HYDROGRAPHY IN NEW ZEALAND - A NEW ECONOMIC AND POLITICAL APPROACH
In the last 15 years, New Zealand has undergone dramatic economic change such that it is has moved from being one of the more protected economies in the world to one that is now held by some to be a model of economic rationalism. Few government organizations have escaped the knife that has carved a split between their funder/policy advice functions and their functions as a service provider.
Hydrography has been no different. In June 1996, the management and policy advice function for hydrography was taken from the Hydrographic Office of the Royal New Zealand Navy (RNZN) and passed to Land Information New Zealand. At the same time the provision of all hydrographic services was changed into a contestable activity for which the Hydrographic Branch of the RNZN would have to compete with the private sector.
This paper will examine how these radical changes to hydrography in New Zealand have come about. It will then discuss these changes in detail pointing out some of the underlying strengths and weaknesses in the new arrangements. It will conclude by suggesting an alternative operational model for hydrography in New Zealand.1. INTRODUCTION
New Zealand is an island nation with a large Exclusive Economic Zone (approximately 4.8 million km2 in size) in which the provision of hydrographic services remained essentially unchanged from 1949 until 1996. Responsibility for those services rested with the Royal New Zealand Navy (RNZN) who had a dedicated hydrographic surveying capability largely modeled upon that found in the Royal Navy of Great Britain.
In 1984 the winds of economic change began to sweep across New Zealand. While these economic changes were initially focussed upon major structural issues (e.g., floating theexchange rate, reducing marginal (personal) income tax rates in favour of a broader consumption tax), they soon moved into a review of core government activities. The economic theory that underpinned these changes found its roots in the work of such economists as Phelps (1967) and Friedman (1968). The key intellectual principles that formed the outworking of this theory in the New Zealand context (see Evans et al, 1996) were firstly, that coherency and consistency of economic policy should prevail over long time periods and, secondly, the achievement, wherever possible, of a competitive environment free from subsequent government intervention.
In June 1996, these economic winds finally blew across the provision of hydrographic services. At that time the management and policy advice functions for hydrography were removed from the Hydrographic Office of the RNZN and passed to a new agency, Land Information New Zealand (LINZ). From that date it was proposed that the delivery of hydrographic services would become gradually more contestable.
While a grandparenting agreement was reached whereby the RNZN was guaranteed a certain number of hydrographic surveying ship days per year for seven years, it is intended that eventually, the provision of all hydrographic services will become fully contestable. It is the intention of this paper to examine these issues in some detail. It will begin by giving a summary of the rationale for the economic changes faced by New Zealand. It will then give a brief history of hydrography in New Zealand before drawing these two threads together so as to provide a foundation for the changes that have been introduced. It will then seek to discuss these changes from an economic and practical viewpoint.2. AN HISTORICAL VIEW OF NEW ZEALAND'S ECONOMIC REFORMS
The economic reforms undertaken by New Zealand, at least with respect to the issues discussed in this paper, are fully described in Evans et al (1996). The summary that follows, and which is necessary to set the scene for this paper, has been drawn from their informative work.
Relative to the rest of the world, New Zealand entered the 20th Century as a prosperous nation. Its external trade was dominated by agricultural goods and its imports by raw materials and manufactured goods. As the 20th Century progressed, New Zealand became a world leader in its social legislation that in turn led to the widespread expectation that the government would provide "cradle-to-grave" protection for its citizens. The economy was heavily regulated with government ownership of organisations widespread across all sectors of the economy, i.e., in banking, insurance, health, education, transport, energy and utilities. National economic performance, relative to other western countries, declined slowly but steadily over a period of 40 years. After the oil crisis in the early 1970s there was a rapid decline with public and private sector foreign debt rising from 11% of GDP in March 1974 to 95% of GDP by June 1984.
Following the July 1984 change of government, New Zealand embarked on a range of economic reforms which Henderson (1995), an experienced OECD observer, has called "one of the most notable episodes of liberalisation that history has to offer". These reforms included radical financial market reform, privatisation and deregulation of industry, liberalisation of international trade, reform of public finance and deregulation of the labour markets. While other nations have undertaken some of these measures Henderson (1996) expressed the view that one of the very distinctive features of the New Zealand reforms was its attempt to redefine and limit the role of the public sector, of which the RNZN was a part.
The nature and pace of these reforms has varied since 1984. While the initial enthusiasm of the Labour government was high, political impetuous began to fade after the global equity market shock of October 1987. A new National government was elected in 1990 that continued the change with renewed zeal. When this new government came to power it found that it was in the middle of a deep recession, being faced with high unemployment and a deteriorating economic and fiscal situation. Contrary to the advice of a number of economists it immediately cut government expenditure. Evans et al (1996), make the interesting observation that in hindsight it was from about June 1991 that the economic tide began to turn and real GDP and employment growth commenced.
These economic reforms have resulted in the following key changes being implemented in the public sector.
The specific application of these public sector reforms to government's hydrographic operations are described In Section 4. Before advancing to these, however, it is first necessary to give a brief overview of their history.3. AN HISTORICAL VIEW OF HYDROGRAPHY IN NEW ZEALAND
The Royal Navy using a 722-ton wooden paddle steamer, the HMS Acheron, commenced the first major hydrographic survey of New Zealand in 1848. Over the next seven years there was a concerted effort to survey this new British colony. While various other surveys were taken over the following century, none matched the intensity of effort and the productivity of those early years. Indeed, it was not until October 1949, that the Royal New Zealand Navy (RNZN) obtained its first survey vessel (an ex Royal Australian Navy frigate), the HMNZS Lachlan. By this time approximately 80% of all available charts were nearly 100 years old.
In 1950, two 22m inshore motor launches were acquired and transferred to the newly established Hydrographic Branch of the RNZN. The HMNZS Lachlan, together with these two inshore vessels, recommenced the re-survey of the coastline first begun in 1937 but subsequently discontinued due to the demands of World War II.
In 1962 a further step in the development of the Hydrographic Branch occurred with the formal appointment of the RNZN Hydrographer. During the 1960s the Hydrographic Office began to build its own cartographic and chart production capability, progressively enlarging this capability over a period of some three decades. By 1988 it had a seagoing survey staff of 11 officers and 36 ratings plus an office staff of 37 civilians (Gillbanks, 1988).
In 1975 the HMNZS Lachlan was paid off and replaced by the HMNZS Monowai, a 3800 tonne former passenger cargo vessel. This vessel, while used for hydrographic surveys was clearly seen to have a multi-functional role, being a strategic defense asset for the supply and movement of New Zealand defense forces. It is interesting to note, however, that in 1980 the Monowai was used for commercial purposes when it surveyed the route for the ANZCAN telecommunications cable linking New Zealand, Australia, and certain Pacific Islands to North America (Gillbanks, 1988).
In 1997 the HMNZS Monowai was paid off and a new vessel, the HMNZS Resolution (2262 tonnes weight and 68m length) acquired from the United States Navy.
In his 1988 paper, Gillbanks, the then Hydrographer, provided the following four reasons for the Navy undertaking Hydrographic surveying in New Zealand:
4. MILESTONES IN THE IMPLEMENTATION OF CHANGE
Two Government reviews the Porritt Report1, and the Heath Review2; together with the Amendment to the Survey Act 1996, provide a framework of events for investigating what has happened to hydrography in New Zealand. The Porritt Report (1993) was a report to the State Sector Committee, and was, as its full title suggests, a review of New Zealand's research vessel needs. In the eleven point Terms of Reference for the Porritt Report no mention of hydrography was made. However, of several vessels considered, three were not proper research vessels at all, but dedicated hydrographic surveying vessels. The reform spotlight thus came to land, almost by accident, on hydrography3. The main recommendation of the Porritt Report, that a National Research Vessel Crown Entity be formed for the coordination of the various research vessel operations, was never acted upon by Cabinet4. Instead, Cabinet focused on the peripheral, and quite contentious recommendation that, hydrographic surveying "...should be moved to the Department of Survey and Land Information [DoSLI]".5
Not all of the recommendations of the Porritt Report were as contentious as that of the transfer of the full function of hydrography to DoSLI. It is important to note that the committee was unanimous about three points:
The Porritt Report was completed by September 1993 and acted upon by Cabinet in June 1994, when it appointed Dr. Ron Heath of the University of Otago in November 1994 to make a further study. Heath's report entitled Review of New Zealand Hydrographic Services was completed by March 1995.
The Terms of Reference for the Heath Review imposed a character of liberal ideology on its outcome that presented problems for Heath. For example, Heath was tasked with determining whether there was case for a statutory office for the Hydrographer at the same time as considering whether it was possible to turn the Hydrographic Office into a commercial business unit. This problem was overcome by allowing that an organization instead of an individual might have the necessary statutory responsibility for hydrography. In the absence of a clearly qualified individual (the Hydrographer of the Navy, as leader of a business unit, would not be acceptable), a group of closely related professionals might reasonably answer the requirement. Heath suggested the Maritime Safety Authority backed up by an Interdepartmental Committee on Hydrographic Policy as a possible choice.
In the context of the unanimous agreements stemming from the Porritt Report and noted above, the Heath Review also looked for "...a guarantee of long-term provision of an expertise base."9 According to Heath, whatever organization became tasked with the statutory responsibility for hydrography, would also be involved in "... the production of hydrographic information."10 Both Porritt and Heath identified that the maintenance of core expertise within Government is one of the most important issues for the future of the country's hydrography.
The Heath Review was completed in March 1995. At this same time, the Government conducted a major review of the Department of Survey and Land Information that was performed by the firm of Ernst and Young. This latest review provided the background for the separation of policy and regulatory functions from core service delivery within the Government's surveying and land information establishment. In April 1996 the Government gave reading to a Bill in Parliament that would split DoSLI into LINZ, and the State Owned Enterprise, Terralink. One of the functions and duties of the Surveyor-General (employed by LINZ) under the new Bill was "To advise the Minister on surveying, mapping, and related matters, including the purchase by the Government of hydrographic and bathymetric services".11 In future LINZ would rely on its statutory authority to purchase hydrographic information, and purchase also the expertise to understand that information.5. DISCUSSION OF THE ISSUES
It is important to note at the outset that the changes described in Sections 2 and 4 have been contentious. Indeed, there are many in New Zealand who have become very cynical of the premises upon which the economic reforms themselves have been founded. To such observers it has appeared that a dogmatic implementation of economic ideology has often overshadowed decision-making processes and that well founded arguments as to alternative forms and processes have been cast aside in favour of a rigid application of economic dogma.
The political and economic situation that has occasioned the upheaval in hydrography in New Zealand is not unique. Proponents of reform have often signaled their adherence to global realities and found common cause with reforms in other western countries. NOAA faced a demand in Congress to allow private enterprise a share of the national hydrographic pie. In Canada major cuts in Government spending meant changes to the way in which the CHS operated. However, both NOAA and the CHS have a legislated mandate to perform their surveying and charting duties. The protection that this legislation offers to hydrographic institutions is absent in New Zealand.
Bearing these matters in mind, we now turn our attention to the issues at the heart of the restructuring process.5.1 FINANCIAL TRANSPARENCY.
It is clear from both the Heath and Porritt Reports that there were very real difficulties both in quantifying the existing hydrographic outputs (i.e., services and products provided) and in determining the cost of those outputs. The HMNZS Monowai, for example, which had a ship's complement in the order of 122 persons also had a dual defense role as a general-purpose supply and logistics support vessel. Furthermore, the RNZN Hydrographer not only had a responsibility for providing charts, but also for providing hydrographic information for defense purposes. Clearly the separation of these tasks and the factoring in of the general-purpose capabilities of the Monowai in some financially transparent way was not easy to achieve. As noted in Section 2, the achievement of such transparency lay at the heart of the broader reform process exercised by government.
This difficulty with transparency can be seen in that Heath (1995) estimated the RNZN's annual cost of hydrography to be $NZ 17.3 M, inclusive of the Monowai's contingent military capability but exclusive of corporate overheads. He then attempted to estimate the additional military capability, assigning them a figure of $5M. He was, however, unable to provide any estimate for the corporate overheads..
Under the new structure, financial transparency is achieved by the use of contract procedures. The hydrographic surveying and charting operations are to be undertaken by either the Hydrographic Branch as a separate business unit within the RNZN or by private sector contractors. The funder/provider split (another key tenant of the economic reform process) has been achieved by giving LINZ the responsibility for New Zealand's hydrography and using it as the contract funder and policy advisor.5.2 THE INFLUENCE OF COMPETITIVE PRESSURES.
Heath believed that the existing (single-provider) environment did not provide an appropriate level of motivation in order for the RNZN to "continually refine their operations in order to succeed" and thus potential efficiency gains were not being realised. He also concluded that the Monowai was under-utilised (thus linking back to the issues discussed in the Porritt Report). Accordingly, he recommended that a competitive business environment be introduced. From discussion and personal communication, it seems clear that problems existed due to the inflexibility of the RNZN in their use of equipment and personnel. Some would suggest, however, that arguments pertaining to motivation and efficiency were ideologically driven rather than empirically based judgements. Even in organizations where market style efficiencies had been introduced the ideology continued to be rigidly imposed. DoSLI, for example, (government's surveying and mapping agency) had been exposed to a competitive environment some years earlier and, over a period of time, had responded well to the challenge. Despite its success in this environment, it still came under the knife of reform, primarily issue of financial transparency, i.e., it didn't satisfy the enforced doctrine of funder/provider split.
Overall productivity and quality of hydrographic services have yet to be fully tested under the new arrangements. At the present time LINZ has retained $18M for the support of all hydrographic services and hopes that the new contractual environment will enable it to achieve greater efficiencies, as has been its experience with its topographic mapping contracts. However, the harbouring, updating and compilation of data that characterises nautical chart production may be seriously challenged by the fragmentation of responsibilities and expertise that the new arrangement has created.5.3 MAINTENANCE OF A CORE EXPERTISE WITHIN GOVERNMENT
While the Porritt and Heath reports both identified this as one of the most important issues in any reorganisation, it is the one to which the least attention seems to have been given. When the hydrographic responsibilities were passed to LINZ, it lacked any such expertise. In order to overcome this problem, LINZ has created a limited number of new hydrographic positions and filled them with former RNZN personnel. The aim has been one of providing a sufficient body of knowledge within LINZ such that it can knowledgeably let contracts for hydrographic services.
It is here, however, that New Zealand appears to be exposed to risk. LINZ, as a contracting/policy advice agency only, has no internal capability to either build or train its own expertise. Indeed, it does not see this as one of its functions. It is thus entirely reliant upon being able to purchase those skills, as and when needed. In this context it is important to recognise that traditionally the only source of blue-water hydrographic surveying expertise has been the RNZN who in turn have developed an associated knowledge of the wider marine environment and the formal links with the IHO. If, for example, the RNZN were to forgo any further commercial hydrographic surveying activities in favour of focusing on defense activities only, then it is entirely conceivable that New Zealand could be left without the very pool of government expertise that is needed. It is interesting that Prahl (1998) identifies this as a critical issue for NOAA. He notes that the US government's response to its hydrographic needs has been one of deliberately retaining expertise and a "core responsive capability" within NOAA whilst also forming contracting partnerships with the private sector. These partnerships extend to the implementation of the Cooperative Research and Development Act that allow NOAA to enter into product development partnerships with the private sector. Because of the purity of the funder/provider split that is part of the New Zealand economic framework, it is unlikely that LINZ could form any such partnership.
It is also interesting that Prahl (1998) notes that any inability for NOAA to purchase its own state-of-the art hydrographic technology would ultimately eliminate its own in-house expertise and thus its ability to oversee and quality-assure contract surveys. This in turn would require NOAA contractors to accept full liability for their data at a cost "considerably greater than the survey contract itself". In the New Zealand context, while LINZ anticipates contracting out the QA responsibility it has accepted that after a period of time (presently up to five years) the responsibility for liability of a chart will still rest with itself rather than with the contractor.6. CONCLUSIONS
Since 1984 New Zealand has been set on an entirely new economic path. While few would argue that economic change was not needed in New Zealand, there is mounting concern within the country that the dogma itself, if applied universally, is fatally flawed. There is reasonable evidence to suggest that changes were needed to hydrography in New Zealand. The question must be asked, however, as to whether or not other structures could be devised that would take into account the substance of the reviews and take advantage of the existing structures. One possibility, for example, would be to bring the Hydrographic Office of the Navy, together with its productive capacity and expertise, under the umbrella of LINZ. The Hydrographic Office could, however, retain its name and continued to be directed by the Hydrographer of the Navy, albeit in a newly created statutory position. By this scheme the Government would continue to produce nautical charts and maintain core expertise. Under this scenario, certain field surveying duties of the Navy would continue according to a guaranteed funding scheme that would also allow for a degree of contracting out where this would provide efficiencies. The acceptance of such a solution, however, would require a willingness by government to accept an outcome that runs contrary to an economic doctrine (funder/provider separation) that it has thus far deemed to be unacceptable.
It must be conceded, however, that the changes to hydrography described in this paper have been recent and that as yet there has been insufficient time for any reasonable analysis of their outcomes. While financial transparency and efficiency should be able to assessed relatively quickly, deeper issues such as the retention of core expertise will require a much longer period of assessment. Will government deem it important to create a statutory position as Hydrographer and if so, where? Will LINZ be able to competently perform its role if its advisory staff become more and more remote from state-of–the-art hydrographic technology? These and other questions have yet to be answered.7. REFERENCES
Evans, Lewis; Grimes, Arthur; Wilkinson, Bruce and Teece, David, 1996. "Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency", Journal of Economic Literature, Vol. XXXIV, pp.1856-1902.
Friedman, Milton, 1968. "The Role of Monetary Policy", American Economic Review, Vol. 58, pp.1-17.
Gillbanks, R. J., 1988. "The Contribution of the Naval Hydrographic Surveyor". Proceedings of the FIG Permanent Committee Meeting and the NZIS Centenary Conference, Wellington, New Zealand.
Heath, Ron, 1995. "Review of New Zealand Hydrographic Services". Henderson, David, 1995. "The Revival of Economic Liberalism: Australia in an International Perspective", Australian Economic Review, Vol. 109, pp.59-85.
Henderson, David, 1996. "Economic Reform: New Zealand in an International Perspective", New Zealand Business Roundtable.
Phelps, Edmund, 1967. "Phillips Curves, Expectations, of Inflation and Optimal Unemployment Over Time, Economica, Vol.34, pp.254-281.
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Prahl, Nicholas, A., 1998. "NOAA'S Future", Hydro International, Vol.2, No.7.
1 Porritt, W, Our Oceans:
A Wealth of Opportunities Research Vessel Needs for the 21st Century,
Report of the Marine Research Vessel Needs Review Committee to The Cabinet
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