Minister of Change:

Maurice McTigue

Environmental Forum
January/February 2005

Minister of Change

From the holy grail of a unified environmental statute to the mantra of regulatory reform to overwhelming key natural resource, conservative think tank pundit Maurice McTigue has heard all the theories. The difference is that he's actually done those things.

By Stephen R. Dujack

Take a country where the economy is stagnant, unemployment high, and meanwhile political leaders have run up huge budget deficits. People believe the tax burden is excessive, but tat the same time the government is not providing the services they are paying for. These include, importantly, environmental quality and conservation of natural resources. There are those farm subsidies, below-market timber sales, collapsing ocean fisheries. Meanwhile, its resource and environmental agencies are moribund, counting beans instead of results that are meaningful tot he public.

The United States in 2005? Perhaps, but most definitely New Zealand in the early 1980s, before the country bootstrapped the kind of market-based reforms the Bush administration and other conservatives have been talking about, from education to government administration to regulation-even tax simplification. In the conservation and resource areas, the reforms are strikingly similar to those put forth for years from the right in the United States-and from many liberal critics as well - but for this island nation, it wasn't just political theory.

A significant difference in the New Zealand story is that its problems were much worse than the United States faces today, with unemployment running from 9-11 percent and growth close to zero. And its environmental problems, mostly in the resource area, were bad enough to demand public attention. But the most important difference is that the solutions were completely bipartisan. They began when the liberal Labour government took over in 1984 and were completed under the conservative National Party that came to power in 1990.

A leader in the effort was a member who came into Parliament in a bi-election in 1985. Representing the maritime district of Timaru, he became a key part of the reform of the fishing industry while in opposition, and when the National Party took over helped manage the overhaul of much of the public sector while in the Cabinet.

I visited Maurice McTigue to find out how it happened.

"We began by asking ourselves, Why was it that we were not having the successes we wanted in conservation and environmental issues? The investigation showed that the basis of governmental action, which is the laws, often conflicted with each other. But even worse, the laws often brought a conflict between the government and the people who were involved in that area of activity. Nowhere was that more so than in fisheries."

He is speaking from his office in the Mercatus Center, the market-oriented think tank at George Mason University in Arlington, Virginia, where he directs the Government Accountability Project and is a regular at Capitol Hill hearings and policy conferences. He also has advised several government agencies. His mantra: decide what society wants in the end as the goal; use this as a performance measure within a system of transparency and accountability to the public; don't choose means on the basis of ideology but, rather, on the basis of whether they wilt achieve the goal.

"How could we change the incentives so that the behavior of the fisherman would change? After investigation, we found that the whole basis upon which we allocated the right to catch fish was wrong. A person will look after best that which belongs to them. We came upon the idea of creating these Individual Transferable Quotas, which are in effect a property right to be able to catch fish."

The ITQs at first allocated to historical fishers a proportion of the sustainable yield of each species, in tons. But that didn't work: The incentive was still to go out and quickly get the best of the breed. So, within a few years, the plan was changed: each ITQ was for a percentage of the sustainable yield. This program created incentives to increase the sustainable yield.

"The whole culture of the catching industry changed. They thought of what they could do to make the fishery more healthy and productive. They researched when were the best times to catch, to maximize the value and to maximize the success of the breeding season. Some switched from trawling, which caught nearly everything, to long lines, which caused less harm to individual fish, improving the value of the catch. I don't think there is any way that we could have regulated to achieve all that, nor could we have policed it."

Sustainable harvesting meant that the catch dropped by 20 percent for most species, by as much as 80 percent for some of the most damaged. But the value of the individual fish went up, McTigue says. The industry found that a single yellowfin tuna could be sold live in Japan for as much as NZ$1,000, as opposed to $25.

Live rock lobsters are now $15-18, as opposed to $2-3 for a frozen tail. Orange roughy went to $25 a pound from $4 a pound. Fish were even custom caught and processed for individual customers, such as restaurant chains.

As the market cost of the fish shot up and supplies became stable, the value of the ITQs for them shot up too. The sustainable harvests and added value, plus specialty processing, meant a 30-40 percent improvement in employment in the fishing industry - usually in communities that were most economically at risk.

"A very simple change to the ownership rights in the fishery made a massive change to the health of the fishery; the value added to the product, the amount of the employment it created, and to net economic wealth. And on the other side of the ledger ITQs produced a significant gain in conservation and environmental values.

"If we can align the aspirations of the government and the public, which is to see that the fishery isn't permanently damaged, with the catching industry, which wants a steady supply of high-value fish, then we push people toward the highest common denominator, whereas if we use the command-and-control approach we drag everybody down to the lowest common denominator."

Like many of his countrymen, McTigue was a farmer and a businessman. He came to feel that tariffs and subsidies in agriculture were preventing farmers from innovating and succeeding. So lie entered politics. After the National Party took over in 1990, he eventually held eight portfolios in Cabinet. The government-wide reforms lie either witnessed or was instrumental in are the stuff of many of today's debates in the United States.

According to McTigue, the changes, most based on basic business and economic theories, but applied to a government gone gross and moribund, mostly worked. The tax simplification, for instance, even though revenue-neutral by design, produced a 20 percent revenue increase as people found a simpler system not worth gaming. In the farm sector, the sheep industry, when deprived of its huge government subsidy, reinvented its product, high quality lamb meat, and made it more than 10 times as valuable.

Though they address many of the same topics, both in depth and breadth, these reforms are hard to imagine in the United States today; as much as many might desire them, both on the left and the right. Regulatory reform? "Regulations are extremely difficult to eliminate once they are in place. But we found a way: We simply rewrote the statutes on which they were based. For instance, we rewrote the environmental laws, transforming them into the Resource Management Act-reducing a law that was 25 inches thick to 348 pages." The 1991 law includes all laws governing not only resources but pollutants released into them and, thus, is a bona fide unified statute (although the fisheries reform is in a separate, earlier law).

"This is how we rewrote the tax code, all of the farm acts, and the occupational safety and health acts. To do this, we brought our brightest brains together and told them to pretend that there was no pre-existing law and that they should create for us the best possible environment for industry to thrive, while preserving environmental and social values. We then marketed it in terms of what it would save in taxes. These new laws, in effect, repealed the old, which meant that all existing regulations died - the whole lot, every single one." McTigue didn't say so, but as minister of labor, he developed, passed, and implemented an incentives-based OSHA act.

The government also broke apart and reconsolidated functions, creating new agencies as necessary, such that ministries were no longer responsible both for policy and execution, an inherent conflict, McTigue says-and one that is evident in many places in the U.S. context, he does not quite say. Thus, the Ministry of Environment is the policy shop, the new Department of Conservation is on the ground. That creates a necessary and healthy competition, in his view.

Included in these reforms was the government's forestry operations. The N.Z. Forest Service would sell off the cut on a piece of land to the highest bidder, who would often as not clearcut, and sell the trees as whole logs, for plywood or even toilet paper. Under such a system, there was no incentive to invest in equipment to selectively harvest the higher-valued trees, and neither the state nor the industry had much incentive to invest in the health of the land.

"In 1987, the government decided that a new policy approach was necessary. First, ancient forests were declared special conservation forests. Some of these were locked up in perpetuity as National Parks. Any harvesting from the others would only be permitted on a sustainable yield basis - defined as the removal of only those trees that had reached full maturity, and the protection of the forest's ecosystem from processes like clearcutting." The service then separated indigenous forests from exotic forests, which satisfied public conservation concerns while simultaneously providing greater certainty for the timber industry over steady access to supply.

"But how to manage the forests that were open to timber harvesting? The problem, as mentioned earlier, was how to align the interests of the timber industry more closely with the interests of environmentalists but still make economic sense. That goal could only be achieved if timber companies had a long-term interest in the caring for the forests."

The new system, administered by the new Conservation Department, created a quasi property right in a parcel of land, for two harvests past the current one - roughly 70-100 years. The arrangement gives the rights owner a long-term interest in improving the quality of the forests, in replanting quickly, and with the best possible stock. "But the right comes with obligations. One tree must be planted for each one harvested. The use of the land must remain the same. These and ecosystem concerns are addressed by writing their fulfillment into contracts. Consequently, there is no requirement for any administrative law or regulation. Compliance is secured through contract enforcement and the use of the court."

The same industry success followed as happened with the fishing industry: trees were harvested for value, not quantity, communities sprung up to mill and process them, and timber went from NZ$20 per cubic meter to as much as $2,500. Breeding improved both the size and speed of maturation of tree species.

In the U.S. setting, the kind of bipartisan consensus needed for these kind of reforms may not be possible, and the economic pressure is not as great. But McTigue sees room for real progress in the Government Performance and Results Act of 1993, which mandates strategic planning. He believes that, under President Bush, the Environmental Protection Agency, in particular, is moving away from a compliance-based, command-and-control approach to pollution control to one based on improvements in environmental quality using market incentives.

"The value of GPRA is that it requires government organizations to identify and measure their success at correcting societal and economic ills. That enables the public and interested parties to identify the benefit forgone by putting taxpayer dollars into failing programs. Once this knowledge becomes widespread then the status quo becomes politically untenable."

This article appeared in the Environmental Forum, which is published by the Environmental Law Institute.


Media Source: