The State Steps In: Michael Bassett Makes a Case for Intervention.

Listener: 14 August, 1999.

Keywords: Governance; Growth & Innovation; Political Economy & History;

Michael Bassett’s book The State in New Zealand 1840-1984 is an assiduous, if somewhat erratic, compilation of state economic activity in New Zealand, the result of burrowing through masses of archives from government economic departments. The picture he presents, up to 1984 anyway, is that the government of New Zealand actively promoted industrial development. On more than one occasion private initiatives were failing, and the state stepped in to assist a now successful business.

Bassett says that the book was written to prepare his account of the time when he was a member of a the Labour Government which stopped assisting industry (with the exception of the financial sector, on whom it lavished support). Yet, the book makes exactly the opposite case to the one Bassett’s government pursued. The history of the New Zealand economy is that of an extraordinary success over most of its life. As the book shows, that growth was accompanied by government intervention. Bassett cannot cite a time when government gave up getting involved with industry and the economy flourished. In 1930s and 1940s the economy grew at a similar rates to the Asian economies of the 1970s and 1980s. That was a period when intervention sharply increased under the first Labour Government.

It is true that the growth rate slowed down in the late 1960s to the mid 1970s, especially if invalid statistics are used. (Actually Bassett does not use the available data much. One would have thought that he would have found such statistics meat and drink for his history.) That is easily explained by the collapse in the structural terms of trade which devastated the vanguard growth industry of pastoral farming and processing. Once the transition to a more diversified economy was largely completed, New Zealand began to grow again, slightly faster than the average of other rich countries. What happens when a New Zealand government gives up assisting productive activity belongs to Bassett’s future book on the Fourth Labour. It will be a wonderful demonstration of the thesis Bassett is trying to reject. Hardly any industry assistance since 1984, hardly any industry growth.

The practical issue of intervention policy is not whether there should be any, but what sort of assistance. Robert Muldoon’s mistake was that his government’s involvement was too detailed. Current thinking is to support sectors and cross-sector inputs rather than firms.

An example of a cross-sector support is Research and Development. Electronic commerce is another looming challenge. My instinct is the government should be encouraging every New Zealand business to get on the net. Distance has always been a handicap to our new exporters. Why not create a cyberspace showroom which would exhibit all the goods and services New Zealand produces, so that potential foreign purchasers can see what we have from the comfort of their home terminal? Some businesses are already doing this. Lets get them all involved.

One of the first things that needs to be done is a review of the state and prospects of each sector. The resulting “Doomsday Book of Industry,” is likely to show a good chunk of them may be doomed if we continue as we are doing. Forward looking reviews were common up to 1984. The last great effort was under (then unknighted) Bill Birch. When he was Minister of National Development the identification of growth opportunities had to be done. A (dour) doer, rather than having an economic philosophy, Birch did it.

Out of the review will come growth prospects. The Irish Industries Development Agency’s priority sectors are: electronics; engineering; healthcare products, such as pharmaceuticals and medical devices; consumer products including sport, leisure and fashionware; financial services; and international services, including tele-services and software. (Note the order.) Our list will be different, but no doubt be as equally internationally outward looking.

Bassett’s book is valuable because we can learn from the past. Roger Douglas wrote in 1980 that “putting Government money into Tasman Pulp and Paper Company and New Zealand Steel was right. New industries were started that might not have been, because the private sector would not, or could not, do it.”