Corruption by design: How the regulatory self-funding model is destroying the integrity of New Zealand industry

In the past I have criticised the state broadcaster, Radio New Zealand National, now RNZ National, for its unquestioning support of the secular liberal doctrines which have become the de facto ideology of the New Zealand state.  In that I may have been a little unfair.  What else could one expect from RNZ, if not to propagate an ideology which is received wisdom for nine out of ten politicians, business people, media commentators and academics, and beyond them the great mass of the middle classes?   But good things do happen in RNZ.  Occasionally the organisation, or more properly some individual within the organisation, breaks out of the straitjacket to challenge the dogmas of state.   One recent story from RNZ reporter Phil Pennington which reflects credit on the broadcaster is the revelation of sub-standard reinforcing mesh being distributed by Steel and Tube Ltd under false documentation.

This is an important story in itself, because substandard mesh opens the prospect of more death-traps like the CTV in Christchurch which collapsed in the February 2010 earthquake killing scores of occupants.   But behind the Steel and Tube scandal is a much wider scandal of shoddy engineering standards which endanger people in all walks of life - while they are attending a stadium event, travelling on the roads, working in an oil refinery or on building site, travelling on an inter-island ferry or doing virtually anything which brings them into contact with modern industrial technologies.

Government has determined that safety and quality standards shall be maintained by private organisations, which it has empowered to maintain standards, while providing them with no funding.   These organisations are to be "self-funded".  That is to say, the regulators are funded by the firms which they are expected to regulate, but they have no power to levy.   Instead they rely on the essemtially voluntary payments from the organisations that they are meant to be regulating.  This is equivalent to the government closing down the police force, appointing a private company to combat crime, and directing that funding should come from  public contributions.   In theory it sounds fine.   In reality people will only pay up if they see a direct personal advantage to themselves, and the criminal fraternity which is not slow to link means to ends,  would quickly establish itself as the prime donor.   Thus a "self-funded" police force inexorably and inevitably becomes a corrupt police force.   This is what has happened in the New Zealand engineering industry, and the government has done nothing about it except go to extraordinary lengths to cover up the resulting scandals.   In this respect, the revelations from RNZ, alone among the mass media, is evidence of a refreshing integrity amongst at least some of its reporters.

The "non-destructive testing" industry

For me the story began in 2014 when I was working on a maintenance shutdown at the Marsden Point oil refinery. I discovered that the equipment and materials I had been supplied with by the employer to detect defects in the plant did not even come close to meeting the minimum quality standards prescribed international engineering standards.  As a result, defects did not become apparent upon routine inspection.  My expressions of concern were at first ignored.   When I asked the senior site supervisor how the site passed IANZ compliance audits when equipment failed to comply with minimum international performance standards. (IANZ is International Accreditation New Zealand, the "self-funding" QUANGO responsible for ensuring compliance with international standards), the supervisor's reply was "We take them out to dinner".

When a steel chain suspension bridge collapses, a propeller falls off the shaft of an inter-island ferry, or a stadium collapses under a weight of snow, people are apt to say that it was a freak event, unfortunate, potentially tragic, but unpredictable.   The last of which is not correct.   For over a century, a collection of techniques known as "non-destructive testing" has enabled engineers to accurately predict the failure of particular engineering components and structures, and thereby intervene to avert failure before it occurs.   Never-the-less, around the world predictable and avoidable structural failures do occur.   Buildings collapse, vehicles experience mechanical failure, and occasionally aircraft crash due to structural or mechanical failure.   Such avoidable failures tend to occur more frequently in unregulated or corrupt societies than in societies with high levels of professional responsibility, ethics and governmental regulation.   So why is it that they appear to be happening more often in a country like New Zealand?

NDT personnel certification

On looking into it I found that not only was IANZ "self-funded" but so was the Certification Board for Inspection Personnel (CBIP) and the Joint Accreditation Scheme Australia and New Zealand (JAS-ANZ) which is meant to regulate CBIP.    Despite its name, which suggests some official standing, CBIP is actually an incorporated society funded by companies like the multi-national NDT company which employed me at Marsden Point.  CBIP in turn funds JAS-ANZ.   IANZ is also funded by the NDT companies which it purports to regulate.   JAS-ANZ regulates CBIP and CBIP regulates the NDT technicians who are employed by the NDT companies.  The whole system is theoretically voluntary, although in practice it is impractical for companies to operate in the industry without the approval of IANZ and difficult for technicians to practice without the approval of CBIP, because IANZ colludes with CBIP to ensure that only CBIP qualifications will be accepted by IANZ accredited companies, except where those companies are foreign companies operating in New Zealand and employing foreign personnel..

About 2010 CBIP was effectively taken over by a small group of companies (including the company which employed me at Marsden Point) which set out to tighten their grip on the industry by a series of measures which constituted a serious abuse of power.   Their first action was to impose an "Annual License to Practice" in the NDT profession.  CBIP did this without any statutory authority, and thus usurped the right of parliament (the right to issue a license, whether to drive a car, catch a fish, own  a firearm, practice medicine or law have all been authorised by parliament but the "License to Practice" in the field of NDT has simply been taken by CBIP without any legislative authority).  Members who did not accept the legality of the License to Practice were expelled from the organisation, and in some cases driven out of the industry.  The actual business of CBIP, as its name implies, is to issue certificates of competence based on domestic or international standards.  Until 2010, CBIP stuck to international standards, but from that time it began to depart from international standards, and corrupt practices began to creep into its qualification and certification procedures.   The manner in which individuals were qualified became increasingly arbitrary, CBIP gave itself wide discretion to renew qualifications without going through the mandatory practical tests of competence, smaller firms (mainly New Zealand owned) were seriously disadvantaged and self-employed contract workers who had previously provided labour for major industrial "shuts" were virtually shut out.

RNZ reported in relation to the Steel and Tube reinforcing mesh scandal that Australasian Certification Authority for Reinforcing and Structural Steels (ACRS) New Zealand head Stephen Hicks said it was the "wild west" in New Zealand.  That is also an apt term to describe the attitude towards standards in CBIP, IANZ and JAS-ANZ.   What it comes down to is a complete breakdown in personal integrity and professional standards that bodes ill for the New Zealand engineering industry.  International standards are flaunted on paper and flouted in practice, with a nod and a wink from government and the judiciary.   JAS-ANZ, entrusted with enforcing standards, has argued (incorrectly I would argue) that standards have no standing in New Zealand law and that if they are breached that is a matter which does not demand a response from JAS-ANZ itself.  This is a most extraordinary dereliction of duty by a body appointed by government to oversee compliance to domestic and international standards.

Genesis Energy and the Certification Board for Inspection Personnel

CBIP's relationship with Genesis Energy is an example of the risks posed in the "wild west" unregulated industrial environment.   Genesis set up a training school for NDT technicians and aimed to become the sole training provider in this country.   CBIP, which was the examination body that issued certificates of competence in NDT, supported Genesis Energy, believing that a single training provider would be to the advantage of CBIP.   It then decided to provide all its examination test pieces to Genesis Energy for "safe keeping", effectively ensuring that Genesis Energy would know exactly what examination pieces would be presented to its trainees when they were examined by CBIP.   Genesis Energy staff went over the test pieces with the proverbial "fine toothed comb" and from that time their status as the "preferred training provider" was assured.   Since Genesis Energy trainers, and only Genesis Energy trainers, knew what would be in the CBIP "examination paper" trainees and their employers generally would not look past Genesis Energy as their chosen training organisation.   Two companies that did seek to continue with existing training providers were told by CBIP that there would be difficulties in gaining certification if they did not switch to Genesis Energy for their staff training.

JAS-ANZ, who are meant to regulate CBIP, but who are also funded by CBIP, received a formal complaint over the disposition of the CBIP examination test pieces to Genesis Energy, to which they replied (nine months later) that there was nothing wrong with the CBIP examination pieces being lodged with the Genesis Energy training provider but that the pieces should in future be kept in a locked cabinet to restrict access.  If there was nothing wrong in the transfer of the examination pieces to Genesis Energy, what need for a locked cabinet?   If there was something wrong, a locked cabinet would be a case of locking the stable door after the horse had bolted, that is after Genesis Energy had been given time to pore over detail of the examination pieces, and there clearly was something very wrong.   But because JAS-ANZ cannot afford to offend CBIP, it cannot allow itself to state the obvious.

Corruption by design

Corruption has a corrosive effect on industry and New Zealand society as a whole.  People who do not meet the international standards of competence are being granted CBIP certificates of competence, and others who are competent are being refused certification.  The process has been perverted to serve the business interests of certain transnational companies.  Sub-standard imported steel products are being imported and distributed under false documents which suggest that they have been tested and shown to be compliant.  Steel and Tube has a long history of importing and selling non-compliant steel products in New Zealand under cover of fake documentation, and thus corruption has been imported into New Zealand along with steel mesh and pipe.  But they have never been called to account by the authorities, and as a result New Zealanders have accepted and gone on to embrace corruption.  They have taken corruption to heart, and have made it their own way of doing business.   Meanwhile, government and the judiciary turn a blind eye, justified on the grounds that New Zealand has put in place a system under which the rules are policed by "self-funding" and quasi-autonomous organisations.  This "self-funding" system inevitably leads to creeping, or indeed galloping, corruption.   It is corruption by design.

There are many good people in the NDT industry doing good work, but the effects of corruption are insidious.   Where there is no independent regulation or oversight, the honest and competent workers are easily driven out by the more corrupt elements in an industry.  Corruption is progressing across secondary industry, agriculture, tourism and forestry, and once entrenched it is exceedingly difficult to displace.

Privatisation of corruption

The fourth Labour government used state service corruption as one of the pretexts for privatising state assets and functions.  But all it did was privatise corruption along with the assets.  "Self-funding" quasi-autonomous organisations were set up to undertake regulatory functions.  It is difficult to track the line of accountability for these organisations.  In most cases they are not subject to any form of Ministerial responsibility.   Often it is hard to fathom just what kind of legal entity they are.  Often they are not government departments, state owned enterprises, incorporated societies, or limited companies.  Usually they go by names such as JAS-ANZ or IANZ which are meaningless in themselves but can be decoded into descriptive names ("Joint Accreditation System Australia and New Zealand" and "International Accreditation New Zealand" respectively) which say something about their function, but nothing about their legal status or public accountability.   The names are most frequently rounded off with the final tag "NZ" or "New Zealand" - for example "Worksafe New Zealand" which replaced the Department of Labour, or Radio New Zealand (formerly the New Zealand Broadcasting Corporation) and of course there is Television New Zealand, Sport New Zealand, Air New Zealand, and a host of others beside.

It is not hard to see why governments want to remove any reference to departments, councils, boards and so on which give a clear and immediate understanding of legal status and lines of responsibility.  The enthusiasm for appending "New Zealand" to the name of every quango which has taken over the affairs of government is to confer the status of government and the odour of nationalism without the negative connotations that attach themselves to the actual organs of government.   And it works.  People may criticise Worksafe New Zealand or Air New Zealand but not as frequently or as savagely as they might have criticised the Department of Labour or the National Airways Corporation.   In the national subconscious, criticism of "International Accreditation New Zealand" seems to be equivalent to criticism of New Zealand, and that is the intention.

The "carbon trading" scheme

Carbon trading schemes came about in response to the problem of global climate change (global warming) caused by increasing levels of carbon dioxide gas ("carbon") in the earth's atmosphere, itself caused by large scale burning of fossil fuels such as coal and petroleum, and deforestation, all of which produce large volumes of atmospheric carbon dioxide.   The obvious solution to the  problem is to stop burning coal and oil, and to re-forest a significant area of the earth.

The way to do that, however, became a matter of dispute.  As well as a global physical climate, there is a global ideological climate, which also takes different, and more or less extreme forms, in different parts of the world.   New Zealand is characterised by fairly extreme ideological climate in which social and economic  liberalism is a distinctive feature.   New Zealand decided that the way to reduce atmospheric carbon was to effect a transfer of wealth from those who produced goods and in the process  emitted carbon emission  to those who had ceased producing goods and thereby ceased emitting carbon.  This, New Zealand reasoned, would discourage the emission of carbon, and encourage reduction of carbon emissions.   The mechanism for the transfer of wealth was  a system of "carbon credits".   Each state was allowed to create a specified number of carbon credits.  Within each state, those entities which ceased emitting carbon, or actively sequestered carbon, were given credits by their state for each tonne of carbon taken from the atmosphere.   Those who continued to emit carbon, or increased their emissions, were required to buy credits for each tonne of carbon they emitted.  Therefore a market would be established for carbon credits, a market price would be arrived at for each tonne of carbon emitted, and a market solution to the problem of global warming would follow.  However that this was never a free market in the sense that there were "willing buyers" and "willing sellers".  There were many willing sellers of carbon credits, because in most cases they required no labour or capital to produce, but there were no willing buyers because carbon credits were a cost which did nothing to assist the process of production.  To buyers they were more akin to a tax or levy paid to the those who had stopped emitting,  than to a market good.

The carbon trading scheme was therefore very similar to the cases described above, in which the New Zealand government having set up systems which put one group of private actors in the market at the whim or mercy of another group, simply walked away from responsibility for the problem and its ostensible solution.   As in the previous cases, however, New Zealand followed particular policies that were out of step with the developed world, and which resulted in entirely predictable abuse and corruption.  The suppliers of carbon credits were quick to exploit their privileged position, and just as quick to set up fraudulent systems of certification.  The buyers of carbon credits responded pragmatically.  Realising that the system was wholly corrupt, they simply accepted that fact and went along with it in whatever way best served their particular interests.   The same pattern that we have seen in NDT certification, and in the structural steel market, is also evident in the working of the carbon trading scheme.

The carbon trading scheme fits the pattern of "corruption by design" which has become a feature of the New Zealand way of doing things over recent decades.  It purports to be a "free market" solution when it is really nothing of the kind.  It actuality it assigns the privileges, powers and responsibilities of government to corrupt private parties.   The  scheme was put in place by a government which knew that it would result in fraudulent and therefore cheap credits being imported from places like Ukraine and Russia to "satisfy" the Kyoto treaty obligation of New Zealand industry to offset its carbon emissions.  Government set the scheme in place and then walked away from it, accepting no responsibility for the outcome.

Effectively, government gave New Zealand industry the option of paying East European gangsters $200 million for fake evidence of emissions reduction, or "investing" several times that amount of money  in genuine New Zealand plantation forest projects.

To be fair, the second option, of "investing" in New Zealand forestry was less than ideal.   For a while there, many New Zealand landowners saw the carbon trading scheme as a lazy way to wealth.   While sitting in easy chairs drinking gin and tonics they watched abandoned hill country pasture reverting to bush and totted up the carbon credits coming their way at $25 a tonne.   There is something wrong with that picture.   The state should not be able to require hard-working productive industries to handsomely reward lazy landowners for doing nothing, but neither should it allow or require industry to pay $1 per fictional tonne to Ukrainian gangsters who fraudulently lay claim to environmental good works.

New Zealand industry by and large chose the European gangster option.   This came as no surprise to the New Zealand government, to industry, and even to the bulk of the general public.  It is what most of us, certainly all those who consider themselves to be financially rational people, would have done.  The system was designed to allow a corrupt outcome and that is exactly what we got from it.

Failure of accountability

While I am handing out kudos to RNZ, its Insight programme ran an investigation into the failures of air accident investigations in New Zealand which showed that the processes do not comply with international standards, and almost invariably come to the conclusion that "no one is to blame" for this country's appalling record of air accidents.  It is the story of the Erebus disaster,  the sinking of the Mikhail Lermontov, the Cave Creek disaster, the Pike River mine disaster, the CTV building collapse,and hundreds of other accidents in the air, on land or on sea some of which could have caused massive loss of life if they had occurred on a different day or at a different time.

From the head of state down to the lowliest bureaucrat, everyone in authority is deemed to be immune from responsibility.  This is not coincidence.  It arises from an ideological conviction at the political level that government intervention and regulation is unnecessary, and that the market will regulate everything.   "Accidents" may and will happen, but they will be self-correcting.  Workers will stop going down mines that explode, tourists will stop flying on aircraft that crash into glaciers, adventurers will stop riding in hot air balloons dropped onto powerlines by drug-befuddled pilots, trampers will stop using bridges or observation platforms which collapse underneath them and children will stop attending schools with exploding steam boilers.  That is true only in the most banal sense of the argument.   In actuality the modern industrial world is too complex for ordinary people to make their own decisions about what is or is not safe.  We need to have standards, we need a measure of regulation, and most of all we need an end to "corruption by design" - the so-called "self-funding" entities which have been set up to ostensibly monitor industrial standards.  We cannot afford to retain a system in which everyone gets taken out to dinner and nobody does their job.

What is corruption?

Most New Zealanders believe that to be corrupt is to engage in some kind of illegal activity.  For instance they might consider an Immigration official taking money from a person in return for granting them a privileged immigration status to be an example of a corrupt act, because it would be a clear breach of duty and the law.

But that suggests a very narrow definition of corruption, so narrow in fact that it entirely mis-represents the true meaning of the word.  The real meaning is "depraved, infected with evil, perverted; turned from a sound into an unsound condition; pervert the text or sense of a law for evil ends".   This is the meaning of the word as understood by the world beyond New Zealand.  It is quite distinct from criminality. Battalions of lawyers and accountants, advertising executives, management consultants, public relations experts, publishers and broadcasters all thoroughly law-abiding men and women, are constantly engaged in "perverting the text or sense of a law for evil ends", pushing the boundaries of money laundering, pornography or drug laws, and tax regulations.   They work to the limits of the law to advance their own material self-interests and the political and financial interests of those who they serve.

The narrow meaning attributed to the word "corrupt" in New Zealand may help to explain why New Zealand ranks as one of the less corrupt nations in the "index of international corruption" produced by Transparency International which is based on popular perceptions of levels of corruption within each country surveyed.  It may suit the purposes of a corrupt society to equate "corrupt" with "illegal" but it is a travesty of meaning.

In New Zealand, anything that is not illegal is deemed to be honourable.   To the New Zealand mind, prostitution, the tobacco and "legal high" trade and loan sharking are all honourable occupations.  Once the sale of marijuana is legalised, it will also become an honourable trade for honourable men.  To struggling dairy farmers it will be seen as a source of salvation.  Yet the cannabis industry the day after legalisation will be no less destructive of human life than it was the day before.  It will be no less "depraved, infected with evil, perverted; turned from a sound into an unsound condition...".  It will have established a place for itself among the among the most respected ranks of New Zealand of society, both as producers and consumers, but it will be not a whit less evil.

It follows that the law can never provide a solution to the problem of corruption.  Most commonly the law in New Zealand is used to legalise practices that would, in any other society, be deemed corrupt.  As a society, New Zealand lacks understanding of the real nature of evil.   It equates "evil" with "illegal", and as the boundaries of what is legal are constantly shifting, so is the perception of evil.

The law does not and cannot define evil. It can only be used to proscribe and punish actions which society has deemed to be evil

The seed of "the knowledge of good and evil" has been planted deep within the human psyche.  In the normal course it will spring to life in the infant, but its growth must be shaped and nurtured by those who support the child's physical existence - first its parents, grandparents and other whanau, then the church, and finally the education system.  But in this secular age the church has become moribund.  It has abdicated the definition of good and evil to the state.   Parents, grandparents and whanau have followed suit.   There is a God-shaped hole at the heart of New Zealand's secular society, and in that void corruption festers.

New Zealand popular culture, like all "new world" cultures is morally ambivalent.  The first European settlers were escaped convicts and whalers. They were followed a couple of decades later by Christian missionaries.  From that time, there has been an ongoing battle between the "larrikin" and the "puritan" element in antipodean society and it is the larrikin "Ned Kelly" side which has won the general favour of poets, novelists and artists.  The puritan has been represented as a hypocrite (which he or she often was, but not so often as the liberals like to imagine) and the larrikin as the rough diamond, the hardcase lovable rogue.  To support this thesis we have the Barry Crumps, the Frank Sargesons, and the James K Baxters.   We don't have a G K Chesterton, a Graham Greene, or a C S Lewis, let alone a Leo Tolstoy.   In our arts we have many anti-heroes, but few if any true heroes.

The New Zealand constitution also conspires with its popular culture to subvert the notion of personal moral responsibility which is fundamental to public and private morality.   Uniquely, in New Zealand and the other nations which operate under the Westminster system, the Head of State has  not been held morally accountable for the actions of state since the nineteenth century, and neither are the state servants, whether in the civil, military or judicial divisions.   Historically, the people responsible for the actions of the state have been the "responsible ministers" of the Crown.

There is something quite arcane about the the doctrine of ministerial responsibility.   A minister would take responsibility for the actions of those under his authority, even if he had not ordered them to so act, and even if he had known nothing of their actions until after the fact.   If those actions were then found to be in any way morally wrong, he would resign his office.   This doctrine now seems at best quaint to many New Zealanders. It implies a  metaphysical relationship between those in command and those under control.   Yet it is also the most natural of things.  Matua accept responsibility for the actions of their tamariki.  Rangitira accept responsibility for the actions of their hapu and iwi.  They do so because they accept that it is their responsibility to instill values in those who look up to them and accept their leadership and protection.   Thus the fault of one who is cloaked with the mana of a parent is the fault of the parent himself or herself, and it is the parent who must atone.

Ministerial responsibility is almost a dead letter today, however.   The reasons are complex.  Firstly, there is a general sense in society that no one is responsible for their own actions, let alone the actions of those under their protection and control.   We are all deemed to be the product of our social and economic circumstances.  Second there is an unwritten and informal doctrine (which flatly contradicts the constitution) that the people are sovereign, and that Ministers of the Crown merely execute the will of the people.  Therefore Ministers, like any other state servants, are mere functionaries.   They are not parents, leaders, keepers or moral exemplars and should not be expected to act as such.  Thus since the beginning of the twentieth century New Zealand has lost the moral leadership of the monarch (by progressive constitutional changes) and the church (by the ideological advance of secularism) and finally the Ministers of the Crown (by gradual change in political convention).

At the same time the adulation of wealth has replaced the glorification of God as the defining characteristic of New Zealand society.   New Zealanders honour wealth and "success".   They do not honour righteousness or piety.   They believe that a little bit of corruption never hurt anyone.    But they are getting a whole lot of corruption, and they will find that it hurts many of them very badly indeed.