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Public Policy Implications Of The Christchurch Quake

Some Public Policy Implications Of The Christchurch Earthquake

The tragic events in Christchurch will have implications for the government and councils in the region for years to come. Public policies could help or hinder the recovery process.

The earthquake has highlighted the risks in the government’s strategy of reacting to the global financial crisis in a gradual fashion. Unexpected events like droughts, biosecurity threats, oil price shocks and other crises are a routine part of economic life.

Policy needs to be framed so as to be able to cope with such events, not to assume a continuation of the status quo. In particular, the current high level of central government spending and borrowing – the latter amounting to a massive $300 million a week – is not a good starting point for dealing with reconstruction.

On the other hand, it makes sense for monetary policy to be eased if inflation threats have receded, as it did after the GFC. Yesterday’s cut in the official cash rate will help support activity, if only modestly.

It is also pleasing that the government is reviewing its spending plans. It should reprioritise its spending just like a household that has to cope with a major setback.

A large amount of government spending is wasteful or poorly targeted.

Interest-free student loans and Working for Families were politically motivated, not based on sound public policy analysis.

Such reductions should also take priority over tax increases to fund reconstruction. These would dampen economic activity at a time when the economy may again be in recession.

Capital expenditure programmes should also be revisited. Investment in rebuilding infrastructure in Christchurch may well yield higher returns than, say, rail projects in Auckland, Transmission Gully or broadband.

The government’s plans to sell down its shareholding in several stateowned enterprises make even more sense in present circumstances. It does not need to be involved in commercial activities whereas basic infrastructure is a core government function.

The same argument applies to the assets of the Christchurch City Council.

Reducing its shareholding in its port, airport and electricity companies would free up cash for repairs to local infrastructure without imposing new burdens on ratepayers.

Other policy innovations could be triggered by the earthquake. With some schools likely to be closed for long periods, other schools will have to cope with expanded intakes. There is no reason to rely only on state schools to take up the slack. Some non-government schools might also be able to do so if they were funded on the same per-student basis as state schools.

Emergency legislation is allowing much faster responses than are usually possible. Orion is reported as building an electricity line across Christchurch in a matter of days whereas it might normally take two years merely to get a resource consent for such a project. Housing may require similar fast-track approval.

Experience with such projects may point to the benefits of wider reforms of the Resource Management Act. The strategy of some councils, including Christchurch, of focusing development on central business districts and imposing metropolitan urban limits may also be called into question.

Auckland has been called a ‘city of villages’ but there are clearly riskspreading advantages in allowing decentralised development.

There may be lessons here from the experience of Houston after Hurricane Katrina. Its light-handed land use regulation enabled the city to absorb thousands of New Orleans ‘refugees’ without putting pressure on house prices. Walmart’s organisational capabilities also made a major contribution to the recovery effort.

A broader issue is the relative role of top-down and bottom-up strategies in rebuilding Christchurch. Clearly the devastation is too vast for a detailed centrally planned strategy to be viable. Central and local government need to concentrate on their vital roles and let markets work.

Since the September 4 earthquake there have already been stories of trades people being idle while they wait for decisions by central authorities.

Maximum freedom needs to be given to businesses and communities to use their ingenuity to solve local problems. The spontaneous efforts to date are hugely impressive.

Similarly, the amazing contributions of voluntary organisations, students, farmers, families and individuals remind us of the vital role of private initiative in welfare relative to the capabilities of state agencies.

There is talk of a 10-15 year timeframe for rebuilding Christchurch. This seems unacceptably long. Devastated European cities after the last world war were rebuilt in much faster time.

The reconstruction cost of the earthquake, currently put at around $10-15 billion (with some of it being covered by reinsurance) needs to be kept in perspective. The self-inflicted economic cost of the Muldoon government’s Think Big projects was of the order of $14 billion in current dollars.

These were an example of very poor public policies. Good public policies, focused above all on economic flexibility and growth, could greatly alleviate the hardship that Christchurch faces and promote a speedier recovery.

Roger Kerr is the executive director of the New Zealand Business Roundtable. Check out his blog on www.nzbr.org.nz


ENDS

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