Thursday 16 September 2010

Douglas on Director's Law

Sir Roger Douglas writes eloquently on Director's Law:
To get a policy programme passed into law all you need is 50 percent of the population, plus 1. This 50 percent can be made up of any collection of people across the voting spectrum. It could be made up of the poorest 50 percent, or the richest 50 percent, or somewhere in between. The question is – who is it most likely to be?

It is possible that it could be made up of all the people in the bottom 50 percent plus 1. But this seems unlikely to be the case. Why? Because the situation that has lead to you being unsuccessful in the market place is likely to lead to you being unsuccessful in the political market place too. These are often things like low skills sets or lack of motivation or low levels of literacy (a terrible failure of state education). Whatever it might be, the effect is the same. This group is unlikely to succeed as a voting coalition.

On the other hand you might think that the most likely coalition would comprise of the richest 50 percent plus 1. Again, this is unlikely to be the case. Why? Well, the people at the very top are where we want to get the money from to finance our pet projects. It makes sense to exclude them from the voting coalition so that you can plunder their wealth. It is worth sacrificing a few votes to get most of the money that funds everything else.

So who then benefits? It is likely to be the middle-income bracket at the expense of both the very rich and the very poor. The middle-income bracket is a group that is most likely to have the influence, not just because of their voting power, but also because they permeate so much of the public sphere. They write for the newspapers; they provide the candidates that stand for election; they make up most of our academic institutions etc. This phenomenon became to be known as Director’s Law after Aaron Director. Director’s law states that: public expenditure is used primary for the benefit of the middle class, and financed with taxes which are borne in considerable part by the poor and rich.

We only need to look to the Australian elections to see that this is true. Let us think of some of the major policies that have been in contention. Large investments in broadband, sizable subsidies offered to first home owners, and to owners of homes who use solar panels, generous paid maternity leave – the list goes on. The people who are likely to be able to benefit from these are those people who have a job, can afford to buy a house and computer etc.

New Zealand is not immune to Director’s Law either. Minimum wage is a good example – it locks the poorest out of the job market despite advocates arguing it is for the poorest in society. Their lack of skills (usually because the state run education sector has failed them) means that businesses cannot justify paying them the minimum wage. Who benefits? The middle-income worker – they are able to lock out the poorest in our society from competing for minimum waged jobs. Tertiary education is another example. Again, it is always sold as helping the poor but it is a transfer of wealth to the middle-classes. Overwhelmingly the people that attend universities are from middle-income families. They force those who do not attend university to pay for them to go to university through taxes – usually the poor.

Never confuse the intention or the rhetoric of a piece of legislation with the outcome. We have told ourselves lies. We have created a myth around government of Robin Hood. This eases our conscience, we feel like we are helping the poorest in society. What we have actually done is created a system that benefits us at the expense of the poor. If we are to make sound policy we need to abolish this myth once and for all.
I read this, and I weep that anything Sir Roger says has John Key sprint in the opposite direction. Some days, it seems that if Sir Roger were to introduce a Member's Bill simply giving Parliamentary affirmation to that New Zealand is awesome, Key would give speeches in Parliament about how lame the country is.

If you think the poor don't pay much in taxes, look again at alcohol and tobacco excise rates.


  1. I don't find the influence part convincing..e.g. they provide candidates but not their funding, they write for newspapers but don't own them....maybe this is just because I have come from the US where the money rules all?

  2. Newspapers and news outlets by and large are best modeled as revenue maximizers rather than as spots where rich folks throw away money to shift public opinion.

    On policy, there's lots of policy I think is awful, but it's a lot easier to find awful policy than it is to find broadly unpopular policy.