Infrastructure and the Living Standards Framework
Infrastructure is no longer simply bricks and mortar or pipes and roads. The way we think about infrastructure has changed and we now look at it in a much more holistic way – infrastructure is critical to ensuring our living conditions continue to improve and are a key factor in understanding the wellbeing of our communities.
The size and scale of New Zealand’s infrastructure network has grown significantly, both in size and complexity, over the last 50 years. Increasingly, around the country we are discovering that the useful life of our infrastructure is considerably longer than initially thought – with impacts that can potentially span generations instead of decades.
At the end of May, New Zealand Treasury released their much-vaunted Wellbeing Budget, using evidence from their Living Standards Framework. We’ll explain how local government might approach this framework later in this post.
The framework organizes the indicators of intergenerational wellbeing into four capitals:
- Financial and Physical
Treasury believes investment decisions can benefit New Zealand’s wellbeing by taking all four capitals into account and ensuring they work well together. Some decisions and investments won’t tick all the boxes, and nor should they, but if decisionmakers aim to ensure the four capitals are balanced they will be heading in the right direction.
Notably, the Local Government Act was updated in May and amended to include wellbeing as part of the function of local government. This was essentially a reinsertion of the wellbeing requirements for local government, with the express intention ‘to promote the social, economic, environmental, and cultural well-being of communities.’
Furthermore, when looking at Provincial Growth Funding the outcomes are of a similar vein. Applicants are expressly asked to consider ‘both the direct and indirect benefits from their project proposals, and demonstrate the overall value created in both economic and non-economic terms. This can include social, cultural, environmental and community benefits.’ Sound familiar?
However, as with almost all Government guidance – it’s not quite that simple. The current wellbeing framework has great measures for understanding where we stand, but there is insufficient clear guidance around how local government can practically apply the wellbeing capitals and meet their obligations under the Local Government Act.
However, there are a few things we can agree on:
- We need to be thinking long term and at the whole of life impacts of our infrastructure
- We need to be looking beyond the simple financial viability of a project
- Wellbeing is a complex, multifaceted concept – the framework isn’t perfect, but it’s going in the right direction.
How does a local authority first understand and then prioritise investments with a mind to improving the wellbeing of their community?
One option is to use a method called ‘conjoint analysis’ – a survey-based statistical technique used to understand the relative importance and value to stakeholders of attributes (feature, function, benefits) that make up an investment option.
This approach is widely used in market research when designing new products, services or advertising campaigns. The objective of conjoint analysis is to determine what combination of a limited number of attributes is the most influential on the stakeholder’s decision making.
Another approach is known as ‘pairwise comparison’ - this can be used to explore stakeholder preferences by comparing things in pairs to judge which of each is preferred, or has a greater amount of some quantitative property, or whether or not the two things are identical.
Pairwise comparison is commonly used to study scientific preferences, attitudes, and social and public choice.
To apply either of these two principles to infrastructure investment; we would survey the key stakeholders, decision makers, community and iwi to understand how the project options will impact the specific wellbeing of their community and assess their sensitivity to changes (i.e. what options will have the most impact on the wellbeing capitals). The project team can then take this data and use it alongside economic and value-for-money assessment to support an investment decision making process.
What’s important to note here is that every community has different ways of looking at things – what is important to the wellbeing of one community may be insignificant to another. Only through close engagement can we begin to understand what these specific touchpoints are.
Taking an integrated approach can help unravel some of the complexity around how an infrastructure investment impacts community and societal wellbeing. At the same time, it attempts to capture and understand the interrelated decisions and value judgements which make up any decision. It reduces any inherent bias from the project team, decision makers or investors and transparently assesses the impact of the investment on wellbeing.
So, how can local government use Treasury’s framework to help guide their investment decisions?
Regional economics expert, Benje Patterson, believes decisionmakers can use the direction the Treasury has set to help shape their investment choices, ensuring they are speaking the same language as central government.
‘Following the bones of the wellbeing framework will help regional decision-makers sing from the same song sheet as central government. Not a bad thing when accessing money from government departments or applying for funding from the Provincial Growth Fund.’
According to Benje, the bones of this process that are important for regions, when guiding business case development, are:
Show you have worked collaboratively with stakeholders in your area to formulate policies, and that the implementation of your policy will be collaborative.
Your policy focus is long-term so that intergenerational aspects are considered.
Your business case contains an assessment of outcomes against the Treasury’s Living Standards Framework.
You show strongly how your proposal addresses the priority areas that are guiding central government’s Wellbeing Budget process.’
At the end of the day, local government would do well to begin to incorporate Treasury’s thinking into their long-term planning and investment justifications. This is still a relatively new way of looking at and justifying investment decisions, but the direction Treasury has set is largely positive.
Everyone is trying to make the boat go in the right direction - surely it’s positive if we can all enjoy the journey along the way.