Who’s the boss? A leading political economist on what has gone wrong in NZ

In March, National Party MP Maureen Pugh posted an invitation to a fundraising event offering dinner with Christopher Luxon for $10,000. The post was quickly deleted from her Facebook feed but the screenshots show organisers were careful to refer to Luxon as “the leader”. If they were selling access
to the Prime Minister it could be seen as a corrupt practice. But auctioning off time with the National Party leader is perfectly appropriate.

A few weeks earlier, the chief executive of the Teaching Council, Lesley Hoskin, resigned after it emerged she’d spent more than $1 million on communications contracts with a company run by her husband. She had declared a conflict of interest, which satisfied the council’s procedural requirements, but key shareholding details were not disclosed.

Professor Natasha Hamilton-Hart is an expert in political economy at the University of Auckland. She completed her PhD at Cornell University, New York State, then spent years researching the financial systems and governance structures of Southeast Asia while teaching in Singapore and Australia. When she returned to New Zealand in 2011, she found her home country – which she’d always thought of as well-governed – had devised rules allowing practices that in Southeast Asian countries would be considered corrupt.

“One of the things happening was the failed finance companies,” she tells the Listener. “Most of my early work was on the financial sector and banking systems, and it took me a long time to realise what exactly had gone wrong in New Zealand. They kept talking about related-party lending but that wasn’t what they were trying to prosecute them for; they were actually trying to prosecute them for failing to declare, according to these minutely detailed rules on disclosure.

“They weren’t trying to get these people on the substance; it was these weirdly detailed technicalities about what was disclosed, and when and according to what format.”

Hamilton-Hart also noted the sales of state property that took place under the Key government. “There was a great piece by Nicky Hager on how property developers at what is now Albany town centre had made an absolute killing buying the land cheap from the state, getting it reclassified and flicking it on.

Natasha Hamilton-Hart: Argues the market will sometimes deliver, but a lot of the time it won’t. Photo / Supplied

“And the same happened to high-country leasehold land: lakefront land bought for a pittance and sold for a few million in a month’s time. And I thought, ‘This is really weird. If this happened in Asia, everyone would assume someone had been paid off. That probably wasn’t the case. It was probably all by the book, but that book would be quite complicated. There’d be disclosure rules and process rules and this and that. But it wasn’t stopping these egregious abuses.”

Market failure

Fifteen years after her return to New Zealand and its mystifying rules, Hamilton-Hart has published Stupid Rules: Reducing Red Tape and Making Organizations More Effective and Accountable. It’s a theory of what has gone wrong in New Zealand and in comparable democracies – she pays close attention to the UK.

Like so many academic accounts of our decline, she begins with the neoliberal revolution of the 80s and 90s: the privatisation of state industries, private-sector outsourcing, mass deregulation, the dismantling of the old command-and-control state.

The demi-gods of the free market succeed through imposing authority on large, hierarchical organisations.

Danyl McLauchlan

But, she writes, the decades since those reforms have seen a counter-revolution: a Great Reregulation. The many failures of the neoliberal project – the private monopolies, financial crises, shoddy buildings, failures in healthcare and delivery of core services (water, electricity) – prompted a vast re-expansion of the regulatory state. Rules, regulations, standards, metrics, codes of conduct, compliance requirements, occupational licensing, consent regimes – all addressing the perceived failures of the market.

The rules don’t solve the underlying problems, though. They just pretend they do. The National Party can still auction off access to the Prime Minister, so long as it doesn’t refer to him as the Prime Minister. Key markets such as groceries and electricity are fundamentally broken despite having big regulatory bodies overseeing them.

Hamilton-Hart’s key concept here is the “fake market”. She sees this as a kind of self-deception by governments: “We’ll pretend we’re dealing with market-based providers even though we’re not, and we will contract and have KPIs [key performance indicators]internally which people will work to.”

Fake choices

When public services such as healthcare, education and social welfare are outsourced, governments create elaborate contracting and monitoring systems for transactions that have none of the features of real market exchange.

Hamilton-Hart writes, “Prisoners ‘consuming’ the services of private prison providers do not have a choice of provider; in public healthcare settings, few patients have a choice of surgeon.”

Fake markets generate enormously complex regulatory regimes – KPIs, accreditation requirements, compliance standards – attempting to simulate the accountability that emerges naturally from genuine competition.

Government authority has been replaced by process. If something goes wrong, no one is responsible because no single individual decided anything. Photo / Getty Images

Stupid Rules’ case against the modern regulatory state begins with the British economist Ronald Coase. In the 1930s, he asked a simple yet confounding question of free market economics: why do firms exist? If markets are as efficient as their advocates claim, why doesn’t everyone just contract everything out to everyone else? Why would a private company hire an in-house lawyer instead of contracting to a law firm?

Coase’s answer was: transaction costs. This is the price you pay in terms of time, effort and money when you find a supplier – the law firm – negotiate and enforce the contract then monitor their performance. It’s often easier and cheaper to bring someone inside the organisation and just tell them what to do.

Every successful firm operates as an internal hierarchy. It’s funny when you think about it: founders and corporate executives are celebrated as the titans of the free-market system but the demigods of the market – Rockefeller, Ford, Jobs, Bezos, Musk – succeed through imposing their authority on large, hierarchical organisations.

Hamilton-Hart’s critique of the neoliberals is that they ignored this very obvious fact about modern capitalism.

“Most economists accept that things such as infrastructure (roads, railways, electricity and sewerage systems, healthcare and education) are not efficiently provided by markets alone,” she writes.

“It should have come as no surprise that this shift would incur very high transaction costs and, too often, appalling failures: regular sewage overflows under private waterworks providers, failures to build sufficient generation capacity and the delivery of services that are both shonky and expensive. The incentives were skewed from the outset.”

Regulation redux

The Great Reregulation is an attempt to correct for this fundamental error. The result is the modern managerial state. Government authority has been replaced by process; decisions are litigated by committee, delegated to consultants, validated against metrics. If anything goes wrong – and things are constantly going wrong; nothing works properly – no one is responsible because no single individual decided anything.

Stupid Rules quotes the investment analyst and author Dan Davies, who calls these systems “accountability sinks”. In 2024, the Ministry of Education spent $715,000 paying external consultants to tell it how to downsize its organisation.

Hamilton-Hart: “I thought, so nobody inside this had enough of a grip on who does what and what’s essential that they have to bring in outside advisers to tell them what’s valuable and who’s actually performing? And if you’re not across that as the CEO? To me, this is a flight from authority, which is also a flight from responsibility.”

In early 2025, US journalists Ezra Klein and Derek Thompson published Abundance, a book that treads similar territory to Stupid Rules, describing governments that can’t build because they’re paralysed by managerialism and legal process. Hamilton-Hart agrees their diagnosis is similar, “but I don’t think they have an argument about what you’re going to do in the situations where markets fail. I mean, sometimes ‘just deregulate’ is going to be appropriate.

“Sometimes, if you just leave things to the market, it will deliver enough of whatever you want in a reasonable way. But in lots of situations it’s not going to.”

Klein and Thompson’s “abundance agenda” calls for governments to step in and do more. “But I don’t think they have a theory of what that actually involves, and the uncomfortable aspects of authority,” Hamilton-Hart says.

Property sales under the Key government would’ve been met with questions if it had happened in another country. Photo / Getty Images

Stupid Rules advocates a return to “command and control”: to hierarchy, responsibility and decision-making. It wants us to replace the labyrinth of rules, metrics and compliance that has hollowed out both the public and private sectors with something that feels positively antiquated: people in positions of responsibility making judgment calls and being answerable for the results. School principals who can hire and fire staff; regulators who can shut down a dangerous work site without a decade of litigation. Ministry heads who know what their own employees do.

Hamilton-Hart argues basic components of our current mode of government often work only because people informally work around the system: “A lot of stuff gets done on a person-to-person basis, and then the paperwork gets arranged post hoc.”

Political objections

The problem is this form of power requires trust – imbuing elected leaders and senior public servants with more executive power; trusting that democratically elected representatives will deliver wiser and better government over time than courts or bureaucracies.

Hamilton-Hart notes, “The political debate when I came of age was homosexual law reform. In the end, people got that through Parliament through persuasion; it didn’t have to be decided in the courts.”

It’s a theory of political change that seems calculated to upset both sides of the political divide. The right will bristle at the suggestion their beloved markets are often fake, and the solution is a more muscular interventionist state. The left will be aghast at the suggestion the vast – and very expensive – regulatory and managerial apparatus they’ve built up over the past 30 years does not constrain exploitation or corporate greed but disguises and even facilitates it.

No one wants to hear there is no system of rules clever enough to substitute for the exercise of judgment – or the risk that comes with it.

The result, Hamilton-Hart argues, is a political economy in which we suffer the worst of both worlds, “combining the rule-bound idiocy of bureaucracy with opportunities for private plunder”.

Stupid Rules: Reducing red tape and making organizations more effective and accountable, by Natasha Hamilton-Hart (Columbia University Press, RRP $86) is available now.

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