Appendix – The perspectives

Economic, social, constitutional and managerial perspectives offer a number of useful insights into questions regarding the centralisation or decentralisation of decision-making rights. The issues discussed in this paper are drawn from across the perspectives briefly discussed below.

Economic Perspectives

From an economic viewpoint there are a number of theories that can assist in considering the issue of centralisation versus decentralisation. Significant examples include:

• Neoclassical economic theory provides a number of tools that are of particular use in considering centralisation/decentralisation questions, including:
  • the use of production functions to determine the efficient level of activity;
  • the ability to achieve economies of scale and scope; and
  • the notion of comparative advantage.
• A second theoretical framework is that of agency theory. Agency theory rests on the notion that social, political and economic interactions can be viewed as a series of explicit or implicit “contracts”. Agency theory assumes individuals are rational self-interested utility-maximisers. The interests of agents and principals are often likely to conflict. Furthermore, principal-agent relationships are complicated by incomplete information, asymmetric information and the “bounded rationality” of the parties.
• Transaction cost economics is similar in many ways to agency theory but places greater emphasis on the optimal governance structures for various kinds of transactions, suggesting that rational agents will select governance structures that minimise the sum of production and transaction costs.
• A final theoretical framework is that of public choice theory. Public Choice Theory seeks to explain how people will act in different institutional settings with different incentive structures. Public choice theory assumes human behaviour is dominated by self-interest, that is, individuals are rational utility-maximisers. For this reason suggestions that politicians are only concerned with societal well-being and their advisors guided by ethical principles are viewed with some scepticism under public choice theory.[5]

As fully developed and applied, for instance in the work of Peter Gorringe[6], these theories contain a much richer picture than these brief descriptions may suggest.

Managerial Perspective

Managerialism describes a body of theory and practice developed by managers, other practitioners and academics. This framework embraces a number of common beliefs. Most notable to the issue of (de)centralisation are the following:

• the notion of effective management achieved by giving managers the authority, resources and freedom to manage;
• an emphasis on this devolution of management control coupled with improved reporting, monitoring and accountability mechanisms; and
• clarity of the role, responsibilities and objective is critically important to the success of a managerial approach[7].

Social Perspectives

Efficiency and economy are not the only criteria in deciding the location of decision-making rights. From a societal perspective the overriding objective is to enhance social well-being. A social viewpoint provides a number of additional considerations; three of which are particularly relevant to decentralisation questions[8]:

• Participation refers to the level of public involvement in decision-making, resource allocation, and service delivery and the provision of mechanisms for effective local participation. From a societal perspective, social well-being is enhanced through community participation and empowerment. Thus participation has an intrinsic value beyond the achievement of efficiency and effectiveness[9].
• Partnership refers to the partnership between the state and other providers, with, for example, the state ensuring regulations and standards of provision are met. The notion of partnership involves some joint setting of objectives and ongoing dialogue between government and other groups. This is important from a societal perspective as it represents a way in which participation can be extended while retaining some control over standards of provision.
• Subsidiarity has at its core the notion of empowerment. The notion of subsidiarity is perhaps more relevant when considering a federal system of government. However, it deserves a mention here as it represents another perspective from which to consider questions of centralisation and decentralisation. Subsidiarity refers to the notion that decisions and actions should be taken at the lowest appropriate level[10].

A social perspective emphasises the benefits of participation and may therefore favour decentralisation even where it is not the most economically “efficient” option.

However a social perspective does not necessarily always favour greater decentralisation, for example, it may be the case that participation is best achieved through central organisation. Furthermore, from a social perspective, centralisation may increase equity through the provision of uniform and consistent national standards and the reduction of regional and social inequalities. Social well-being may, in this way, be enhanced through the reduction in variability and inequalities.

Constitutional Perspectives

A constitutional perspective places the emphasis on the allocation and control of public power, including accountability for the use of that power – that is, the allocation of some fundamental decision rights. There are a number of important features of our system of government that are particularly relevant to the allocation and control of public power, notably democracy, the separation of powers, the rule of law:

• Democracy: As a democracy, key judgements about public policy values, trade-offs, resources and taxation should usually be made by representatives elected by and accountable to the people. The agencies of executive government should be accountable to Ministers and Parliament, as the elected representatives of the people;
• Separation of Powers: At the same time, our system of government allocates important powers, and checks on the use of power to different branches of government – the judiciary, the executive and the legislature;
• Rule of Law: The executive, and other branches of government are bound to obey the law. This is important in terms of shaping and constraining the allocation of decision rights, including the degree of centralisation for two reasons. The first is that Parliament is usually careful about the allocation and regulation of statutory powers, usually allocating them to a particular office holder or category of office holders, and providing some scope to delegate those powers to other persons. For example, the State Sector Act provides quite broad powers for chief executives to delegate powers to members of their departments (and for Ministers to delegate statutory powers to their chief executives). Any decentralisation has to be consistent with this allocation of decision rights. The second is that there are some well established principles governing how Parliament allocates certain types of powers, such as:
  • What should be covered by primary legislation, and what is appropriate to secondary legislation;
  • Who should have the power to make secondary legislation;
  • How coercive powers should be exercised.

Parliament (and Ministers) may also decide that while a function should be undertaken by the executive branch of government, with a responsible Minister, that it is not appropriate for Ministers to exercise certain decision rights, and may provide a clear commitment to this by providing statutory independence. This can be in either a departmental context (eg, the Commissioner of Inland Revenue in respect of individual taxpayers) or an arms length Crown entity context (eg, Commerce Commission). Providing this credible commitment to independence from political control is not necessarily the same as decentralisation, although may often be achieved through some decentralisation of decision rights.

New Zealand is a unitary and relatively centralised state – we do not have a federal system of government, and the role of local government is relatively limited. Parliament does, however, allocate some responsibilities in a decentralised way, notably to local government, but also to organisations like District Health Boards. This will usually reflect a desire to provide for local democracy or a regional basis for the organisation of some decision rights.