The State in New Zealand 1840-1984: Socialism Without Doctrines? (review)

by Michael Bassett Archifacts, Oct 1999, p.60-65.

Keywords: Political Economy & History;

According to the author “[t]his book originated in a chance conversation I had in 1993 with Roger Kerr, Executive Director of the New Zealand Business Roundtable. In response to a question about my writing, I told him that I intended to recount the story of the Fourth Labour Government after 1984, but that I first had to understand how it was that New Zealand had come to the stage where drastic restructuring had become a matter of urgency. Roger Kerr suggested that I might undertake that initial study; the Business Roundtable would pay some of the expenses involved in the researching such a big project.”

Bassett’s archival searches have been assiduous. At issue is what he did with what he found. He appears to espouse the methodology which Karl Popper describes as the “bucket”: Pour all the available information into a bucket, leave it to ferment, and then distil some compelling theory. In contrast is the “searchlight”, where a hypothesis directs a beam into some murky corner of our understanding, and the resulting observation modifies the hypothesis and its underlying theory. For instance, in his recently published Only Their Purpose is Mad, Bruce Jesson suggests that “New Zealand was a state-created society in that the state did not emerge from some already-existing social order, some civil society, but instead created it.” (Let me not tease the reader by stopping there and failing to allow a fuller exploration of Jesson’s thinking, but continue the quote, although it is not germane to this review. “The state was responsible for creating the infrastructure of the country – a social infrastructure, as well as an economic infrastructure. And while this was unavoidable, it meant New Zealand was a society without texture. New Zealand might without exaggeration be thought of as a hollow society.” ) The point is that Jesson offers an analytical frame. He may be wrong (or, more likely, oversimple and incomplete), but the fields his hypothesis leads us through will undoubtedly be fertile.

Bassett’s approach is like that of a jackdaw collecting for its nest. All sorts of pretty baubles and curios are assembled, but the jackdaw has no sense of what is valuable or potentially interesting. This nest is hardly arranged at all – Bassett’s chapters follow a chronology, broken into periods which reflect parliamentary terms rather than political economy, but within each chapter the focus lurches around. Because the jackdaw has no judgement, important issues are overlooked. Given the apparent focus of the book, on why the state became so powerful, numerous clues are missed. Throughout the nineteenth century the state kept supporting private enterprise, which might fail even with that state subsidy. For instance, the Midland line, between Christchurch and the West Coast, was initially a private enterprise activity, though cosetted by the state. It failed, and so the state took it over. But Bassett devotes only a paragraph to this story. The story repeats itself. Bassett has a long section on the founding in the early 1950s of the Tasman Pulp and Paper Mill (based on an excellent thesis by Morris Guest), but fails to draw any conclusion from private capital’s inability to fund it. Nor does he note the significance of it having to be a major exporter from day one. The same with the “Think Big” projects, although the author sheds no light on why they needed so much government support. (He does acknowledge their fatal flaw was the substantial fall in the oil price in the mid 1980s.) It was repeated again in a reverse sort of way after 1984, for when the government withdrew its support, business largely stopped investing in the export and import substituting sectors. As the book, perhaps unintentionally, shows, for most of New Zealand’s history the state has stepped in because private enterprise failed.

Other key elements get completely ignored when they fail to attract the jackdaw’s eye. For instance the book correctly points out that both world wars resulted in the New Zealand government accumulating power, but the political impact of the nineteenth century New Zealand wars on the state are ignored. Another lacuna is that the book nowhere gives no sense that the policies that New Zealand was introducing for most of the period, were paralleled elsewhere. (Hence the possibility of Pember Reeves writing State Experiments in Australia and New Zealand.)

Although this book is nominally about the state and the economy (there is little on other roles of the state, such as social control), there is an uncomfortable feeling that the writer has little grasp of the economic issues. For instance, Basset reports that “[w]hile the country’s total population grew by approximately 64 percent during their [the Liberal’s] years of office, the GNP rose 126 percent over the same period. Buoyant export markets meant that for all but 8 of the their 21 years in office the Liberals witnessed real economic growth.” Among the problems with this statement are that he appears to be using a total population excluding Maori (although given the infrequent reference to the Maori in this book , it is perhaps appropriate); he does not explain whether the GNP is nominal or real (it is real); and that the real economic growth refers to per capita GNP growth (not total GNP growth, which occurred in 17 of the 21 years).

Basset also has a penchant for using out of date statistics, He refers to data provided by the 1950 ministerial committee on taxation, not reporting they are explicitly stated as estimates, and has long been superseded by Brent Lineham’s work. He uses a graph from Colin Simkin’s 1951 classic, The Instability of a Dependent Economy, apparently unaware it has been splendidly superseded in the 1990 New Zealand Official Yearbook.

Indeed the book contains a number of graphs from odd sources. Their function seems to be illustrative, like the photos of the various political and public service actors, rather than to progress an argument. The jackdaw seems content to collect facts. However, the economic historian is interested in the relationship between them. Recall the above reference to the buoyant export prices (presumably relative to import prices, that is the terms of trade) in the 1890s and 1900s. The implication in the text is that they drove the economic growth. Their importance in this period suggests that the terms of trade should have been monitored throughout the book. Instead there are but odd asides. The reader has no sense of what Bassett thinks generates economic growth or stagnation.

Curiously for a book about the role of the state in the economy, there is little about fiscal stress. By 1841 the Crown was facing an overestimate of revenue, an underestimate of spending, and was privatising assets and issuing illegal bonds to cover the gap – a portent for the future. Indeed it might be argued that the economic governance of New Zealand could be summarised by the budget being in fiscal stress, severe fiscal stress, or intolerable fiscal stress ever since. (That includes the Fourth Labour Government.) To give but one example, the reason why Harry Atkinson has been undervalued by subsequent generations is that for most of his premiership-treasurership fiscal stress was severe, limiting his creativity as a politician.

As Bassett modestly acknowledges in his introduction, there are many mistakes in the study. I will not provide a list, although I protest at: “Sinclair described Walter Nash’s concept of socialism as being `applied christianity,’ a term that was used occasionally in the late 1930s by Savage.” The term appears to have been coined by the mayor of Kaiapoi, the Rev. W.H.A. Vickery. Not every great insight comes from historians and politicians. Savage used it “on many occasions” according to Barry Gustafson.

Probably there are even more errors of interpretation. For instance, the book fails to mention how erratically interventionist and anti-interventionist the proposals actually were in Roger Douglas’s 1980 There’s Got to be a Better Way. Pertinent to the theme of the book, Douglas wrote (in the year in which the “Think Big” debate) began “[p]utting 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.” The book does recall Douglas’s 1978 proposal for the extending the carpet industry, although it glides over the intended state involvement.

Another endemic problem, is the author’s employment of hindsight. Consider his description of the 1940s Secretary of Industries and Commerce, L.J. Schmitt “whose enthusiasm for the certainties which planning guaranteed to manufacturers would not have been out of place in a Soviet five-year planning exercise.” Leaving aside whether the Soviet planners were so enthusiastic, or even whether Schmitt was (there is reason to believe he was not), the statement is objectionable because it fails to acknowledge the widespread contemporary commitment to planning, by left and right. This reviewer, for instance, has had to struggle with the issue working on Bernard Ashwin, the long serving secretary of the Treasury of the same period. Ashwin was undoubtedly a political conservative, but he was deeply involved in planning and micro-intervention. It would be as foolish to associate him with Soviet planning, as it is for Schmitt. Rather the dominant economic paradigm of the day – in the United States and Britain – favoured economic planning. The neo-classical paradigm which replaced it did not become dominant overnight. Indeed the book seems bewildered at the persistence of the planning paradigm in economic policy so, for instance, the Planning Council went on for most of the term of the Fourth Labour Government.

This is a pitfall the author should have been aware of. For instance, in his 1972 Budget speech, new MP Bassett advocated higher top income tax rates, supported additional government spending, and defended the principle of monopoly provision of telephone services “enthusiastically”. A few months earlier, according to his book Third Labour Government, Bassett stated “[f]rankly, being wise after the event, I think we should have taken drastic measures to control land prices and building prices as soon as elected.” All of us are potential hostages to our younger views. Bassett is entitled to say that they were his sincerely held views, reflecting the conventional wisdom of the times, and that he changed his mind with experience, or as fashions changed. However, he needs to be just as generous and understanding to Schmitt, Ashwin, and others.

An account of how he changed his mind would have been fascinating. The last two chapters of the book cover the period after 1975, but they are essentially a politician’s narrative of the events of the day, and offer little insight. In any case, Bassett may not know. The admission in the statement with which this review opens is extraordinary. Almost a decade after he participated in the radical restructuring of the New Zealand economy, a senior cabinet minister concedes he still lacked an understanding of why the policies he supported were necessary. The inevitable impression is that the writer was operating in a political and economic environment without much understanding of the forces shaping it. Whether he is now clearer about why he supported the economic policies of the Fourth Labour Government may be demonstrated in his next book.

A useful starting point may be the inflation which confronted Muldoon through most of his tenure. National was elected in 1975 on the basis that the debauching of the currency, to quote Lenin, would destroy capitalism. Muldoon chose to tackle inflation with the sort of controls that the young Basset favoured, mindful that the alternative of a rigorous monetary and fiscal squeeze would cause economic stagnation, rising unemployment, greater inequality, and social distress. Basset’s report on post 1984 may shed light on whether the Labour cabinet was unaware of this possibility (and the analysis it was based on, which has proven to be a correct), or whether the government was aware, but willing to accept the consequences.

As the book’s subtitle “Socialism without Doctrines?” indicates, and the introduction states explicitly, a second objective was to explore the ideas that drove the New Zealand state. The problem has been that we have tended to judge New Zealand by overseas – European or American – standards (the subtitle alludes to Frenchman André Métin’s judgement of 1901). Because New Zealand political economy is so different, these foreign doctrines do not necessarily characterize the local experience very well. There is in fact a substantial sociological and political literature on the role and ideology of the state in New Zealand, although Bassett shows no awareness of it. Much policy was, as I argued in my Social Security in the Seventies, a pragmatic response to practical issues, with some – often growth oriented or egalitarian – social objectives in mind. It will be interesting to see whether Bassett concludes that the Fourth Labour government broke from this tradition and applied “capitalism with doctrines”. Certainly they and their National successor (in its first few years) were more doctrinaire than any government portrayed in this book.

The difficulty we all face is that economic history and the history of ideas are probably the two most underdeveloped elements of the history discipline in New Zealand. Even had he been better equipped for the journey, Bassett would have been brave to have ventured this book. Writing an account of the state is a very different exercise from writing a biography. It is perhaps useful that he has raised the challenge of an historical account of the role of the state, to complement the extant sociological and political economic studies. Many scholars will, no doubt, use the copious endnotes of the book as a source to many useful archives (although I would recommend they check the originals, for the book’s interpretation is not always reliable). To reiterate, the book is no more than a jackdaw’s nest of interesting items from archival and other sources, with no underlying account to pull it together. If the reader is not looking for one, the book certainly reads well. As Frank Sargeson wrote “there is no talent so deceiving and dangerous as fluency.”

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