Brian Easton questions whether the property rights provisions in the proposed Regulatory Standards Bill make sense

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

Last week I pointed out that it is uninformed to argue that the New Zealand’s apparently poor economic performance can be traced only to poor regulations. Even were there evidence they had some impact, there are other factors. Of course, we should seek to administer effectively a system of high quality regulations. However, the proposed Regulatory Standards Bill will not contribute much to this end. It has another purpose.

As a background, consider the Treaty Principles Bill (TPB). The one before Parliament has a fundamental difference from the one which ACT had in its manifesto. There its proposed second principle was that the government should ‘protect all New Zealanders’ authority over their land and other property’.

In the bill before Parliament that principle has been replaced with:

‘Rights of hapu and iwi Maori — the Crown recognises the rights that hapu and iwi had when they signed the Treaty/te Tiriti. The Crown will respect and protect those rights. Those rights differ from the rights everyone has a reasonable expectation to enjoy only when they are specified in Treaty settlements.’

It is a very different sentiment altogether. The minister gave no explanation for the change when he introduced the bill to Parliament. Obviously there must have been a concern within the legal fraternity about how the bill could upset existing arrangements.

But the change is more than a legal twist. The effect of the manifesto version would have been to strengthen private property rights markedly. The effect of the second sentence in the actual bill before Parliament probably strengthens them but not to the same extent.

We see a similar sentiment in the Regulatory Standards Bill (RSB). (Actually, there is no bill currently before Parliament. It has yet to be drafted. I am quoting from the bill which ACT introduced in 2021, but which was not proceeded with.) 

The principles of responsible regulation are that ... legislation should

•  ‘ ... not take or impair, or authorise the taking or impairment of, property without the consent of the owner unless —

• (i) the taking or impairment is necessary in the public interest; and

• (ii) full compensation for the taking or impairment is provided to the owner; and

• (iii) that compensation is provided, to the extent practicable, by or on behalf of the persons who obtain the benefit of the taking or impairment.’

Those principles substantially strengthen private property rights.

The notion of regulatory ‘takings’ comes from the US. The American libertarian lawyer, Richard Epstein, who developed the idea, said that ‘[i]t will be said that my position invalidates much of the 20th century legislation, and so it does’ and that ‘[m]ost of economic regulation is stupid.... What possible reason is there for regulating wages and hours? If my takings doctrine prevails, you have no minimum-wage laws. That's fine. You’d have an [Occupational Safety and Health Administration] a tenth of the size. That's fine too. You’d have no anti-discrimination laws for privileged employees, which would be a godsend.’ (Epstein was involved with the development of New Zealand’s now repealed Employment Contracts Act.)

While his approach has been described in the US as ‘rolling back the New Deal’, if it was introduced into law today the requirement would merely prevent almost all future change. For instance, had the ACT legislation been in force in 1984 there could have been no Rogernomics, because it expropriated without compensation a lot of private property rights (while creating others).

I don’t think those who developed the 2021 bill have thought through the meaning of property rights. They seem to think of plain old-fashioned property rights similar to those with which Epstein was concerned, colonially adopting his American framework. But, as the TPB implies, property rights in New Zealand are far more complicated.

Iwi and hapu might (or might not) concede that their land was legitimately transferred to others. But they will never concede that their mana whenua rights were transferred. That includes kaitiaki (guardianship) rights over the environment of their rohe. How those rights are exercised is a complicated mix of statute and common law.

Guardianship claims are not unique to Māori. Greenies will campaign on a similar basis for their environmental goals even where they have no direct connection with the land involved. Similarly you may campaign against a proposed building which will block your view.

The Government intends to replace the Resource Management Act with new legislation which will make some changes to property rights. If ACT’s 2021 RSB was law, it couldn’t. It would be hypocritical to pass a revised RMA with the RSB as currently intended pending (although that may not prevent it happening). Even so, ACT could be repeatedly embarrassed by it being insisted that it should vote against any Government legislation  (including the TPB) which infringes its 2021 bill.

Given the backdown over the TPB between its manifesto and parliamentary versions, I am expecting some major revisions to the tabled  RSB. It is possible that the Government version will be a set of sensible rules about how it should approach regulation. In its interim regulatory impact statement the Ministry of Regulation said that while it supports the overall objectives, that legislation was not needed. Its preferred option was to build on, and strengthen, the existing regime based on Labour’s legislation passed in 2019.

What is the real purpose of the proposed statute? Epstein may be the clue. Its aim is to stop government economic intervention altogether, which makes ACT the party of the status quo. Its supporters, having got into wealth and power, want to consolidate it.

There is an argument, set out by the libertarian Robert Nozick, that if you start with a just distribution of property rights, then it remains just following voluntary exchange. I leave the reader to decide whether the current distribution has derived from a just distribution at some ground zero with only voluntary exchanges since. (There are other issues involving complete knowledge and technical change which complicate Nozick’s argument, but let’s settle the initial position issue first.)

The main economic issue is that stable property rights are necessary for good economic development. It is a view held by most (Western) economists, including Daron Acemoglu and Simon Johnson, two of the most radical economists to have been made Nobel Laureates. But most would add caveats.

History has numerous examples where private property rights were over-ruled with development benefits. Most economic historians would accept that Henry VIII’s dissolution of the monasteries wrecked the rights of their inhabitants but laid the foundation for Tudor economic prosperity. Even ACT supporters would add the neoliberal Rogernomics changes to the list of more recent historical examples.

One is left with the conclusion that ACT’s RSB in its 2021 form is muddled. I look forward to someone providing a better explanation.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.