Investing in investment

This week the Government will invite us to think in two different ways about investment.

One invitation is implicit and the other explicit.

The implicit one will come late in the week from Simon Power and other social services ministers on the "drivers of crime".

Mr Power's main focus has been to be tough on crime, increase police powers and take victims' side.

While American states have been trying to cut prison numbers to save cash, John Key's cabinet has been determined to put more in prisons.

There is another side.

In April, Mr Power called a "drivers of crime" conference which heard research evidence that a bad early start in life correlates closely with later criminal behaviour.

Investing in reducing the number of bad starts eventually pays a double dividend of adults who are economically productive and who need less health care and other help and don't do crime and expensive time in prison.

Also, heavier investment in those who do get to prison can get a positive return from some.

This week's announcement will pull together work by departments and service providers to limit damage in four "key areas": ante-natal, maternity and early parenthood shortcomings; children's behavioural problems; family violence; and harm caused by alcohol.

That work must be done within existing spending baselines, so must seek out innovative ideas and organisations.

Paula Bennett, for example, last week signed up an Auckland charity for a three-month pilot of intensive work with families where there has been a violent incident.

They must stay within existing baselines because Bill English will restate in his half-yearly economic and fiscal update tomorrow that the Government must spend less of the GDP.

There are two ways to do that: cut some activities, which some departments have been doing; and get more cost-effective delivery, through innovation and devolution.

The word "effective" is important: many non-government organisations which might cost taxpayers less lack the capability to do it well.

The risk in too-hasty devolution is that in effect the Government might disinvest, with an eventual negative return.

So Mr Power and Mr English are implicitly inviting us into an investment framework for thinking about social services.

On Wednesday, we will be explicitly invited to think about investment when the capital markets development taskforce headed by investment banker Rob Cameron reports.

This, coupled with the tax working group's report, will give Mr Key and Mr English much to chew over in January.

The importance to everyday New Zealanders of Mr Cameron's rather dry work is that if capital markets are thin or don't work well, that limits investment in businesses and we get richer more slowly - and, as a result, we can expect to wave goodbye to more economic refugees headed to Australia.

Some of the taskforce's recommendations have seeped out.

A media interview with Mr Cameron last month foreshadowed law changes to prevent financial advisers taking commissions and require them to act in the best interests of clients.

Other seepages from the taskforce have been encouraging ministers to firm their intention to sell minority shares in state enterprises in floats to mum-and-dad investors after 2011.

Before then, we are likely to see some significant outside investment in one state-owned enterprise's subsidiaries as a way of expanding the business - a device used a little under the no-sell Labour-led government.

Minority shareholdings in state companies (and other entities, including iwi enterprises) would thicken the Stock Exchange, which is thin on banking, utilities and infrastructure and agricultural stocks.

Having more options might invite wary investors back in.

Trust is as thin as the market.

Houses are safer, so New Zealanders think, with cause. But houses don't make new ideas and higher wages.

Nor does a tax mix which pushes investors into houses.

The Reserve Bank tellingly worried last week about perverse tax incentives.

Mr Cameron was on the tax working group, which said the system is broken.

The taskforce's brief went wide: disclosure documents, property rights, financial literacy, risk capital, the low new-company birthrate, funds management, regulation and scale, plus opportunities for funds to domicile here in unregulated markets, around agriculture and in niche expertise.

The Government is likely to pick up most recommendations because the taskforce tested its thinking widely, including with officials and ministers, and as a result developed a broad consensus founded on give-and-take - an exemplary policymaking process.

Will that make a difference? For 20 years this has been a grasshopper economy, a make-believe eternal summer of binge-borrowing.

Investment is a foreign notion here. Making investment respectable in their different fields is one of Mr Power's and Mr English's biggest tasks.

Colin James is a leading social and political commentator.