This note is work in progress which I circulated to some colleagues.
One of the management learnings from the 1970s and 1980s is that if managers were given multiple objectives they pursued none of them well. They are likely to prioritise some objectives over others even though they may not be the most important to the agency they are meant to be managing and even then they often pursue them badly.
One response is to give management a single objective. Commonly in the Rogernomics era that single objective was a profit one, even when it had little to do with the agency’s real purpose, as in the case of the health system. That continues to hang over today’s public healthcare system which is often so preoccupied with its finances that it overlooks its primary purpose is to provide healthcare. I have discussed this in another paper; this one has a narrower focus, which is that one of the ways of reducing the problem of multiple management objectives is by separating out some activity with a single objective, thus relieving the managers of the central agency of trying to trade off on that dimension.
In particular, the public health system has a substantial involvement with property and equipment. I have suggested that the administrations of healthcare should be relieved of that responsibility by placing it into a separate entity which would sell its property services to the healthcare providers. In proposing this, I am mindful how property issues often grow to dominate healthcare managers’ concerns, especially new buildings, while the maintenance of existing buildings may be neglected in order to conserve scarce funds. A separate institution’s stewardship is likely to be much more balanced.
What I have in mind is something like the corporatisation of the 1980s of the healthcare property activities into property companies with independent boards of governance consisting mainly of people experienced in property management.
This is only a schematic proposal and the details have to be developed. They include:
– whether there should be a single property agency or separate ones for each region;
– the balance of responsibilities between the minister-politician and corporation-business;
– the interaction, including charging, between the healthcare agency (HealthNZ or the replacements of DHBs) and the property corporation. (This will be complicated because the relationship is between a monopoly provider and a monopsony purchaser);
– how equipment responsibilities will be divided between the two.
I do not want to minimise the challenge such questions pose. I note they are already resolved in the private healthcare sector. Its experience is likely to provide a useful model.
While thinking this through, I realised that corporatisation may have implications for fiscal management. That begins with the ‘selling’ of the transferred property assets to the property corporations as occurred in the 1980s. This is one-off and need not be pursued here.
However, once the public property corporations are self-managing, they will have the power to borrow from the private financial sector in a manner similar to a conventional private property company. (I imagine that for big transactions they will still need ministerial approval – just as the private sector (implicitly) requires shareholder approval. The minister-shareholders will also have a practical lever when it is necessary to advance some equity funding.)
That may mean that if the public property corporations are SOEs (state owned enterprises) their borrowing may not necessarily appear as government borrowings in the ‘net Crown core debt’. The effect of the corporatisation would be to reduce that debt and – even more importantly – it would free up borrowing for capital expansion in the public healthcare sector from being affected by the net Crown core debt target. (One perhaps should be reminded that the government is talking about a capital investment program in public healthcare of around $20b in the planning horizon.)
The point here is not to advocate an arithmetical means of getting around the government’s commitment to a debt target (that issue belongs to another conversation). Rather, it is to make the case that borrowing for investment in (healthcare) infrastructure should not be included in that target. I am reluctant in this note to develop the issue but essentially the restriction on borrowing implied in the debt target should be on borrowing for consumption (it is known as the ‘golden fiscal rule’).
This already happens in effect. Very often when HealthNZ outsources treatment to the private sector, it is doing so because it is undercapitalised in the public sector and it is, in effect, using capital funded from private sources. (Medical staff are mobile between the two sectors – capital is not.) The effect of the proposed corporatisation of the public healthcare’s property would be that instead of relying on the private sector to provide the capital, a public sector agency would.