Towards a Political Economy Of New Zealand: the Tectonics Of History

The 1994 Hocken Annual Lecture, University of Otago, 6 October, 1994, published by the Hocken Library, 1996.

Keywords: Political Economy & History;


As the first economist to be invited to present a Hocken lecture, I take it my task is to argue that the economy is integral to understanding history. It is a challenge I accept willingly, for in recent years the study of New Zealand history has usually ignored economic forces.

I could elaborate this argument by a careful analysis of some standard historical works, illustrating where they are deficient in their economic analysis, and how that has limited their explanation. Instead I propose to use this occasion to pursue the even more challenging task of offering an economic account of the history of New Zealand.

The approach I shall take is that of political economy which characterizes a society by the way in which the means of production are organized. Time limits detailing the underlying methodology. The task is to illustrate the approach by using it.

I shall use the metaphor of tectonic plates to do this. The geologists’ tectonic – structural – plates are great slabs of geographical mass which shift about – pushing, crushing, and overriding one another. In a similar manner the political economist’s tectonic plates are groupings of means of economic organization, which are in conflict and over time appear and disappear. Just as in geology the clash of the plates generates earth movements which modify the land on which we live, the conflict between the political economy plates also leads to political and social change. The earthquakes we record, in geology – or in politics and sociology – are the visible outcomes of the long term movements of the plates.

Thus the political economic explanation seeks not only an account of the long term shifts of our economic, political, and social life, but also of the revolutionary changes, as in the 1890s, the 1930s, and the 1980s.

My presentation is schematic, setting down a research program, rather than offering the details. But the outcome will be – I hope – a compelling case that New Zealanders, and New Zealand historians, ignore the political economy at the peril of misunderstanding.[1]

The Palaeolithic Economy[2]

The New Zealand economy began about a thousand years ago. Before then there was only ecology. The first arrivals from the Pacific Islands found it to be abundant, with bird life including moa, and sea life including seals. Theirs was a hunting and gathering economy. The palaeolithic political economy had arrived.

The first settlers were few, living near the sea, so we have little record of their activities. It is a reasonable assumption they were unfamiliar with the new ecology, so different from that of the tropical islands from whence they came. They would have been overwhelmed by its plenty, and they probably did not manage their new environment in a sustainable way. But they learned, for their survival depended on it. Thus the palaeolithic economy evolved from a colonizing mode into an indigenous one. Those early settlers developed into the Maori.

The Longest Political Economy: The Neolithic Economy

At some stage, but perhaps 700 years ago as the natural abundance became depleted, the growing of kumera spread throughout much of the land, especially as the technique of its storage became developed. For many Maori their life style was extended from hunting and gathering to include horticulture – from a palaeolithic political economy to a neolithic one.

That does not mean the new tectonic plate completely overrode the old one. Especially in the southern part of the South Island, societies dominated by hunting and gathering continued until after the arrival of the European. But it was the neolithic tectonic plate which greeted the European, and dominated the country. Indeed the classical Maori political economy dominated New Zealand for the longest period – perhaps half of our economic history.

While there is more archaeological evidence for this new political economy, puzzles remain. The quantitative economic historian finds them especially frustrating. However Maori longevity appears to have been about the same as that of Western Europeans in the seventeenth-century, suggests that per capita GDP was similar to that of Europe then.

The shift to cultivate gardens would have changed the social and political structure of those involved. Probably the change was slow, revolutionary in terms of generations rather than years. That does not mean it was imperceptible or unrecorded. When scholars look to the myths and whakapapa they will find memories of the slow upheaval the Maori experienced, as they evolved into classical Maori society.

Fortunately both early European observers and nineteenth-century Maori elders described sufficient of their neolithic political economy for us to have a reasonable qualitative knowledge of how it functioned in its prime. Raymond Firth’s classic Economics of the New Zealand Maori describes a series of independent production agencies based on the hapu or extended family, between which occurred regular (and inter-regional) trade.

The accounts of Firth, and of his predecessors, show that Maori society was holistic and integrated. They did not have a word for “economy” nor for “ecology”, for that involves distinctions almost peculiar to Western thought. Traditional Maori society was not a market economy. There was no money, no prices. Economic exchange and production were regulated by a complex system based on utu, koha, and rahui, which also protected the environment. The classic Maori economy seems to have been largely sustainable.

Post-classical Maori: Responding to the International Market

The arrival of the European introduced trade with an external world, with new products and technologies. International exchange involves using the market, prices, and money. The ease with which the Maori was able to enter into trade with the European appears to be extraordinary. In a short time the Maori became effective international traders providing products: grain, potatoes, timber, flax, fish, meat and skins, and the provisioning of ships.

The external transformation of a society, which had been in a reasonably stable equilibrium for two centuries, must have impacted on the internal functioning of hapu and iwi. As we consider such issues, we might ponder whether post-classical Maori society could have been sustainable, and if so how it might have evolved. Alas it did not. Disease, war, land alienation, and the loss of rangatiratanga meant that by the second half of the nineteenth century the Maori tectonic plate was being pushed aside by – subducted below – the arriving European one.

The most evident retreat was into the King Country, where trade was all but broken off from the European, perhaps limiting the Maori ability to modernize. But elsewhere the Maori also moved to the margins of New Zealand society as the tectonic plates of the European political economies shifted in. On those geographical and economic margins most Maori just survived, until in the second half of the twentieth century, when they began their migration into the cities. The second Maori renaissance commenced soon after in the 1970s. It is an important story, not pursued here for it deserves great space of its own. The distinctive Maori political economy, which had dominated for nine tenths of New Zealand’s human history, was marginalized and almost extinct by the late nineteenth century.

The European Arrival: The Quarry

Today it is conventional to see the nineteenth century as a story of the European settlement of New Zealand involving the subjugation of the Maori. Certainly the settlement occurred. But it was not that simple and it was probably a close run thing, not so much in terms of defeat by the Maori, but in terms of the possibility of sustainable settlement at all.

Indeed the first European political economy was not a settlement one, but that of the quarry. Rather than what the French described as a “colony of permanence”, initially we were a “colony of exploitation”.[3] For the early economic viability depended upon the depletion of natural resources: whales, seals, native timber, kauri gum, and gold and other minerals.[4] It is a world in which the trader comes, exploits, and goes, leaving behind debris and ruin.

We have forgotten how quarrying rather than the sustainable harvesting of resources dominated our political economy for much of the nineteenth century. South Islanders less so -for the traditions of gold mining are strongest there. But as Russell Stone tells us in Makers of Fortune, Auckland business prosperity in the 1870s and 1880s was based on kauri timber and gum, and gold. Brad Patterson suggests the successful merchants of the Wellington settlement were by those who controlled the whaling, using the profits as the springboard for their grip on local commerce.

Why is there so little reference to the political economy of the quarry in modern economic history? Partly because the quarry tectonic plate was later overridden by the settlement plate, except for odd places. The most notable was the West Coast at least until recently, while there was unsustainable regulation of our natural fisheries through to the 1980s. Occasionally the quarry plate breaks through settlement country. Today, the prosperity of Taranaki is based on hydrocarbon reserves which are but finite. In addition, like other rich nations, New Zealand has depended on quarries elsewhere: the phosphate of Nauru and the oil of the Middle East. The instinct to quarry has never quite gone away. Sustainable economic production – as sustainable as elsewhere on Earth – remains an issue.

There are two further reasons for forgetting the first European political economy. One is that there is not a lot to be proud of an unsustainable economic base. But also there was conflict between the quarry and the settlement political economies.

For whatever the settlers’ intentions, they had to solve a critical problem, no less significant today. If a settlement is to be economically sustainable, how are the imports the settlers want and need to be paid for? Ultimately the answer involves providing products and services which can be exchanged overseas for the imports, a veil of money obscuring the underlying transaction. International trade introduces a new sustainability issue: the means of ensuring an adequate flow of foreign exchange.

The initial answer for the settlers was to rely on the quarry, either directly as producers themselves of the depletable, or indirectly by provisioning the quarriers.

There are other unsustainable strategies. Outsiders can lend funds, as they did for Julius Vogel’s “think big” of the 1870s, sustaining the economy as the gold ran out. But overseas debt requires interest payments, ultimately to be paid from exports, for no banker can continually roll over past debt unless there is an ability to service it. Speculation – especially on land as a security – is another temporary device for acquiring overseas funds, but that debt must be eventually serviced.[5] War also creates temporary prosperity, especially when funded by the imperium.

Quarrying itself, provisioning the quarries, borrowing overseas, land speculation, and foreign financed war were all means of supporting the early settlers. But none were sustainable, and neither were the settlements that depended on them.

Because of the settlements, we forget how at first they were in thrall to physical and financial quarriers. Brad Patterson’s account of the first few years of the Wellington Settlement beautifully captures the process. Very quickly the leadership of the struggling colony passed from the prominent citizens who came with the New Zealand Company, to Australian adventurers moving on from their last quarry. Tony Simpson says the critical distinction “is between those people who regard New Zealand as primarily a place to live and those who regard it primarily as a place in which to conduct commercial activities”. Although perhaps not quite what he had in mind, Simpson captures the tensions between settlement and quarry.

For much of the nineteenth century it was the quarriers who dominated. The pretence was a settled society, but politics and society were dominated by loose coalitions whose members made their fortunes and returned to England if they could. At the bottom was the isolated worker portray in Miles Fairburn’s The Ideal Society and Its Enemies and John Martin’s The Forgotten Worker.

The Settlement Political Economy

Even when the quarry dominated there was the possibility of a sustainable European settlement but at a much smaller scale. Its economy would have been based on exports of wool, canned meat, grain, and perhaps supplying fresh food to Australia. To succeed the settlement would have to wrest the land from the Maori, as it did with the support of land speculators. Dependence on imports could be reduced by local industry, but competition from overseas kept wages depressed – recall the Sweating Commission of 1890. Indeed in the 1880s emigration exceeded immigration, a signal that the population was larger than the economy could sustain.

With hindsight we know that the saviour from permanent depression was refrigeration.[6] But suppose such a technology had not been created. Today’s New Zealand would have had a much smaller population, perhaps reminiscent of a slightly larger and slightly more prosperous Falkland Islands. That is what I meant earlier when I said that the success of sustainable settlement in New Zealand was a damned close thing.

Selling meat and dairy products in Britain transformed the political economy into the possibility of a closer settlement based on the independent – if mortgage bound – family farm. It was a political economy which was to dominate New Zealand until the 1960s. Like the Maori tectonic plate, the quarry was almost completely overridden.

The shifting of the plates created a revolution of earthquake proportions. A new dominant political economy means a new political and social structure. The loose political coalitions of the quarry – the old oligarchy of the continuous ministry – were replaced in the 1890s with at first the Liberal Party, and later the Reform Party as its competitor.

The conventional wisdom sees the Liberals as a reaction to the Long Depression, itself a consequence of the ending of the gold boom and the land wars, interrupted only by a bit of speculation. But how come the prosperity? It arose from the expanding pastoral political economy reinforced by rising export prices.

The prosperity enabled the funding, and hence the introducing, of the primal welfare state. When that boom had run its course by about 1905, so had the luck of the Liberals. But while in power they introduced the new institutions which bedded in, and met the needs of, the increasingly dominant pastoral political economy.

There was dramatic social change too. The quarry had been a frontier society, turbulent and barbarous, subject to hard living and hard drinking, however much polite society of the towns tried to disguise it. Drinking became the public symbol of the old social relations, and temperance movement the new one, for there was only a restricted role for liquor in the socially cohesive domesticated family. More recently we celebrated the shift to civilized society by recalling the beginning of women’s electoral franchise, itself related to the temperance campaign.

The quarry does not need to reproduce itself, so the family and children are not integral to its success. Sustainable society requires children, and the role of women gets shifted from what Australian Ann Summers called “damned whores” to “god’s police”, the keepers of civilized society. The cult of domesticity aimed to replace a boisterous society by a more civilized one. As Erik Olssen and Andree Levesque report “the Liberal Government accepted the cult of domesticity and the new moral order. Seddon and other prominent Liberals … stressed the importance of home life, … and debated at length the problems of larrikinism.”

While in many ways this new life was superior to the old, it was also socially repressive. Given a choice between, say, Charles Thatcher the goldfields balladeer, and the “Old Identity” who ruled the towns, we do not always favour the keepers of so-called “civilization”. Yet the puritanism of the transformation from the frontier society of the quarry to the sustainable society of the settlement ruled New Zealand until recently.

The new political economy was based on intensive pastoral farming. Favourable climate, soils of moderate suitability, advances in technology, the commercial efficiency of the family farm, allied to supportive government intervention, resulted in the most efficient pastoral farming in the world, while the British market willingly accepted the produce at fair prices. Around the farming clustered industries which supplied the farm, processed and transported the produce, and provided the consumables of the society.

Industrialization in the Pastoral Political Economy

Conventional historiography may not have the story of the associated industrialization quite right. A preoccupation with Sweating Commission of the 1890, the great Maritime Strike of 1890, and the temporary blossoming of a political labour movement within the Liberals of the early 1890s led to the placing of the development too early. Yes, there was a labour movement then. But two of the three great industrial disputes involved quarries – a coal mine at Blackball, a gold mine at Wahi – while the 1890 strike involved shearers, watersiders, and coal miners.

That is not surprising according to data prepared by Gary Hawke, who divided the secondary sector into those who were in “industry” and those who were in “handicrafts”.[7] The former appeared in the factory statistics, while the latter were those manufacturing workers in the population census who did not work in factories. There are more handicraft than factory workers until the beginning of the twentieth century. It seems likely that the industrial worker evolved in early and middle part of the twentieth century, rather than the nineteenth. The soon to be published studies on the Caversham workshops will be especially helpful in tracing this change. The labour movement observed in the 1880s and 1890s is either a false dawn, or one not based on the industrial worker.

By the middle of the twentieth century there is a significant manufacturing sector, which became politically influential in the 1930s. Thus the second major earthquake of the pastoral settlement tectonic plate followed the election of the first Labour Government.

Again we associate the earthquake with a preceding depression. The economy seems to have been subdued throughout most of the period following the First World War, so much so that Bill Sutch calls it “the interwar depression”. But the early 1930s, when export prices fell sharply was a period of special hardship and social turmoil.

The First Labour Government addressed these pressures, and again rising prosperity enabled them to fund their program – volume GDP was increasing about 6 percent each year from 1933 to 1946. But their reforms while not inimical to the interests of the pastoral sector – that would have damaged economic growth – incorporated the evolving political economy of urban centres and a rising industrial and sophisticated service labour force.

By the early 1940s, as Bob Chapman has shown, there were two distinct political parties – almost equal in size – with very different social bases reflecting the two main components of the pastoral settlement political economy, modified a little by income levels. National is the party of the countryside and the farmer with support from urban commerce: Labour is the party of the city and the industrial worker, with a component of the poor rural worker. But they did not differ greatly on the general direction the economy should follow.

Economists have described this economic structure as “two-legged”. The rural pastoral farm leg earned foreign exchange for importing and debt servicing, while the urban industrial leg used imports to produce goods and services for the domestic economy, creating jobs for those whom the pastoral sector and its satellites could not directly employ.

But how was the naked self interest implicit in the two-legged economy to cloth itself in high economic theory? Those in the rural sector argued for low – preferably zero – protection because, they said, it reduced economic efficiency. The urban sector argued for protection to generate jobs, pointing out that economic efficiency applied only to the employed, and free trade had no means of dealing with the inefficiency of unemployment. This is not the place to evaluate the efficacy of the two prescriptions. Here we note that it seems likely that the special circumstances of the pastoral sector probably meant that any efficiency losses from protection – assuming there was full employment – were small.[8] Probably the main effect was to transfer the high land rents from pastoral farming to the nation as a whole, and the landless in particular, through higher wages and broader government services.

A second debate – at cross-purposes to the first – is best exemplified by Bill Sutch’s concerns. There were three threads. The first was that the New Zealand export sector was a few commodities sold to a few markets. Sutch described the economy as a “monoculture”, saying that all the exports were processed grass mainly to the single market of Britain. As late as 1965 some 92 percent of all exports were pastoral products, and 45 percent of all exports went to Britain. Excessive concentration on so small a group of products and markets had its risks. It is well to remember that the most draconian piece of legislation still on the books is that dealing with the outbreak of foot and mouth disease.

Sutch’s second concern was the resulting quality of life that the monoculture engendered. Culturally, using the term in its sense of intellectual development, New Zealand was a backwater, with few exciting developments in the arts, literature, science, or intellectual life generally. That did not mean Sutch regretted the robust physical life New Zealanders led but he thought it was imbalanced.

His third concern was that inevitably there would be a downward trend in the price we received for our commodity exports, relative to import prices – a decline in the pastoral terms of trade. At the time Sutch wrote there was a widespread belief that the prices for commodities relative to manufactures were in a long run decline. We now know that the general belief was not comprehensive, for different commodities are likely to have different experiences. But it was broadly true for New Zealand’s exports in the post-war era.

Wool was being challenged by synthetic materials, red meats by white meats, and butter by margarine. For no product was the total market expanding rapidly. Meanwhile pastoral commodities were relatively easy to produce in temperate climates, with any inefficiency in production compensated by generous support from the treasuries of the rich industrial countries. Experiencing slowly expanding markets, and rapidly expanding (subsidized) production, the pastoral terms of trade were in decline, in the post second world war era. The plates of the political economy were shifting once more.

The Diversification of the External Sector

The great earthquake hit New Zealand on the 14 of December 1966, in the Wool Exchange in Auckland. Bidding for wool was weak, prices collapsed, and the Wool Commission found itself buying in much of the clip – over a third by the end of the season. Except for the brief period of the international commodity price boom in 1972 and 1973, relative wool prices have never returned to their level of the 1960s – let alone the boom levels of the early 1950s. The story for meat and dairy products is less spectacular, but their relative prices declined too.

Faced by declining relative prices in a key export sector – the only export sector – the New Zealand economy behaved in an orthodox way. It began to grow more slowly, and it began to diversify.

It is hard from the perspective of the early 1990s to appreciate the extraordinary achievement of export products and markets. Once was wool, supported by meat and dairy products. Today meat and dairy products remain second and third, but a much smaller share of exports. The chief foreign exchange earner is tourism, while horticulture, fish, wood products, and general manufactures all earn more than the wool clip. Once was British markets, with the US as a minor adjunct. Today Australia and Japan are up with the US, while Greater China and South Korea also surpass Britain. According to John Gould, New Zealand was among the three most concentrated exporters by product and destination in 1965, but was near average in 1980. No other OECD country diversified as greatly.

The transformation was necessary because in the two legged economy the land rents from pastoral farming were transferred to the domestic industry. The falling relative export prices squeezed out the land rents. They could no longer be transferred to the domestic sector. Now it had to share the burden of earning foreign exchange, while the protected sector could not be as easily subsidized.

Thus the diversification of the external sector began to pressure the domestic economy. Foreign exchange (FX) dealing had been the domain of a cartel of four banks. But in 1982 the growing coalition of exporters in need of increasingly sophisticated FX transactions successfully lobbied the government for open entry by dealers. Threatened by imports under CER domestic manufacturers successfully lobbied in 1983 for the ending of restrictions on inland transport which favoured rail.

CER, Closer Economic Relations with Australia, illustrates the change. The external diversification meant that many manufacturers became exporters. The manufacturing sector, for long the bastion of protection, became divided as export manufacturing expanded while the domestically oriented sector stagnated. CER was a conscious mechanism to reduce that protection by extending the trading relationship with Australia into a common unified market. Thus New Zealand manufacturers would learn to live in an economy where exporting was necessary and competition from overseas suppliers inevitable.

I deliberately chose the examples of FX dealing, internal transport liberalization, and CER because they all occurred before 1984, during Robert Muldoon’s premiership. In it the tectonic plates were crashing together, with that of the new diversified economy remorselessly overriding chunks of the long standing pastoral one. Muldoon desperately attempted to slow down the political and social consequences of the transformation. The almost civil riots of the 1981 Springbok tour were in one sense the social and political reflection of the old and new ways clashing. Ultimately there would be an earthquake.

The New Political Economy

Thus the economic reforms of the last ten years are to be seen as a response to the new diversified political economy overriding the declining pastoral one. Not all of the reforms were necessary or effective. Indeed the crucial macro-economic reform was technically maladroit and economically disastrous. But the basic direction of the opening up of the New Zealand economy to external markets, and the consequential internal liberalization, was a response to political economic forces outside the control of those who made the changes.

Inevitably they had – and are still having – an impact on our political and social life. Socially we seem to have thrown off the subconscious fear of the barbarian frontier built into the pastoral political economy. Symbolically, after almost a century of legislative deadlock and confusion on liquor reform, the 1989 Sale of Liquor Act was passed almost without commotion. While there is still considerable tension between the social conservatives and the social liberals in New Zealand, no longer are the repressives unchallenged.

Yet in one area we have hardly moved. New Zealand is still a society intolerant of intellectual dissent, and one, moreover, which fails to celebrate intellectual achievement. In some ways the ideology of the new business regime is more antagonistic to the intellectual community than was the old rural one.

Politically, the system is still working its way through, most evidently in the introduction of Mixed Member Proportional (MMP) form of parliamentary representation, and in the efforts of the traditional parties of Labour and National to reposition themselves. The conventional interpretation of MMP is the public wanted to punish the parties who had run policies inconsistent with their election platforms and their traditions. In this version MMP is seen as a way by which the public will discipline parties in future. While there is a truth in this account, the changing political economy suggests that MMP is fundamentally a response to a new situation in which no two parties can fully encompass the politics of a much more diverse society and economy.

This is getting a little ahead of my story, but it reminds us that the new tectonic plate is still shifting. Aftershocks continue to assail us. Stability has not yet been reached.

This time the earthquake was not preceded by an economic depression. The late 1970s and early 1980s were periods of slightly faster economic growth relative to the rest of the world, although the economy was growing more slowly than it had been in the 1950s and 1960s. Unemployment, which had risen in the late 1970s, was even beginning to decline in 1983 and 1984. Admittedly there was a lift coming through from the construction phase of the energy based “think big” projects. And the Muldoon government’s interventions were often onerous and wrongly directed, against the flow of the political economy pressure for market liberalization. But even at the time it seemed that the New Zealand economy had worked its way through the adjustment to the fall in the terms of trade, and was now on an expansionary course.

The outcome of an earthquake is not predetermined. A geologist may be able to tell you about the direction that the earth will open up, but not the exact time nor place, nor what land will shift, or on whom the destruction will be wrought.

So some market liberalization of the economy was a political economic necessity, waiting to happen at the end of the 1970s when the diversification was well under way. That is when Ian McLean introduced the term “more market”. The process was held back by the fragile majority of the 1981 election which meant that the forces were pent up in 1984. Yet in one crucial respect the economic reforms failed, and failed miserably.

The visible earthquake may have been the July 1984 election. But the one which shook the foundations of the economy occurred seven and a half months later, when the currency was floated in March 1985.

Floating a currency is not necessarily damaging. What matters is how the float is managed. In the New Zealand case the bald summary is “badly”. The government simply ignored the fact that its own actions affected the level of the exchange rate. Predictably (and as predicted at the time) the real exchange rate appreciated, the export effort faltered, and imports flooded in.

So the economy stagnated for the seven years from 1985 to 1992, while the world economy boomed. The benefits that were to come from the microeconomic reform were destroyed by the macroeconomic incompetence. Rather than amend their macroeconomic mismanagement, the reformers intensified the market liberalization to an extreme degree. There was unnecessary privatization of public assets and social policy, without major macroeconomic success, for the management of the exchange rate was not addressed.

By 1992 the economy had been squeezed to the point where the tradeable sector which was left was able to survive at the current exchange rate. From this much lower level it was able to support a smaller economy which began to expand. The best estimate I have is that the downsizing effect from the mismanagement amounts to about 20 percent of GDP. If a more sophisticated exchange rate policy – only as good as the OECD average – had been pursued, the economy we would be about a fifth richer, unemployment would be markedly lower, as would tax rates. Even so, the public sector and social welfare would be larger.

Why such a crude management of the exchange rate occurred is one of the great mysteries of recent years. The consequences are not. Our economic history teaches us that with one exception – the neolithic Maori – all our political economies were about the interaction between New Zealand and the outside world. The quality of that relationship was central to the success of each. That does not mean we are able to isolate ourselves from the world economy. The Long Depression of the late nineteenth-century, the stagnation of the 1920s, the Great Depression of the early 1930s, and the diversification of the 1970s surely taught us that. Especially from the 1970s’ diversification experience we know that New Zealanders are resourceful enough to accept the challenge of the external world, and succeed, even where economic policy was not entirely sympathetic.

But as the 1980s showed, when economic policy is antagonistic to good interactions between New Zealand and the rest of the world, the tradeable sector comes under enormous pressure, and the economy stagnates. It was almost as if the government had thought that by floating the economy New Zealand could be run like the neolithic economy, insulated from the rest of the world. It was as if the economy had been built across the fault line between the old and new political economies, just as the earth moved. It fell into the abyss below.

Prospective Political Economies

Political economy does not predict the future, but it helps us to think more systematically about it. In particular it asks what sort of tectonic plate will dominate. I confess I am unsure, although some features of the post-1966 political economy are obvious enough. Its external sector is diversified in product and destination, while the domestic sector is dependent on the market mechanism, and more open to the world.

But just what will be the features of the export sector? Were he alive today Bill Sutch would certainly point out that while the economy is no longer a monoculture, most exports are still commodities or simply transformed commodities. This is a stage to full diversification. The next should have been the exporting of products based on applying expertise to the commodities we are exporting today, transforming them into sophisticated products, typically in niche markets.

The beginnings of such a development were evident in the early 1980s, and there are still some residual examples of such exports: complex chemicals from dairy products, wool scours, saw blades, electric fencing, farm advisory services. But they have all been around now for some time. I dont see a multitude of new products and services coming on. My guess is that the over-valued exchange rate of the second half of the 1980s choked off these developments. Hopefully the opportunities are still there. Yet we must be haunted by the sad story of Alflex eartags. A world beating technology was crushed between an overvalued exchange rate and greed driven speculation, to the point that its research laboratory was moved offshore.

On the other hand, it is possible that the tectonic plate based on export diversification is already being pressured by a new one – perhaps found at the bottom of the abyss. To see it we look overseas.

A characteristic of the world economy is the increasing integration of the world’s financial markets, and a degree of globalization of production. The ability to isolate New Zealand from either trend is limited. The new political economy is almost certainly more open to world trade and production: New Zealanders with their gargantuan appetite for the world’s goods and services would not want it any other way. Unfortunately in the 1980s New Zealand went on a borrowing binge – partly to pay for consumption in an economy stagnating from an overvalued exchange rate. That debt overhangs our economic performance. Reducing it by selling assets to foreigners does not resolve the problem. It merely turns fixed interest foreign liabilities into variable return equities. They are still foreign liabilities.

There is also in our export sector a growing component of mainly general manufacturing, dependent upon costs being low relative to productivity. This has been facilitated by the Employment Contracts Act plus the inflation targeting which keeps wages low, especially among the unskilled. When New Zealand manufacturing sells to Australia it is probably no more problematic than a Dunedin firm selling in Auckland, for both countries are high wage nations. But what happens when the Australian market becomes saturated? What are the prospects of New Zealand manufacturers being able to sell these relatively simple goods in South East Asia, say? Wont there be downward pressure on workers’ wages?

This is a bit speculative, but what I cannot rule out is a new political economy which is based on financial domination over an export sector of simply transformed commodities and low wage, moderate productivity, unsophisticated technology, manufactures. That is the rhetoric of our financial and political leaders. Socially New Zealand would be a bifurcated society. We could not afford a comprehensive welfare state, while wages for many workers would be low, and their unemployment rate high. That is the scenario in the Treasury forecasts in their 1993 Post-election Briefing.

Has the last decade ruined the prospect of the high income, high productivity, technologically and intellectually advancing political economy and society we seemed to be promised in the early 1980s, despite the maverick actions of the then prime minister?

I cannot tell you. I do know that if you had asked economists about future prospects in 1934, as the recovery from the Great Depression began, they would have almost certainly got it wrong. Political economy teaches there is both chance and choice in the fate of the nation. Where one is at the time of the earthquake, and what measures are taken in response are what really matter.

But in any case my task tonight was not to tell you about your future, but to review our past. In doing so, I hope I have established the case that the economy has played a vital and central part in the evolution of New Zealand: that the economy matters. If by doing this the lecture has contributed to a broader historiography, one in which the economy is more integral, then the first Hocken lecture by an economist will have accomplished its goal.

1. I should like to acknowledge the contributions to my thinking of my first two economic history teachers Graham Miller and Bill Sutch, to the pioneering work of Jack Condliffe, John Gould, and Colin Simkin, as well as to the contemporary economic (and other) historians whose work I cite in the course of the paper. Their meticulous work makes possible the broad generalization this paper attempts. Those who gave valued contributions to earlier drafts of the paper were Tom Brooking, Elizabeth Caffin, Elsie Locke, Malcolm McLean, Erik Olssen, Brad Patterson, Keith Rankin, Wolf Rosenberg, Kathryn Rountree, Tony Simpson, Russell Stone, and Brendan Thompson. It is a much better paper as a result.
2. My commentary on the pre-European Maori is informed by – among others – Firth (1973), Houghton (1980), Simmons (1982), Watson & Patterson (1985), Walker (1989), Pool (1991), and Sutton (1994).
3. I am grateful to Russell Stone for this point.
4. There is even a sense that the soil was at first quarried, its natural fertility extracted with the bonanza harvests which lasted only a few years, and with much of the topsoil lost to erosion.
5. In some cases it is the outsider who loses the capital rather than the local. But that is still unsustainable.
6. There is a parallel here with the way kumera storage transformed Maori society.
7. The terminology is a little misleading, since the handicraft category includes self employed workers not employing labour (e.g. a tailor).
8. I have elaborated this argument in “Prescription or Poison: `New Zealand can be Different and Better’ by Wolfgang Rosenberg”, New Zealand Books, December 1993, p.5-6.


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