On the RMA reforms

So the National government is reforming the Resource Management Act, interesting.

Now anyone that says the changes are to help “during the crisis” is tripping – changing the RMA is a structural, long-term, issue not a “stimulus” issue. Framing it as a stimulus issue may help National to sell it – but that is not really why, or why they should be, doing it.

From listening to people (and reading this from Nick Smith) talk about it there appears to be three main thrusts of attack on the RMA:

  1. Stop the use of the RMA as an anti-competition device,
  2. Reduce the ability of the RMA to be used as a “hold-up” device against initiatives.
  3. “Streamline” consents of “national interest”.

The first change is brilliant and well needed – any policy that can be used in an anti-competitive fashion needs to have provisions to deal with it.  The second concept is also very true – there are times when people use the law to increase the return they will make from the consent, this is no good.  However, the third concept is a bit dodgy for me – I think we need to be a bit careful when using it.  Here is the way I see “national interest”:

National interest?

What are projects that are in the “national interest”?  Say that it is a consent that will benefit more than one regional council.  In this case the whole cost of the project is faced by a subgroup of the people that will benefit – something they don’t take into account when allowing the consent.

Right, so this seems to be the justification for “streamlining” the consent process – eg making it more difficult for a single body or council to prevent a project that benefits a larger group of people.

However, I don’t find this argument compelling in itself.  How do we know that the cost to the people in the area does not exceed the overall benefit to “society”.  Even if the government does believe that the benefit to society exceeds the cost to the region – is it fair to just ram a consent through.

The goal of policy here should be to create market signals that indicate when mutually beneficial consents can occur.

Fundamentally, a region may be unwilling to have a dam put up – but if they are paid part of the return associated with the dam they may not have any concerns.  There are fundamental property rights here that have to be respected – and by taking advantage of them we can ensure the only projects that are truly in the “social interest” occur.

You may say that the local body may not accept the price offered – however, if that is the case it implies that the project wasn’t in the social interest to start with …

But what about projects that are across multiple regions/parties/landowners?

We run into trouble when a project needs to occur over multiple regions/landowners – as the last region to allow the project to occur can “hold up” proceedings and extract additional rents.

However, in this case the best option is not to ram consents through the system – but to see if there is any way we can circumvent this problem and reveal the underlying value of the land to its current owners.

One major way to do this would be to present alternate routes for any consent and then run a second price auction based on the return they would expect for allowing the consent through their land.

In some areas specific bottlenecks will still occur – however, those situations should be identified and treated as special cases.  Outside of this it is not difficult to get some market signals going.

What about public goods …

Ok, so in the case of public goods we don’t have a market signal – as the market wouldn’t provide it even though its provision increases social welfare.  These goods are provided by government.

If the government can identify such a good then they should ask two things:

  1. Is it really socially optimal to do this,
  2. What is “fair” compensation for those that lose their land/resources in the provision of this good.

These questions are not easy to answer – however they make up the essence of what the RMA should force councils and courts to look at when deciding on consents.  I fail to see how we can “streamline” these questions – however, if previous law was vague surrounding these issues then a clarification could be in order.

Conclusion

The purpose of the RMA should be to help improve outcomes in the case where there is a “hold-up” problem or there exists “externalities”.  The inability to reach something in the “national interest” through the RMA could in itself be the result of a hold-up issue.  However, “streamlining” the general consent process without taking account of the actual situation, and the government failures inherent in the situation, does not ensure that we will improve outcomes.

Should the RMA be cleaned up for anti-competitive behaviour -YES.  Should the hold-up issue that occurs in the RMA be solved through harsher penalties and more final decisions – YES.  Both these things are being done, and I agree with them.

However, stating that we need to improve the speed of consents when the consent is in the “national interest” seems a touch vague, dangerous, and lazy.  Try to get market signals going that show what and where the socially optimal solution to the project is, definitely.  But making it that government (or large firms) can ram through a consent that the current government defines as socially beneficial does not seem like a good idea to me.

Now does anyone know what they actually mean by “streamlining consents of national interest” – if I actually knew what they specifically mean I might be able to reach a conclusion based on the issues raised above …

  • insider

    One of the problems I have with the public good argument is that you get into a cycle of debate as to whether something is ‘needed’ – look at the hearings over windfarms in Otago at present for an example.

    I accept there is a legitimate interest if a public asset is affected to some extent, but you end up with endless relitigation of issues that the courts have no expertise in and which other processes cover. In the windfarms case they are arguing over the status of the power system and the demand growth for electricity, which are subject to other planning processes and oversight. To me it shouldn’t be up for debate. If someone wants to take a commercial risk and build it, that should be reason enough. What you should be arguing is the environmental effects.

  • Dominant assurance contracts are a nice solution to holdout problems: basically, you get everyone along your proposed route to sign a contract saying that they’re willing to sell at price X if the route goes ahead, and they’re given a bonus of Y for signing on before date Z regardless of whether the project goes ahead. At Z+1, if everyone’s signed on, the project goes ahead; if not, alternative route is taken (that’s also been given dominant assurance contracts). Dominant strategy then is to sign on early.

    I don’t like ANY provision that makes the burden of regulation less onerous for government than for private developers as that attenuates incentives to get regulations right. National Interest does sound dodgy.

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  • I’m not sure you can ever define the “national interest” in any serious way other than what the government says it is, and that is not a good basis for forcing through a project. Imagine the fun lawyers could have if the “national interest” had to be determined in court.

  • insider

    @Eric Crampton
    I don’t like ANY provision that makes the burden of regulation less onerous for government than for private developers

    It also can lead to embarrasingly long queues at ministers’ doors as they parade their national interest. Wading through a bog of special pleading always leaves a nasty mess on your shoes.

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  • “One of the problems I have with the public good argument is that you get into a cycle of debate as to whether something is ‘needed’”

    Indeed – it becomes an issue of value-judgments which is hard to mediate over.

    “Dominant assurance contracts are a nice solution to holdout problems: basically, you get everyone along your proposed route to sign a contract saying that they’re willing to sell at price X if the route goes ahead, and they’re given a bonus of Y for signing on before date Z regardless of whether the project goes ahead”

    Agreed that this is a good idea. However, if some section HAS to be part of a given project then we still have the issue of hold up

    “National Interest does sound dodgy”

    Very much.

    “I’m not sure you can ever define the “national interest” in any serious way other than what the government says it is, and that is not a good basis for forcing through a project”

    Indeed.