Pressure Point: When Accountants Reign Supreme

Listener 23 May, 1988.

Keywords: Governance;

As Lady Bracknell could have said “to lose one could be regarded as a tragedy, to lose two looks like carelessness.” She may well have been speechless learning that Auckland has had three major outages this decade with perhaps two more to come. The recent loss of power to Auckland’s CBD follows a national power shortage of 1992, and a Auckland-wide water shortage. Experts tell me that the Auckland sewerage system is close to capacity, non-experts draw the same conclusion about the Auckland roading. Just how many cases of infrastructural overload does there have to be before a pattern is acknowledged?

Do not expect such an recognition by the inquiry into the latest power outage. Its terms of reference are narrow, for such enquiries look at the specificities of a particular event, not the generalities of pattern of events. Detailed and enlightening as it is, the (Stent) report of the Commissioner for Health on the Christchurch Hospital’s emergency department does not ask whether the situation was true of some other emergency departments, or of some other hospital departments. The answer to each question is “probably yes”. The factors which created the Christchurch environment apply elsewhere, possibly with greater force. Christchurch Hospital may well have an above average service. It was the sheer professionalism of its doctors and nurses which led to the public outcry, because they thought they were not meeting their own personal standards. There was a elemental clash between that professionalism and a generic management unsympathetic to or ignorant of it. The health reforms were predicated on the principle of imposing generic management over medical professionalism. It failed in Christchurch, and it has failed elsewhere.

So what of the repeated evidence of failure of Auckland’s physical infrastructure? It would be easy to blame it on the corporatization and privatization (and other financial antics such as mergers and takeovers). I think not, other than they distracted management from its job of maintaining adequate infrastructure. More fundamentally, the shortages are the consequences of today’s real interest rates which are much higher than in the 1970s. If capital investment is more expensive, firms will cut back, as happened from the mid-1980s. An easy – almost invisible way – of cutting back is by squeezing the safety margins, the extra capacity installed to deal with the unexpected. This seems to have be happened with national electricity supply, with Auckland’s water supply and local electricity grid (and its sewerage and roads). Auckland has been the most vulnerable because it has grown fastest. Other urban centres may have serious outages in the next decade. (Does the harshness of the current drought arise from the same mechanism? Farmers facing high costs of capital have under-invested in alternative water supplies, with the squeezed safety margins exposed by the weather.)

The three episodes (with two to come?) made the proposed privatization of the Auckland Regional Services Trust (ARST) look foolish. Central government has failed miserably to provide local government with a sound financial basis. Reliance on property taxes or rates is limited, for they are merited only by there not being better local ones. So instead of promoting the ARST income flow to relieve local pressures, an ideologically driven central government wanted to give it away. Sometimes it looks as though central government hates local government. Only a parliament elected on an MMP franchise stopped such foolishness.

Once engineers reigned supreme resulting in, so it was said, the over-building of the infrastructure: “gold plated” works was a frequent criticism. Today it is the accountants who rule, and the infrastructure is under-built for emergencies: the pewter is not taking the pressure. The public may reflect on whether they would prefer to pay more at the beginning, or suffer the deprivations when the safety margins are exceeded.