Listener: 24 January, 1987

Keywords: Political Economy & History;

Easton, come out in front of the class!

Yes, sir.

What have you done to the school playground?

What have I done, sir?

Yes, the playground is a total mess. Look at it! There are closed factories all around, bankrupt farms, and thousands of unemployed workers. It looks as though it’s been hit by a tornado. What have you been doing?

It wasn’t me sir. There has been a big economic storm – from outside, sir.

Come on. There may have been a storm, but those economic liberalisation policies you have been advocating have had their effect.

No, sir.

What do you mean ‘no, sir’. Haven’t the liberalisation policies caused a lot of the mess?

Yes, sir.

And have you not been writing column after column in The Listener advocating liberalisation?

Yes, sir, I mean no, sir, I mean …

That’s typical for an economist, you never know what you mean.

What I mean, sir, is that I have written advocating liberalisation policies, but not the ones that have been introduced. We. ..

What do you mean by ‘we’?,

Well, sir, there were a lot of economists who thought that there was a need for a major liberalisation. We argued that the high degree of government intervention was making the economy too rigid, unable to cope with the changes in the world outside, technological change, changing social conditions, and changing aspirations.

The economy seemed to be doing pretty well to me.

For some people, sir, it was not, and it was doing it on borrowed money. Anyway, as the difficulties recede, the memory dims.

Easton!

Sorry, sir, I was saying that to get greater flexibility many, indeed most, economists advocated a major reduction in the myriad of restrictions and subsidies which were propping up uneconomic activities.

There, I told you. They took your advice, introduced all these economic reforms, and look at the mess we’ve got into.

No, sir. The government didn’t take our advice. It took some of the policies we advocated, and implemented them in an extreme form more quickly than we envisaged.

That just shows that the government is a lot less timid than your bunch.

No, sir. There were basic differences. It is easier to dump labour from contracting industries, than to take up labour in expanding industries. So we saw a need for a labour market policy of redeployment, relocation and retraining. And to ensure there would be expansion we advocated a real devaluation of the exchange rate. Then exporting and import substituting would be profitable and firms would invest, create jobs.

Hindsight, all hindsight.

No, sir. All the professional literature says that. And so have visitors who have been passing through – like Dr Ann Krueger from the World Bank and Professor Harberger from the University of Chicago. Some of us were doing as much research as we could on exchange rate policy.

But you didn’t tell anyone when the government ignored your advice.

That is not quite fair, sir. Between the election and March 1985 it appeared that the government was following the mainline analysis. There had been that sharp devaluation immediately after the election, followed by an agreement to phase out a lot of the protection and subsidies -and the thrust of the economic summit appeared to be couched in these terms. Mind you, the late Merv Pope was warning against the government’s 1985 policies in 1984.

Then what changed?

Symbolically, sir, it was the floating of the dollar in March 1985 and the demonstration that the government was not going to worry about the level of the exchange rate. As that became clear, more and more economists began to criticise the government’s policies; the ‘Victoria Seven’, Professors GouId, Philpott and Sheppard also of Victoria University and Blyth of Auckland, Dr Peter Read and Jan Whitwell of Massey University, Dr Gareth Morgan of Infometrics. There are probably others I’ve left out. Peter Harris, Wolf Rosenberg; more recently Len Bayliss and Derek Quigley have voiced concerns.

It sounds like the class of 1983.

What’s that, sir?

Those who criticised the economic policies of Muldoon. Never mind, the fact of the matter is the playground is in a mess. Clean it up.

Yes sir .