“Time has come for a four-year term of govt”, or so declared the editorial in yesterday’s Sunday Star-Times. I voted against the idea in the 1990 referendum, and would do so in any conceivable future referendum.
Four-year electoral terms (which is at issue, not – at least directly – “four-year terms of govt”) appeal to politicians and bureaucrats (on the latter, see how voters in Karori/Wellington Central/Ohariu were among those least opposed to four year terms in the two referenda we’ve already had). The reasons aren’t particularly hard to fathom: more time and less accountability will almost always sound good to those being held to account (think students with assignments and lecturers with a reputation for granting extensions easily), and since most Wellington head office bureaucrats tend to be more attuned to the interests and perspectives of ministers – and “getting stuff done” – than to those of pesky voters (often actually assuming they know better the interests of those voters and their families than the voters do themselves).
But what caught my eye most in the SST editorial was a claim from a representative of a business lobby group (in this case Infrastructure New Zealand) that “three years is just not enough time to develop policy, implement legislation, and embed the necessary system changes and begin to measure results”.
It isn’t an approach most of us would settle for in other areas of life
Representative democracy can helpfully be seen as an agency problem. We (the voters) are the principals, who elect/employ agents to act on our behalf. But it is difficult to ensure that they do so, especially over such a wide range of issues, and the most powerful lever by far available to us is simply the ability to toss them out. They can at times simply pursue their own ends (in some cases, simply holding office might be enough), or pursue ends, or by means, which we come collectively to think are not the best way forward. Circumstances change too, in ways that neither voters nor MPs can envisage with any confidence. And while there are some other checks on what governments and Parliaments do, they are often pretty thin (the more so in New Zealand where governments form from a parliamentary majority, and Parliament is sovereign and can if it chose reverse or override the effect of any judicial rulings).
Agency problems aren’t unique to democratic politics. Another good example is widely-held public companies, listed on a stock exchange. There are many shareholders, who delegate power to a board of directors and, through them, to management. Those agents can do a good or bad job, and they can pursue shareholders’ interests or their own (managers, for example, tend to like bigger empires which tend to raise executive remuneration whether or not they add to shareholder value). Of course, in tightly-held companies these issues are much less severe – at the extreme a founder may be both CEO and the dominant shareholder. That person might do a good or a bad job, but the main wealth affected is his/her own. Representative democracies are much more like widely-held public companies, but our exposure to things going wrong or being done badly is much greater, because for most of us there is little or no scope for diversification, and even when there is (eg dual citizenship) exercising that option can be both costly and disruptive. This is our country. We have only one.
Listed companies are traded on the stock exchange. For companies of any size there will be transactions – and a fresh market-clearing price – each day. When management and the Board are seen to be doing a capable job – have a credible strategy to add shareholder value – the share price of the company concerned will match or outstrip the market. When doubts arise, the share price underperforms. It doesn’t tend to be too good for the chief executive’s career prospects if that underperformance becomes entrenched. Here’s one example of a New Zealand underperformer.
A day to day fluctuation in the share price won’t usually affect the Board or management much. Noise happens, market trends will be at work. In the political sphere, a single opinion poll typically won’t matter too much either. But over time a weakening share price is going to raise doubts among existing shareholders as to whether capital should be left in the business (retained earnings), and make it more difficult and expensive to raise fresh capital (each dollar of fresh capital dilutes existing shareholders’ interests to a greater extent).
What can shareholders do? They can, of course, as individuals sell some or all of their shares and thus reduce or eliminate their exposure to the firm and the agents (Board/management) it had been employing. But they can also vote out some or all of the directors, or create a climate where some incumbents think it might be best if they stepped aside and did not seek re-election.
And how often do directors come up for re-election? Well, in New Zealand the stock exchange listing rules require each director to face re-election at least every three years.
A person I mentioned this to wondered if the three years had been inspired by the three year electoral term for our government. I don’t know the history of the NZX listing rule, but I thought I’d check the situation in some other countries. The ASX also requires directors to face election at least every three years, but then Australia also has three-year federal parliamentary terms. But what about Canada and the UK, both of which have parliamentary terms of up to five years? Listing rules in Canada appear to require annual election of all directors (a practice that was apparently common there even before the rules changed in the 2010s). In the UK, the corporate governance code appears also to require annual elections for directors, at least for larger listed companies.
There is simply much less at stake as regards the governance of any individual listed company than in respect of our Parliament and government (and bear in mind that no government in 100 years or more has fallen inside the three year parliamentary term, although there have been a couple of discretionary early/snap elections). And there are far fewer checks and balances (let alone easy exit options). I cannot for the life of me see why we would delegate so much greater power to MPs and ministers (and their supporting bureaucrats) for terms longer than shareholders and the market generally choose to do for those who run public companies. Parliament is sovereign, individual companies are not. Individual companies also have much clearer benchmarks for performance (something around maximising shareholder value) than is ever conceivably possible for a Parliament or government.
Of course, there are plenty of democratic countries with longer electoral terms but (for all NZ’s faults) it is far from obvious that the general quality of government and policymaking has been any better in the UK or Canada (federally) than in Australia and New Zealand. And I don’t think either an upper house or a written constitution is any sort of solution that should make New Zealanders more comfortable with the idea of a four-year electoral term – you can’t create an alternative legitimacy simply thru a different voting (or worse, appointment) method for an upper house, and the written constitution simply hands over (lots) more power to the whims of unelected and unaccountable judges.
When we’ve had governments that really wanted to do bold stuff (a) they’ve managed to do a lot in three years, and b) in all case I can think of they managed to persuade voters to give them (at least) one more electoral term, to either carry on the work, consolidate results or whatever. It will be 50 years this year since we last decided not to give a government a second term (and that government had lost its biggest electoral asset to death halfway through). And in that sense, things aren’t so different from a company and CEO devising and putting in place transformational strategies for a company. These things take time, and especially take time to produce secure longer-term bottom line results. But shareholders are putting their money on the line each day, directors face re-election each year, and chief executives are probably more prone to being ousted early than Prime Ministers (the last PM to be forced out by his colleagues on anything other the health/age grounds was almost 30 year ago [perhaps Palmer too, but he’d not become PM at an election], and he was I think the only one in at least a century). Part of the skill of being an able PM/Cabinet or Board/CEO is to convince your publics (voters or shareholders) that you have the skills and the plans and that you warrant being allowed to stay.
And although, at a political level, it is easy to overstate the extent to which incoming governments typically reverse what their predecessors had done (not that much very quickly even after the 1984-90 or 1935-49 governments) it is also true that there are genuine contests of values and ideas – indeed, to a considerable extent it is what politics is about. In that sense, it is different than the listed company situation, where differences are much more about means rather than ends. On many things at any one time there are real differences across the public in values and priorities. And if public opinion shifts sharply or political leaders lose our confidence I can’t see strong reasons why they should simply have a claim to hold office for longer. They are, after all, our agents, not the principals. Good agents are really really valuable and can make a huge difference for the better. But good help can hard to find, and difficult to monitor that they are pursuing the preferences/priorities of those who voted them in.
And if the idea of a four-year term for Parliament has no appeal whatever with the present or any recent crop of politicians (I find it hard to think of any government in my adult life that I’ve felt with conviction really warranted even a second term), the suggestion that it would have to be accompanied by longer term for local government is positively alarming. Perhaps there are good local bodies – whose councillors should then readily win re-election – but I live in Wellington.
PS I’d also commend on this topic a column by Rob Campbell in Newsroom (paywalled today, but not I think from tomorrow). I suspect he and I would disagree on a huge proportion of policy issues, but that is his point (and mine)
croaking cassandra 
The article is, as always, interesting but appears to not address the issue which I feel the Bill is aimed at. The subject of the Bill as I understand it is to weaken the structure of the Select Committees from the Governments position. The Bill will stop the size of the Executive members of that Government from influencing the make up of these committees and hopefully improve the input from them. I think of the influence for example of U.S. House Committee’s. I believe that in New Zealand’s case that will improve the rights of the minority without denying the will of the majority surely a good thing.
With the 4 year term only being available to the incoming government if they are willing to give this power to the opposition. This means that the promotion of the Bill by media as 3 year or 4 year terms is wrong unless they add the detail which is unlikely with the present state of our media. With the Unicameral system we have I can only support the Bill as it seems to me to widen the input by opposition which for example would have been very helpful during the term of the last Ardern led executive.
As a final note I was surprised that the Labour Leader agreed with it and I just cannot believe that National and N Z First would whittle down their power that way. I await with interest.
Jim O
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Yes, I deliberately didn’t address that specific model. While I like the idea of more effective and better-resourced select committees, on its own having (typically) a majority of opposition menbers on each Ctte probably wouldn’t change a lot (including because a govt with a majority can just ignore a select ctte. I’d also be surprised if this specific complex model ever gets to a referendum: if we have one at all it is much more likely to be a simple yes/no to a straightforward 4 yr term.
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I couldn’t agree more Michael. I think you focused on the most important point,…that Parliament has delegated authority, …”sovereignty”, by courtesy of the voters.
if that could be taken on board, there are many things which should be changed before we talk of delegating our authority for another year before we pass judgement on their past performance.
For starters, the undoubted gains in bringing minority perspectives, through the introduction of MMP, needs some adjustment to reinforce the role of constituent MP’s. MMP in my opinion gave far too big a role for list MP’s beholden to their party machine rather than voters. This slants the whole concept away from your very valid main point.
Secondly we need to think of why NZ is unusual being a outlier among western societies in having a unicameral House of Representatives. Our old upper house was ditched because governments of the day cynically stacked the house to get the responses they wanted. And despite the idea of yet more (paid) elected representatives being an unpopular idea, I suggest we need to think carefully about having a small upper house with limited powers of review and delay of legislation coming from the (main) lower house.
Thirdly, we should be encouraging a more positive “loyal opposition” and steering them away from the pathetic infantile point-scoring of the current Parliament. I suggest we need to get rid of all these “Parliamentary Commissioners ” of this and that. They really are just an expensive add on of supposed “experts ” who interfere with the proper role of a properly resourced Opposition.
And lastly, I believe NZ is deficient in an effective body of administrative law which should serve to protect the ordinary citizen from abuses from our civil service. This is one area which would benefit from a powerful Ombudsman with full authority to reach into the detail of civil servant decision-making….including those in local government.
I could rave on Michael! If your average punter is content just to tick the ballot paper and think that government will “run the country” without taking any trouble to get involved in the selection of candidates, and making his/her concerns known to the constituent MP, etc.,….then we get the government we deserve.
Thank heaven this modern age of communication has allowed persistent bloggers like your good self to remind MP’s that they are our agents and they have no authority other than what we give them!
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Thanks Michael. Interesting and detailed article as always and now my brain is fired up with thoughts and counterpoints. From the Keynesian perspective I get uncomfortable with the idea that governments and corporate boards have similarities in how they operate and lead an organization.
A board of a private sector company has one very simple task – deliver profitability to investors and/or shareholders. In many cases this is not particularly difficult – especially in a small and un-competitive market like NZ.
A government – ideally – should be more like a co-operative that is attempting to support and sustain, broadly supportive policy settings, logistics and infrastructure for it’s members. Who happen to be all of the businesses in the NZ economy. An optimal economic performance – again ideally – would experience multi sector, multi business growth – across diverse regions and population sizes.
A government should be more like FoodStuffs than a shareholder directed company. For example did you know that FoodStuffs subsidizes prices in more remote regions to minimize price divergence. This was done to ensure that the smaller business with smaller client bases could still be profitable without gouging their customers It’s one of the reasons the last Labor governments look at the sector stalled. Things are always more nuanced and complex in the real world.
I’m ambivalent to the length of term and agree with many of the points supporting democracy as a governing constraint. However, flipping the economy into some type of recession or stagnation every time the country elects a National governing coalition (check the historic economic data since the 90’s) is weakening us over the long term as a country.
Democracies work best when there is a high level of consensus across the political spectrum as this fosters agreement on key long term economic operations. When that happens you can then un look long term polices and subsequently investment. Long term investment unlocks productivity and innovation because time and space are necessary elements to make these happen. Like China – dare I suggest.
We are becoming brittle with under investment and our future population has been moving offshore in record numbers. Another year or three of low growth and anemic investment as we dip in and out of recession and this is what happens:
Houses don’t get built (by 2023 Kainga Ora had scaled up to the point that they were building 6000 high quality houses a year – just pause and think about that for a moment as a business achievement – that was stopped dead by the coalition government. How many construction and supporting roles cease to exist when you suddenly stop building 6000 houses – let that sink in).
Energy generation is reduced – the cancelling of the multi billion ($16 Billion) dollar hydro lake has probably set back our energy capacity for decades and damaged the heavy construction industry beyond repair.
The main objection from the current generators to the hydro lake was that the over capacity would lower electricity prices too much. Think OPEC controlling oil production – what I like to think of as ‘artificial scarcity’. Artificial scarcity is necessary to maintain a consumer price that is profitable for the supplier even when the resource itself is available in abundance.
Portside infrastructure, Hospital, School and Council projects don’t happen – all of these future projects were terminated. Adding up to billions of dollars of investment into the NZ economy over decades into the future. That investment and it’s multiplier impact was all removed from our future within a few months in 2024. No-one in the private sector is going to suddenly step in and start fixing public schools and hospitals or building ports. That isn’t what happens anywhere in the real world.
These billions of dollars of government deficit spending would have generated significant credit growth in the private sector as large construction firms signed up to long term projects and began investing in the equipment, labor and training needed to undertake this type of work.
Young NZer’s with trade and engineering skills would find opportunities that would upskill them on globally in demand large scale engineering projects and would have 5 to 10 year tenures – like they can get in Oz right now. This would be transformational and is what is needed to lift the countries economy.
To manage inflation? Increase taxation on non-labor income streams and target it at low-end and un-productive sectors and asset classes. This would allow for much smaller fluctuations in the interest rate by the RBNZ and introduce a greater level of stability for debt holders and investors.
With this type of policy approach the government debt to GDP is likely to stay about the same or reduce slightly because the economy will grow significantly which increases tax revenues and at the same time reduces the ratio of government debt as the size of the economy increases.
Why am I writing all this? Much smarter economists than me worked all this stuff out in the 1930’s but you wouldn’t know that if you arrived in 2024/2025 NZ.
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I thought there might be people on both the left and the conservative right who would object to parallels between a company and a govt/Parliament, although of course my point was only that in one important respect – the agency issue – the same problems arise in each.
If I had my choice, I might be tempted to advocate more frequent elections but would certainly favour a greater use of binding referenda for many important policy decisions (as, say, in Switzerland, or in some US states)
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I’m not that convinced about democracy as the ultimate guiding force in governance of a nation. Like any organizing system it works well sometimes and sometimes it doesn’t – depending on context. In many ways I agree with Plato’s concerns in the Republic and we do see them play out from time to time – ask 1940’s Europe.
When I was studying high school history many years ago I was assigned to research and write up about early Greek democracy. I had heard Greek democracy spoken about in exultant terms so my search for confirming evidence was shattered when I read that for every voting Greek citizen there were 10 slaves.
It should also be remembered that New Zealanders who didn’t own property were not allowed to vote a few brief decades ago. Democracy’s history and practice is way over stated and hyperbolized culturally compared to the historic reality and details.
As Churchill said – if you want to know what’s wrong with democracy, spend 5 minutes talking to the average voter.
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1879 is quite a few decades ago now.
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Churchill also said – democracy is the worst form of government in the world. But it’s still better than all the others.
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If you want to understand why an economy requires a government deficit to avoid contraction and recession – apply double entry accounting at the macro economic level. Government deficit = Private sector surplus and Government bonds = Private sector savings.
To use the household budget analogy: A balanced government budget is equivalent to an individual selling the family home to pay off the mortgage and becoming debt free but without a home to live in. From an MMT perspective – that is the definition of a government surplus or balanced budget.
Perhaps crucially – and this is where people get lost – the government has to create and spend money before it can be taxed or saved in the private sector. Private banks are licensed by the state to create new money – debt in the private sector – by a regulating government agency – RBNZ.
A government budget determines the required quantity of new money needed and this is entered into the appropriate accounts at the RBNZ and dispensed by Treasury and the spending departments into the private sector over the term of the budget. Labor and resources in the private sector are acquired using this new money to provision the state. This is government deficit spending directly into the private sector in the first instance. The key point to take from this is that the fiat issuing state is the foundation on which the private sector economy is built and exists. Not the other way around. The US is about to find this out the hard way.
The government is not funded by tax payers. Tax payers money is not spent when it is collected by the IRD – it is simply removed from circulation.
Coming back to the household budget analogy: another way to look at government deficit spending is to consider what most of us do as individuals and business – we take on decades of debt in order to build and acquire assets that benefit us and our descendants. But the government isn’t building assets for one generation it is building assets for future generations until – well – forever. Assuming you want your decedents to have a higher standard of living and quality of life.
The government represents all of us now and all future generations and if it goes into surplus then it isn’t building assets for someone in the future because it has sold their assets to pay down the mortgage in the present. (Caveat – if the private sector is expanding and creating new money at an inflationary pace – than yes the government can undertake contractionary policies to some extent.)
Ultimately this interpretation comes from MMT. But MMT is such a complete 180 on everything most economist’s and laymen contextualize about an economy that I’ve been looking for ways to explain the same concept using the household budget analogy which is widely understood and has greater context for most people.
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I used DeepSeek to help shape these ideas around using an analogy that is already understood to explain a difficult concept in easy terms.
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Which means this is all coming from the CCP. Actually China and Germany are interesting cases because they operate massive trade surplus with the rest of the world this represents a source of new money so they are not as dependent on deficit spending for this.
I think that’s about to change for Germany.
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The only reason non property owners in Europe got the right to vote was because of the French and Russian revolutions. That scared the be Jesus out of the property-owning ruling classes who weighed up the 2 options before them – One, of implementing universal suffrage or two, being dragged out of their homes in the snow and shot in the street by an angry mob. They went with the first option and so democracy flowered.
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