Chapter in Overcoming Violence in Aotearoa New Zealand (Phillip Garside Publishing Ltd, 2002) p. 37-43.

Keywords: Social Policy

Economics has such a pervasive role in public discussion, that it is useful to remember that on some matters it has little to offer, which is the spirit in which this offering is made.

It is true that sometimes economic considerations can lead to considerable violence. Just over half a century ago the powerful economies of Germany and Japan, finding their access to resources restricted, tried to extend their territories to encompass their resource bases. Their military ambitions were settled with defeat in the Second World War, but the resolution to their limited access to resources took longer. The answer was increasing international trade, for today both countries – and many others – obtain the resources they require by international exchange. It is a solution which may not be ideal, but it certainly less imperfect than conquest. In a similar spirit the European Union was founded to tie up the coal and steel industries of Germany and France to make warfare between then again impossible.

The theory which might underpin this strategy, supposes that when the distribution of resources is justly allocated between the market participants, who then engage in voluntary trade, the outcome of the various transactions is just. There is a number of caveats to this story. For instance the traders need to be fully informed, as stories about second hand car deals that have gone awry remind us. Nor need a just outcome be necessarily fair, a problem the courts wrestle with every day. Nevertheless, at the time of the trade, each participant thought they were better off as a result. Third, the theory is also set out in terms of trading of commodities, and the introduction of money complicates the analysis. (Financial assets even further complicate it.) However the crunch, it seems to me, is the extent to which the initial endowment of resources are justly allocated, a matter to be discussed below.

Even so the conclusion remains that voluntary market transactions, made in the context of a maturely regulated environment, are a means of resolving implicit conflicts over resources. Internationally – and indeed nationally – we can reduce conflict by a system of market trading, although that may not resolve all our concerns.

One concern is the extent to which market trading encourages violence through its emphasis on competition. The term ‘competition’ represents a number of complicated notions. I regularly ‘compete’ against myself when involved in some exercise. A couple of teams playing one another are competing, although ideally it is in the spirit of ‘you wont worry whose the loser, when you meet them in the boozer.’ This is a long way from the notion of competition captured in the idea of ‘Nature red, in tooth and claw’ (which despite its reputation was published before Darwin expounded the theory of evolution). How necessary is this sort of aggressive competition for a market system to work?

The market is a signalling system when it is properly function, where each price should be proportional to the social costs of the resources embodied in the commodity. (Economics goes to a lot of trouble to explain how this occurs, and when it does not. The exceptions are important, but not so important that they ruin the basic argument.) The individual only purchases a commodity if it is of greater value than its price to her or him – if the personal value exceeds the social value. As the individual is better off, and the rest of society has lost nothing, society as a whole is better off. The signalling system is self enforcing. There is little point in purchasing for ones own use something which is less personal value than the price. Any signalling system will on occasions make mistakes. In the market case a purchaser who makes a mistake pays an instant penalty directly related to the magnitude of the error, an effective encouragement to minimize it.

The process of competition is a means of ensuring prices reflects the lowset possible social costs. It puts pressure on every provider to use the resources as efficiently as possible, reducing the resources used. Consequently, often two or more economic actors (say firms or workers) may be in competition with one another to provide the lowest cost product, which is of benefit to the purchaser but also to society since the lower costs means less resources are used.

We tend to treat this competitive process as a very aggressive activity, but we could see it rather like the football match or exercising, where actors are simply doing their best, and there are winners and losers. Of course the end of the game is hardly the shaking of hands and writing off the previous events. Sometimes the losers become unemployed – at the very least they lose income. We can tease this out with an example.

Suppose it is cheaper to provide some clothing from an Asian source than the traditional New Zealand factory. The first major point this essay made was that better the Asian send us clothes in order to obtain a share of New Zealand resources – say timber – via international trade, than to use military means. But what about the unemployed New Zealand factory workers?

We could assume every person is entitled to the same job for life in the same location. This would be a very static society, but when it is usually ennunciated it pertains to only a selected group of workers who are about to become redundant, but earlier had been willing to purchase cheap Asian cars, electronic goods and so on, even though that meant other workers were displaced (just as other workers purchase the Asian clothes because they are cheaper). And this also ignores that other workers have gained jobs selling timber and other products to Asians. Too often the rhetoric overlooks the gains from lower priced (that is resourced) products and the jobs which are generated to pay for it. The logic is not to eschew international trade – even were that practical – but to evolve a domestic economy which is responsive to the opportunities it creates, and supportive to those who suffer from it. The elaborate economic theory which says that international trade is beneficial to a country as a whole, has never argued it is beneficial to every single body in the country, although often the political rhetoric advocating free trade seems to imply the latter.

(Before offering the next step in the thesis, it is useful to draw in another thread. International trade can be thought of as a technological innovation – typically a labour saving one. In the above example it is less resource-using to export timber and import clothes than to make the clothes in New Zealand, and so the round-about export-import process may be thought to be technologically superior to the domestic production process. Denying the international trade option is a form of ludditism. It is no great generalisation to interpret the following as covering all technological innovations, and not just those involved in international trade.)

The most common suffering from free trade will be redundancy, in which some (indeed most) of the redundant go through a period of unemployment as a part of their redeployment. The redundancy is not their fault, and it is quite foolish to blame these unemployed for their situation. It makes good sense to have an active labour market program which speeds up the redeployment, by offering job searching, retraining and relocation facilities. Thus, it totally unacceptable to design economic policy around a target of some ongoing level of unemployment. Certainly there will be a pool, which will rarely dry up altogether. At issue is whether the pool is stagnant with the unemployed condemned to it permanently, or it is a like a fresh water lake in which redeploying workers are passing through as a normal – and minimally stressful – part of their life.

So if international trade is a means of reducing international violence, it places requirements on how the domestic economy can be organised. For the latter part of the essay we turn to the question of what contribution an economy has to minimising violence in a domestic economy, largely ignoring the international component. This has two key elements: social cohesion and economic pressure.

We can illustrate the problem of social cohesion by recalling the looting which followed the most recent Fijian coup. Now while the coup involved racial conflict, the looting was primarily by young permanently unemployed indigenous Fijians. The economic damage to Fiji will be long term if not permanent. It is not simply a matter of the destruction of the shops and the redistribution of the goods therein. Commercial relations – the ability of Fijian business to function effectively – has been badly set back, future Fijian shoppers (of all races) will suffer inferior service, while international tourism a main foreign exchange earner will be less prosperous (as indicated by the visitor fall off, and the devaluation – the raising of foreign import costs to Fijians – to attract the visitors back).

Yet the unemployed youths looted, despite it being disastrous to the Fijian economy, illustrating what is good for the economy as a whole may not be in the interests of every one in it. The youths judge, probably correctly, that the majority of them had little prospects in the Fijian economy in the long run, whether it be prosperous or stagnant. Better for them to participate in the short term benefit of looting, which would have so little impact on their long term prospects.

If a group does not have an investment in society then it may sometimes be in its interests to wreck it. The interests may be direct in that they are prospering, they may be prospective in that they may have a reasonable chance of prospering, or they may be indirect in that people they care about have a direct or prospective interest. (For example, we dont get gender division in the way some societies get racial division, because most of us have close friends and relations of the opposite gender.) The degree of investment each of us has in the prospects for our society – collectively its ‘social coherence’ – gives each person an incentive to reduce social conflict and violence in our own behaviour.

Because New Zealand is a small society, social coherence is a possibility which it is not in a larger one. (How extraordinary it was that the United States only found a sense of common purpose and identity following the terrorist attacks of September 2001.) Social coherence may be stifling, as those who fled a country town or even New Zealand, illustrate. Getting the right balance is not easy. However trying to model our economic and social structures on a much larger society is foolish. Yet an Americanisation strategy underpinned much of the reforms of the 1980s and 1990s. (I leave others to draw parallels between the unemployed Fijian youth looters and the Rogernomes.) It is sometimes said that the New Zealand economy is too small to be viable, but it is better to see its size as a feature which creates opportunities as well as limitations. The use of social coherence for reducing violence (or more positively creating a decent ambience), and as a part of a national economic strategy (as described in my book The Nationbuilders for the 1930s to 1970s) would be creative examples.

Social coherence relies on some assumption that the resources (and opportunities) of society are justly allocated to a reasonable degree. (The Fijian youth did not think so.) We struggle with reparations to the Maori – many of whose ancestors lost their assets in less than voluntary circumstances. But there was never an original state which was just. Nor is it clear how luck and inheritance fit in. Thus I have no problem with restrained interventions which redistribute income in favour of the poor.

However that is not a view of all New Zealanders, so that the reformers of the 1980s and 1990s massively redistributed income to themselves – the rich – with no obvious gains for society as a whole. It seems likely that today a higher proportion of the population have less sense ‘of participating in and belonging to’ their community – the underpinnings of social coherence – than in 1972 when the Royal Commission on Social Security set down the objective. That is despite the average standard of living having risen in the last 30 years, today there seems (proportionally) more who do not feel a part of society. Social coherence involves the community sharing in the fruits of prosperity – not exactly evenly, but sufficiently.

One consequence of the failure to share has been the increasing numbers (and proportion) of poor – especially families with children. (Today’s standard poverty line remains at the same level (adjusted for prices) that the 1972 Royal Commission implicitly recommended.) The reality is that low incomes (compounded by unemployment or low quality employment) put pressure on the family. Economists do not know much about the consequences of this pressure for that expertise belongs to other disciplines. Occasionally economics can make a small contribution by reducing some of the direct influences – the rising taxation on alcohol, to reduce alcohol misuse is a proud example. But the more fundamental contribution of economic policy is to reduce the economic pressures by raising incomes and reducing unemployment. It said that patterns of violence are inherited from one generation to the next. While the issue is not as simple as this, one cannot dismiss the argument that pressured families with growing children are prone to a violence which not only directly affects the welfare of the children, but eventually that of the grandchildren.

The measures necessary to do reduce the economic pressures are technical and outside the remit of this contribution. But note they invariably involve others sacrificing spending power. However, it is not the technical issues which limit the policy response. It is the public will. One consequence of the reduction of social coherence has been an unwillingness to tackle these pressures by preventative rather than reactive measures. It cannot be an accident that the successors to the advocates of the policies of the 1980s and 1990s see a need for greater policing and harsher penalties on criminals. Such remedies suggest economism – the belief that economics has all the social answers – has failed. We need a wider perspective than that from economics.

Ultimately the whole notion of society is underpinned by morality. Not the morality of the dos and donts of sex, which may or may not be a part of an authoritarian direction of behaviour. Rather it is a morality which offers an account of humankind living in communities which are underpinned by reciprocal, and largely voluntary, relations (like the market in fact) based on caring for its other members, and for which there is an ethical rather than mechanistic account which gives a coherent context to these actions. Among those who have articulated this best have been the religious – not all of course, but the thoughtful who mix a liberal vision with conservative practice, and who celebrate humankind as possessing flaws but able to be lifted spiritually beyond them. That is why this book about violence was instigated by a group of ministers, rather than a group of economists and other social scientists and policymaking technicians.