even for someone coming from the UK (Makhlouf) or Australia (McLiesh) –  and, in fact, those potential conflicts are much greater as regards Australia than the UK (just think of the banking sector for example).   One needn’t criticise the individuals concerned to think that we really should be capable of running our own country, and if the Secretary to the Treasury is not an elected policymaker, the person who holds that office should be a highly influential counsellor to elected governments, and hugely influential on what should be the premier department of state.  Someone rushed in from another country –  even a very friendly one –  just does not have primary loyalties to New Zealand, or a sense that their own future, and that of their children and grandchildren, depends on a job done excellently.   And they have no historical, social or political context for their advice.    We don’t have foreigners with no background in New Zealand as MPs or ministers, no matter how able.  And we went through a big debate 15+ years ago in which we decided that we didn’t want foreign judges either –  even though, at least in principle, judges simply apply Parliament’s law, and should be much less influential than the Secretary to the Treasury.

One might also add some comment about selection bias. Really top-notch foreigners –  really well suited to be premier economic adviser to the government of a sovereign state –  might normally expect to be recognised and rewarded best at home.  The New Zealand public sector isn’t spectacularly well-paid (unlike, say, Singapore or Hong Kong) and New Zealand is a poorer and smaller country than either the UK or Australia.   And it isn’t as if, these days, New Zealand is at the leading edge of reform, economic thinking, or public adminstration.  As far as we are aware, neither Makhlouf nor McLiesh had compelling family connections to New Zealand that made them want to give up the glittering prizes of home, make the sacrifice and just happened to be available to serve New Zealand.     Neither, at the time of appointment to the New Zealand Treasury secretary rule, seem likely to have been serious contenders for the comparable appointment in their home country.  Perhaps they were the best we could get……but that then is an indictment on the SSC handling of the New Zealand public service.

At the time Makhlouf was appointed, it was made known that the government had rushed through an emergency grant of New Zealand citizenship to enable Makhlouf to have the job (as if, somehow, a label transformed loyalties).   The question should be asked now as to whether Dr McLiesh is also being given a rushed grant of citizenship.  And if not, what is going to happen when really sensitive issues arise?  When I worked at The Treasury for a couple of years, there were a couple of second and third-tier people who were Australian citizens, and care was taken around NZEO (New Zealand eyes-only) documents to ensure that those people did not see them.  Perhaps that works down the line, but how appropriate is it as an option for the Secretary to the Treasury?    If, for example, an Australian banking group, and/or their New Zealand subsidiary, is in crisis?

(The point here is not that any such appointments would be likely to consciously seek to serve another country’s interests, but that (a) the rules are designed to protect against extreme eventualities, and (b) appearances matter greatly.  I have worked as a mid-senior level official in two foreign countries’ national bureaucracies, and so know something of which I speak –  fortunately perhaps there were few/no Zambia/NZ issues.)

And what of the individual?  Eric Crampton has been the most vocal (public) critic of The Treasury under Makhlouf.  He is quite positive, if guardedly so, on the new appointee, who has a PhD in finance, and during a term on the staff of the World Bank was the co-author of several journal articles with highly-regarded academic authors.   I put less weight on that, partly because I’m not convinced of the cult of the PhD (in non-academic contexts, where I’ve seen people with top degrees from even better universities and with pretty strong publication records who simply weren’t suited to senior public sector roles).

I guess I put more weight on (a) what she has, and hasn’t, been doing and saying in the last decade or so (since moving into the New South Wales public sector), and (b) on who appointed her, and so the likely criteria being used to make the choice.

The new Secretary to the Treasury joined the New South Wales Treasury in 2008.  New South Wales, you will have noted, is not a country but a state.  Quite a few people live there, but in the end it is still more than a city council but less than a country.  So much power and functionality has been centralised in Australia, that technocrats regularly ask what the point of state bureaucracies really is.    Where this matters, in thinking about the New Zealand Treasury role, is not around managing a budget, or even dealing with individual (perhaps very complex) infrastructure projects, but around most everything else.   Tax policy for example.  Or monetary policy (The Treasury has just been handed a seat on the new MPC), financial system regulation, or even much of the big picture around health, education or welfare policy.  McLiesh has precisely no experience –  according to the SSC’s statement, which will have been putting the best foot forward –  in advising national governments on critical areas of national policy.    And there is a pretty good chance that, until the last couple of months, she has never given New Zealand economic policy, and its major failures (productivity) and challenges, a moment’s thought –  unless perhaps on a skiing trip she happened to pick up a local newspaper.    Frankly, this new appointee appears about as substantively well-equipped to be the key economic adviser to a sovereign national government, in a country with its own currency etc, as Makhlouf does to sit on the ECB Governing Council.

Perhaps one doesn’t really expect fairly senior state public servants to be making speeches, writing articles etc.  Mostly, it isn’t the day job.  I went looking and couldn’t find any evidence of anything.  But people who nurture a longstanding commitment to excellence in economics and policy advice often find avenues – and avenues are found for them –  to tap that expertise, in papers, commentaries, discussant comments or whatever.  But I couldn’t find anything with her name on done since she left the World Bank.  Perhaps I missed something –  I’d be keen to know if so –  but she looks like someone who has successfully transformed herself into a fairly well-regarded public sector operator.    There is a place (an important one) for those skills.

In eleven years in the New South Wales public sector, McLiesh has had five jobs.    From the look of the documents, they weren’t a succession of stellar promotions, but of frequent rotations, and then a move last year to run what seem to be the NSW equivalent of polytechs (in the wake of a sudden departure of the previous incumbent).    One of the questions that should interest anyone in thinking about the New Zealand Treasury is the management record: especially so for anyone uneasy about the current state of The Treasury.  Perhaps the new appointee really is a stellar change-manager and someone with a demonstrated track record of lifting performance in troubled organisations.   But when you are on your fifth job in eleven years, there have to at least be questions about whether you’d stayed around long enough for anyone to really tell the good that might have been done.

Which brings me to the final relevant set of considerations: who made the appointment, and what is the evidence on their predispositions?    I wrote about the appointment process, and the advertising for the job, in a post back in January (skip the first few paras).  From that post

The procedure for the appointment of public service chief executives is set out in the State Sector Act.  Section 35 provides that when there is a vacancy the State Services Commissioner must

invite the Minister to inform the Commissioner of any matters that the Minister wishes the Commissioner to take into account in making an appointment to the position.

That is the Minister’s opportunity to scope the job, and identify his or her priorities.  And although there is now a perception that appointments are made by the State Services Commissioner, in fact the law is clear that the Cabinet can not only reject a nomination, but can appoint their own preferred nominee.   In other words, while Peter Hughes (the State Services Commissioner) has considerable influence, appointments ultimately reflect to a substantial degree the choices and priorities of ministers.

And, writing about the capabilities SSC said it would be assessing people on

All probably fine and reasonable in their own way –  if what you want is some generic public service manager –  but again what is notable is the absences.   Neither here, nor anywhere in any of the documents, is there any sense of wanting someone who might model excellence as a policy adviser, or lift the performance of the organisation in a way that might deliver credible and compelling answers to the appalling productivity underperformance of the New Zealand economy.

And why not?  Presumably because neither Grant Robertson, nor his boss, nor his party, nor the parties they govern in league with, care.  Nothing –  in these documents, in speeches, interviews or anywhere –  suggests otherwise.

Perhaps Grant Robertson really was made uncomfortable by Makhlouf’s extraordinary behaviour in the “Budget leak” affair, but that aside we’ve not heard or seen a word suggesting that he wants something materially better or different in The Treasury.  Only yesterday he was out promising more wellbeing and Living Standards Framework stuff.

And Hughes?  His track record isn’t one of promoting people with real expertise, and leadership capability, in the subject area they are responsible for –  what does Andrew Kibblewhite know about Justice, or Andrew Bridgman about Defence, or Carolyn Tremain about economic development. to take just three high profile examples.   Real expertise might not be disqualifying –  people seem to speak highly of the new MFAT head –  but it scarcely seems to be a prerequisite.  Nothing in the Treasury advert really suggested he’d made an exception in that case.  The focus seems always to be on appointing general public service managers, who won’t rock the boat, won’t upset Peter Hughes, and will get along nicely with ministers.    If that is what you want in the job, quite probably the new Secretary to the Treasury may do quite well, while probably seeking to use the job as a stepping stone to something bigger, better, and better-paid (richer country and all that) back home.     But count me sceptical that the appointment presages a substantial improvement in The Treasury.   (And, as always with public service heads these days, the likelihood now of disrupting the Treasury second tier, so that the incumbent has their own people:  some might argue that change is warranted –  but the sun/moon feeling card senior manager has already gone  – but where are better candidates likely to be found in the diminished New Zealand public sector?).

Near the end of my earlier post I wrote

I guess there is nothing to stop the person who is eventually appointed choosing to make productivity a priority and foster work developing compelling analysis and recommendations.  But it doesn’t seem very likely.  Even if Treasury isn’t as resource-constrained as some government agencies, there won’t be lots of capable staff resources readily able to be diverted to something that just isn’t a government priority.  But more importantly, what sort of person do we suppose is likely to get the job?   And why would such a person, who got through the selection process (acceptable to both SSC and the Minister) be likely to change their spots once in office.  What would be their incentive?  And how likely is it that they’d be the sort of person who would even care much, or understand the issues well enough to know where to start.

That still feels about right now.

I’d love to be wrong about this, and truth is that at present we have only very very partial data.  If the new Secretary to the Treasury really is the agent of transformation, dramatically lifting the performance and standing of the organisation, I’ll be delighted –  and, I hope, ready to highlight my pleasant surprise.  But it isn’t clear, on the information to hand now, why we should expect anything more than a competent generic public service manager, with little expertise in national economic management, no background in New Zealand, and –  perhaps most importantly –  no mandate or imperative for anything much better or different.

Our institutions have been in decline for some time, and there is little reason to suppose that Peter Hughes –  or the ministers he works for –  will be the agents of reversal, or that this latest appointment is a sign that change (for the better) is really in the wind.