Engaging with Alan Duff

This entry was posted in Maori, Political Economy & History on 15th September 2019 by Brian Easton.

A Conversation with My Country by Alan Duff

(Random House, $38.95, 246pp)

New Zealand Books, Volume 29 | Number 3 | Issue 127 | Spring 2019

In 1990, a comet brightened the New Zealand literary scene and society with the publication of Alan Duff’s Once Were Warriors, for it involved both an extraordinary literary style and a powerful story.

It was welcomed in the very first edition of New Zealand Books by the late Bruce Stewart, a playwright, ex-prisoner and founder of the Tapu Te Ranga Marae, important to Wellington down and outs. He opened his review with

At last a Maori writer has managed to hang out all the dirty Maori washing with some kind of dignity and at the same time place the blame where it belongs. No other Maori writer has achieved this to the same degree – small loads of dirty washing yes, but not the front fence covered in rags and holey underwear. Most of the Maori writers have been careful not to hang it out in case the Pakehas would see it and use it against them. In the backyard – amongst themselves, it’s family and it’s okay.

This reader was struck by the novel’s vigorous and innovative writing but it also told a troubling story about New Zealand’s underclass and the horrific lives they can lead. I cannot recall that my focus was particularly on the Maori dimension of the narrative. Yes, that the characters were Maori was an integral part of the story. But I knew that while Maori were more likely to be members of the underclass, there were probably more Pakeha in total.

According to Duff in his A Conversation with My Country, a collection of essays around a common theme, many Maori, unlike Bruce Stewart, objected to the novel, because they thought it would be taken to reflect all Maori. The thought never occurred to me, because I already knew that there were more Maori who were not in the underclass.

One may be surprised at the reaction. The late Rosie Scott’s Glory Days, published two years earlier, is about the Pakeha underclass. One did not assume that it characterised all Pakeha; I even gave a copy to one of its (admittedly literate) members to help her understand her situation. Clearly the Maori middle class were much more sensitive.

Having been battered by his critics, Duff goes on to argue that Maori have done a lot better since the book’s publication, claiming that Maori are the ‘most well-adjusted, self-asserted indigenous race in human history.’ He says that he would not write Once Were Warriors again, because Maori culture has progressed far beyond Jake ‘The Muss’,

I would be more cautious. I plead no-contest to claims about being in the front of human history; they are difficult to define and defend, and usually extravagant. But the dysfunctional underclass is still with us although they are more involved with drugs than liquor today. Moreover, to present Maori as if Jake was typical in 1990 ignores the majority at the time. Certainly most were at the lower end of the social scale but membership of the underclass was not predominant.

Duff is right that there is some movement up the scale over the years, but it is more incremental than he presents, partly by making the past worse than it was. As an example – there are many – Duff writes that All Black selection was once racist. But ‘in the last 30 years more enlightened attitudes have opened the door for more Maori’. In fact, the All Black team which finally beat the Springboks 63 years ago had five Maori, more than double their population weight. (Its captain, Bob Duff (no relation), was preceded by a Maori, Pat Vincent.) The protests which objected to excluding Maori from the tour to South Africa, beginning in 1949, reflected a recognition that Maori were being normally selected and should have gone.

The problem we all face understanding late twentieth-century Maori history is that the vast majority of Maori in the early twentieth century lived in rural localities. After the War they first trickled and then streamed into the cities. They were poorly prepared for the challenges of urban living. Some like Jake, sank, others flourished, most adapted. Duff is right that we should celebrate this adaptation and the success that has gone with it, but not uncritically, for the Jakes and Beths are still there.

The book discusses two ways of evolving the adaptation. Duff is proud of his books-in-homes program. Allow me a caution. His evidence for the program’s success is the number of distributed books, but there seems to be no systematic assessment of whether, or how much, they have changed lives. I have been in a middle-class Pakeha home with an entire wall of a filled bookcase, the occupier saying he had not read any of them. My mother, a high-school librarian, suggests a different solution. They named the school library after when she retired, not just for the way she had built up its resources but because she helped so many of the school’s students to get into the habit of reading. Duff tells a similar story of his father; it was not so much that his home had books but that he had a lifelong conversation with Gowan. The mentoring by parents, teachers, librarians, even neighbours is probably more important than the artefacts themselves (although, of course, they are needed).

I also caution about Duff’s second enthusiasm – education. Undoubtedly the discipline of schooling – attendance, classroom cooperation, literacy and numeracy and the like – is usually important for later success in life. But it could be argued that in a key respect the New Zealand education system is failing us. The poor quality of public discussion, and the uncritical popularity of some commentators, suggests that our students leave school unable to handle a complicated debate. Do they have any sense of the treachery of ‘truthiness’, that if something conforms to one’s views it must be true. We bemoan the phenomenon overseas, especially as it gives Donald Trump, and others, their popular base. The difference here is only one of degree.

To give a slightly complicated example which Duff addresses. He argues that blaming ‘colonisation’ and ‘racism’ for the problems of Maori is a major roadblock to further progress, Such political correctness prevents proper discussion; in order to move forward it is necessary to ditch labels that make Maori victims and non-Maori oppressors.

I agree. Too often terms like ‘colonisation’ and ‘racism‘ – there are others – are a signal that the speaker has stopped thinking and does not understand the issues he or she is talking about. Labels become a block to progress not a pathway.

Duff has dislikes. We need to be more subtle than his views of gangs. Undoubtedly some, and some parts of others, are involved in crime and drugs and behaviour as heinous as Jake’s community. But are they all like that? Rather than starting off condemning them, we first need to know more. My hypothesis is that they are a social form arising from adapting to urbanisation, that we see only the prominent failures and not the quiet successes. We rely on truthiness.

Duff’s remarks on the welfare system are even more troubling. There are two broad views. Duff’s is that it encourages social delinquency and that the welfare recipients should get off their bums and look after themselves rather than relying on the state. The other is that a market economy inevitably fails to provide an adequate standard of living for all, especially for those doing valuable social activities outside the market, such as child-rearing, or those who lack the capabilities to earn adequate market incomes – the sick, invalids and the retired. The welfare system is a way of modifying market outcomes to address this failure.

Both accounts are, to some extent, correct, but applying the first diagnosis to those suffering the second condition is futile and corruptive (although it is terribly popular with the political right). What is needed is to address the second group, get that right and then address the residual; there are probably fewer bludgers than the right thinks.

While writing this review, but after the book went to press, the (latest) row in regard to Oranga Tamariki blew up. I know little about the facts of the originating case which involves a disputed uplifting of a newly born child from a Maori mother. There has been public outrage and some Maori are organising against the ministry, including objecting to its Maori name.

Recall its original English name was ‘Ministry for Vulnerable Children’, the adjective indicating that the agency was fundamentally dysfunctional in conception. The name was changed to ‘Ministry for Children’ although, as far as one can judge, nothing else has been done to address the underlying dysfunction. The ministry’s Maori name, ‘Oranga Tamariki’, was not changed, and has no overtone of vulnerability. It means ‘wellbeing of children’, an even better title than ‘Ministry of Children’,

It is true that the majority of children in state care are categorised as Maori – looks like the prison population, does it not? – but that was not true at the previous peak in 2008. What has happened belongs to another public discussion, which the Maori protest may be triggering.

My point is a simpler one. Once more we have given primacy to the Maori dimension of a phenomenon involving widespread failure and dysfunction. I would regret losing the name, ‘Oranga Tamariki’, for a functioning Ministry of Children although one appreciates the Maori frustration with the equating of this perfectly appropriate term with ‘vulnerability’.

I doubt that I would have written the last few paragraphs without the stimulation of Duff’s A Conversation with New Zealand. Many readers may dismiss the book because of its errors, its misunderstandings and its political conservatism – their truthiness against his. Instead they should take up his invitation to engage with a viewpoint which may have its limitations but is offering a conversation about one of the acutest issues facing Aotearoa/New Zealand.

Notes to Select Committee Considering the Zero Carbon Bill

This entry was posted in Environment & Resources on 26th August 2019 by Brian Easton.

Presentation on 26 August, 2019. The full submission is here.

Summary

1. Climate change and sea level rising is one of the greatest challenges the world faces.

2. New Zealand should play its part in the world’s effort to restrain greenhouse gas emissions.

3. I broadly endorse the intention of the Climate Change Response (Zero Carbon) Amendment Bill.

4. My recommendation is that all specific references to biogenic methane emissions should be removed and that methane should be treated on the same basis as all the other greenhouse gases.

Methane

5. Compared to carbon dioxide, methane is an especially burdensome greenhouse gas.

6. On the other hand, compared to most other greenhouse gases, it has a short half life – between 10 and 12 years. It is analytically important to distinguish between gross and net emissions in a way that is not as important for other greenhouse gases.

7. In the past New Zealand generated a substantial methane cloud, mainly from the past expansion of its livestock industry.

8. However, the methane cloud is no longer increasing. That is because gross annual methane emissions have been (roughly) stagnant and are being offset by the breakdown of methane in the existing cloud. Thus while gross emissions are substantial, the net emissions are near enough to zero.

9.Methane from the livestock industry is not adding to global warming as its current emissions are being offset by reductions in the effect from its past emissions.

The Proposed Legislation

10. The proposed legislation treats biogenic methane differently from other greenhouse gases including thermogenic methane. It is not clear why it should be separated out.

11. In particular it is not obvious why biogenic methane, which is treated in gross terms, should be distinguished from thermogenic methane which is treated in net terms.

12. Nor is it obvious why emissions from fossil fuels may be netted off against carbon sinks (such as trees), while biogenic methane may not be netted off, especially against previous methane emissions.

14. Alternately it is not obvious why we should ignore the past emissions from fossil fuels which contribute to global warming but give the livestock industry no credit for the fact that its past contribution to global warming emissions is diminishing.

15. A further weakness of the bill is that it quantifies in statute precise targets for gross biogenic greenhouse emission based on experts’ best guesses about the technological possibilities of methane reduction thirty years on. That is bad law. (Also, what happens if they have underestimated the possible reductions? )

16. It is proposed that the new law treat biogenic methane the same as other greenhouse gases by removing all reference to it. Section 5O of the bill would now read

(1) The target for emissions reduction (the 2050 target) requires that-

(a) net emissions of greenhouse gases in a calendar year, are zero by the calendar year beginning on 1 January 2050 and for each subsequent calendar year;

The Effect of the Proposed Change

17 The proposed change would remove the anomalies and inconsistencies in the bill as it now stands.

18. It does not affect the intention of the bill, nor add to the challenges the proposed commission faces.

19. It does not reduce the urgency of the need to reduce gross biogenic methane emissions nor of all greenhouse gas emissions.

In summary the references to methane in the bill are unnecessary, discriminatory, divisive and bad law.

NOTES ON SOCIAL COSTS STUDIES

This entry was posted in Health on 20th August 2019 by Brian Easton.

This note is written in response to a request about the details of how to do a social cost study on alcohol (misuse). It is written by an economist who has long been involved in the area both theoretically and practically. [1]

The point of this note is that it is important to understand that there is a deep theory for social cost estimates as far as economists are concerned. That creates a framework for the measurement of social costs. Economists doing a social cost should have recourse to the theory to apply the framework.

At the heart of the deep theory is the notion of that an economic cost is an ‘opportunity cost’ that is the cost of anything is the opportunity forgone. For an economist, then, one is always looking at an alternative,

In social cost estimation, the alternative is called the ‘counterfactual’ to be compared with the ‘actual’ situation. A social cost measurement exercise should always state what the counterfactual is. Without one the exercise is meaningless. There is rarely a unique or even obvious one.

For instance, it might be that the counterfactual is that there never has been any alcohol consumption, or it that all alcohol consumption ceases on a certain date or that on a certain date that alcohol consumption is reduced to the point where there was no misuse of alcohol although moderate consumption continued, or that there has never been any alcohol misuse. (The latter is the one I used.) Each counterfactual will lead to a different magnitude for the social cost.

(There is much puzzlement over the necessity of considering ‘avoidable costs’. They arise from a counterfactual scenario where, say, alcohol consumption had existed in the past but it stopped overnight. Costs arising from the past consumption will continue to occur after the cut off day (for instance there will be still be treatment costs and deaths from cirrhosis of the liver long after the cutoff date.) The costs are considered unavoidable and the counterfactual focuses on avoidable costs those that do not continue.)

The actual and counterfactual scenarios will have different outcomes. In principle a list is made of all the items in the two outcomes with particular attention to the differences between them. (For instance as alcohol consumption is reduced or eliminated, cirrhosis of the liver will decline.) The items are then valued according to the standards of economic ‘value theory’ thereby giv8ing two gross magnitudes, the differences of which is the social cost revealed by the counterfactual.

In practice every item is not identified – some remain the same, others are compared in aggregate. So the exercise is not as complicated as the previous paragraph might suggest. But that is the underlying notion and should be referred to when there is a doubt.

I do not propose here to discuss the valuation method that could end up a very long note.

However the implicit assumption is that all people’s consumption is valued the same, and that distributional issues are irrelevant. That is almost standard in economic analysis of alcohol consumption, except for some hand-waving. It is not my choice but I have found it difficult to offer an alternative paradigm. The best I can do is to split the aggregate into sectors – the recommended practice rarely followed in any detail. I add that this issue explains why transfers (such as taxes and benefits) are not included in social costs, although those not using the deep analysis sometimes get confused by how to treat transfers.

The simple summary is this. There is a well-developed tool in economics called cost benefit analysis (CBA), based on deep theory, with manuals that explain the framework and practice. It is used for many purposes, ranging from project evaluation to pharmaceutical evaluation. The economists’ approach to social costs of alcohol (and other drugs) is based upon CBA. Indeed done properly, were the need for a CBA arose, the calculations could use the cost-of-illness material. In effect the cost-of-illness exercise is a CBA with a particular counterfactual scenario. The rules and interpretations are the same.

One further issue needs to be mentioned. When CBA was first developed, it was applied to situations where the purpose was to change market output – GDP. However once it became used for analyses in the social sector, the issue of consequences in the nonmarket economy needed to be considered. For instance, two different methods of treating an illness may involve either the person being kept in a hospital or sent home. The first option impacts on GDP but the second has a similar impact on the care provided by the household which is not included in GDP. To ignore the household impact would be to bias treatments toward cost-shifting. Nowadays one would want to take the nonmarket sector into account in a CBA and therefore in a cost of illness study.

The issue deepens when one is concerned with wellbeing which is hardly measured in market GDP. For instance the effect of a pharmaceutical treatment may be to add to a person’s quality of life or to extend that life. The issue was not unappreciated in early CBAs. (One of my earliest introductions to CBA was how to deal with deaths in road accidents.) If this wellbeing is not taken into consideration treatments would be based in favour of one which resulted in shorter lives and greater discomfort for the patient because it was so much cheaper. The same analysis applies to social costs of drug measurement. In my experience the difference in quality of life/wellbeing aggregates far exceed to GDP ones.

[1] e.g. International Guidelines for Estimating the Costs of Substance Abuse, 2ed (WHO 2003) (also Canadian Centre for Substance Abuse, 2002) with E. SINGLE, D. COLLINS, H. HARWOOD, P. KOPP, H. LAPSLEY & E. WILSON; and The Social Costs of Tobacco Use and Alcohol Misuse (Department of Public Health, Wellington Medical School, Research Paper 2)

Climate Change Response (Zero Carbon) Amendment Bill

This entry was posted in Environment & Resources on 16th July 2019 by Brian Easton.

Submission to Select Committee reviewing the bill

July 2019

Fundamental Recommendation

That the 2050 target in the legislation be defined in terms of ‘net’ methane emissions rather than ‘gross’ methane emissions.

Proposed Amendment

That all references to biogenic methane emissions in Clause 5O be deleted.

In particular the current proposed clause 5O

5O Target for 2050

(1) The target for emissions reduction (the 2050 target) requires that—

(a) net emissions of greenhouse gases in a calendar year, other than biogenic methane, are zero by the calendar year beginning on 1 January 2050 and for each subsequent calendar year; and

(b) gross emissions of biogenic methane in a calendar year—

(i) are 10% less than 2017 emissions by the calendar year beginning on 1 January 2030; and

(ii) are at least 24% to 47% less than 2017 emissions by the calendar year beginning on 1 January 2050 and for each subsequent calendar year.

(2) In this section, 2017 emissions means the gross emissions of biogenic methane for the calendar year beginning on 1 January 2017.

Should be amended to

5O Target for 2050

(1) The target for emissions reduction (the 2050 target) requires that—

(a) net emissions of greenhouse gases in a calendar year, other than biogenic methane, are zero by the calendar year beginning on 1 January 2050 and for each subsequent calendar year; and

(b) gross emissions of biogenic methane in a calendar year—

(i) are 10% less than 2017 emissions by the calendar year beginning on 1 January 2030; and

(ii) are at least 24% to 47% less than 2017 emissions by the calendar year beginning on 1 January 2050 and for each subsequent calendar year.

(2) In this section, 2017 emissions means the gross emissions of biogenic methane for the calendar year beginning on 1 January 2017.

So that it reads:

5O Target for 2050

The target for emissions reduction (the 2050 target) requires that net emissions of greenhouse gases in a calendar year are zero by the calendar year beginning on 1 January 2050 and for each subsequent calendar year.

It will also be unnecessary to define ‘biogenic methane’ in Section 4(1).

Short Justification

There is no need to separate biogenic methane from other emissions (including non-biogenic (thermogenic) methane).

It penalises farming unnecessarily;

It involves arbitrary targets;

It overachieves the stated aim of the proposed legislation, and

It makes the legislation and its implementation overly complicated;

Background

Methane is a greenhouse gas which contributes to global warming. It is unusual in that its half-life is relatively short – 10 to 12 years – which means that (biogenic) methane being emitted in 2019 while the legislation is being passed will make virtually no contribution to global warming by the target date of the legislation (2050).

This is because of the nature of the methane cycle. The breakdown from livestock methane is, in effect, to nothing. Its carbon came from atmospheric carbon-dioxide converted into grass, eaten, ruminated, belched and as methane breaks down, eventually returned to atmospheric carbon-dioxide, completing the cycle.

This is already happening. Gross methane emissions from livestock have been stable for about four decades. As a consequence, for some time net livestock emissions – that is, current gross emissions offset by past emissions breaking down – have been near zero; sometimes slightly positive, sometimes slightly negative.

(The methane cloud generated from New Zealand livestock emissions is about 13MTs (million tonnes) of methane. In 2017, around 1.1MTs of it broke down into atmospheric carbon-dioxide. Meanwhile our livestock belched another 1.1MTs – almost exactly the same as the breakdown tonnage.)

Measuring, as the proposed legislation currently does, biogenic methane emissions in gross terms and ignoring the offsetting breakdown of past biogenic methane emissions does not make sense in terms of the purpose of the bill while also complicating its implementation.

Longer Justification: It Penalises Farming Unnecessarily

The farm sector may reasonably ask why other sectors are entitled to use offsets to their emissions while farmers are not. For instance, a motorist using petrol which emits carbon dioxide is permitted to use carbon sinks (such as trees) to offset her or his contribution to global warming.

Farming is also penalised compared to industry sources of non-biogenic (thermogenic) methane, which in the proposed legislation is treated in net terms. Why the legislation makes the distinction is unclear.

It is not at all evident – fair or wise – that the farm sector should be asked to bear a higher share of the burden of New Zealand’s campaign to eliminate net greenhouse gas emissions.

Longer Justification: It Involves Arbitrary Targets

Leaving aside whether it is a good principle to include specific quantitative targets in legislation (and the rather odd phrase ‘ at least 24% to 47%’, for the significance of last two words is unclear) the targets are, at best, guesstimates and contestable. They assume certain scientific advances which may, or may not, come to pass.

It would seem unwise – if not heroic – to project scientific achievements three decades out, let alone to also legislate any such projection.

Longer Justification: It Overachieves the Stated Aim of the Proposed Legislation

The purpose of the amendment is zero carbon emissions by 2050. The effect of the legislation, if successful, will result in negative net emissions for New Zealand by that date.

The reason is that emissions which are not biogenic methane will be in balance, but biogenic methane’s contribution will be negative, so that, overall, net emissions will be negative.

If the real purpose of the proposed amendment is that New Zealand should be a negative contributor by 2050, that purpose should be made clear, perhaps by replacing the ‘zero’ in the bill’s title by ‘negative’.

Longer Justification: It Makes the Legislation and Its Implementation Overly Complicated

The legislation is long and complicated which adds to the difficulty of implementation. The proposed amendment deletes ten unnecessary and complicating lines.

Moreover, by focusing on net emissions for all greenhouse gases rather than treating some GHGs differently from others, the proposed target is more understandable.

Conclusion

The recommended change makes the legislation more coherent and the implementation of the amendment’s intention simpler.

It does not exempt biogenic methane from the exercise. Insofar as livestock emissions can be reduced, they will make the overall target easier. But any reduction needs to be approached in the light of the application of scientific developments. They will, no doubt, be carefully monitored by proposed Climate Change Commission.

There is nothing in the submission which denies the urgency and importance of the world limiting climate change by reducing the warming effects from greenhouse gas emissions.

References

The underlying technical paper is

New Zealand’s Methane Cloud

<><> <>NEW ZEALAND’S METHANE CLOUD<>

A non-technical account of the paper is

Up in the Clouds

<><> https://pundit.co.nz/content/up-in-the-clouds

A simplified account of this submission for public discussion is

Muddling Over Methane

<><> https://pundit.co.nz/content/muddling-over-methane

¹1. Economic and Social Trust On New Zealand, estonbhnz@gmail.com, www.eastonbh.ac.nz

What Happened to Egalitarian New Zealand?

This entry was posted in Distributional Economics, History of Ideas, Methodology, Philosophy, Political Economy & History, Social Policy on 25th June 2019 by Brian Easton.

Bob Scott Lecture Series on Inequality, 25 June 2019.

What I want to do this evening is examine egalitarianism. In particular, New Zealand is a less egalitarian society today than it was when I was growing up in the 1950s. Why? How?

The structure of the paper is as follows:

First, I define ‘egalitarian’.

Second, New Zealand was once a more egalitarian society than it is today. It has been overwhelmed by economic, social and technological changes. A crucial outcome is that the class structure has become less fluid and the increasing rigidities have disconnected the powerful from the rest of society.

Third, this disconnection led to Rogernomics which ignored most people and favoured the privileged, shifting the income distribution markedly in favour of those at the top.

I am not going to give a lot of space to policies if you believe that the loss of the more egalitarian society is to be regretted, for two reasons. First, I have not the time and second to make it I would have to cut back the analysis at the core of this paper. Too much policy in New Zealand is based on poor quality analysis; I have been resisting this national defect all my life.

I add that today’s analysis arises out of, and is summarised in, a history of New Zealand from a political economy perspective which I am writing. This large study, Not in Narrow Seas, is to be published by Victoria University Press next year (2020).

The Meaning of ‘Egalitarianism’

How do we define egalitarianism? First, it is important to recognise that it is not the same as equalitarianism, where everybody is exactly equal on all important social dimensions. Certainly they should be equal before the law, while access to certain key services such as education and health should be based on need rather than such things as wealth and social status. But while including this, the notion of egalitarianism is more subtle. Ultimately it is the idea that all humans are equal in fundamental worth and moral status.

A quarter of a century ago, during the trials of Rogernomics, Ruthanasia and Jennicide, the church leaders articulated the following five principles for the running of society:

– to respect human dignity with its rights and responsibilities;

– to live in solidarity with others, aware of our interdependence;

– to seek the common good, that is, the well-being of all;

– to value work and creativity; and

– to give priority to the needs of the poor.

One is reminded of Michael Joseph Savage’s aspiration of ‘applied Christianity’.

An important influence on social justice thinking has been the work of American philosopher John Rawls and his seminal Theory of Justice. Rawls is indebted to the eighteenth-century German philosopher Immanuel Kant, whose categorical imperative was ‘act only according to that maxim whereby you … will that it should become a universal law’, a principle which harkens back to Jesus’s injunction to ‘do unto others as you would have them do unto you’.

Rawls argued that society should be judged by the way it treats the least well-off in society. He concluded this maxim as follows.

Suppose each of us were able to choose whichever society we preferred. The only limitation is that we do not know what our status would be in it; whether we would be rich or poor, white or brown, male or female, intelligent or dull, heterosexual or homosexual, and so on.

In such circumstances we would be unlikely to select a form of society which favoured one set of characteristics over another, since we may well end up as an individual in a society which fails to respect our characteristics. Rather, given this veil of ignorance about our status, we would choose a society which maximised the minimum level of wellbeing, so that if we were unfortunate enough to end up with the least favourable set of characteristics we would do as well as possible.

Rawls’ conclusion is that all members of society have a special obligation to the poor and vulnerable. But it does not follow that we should have exact income equality, even were that a meaningful notion. A Rawlsian would argue that inequality was acceptable providing the poor benefited from it. For instance, a state bureaucracy determined to iron out all inequality would be so expensive to run, and generate so many disincentives against producing, that the poor would have lower wellbeing compared to what they would have in a society with a moderate level of inequality. On a more positive note, the possibility of a degree of inequality may encourage people to take initiatives which generate jobs, opportunities, and commodities for those on a lower standard of living.

My shorter definition, elaborating a notion in a report of the 1972 Royal Commission on Social Security, is an egalitarian society is one in which everyone is able to participate in and belong to the wider society while recognising their individual differences. To give an example: we cannot treat someone with a disability the same as everyone else but they should be able to live comfortably in the wider society. The merit of the definition is that it focuses more on wellbeing, while it is consistent with the church leaders’ and Rawls’ definitions.

The reality of attaining these egalitarian goals is very difficult, but an egalitarian says we should be striving towards it. Have we been doing that? Consider the aspirations which were standard sixty-odd years ago, but no longer drive our social thinking.

The first is attributed to Walter Nash, the first Labour Minister of Finance, who said that ‘the young, the old and the sick should have first call upon the state’ – a very Rawlsian notion.

The Nash aspiration is obviously not true today, give widespread child poverty. Moreover, while we treat the elderly well by international standards we are not facing up to the growing problem of those who require supplementary care for health and disability reasons. As for the sick and invalided, it would take another paper to address the challenges we face there.

The second egalitarian aspiration was articulated by Peter Fraser but it was drafted by his Secretary of Education, Clarence Beeby.

The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.

While many in the educational system still believe in that objective, it is hard to conclude that the aspiration is being achieved. UNICEF recently reported that New Zealand has one of the most unequal education systems in the world and the gap between the highest and lowest performing students is being made worse by poverty.

Moreover, look at the criticisms from those schools at the top to the Minister of Education’s recent proposals to reduce the inequality of educational opportunity. What strikes one is that their position was not that the minister’s approach was flawed and there was a better way to attain the Fraser-Beeby goals. Rather, the top schools were resisting change which might undermine their privilege.

The third egalitarian aspiration was set out by the 1972 Royal Commission on Social Security but it reflects, and was intended to reflect, the ambition of the welfare state of the First Labour Government. They are writing about the social security system but they must have been well aware of the wider import.

The aims of the system, should be

(i) First, to enable everyone to sustain life and health;

(ii) Second, to ensure, within limitations which may be imposed by physical or other disabilities, that everyone is able to enjoy a standard of living much like that of the rest of the community, and thus is able to feel a sense of participation in and belonging to the community;

(iii) Third, where income maintenance alone is insufficient (for example, for a physically disabled person), to improve by other means, and as far as possible, the quality of life available.

Again this has a very Rawlsian framework. Where it advances the Nash statement is that the Royal Commission was setting up a principle for the minimum standard of living for all New Zealanders.

The first clause of the Royal Commission’s aims – to enable everyone to sustain life and health – is equivalent to setting an absolute poverty level.

The second clause sets a relative minimum standard of living with the notion that all New Zealanders should participate in rising prosperity.

However, the New Zealand government abandoned the second target in 1990 when it cut social security benefits to a level which it may have assumed was sufficient to sustain life and health. At the same time it abandoned the principle of increasing the level with rising prosperity. (The Royal Commission recommended indexing to wages, as we do today for New Zealand Superannuation.)

When the Richardson-Shipley regime set the new rates in 1990, they must have had an absolute poverty level in mind. With one exception, benefit levels have not been increased faster than inflation in the thirty-odd years between 1991 and 2020. They certainly have not moved in line with wages over the period. Even next year the real benefit levels, after the budget increase, will generally be below what they were in 1990 before the cuts.

So the aspirations for an egalitarian society which were once deeply embedded in public policy and our thinking have faded into the background. Why? One sort of answer is that social change has led to a change in the way society thinks about itself.

How Does Social Class Fit In?

One of the ways we used to characterise New Zealand’s more-egalitarian society was to claim that it was ‘classless’. We used to say that Jack was as good as his master, for it was a less hierarchical society.

We should not get too nostalgic about those times. Jack may have been fine, but what about Jill? (Women are different of course, and we were the first country in the world to give them the vote – anyway she was happy looking after her house and family.) What about Haki? (He was happy in the pa and, anyway, we have the best race relations in the world.) It was a bit of a shock when Jill and Haki joined urban working life.

Historian Keith Sinclair said ‘New Zealand is not a classless society. It must be more nearly classless, however, than any other society in the world.’ Well, somewhere in the world there has to be a society at the top of the rankings and it just could have been the one down-under. But Sinclair was not denying there was class in his New Zealand.

The notion of class is treacherous. Forgive me for not giving a detailed analysis, but an important distinction is between social class as an objective phenomenon (whatever the particular definition chosen) and class as a subjective phenomenon for, whatever the objective facts, it is people’s perceptions which determine short-term political behaviour.

Social differences in New Zealand and the resulting distinctions generated a hierarchy. Bob Chapman, professor of political studies at the University of Auckland from 1962 to 1987, and one of our most innovative early social scientists, talked about ‘social gradients’.

Of course, the general public was aware of some sort of hierarchy but they did not think it important in their lives. So whatever the objective reality, the public discourse in the 1950s and 1960s largely avoided discussing class, except along the lines of ‘we are not England; so there’.

The perception of a (subjectively) classless Pakeha New Zealand – that ‘we were all in this together’ – seems to have consolidated from the war experience – especially from the camaraderie that was generated in the armed services – and from the Great Depression which was seen as a leveller. Of course, the demand for social distinction was not entirely abandoned. Nineteenth-century politicians and other dignitaries appear to have been as eager for knighthoods as – er – are their twenty-first-century successors..

But class was changing in the postwar era. Chapman. thought that New Zealand was ‘classless’, but he added numerous caveats. In an extraordinarily perceptive, but little known 1962 paper he wrote: ‘For different economic grades to be transformed into social classes it is necessary that separate patterns of life be elaborated for each class.’ He mentioned holiday houses, travel overseas after marriage (sic), regular dining in restaurants, expense-account living and frequent holidays as signs of differentiation.

To rewrite Chapman’s thesis in the light of the later evidence: in the 1950s there were social differentiations by income and spending, and while they may have been significant in an objective sense – and were vaguely recognised – subjectively New Zealanders generally thought of the country as classless.

Chapman went on to argue that there were processes under way which were driving New Zealand’s ‘equal society’ towards a similar level of inequality and class as in Western Europe. He thought Western Europe was becoming more egalitarian – I am not sure of that. But he thought that New Zealand was converging to its level; he seems to have been broadly correct.

Presciently, two decades before Rogernomics, he wrote, ‘the concentration of control and ownership ….seems likely to persist providing there is a continuous widening and intensification of markets.’ While farm concentration and industrialisation were explicit drivers, his narrative gives weight to the urbanisation which is a consequence of the two. It was a masterly insight but not quite a prediction, for the forces Chapman describes had been well under way when he wrote – indeed he had been tracking them.

With hindsight, there were probably two other major drivers of this change. One was the increasing population which meant that New Zealand was losing the intimacy which gave it a high degree of social cohesion. The increase was not just in numbers. As mentioned earlier, effective public life was kept small by relegating woman to the kitchen and Maori to the pa. As they came out, effective numbers increased. Moreover the concentration of the population in the cities exacerbated the social divisions within them.

Second, and central to Chapman’s explanation of the increasing class divisions, was rising affluence. In the twenty years after the war, real private consumption had risen almost 60 percent a person. But to focus on this volume change alone is misleading. More important is that there were a diversity of new products.

The rise in diversity and choice is one of the most important postwar phenomena. Here we observe it generated opportunities for social distinctions which solidified into class. In some respects class in New Zealand is not based on income, although there is an occupational dimension, but on what was owned and what was consumed or, especially, seen to be consumed, although conspicuous consumption – the flaunting of spending and wealth – did not become de rigueur until the 1990s. Before then, the gap between the haves and the have-nots slowly opened up, noticed but initially neither comprehended nor commented on.

The Political Consequences of Increasing Social Division

There is much which could be said about the social transformation – much of it is in my book – but for tonight’s purposes I want to focus on the political consequences.

Until 1984, New Zealand was governed by the ‘Depression’ generation. They were (almost entirely) men who had grown up during the Great Depression and had fought in the Second World War. While they were now higher in the social hierarchy, they did not forget their origins; my guess is that their social connections were wide except they were more strongly with the older generations. (Muldoon is an exemplar.)

In 1984 a new generation took over. It was born after the Great Depression and had benefited from the welfare state, especially the educational opportunities it offered. However, they were not particularly working class, generally coming from the affluent middle class which Chapman had seen inching away from workers.

However, for the story being told, the origin and class of the leadership would not matter, except – capital letters EXCEPT – that individuals, isolated in their classes, were becoming disconnected from the population as a whole. This included the politicians who led Rogernomics. Additionally, and less surprisingly, it also applied to their advisors.

How do we know? One is struck by how little attention they paid to the people they were hurting. It takes a little space to set out an example.

During the Rogernomic/neoliberal period (from 1985 to 1993) the New Zealand economy broadly stagnated as measured by per capita GDP (output).

When the economy began growing again, it was at about the same rate as the OECD (again) and some 15 per cent below the old growth track – so New Zealand had fallen further behind, despite the Rogernomic promises.

The Rogernomes had given significant income tax cuts to those at the top of the income hierarchy; they were largely paid for by the government expenditure and benefit cuts of the Richardson-Shipley 1990 package – that is, by the poor and by those dependent on government spending – and also by tax increases and user charges on middle incomes.

The income tax cuts to the rich were so substantial that their real incomes increased at much the same rate as they had done in the past, even though the economy was stagnating. They did not experience the 15 percent relative loss. So the rich were hardly aware of it or what was happening to others. They praised the traumatic policy changes as beneficial since – on average – they did not suffer.

But if the economy was stagnating, and their incomes were rising, then the incomes of other people fell. This increase of the rich’s incomes and falls of the rest of New Zealand’s is the source of the sharp increase of household income inequality in the 1980s and 1990s.

To simplify, we report the year in which each household income decile returned to the real income level which it had been in 1984, when the Rogernomes came to power. (There is little earlier data.)

Decile Recovery Date from 1984 base Years

Top After 1988 4

2, 3 and 4 from top After 1996 12

Fifth After 1998 14

Six and Seven After 2001 17

Bottom three After 2004 20

So while, as a result of the income tax cuts, those at the top income level recovered quickly from the initial turmoil – which included the sharemarket crash – the other 90 percent of the population were on lower real household incomes in 1996 than they were in 1984. The bottom 30 percent did not recover their material living standard of the 1980s for twenty years.

This represents a reversal of those Rawlsian aspirations expressed by Walter Nash. The welfare state had aimed to protect the poorer during an economic downturn, with those better off taking a greater share of the burden. Instead, the opposite occurred: those at the top were protected, while those below took a greater share of the burden. Under the Fourth Labour Government it was those on middle incomes who took the disproportionate share; under the Fifth National Government, it was the poorest who were most harshly hit. Under neither regime did those at the top suffer much.

Since those at the top had become isolated from the rest of New Zealand they were insufficiently aware of how others were struggling. That is a class effect.

The Rogernomes were so out of touch that they argued that it was dissension within the Labour caucus ranks which destroyed the Fourth Labour Government. That was true, but the Rogernomes seemed unaware that the dissidents against their policies were those still in touch with the masses and knew they were hurting. It was the hurt masses who voted them out.

The Fourth National Government alienated its political base in a quite different way. It was shrewd enough to cut the incomes of those who would not vote for it anyway; I am not sure how much it thought about the empathy vote – those further up the scale who would show solidarity to the more marginal, as you would expect in an egalitarian community. But, in a neoliberal ideological fit, National turned upon the icon of the middle class, the public health system. Prime Minister Jim Bolger explained the devastating reduction of its vote in 1993 by the alienation arising from the proposed redisorganisation of the health system. He appeared to give little significance to any empathy vote.

A good comparison of the political failure of Rogernomics is with the parallel Labor Government is Australia which survived much longer. Prime Minister Hawke was much more in contact with the Australian people, he kept his ministers in better check, and yet maintained the modernising transformation. The Australian economy put on 20 percent relative to us, growing faster than the OECD.

I add that the governing class getting out of touch with the populace is not unique to New Zealand. The strangest one at the moment is today’s Britain, where we have candidates vying for leadership of the Tory Party, and hence the prime-ministership of Britain, with policies which are not going to work and which, if they are pursued, will damage the vast majority of the people – including their voters.

It is a strange development of democracy that its leadership, for ideological reasons or ambition, can pursue policies which are not in the interests of the public. Eventually they revolt. We saw that in New Zealand with the outcome of the MMP referendum. It seems that the Brexit referendum in Britain was as much a revolt against the government’s austerity policies as impatience with an arrogant internationalism. It may not always be a referendum; the likelihood is that what is going on in Britain will destroy the Tory party for a generation and may do the same to Labour.

How Did the Egalitarian Society Come to an End?

In summary, over fifty years ago Bob Chapman detected an evolving class structure in New Zealand which has led to a deterioration in social cohesion. This meant that the ruling class, increasingly out of touch with New Zealand aspirations, abandoned the principles which underpinned post-war egalitarian New Zealand in favour of principles which served themselves. We no longer say that ‘the young, the old and the sick should have first call upon the state’; instead the slogan is that we may not raise taxes to fund any call upon the state that the young, the old and the sick may make. The rich and their principles are so powerful – another indicator of a strong class structure – that it is difficult to break out of the rules with which they govern, as this Labour-led government is finding.

We can best follow what has happened by observing economic equality. It is not just that it is measurable or that I have been working on the measurement most of my professional life. The public focuses on it.

In particular, there is widespread unease about the degree of income inequality in New Zealand. The main concern has been inequality in the household disposable income adjusted for household composition. There are various minor caveats but it was relatively stable for a quarter of a century.

However, between 1985 and 1993 there was a very substantial increase in that inequality. The dominant reason was the tax cuts under the Fourth Labour Government and the benefit cuts under the Fourth National Government in that period. There is no other factor I have been able to identify which has had such a big impact – and that includes the market liberalisation and globalisation.

Despite the time I have spent developing the data, I do not think that the social concern about income inequality is about the numbers – other than perhaps that they are indicative of the serious problem of poverty among some sections of the population. Rather the concern is because the numbers symbolise the ending of egalitarian New Zealand which people once so greatly valued.

What we have done is change the purpose for which New Zealand is governed, the direction where we are going.

Conclusion

I summarise the paper’s themes.

First, I defined ‘egalitarian’. Ultimately it is the idea that all humans are equal in fundamental worth and moral status.

Second, New Zealand was once a more egalitarian society than it is today. Whatever the nation’s aspirations – I elaborated many – they have been overwhelmed by economic, social and technological changes transmitted through the political syste, only some of which I have had time to detail. A crucial outcome, as Bob Chapman foresaw, is that the class structure has become less fluid and the increasing rigidities have disconnected the powerful from the rest of society.

Third, this disconnection led to a rapid economic policy transformation – we call it Rogernomics or neoliberalism – which ignored most people and favoured the privileged, embedding in a policy framework which has maintained that privilege. I particularly reported how this shifted the income distribution markedly in favour of those at the top. Had I time, I could have identified other relevant changes. Fundamentally, the purposes for which New Zealand has governed has changed.

This analysis may lead you to wonder whether New Zealand could return to the egalitarian society. Let me make just two comments. The first is that any future egalitarianism will be a different kind. I mentioned that it partly worked in the past by ignoring the particularities of women and Maori. Today, New Zealand is even more socially diverse.

The second is that a more egalitarian society almost certainly involves a substantial reduction in income inequality and that requires increases in top income taxes greater than the existing policy framework allows. Recall that a key element in the increase of income inequality was that those at the top were not asked to share the 15 percent cut in real incomes which was the effect of the Rogernomics stagnation. Ergo, some sort of return to egalitarianism would need a new policy framework.

My final thought is this. I’ve known the broad outlines of the story I have told you for more than two decades. Occasionally I get invitations to tell the story – thank you for the opportunity this evening. Many people hear the story favourably but over the decades there has been little thinking about it; about what to do, or how to reverse the anti-egalitarian policy framework that shapes us today. Bob Chapman was on the pessimistic side about our prospects; I join him.

Up in the Clouds

This entry was posted in Environment & Resources and tagged global warming, greenhouse gas clouds, methane on 7th May 2019 by Brian Easton.

Written for a farm journal but not published

Still winter nights without rain clouds are usually followed by a frost. The clouds reflect back the heat coming off the earth; the higher ambient temperatures and reduce the risk of frost. The clouds of greenhouse gases (GHGs) in the stratosphere similarly reflect the heat coming off the earth. However, while the visible rain clouds come and go, the GHG clouds have been increasing.

The main reason is that human activity on the ground has emitted more GHGs into the air. Fossil fuels burnt since the industrial revolutions have increased atmospheric carbon-dioxide by around 40 percent. The evidence of associated global warming is palpable. If we continue to emit GHGs, adding to the clouds, temperatures will rise further.

The largest GHG cloud (aside from water) is composed of carbon-dioxide. Next is the methane one. It is much smaller than the carbon-dioxide cloud but, because methane is more reflective of the heat, its contribution to total global warming is about a third of the carbon-dioxide one.

The methane cloud comes from waste, swamps and other ground sources, but 40 percent worldwide comes from livestock belching. Because New Zealand does not use much coal, our methane emissions, as conventionally measured, are the single largest contributor to our GHG clouds.

Atmospheric methane molecule breaks down, on average after 12 years, which means that molecules in the existing methane cloud are diminishing. (Carbon-dioxide has a much longer half life.) The breakdown from livestock methane is, in effect, to nothing. Its carbon came from atmospheric carbon-dioxide converted into grass, eaten, ruminated, belched as methane which after a while returns to atmospheric carbon-dioxide, completing the cycle.

A paper I published quantified these effects. Instead of looking at the emissions from belching, I focused on the methane cloud generated from New Zealand livestock. That cloud is about 13MTs (million tonnes) of methane. Last year around 1.1MTs of it broke down to atmospheric carbon-dioxide. Meanwhile our livestock belched another 1.1MTs – almost exactly the same as the breakdown tonnage.

The livestock-methane cloud has been at the 13MTs level for about forty years. The reason for the stability is that the annual gross methane emissions contributing to it have been fairly constant over the last fifty years. Mathematically, that leads to an equilibrium because the additional methane is offset by the methane breaking down.

To be clear, these calculations do not affect by one iota the actual degree of global warming, nor the urgency of restraining it. But they change understanding of what is going on.

Fundamentally, it is not the GHG emissions which are the problem but the GHG clouds which reflect the earth’s heat; the significance of the emissions is that they add to the clouds. We should measure our contribution to global warming in terms of the GHG clouds. That means the livestock contribution is small (in some years even negative) because it is being offset by the breakdown of the methane from past belching. Suppose you personally emitted a vicious gas which broke down to something benign seconds later. Would we want to include that in the calculations?

The salient change from focussing on net methane emissions to the clouds is that the picture of our total GHG emissions changes markedly. Include gross methane emissions and the total GHG emissions rose from about 36MTEs (million tonnes carbon equivalent) in 1990 to 56MTEs in 2016. That is a disappointing 54 percent increase.

Measured with net additions to the methane cloud, the increase of our total GHG emissions is from 2.7MTEs to 22 MTEs, about eight times as much. (Internationally we rank high on a per capita basis measure using gross emissions but this net adjustment puts us near the middle.)

Most sectors contributed to the rise but there have been two big ones. First, energy emissions are about 30 percent higher. Second, land-use change and forestry were absorbing about 25 percent less carbon in 2016 than they were in 1990. The methane story – gross emissions have hardly changed in the period – has hidden the overall disastrous record of these two sectors.

Farmers feel they have been unfairly blamed for contributing to global warming. They will take some comfort from this revised perspective, although the farm sector remains a net contributor to the GHG clouds from the fuel that farmers use and nitrous-oxide emissions. However, farming is no longer the headline sector. All of us are.

The Macroeconomic Implications of the Public Finance Act

This entry was posted in Governance on 16th April 2019 by Brian Easton.

Presentation to the Symposium: ‘Wellbeing’, Budget Responsibility Rules, and the Public Finance Act (15 April, 2019, Victoria University of Wellington) [1]

Macroeconomic analysis, research, policy and forecasting is based upon two major data bases. One, provided by Statistics New Zealand, is centred on the National Accounts, but there are many additional elements. The other, which this paper focuses on, is the Crown Accounts, the financial statements of the New Zealand Government.

The Crown Accounts are a part of the system which enables parliament to the government’s financial activities to account, a constitutional imperative that goes back to the seventeenth century, or earlier. The accounts are regulated by the Public Finance Act 1989. They are not designed for macroeconomic purposes.

One of the most robust and significant laws in public policy analysis is Gilling’s Law which states the way you score the game shapes the way the game is played. The relevance here is that the Crown Accounts are scored for one purpose but they also shape the macroeconomic debate and management of the government. (Space precludes saying much about their role in wellbeing which may be the central role of government; it was outside my remit.)

This paper argues that the shaping is not always helpful. It accepts that while the Crown Accounts fulfil some purposes they are not entirely fit for their constitutional purpose of holding the government to account. However the main focus here is that the scoring also distorts macroeconomic policy.

It is apposite to begin with Gilling’s Law since Don Gilling was on the 1982 Public Sector Accounting Committee (chaired by Jeff Chapman) which formulated the accounting system which is enacted in the Public Finance Act. Previously, the principles underpinning the public finances were neither systematic nor comprehensive, so that in the past the government could manipulate its financial activities at the expense of parliamentary scrutiny. After 1989 there was a rigorous framework specified in legislation with principles set independently by the accumulated wisdom of the accounting profession.

Generally Accepted Accounting Practices (GAAP) come largely from the profession’s experiences with the business sector. The result is that business practices, conventions and needs largely underpin the accounting principles set out in the Public Finance Act. That explains, for instance, why the Crown Accounts do not include among the reported assets the single largest and most influential asset any government has – the sovereign power to tax. Businesses do not have this power; it was omitted.

I do not have any practical problem with the omission of the sovereign right to tax from the asset list – in any case it would be difficult to measure. However, as Gilling’s Law reminds us, that the Crown Accounts are scored by business principles warns us that we can easily lapse into thinking about the government as a business. [2]

The neoliberal mood of the 1980s was comfortable with the business approach but a government is no ordinary business. It is huge, which may be one of the reasons the neoliberals wanted to reduce it in size and scope.

More fundamentally, a government does not have a bottom line – of profit – in the way a business has. Its objectives are numerous and inchoate, rather like those of a household actually. Indeed one might see the current policy shift towards a ‘wellbeing’ budget as reflecting a change from a government-as-a-business approach to a government-as-a-household one.

However, a kind of business-oriented ‘bottom line’ was sneaked into the public accounts. Among all the myriads of measures explicitly and implicitly in the Crown Accounts the current Public Finance Act makes particular reference to debt levels. In particular, Section 26 G which is derived from the 1994 Fiscal Responsibility Act states that:

The Government must pursue its policy objectives in accordance with the following principles (the principles of responsible fiscal management):

(a) reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year; and

(b) once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues;

I am not going to give a detailed analysis of the clause – merely observing here that there are some logical oddities but that the undefined term, prudent, enables a government to ignore them.

Rather, the point to be made is that the Act’s principles of responsible fiscal management give first prominence to debt levels. Other measures are mentioned; for instance, ‘total net worth’ is instanced in subsection (c). None is given as much significance as the debt level.

New Zealand’s economic history well illustrates that public wellbeing has more than once been compromised by high offshore debt levels, while Treasury officials are charged with the onerous tasks of funding the debt and fending off credit rating agencies. Yet, it would be a strange (or dysfunctional) household whose primary focus was the debt level.

Unfortunately, as Gilling’s Law warns us, too often we score the fiscal situation giving excessive prominence to the debt ratio. Just to remind us, New Zealand has one of the lowest public debt-to-GDP ratios in the world (based on accounting conventions; New Zealand’s are a lot cleaner than elsewhere). It is better that it should stay down there, but currently we need not to be obsessed with debt levels.

(Were debt double the current level I would be much more concerned. Currently I am more concerned about private offshore debt appreciating that a reason for keeping government debt levels low is to offset private failure; we need to address the private debt problem more directly.)

Once we move away from thinking of government as a business whose activities are characterised by its accounts we face the challenge of evaluating the government’s finances systematically. In simple terms, how do we judge the quality of the government’s balance sheet or income and expenditure account (to use the old fashioned terms) in terms of the nation’s wellbeing?

The message from Gilling’s Law is that the evaluation framework affects how the government manages itself. Even were Treasury officials immune to the law, politicians and the public are not. They will latch onto a simplified score card which will frame the discussion and ultimately public policy.

Moreover, the reality is that because the presentation by the annual budget is one of the major political and economics events of the year (with the Economic and Fiscal Updates as echoes), the score card is going to have be associated with it, probably derived from the Crown Accounts even though, as I have argued, they are not really designed for that purpose.

The danger is that we lapse into placing the level of debt at the top of the score card even if the primary interest is meant to be wellbeing. This is well-illustrated by the current ‘Budget Responsibility Rules’ which emphasis the debt track, even though I am not convinced that public debt is a significant problem at the moment.

There is a considerable degree of uncertainty as to what is a prudent debt level. Suppose a big financial institution fell over in the course of the necessary rescue of it and the government took on extra debt. (I have in mind the instance of the US having to deal with AIG.) I agree the country would be worse off, but what are we to conclude about the Crown balance sheet?

Or consider the consequences of the Canterbury earthquakes. Again the country was worse off, and the Crown balance sheet suffered. But again it is not obvious that its quality deteriorated relative to the country as a whole, or in what way it did. It can be argued that part of the mismanagement of the earthquake recovery was because of the way the focus on the debt-to-GDP ratio rather than the overall quality of the Crown balance sheet.

A third instance is the previous government’s partial privatisation of some of the public electricity generators. There may, or may, not have been good reasons for doing this, but surely those reasons are not reflected in the reduction in the debt in the Crown balance sheet, which was offset by the reduction in the value of the assets the government held. I would make exactly the same point when the government nationalises assets, as an earlier one did in regard to Air New Zealand and Kiwirail. In each case there is a management problem related to funding, but for a pragmatist it is not obvious that the change in the Crown balance sheet is the main measure of the quality of the decision.

At one stage I thought we might switch to focussing n ‘Crown Net Worth’ rather than Crown Debt. Its use could contribute to resolving a number of problems already alluded to or about to be mentioned. Unfortunately, the measure defined in the public accounts is not suitable, because it is heavily influenced by revaluations. So while Crown Net Worth was zero twenty odd years ago, currently it is around 45 percent of annual GDP more than two-thirds of the additional net worth is accounted for by the revaluations of assets.

I guess I should have anticipated difficulties, alerted by the shoddy corporate accounts before the 1987 sharemarket crash, the Enron debacle, what happened in the financial sector during the GFC and, most recently, auditors reporting businesses were going concerns shortly before they keeled over. Whether the notion is recoverable – a sort of net worth before valuation gains and losses (analogous to OBEGAL) – needs to be explored.

Thus far I have focused on stocks, on the Crown balance sheet. Usually the interest of the macroeconomic discussion is about flows, especially the size of the government deficit.

The two are interdependent. Aside from assets sales and purchases, the debt track determines the size of the fiscal deficit. Choosing a debt track, say as a set out by the current Budget Responsibility Rules, therefore determines the size of the government deficit. This is not a great issue for a neoliberal economist who thinks that the deficit should be zero, the implication in the second subclause of Section 26G of the Public Finance Act.

It is a rather strange restriction. What prudent household would aim to balance its budget exactly when the household was growing or fail to make provision for future retirement? Surely, too, we expect a growing business to retain some of its profits for reinvestment. Similarly we might expect a prudent government to do the same, saving out of its revenue for increasing the government’s capital stock – increasing its net worth. Of course a prudent government, like a prudent household or corporation, will borrow for some of its capital investment. It seems very strange that the Public Finance Act should be so restrictive.

It is true the Section 26G has various let outs. Indeed they are sufficiently numerous and vaguely specified to make it easy to avoid the tight application of the explicit restrictions in the section. I am not a great fan for that sort of legislation.

These are structural considerations. Many economists without neoliberal persuasions want to manage the deficit for short-term macroeconomic purposes as well, as Section 26G allows. Deficit management is more difficult than elementary textbooks portray while forecasting the deficit is subject to large errors because it the difference between two very large aggregates, the forecast of each being subject to large errors. Even so, deficit management cannot be ruled out; the Key-English Government was right in 2009 to open up the deficit given the drastic international downturn following the Global Financial Crisis.

I have not the space to say much about the issue here; others in the symposium will address it. Rather, I conclude with a set of recommendation that come out of this paper.

First, section 26G of the Public Finance Act, ‘Principles of responsible fiscal management’ should be revised to set out principles only, and not include directives – especially any which encapsulate a particular ideology, such as are currently in Section 26G(b)

In the case of the current PFA the formulation could push the government toward an inappropriate response in a crisis. If it was a financial crisis a government would obviously have to pay considerable attention to its debt and borrowings. But that does not mean the response should be Austerian in which the burden of adjustment was placed most heavily on the poor. Of course, the incumbent government might choose that option. But it should do so consciously not because of a few lines written years earlier in a statute by a parliament which did not understand their import.

Here is how I might amend Section 26G (a) and (b) – combining them (no (b) is necessary):

The Government must pursue its policy objectives in accordance with the following principles (the principles of responsible fiscal management):

(a) attaining and maintaining total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future.

Second, public sector accountants and economists should come together to make the public accounts more framed to the government as a government (more analogous but not exactly the same as a household) than as a business. This is not to abandon the principles embodied in the GAAP but to adapt then.

There are a number of changes here which are relevant. For instance, the current accounting conventions do not handle intergenerational issues well (recall that audited business accounts which dont give an indication that the firm may still fall over). The Crown not a business, but there is a danger of being unprepared for future commitments.

A fundamental but deeply symbolic change would be to recognise that the government holds different sorts of assets and to stop lumping them all into the same category in the Crown Accounts. There needs to be much better disclosure and characterisation on the face of the balance sheet of the different nature and purpose of assets and, in particular, of heritage assets that cannot be sold or disposed of. Some assets are commercial, which may or not be sold, while some assets are heritage and are never to be sold. I have suggested the latter be called Ake (forever) and be separately disclosed.

I understand GAAP wanting to have all assets held by an entity included and that doing so by its valuation rules is a convenient means of doing this. But it is ludicrous – and misleading – to treat a share in Air New Zealand and the document on which Te Tiriti o Waitangi is written as the same in the Crown Accounts.

The group of accountants and economists also need to develop a subsidiary set of Crown Accounts which are more useful for macroeconomic management. Here is my sketch of such a set. It involves four additional sub-statements.

The investment activities statement which would show government investment spending including (net) interest payments on debt. Offsetting revenue would include motoring levies and (net) borrowings.

The social transfer activities statement, which would show social security and other benefits as outgoings offset by ACC levies and revenue from income tax accruing above the base rate (currently 10.5 percent).

The third statement would cover the government’s activities involving providing collective services (such as core administration, defence, the environment and justice), and the fourth statement the government’s activities involving providing personal services (such as education, health and legal aid). The fourth account would include excise duties from alcohol and tobacco.

This fourfold division is schematic and there is much devil in the details, but by focusing on the broad purposes of government fiscal activity – investment, redistribution, providing services which the private market does badly, providing services which the market cannot do at all – it would frame the current fiscal debate in a more constructive way than today’s approach of lumping everything together. It is a step towards a wellbeing dimension in the Crown Accounts.

(There would be, of course, a fifth ‘reconciliation’ statement, which would show the net spending of each of the divisions and the funding from taxation whose main purpose was revenue raising and any other source not elsewhere included.)

It would also be helpful for macroeconomic analysis to have a reconciliation between the Crown Accounts and the national accounts. It was once done routinely but no longer. Treasury macroeconomists must have great difficulties using the Crown Accounts. Those of us outside do.

A further task for the group would be to write a (short) account of how to judge the performance quality of the Crown Accounts and in particular to identify some key summary measures. A particular aim should be to identify a better headline indicator than the debt-to-GDP ratio. I shall not be surprised if it, let us call it ‘Gilling Score’, is a net worth measure in which revaluations are dealt with differently from the current practice. It would remain a fiscal measure, and not capture general wellbeing. How to get a Gilling score for wellbeing needs to be pursued. Without one, wellbeing will be neglected by the public.

Finally, the group needs to think about presentation. The Crown Accounts fail their primary purpose of enabling parliament to scrutinise and control the government’s financial actions. It would be very unusual for a Member of Parliament to come to grips with today’s Crown Accounts and the estimates of expenditure – most hardly look at them.

I do not think their increasing opaqueness is deliberate, although aggrieved but interested MPs might well think they were being given the mushroom treatment. What has happened is that the material presented to parliament is increasingly developed for internal public sector management. The primary constitutional role of the Public Finance Act has been forgotten, or honoured only in the breach.

Endnotes

[1] I am grateful to Geoff Bertram and Don Gilling for discussions which contributed to this paper.

[2] Economics also suffers from Gilling’s Law. When the national accounting system was first articulated by Simon Kuznets he pointed out that it was not measuring wellbeing. Nevertheless GDP (or one of its associates) began to be used as an indicator of wellbeing even where, on occasions, its pursuit reduced the public welfare.

Ian Francis Shirley (28 February 1940 – 20 January 2019)

This entry was posted in Portraits on 15th April 2019 by Brian Easton.

The Policy Observatory 15 April 2019.

New Zealand’s progressive causes have been driven by a strong sense of social justice. Ian Shirley was one of the nation’s strongest drivers.

He was born in Kaiapoi and spent his early years in rural towns. His father Eric was a stock and station agent, and so the family moved around. They eventually settled on a farm in Lichfield and he attended Marist Brothers Secondary School in Hamilton. His many long discussions with his mother Irene (Rene) were an influence on a questioning but committed mind.

His last year at secondary school was spent as a boarder at Sacred Heart College in Glendowie. Even so, after school he returned to working on stud sheep and cattle farms. He and his younger brother Graeme were given early responsibility for breeding and showing Southdown and Romney sheep. They won Best in Show at numerous Agricultural Shows around the North Island. His very physical life included much sport; playing tennis, rugby and table tennis at senior level.

Eventually he settled in Auckland when in 1965 Jim Anderton persuaded Ian to take over the job as Auckland President of the Catholic Youth Movement, which Jim was vacating. During his tenure, Ian was very influenced by the Young Christian Workers Movement, set up by the Belgian Cardinal Joseph Cardijn, which involved social action built on a model of see, judge, and act.

He married Mary McCabe in 1968. At his funeral it was said that it was, ‘the best thing he ever did’ which, given his other achievements, is quite an accolade. They had three sons, Anthony, Mark and David.

He moved on to work with Fr Felix Donnelly at Catholic Education and in the early 1970s became employed as a probation officer with the Probation Service in Auckland.

About this time, he started studying at the University of Auckland completing his BA in 1975 and his MA in 1978. (Massey University awarded him a PhD in 1987.)

Ian tells how in his first year of studying sociology, a set task was to report on a suburb. He chose Otara, where he was told by a local school principal that he should not be focussing on captive populations but on the power structure itself. The sentiment that individuals were functioning reasonably well in a system that was functioning badly framed his life’s work.

Its practical application arose when he became community development worker at the Auckland City Council in the early 1970s. In 1974, Ian was the ACC community adviser in Glen Innes in Tamaki. His experiences are described in his first book, Planning for Community (1979).

At its heart are case studies of three families and a description of the establishment of a community centre which the locals did not want but the city planners did. The book is consciously communitarian, an approach to social organisation based on small self-governing communities, an ideology which emphasises the responsibility of the individual to the community and the social importance of the family unit. It is greatly influenced by Paulo Freire.

Ian remained politically active. His 1976 Rona Frame Memorial Lecture, sponsored by the Princes St branch of the Labour Party where young radicals congregated, said that social conditions existed which predisposed a society to increasing crime, violence and racism. ‘As a society we bow to wealth, power, property and prestige. We value cars more than we value man. We exploit and use other human beings if it serves our cause.’

The local MP and Prime Minister, Rob Muldoon, took exception to the speech, writing to the council that ‘[h]e does nothing but harm talking this way. If he was an employee of the State he would be told to behave himself.’

The council rejected Muldoon, and its social welfare committee decided to adopt Ian’s recommendations that it press for discrimination in favour of disadvantaged social groups in housing, employment, transportation, health and social services, while defending their civil rights and means of cultural expression.

The recommendation seems to have had little impact. Ian applied to be head community officer of the council and, against all predictions, missed out. So he took on a lectureship in 1977 in the Social Work Unit which was part of the Massey University Department of Sociology in Palmerston North. (He was invited to apply by the director, Merv Hancock, who believed that universities had a role as a critic and conscience of society, an unfashionable view today although held by Ian until the end.) Ian steadily rose to the chair in social work in 1986 and became New Zealand’s first Professor of Social Policy in 1988.

Numerous outside appointments included being the first chair of the New Zealand Council for Education and Training in Social Work. Earlier, in 1977, he had been critical of social workers, describing them as unwitting instruments of oppression. ‘People in my sort of job should be working to make the community more effective. That means they’ve got to be on the side of minority groups and identify with them.’ He became a part of the reshaping of the profession.

Later he could argue there were three positions on social work professionalism: ‘conventionalism’, which stressed the service ethic and specialised knowledge, ‘revisionism’, which emphasised the recognition of society as the essential ingredient in conferring professional status, and ‘radicalism’, which did not worry too much about the criteria for professionalism, being more interested in the process by which professionals maintained their status and power and thereby exercised social control and emphasised links between professionals and service users. He exhibited them all, giving greater weight to the third.

Ian’s heart was always in Auckland and after 18 years in Palmerston North he transferred to Massey’s Albany Campus, developing social work and social policy there. From 2020, Massey University will award its top Bachelor of Social Work or Bachelor of Arts (Social Policy) graduate the Ian Shirley Award, established in recognition of Ian’s contribution in establishing the discipline of social policy at Massey University and the importance of social policy in social work education.

In 2000, following Massey restructuring, Ian took up Vice Chancellor John Hinchcliff’s invitation to set up the Institute of Public Policy at the Auckland University of Technology where he was Professor of Public Policy. In 2004 he became Pro-Vice Chancellor (Research and Development) charged with developing AUT’s research culture. He was so concerned with the distortionary impact of the PBRF system that he recommended the university not take part in it, despite his own many research achievements.

The shift from the North Shore to central Auckland accelerated an increasing commitment to the development of metropolitan Auckland. For him, AUT had a central role both in teaching (he was particularly concerned with reaching out to Maori and Pasifika students), in action-oriented research (he was closely involved in the development of ideas that eventually led to the Auckland mega-city) and in the promotion of public debate (he founded and was first director of the Policy Observatory).

There is a sense that AUT is Auckland-focused while the University of Auckland sees itself as more international. Even so, Ian had always interacted with offshore researchers and institutions; in his later years was involved in an international investigation of metropolitan centres – Auckland writ large. Ian forged a working relationship with the Chinese Executive Leadership Academy (CELAP) to develop a research network focused on cities development, connecting academics across the Asia Pacific region. In his work with the Chinese he strongly advocated for all members, regardless of where they came, to be given equal voice; and at one memorable point reminded his colleagues that ‘Apia is just as important as Shanghai’ as an example of cities’ development. The network led to the Asian and Pacific Cities: Development Patterns edited collection in 2013.

Ill health led to Ian’s retirement from the university in 2016. His intention was to write a book ‘The Social Laboratory’. It may well have highlighted a dispute of the 1980s when Treasury said

‘Families or tribes are not organic entities of morality, rationality and senses. They cannot feel pleasure or pain. The self-interested individual is the basis of social policy and of what is the determinant of good.’

Ian was outraged, pointing out that this was contradicted by research and the evidence from social work. All his life he saw community at the heart of social policy. (It is not surprising that David Lange told him that he was vetoed from membership of the Royal Commission on Social Policy.)

Alas, we will never know how he would have developed his argument. While cancer had limited him, it did not bow him. He said you battle against social injustice, but not cancer; you just get on with your life and do what you’ve committed to.

Ian died of a heart attack in January 2019, a month before his 79th birthday. Given such a life of achievement, this battler for social justice has the last word:

‘I have been called a Marxist … all sorts of things. Actually, I have no interest in party politics or orthodox political philosophies. I’m just fighting any concentration of power hostile to popular democracy.’

Acknowledgements

In preparing this, I am grateful for assistance from many colleagues of Ian and especially from his family. RNZ Infofind was an enormous help. Other particularly useful sources were:

Tony Reid. (1977, March 19). ‘Agent for Change’, New Zealand Listener.

Mary Nash. (1998). People, Policies and Practices: Social Work Education in Aotearoa/New Zealand from 1949-1995, Massey University doctoral thesis. http://hdl.handle.net/10179/2014

Alison Sykora (2016, November 1). ‘The Human Laboratory’, The Policy Observatory. https://thepolicyobservatory.aut.ac.nz/publications/the-human-laboratory

Kim Hill. (2017, September 2). ‘Ian Shirley: Public Policy Pioneer’, Radio New Zealand Saturday Morning. https://www.radionz.co.nz/national/programmes/saturday/audio/201857067/ian-shirley-public-policy-pioneer

Charles Crothers. Obituary in New Zealand Sociology (forthcoming).

Ian Shirley: Curriculum Vita(about 2010).

Obituary: Ian Francis Shirley

This entry was posted in History of Ideas, Methodology, Philosophy, Social Policy on 15th April 2019 by Brian Easton.

Ian Shirley (28 February 1940 – 20 January 2019)

This obituary was first published in “The Policy Observatory” which Ian founded

New Zealand’s progressive causes have been driven by a strong sense of social justice. Ian Shirley was one of the nation’s strongest drivers.

He moved on to work with Fr Felix Donnelly at Catholic Education and in the early 1970s became employed as a probation officer with the Probation Service in Auckland.

About this time, he started studying at the University of Auckland completing his BA in 1975 and his MA in 1978. (Massey University awarded him a PhD in 1987.)

The shift from the North Shore to central Auckland accelerated an increasing commitment to the development of metropolitan Auckland. For him, AUT had a central role both in teaching (he was particularly concerned with reaching out to Māori and Pasifika students), in action-oriented research (he was closely involved in the development of ideas that eventually led to the Auckland mega-city) and in the promotion of public debate (he founded and was first director of the Policy Observatory).

Ill health led to Ian’s retirement from the university in 2016. His intention was to write a book ‘The Social Laboratory’. It may well have highlighted a dispute of the 1980s when Treasury said

Families or tribes are not organic entities of morality, rationality and senses. They cannot feel pleasure or pain. The self-interested individual is the basis of social policy and of what is the determinant of good.

Ian died of a heart attack in January 2019, a month before his 79th birthday. Given such a life of achievement, this battler for social justice has the last word:

   I have been called a Marxist ... all sorts of things. Actually, I have no interest in party politics or orthodox political philosophies. I’m just fighting any concentration of power hostile to popular democracy.

Acknowledgements

In preparing this, I am grateful for assistance from many colleagues of Ian and especially from his family. RNZ Infofind was an enormous help. Other particularly useful sources were:

Tony Reid. (1977, March 19). ‘Agent for Change’,     New Zealand Listener.
Mary Nash. (1998).  People, Policies and Practices: Social Work Education in Aotearoa/New Zealand from 1949-1995, Massey University doctoral thesis. http://hdl.handle.net/10179/2014
Alison Sykora (2016, November 1). ‘The Human Laboratory’,  The Policy Observatory. https://thepolicyobservatory.aut.ac.nz/publications/the-human-laboratory
Kim Hill. (2017, September 2). ‘Ian Shirley: Public Policy Pioneer’,  Radio New Zealand Saturday Morning. https://www.radionz.co.nz/national/programmes/saturday/audio/201857067/ian-shirley-public-policy-pioneer
Charles Crothers. Obituary in  New Zealand Sociology (forthcoming).
Ian Shirley:  Curriculum Vita (about 2010).

Eyewitness on the 1966 Wool Shock

This entry was posted in Political Economy & History on 28th March 2019 by Brian Easton.

Justin Gregory’s “Eyewitness” account of the 1996 Wool Price Shock used a lot of material from me. Here is the audio. I’ve republished the text (which is a little different in structure) to enable the search facility on the website to be used.

If you’d asked them at the start of the year, most Kiwis would have reckoned that 1966 looked like being a cracker.

And for the most part, it didn’t go too badly.

In March, Country Calendar debuted on the telly. In April, the Queen Mum popped in for a cup of tea and a pikelet. In May, sadness over the death of the Maori King, Te Koroki Mahuta was tempered by excitement at the coronation of his daughter Princess Piki. That winter, the All Blacks downtrou’d the British Lions 4-zip and Maria Dallas, the pride of Morrinsville, had a huge hit with her song ‘Tumblin’ Down’.

New Zealand in the 1960’s had one of the highest standards of living in the world with near-full employment and low inflation. Politically, we were the very picture of stability; National Party leader Keith Holyoake was about halfway through his 12-year run as Prime Minister and eyeing-up another win in the General Election later that year.

Steady as she goes was the motto. We were rich, a bit boring and everyone was as good as everyone else. Sure, we had compulsory military service, the death sentence for treason and it was only in 1961 you could order a glass of wine with your meal. But there was no need to bust a gut worrying about stuff.

Or so most people thought. Cracks, though, were starting to appear.

Anti-apartheid protests opposed South African sporting teams coming here and us going there. Prison riots had broken out across the country the previous year and the police were concerned enough about violent crime to establish the Armed Offenders Squad. Radio Hauraki took to the seas to break the state monopoly on broadcasting.

Thousands marched to protest our troops being sent to Vietnam and when US President Lyndon Johnson visited that year, a huge crowd gathered to cheer but a loud group of roosters booed him, too. Vietnam became an election wedge between National and the opposition Labour Party, but not enough to change the government. National were returned in November with an eight-seat majority but shockingly, had lost the previously safe seat of Hobson to the Social Credit Party.

Welcoming the Queen Mother to New Zealand, Governor-General Sir Bernard Ferguson, praised her as a source of strength and comfort in “the world of change and uncertainty in which we live today”. Did he know something we didn’t? Because before the end of the year, our economy would come, well, tumbling down.

Economist Brian Easton was 23 years-old in 1966. He remembers 60s New Zealand as a nice place but insular and a bit narrow.

“We were a very egalitarian people. There was a lot of social cohesiveness, partly by ignoring minorities. Maori and women were not high on our agenda. And economically, we were insulated.”

Insulated by wool. Coarse wool, to be precise, which made up 40% of our export revenue. Sheep meat was big for us, too. In short, all those jokes about Kiwis and sheep? Justified.

That wool wealth meant we could stiff-arm the world and its problems away. But, to steal a phrase Brian coined, the End of the Golden Wether was on its way and it was all our own fault.

“Unlike most OECD countries we had not begun to liberalise our economy following the war.”

New Zealand had an economy even more tightly controlled than its society; tight import controls, wage controls, price controls, you name it.

But we were doing just fine. Right up until we weren’t.

“Insulation works,” says Brian “except that you’re not very good at dealing with shocks and in 1966, that’s what happened.”

New Zealand’s prosperity was due to the Great Wool Boom of 1951. When the United States of America entered the Korean War, they bought up huge reserves of wool and the price tripled almost immediately. For the next 15 years, our economy rode on the sheep’s back, as well as it’s legs, loins and shoulders. If you chuck in beef and dairy, then pastoral products were around 60% of our export revenue. About 65% of those exports went to just one overseas market – Britain.

In short, we had only one real export commodity and only one real market to sell it in. It was the woolly equivalent of having all your eggs in one basket.

To protect that basket, we had the Wool Board, which would set a minimum floor price for coarse wool sales. If prices at auction went below that level, the Board would bid and, rarely, buy wool to drive the price back up again.

All booms end though, sometimes abruptly. On 14 December 1966 the auction price for coarse wool collapsed by 40 percent overnight. The Wool Shock had begun and the Board found itself having to buy a third of the total clip; about 600,000 bales.

“That was basically a cut of 16% in our total export revenue,” shudders Brian. “One dollar in six went down.”

Australia, that other great sheep nation, wasn’t affected as badly because they sold fine wools and had recently discovered a lot of valuable stuff in the ground to dig up. We were in this alone. It was a matter of diversify or die.

So Kiwi farmers got on with it.

“They went into beef and they went into forestry and they went into goats and they went into venison,” says Brian. “They began to diversify from a market signal rather than from anything the government did.”

A great change was underway. In 1965, New Zealand was one of the least diverse economies in the OECD. By 1980, we were in the middle – an astonishing achievement.

“I’ve not seen any other country that diversified as fast as that.”

But it wasn’t fun. Over those 15 years, slow economic growth meant unemployment and inflation. There were two oil shocks in the 1970s and Britain, our biggest market, told us to naff off and joined the EEC. It was all just a bloody ‘mare, really, and a wonder our economy didn’t cark it entirely.

The answers offered by politicians mostly revolved around subsidies, incentives and just making more stuff and getting it out there. That worked for a while. The diversification of our exports had done wonders, but it hadn’t done enough. By 1980 Prime Minister Robert Muldoon was looking at a bunch of bad options.

“Basically, the strategy was to liberalise on the external side, exports and so on, but the controls on the internal economy was maintained,” explains Brian.

“You couldn’t actually make that distinction, but that was what Muldoon tried to do. He was a very slow market liberaliser. The result was that in 1984 with the arrival of the new Labour Government there were people who very committed to liberalisation and did it very rapidly.

“With a lot of pain.”

Brian Easton argues that the effects of the 1966 Wool Shock went all the way to not just the reforms of the Fourth Labour Government but to the first MMP election in 1996. In his opinion, neither David Lange, Roger Douglas or the Jim Bolger-led National Government that followed in 1990 did an adequate job of explaining why all these deeply unsettling changes were necessary.

“So in 1993 the public said they were browned-off with government and they looked for a different way, one which would be more responsive to the public.

“And MMP was the result of that.”

Over the 30 years it took for the Wool Shock to work its way through our economy, New Zealand lost about 25% of our relative place in the OECD. We never really got it back. And we changed as people, too.

“There’s a sense in which there’s a break in the New Zealand social tradition from a society which used to be proud to be egalitarian, to be classless, to one in which it is a much harsher, tougher, world.”

Except for Country Calendar, of course, which is still going strong.

By 1996 New Zealand looked a completely different nation to that which had wrapped itself in a protective layer of wool. Over little more than 20 years, Maori changed from being a predominantly rural society in the 1960s to being more than 80 percent urban. Women began working outside of the home in larger numbers and from the 1970s onward, immigrants arriving in New Zealand were no longer almost entirely British. As Te Ara, New Zealand’s online dictionary, puts it, immigration has “transformed the nation’s culture and values.”

Brian Easton believes that if the diversification from the Wool Shock hadn’t occurred the New Zealand economy today would be so bad that most of us would be living in Australia. While we talk a lot today about our reliance on dairy and tourism, he’s not convinced that’s our major worry. Our dependence on China is what he has his eye on.

“And the countries that are related to China, from South Korea down through to Australia. Probably it’s getting towards 60% (of our export revenue).

“If China had a major crisis we would be very vulnerable.”

NEW ZEALAND’S 9/11: UNITY IN DIVERSITY

This entry was posted in History of Ideas, Methodology, Philosophy on 25th March 2019 by Brian Easton.

This was submitted to an American publication but not published.)

On 15 March, 2019, a gunman entered Masjid Al Noor, a mosque in Christchurch, New Zealand, during prayer time, and fired a semiautomatic rifle adapted to shoot continuously. He then went to a second mosque a few miles away, shooting people there too. Altogether 50 people died and 42 were seriously injured.

On a per capita basis – New Zealand is similar in size and population to the state of Colorado – the number who died was comparable to the 2996 who died in the terrorism of September 11, 2001.There have been massacres in churches, mosques and synagogues elsewhere in the world but this occasion will be recalled by New Zealanders with the same emotional intensity as 9/11 is remembered in the United States.

There are differences. The 9/11 attack was directed at buildings central to the image of American influence – the Twin Towers, the Pentagon and the White House. From this perspective the deaths were collateral damage. The white-supremacist gunman’s purpose was to kill people who were of neither the race nor the religion of the majority of New Zealanders. All the casualties were Muslims; unlike 9/11 no one in emergency services suffered.

Yet if Muslims were a minority in New Zealand – 1 percent of the population, a similar proportion to that in America – they were, from the first shot, treated as an integral part of New Zealand society. One did not appreciate how embedded they are until the descriptions of the 50 were published. They included a New Zealand representative indoor football player and a diversity of occupations.

That became more evident after the event. One surgeon described weeping after having operated on a four-year old girl who took three bullets, concluding ‘I am an Arab’. New Zealanders casually observing the interview would not have thought of his race until he mentioned it; previously they would hardly have noticed the numbers of Muslims in the health service.

The linkages are deep and complex. One of New Zealand’s most popular classical vocal trio, Sol3 Mio – a Christian Samoan group based in Auckland – broke down while singing Leonard Cohen’s ‘Hallelujah’ in a concert because he had a relative-by-marriage in the Christchurch massacre.

Diversity is central to New Zealand life. More than one in seven New Zealanders has some Maori heritage (tangata whenua – the people of the land), one in fourteen has Pasifika (Pacific Island) ancestry, another one in eight is Asian (mainly Chinese and Indian). Around one out of four New Zealanders is overseas born; the figure for the largest city, Auckland, is more than two in five. Fewer than half the population now identify as Christian; almost as many say they are of no religion although most of their forebears were Christian. The remainder belong to a plethora of religions which pervade New Zealand: the local mosque, temple or synagogue just around the corner, national days widely celebrated by everyone, the Sikh taxidriver with (or without) a turban.

There has been a national commitment to develop an acceptance of diversity. For half a century the education system has tackled racism – not always successfully. Even more pertinent to recent events, following the 9/11 catastrophe, the then New Zealand prime minister, Helen Clark, established an interfaith commission, a purpose of which was to link Muslims with other religious communities. The success was evident during the recent crisis as imams worked easily with other religions leaders. Students in a vigil outside an Auckland mosque were invited inside when it began raining; they sang a hymn in te reo (the Maori language).

The response to the mosque massacres became an appreciation and sharing of this diversity, well illustrated by the Prime Minister, Jacinda Ardern wearing an elegant black chador. She showed a little of her hair under her hijab – the modern rather than traditional practice.

Just 38 years old, Jacinda showed a dignity, compassion, judgement and leadership comparable to what one would have expected from Barack Obama, the ‘president [who] sang “Amazing Grace”’. Asked by Donald Trump how he could help, this slip of a girl told the most powerful man in the world – almost twice her age – to offer ‘sympathy and love for all Muslim communities’.

That is certainly the way that most New Zealanders reacted. A wall of flowers lay outside mosques throughout the country, linked human chains formed outside them too. Schoolchildren joined in with haka – the Maori posture dance for welcoming distinguished guests and acknowledging great achievements, occasions or funerals. (Indicative of the nation’s integration, one was performed by Muslim boys.)

Practices were adapted for the occasion. Within days my local Anglican cathedral brought together city choirs to perform Karl Jenkins’ ‘The Armed Man; A Mass for Peace’, which is dedicated to victims of the Kosovo genocide. Instead of the Last Post there was a karakia (a Maori prayer), which resonated beautifully with the earlier adhaan (Muslim call to prayer), followed by the cathedral bells tolling fifty times – one for each of the dead.

The national ceremony to commemorate the massacre, broadcast throughout the land, illustrated unity in the diversity. Thousands of New Zealanders stood or sat through a ceremony which included a two-minute nationwide silence in the course of the Friday Muslim prayer meeting which had been interrupted a week earlier. Much was in Arabic – the message in English was ‘we are broken hearted but not broken’ – and involved unfamiliar religious forms. Not a few would have compared it to being on a marae (Maori meeting ground) and listening to a conversation they barely understood (few speak Maori) with its different kawa (protocol) and yet, in both cases, deeply and respectfully moved by the occasion.

This is not to imply there has been no grumbling or even antagonism from parts of the population, nor that there is no alt-right in New Zealand. But unquestionably the dominant spirit has been of sympathy and love. The message – from Muslim and non-Muslim alike – was that this was not a time for hate, even of the gunman. The emphasis was on the common humanity: in vernacular and in graffiti ‘They are Us’.

It is perhaps too early to settle on how far the future will treat the massacre as ‘our fault’. The lone gunman was not a New Zealander. He seems to have come here from Australia for the sole purpose of the shooting. Following the Port Arthur massacre of April 1996, Australia introduced tighter gun laws, especially against assault weapons. New Zealand had never got around to similar regulation. Australia has 14 guns per hundred people while New Zealand has 26 – the United States has 121 per hundred.

It is for a future discussion to assess the degree to which the neglect of gun reform reflected pressure from the gun lobby or a certain New Zealand slackness: ‘we are isolated from the world, so it can’t happen here’. The fact is that New Zealand left its backdoor open and a gunman walked in.

Whatever, the government announced within a week that it would be implementing new legislation which would ban assault weapons. No one doubts that Parliament will pass it unanimously and soon, despite the gun lobbies. When the American NRA intervened, Judith Collins, a senior member of the Opposition, told them to ‘bugger off’; the NRA retreated with the sentiment that there was no provision in the New Zealand constitution about the right to bear arms. In fact such gun laws would be one of the last things New Zealanders would contemplate were they to formalise their unwritten constitution (similar to the British arrangement).

The freedom of speech conventions are also different. There has been a conscious policy not to give the gunman’s not-very-coherent ideas a public platform. The Chief Censor has made it illegal to possess or distribute the gunman’s online ‘manifesto’, even though the bar for censoring speech is very high. The decision could be reviewed by the courts, but few think they would reverse it.

There will be an investigation as to whether the security and intelligence services paid sufficient attention to local white supremacists; they appear to have been primarily concerned with threats of external terrorism.

The delay between the announcement and passing of the legislation has been covered by a change in regulations which required gun owners purchasing an assault weapon to go through a more complex police registration process. Except, the Prime Minister explained, the police would be too busy for a while to be able to register anyone.

(Humour surrounding the tragedy was rare. Announcing their daughter’s nine-month birthday on the same day as the change in gun laws was announced, Jacinda’s partner, Clark Gayford, tweeted ‘today we received the gift of crawling. While her mum got her the gift of having a safer country to grow up in’.)

There have been those who have used the event to pursue a barely connected agenda. It will hardly influence New Zealand’s foreign relations agenda. There is no proposal to invade the Maldive Islands, New Zealand’s equivalent to the US invading Iraq and about as relevant.

Even so, there has been a conscious addressing of the nation’s racism. Interpreted widely, it is unquestionably true that racism exists in New Zealand and, like every other country, there are some uncomfortable incidents in its history. Most of the dead were not from the dominant ethnicity – one woman was Pakeha (New Zealander of European descent); she had worked with refugees and converted to Islam. But to argue that a massacre by a foreigner was about national racism is itself racist.

Nevertheless, the incident is being used as an opportunity to explore and reduce such racism (including Islamophobia) as there is in New Zealand. Hearteningly, school children have taken a leading role – notably the head boy of a state (public) school which lost three students in the massacre; he is Samoan. The most commonly used term has been ‘aroha’, the Maori term for affection, sympathy, charity, compassion, love, empathy.

Another issue which has to be addressed is the role of social media. The gunman live-streamed his shooting through Facebook in order to magnify the publicity of his deed. There is a demand for automatic censoring by the social media of live-streaming from unapproved sources – something that the traditional media does routinely. New Zealand journalist Toby Manhire powerfully challenged ‘Mark Zuckerberg, four days on, your silence on Christchurch is deafening.’ It remains deafening. To be realistic, New Zealand cannot force the change on such global giants by itself, but it will punch above its weight in the international moral demand for change.

Perhaps the great irony is that the outcome will be the reverse of what was intended by the gunman (the practice is not to name him), now in custody. He wanted to divide the country. No man has contributed more to uniting it in its diversity. The woman is Jacinda. Her image, with one of the many Muslim women she embraced, was projected on the single tower of the world’s tallest building in Dubia.

NEW ZEALAND’S METHANE CLOUD

This entry was posted in Environment & Resources, Statistics on 10th March 2019 by Brian Easton.

Summary:. Methane (CH4) is a greenhouse gas. Some methane comes from atmospheric carbon-dioxide which is fixed in grass, eaten by livestock, belched into the atmosphere and eventually returns to atmospheric carbon-dioxide. Before it breaks down, the methane molecules form a ‘cloud’ in the atmosphere which adds to global warming at a much higher rate per carbon molecule than does a carbon-dioxide molecule.

This paper focuses on the methane ‘cloud’, the stock of methane in the atmosphere which contributes to global warming. What is unusual about this cloud compared to, say, the carbon-dioxide one is that it has a relatively short half-life. Focusing on it leads to a different measure of the impact of methane emissions from livestock. Their contribution to the size of the methane cloud was substantially in the past. Today their methane emissions are being (largely) offset by the methane already in the cloud breaking down

New Zealand’s carbon emission accounts include methane emitted from livestock. However, in them methane is currently measured as a gross emission, rather than as a net addition to the cloud, which allows for the fact that past methane emissions are breaking down. When this is included it seems that New Zealand’s net contribution to the methane cloud is much smaller than as recorded on a gross basis.

Even so, New Zealand should be aiming to reduce its methane emissions too as a contribution to reducing global warming.

This paper does not address other sources of methane (which may be subject to a similar analysis) nor that there are other greenhouse gases emitted by farming, such as nitrous-oxide.

A column commentary on this report is here.

Gross Methane Emissions

We have estimates of the gross methane emissions from livestock going back to 1800 (effectively from the beginning because there was no livestock in New Zealand much before that date). Projections of the size of the methane cloud to 2050 are based on current forecasts of the gross emission rate.

The pattern is shown as the blue line in Figure 1. There is a fairly steady growth of emissions to the late 1960s – say of 4 percent a year. After that, the rate of gross emissions is almost flat. The methane is measured in millions of tonnes (MTs). (Later, when being compared to other sources of global warming it will be measured in million tonnes equivalent of CO2 (MTEs) for which a tonne of methane is multiplied by about 25, reflecting at its greater contribution to global warming than carbon-dioxide.) The red line shows net additions to the methane cloud. It is explained below.

Sources: Gross emissions: A Note on Methane Emissions from Livestock:– Andy Reisinger(2018);
NAMC: Ressinger (2018) and figure 2 as explained in and derived in text.

The Size of the Methane Cloud

Once in the atmosphere the methane breaks down into carbon-dioxide at a rate of about 9 percent a year, thereby diminishing the size of the methane cloud. Meanwhile the cloud size is being increased by new emissions.

We use a perpetual inventory method to calculate the size of New Zealand’s methane cloud. Essentially it involves adding the annual gross methane emissions to the cloud at the beginning of the year which is depleted by 9 percent for the methane molecules which have returned to the atmospheric carbon-dioxide from whence they came.

For instance, at the end of 2016 New Zealand’s methane cloud from livestock amounted to 12.9 MTs. During 2017 1.1 MTs converted back into CO2. But gross emissions in the year were also 1.1 MTs so at the end of 2017 the methane cloud was still 12.9 MTs. (This is not entirely coincidental – something like this is bound to happen when the gross emission rate is constant over a long time.)

Figure 2 shows the size of New Zealand’s livestock methane clouds since 1800 measured in MTs. .It, too, shows a steady growth up to the early 1970s and then there is a flattening out.

Source: Derived from Figure 1 as explained in text.

Net Additions to the Methane Cloud

The difference between the sizes of the cloud in any two years measures the net additions to the methane cloud (NAMC). Thus while the gross additions to the methane cloud (GAMC) – i.e. the gross methane emission –from belching livestock in 2017 was 1.12 MTs, the net rate, after deducting for the methane in the cloud which returned to carbon-dioxide, was near zero. (There is some rounding in the last few paragraphs.)

It makes sense to measure New Zealand’s livestock methane impact on global warming in terms of NAMC rather than GAMC terms, just as we measure the carbon sink in trees by deducting the carbon released from their harvesting from the carbon absorbed in growing trees. The methane cloud is a kind of ‘anti-sink’ – a negative forest.

(While the methane breaks down to carbon-dioxide, a greenhouse gas, that carbon-dioxide was originally in the atmosphere, unlike that which comes from fossil sources. So over the total cycle the carbon-dioxide nets out.)

Figure 1 also shows – in red — NAMC together with GAMC. (The net series is a five-year moving average to soften some of the year to year volatility.

New Zealand’s Total Carbon Emissions

Currently gross methane emissions are used when calculating New Zealand’s contribution to the global warming cloud. In 2016 the estimates (in MTEs) are as follows:

New Zealand’s contributions to the Global Warming Cloud: 2016

Sector With GMAC With GMAC With NMAC With NMAC

MTE Share MTE Share

Energy 31.3 56.0% 31.3 142.9%

Industrial

Processes 4.9 8.7% 4.9 22.4%

Waste 3.8 6.9% 3.8 17.4%

Methane 33.8 60.4% -0.2 -0.1%

Other

Agriculture 4.9 8.8% 4.9 22.4%

Land use, land-use change

& forestry -22.7 -40.7% -22.7 -103.7%

TOTAL 56 100% 21.9 100%

(Agriculture 38.7 69.2% 4.6 22.3%

(Note: It assumed in the calculation that the story for methane generated from sources other than livestock is similar to the livestock-generated methane. This is unlikely to be exactly true but there is not the data to be more precise. In any case, the other methane is only about a fifth of that by livestock-generated methane, so greater precision will not make a major difference.)

Including only net additions to the methane cloud dramatically changes the picture cutting back New Zealand’s contribution to atmospheric carbon by over half and reducing the role of the agricultural sector substantially. One consequence is that New Zealand is not as relatively high in the international pecking order of per capita carbon emissions as is sometimes claimed.

Other years show a different net balance. Not every year since 1990 has had negative NAMC. But positive or negative, their effect is small compared to overall emissions.

Implications

This paper is an exercise in improving measurement. Policy responses need not immediately follow from it. For instance, there is nothing in this paper which implies that New Zealand should desist from seeking to reduce its carbon emissions.

However, a couple of comments may be relevant.

First, the revised estimate does not let agriculture off the hook. Its past activity has put almost 13 MTEs of methane currently up in the atmosphere which is contributing to global warming. If gross methane emissions could be reduced there would be less global warming. For instance, were gross methane emissions to decrease by 3 percent each year, the methane cloud in 2050 would be halved, about the same size as it was a hundred years earlier in 1950. The reduction would be to offset a year’s emissions from other New Zealand carbon sources. (Sadly, that option is not possible for other major greenhouse gases such as atmospheric carbon-dioxide sourced from fossil fuels.)

Second, as the next table shows, the use of gross methane emission estimates has obscured the real problems in New Zealand’s rec

New Zealand’s contributions to the Global Warming Cloud: 1990-2016

Sector MTE 1990 MTE 2016

Energy 23.8 31.7

Industrial Processes 3.9 4.9

Waste 3.9 3.8

Methane (NAMC) -1.0 -0.2

Other Agriculture 1.6 4.9

Land use, land-use change

& forestry -29.5 -22.7

TOTAL 2.7 21.9

(Agriculture 0.6 4.7)

In 1990 (the first year for which we have detailed records) New Zealand’s aggregate carbon-equivalent emissions (after allowing for methane breakdown) amounted to about 2.7 MTEs. In 2016 (the last year for records) they were 21.9 MTEs, about eight times as much. Most sectors contribute to the rise (waste is an exception) but there has been two major contributors. First, energy emissions are about 30 percent higher. Second, land use, land-use change and forestry are absorbing about 25 percent less carbon in 2016 than they were in 1990. Methane hardly comes into the equation.

Acknowledgments: I am grateful for assistance from and discussions with Andy Reisinger, John Carrad, Elizabeth Caffin, Alan Gray, Suzi Kerr, Jacqueline Rowarth and David Young.

Census Mess Can Be Resolved with a New One in 2021

This entry was posted in Governance, Statistics on 6th March 2019 by Brian Easton.

I was commissioned by the ‘Dominion Post’ to write an opinion piece as part of their review of the anniversary of the 2018 Census. This is a slightly revised version of what they published. The main article is ‘365 days and still counting: Census results still nowhere to be seen’. An earlier ‘Pundit’ column is ‘The Census Flop‘.

The test for a census has to be that it will stand up in a court of law. Its uses are so widespread, so fundamental to the governance of New Zealand, that there need be only one aggrieved party from a decision involving a census to end up in court. This has always been true but the 2018 Census of Population and Dwellings appears particularly flawed and therefore more likely to be litigated.

To avoid litigation the district health boards have decided to remain with the 2013 census. The Electoral Commission has no such discretion; the law requires them to use the latest census.

Some MPs have already said they have no confidence in any boundaries based on the 2018 census. An MP who disliked the Electoral Commission’s decisions may well go to court. Given the technical issues involved, the judicial process is likely to push the final determination of boundaries to a date too late for the 2020 general election. I am told, by people more informed than I am, that the courts may decide that the 2018 Census did not meet the standards required in the relevant statutes.

Every census has glitches, but the 2018 one had a major defect resulting in an exceptionally low ‘coverage ratio’, or the proportion who filled in their forms. Instructively, a year has gone by and we do not know that the exact ratio is but it is thought that about one in ten New Zealanders failed to file a return – double from what is normal.

Even Statistics New Zealand has no confidence in the outcome and is trying to patch the gap by using other data sources. For many purposes the resulting data-base may be adequate, although there may be larger margins of statistical error. However a court is unlikely to be convinced that the result meets statutory requirements.

The major defect was the inadequate provision of enumerators, the people who knock at your door (and find dwellings not on the public record), help you fill in the forms and go back to remind those who have not. Figures released by Statistics New Zealand suggest that only half the resources were provided for this purpose in 2018, compared to the 2013 Census.

The reasons for the reduction are beyond comprehension. So the government cuts back the resources; you tell the government you cannot do the job that it and statute ask of you. You think you can double enumerator productivity because you are expecting 70 percent to respond electronically. You do not have to be Einstein to know that the other 30 percent are those that require the most intensive work from the enumerators.

The anecdotal result seems to have been poorly trained and managed enumerators, and with fewer followups. The quantitative consequence of halving the resources has been a doubling of the coverage failure. (Twelve months after the failure and Statistics New Zealand has not provided a detailed review.)

What to do? When the failure became apparent nine months ago it was proposed that there be a new census run in March 2021 (just two years from now) and that the 2020 general election be run on the existing boundaries based on the 2013 Census. That has the additional advantage of realigning New Zealand census dates to the Western standard of years ending in 1 and 6; the sequence was disrupted by the Canterbury earthquakes.

Statistics New Zealand has claimed that it takes three years (instead of two years and nine months) to run a new census. But I am told that if they use the existing reliable parts of the 2018 census with the 2013 enumerator system, it will take 18 months to organise.

So it could start the task as late as this September. All it requires is leadership, although it may be sensible to bring back (sometimes out of retirement) the team that ran the 2013 enumeration.

Posts on Health Economics on Pundit

This entry was posted in Health on 1st March 2019 by Brian Easton.

The following are various columns on my Pundit website which involve health economics.

What is the Fetal Alcohol Spectrum Disorder? (7 November 2014)

The Cost of Demanding More Health Care (10 November, 2014)

Prolongation of Life and the Quality of Life (28 November, 2014)

Thrive: The Power of Psychological Therapy (November 2, 2015)

Are we spending enough on healthcare? (1 March 2016)

Should We Tax Sugar? (26 October, 2018)

BEING A HEALTH ECONOMIST

This entry was posted in Health on 22nd February 2019 by Brian Easton.

Wellington School of Medicine Summer School 22 February, 2019.

But, first, you may well ask, why should anyone – especially a health practitioner – care about health economics? When I was teaching health economics to sixth-year medical students, I wrote on the board so that it was there during the entire session:

EITHER HEALTH PROFESSIONALS TAKE RESPONSIBILITY FOR THE RESOURCES THEY USE,

OR ACCOUNTANTS WILL MAKE THE TREATMENT DECISIONS.

My students were uncomfortable with this – as I intended them to be. They took the view that they were there to act in the interests of their patients; why should they have to be concerned about these other things?

The role of a health economist is to explain why resources have to be taken into account, although today I will be working on a wider canvas because I shall also be talking about population-based healthcare as well as healthcare for the individual: in my professional lifetime the ‘treatment’ with the biggest health gain has been from reducing tobacco consumption.

There are many dimensions to health economics, many topics on which I have worked.

Charging for Health Care

My first memories of a health economic topic arose over the question of whether visits to the doctor should be free. That had been the intention of the First Labour Government when they established in 1938 what we know today as the public health system. (Incidentally I have never been disadvantaged by learning about the history of any topic I am studying.) The Labour government wanted all health services free but doctors claimed the right to continue to charge their patients – as they generally do today in general practice and private secondary medicine.

But should they? Isn’t health care fundamental to life? Why should patients pay? Actually a lot of things are fundamental to life, but we pay for them. Consider food. The difference is that food needs are regular, but health care is erratic. Some people can go for years without the need to see their GP, others may have to visit weekly.

An answer might seem to be insurance. In effect the welfare state was seen to be a form of social insurance but, for reasons that belong to a full health economics course, private insurance proves to be much trickier.

A related problem is where do you draw the line? Should free care cover dental fees or physiotherapy fees or aspirins and other OTC medicines or even, say, quack treatments.

Observe that charges are a rationing devise. You go to a GP if you value the service you are going to pay for, although in practice there other factors which affect your decision. That you go because you value the service more than you pay is also true when you purchase food – economics has put in a lot of effort to explain the exact mechanics.

What is different for healthcare, besides erratic demand, is that you go to the doctor find out whether you need treatment. Supermarkets do not advise you on your food needs. Sometimes it is said that GP charges discourage frivolous visits, but they may also discourage necessary visits – say for early identification of a condition such as cancer. Prescription charges are even more puzzling. A qualified medical adviser says one needs the drugs; why should you pay for them?

The charges seem to have been introduced to eke out the available funding for public health care. The alternative would be to raise taxes; in fact a prescription charge is a tax, a tax on the sick.

Not surprisingly, some people go without. A recent Ministry of Health Survey shows that 7 percent of adults and 4 percent of children leave a prescription unfilled each year because of cost. This affects women more than men, Maori and Pasifika adults more than Pakeha, the most economically deprived neighbourhoods more than those from the least deprived neighbourhoods. I find it very hard to justify prescription charges.

(Incidentally, when Muldoon proposed to introduce prescription charges in the 1970s we argued that it made more sense to tax drugs like alcohol and tobacco which damaged the public health, Muldoon switched tack and did exactly that. But rust never sleeps and some years later the Treasury got its way by convincing some craven politicians that there should be prescription charges.)

What about the opportunity to purchase secondary care from a specialist or private hospital? The option was always there but the establishment of Southern Cross Medical Insurance in 1961 intensified the issue. It made it even easier to jump the treatment queue, that is to enable the patient to be treated earlier than more urgent cases waiting in the public line, especially if specialists divert their effort from public treatment to private treatment. The outcome had shades of a multi-class provision of healthcare which the First Labour Government was opposed to.

I have already said that medical insurance is a big topic which requires complicated analysis. But sitting behind it is the question of the level of public healthcare funding. Just how much does the taxpayer, rather than the sick, pay? The answer is ‘a lot’ – the health budget is one of the government’s largest outlays. Many people, including myself, conclude though, it is not enough.

Why don’t we increase taxation and use the additional revenue for spending on public healthcare (and other worthy causes)? The short answer is that in New Zealand there is a strong aversion towards raising taxes.

You might think that in the case of healthcare everyone would be willing since they would be receive better healthcare from the public sector. But the costs and benefits do not fall evenly. Those at the top of the income distribution would pay more tax than the healthcare they would receive on average. They judge that they personally can get a cheaper deal by purchasing treatment from the private sector when they need it. Those on high incomes, a little below the richest judge, may be able to get a cheaper deal by purchasing medical insurance which will provide treatment from the private sector.

Before finishing this rapid overview of charging and overall funding of healthcare, let me mention a couple of other issues.

First, in 1938 the implicit view was that there was a limit to the totality of possible treatments. This was before the postwar explosion of pharmaceuticals and other novel treatments. Such is human inventiveness that there does not seem to be any ending of the trend, with resulting upward pressures arising from new treatments.

Meanwhile, new demands for care have arisen. Longevity increases the demand for care although we do not have a very good understanding of by how much. It is ironic that improved healthcare which eliminates deaths probably costs the nation more in further care in the longer lives.

We know less about the causes of rising obesity, of rising mental health demands and of rising addiction. On the other hand we have made good progress by reducing tobacco use and we have done much the same reducing the misuse of alcohol – although there remain serious problems here;

Changes in treatment approaches have also chewed up resources. For instance, while I support procedures to obtain informed consent, I recognise that takes time and adds to treatment costs.

The big takeaway is that unlike the 1938 vision, there does not seem be any practical limit to the resources we can throw at the health system. Yet, there is going to have to be some constraint on what is available. That means waiting times and the non-provision of low-return treatments in the public system and the limits that come from affordability in the private system.

Second, I was not involved in the establishment of the no-fault ACC system. In health system terms the scheme is interesting because it provides comprehensive coverage for certain treatments arising from conditions caused by accidents as well as prevention, rehabilitation and compensation.

It is frequently argued that we should extend the entire health system so that is run on the same principles as ACC. The historic record is that ACC was fundable because it abolished a lot of expensive litigation. There are no similar hidden funding sources for extending the scheme to sickness. To do so would require some form of taxation (or compulsory levies). Practically, ACC can probably provide such a good health service because it is only a small part of the total treatment system. Politically, the scheme has been greatly contested, especially by those who pay the levies, especially in the 1970s.

In the case of ACC there was the sneaking back of the fault notion in regard to treatment injury – when a treatment goes wrong – quite against the spirit of the 1967 Woodhouse Report.

I was involved in addressing the anomaly in the 2000s. The criterion is now, basically, that the injury as a result of the treatment has to be unusual; no longer fault has to be proved. Court decisions mean the notion of ‘unusual’ is being reviewed.

What we were doing here was realigning the incentive systems towards the needs of the patients over any alleged failure of practitioners. Meanwhile there remains a parallel system for dealing with incompetence in a health professional. In my view the design is still not quite satisfactory because it does not give all the encouragement it might to the institution to provide a quality safety culture.

To summarise, funding the health system has substantial impacts on how the system runs; the arrangements affect not only the cost to the taxpayer and patient (and to the insurance system) but the efficiency of the system and the care people receive.

This is nicely illustrated by the US health system which is the most expensive system in the world and has some of its finest clinicians; yet its performance in terms of the health of the average American is mediocre by international standards. There are two reasons: poor system design (the topic of the next section) and poor public health (the topic of the third section).

Organising the Health System

The structure of the health system has been in almost constant flux. I rarely use the term ‘reform’. The word ‘change’ is usually adequate and it does not have any connotations of improvement. Too often a ‘reform’ has proved – prospectively and retrospectively – to result in a reduction in performance. I am going to devote this section to the health redisorganisation of the early 1970s.

There was with the 1991 Mother of All Budgets a ‘Green and White’ paper proposing major changes to the public health system. (The reason why it was combined green – for discussion – and white – where government decisions had been made – was that even the National Cabinet could not agree to some of its more extreme proposals.)

I use the term ‘commercialisation’ to describe the redisorganisation. At its core was the idea that the best way to deliver health care was by businesses competing in the market. It would not be possible to do this completely. The aim would be to commercialise as much as possible.

The redisorganisation was sometimes described by the critics as an ‘Americanisation’ of the health system. New Zealand’s healthcare culture is different from America’s with its more commercial focus. America’s is probably near unique among rich country health systems. The proposers of the redisorganisation wanted an even purer – more commercial – form of the US system.

This was not evidence-based policy for there was no evidence that the redisorganisation would give a better health system. Indeed, insofar as it was moving toward, and then past, the American system, the evidence was that it would get worse. Those involved had absolutely no experience in the disciplines most knowledgeable about the design of health systems. Those in charge of the change specifically excluded those with expertise. That included not bothering to consult some leading world experts who happened to be visiting New Zealand at the time.

The ignorance of those planning the change soon became evident. Sometimes the errors were laughable. One advocate confused an intensive care unit with a post-operation recovery unit. One hopes that had he a heart attack he would not choose where he was to go.

The promise was that these changes would generate a 20 percent productivity increase. That, the advocates said, would mean that 20 percent more health care could be provided on the current budget, although perhaps some hoped to cut public funding by that amount.

One of those working on the redisorganisation explained that he had worked on other industries and always got a 20 percent productivity gain. What he did not understand was that his earlier businesses had been capital intensive – say 80 percent of costs were related to capital inputs – but the health sector was 80 percent labour intensive. Given this sort of misunderstanding, little attention was paid to the labour input. Not only were the specialists in health systems analysis ignored but so were the health professionals.

This was nicely illustrated by one chief executive of a Crown Health Enterprise (notice the last word) who had been recruited from the business sector. He had a dozen reporting directly to him, only one of whom was a health professional. Most of the appointed chief executives were from business and were more comfortable with business people. The governing boards of the new entities were also stacked with business people.

I remember a chief executive talking enthusiastically how he expected his clinicians to join him to achieve his CHE’s objective. He was politely asked what the objective was, and the businessman said it was the ‘bottom line’ and then sort of deflated as he realised the implications. The clinicians he was talking to, did not give a fig for profits but had someone in the room had a heart attack you would have been clear that their objective was the welfare of patients.

The theory was that just as any economist was able to pontificate on the health service, any manager could manage a health entity even though they had no knowledge of health issues. We call them ‘generic managers’ and their cult still dominates Wellington today, although not so much in the health system. You need professional expertise to run it.

Given the disaster of the health redisorganisation of the 1990s, you may also want to dismiss economists as having nothing to say about health systems. It is generic economists you need to dismiss.

Health practitioners were outraged by the proposed redisorganisation and actively opposed it. One of the most important lobbyists was the Coalition for Public Health. I worked as a technical adviser for them. They could see that the proposed changes were out of touch with reality but they did not have the framework to understand what was going on, nor make sense of what the other side was thinking. Thus we health economists made our contribution.

Did the public opposition to the commercialisation had any effect? It was such a stupid proposal that it would have broken down under its own weight anyway. Probably the opposition’s effect was to slow down the changes and bring them to an earlier end.

People suffered. There are documented cases of people dying during the turmoil because of managerial mistakes. The falling mortality rate slowed, which indicates that there were many more undocumented cases of death and discomfort from the cutting back of resources and the organisational turmoil.

Within a couple of years the government acknowledged there would be no significant productivity gains. Even so, the momentum of the redisorganisation continued; even today the current government struggles with its legacy despite much having been reversed. Destruction is easy; recovery and creation takes decades.

It is said that success has many parents but failure is an orphan. Nobody today mentions their active role in the redisorganisation; some have rewritten history to disguise their involvement. Some involved in the shambles were kept on advising or promoted in the health system area.

The government suffered. Jim Bolger, prime minister of the time, said that National almost lost the 1993 election because of its health policies. (Probably what protected National was that the Labour Party played such a small role in the opposition to them.) Those opposing the changes may take a little pleasure in this, although I do recall any sentiment in the Coalition for Public Health that it was trying to bring down the government. The focus was on stopping the stupidity.

Another curiosity is that those who led the opposition have never had public recognition. In a healthier political world its generals – Alan Gray, Peter Roberts, Alistair Scott – would have been given knighthoods.

Legal Drugs and the Public Health

I now switch to a quite different area of health economics: public health policy illustrated by the regulation of alcohol and tobacco. By an unfortunate or fortunate accident I worked first on alcohol policy. Tobacco policy is much easier so I shall deal with it first.

The health advice is that one should not smoke. The more one smokes the worse for one’s health. Moreover – and this distinguishes tobacco from alcohol – the damage seems to be proportional to the quantity consumed.

The health economist asks ‘what is the problem?’. Smokers know the risks – they do now anyway following heavy publicity campaigns – and they choose to take the long-term consequences for the short-term benefits of smoking. People do that in many other areas – skydiving or walking across the road.

One answer is that some of the costs arising from the consequences of smoking are borne by others. Economists call this the ‘externality problem’. Much of the analysis of how markets behave well assumes that making a decision in one’s own interests does not reduce the welfare of others. If it does, then the price mechanism lacks some of the properties which make it so effective.

Examples of externalities include passive smoking (I help develop the smoke-free policy) and the devastation to family and friends from a smoker’s early death. The big one is that the health system incurs additional treatment costs from a smoker’s sickness which are not paid by the smoker. .

The last statement involves a trickier analysis than it seems, because if one avoids death from smoking one lives longer and incurs extra costs to the public health system later in life. The tobacco companies commissioned consultants to show that these later costs were greater. (To do this the consultants had to admit that the tobacco caused sickness and deaths, which they have not been keen to do.) The logic of their analysis is exploding cigarettes which kill smokers on the day they retire from the workforce. The paradox arises because we need to take into consideration longevity and the quality of life associated with it, something I shall talk about in today’s final section.

There is another tricky issue here, which is that economics tends to assume that people make rational decisions in their own interest. By way of background, economics is an older discipline than scientific psychology and it had to invent the assumptions which underpin economic behaviour. That a person makes rational decisions which optimise their self-interest is a useful one with a number of analytic advantages. In my view the assumption is a useful first step, but there are economists who defend it fiercely as though it is unquestionably true.

Even when I began the work, we knew that most smokers exhibited a paradox for they say they would like to give up smoking but they do not. That is difficult to explain in terms of rational economic behaviour.

More recently, economists have incorporated the psychological literature which suggests that people do not behave as rationally as traditional economic theory assumes. Behavioural economics is a relatively new research area and we are fumbling our way to incorporating it into the central economic paradigm.

It shifts policy beyond making sure people understand the consequences of smoking and eliminating externalities and to pursue policies which actively discourage smoking – especially discouraging (young) people from taking it up.

It turns out that one of the most effective ways to reduce tobacco consumption and discourage taking it up is a high excise duty on tobacco; raising it is an integral part of today’s anti-tobacco policy. So economists have been integrally involved in the campaign.

Alcohol is a little different, because while one’s aggregate consumption affects one’s health, the intensity of consumption also has serious additional effects – binge drinking is neither good for you nor for the others you impact on. My reading of the literature is that modest low level drinking is not particularly bad for one – as I said, many things one does like skydiving and crossing the street are like that. In fairness I should say that the view I have just enunciated is contested but it is my best judgement – over the years it has changed as new evidence became available..

Because of the different impacts from tobacco and alcohol on health and society it is not so easy to regulate drinking. That there are numerous impacts means that there is a need for multiple policy interventions. For instance, there is no tobacco parallel to drink-driving rules.

Taxing alcohol consumption is trickier too. The ideal would be a tax rate which rose as your blood alcohol consumption rose. I have struggled with practical alternatives over the years. That is a big story, so let me just tell you a cheerful part of it.

When working on rates of excise duties on alcohol, I found an anomaly in duty levels which meant there were low tax rates – and hence prices – on light spirits which were taxed as though they were wine but whose alcohol characteristics were closer to full spirits. A bottle of light spirits cost about a hour’s wages, but its contents were sufficient to kill a drinker of a full bottle. Sadly, while I was working on the project, some youths did and died.

I took my findings to the Treasury who were appalled. Bugger the health effects, there was leak in their tax system. Very quickly the tax regime was changed; ALAC, for whom I was working, said it was the quickest tax increase they ever got.

One effect of the new tax regime was to raise the price of fortified wines. The newspapers gleefully pointed out that little old ladies would have to give up their night sherry, failing to mention light spirits which were the primary public health target. In fact, the impact on sherry consumption proved to be small, but light spirits consumption fell to zero. (The light-spirits manufacturers did not end up crying into their liquor. They provide RTDs; I know of no direct deaths from alcopops although of course they are a source of alcohol abuse.)

The other area involving alcohol and tobacco which I worked in was measuring the social costs of tobacco use and alcohol abuse. That fits nicely into the next section.

Economic Evaluation and Social Costs

Before I worked on economic evaluation and social costs in the health sector I had used cost benefit analysis in other areas such as the Major Projects/Think Big. The intellectual underpinnings are much the same. I shall confine myself to sketching in some of my eccentric experiences.

I cannot resist mentioning that a good colleague and friend Rob Bowie and I were approached to consider the introduction of MRI –magnetic resonating imaging – into NZ for assisting the diagnosis of multiple sclerosis.

Couple of lessons here. One was that the machines were being heavily promoted but we could not find any evidenced-based studies of their usefulness that we need for an economic evaluation – all there were was promises. Because of the data limitations our advice was to compare the numbers of MRIs in Australia.

The second lesson is that technological forecasting is very difficult. Economists are not too good at this. Somehow you have to get a balance between hyper-hysteria and over-caution. The best advice I can give is to be aware of the difficulties, to be humble about outguessing human ingenuity, to keep an open mind and to be ready to laugh at your blunders..

My big effort int the area occurred when I was on an international working party to set out the principles to calculate the social costs of drug abuse. Previously the exercise of measuring the social costs of a drug were all over the place. There was no rigorous underpinning, rather there were arbitrary procedures which were often meaningless. Eventually our standard was published by the WHO.

I’m proud of that effort. My principle contribution was to ensure the social-cost methodology was consistent with cost-benefit analysis, not only because the CBA was a well established methodology based on standard economic theory. It also meant that the social cost exercise could be converted to a full economic evaluation.

Afterwards, I calculated New Zealand social costs of tobacco use and alcohol abuse. It is too big a job to report today on my findings – the costs were huge – or on the underlying methodology.

However, I report that subsequently a generic economist was commissioned to update my work. It was very badly done as he did not seem to understand the issues (for instance, he did not even refer to the WHO report, but made it all up as he went along). The report was vigorously attacked by another generic economist of a different political persuasion who was equally ignorant.

Neither referred to one of the most fundamental principles in economics that a ‘cost’ is always based on an ‘opportunity cost’ and that requires a counterfactual scenario to compare with the current situation. For instance, are you talking about what happens if all tobacco consumption ceases tomorrow but there is a hangover from past consumption, or are you assuming that tobacco was never used in New Zealand? Each will give a different total social cost so it is really important that one states what the alternative scenario is, otherwise the estimate is just a muddle.

This muddle is not confined to health applications. We often get commissioned reports which make outrageous claims about the social costs or their equivalents of some policy change. Unlike in the case of the major projects the studies are not checked by independent economics and they tend not to be very reliable. The next time you see a promise that this or that will generate or cost billions of dollars, yawn.

I want to end this discussion of economic evaluation by taking you through an issue which comes from health economics but has even wider implications.

I began in a discussion of how to choose between different road designs. At issue was how to value road safety. The convention was to include in the evaluation the number of lives saved which shifted the design choice towards safer roads – an eminently sensible thing to do. The particular issue was how to put a dollar value on lives saved.

There is a tricky ethical issue here which worried the international working party. What does it mean to put a dollar value on a life – is that the ‘value of life’? The working party was confronted with the fact that some religions would not tolerate putting any value on life. What we agreed was that we were not valuing life as such but identifying the amount that public policy would spend in order to avoid a death. I shall fudge the issue for the rest of this talk.

There is a bit of a problem with the roading approach because it does not cover losses from a lower quality of life – say from permanent injury or even from short-term accident recovery and trauma. Such issues are acute in the health sector because increasingly treatments are concerned with better quality of life – including for patients in a terminal condition – and not just preventing death. Would it not be crazy to conclude that a treatment was not economic because while it gave a better quality of life it did not prolong life?

Additionally, how do we deal with the prolongation of life? Should we not favour a treatment which gave two extra years of good quality life against one which gave only six months? For instance, tobacco kills more than alcohol, but the dead from alcohol abuse tend to be decades younger than those who die from tobacco-induced diseases. Should put in relatively more effort to eliminating alcohol abuse than tobacco use than the relative death rates suggest?

Another issue is whether we treat all people the same? It turns out that even the elderly think we should not put as much resources into prolonging their lives as we should for a mother with young children. Sounds right to me.

It is a complicated task answering all these questions. There has been progress, but it is limited by useful data. A particularly robust procedure is using a measure of quality-adjusted life years. You calculate the difference in QALYs, as they are called, between two scenarios and value them according to some procedure.

When I did this for tobacco use and alcohol abuse I found that the value of the total QALYs from the elimination of the use and abuse were enormous compared to the resource costs involved – by a factor of about ten. That meant that the impact of tobacco use and alcohol abuse on the quality of our lives was far larger than it was on GDP. I long puzzled over this. Here is my brief explanation.

Economists knew from the beginning that material output (say per capita GDP) was not the same as wellbeing. Sometimes we forget, sometimes we seem to forget – the public, especially the commentariat, are much worse.

The puzzling result suggests that material output makes a smaller contribution to wellbeing than other things – things which economists do not have a lot to say about. (I add that there is a lot of other evidence to underpin this conclusion.)

That is a sobering thought. Yes, economists can improve the human condition by promoting good quality material output, but do so humbly for there are things which are outside our competence. It is possible that those who are in the health sector make a bigger contribution to wellbeing than business does – even using business criteria. That is not the national rhetoric.

One can also see the current government grappling with related questions in their promise of a wellbeing budget this year – although I do not have high hopes it will make a lot of difference.

Conclusion

I have had to take you through some tricky economics, even if superficially. Dont worry about the details. My central messages are twofold.

The minor one is that I hope I have conveyed that being a health economist can be interesting and challenging and that it can even have a little influence on human wellbeing.

Most of you have no ambition to become a health economist. The message for you is that economic issues are going to influence your health practice. Today you have seen it in terms of

– pricing and funding, and the amount of resources available to you;

– the environment and structure of the system you work within;

– population-based health policies;

– the availability of treatments.

In each case economics has contributed to shaping outcomes, often for the better, sometimes for the worse I am afraid, although even in the case of the health redisorganisation health economists played their part in the resistance.

What does this mean for a health practitioner? One can ignore economics and live a professional life buffeted by economics in ways one cannot comprehend. The buffeted will probably rely on poor quality economic theories – even fallacious ones – without realising they are using them or knowing that the theories they use are not very good.

Alternatively, one can think, as I do when I obtain medical advice or treatment. I am in charge but I am aware of my ignorance. I expect the adviser to act in my interests but I try to understand what is going on. That includes being prepared with the basics, asking questions where I do not sufficiently comprehend and – yes I admit – consulting Dr Google and the like. Being prepared including keeping abreast with the latest developments; that requires an understanding of the relevant science.

The same broad principles apply to health economics. You should respect the expertise of the professionals and be knowledgeable enough to identify quacks. Keep the experts on tap not on top. One of the reasons this paper has asked lots of questions, is because I am unsure of the answers. But I hope it will help you when you are challenged by the issues I have covered.

If you do not go down this path, do not be surprised if you find yourself limited in a world over which you have little control.

EITHER HEALTH PROFESSIONALS TAKE RESPONSIBILITY FOR THE RESOURCES THEY USE, OR

ACCOUNTANTS WILL MAKE THE TREATMENT DECISION.

Brexit: A View from Down Under

This entry was posted in Globalisation & Trade, Political Economy & History on 19th January 2019 by Brian Easton.

This was submitted to a British news publication in late December, but was not published.

Brexit is a great puzzle to New Zealanders. Britain and New Zealand are affectionate cousins with common ancestors back in the nineteenth century. We have gone our own ways; even so we have views of the other’s ways.

New Zealand’s position in 1973 was that Brentrance was a matter for Britain to decide, but that it should not compromise the New Zealand economy. A common informed New Zealand view was that Britain should join what is now the EU. It had lost its empire and its new international role would be as part of a solid block of European nations which would reduce the dominance of the duopoly of the US and (then) Russia.

Now Britain says it wants to leave the block, strengthening the joint hegemony of the US and China. The strategy does not make a lot of sense to your cousins, while the way it is being done is farcical. This view is similar to what our friends and relatives living in Britain tell us – the cousins’ links are close and affectionate.

Part of the divergence in view may arise from New Zealand being a minor nation on the margins of the world, so we have to think globally. There still seem to be a lot of people in Britain who are ‘Little Englanders’, that strange withdrawal from the world based on the pretence that Britain is a higher-level power than it really is.

The odd thing is that the polls tell us that an increasing majority of the Brits are Remainers. It gives us some comfort that the entire nation is not insane. The trouble seems to be the British political system. In particular parliament does not seem to be up to the job, especially given that the majority of MPs are Remainers, so I am told.

We got fed up with the ‘elected dictatorship’ (Lord Hailsham’s term) that our system generated. Twenty-five years ago we replaced it with Mixed Member Proportional Representation (MMP), a system similar to the German one. What that means is that the party system is much more fluid.

So I don’t think New Zealand would get into such a muddle over a question of Brexit proportions. We do get parliamentary gridlock on decisions. When we do we use referenda. A century ago we were voting on the liquor question. In the last 70 years there have been another ten parliament-triggered referenda. (We may have another three at the time of the next general election in 2020.)

Had the British a more proportional representation system, perhaps MPs would abandon their party allegiances and form new parties – say Tories-for-Remain leaving the Conservatives-for-Brexit rump, and similarly for Labour MPs. (No wonder party leaders hate proportional representation.)

But if the Mother of All Parliaments cannot get a realignment of parties (as occurred in the nineteenth century) does that mean Brexit is inevitable? That is in the hands of the MPs – hopefully some have the intelligence and commitment to find their way through the arcane parliamentary procedures.

It is not for one cousin to tell another on the other side of the world what to do. But here is a scenario an affectionate one might fantasise about.

Early in the New Year, Parliament forces the British government to the Brexiting on 29 March – say for two years. It is too soon, cuzzie, and you are not prepared. In the interim, Britain works with the other 27 EU countries to review the terms of freedom movement. Cooperatively, not threatening to leave but enabling the EU to work better. There are already numerous restrictions on freedom of movement. Perhaps all that needs to be done is to codify and systematically implement them.

Then have a referendum. We would down here. Blow the party leaders; the people should have the ultimate say. But they would no longer be voting for or against the Remain as it was in 2016 because the restrictions on freedom of movement will be better understood.

New Zealanders’ preference would be for a world with a well-functioning EU and Britain a part of it. But whatever the outcome of the referendum we’ll support you, just as we would a cousin who we thought was, say, committing themselves to an unwise marriage. (But allow us to repeat our 1973 demand that you do not damage our economic interests – well not more than you are going to damage yours.)

One of your great countrymen – your cousins admire him too – Winston Churchill thought that often a country came to the right conclusion after it had tried everything else. The dictum does not say when, nor the terrible cost of the half-baked interim solutions on the way. But it gives your friends overseas some confidence that eventually you will get there. How about soon, cuzzie, soon?

Poverty and the Statistician

This entry was posted in Distributional Economics, Social Policy, Statistics on 10th December 2018 by Brian Easton.

Presentation to the Wellington Statistics Group, 10 December, 2018

This year’s Child Poverty Reduction Act (CPRA) marks a major innovation in social policy. Politicians – here and overseas – have promised to eliminate child poverty at some date in the future. They never have and by the time the target date is reached the promisers have moved on and cannot be held to account.

This time the promise is embedded in an act of parliament. It does not actually say how the target will be attained but it proposes monitoring reductions in child poverty, regular reporting to parliament. It is not the first such act internationally. Britain passed a Child Poverty Act in 2010. There is a fascinating paper to be written comparing the two acts, especially as the British one has been running for eight years, But I leave that for another venue. This paper is about the underlying statistical base of the New Zealand act.

For, from a statistical perspective, it has some strange features Perhaps the oddest is that it does not discuss the concept of poverty despite it being central to the act.

It is true that there are numerous measures of poverty mentioned in the CPRA – I’ll come back to them – but a statistical measure is not a concept. Section 6 of the CPRA charges the Government Statistician with making decisions that define concepts and terms. It is extraordinary that Parliament has left a public official to define the most central issue in a piece of pioneering legislation.

There are difficulties defining the concept of poverty. In rich countries there are two quite different approaches. They are well illustrated by the 1972 Royal Commission on Social Security which identified the aims of the [social security] system as:

(i) First, to enable everyone to sustain life and health;

(ii) Second, to ensure, within limitations which may be imposed by physical or other disabilities, that everyone is able to enjoy a standard of living much like that of the rest of the community, and thus is able to feel a sense of participation in and belonging to the community.

(iii) Third, where income maintenance alone is insufficient (for example, for a physically disabled person), to improve by other means, and as far as possible, the quality of life available.

(Original’s italics.)

The first aim is consistent with a notion of an ‘absolute level of poverty’; the second aim defines a notion of ‘relative poverty’. (The third aim will come up as the presentation progresses.)

The Royal Commission saw the second aim of the system – that everyone should be able to enjoy a standard of living much like that of the rest of the community, and thus able to feel a sense of participation in and belonging to the community – as the basis of New Zealand social policy.

However, there are those who consider the first notion – of absolute poverty. with the state ensuring there is just enough to to sustain life and health – as the appropriate notion. This view appears regularly in the right wing blogosphere – imported from their US compatriots, I think. But it is also embedded in our existing social policy.

Recall that in the 1990 attack on the welfare state, the base social security benefit was cut from the level set by the Royal Commission to a much lower one. Except for a single lift in core benefits where there were children in 2014, its value adjusted for inflation has not been increased in the following 27 years. The clear implication is that subsequent governments have thought the level was adequate to sustain life and health while the recipients should not share in the benefits from rising prosperity. It enshrines an absolute poverty level.

In contrast, the level of New Zealand Superannuation was not cut in 1990 and its real level has been increased in line with rising real wages so that the elderly are expected to share the rising prosperity of the nation. This more European approach underpins relative poverty.

Probably the CPRA is intended to promote relative poverty. Yet there are some very ingenious people – like those who advised Ruth Richardson and Jenny Shipley – who could reinterpret the act’s undefined poverty line to an absolute poverty one. Certainly the act does not proscribe them from doing so and at various points it could be said to be introducing an absolute poverty notion as I’ll mention.

I am not going on to develop an elaborate definition of relative poverty here but instead talk about some of the treacherous issues arising when measuring poverty. I shall not do this by critiquing the CPRA, but by recalling my journey in research on poverty. What I am recounting here is set out in more detail in a memoir I am writing: Poverty, Inequality and Policy.

What definition of poverty am I using? In simple terms it is the 1972 Royal Commission’s approach of relative poverty with its crucial notion that people should be able to enjoy a standard of living much like that of the rest of the community, and able to feel a sense of participation in and belonging to the community. I have elaborated this notion in various ways, most importantly anchoring it in the philosophies of John Rawles and Amartya Sen.

Beginnings

When I returned from teaching in England in 1970 I chose distributional economics as my research topic, combining my interests in economic theory and statistical application.

It was a neglected field but had considerable practical applications. It was a huge field and I burrowed away. The question of poverty nagged at me. Almost all the useful income data was about individuals but poverty was a household phenomenon. Eventually I hit paydirt. The Department of Statistics ran a survey of household incomes and expenditure in 1973/4. It was the first such comprehensive data base.

Each household in the sample is asked to record its expenditures and income over the year, giving a ‘unit record’ for the household.

The income in the unit record is before tax, so I adjusted to an after-tax income including benefits. The disposable income is now transformed to an ‘adjusted equivalent income’ enabling the material standard of living of different size households to be compared, (I have more to say about this later;)

Next, we sneak in an important assumption: that the household shares its spending fairly. That is probably not quite true – for instance. Mothers will sacrifice their own wellbeing in order to support their children’s.

We then rank all the individuals in the sample, from those who have the lowest adjusted equivalent income to those who have the highest.

There is a detail here that is sometimes overlooked. The ranking is by individuals, not households. Ranking households can be misleading. For instance, it was recently mentioned to me that 40 percent of the poor were sole-parents and their children. Except they were counting households not individuals. Solo parent households are smaller than two-parent ones and there are many more poor individuals in two-parent households than in solo parent households.

We can now answer the following question. Suppose the poverty line is set at $X a year, then what proportion of the individuals are below that poverty line? Observe that if one has some characteristics of the individuals – say whether they are children – a poverty count can be done for the subgroup.

Couple of points for statisticians here. First sample sizes of some sub-groups in the Household Economic Survey means that there is high sampling variation and the estimates can jump around from year to year. That is the reason why the 2018 MSD report does not cover some subgroups which were considered in earlier reports. There is a need for the HES to over-sample some key groups.

Second, the method is essentially working with the cumulative frequency distribution of equivalent household incomes. The curve is steep in the range where the poverty lines fall. So even in the unlikely event of the commutative curve being accurately estimated, small changes in the choice of poverty line can result in large jumps of the numbers in poverty.

Despite these effects, known at the time, this method is broadly what I did, except I did not have access to the unit records. So I had to apply an estimated average tax rate in each category to get the disposable income; there was no alternative.

The relative poverty line I used was that judged by the Royal Commission on Social Security as the minimum to meet its second aim. (I called it the ‘Pensioner Datum Level’.) So I was not imposing my assessment of the poverty line but using an external and eminent social judgement.

My basic conclusion was that the following fell below the PDL

– 20 percent of persons over the age of 60, or 75,000 people;

– 25 percent of children, or 250,000 people;

– 20 percent of their parents, or 190,000 people;

– 5 percent of other adults, or 35,000 people;

a total of

– 18 percent of the population, or 550,000 people.

The estimate of over half a million below the chosen poverty line may be called a ‘Gee-whiz’ figure. It is great for headlines and shocking people but only offers some broad insights.

There was one salient conclusion. According to the RCSS judgement, poverty in New Zealand was a significant issue for a large number of people. There was no inherent reason why the figure was not lower, say 55,000, which perhaps the complacent would have thought reasonable. What the gee-whiz figure suggested was that New Zealand could not be complacent; that around one in five New Zealanders did not have an acceptable living standard. This was published in 1976; we are getting there.

As well as the conclusion that relative poverty was a major problem in New Zealand there were two other major takeaways. First, it was a pioneering approach in New Zealand. I was told in 1980 that New Zealand was in front of the international research effort, a lead we soon lost.

The approach was taken up by the Department of Statistics who developed a computer model based on the unit records I never had access to. The model, with improving quality of the data, has evolved into the standard workhorse for evaluating the household income distribution. The MSD annual report on households incomes uses this approach.

The second critical takeaway was that it refocused on who were poor. The conventional wisdom was that the poor were either beneficiaries or those unable to provide fully for their families because of special circumstances. What this estimate, based on survey evidence, showed was that the poor in New Zealand were (and are) mainly children and their parents, and that many of those parents were in households which were in receipt of near- and above-average wages. It would take a long time for this to become the conventional wisdom. This year’s legislation is surely the official imprimatur – 40 years later.

Household Equivalence Scales

The above account has skipped over some issues of interest to statisticians.

Recall that it is necessary to compare the effective spending power of different households. In practice, our households are compared by the numbers of adults and children. Importantly, we do not allow for the age of children though obviously their needs vary. For instance, an adolescent girl needs more food than her father; I do not discuss clothing allowances.

The studies use a Household Equivalence Scale. In principle it is a table which sets out the relative needs of a household with, say, A adults and C children, compared to a reference household of, say, two adults. In practice the table can be summarised by a simple mathematical function involving a couple of parameters. One parameter gives the relativity between the average adult and the average child; the other measures the household economies of scale, since a household with more people can make some savings compared to people living in separate households.

The immediate reaction of a statistician is that we could estimate the parameters, but that is not what happened. Rather, the standard HES we use. reflects a personal judgement for which there appears to be no systematic empirical evidence. The parameters were first set in 1978 and then changed in a 1988 for no clear reason. The 1988 household equivalence scale is the one used by the Ministry of Social Development and most poverty commentators, although the annual MSD report provides estimates for some other scales but they were not estimated either.

There is no guidance given in the current legislation about the choice of Household Equivalence Scale. The impression is that the drafters of the statute were not even aware there was a problem.

Fortunately, there have been empirical attempts to estimate an HES based on evidence. Stalwart statisticians included Harry Smith and Srikanta Chatterjee but the best New Zealand work was by Claudio Michelini of Massey University.

When I was working with Suzie Ballantyne on a short-lived HRC grant I had planned to estimate HESs. Fortunately Claudio took over the hard grind, estimating scientifically based equivalence scales from ‘preference-consistent extended linear expenditure systems’. Thus Claudio (and other econometricians) derived HESs from actual data – from the evidence of how people behave. Claudio and I discussed how his scale could be improved. He was keen to do so but, alas, he was struck down with a brain tumour in the middle of his project and so his work was never completed.

Does it matter? Many people see little difference when they look at the scales. But the small differences can matter a lot. For instance, if you used the Michelini scale rather than the official MSD scale, the relativity between those in single households and couples changes quite markedly.

You might think that by using the same Household Equivalence Scales as other economies gives them some integrity. Exactly wrong! Institutional arrangements matter. To see this, consider what would happen if the government abandoned free education and give each household the cash equivalent. Since their income would go up, each family would be less likely to be measured as in poverty. The paradox arises because the household equivalence scale should be adjusted for the additional schooling charges the household faces.

So arrangements in public supply of services, such as education and health, matter. Price changes, including the cost of servicing a mortgage, matter. It would be a miracle if a household equivalence scale which was correct in 1988 was as true thirty years later.

The different HESs give different estimates for the numbers below the poverty line – generally the Michelini numbers of poor are higher. The composition of the poor is also affected – the Michelini HES finds more poor children and their parents in multiple adult households than does the official MSD one.

Looking at the evidence makes me pretty sure that the assumed economies of scale effect is too strong. That would mean that the poverty line (and therefore recommended support) for large families is too low and any count of the poor in large households is underestimated. It gives policy an incentive to address poverty in small households, ignoring it in large ones where it is more serious.

Housing

Spending on accommodation is always a difficult issue. The problem arises because a family in exactly the same house may have quite different outgoings: they may be paying the market rent, or their rent may be subsidised, or they may own the house freehold and their outgoings may be just rates, insurance and maintenance, or they may own it with a mortgage so that on top of the freeholder’s outgoings there will be the debt servicing, and there are those who pay next to nothing because the house goes with the job or there is some family or trust arrangement.

The counsel of perfection is that the difference between outgoings and the market rent should be treated as additional income (or perhaps negative income). Applying the counsel is tricky. Suzie and I made good econometric progress and the indications were that it improved the statistical results. But Claudio did not stay around long enough to apply our approach to his HESs.

The alternatives have been either to ignore the housing outlay problem or to deduct the housing outlays from income. Both are proposed in the new CPRA.

The argument for ignoring it may be that income support should be adjusted for housing outlays as is done to some extent (e.g. via the accommodation supplement or subsidised state housing). At the aggregate level it is assumed that the impact of the heterogeneity will average out so the total in poverty is not affected. That is unlikely but the overall effect may be small. Even so, it is likely to lead to an undercount of those with heavy mortgage outgoings. Conversely, some of those who have lower outgoings may appear to be below the poverty line when they are actually a little better off.

Deducting housing costs from income might seem to be a good idea, although an economist bridles at deducting a spending flow from an income flow – it is like subtracting apples from oranges. Fastidiousness aside, the next step by the orthodoxy is astonishing: the same household equivalence scale is applied to income less housing costs as the one applied to total income.

But the standard HES, used where housing costs are included, has strong economies of scale arising from the cost savings that large households have in their housing bills. If the HES is correct for total income, it must be wrong for income less housing costs where there are not the same economies of scale. The consequence is that once more the incidence of poverty is under-represented in larger households. (The 2018 MSD reports uses a different OECD scale when adjusted housing costs are deducted, with lower economies of scale. It is not empirically based.)

In conclusion using the current arbitrary Household Equivalence Scale probably underestimates the poverty line and the numbers in poverty of the following:

– those in larger households

– those in households with adolescent children

– those with high housing costs arising from high mortgages or high rents

– those in households with workers with employment costs.

Choosing a Relative Poverty Line

Back in the mid-1970s, the Royal Commission judgement as to the relative poverty line, based on listening to the evidence submitted to it, was the best we had. With time, we try to find a better estimate.

In the 1990s, the Poverty Measurement Project asked focus groups of relatively poor people what they thought was the minimum adequate household expenditure for their households.

Unfortunately, the results were nonsensical – they seemed to suggest an individual adult would be satisfied with a negative income.

Eventually the Project abandoned the focus group approach and settled on a proportion of median equivalised household incomes. Where they got the notion from is unclear, although it is used in international comparisons, perhaps because it is tricky to calculate the top and the bottom of the income distribution. The median benchmark is central to the poverty indicators in the CPRA.

The median is the middle of the income distribution with as many above it as below it. Advocates argue over whether the percentage should be 50 or 60 of the median income. They do not provide much evidence for their opinions.

The weakness of a median income benchmark is illustrated by the following paradox. A median-income-based poverty line makes it possible for measured poverty to be reduced by taking income from those in the middle of the income distribution and giving it to those at the top. The income of the middle household falls and so does a median-income-based poverty line. Thus numbers of those measured in poverty are reduced even though there is no change in the living standards of the poor.

Suppose the median (middle) income is 100 units, and we use the 50 percent of median income poverty line, so anyone in a household below 50 units is in poverty. Now suppose the government rejigs the tax system in favour of the rich by raising taxes on those in the middle and using the proceeds to cut taxes at the top. Suppose the higher taxes on the middle reduced median income to 90 units from 100 units. The measured poverty level falls to 45 units and all the people in the 45 units to 50 units income range are no longer deemed to be in poverty.

This is not just a meticulous scholar-statistician generating a theoretical paradox. This actually happened when in the early 1990s, when the government redistribution transferred income to the rich. The Poverty Measurement Project reported the numbers in poverty fell. Any objective observer at the time saw plenty of evidence of rising deprivation. Yet the faulty poverty measure showed exactly the opposite. Both the Treasury and a right-wing think-tank, the Business Round Table, trumpeted the success of their pro-rich redistributive policies at reducing poverty.

It is not hard to switch to a mean benchmark: 60 percent of the median is would be 49 percent of the mean today. Before 1990 it would have been 54 percent. In effect the pro-rich tax changes in the late 1980s cut the relative poverty line by 10 percent if it was benchmarked by the median.

Not only is the mean easier to understand, has better statistical properties and is harder to manipulate, but it is also easier to forecast. A statistician is left bewildered when we use the median benchmark.

The 50 percent median seems too low, at least in terms of one case study in which I was involved. In 2012 I had the task of offering guidance to the Social Security Appeal Authority as to the income which would be sufficient to enable a particular family of Meg and her early-teenage daughter, Stacey, to attain an adequate standard of living. Since this involves judgement, I estimated ten different rates. One – based on American standards – was clearly too high but eight clustered around $540 p.w. In contrast, the family’s actual income was about $470 a week, so they needed a 15 percent boost (plus more for exceptional expenses).

There was a lower outlier, well away from the other eight estimates. It was the 50 percent median figure of $455 p.w. – much the same as what the family was actually receiving.

But the amount the family was receiving was clearly inadequate. There is an uninformed view that all the poor really need is financial advice. This family had gone to the local budget advisory service. The budget it prepared for them provided for food, housing, electricity, medical and educational costs, transport and phone. It left them with just $19 a week for everything else: clothing and footwear, entertainment, recreation, dental care, consumer durables, insurance, haircuts, presents, school trips and pets.

It was hard to conclude from the budget that the family had an adequate standard of living which would enable them to belong to and participate in society. The conclusion is reinforced by two instances.

To eke out their inadequate income the two skipped some of their medical needs, but the big saving was on food, usually only $40 to $80 a week, well below the level of $130 for the simple but nutritious meals recommended by the University of Otago Department of Human Nutrition. Meg and Stacey depended on chips. They knew it was not healthy but chips are the cheapest way to fill one’s belly, putting off hunger and leaving some cash for other necessities.

Second, not only was Stacey’s health compromised by poor nutrition, unhealthy housing and skipping some healthcare but she was excluded by not being able to afford to participate with her school friends in social events (while I was there she missed out on going with them to a gig). These compromised her education, as did the lack of funds for the ongoing charges schools place on today’s children. Stacey’s adulthood prospects were not good.

One concludes that a 50-percent-of-median poverty line is far below any relative poverty line the Royal Commission might have envisaged. Yet it is included among the indicators in the CPRA. But even were it to be struck out, the reference to a median benchmark remains treacherous.

Instructively, the British Child Poverty Act does not contemplate a 50 percent median poverty measure, mentioning only the 60 percent one. One has an uneasy feeling that the New Zealand legislation enables us to sneak back to an absolute poverty line, if a government wants.

Non-Income Measures of Poverty

The paradigm used in the CPRS was developed in the 1970s; can we progress? Then I used income because I did not have any other measure. In any case, supplementing income is the main means of dealing with poverty (although, as the Royal Commission’s third aim mentions, there are others).

In fact, back in the early 1970s there had been an attempt at an alternative approach. In 1974 David Ferguson led a DSW study of the living standards of the elderly, which was used to calibrate an appropriate public pension level for them. It is implicit in the analysis I did of Meg and Stacey.

From 2001 the MSD has been constructing a scale based on non-monetary indicators which will measure economic living standards. (Its acronym is ELSI). It was an early innovation in the now fashionable international effort to better measure wellbeing.

Essentially it involves asking a sample of households some 40 questions that relate to

– possessions (personal and household items),

– social participation activities (interaction with family and friends, holidays),

– degree of economising – including having no need for economising – across many areas (food, clothing, recreation, use of medical services),

and

– self-ratings (of the respondent’s standard of living, satisfaction with standard of living, and adequacy of current income to meet basic everyday needs).

From these are constructed the ELSI scale.

In principle the ELSI scale could be used as a measure for individual poverty identification but, practically, misleading responses to the questions could raise the amount one was entitled to. Essentially the ELSI is a research tool. (The MSD have moved onto a Material Wellbeing Index (MWI) and a deprivation index (DEP-17).)

Currently the MSD reports on the ELSI each year separately from its income report, but with attention to the relationship between the two. In principle one could use the ELSI scale to set a poverty line. Perhaps the CPRA refers to the ELSI in various places. But it still involves a judgement.

(Incidentally, there has been little serious statistical investigation of the data bases in either he Household Survey, the ELSI (or SOFIE discussed below) despite each having a rich statistical base. Fundamentally this is because an unwillingness to fund serious research into household incomes and poverty (although limited access to unit records has not helped.)

When I look at the set of questions I wonder whether they are over-dependent upon choices by middle-income middle-aged males. As far as I know, there has been no attempt to do a pre-survey asking people what they think should be asked.

I mention – this became very evident as I wrote my memoir – that one of the constant challenges I have had in my research work has been to ensure the distinctive features of women’s experience are recognised – a particularly important issue since more women than men are in poverty.

This is not an uninformed rant against male statisticians; rather it is a wish that there were more top-quality women social statisticians. There have been numerous places where I had to recognise women were different, but another example has arisen recently – period poverty. There is no relevant question in the ELSI questionnaire. How should it handle an issue which is clearly vital to some but not to everyone?

The same is true for children even if the poverty focus is on them. Earlier I mentioned mothers who make sacrifices to enhance their children’s wellbeing. Perhaps sometimes children do the same to protect the rest of the family.

An even bigger problem is that, as I mentioned with Stacey, deprivation now may affect future life chances. Here we are suing a wider conception based on, say, the RCSS’ notion, or that of Rawles or of Amartya Sen’s notion of ‘capabilities’ – which is a development – inhibition of life chances is clearly a serious part of the concept of poverty.

Sadly there is not a lot of data which enables the assessment of life chances. The New Zealand longitudinal studies did not collect a lot of economic material on the families involved. The recently reported MSD study which was interpreted by some to show that poverty caused criminality, It is based on evidence about families with nine month children. The confidence interval for prospects two decades out must be huge.

Just to complete the dynamics story, I mention the Survey of Family, Income and Employment (SOFIE) which enabled tracking household incomes over seven years. It showed many experience ups and downs which may mean they are below the income poverty line for only part of the time. However, some households remained recalcitrantly below the line through all seven years. Sadly, but as you might expect given the sad state of our social analysis, the valuable survey has been ended.

Conclusion

We conclude that the new legislation aiming to reduce child poverty has a poor quality statistical base but it is going in the right direction. Does it matter?

While low quality analysis is irritating to a professional statistician, the system envisaged in the CPRA can also be corrupted. Recall Gilling’s Law which states that the way the game is scored shapes the way the game is played. What if the scoring system is distorted?

Even if the poverty reduction game is played by people of goodwill, distorted outcomes are going to happen. I have mentioned how the system seems to be biased against households with more children. An even more egregious possibility is that, as I have explained, on some poverty measures one can get a reduction in measured poverty by tax cuts which favour the rich with no effect on the living standards of the poor. If one is competent, it is easy to think of many more ways of corrupting the outcome. I wont describe them; I am not applying for that job.

As in the case of the bias against large families, the poor quality outcomes may occur unintentionally. Consider the minister looking at various policy options each of which has the measured poverty reduction. The minister is likely to choose the one which gives the greatest measured reduction. Except it may not have the greatest impact on reducing poverty.

I regret having to come to such a sad conclusion. One wonders how we have ended up with such a mess. The answer may be the poor statistical skills of the social policy community.

The government has embarked upon a courageous course to reduce child poverty. The Child Poverty Reduction Act is a mix of visionary political leadership with inept social policy and analysis. Let us hope that leadership outweighs the inept.

Submission to the National Archives and National Library Ministerial Group

This entry was posted in Governance, Literature and Culture on 19th August 2018 by Brian Easton.

The Issue

John Stuart Mill argued it was better to be an unhappy philosopher than a happy pig; that all transactions and assets are not of equal value. However, the New Zealand Government system largely treats heritage assets similarly to other assets. Today’s governance needs to move past the happy-pig approach to one which recognises that some assets are more valued than others – more valuable than what is recorded in the ‘books’ – and need to be managed differently.

What is needed is a new institutional form which recognises the special characteristics of the entities responsible for the stewardship of such heritage assets. The new kind of institution would be called an Autonomous Kaitiaki Entity or AKE.

Summary Conclusion

At the heart of this submission is the proposition that there are assets which the Crown is said to own (or claims to own) but which are really held in trust by the Crown on behalf of all New Zealanders.

The proposal is that the National Library and Nga Taonga: the New Zealand Archive of Film, Television and Sound should each be categorised and treated as Autonomous Kaitiaki Entities (AKEs), which are government entities whose prime purpose is stewardship of its assets to be kept in perpetuity.

The AKE would be a new category in the categories of Crown entities, having some of the characteristics of Autonomous Crown Entities (ACEs) and some of the characteristics of Independent Crown Entities (ICEs).

The acronym is deliberate; ake is the Maori word for ‘forever’. The primary distinction from the other two categories is that the activities of an AKE are dominated by assets which it is entrusted to hold forever.

The rest of this submission elaborates the notion of an AKE, illustrated by the National Library. The same logic applies to Nga Taonga. The submission also considers other institutions. – the Museum of New Zealand and Heritage New Zealand – which should be AKEs.

Characterising AKEs

Purpose

The purpose of AKEs is to recognise that an entity whose primary purpose is the management of heritage assets is quite different from those concerned with the other activities of government and that they should be managed differently.

Definition

An AKE is a Crown entity whose activities are dominated by the management of assets which are to be maintained in perpetuity.

For example, both the legal deposit collection of the National Library and most of the collection of the Alexander Turnbull Library are heritage assets.

The relevant assets may have been obtained by Crown purchase, by some other statutory means of acquisition (such as the National Library’s legal deposit collection) or by gifts from individuals and elsewhere from the private sector. In the latter case it is often ambiguous whether those gifts were to the Crown or to some wider entity such as the people of New Zealand.

Governance

An AKE is governed by a board, with a chief executive reporting to it.

The Board is appointed by the Governor-General on the recommendation of the responsible Minister.

The Minister does not have power to direct an AKE on government policy unless specifically provided for in another act of parliament.

The power to set direction and annual expectations is held by the Minister.

(The above is drawn from the SSC’s governance characteristics of ACEs and ICEs.)

Legislation

Typically, each AKE should have its own specific legislation.

In addition there would be an overall AKE Act of Parliament which would set a framework and be available for use by other holders of heritage assets in local government and the private sector.

The AKE Act would set out the procedures for disposal of a heritage asset in the rare occasions when that was appropriate (e.g. the transfer between two AKEs or repatriation to a rightful owner). It would require approval by the Governor-General following advice from an officer of parliament such as the Chief Archivist. It is vital that a minister or chief executive cannot alienate heritage assets without public scrutiny although that has happened in the past.

The AKE Act should be designed to give confidence to a donor that once a donation is accepted as a heritage asset, it will not be arbitrarily privatised and it will be properly maintained, Clear rules about trusteeship by the Crown will engender trust by donors. (On occasions putative donations have been gifted elsewhere because the donors have not had confidence in the Crown entity.)

The statute could refer to the substantial body of law on private trusts where relevant (to guide court decisions in the rare cases where they are required).

Minister

Every Act of Parliament normally requires a responsible Minister. Very often the Minister for each AKE would be the Minister for Arts, Culture and Heritage, who would be advised by the Ministry of Culture and Heritage. This would have the effect of reinforcing the MCH’s expertise in advising on AKEs rather than having competence scattered throughout the government.

Visible Independence

Public trust requires that each AKE have a visible independent public presence.. Obscuring them in a huge government department, destroying their identity – as the DIA did with Archives New Zealand and the National Library – reduces their reputation and integrity in the public mind thereby undermining their ability to preserve assets in perpetuity.

Crown Accounts

Currently there are assets included in the Crown accounts which were privately gifted on the basis they would be maintained in perpetuity (although there is no guarantee of that). Their ‘ownership’ is ambiguous.

Additionally, the Crown accounts places a commercial or market value upon them and upon other heritage assets, as if they could be sold on the private markets.

(For instance, the document on which Te Tiriti o Waitangi was written was valued at $33m in 2005, although any sensitive valuation would conclude it was priceless.)

Market valuation is useful for identifying each asset but it ignores the ambiguities of ownership and their significance, so heritage assets should be recorded in the Crown Accounts separately from commercial assets to emphasize they are distinct. .In particular there should be a separate line entry in the Statement of Financial Position.

Which Crown Entities should be AKEs?

At the very least, AKEs should cover the following Crown entities:

Heritage New Zealand: Pouhere Taonga;

Museum of New Zealand: Te Papa Tongarewa;

National Library; Te Puna Matauranga

Nga Taonga: the New Zealand Archive of Film, Television and Sound.

Other ACEs and ICEs do not have a primary purpose of preserving assets forever and it is therefore not appropriate for them to be AKEs.

Should Archives New Zealand be an AKE? It is true that it holds public records in perpetuity, but the Chief Archivist has a central constitutional role in the holding of the executive to account and therefore should be an Officer of Parliament. The Chief Archivist should be invited to consider the relevance of AKE status to Archives New Zealand.

Should the Department of Conservation be an AKE? It holds land and other environmental assets with the expectation they should be maintained in perpetuity (some were private gifts). However it is currently a department of state rather than a Crown Entity. A separate enquiry should consider the relevance of AKEs to the conservation estate.

Correction to submission to Parliamentary Select Committee on the Child Poverty Reduction Bill.

This entry was posted in Social Policy on 16th May 2018 by Brian Easton.

In my original submission on the Child Poverty Reduction Bill, I had a separate discussion proposing adding a section to the part of the bill which modifies the Oranga Tamariki Act (and will be eventually be separated out) requiring that in all activities involving a child, the best interests of the child should be paramount.

It turns out that section 6 of the Oranga Tamariki Act already states:

Welfare and interests of child or young person paramount

In all matters relating to the administration or application of this Act (other than Parts 4 and 5 and sections 351 to 360), the welfare and interests of the child or young person shall be the first and paramount consideration, having regard to the principles set out in sections 5 and 13.

(The exceptions refer to situations before the youth justice court.)

Thus this part of my submission is redundant and I have withdrawn it (and apologised to the select committee for the oversight). The withdrawn part of the submission is at the end of this piece,

This withdrawal in no way invalidates the main submission, that while I welcome the intention of the bill, major changes are needed to develop robust and non-corruptible measures for assessing poverty.

I think the reason I made the mistake is that, as is usual, I consulted with a number of experts but, like me, none were social workers. The fact is that while this may be a statutory requirement in the Oranga Tamariki Act (and earlier versions of it), we see the principle repeatedly infringed in other areas of public policy; in my expereince in the case management of beneficiaries. (It is sort of ironic, isn’t it, that children at risk have better statutory protection than most children?)

The following is the section taken out of the submission because it is redundant.

Part V The Best Interest of the Child

5.1 The Bill should include the principle that all activities of Oranga Tamariki involving a child, the best interests of the child should be paramount.

5.2 This would put into a New Zealand statute a central principle of the United Nations Convention on the Rights of Children which New Zealand has ratified.

5.3 In particular its Principle 2 states

The child shall enjoy special protection, and shall be given opportunities and facilities, by law and by other means, to enable him to develop physically, mentally, morally, spiritually and socially in a healthy and normal manner and in conditions of freedom and dignity. In the enactment of laws for this purpose, the best interests of the child shall be the paramount consideration.