Did ANZ-National attack the public service?

It appears that the Standard is unhappy (*) (*) (*) with the ANZ-National piece on government sector spending (*).

Now the criticisms of the ANZ-National line appear to be:

  1. Its only a 4 page insert in there weekly report,
  2. The definition of backroom and frontline is self-serving and wrong,
  3. The report relies on the belief that all spending on backline staff is waste.

I can understand the Standard’s irritation at some of the headlines that have been taken from the piece – but nonetheless I feel that their criticisms of the actual discussion that ANZ provides are off the mark, here’s why:

It’s too short

I get the feeling that the insert was merely a summary of work that ANZ-National has been doing for a long time – but currently are not willing to release (as they don’t want to alienate people). As a result, I don’t see this as a fair criticism of the quality of their work.

Conversely you could say that important elements are missing because they had to shrink their work down to 4 pages – however, reading through the piece I felt that there underlying point they are trying to prove is will illustrated, namely that:

more attention needs to be paid to where money is ending up.

The report is asking Treasury to increase the transparency associated with government spending – an issue I heartily agree with, but doubt any government would be willing to implement.

The definition of backroom and frontline staff is inappropriate and they believe that backroom staff are a waste!

In a standard economics sense the definition is perfect. Frontline staff are the ones that face the customers and “directly” create value. Backroom staff only increase value indirectly by increasing the marginal product of frontline staff – this is a standard way of viewing firm or government department structures.

I do think they should have been a bit more careful when discussing backroom staff – they did make it sound a little like that type of worker does nothing. However, there analysis does treat backroom staff appropriately.

On top of this they assume that the marginal product of backroom staff diminishes a lot more quickly than that of frontline staff – a relatively fair assumption when you think of other similar types of organisations (eg department stores). Fundamentally this implies that a firm, or government department, does not need to increase supervising/backroom staff as quickly as it does frontline staff when increasing services.

Now given these assumptions they discuss where new funds are relatively being directed. They have found there has been a bias towards backroom staff over the past few years. You can defend this by saying that the public service was previously understaffed – but it doesn’t make the measure inappropriate.

Conclusion

I feel that the main purpose of the ANZ-National statement was to say “hey, Treasury, give us some more transparency surrounding fiscal spending”. In this sense I agree.

If Treasury could do this, and provide measures of how the current and forecast fiscal stimulus might impact on the general economy (namely through inflation), the public would have a much easier time trying to figure out whether the government of the moment is really focusing on the economic goals that it is discussing.

  • I think that the definition of what is ‘frontline’ staff is a bit limited.

    For example if you look at the banks themselves, the number of frontline staff has been diminishing markedly over the years. The frontline has been steadily diminishing because more of the information has put on to the web. I seldom go into a bank except to put PIN numbers on cards. The frontline now effectively includes the people who deal with my BankMail on the website, the people who add functionality to their website to allow me to put direct payments without even talking to anyone, the people I talk to to organize cards and loans, etc.

    Yet by Cameron’s analysis these would not be ‘frontline’ staff. Yet they provide direct service.

  • Hi Lynn, very good point – technology change is another reason why these ratios may change.

    I agree that the appropriate definition of of ‘front-line’ services would have included any staff who monitor and look after the online systems that provide services.

    However, he didn’t say that he didn’t include this type of worker. He said that any workers that were involved in the provision of services were frontline – in which case it does include these types of workers.

    It would be nice to have some clarity insofar as the type of workers that were placed in certain categories, however I don’t think we can categorically say that Cameron did not include that type of staff in his analysis.

    As a result, I don’t think any criticism that assumes that he did ignore this type of staff change is appropriate – a criticism based on the lack of clarity in data sources may be appropriate, however they were more than willing to admit these faults in their document.

  • bryanspondre

    Cameron Bagrie as a professional and high profile economy probably has to serve a couple of masters: firstly he has to maintain his reputation as a professional economist and secondly he has to serve the interests of his employer without compromising the first. Questioning the impact of the size of government on the economy probably serves both masters. Without a healthy economy the ANZ bank will suffer along with the rest of us.

    The Standard post by Clinton Smith aka Steve Pierson didn’t primarily critique the content of the 4 page report it attacked Cameron Bagries professionalism and his partisanship as an ANZ employee. If one believes David Farrar then this is probably because the posters at The Standard are some of the very public servants whose jobs are being questioned.

    The ratio of fontline to backroom staff is a bit of a sideshow distraction. As discussed above the need for frontline staff in some areas ( not police,teaching,health) is decreasing. I think the more important issue is the growth in the size of the government and the cost this has on the economy. On this:

    “Essentially, the government is eating the economy from the centre, pushing wages and inflation from Wellington outwards. It is sucking in workers, office space and other scarce resources and pushing up both prices and, therefore, interest rates.”

    Bernard HIckey

  • Steve Pierson

    When you consider that non-productive ‘back-room’ spending in the report’s interpretation includes special needs teachers, call centre staff, and soldiers amongst others that one would clearly not consider ‘back-room’ (the silly definition includes anything that comes under ‘departmental funding’, in fact), I think we can begin to see that’s it’s a pretty dodgy piece of analysis.

    And, of course, it’s only the service deliverers who are actually delivering the service but back-room staff increase their productivity, and there is no examination in the report as to whether or not increased spending on back-room staff has helped boost output and whether more output for the same resources coudl have been gained by a different mix of increased spending on frontline and back office staff. Look at the report – it just assumes all frontline spending is infinitely better than any backroom spending. It’s stupid.

  • “When you consider that non-productive ‘back-room’ spending in the report’s interpretation includes special needs teachers, call centre staff, and soldiers”

    A) The report does not call backroom activities non-productive, they implicitly assume that the margin product of these activities declines more quickly

    B) I can’t see where in the report they state that special needs teachers … soldiers are backroom staff – infact they mention defense as a front-line activity. As a result, I’m not certain that ANZ and the Standard are using the same staff definitions.

    “Look at the report – it just assumes all frontline spending is infinitely better than any backroom spending. It’s stupid.”

    My impression is that the report is saying that the marginal product of backroom staff declines more quickly than the marginal product of frontline staff. If this is the case, we would expect the optimal ratio of frontline staff to backroom staff to will increase as the public service expands – however it has decreased.

    I agree that there article does not cover what would be the optimal mix – in fact they admit that several times in the report. However, as the goal of the report seems to be to challenge Treasury to create some transparent fiscal performance measures, this seems fair enough.

  • Steve Pierson

    Matt. The report includes all ‘departmental’ as opposed to ‘non-departmental’ spending as backroom, but Mallard pointed out a number of examples this morning on RNZ of departmental spending on frontline operations – including the ones I cited.

    If that was the goal, then I say far enough too, but all the ‘analysis’ in the report, based as it is on these self-serving definitions of ‘good’ frontline spending and ‘bad’ backroom spending, has nothing to do with that goal, and it’s just fuel for people who do want to attack the public service – like our mate BS.

  • “The report includes all ‘departmental’ as opposed to ‘non-departmental’ spending as backroom, but Mallard pointed out a number of examples this morning on RNZ of departmental spending on frontline operations – including the ones I cited”

    I am confident that ANZ took this into account when they created their numbers – this short write-up has been a long-time in the making and Cameron Bagrie is a very good economist.

    Ultimately, I believe he would have looked at the degree of “over-lap” between departmental and non-departmental roles, and found that it was not significant – hopefully ANZ will come out and clarify their methodology over the coming weeks.

    “If that was the goal, then I say far enough too, but all the ‘analysis’ in the report, based as it is on these self-serving definitions of ‘good’ frontline spending and ‘bad’ backroom spending”

    I agree that some of the quotes are regrettably value-ladden, however this appears to have been in the search for explaining ideas simply rather than as a goal to mislead people.

    There entire conclusion was on how we require clear fiscal benchmarks in this country, and that this was a challenge to Treasury. If the report is being taken out of context then blame should lie with the media for doing so – not ANZ for stating:

  • Finally here’s a challenge to Treasury, as guardians of the public purse. Develop a set of fiscal indicators that will allow independent assessments as to the mix and quality of government spending.

  • Pingback: Administration things I would like to see from National « The visible hand in economics()