The Origins Of Four Books

Part of submission for the degree of Doctor of Science from the University of Canterbury. (April 2002)

Keywords: History of Ideas, Methodology & Philosophy;

I began studying economics at the University of Canterbury in 1962, while doing my honours science degree in mathematics, and in late 1963 took up the position of Research Assistant at the N.Z. Institute of Economic Research, completing my B.A. in economics at the Victoria University of Wellington. As a result I got a very wide training in economics – in macroeconomics, microeconomics, development economics, and public policy – covering both theory and applied economics.

I went to the University of Sussex in late 1966, initially as an assistant lecturer in economics but I was later promoted to a lecturer in economics and social statistics. Again I was required to teach across a broad range of economics, my research reflecting this range of interests. By the time I returned to New Zealand at the end of 1970, as a lecturer in economics at the University of Canterbury, I had been working almost nine years as an economics student, teacher and researcher.

My initial research project was a study of the New Zealand income distribution which led to Income Distribution in New Zealand (1983) and to my ongoing work in distributional economics. This topic is not being submitted as part of the application, despite my work being substantial and pioneering. It is mentioned here because it forced me to think about macroeconomic issues from a microeconomic perspective, and led to my interest in the multisectoral nature of the New Zealand economy.

To give a brief illustration. The New Zealand economy has a substantial self-employment. The sector is given little prominence in overseas writings of rich economies, and has a very different role in poor countries, where it is often backward and traditional rather than dynamic and modern as it is in New Zealand. About half the self employed were farmers, so to understand the self employed sector with its crucial impact on the income distribution, one had to investigate farming. Thus one was led here, and in other ways, to looking at the production sectors in some detail.

Early in the research program I struck upon another key element which was important to my subsequent thinking. It is worth detailing the story. In 1974 I had constructed two rates of return on capital series which were in serious conflict. One showed a statistically significant secular rise over time, the other a secular fall. Because they were from different statistical sources – albeit in principle conceptually broadly the same – they were over slightly different periods, and it occurred to me that they might be opposite sides of the peak of a quadratic. A test for this curvature supported the conjecture. Moreover the peak in about 1967 proved to coincided with structural breaks in numerous other statistical series on the supply side. (See ‘!966 and All That’.) And so I constructed a story of the economic disruption, which is centred around the fall of the terms of trade in late 1966 (See chapter 5 of In Stormy Seas.) What is important here is not only am I working between prices and sectors (as the previous paragraph described), but I begin modelling the economy as subject to external shocks with long term impacts, which affected different sectors of the economy differently. It reinforced that central (but not original) vision that the evolution of New Zealand has been dominated by the impact of the world economy.

(There is a widely held view that the end of the post-war boom occurred in 1973 rather than 1966. This seems more based on a nostalgia for the British connection, rather than any systematic evidence. Some expenditure series show breaks in their secular trends in about 1975 or 1976, but these seem to be the result of policy responses to the earlier production changes. However I had picked up the production breaks in 1974, too early to identify any 1973 one.)

Thus at the University of Canterbury in the 1970s I was working on two broad topics: the income distribution and the post-war history of the New Zealand economy (although I kept pushing back the time frame back before the war, and into the nineteenth century – I joke that perhaps ‘post-war means after Musket Wars). A summary of my macroeconomic research at the university is encapsulated in my inaugaral director’s address to the N.Z. Institute of Economic Research, External Impact and Internal Response (1982).

The research program continued vigorously at the NZIER and is reported in my valedictory director’s address The Exchange Rate since 1981: Performance and Policy (1986).

The work continued through the late 1980s and into the 1990s as I worked as a consultant, usually funding it from any ‘surplus’ from the consultancy, teaching and writing. This led to the publication of In Stormy Seas in 1987, although it should have been out a couple of years earlier, except for publishing delays. In the interim there were other publications including a couple of commissioned policy oriented booklets Open Growth (1990) and Getting the Supplyside to Work (1993). Each is based on the research program that underpinned In Stormy Seas, a program which was always a scientific one, attempting to understand the world, rather than a policy oriented one, with a policy agenda to be justified or identified.

As In Stormy Seas shows, the policy response of the period after 1967 is an attempt to deal with a major supplyside shock, without a comprehensive understanding of it, and at first trying to respond without substantially changing the income distribution either through changes in factor prices nor employment conditions. This constraint made the task impossible but what really strikes the analyst is that the policy response had a substantial endogenous component. Policy makers like to present themselves as if they are in control of the options, but practically they are usually dealing with a problem outside their control (and often their understanding).

This is not to argue for pure economic determinism. Ideas are important and individuals and accidents of history matter. However it differs from the standard approach to the theory policy making, as expounded in Wellington for instance, which almost completely ignores that the economy sets a context in which the decisions are made, and which both generates problems, and limits the available solutions.

This approach dominates my next major book, The Commercialisation of New Zealand (See the book’s appendix for some discussions on methodology. In fact the whole book – indeed the research program – is pervaded by the Popperian approach in which I was bathed as an undergraduate at the University of Canterbury.) The transitional work here is The Making of Rogernomics, a book I edited in late 1980s, where there is both a mixture of macroeconomics (Chapter 4) and the microeconomics (Chapter 5). My attention had turned to microeconomic analyst, in part because the book is based on a public policy course, whose students were adequately trained in macroeconomics. In the mid 1980s was that the dominant policy group identified a strategy which they thought would resolve the problems which the previous government had not solved, by relaxing the distributional constraint (see Chapter 3). I called this approach ‘commercialisation’, partly because I wanted to break away from the populist expression ‘privatisation’, and partly because the approach was broader and more subtle than simply privatisation. (Today, of course, the expression is widely used, without appreciation of how recently it was coined.) The first part of the book describes the origins of commercialisation as a policy idea and how it became politically dominant, the second illustrates its application to various policy areas.

The following book, The Whimpering of the State: Policy After MMP is a continuation of the argument using a nice economic approach – in the tradition of Mancur Olsen (See In Stormy Seas Chapter 13) – in which a set of logical propositions leads to a behavioural outcome. In particular it suggested how a government elected by an MMP system (strictly, any system which results in a non-majority party government) will function in policy terms. (See pages 16-21) This led to a review of the evolution of policy as a single party government lost its parliamentary dominance. This book is in the same two parts as its predecessor. (Note chapter 4 is an update of In Stormy Seas, confirming the story it tells, but offering no new theoretical insights.)

About this time I was asked to prepare an entry on Bernard Ashwin, the founder of the modern Treasury, for The Dictionary of New Zealand Biography. This lead to The Nationbuilders which covers the period from 1931 to 1984 when the approach developed in the 1930s ended (although as implied above it was becoming less effective somewhat earlier). While the book can be read as a series of biographical chapters, it is really a study of the policy community of the period with various themes threading through the chapters, most notably that of macroeconomic policy development. Thus the book can be thought of as a complementing In Stormy Seas, that book being the story of the economy over the period, while the later one is an account of the policies accompanying the economy (ending earlier because other books deal with the post-1984 policy regimes).

This brief description of the four books has the purpose of showing that while each is a standalone work, there are intricately related both in terms of their construction and conception. To round off, I add that my current research program (other than the ongoing ones in heath economics and the income distribution) is on globalisation, and is a logical successor of the one described above.

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‘!966 and All That’, Economics for New Zealand Social Democrats (McIndoe, 1981) p.18-20.
External Impact and Internal Response: The New Zealand Economy in the 1970s and 1980s (NZIER Discussion paper No 26, 1982)
Income Distribution in New Zealand (NZIER, 1983)
The Exchange Rate Since 1981, Performance and Policy (NZIER Discussion Paper 30, 1986)
The Making of Rogernomics (Auckland University Press, 1989)
Open Growth: A Response to the Ministerial Task Force on International Competitiveness (NZEU, 1990)
Getting the Supply-side to Work (NZEU, 1993)
In Stormy Seas: The Post-War New Zealand Economy (University of Otago, 1997)
The Commercialisation of New Zealand (Auckland University Press, 1997)
The Whimpering of the State: Policy After MMP (Auckland University Press, 1999)
‘Ashwin, Bernard Carl 1896-1973,’ C. Orange (ed) Dictionary of New Zealand Biography (AUP, 1998) vol IV, p.21-2.
The Nationbuilders (Auckland University Press, 2001)

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