I do not know which makes a man more conservative — to know nothing but the present, or nothing but the past. John Maynard Keynes.
Presentation to the Fabian Society, Wellington, 25 June 2020.
Not in Narrow Seas: The Economic History of Aotearoa New Zealand begins with Gondwanaland and finishes with the Ardern-Peters Government
and climate change.
A hinge in
history occurs where the past and present are connected but they are pointing
in different directions. Big hinges are rare but crucial in the development of
humankind.
Not in Narrow Seas identifies six hinges. This
presentation focuses on whether we are at another hinge. Perhaps that is the
last part of the book although the Covid Crisis occurred after the book went to
the printer. We use its historical insights to understand the present.
The six
previous New Zealand hinges were as follows. The first occurred 700 odd years
ago with the arrival of the first Polynesians. A second occurred about 1840
with the mass arrival of Europeans. Refrigeration in the 1880s was another
great hinge, redirecting New Zealand on a sustainable trajectory.
Curiously,
the Great Depression was not a hinge, or rather did not become one until the
Second World War impacted too. That direction came to an end with the collapse
of wool prices in 1966, the fifth hinge. Eventually the new direction was found
with the neoliberal Rogernomics revolution in the 1980s, the sixth hinge.
The Global
Financial Crisis, which began in 2008, did not involve a new direction. Why
this was not and why the Covid Crisis might be is what this presentation is
about. But first we need to look at earlier hinges, starting with the third.
The Long Depression of the Nineteenth Century and Refrigeration
I shant say
much about the Long Depression which lasted from about 1878 to 1895 and led to
the progressive Liberal Government of John Ballance and Richard Seddon. While
the world economy suffered severe weakness, New Zealand benefited from the
advent of refrigeration in 1882.
The result
was a new political economy based on the family farm. This pastoral political
economy reigned for eight decades coming to an end with the wool price collapse
in 1966, while the governance of New Zealand based on it continued for another
two decades.
The Great Depression and the Second World War
While there
were many other shocks in the postwar period, typically they were small and did
not markedly reshape the economy or how it was governed. The exception was the
Great Depression of the early 1930s and the Second World War of the early 1940s
which, together, led to the transformation we associate with the First Labour
Government.
I have
coupled the two events. While the Great Depression shattered confidence in the
economic and political orthodoxy, it did not really offer an alternative. Or
rather, the alternative for many was implied by Marx’s Das Kapital published
less than 70 years earlier, which predicted the collapse of capitalism. Many
saw the Great Depression as evidence that Marx was right, that the world was
entering capitalism’s final stage which was fascism, and that the Soviet Union
was the only alternative. As more was learned about the USSR, it became
increasingly less attractive.
When I
began writing my history of New Zealand, I took the conventional view that the
policies of the First Labour Government rescued us from the Great Depression.
Two major facts contradict this view.
First, the
depression recovery began before the election of the Labour Government. Indeed
there was sufficient prosperity that the Coalition Government could have been
returned in 1935 if the right-wing vote in a Front Runner/First-Past-the-Post
election had not been split between two parties.
The second
consideration is that had the peace continued, New Zealand would almost
certainly have had a major financial crisis in 1940 or 1941. What saved the
economy was the war. So it was the war economy which shaped economic policy for
the four decades after it ended. Muldoon’s wage and price freeze of 1982 was
the last gasp of the war economy’s anti-inflationary stance.
New
Zealand’s management of the war economy, with its extraordinary degree of
centralised intervention, was not very different from that of other Western
nations. It was not just that there was manpower planning, which would be an
anathema today, but even skirt heights were regulated (matrons were allowed
lower hems) as was the length of men’s shirt-tails.
It required
social solidarity and patriotism to get public compliance; there were tensions
and some subversion – as there were during the Covid lockdown.
Meanwhile,
the Labour Government extended the welfare state – in education, health,
housing, social welfare and the arts. That, however, was not a hinge but a
continuation of the policy developments from the Liberal Government of the
1890s. There are fewer precedents for the interventionist economy of the war
economy.
After the
war there had to be a winding down of the war-economy interventions as economic
circumstances allowed. What was unusual about New Zealand was that the
unwinding was slower than in the rest of the West. Not in Narrow Seas
discusses the particular circumstances which made this possible. So centralised
interventionism dominated economic management for four decades; many will
recall it in the Muldoon era, but it was like that before him.
Not in Narrow Seas argues that the
particularities which made the high degree of interventionism possible were
being undermined by economic and social change. Rising affluence meant there
was increasing diversity and choice; increasing technological sophistication
had had a similar effect on the production side of the economy. This growing
complexity made the centralised economic management increasingly ineffective.
These challenges were not peculiar to New Zealand; they were there in the
Soviet Empire and led to the collapse of Soviet economic management following
the fall of the Berlin Wall and the independence of the Soviet satellites..
The Wool Price Crash of 1966
As if these
challenges were not enough, at the end of 1966 the price of wool crashed 40 percent
and, except for a spike in 1972, never recovered. At which point the
processed-grass foundation of the economy of the previous eighty years was
undermined.
At that
time wool made up two-fifths of foreign exchange earnings, with sheep-meats
generating another fifth. Most of the rest came mainly from beef and dairy so
that the grass-fed pastoral industry dominated exporting, as it had since the
second hinge of refrigeration. Abruptly, New Zealand experienced a reduction in
its foreign-exchange earning power of a sixth.
Any
economy, any business or household, which loses a sixth of its external revenue
will struggle. But in New Zealand’s case there was a further complication. As
explained in Not in Narrow Seas, while the pastoral sector generated the
foreign exchange which New Zealand needed, it could not generate the jobs which
New Zealanders needed.
There had
been an awareness of this job problem as early as the 1930s. By the 1950s the
farm sector had run out of new land to extend its production and further output
came from land-intensive farming, which would not generate jobs. There followed
the industrialisation debate which we think of as led by Bill Sutch, although
he was not the first to argue the case. But it was Sutch who, as Secretary of
Industries and Commerce, articulated the problem in public and led the
designing and implementing of the response.
For the
policies to generate jobs and prosperity for workers, it was necessary to
transfer the foreign exchange earned by rents from farmland to the domestic
sector. This involved all sorts of interventions – the most visible was import
controls – the result of which was to reinforce the highly centralised
interventionist regime. However, the collapse of the wool price eliminated the
farmland rents so they could not be transferred to the domestic sector.
So the New
Zealand economy faced three great challenges: it had to deal with the
unprofitable wool industry, it had to find alternative foreign-exchange
earners, and it had to wean the domestic sector off non-existent rent
transfers.
This was a
rather different problem from the conventional depression, in which the economy
contracts roughly altogether and the task of policy is to expand the economy
roughly altogether. The wool price crash meant the economy had to ‘twist’; that
is, some sectors had to expand fast, some modestly and some sectors had to
stagnate or even contract.
Standard
economic models are not designed to deal with twisting. They are based on a
representative firm making a representative product, whereas twisting involves
different firms and products behaving differently. (The standard model also has
a representative worker in a representative household which means it cannot
deal with distributional economics.)
The economy
twisted because the centralised interventions did not totally suppress market
mechanisms and businesses sought more profitable activities. The most notable
feature of the twist was export diversification. Whereas at the time of the
1966 crash New Zealand was one of the least externally diversified of the rich
economies, exporting mainly pastoral product, mainly to Britain, only fifteen
years later it was in the middle of the pack exporting a variety of products
and services to a variety of countries. We do not sufficiently celebrate this
extraordinary achievement.
The change
in the external sector had a profound impact on the domestic economy. There are
a number of illustrations in Not in Narrow Seas, but a brief account of
three will suffice.
The New
Zealand manufacturing system had grown up behind a shield of import controls
and other protective interventions. It resisted having them unwound. But as
manufacturers began to export, they found the protection was a handicap. One
major factor was that in order to improve their access to foreign markets, New
Zealand had to give up some of its protection in return. A second was that the
exporters did not want protection and other controls on their inputs because it
made them less competitive. Third, the inward-looking protected domestic
industries held back the resources – labour and capital – that the expanding
industries desired.
A second
illustration, from the other end of the political spectrum, was the ramshackle
structure of labour unions. It did not matter much in the domestic economy
behind protective walls. Following export diversification, with firms supplying
a variety of products to a diversity of markets, it became necessary to align
the unions with firms – essentially to a single union per plant. The union movement
did not get around to addressing the issue until 1988, and then only slowly, by
which time it was too late; they were overwhelmed by the 1991 Employment
Contracts Act.
The third
illustration is that the 1972 Royal Commission on Social Security brilliantly
codified the welfare state of the times. But as Not in Narrow Seas
details, there was social change – in the labour market, from the rise in
working women, and evolving household structures – which challenged the
application of its principles. Even today, many of those who defend social
security have not realised the significance of these changes and want to return
to 1972.
The Politics of Response
Any
restructuring was done reluctantly because the political system was based upon
the pre-1966 political economy. For instance, during the next 18 years most
cabinet ministers were farmers or from rural seats.
I think it
likely that the man who presided over the economy for most of this period,
Robert Muldoon, understood better than most that there was a need for a change
of direction. However, he was bedevilled, like all policymakers, by Rabin’s law
– that any policy change makes someone worse off – and by the Mancur Olsen
analysis that incumbents can and will veto change against their interests.
Muldoon’s power
base was the vested interests from the old political economy – the pastoral
one, which had been there since at least the war economy; it was ‘traditional’
rather than ‘modernising’. So Muldoon found his discretion greatly limited,
especially since he was surrounded by advisers who were traditionalists or, if
modernisers, were insensitive to the political environment that limited
Muldoon.
This is
well illustrated by the Planning Council, which was established to assist
finding a way through the morass. However appointees to the Council were
largely politically-corrects and rarely looked at issues deeply. Despite all
the Council’s resources, its legacy is long forgotten. (I hardly refer to it in
my history, except for Ian McLean setting out the case for ‘more market’.)
In the
early 1980s I gave a presentation on the impact on the economy of the collapse
of the wool price in 1966, and afterwards the first chairman of the Planning
Council said to me, ‘I didn’t know that’. I was not surprised. The Council’s reports
indicate that they did not understand the issue. It is instructive that an
agency established as a result of a great external shock did not understand
what had happened. (A subsequent chairman published a history of the New
Zealand economy which does not mention the wool price crash.)
Basically,
the Planning Council illustrates right-traditionalists – people of goodwill who
thought there were simple incremental changes which would resolve what in fact
were deep structural problems. They seemed to think that New Zealand could go
back to the pre-1966 economy; probably many thought they were fixing failures
in the original Labour-wartime conception.
The
left-traditionalists, focused on the Labour-wartime approach, differed from the
right-traditionalists by arguing it was not a matter of incremental change but
a need to go back to the original management of the economy As one 1984 Labour
minister – he was not a Rogernome – said to me, he wanted a kinder gentler
version of the Muldoon approach. The failure of the left to think through the
consequences of the economic and social changes which had impacted on social
security is another example.
The failure
of the traditionalists culminated in the Royal Commission on Social Policy
which sat in the nid-1980s. It was intended to provide an alternative to the
neoliberal paradigm of Rogernomics which was pressing at the time. In fact it
had no coherent account of what had happened to, or what was happening in, New
Zealand’s society and economy and so it could not provide an alternative
strategy. Today its deliberations are almost totally forgotten.
The
neoliberals rightly concluded that the traditionalists had no answers to the
challenges besetting New Zealand, and concluded that they were left with a
carte blanche to pursue their own vision.
This
dichotomy of the two political wings of traditionalism is, of course, a
simplification which could be refined and elaborated. Here we contrast the
traditionalists with the modernisers. Again there were two wings.
The
left-modernisers, who were ignored by the Royal Commission on Social Policy and
the Labour Government, saw the need for substantial change to the way the
economy could be managed, In simple terms they were social democrats who
thought that the market could be used for social ends. There are plenty of such
left-modernisers overseas but they were in a small minority in New Zealand.
Probably Bill Rowling was a left-moderniser, but he had the misfortune to win
the 1978 and 1981 elections only in votes but not in seats. What would have
happened if he had won both is a nice counterfactual.
The
right-modernisers were what today are called ‘neo-liberals’ – their New Zealand
name is ‘Rogernomes’. The story of how they seized power is in Not in Narrow
Seas. The point to be made here is that they came into power because the
traditionalists had failed to deal with the issues facing New Zealand from the
wool price crash and the other changes which were transforming New Zealand.
Arguably
Rogernomics did face up to the challenges; they certainly quelled inflation,
introduced more-market and tidied up some of the organisational shambles. But
their main promise had been to accelerate the growth of the economy. The record
is that during the seven years of the neoliberal ascendancy the economy
stagnated. When it began growing again it was at the same rate as in the past
but at a lower level relative to the other rich economies.
The
Rogernomes argued that there was no alternative; they meant that the
traditionalist Muldoonist approach, which had incrementally evolved from the
wartime economy, did not work. They denied that there was a modernising
alternative. Modernising social democrats were suppressed. It was not just that
they found their careers blocked and their funding cut, but their analyses were
silenced and ignored.
That there
was a modernising alternative is easily demonstrated. It was quite unnecessary
to give the ginormous tax cuts to the rich, paid for by cutting the incomes of
the rest, nor were all the scrambled privatisations necessary So there was a
modernising alternative. (The Australian Labor Government is another example of
an alternative left-modernising approach.)
To
summarise, the sobering conclusion is that there had been a dramatic change to
the political economy which the traditionalists failed to address, thereby
paving the way for the neoliberal takeover. As Not in Narrow Seas
explains, much of that political economy continues to this day. One is not
surprised how often the Clark-Cullen and Ardern-Peters Governments lapse into
neoliberal solutions, appointing neoliberals to positions of power and avoid
transforming neoliberal institutions.
Two More Crises
The Global
Financial Crisis of 2008 had similarities with the Great Depression, which
Keynes described as the consequence of the monetary magneto (car’s alternator)
being broken down. He thought it could be remedied and that the world economy
could recover and continue to prosper. He proved largely right for the
following three-quarters of a century.
The GFC
proved pretty scary too, but those in charge had studied the lessons of the
Great Depression and, following Keynes, did ’whatever it takes’ to get the
engine running again. While the central banks of the world bailed out the
private financial sector, the private bankers showed little shame, despite for
years having insisted that the government should not regulate them and that
taxes on them should be kept low.
So when
countries got into financial difficulties following the GFC – Greece is the
exemplar – their bankers insisted that the adjustment should fall on the poor
and those on middle incomes rather than the rich. Raising top income taxes was
not a part of their remedies. This neoliberal approach here is often called
Austerian, a portmanteau word from ‘austerity’ and the Austrian School of
Economics. It used the opportunity afforded by the crisis to shrink the state
and increase the size and power of the private sector, especially that of the
wealthiest, The approach is reminiscent of Rogernomics which protected the
rich, leaving the rest of the population to carry the burden of adjustment from
their policies.
It is
surprising how little impact the GFC had on the political rhetoric of the
elite. The result of Austerian policies has been the rise of populist leaders,
most notably Donald Trump in the United States and Boris Johnson in the United
Kingdom.
Perhaps
there are parallels with the aftermath of the Great Depression; the GFC did not
really lead to a change in the way we governed. It took the war to progress the
social democratic revolution after the Great Depression.
Perhaps I
am stretching the parallels, but the Covid Crisis is frequently referred to as
a ‘war’ (against the virus). Might we get a parallel shift away from
neoliberalism after it?
The World After Covid
Nobody
knows what the world will be like after the Covid Crisis. I make some cautious
forecasts; I shall probably be wrong.
It is easy
to think the Covid Crisis is another GFC or even another Great Depression which
has sharply contracted the world economy. But in addition to the contraction,
and the substantial rise in government debt after the recovery, this one is is
going to be more difficult.
A critical
issue will be whether and when we get a vaccine which neutralises the virus and
opens up the borders. It seems likely that we may not have a widely available
vaccine for at least four years. That means we cannot have a proper economic
recovery until 2025 or later. In any case the new normal of the post-pandemic
world may be quite different from what we might have projected a year ago; that
we are going through a hinge. In the interim the world economy will experience
a lot of turbulence.
Let me try
to guess some of the new features of the post-pandemic normalcy (I leave aside
the possibility of more virulent viral pandemics; we have already had four of
them – SARS, MERS, swine flu and now Covid-19 – in the last two decades, or
that there may never be a satisfactory Covid vaccine.)
A key
element is that while there is no vaccine and Covid-19 hangs around there will
be strong restrictions on the movement of people across borders; they will have
to be strongest for countries which eliminate the virus, as New Zealand hopes
to.
This will
impact on sectors like tourism (both inbound and outbound) and international
educational services. .So the economy will not just contract and recover
through a general expansion, as happened after the Great Depression and the
GFC.
The twist
in the economy will be a bit like the wool-price crash twist, with sectors
growing at different rates – some will expand, some may contract, most notably
those which depend upon the movement of people across international borders.
Most affected will be the international tourism and educational services which
generate about a sixth of our export revenue, a similar magnitude to the loss
of international revenue from the wool price collapse in 1966.
Additionally
there will be a major change in the way the labour market works. Throughout New
Zealand’s market history – even in recent years – the cross-border flows have
had a critical role, including being a source of skilled labour and seasonal
workers and for adjusting to changes in the labour market cycle. For at least
the next four or more years the labour market is going to function differently.
Another
critical change to the labour market may be dramatic changes in work practices.
Perhaps more of us will work at home, for at least part of our working week.
That will mean changes in domestic arrangements, in commuting and traffic
congestion and in the worksite and management. Some businesses which service
workers – bars, cafés, shops – may have to move out to the suburbs. Perhaps,
given the broadband rollout, the changes would have happened anyway and the
lockdown has accelerated the transformation.
Domestic Challenges
I want to
focus on fundamental changes in direction. I have already mentioned the debt
challenge, the economic twisting, the changing labour market. So I am not going
to pay a lot of attention to a continuation of past trends. Sure, there is a
lot of unfinished business – Not in Narrow Seas reminds us that the
policy slogan over the last decade seemed to be mañana – never do anything
today which can be left until tomorrow.
Even so,
today’s greater social diversity must be mentioned. That makes social cohesion
a greater challenge, although the public’s responses to the mosque massacres
and to the Covid lockdown gives greater optimism that we can meet the challenge
than we might have thought a decade back. But we have to keep working at it for
there is a threat of a populism causing social divisiveness.
Earlier I
mentioned Not in Narrow Seas’s attention to the consequences of
affluence – what might be called growing ‘economic diversity’. That will
continue too; but towards the end of Not in Narrow Seas I wonder if
today’s affluent value additional material output less than they did in the
past. One gets the impression that many – not just ‘greenies’ – are
increasingly serious about making material sacrifices to preserve and restore
the environment.
Additionally,
it would appear that rising material demands are particularly for services
which are poorly provided by the market: arts and culture, education, the
environment and heritage, health care – perhaps even media services. One might
conclude that there are going to be additional pressures for tax hikes, above
those required to reduce the public debt incurred to deal with the Covid
Crisis.
There is
also the high level of inequality. I have been monitoring the topic for a half
a century so there is quite a bit in Not in Narrow Seas about it. Most
people react to the issue with moral judgements but high inequality may also
threaten social coherence, while by damaging opportunity among the poor, it may
also compromise economic prosperity.
Recall that
economic inequality came to public attention about five years ago, and that
there was much dismay. I am not sure whether the dismay is like that for sin –
we express our dislike and then get on with our lives. But if we do take it
seriously that is another pressure for raising taxes. This has been a failure
well beyond mañana.
The Danger of Inertia
Earlier I
pointed out that responses in the 1970s led to a failed adjustment to the wool
price crash. Here is a contemporary example, or perhaps a description of what
may be a future example.
We have
already observed that industries driven by international toursim are going to
contract. The expansion of domestic tourism will not compensate. Air New
Zealand expects to be back at 70 percent of its pre-Covid capacity in a couple
of years – that may be optimistic. The international tourist sector is very
complex, ranging from travel agents to hospitality to training people to work
in the sector. Presumably there is also going to be a surplus of accommodation
– hotels, motels, B&Bs. They will also be struggling with the reduction in
demand from international students. I thought part of the resolution might be
to convert CBD hotels into offices, but increased working at home as a result
of the Covid lockdown experience probably means there is going to be a surplus
of office space too.
I could
sketch more about how CBDs are going to change, but let’s look instead at
regions with a higher dependence on tourism; Queenstown is the exemplar, but it
is not alone. Presumably they are vulnerable to a population contraction, with
higher unemployment and lower real estate prices – local authorities will be
struggling with their rates base.
The natural
reaction is to support those in trouble. We are already offering them subsidies
– the issue is how long we should do this. The danger is that the subsidies
slow down the necessary adjustment both by encouraging people to stay in past
jobs and locations and discouraging them from seizing new opportunities.
Moreover, the funding for that subsidy support is not available for the growth
opportunities; the political energy supporting the past will divert effort from
pursuing new industries.
We cant
tell how big or prolonged the economic twist will be– certainly not a few
months into it. The temptation is to be optimistic and see the support to
contracting industries as a bridging operation to the old normality forgetting
it slows the transition to the new normality.
(Another
issue is to retain controls after they become obsolete. .This was well
illustrated after the Second World War. Their wartime success left the Labour
Government reluctant to unwind them. One of the reasons that it lost the 1949
election was that the nation was impatient with the procrastination. Presumably
the Ardern-Peters Government is aware of the parallel.)
Inertia
retards progress, and the twist takes too long, with the consequence, as
occurred in the 1970s, of not only slower economic adaption but less
progressive politics.
Mañana
bedevils New Zealand politics. Kicking the cans down the road mean that
eventually the road is blocked by cannots (or knots of cans).
So much for
traditionalists; what about modernisers?. Are social democrat modernisers back
and the neoliberals in retreat?
Are Neoliberals Shifting?
Often
neoliberals have been in the front of the queue demanding government support.
They did that during the GFC while reaffirming their neoliberal principles by
clamping Austerian policies on the poor. However some recent demands have been
more blatant.
The
Taxpayers’ Union, a right-wing advocacy group concerned with promoting low
government spending and low taxes, said they had accepted a $60,000-plus wage
subsidy for their nine workers during the lockdown because donations had fallen
off. They explained that ‘prior to COVID-19, we have stated on the record that
we would never accept taxpayer funding’ but they reversed their position
claiming ‘the welfare of our employees to be a more pressing immediate concern
than ideological purity.’
‘Welfare is
more important than ideological purity’ sounds like pragmatic social democracy
not the voice of neoliberal lobbyists.
Not to be
outdone, the chief economist of the NZ Initiative demanded even more spending
on the public health system during the Covid Crisis. I agree with this
assessment but his organisation is the successor of the NZ Business Roundtable
which thirty years earlier advocated the privatisation of the health system.
Not only would that have reduced government spending on health but it would
have left a structure much less able to cope with the health emergency.
Or consider
the National Party’s announcement of ‘giving businesses cash grants and low
interest loans at a cost to the Government of $8 billion’, despite the party
having been inching in a neoliberal direction since the 2017 election. (Now $8b
is a lot of hooch; the poverty lobby would welcome half that amount to improve
the wellbeing of children.) Its recently appointed finance spokesman, Paul
Goldsmith, described as ‘free market’ and ‘dry’, must have been embarrassed
eight billion times by the announcement.
These are
but three New Zealand examples of neoliberals backing down during the Covid
Crisis. There are numerous overseas examples too. No doubt the Austerians will
be back, but it will be harder for them to claim ideological purity or that the
government is of little value to a nation’s wellbeing.
What
happens overseas is important. We rarely admit that our thinking is dominated
by overseas fashions. Rather than adapt overseas insights to New Zealand
conditions, our colonial cringe mentality prefers imitation.
Will
international neoliberalism remain as dominant as it did after the GFC? It
seems probable that the rising international death toll will be politically
unacceptable to swathes of the population. Will neoliberals and big business be
blamed? Eighty years ago those very nasty political tensions it would generate
caused fascism.
Renewing Social Democracy
Will social
democrats seize the opportunity? Perhaps they will repeat the 1970s, in which
people of goodwill projected the past and failed to address the real issues.
Aspirations mixed with piety and platitudes are not enough to end the dominance
of the neoliberal paradigm nor to address the challenges that New Zealand
faces. If we want to return to a social democratic framework, it will not be by
building some superstructures or decorations on top of a neoliberal structure.
The
neoliberal foundation belief is that the role of the state should be minimised,
that almost always the private sector does it better. In contrast, the social
democrat sees a balance: sometimes the private sector does it better, sometimes
the public sector does, mostly a judicious symbiosis of both. My inclination is
that where they both do the job equally well – or badly – to leave the task to
the decentralised private sector, because the centralised public sector has so
much to do. For, yes, the public sector can do much to improve wellbeing
markedly.
Private sector failure is nicely illustrated by the Covid-19 crisis. Sweden’s low interventionism was once a poster among right-wing bloggers advocating minimal government intervention, because of its laid-back approach to dealing with the virus . But when its case and death rates began climbing and the Swedish government became more interventionist, the blog references mysteriously disappeared. Currently, Sweden has the fifth highest Covid death rate among all countries – five times those of the surrounding Scandinavian countries and Germany.
As so often
has occurred in the past, what contradicts an ideologist’s theory gets ignored.
The Covid
Crisis provides a great challenge to neoliberal principles of the minimalist
state. But it is not unique. Recall that the neoliberals tried to convert the
New Zealand health system to a competitive market regime, despite the American
health system being almost universally acknowledged as the worst in the rich
world.
While the
attack was repelled, neoliberal principles of management were never entirely
eradicated. In principle, district health boards are to be run as businesses;
fortunately for the health of the nation, their medical professionals put their
patients’ wellbeing before ideological purity – like the Taxpayers’ Union. So
the DHBs run financial deficits.
That we
intend that DHBs to be run as businesses is illustrated by the appointments to
the governing boards being composed almost entirely of businesspeople. Usually
they are very competent but their commercial culture is quite different from
the wellbeing culture we expect from our health system.
This has
been nicely illustrated in the Covid Crisis. The previous Director General of
Health was a generic manager. The lockdown would have been much less successful
had it been fronted by an accountant.
Hospitals
are not the only public institutions which have been given inappropriate
commercial objectives. Commercialism runs in much of the education system –
especially at the upper end. Following the Hawke Report which blunted tertiary
academic objectives, the intensification of competition between them, the
introduction of the PBRF which distorted the balance between teaching and
research, and funding pressures which have forced them to sell courses to
international students, universities have lost their way. But when the offshore market collapsed they
demanded government subsidies. They should have done that years ago before
abandoning their domestic educational focus.
The line
between public and private supply is always shifting. The parlous state of the
media from the collapse of advertising revenue compounded by platform
convergences may mean that there will be a shift in the near future. What the
government does to its public broadcasting may be an indication of what it
really thinks. I was a little unnerved when I saw that the Minister had asked a
private consultancy to report on what should be done. Like the business people
on the DHBs, consultants do not generally have a culture of public service.
Will they try to resolve the public broadcasting problems by a commercial
solution? The simple choice may be between opening RNZ commercially making it
more influenced by advertising, or isolating TV1 from the commercial pressures
of advertising.
This
illustrates a general issue when judging the government. The advisers it
appoints shape its thinking. The current one’s record of appointing those with
a commitment to social democracy is not impressive. Admittedly, the disease of
people with a preference for commercial solutions – even if they are not
hardline neoliberals – is far more prevalent than the Covid-19 virus. Yet
neither this Labour Government, nor the previous Clark-Cullen one, saw it as particularly
problematic, even if it has killed more New Zealanders than Covid. Social
isolation of neoliberals has not occurred to them.
In the 2019
budget the Government announced that it would give a greater priority to the
pursuit of personal wellbeing than to material output. A social democrat would
not quarrel. But it has done nothing since to construct an institutional
framework to pursue the rebalancing. Contrast the more savvy Key-English
Government which, prompted by the neoliberal ACT party, established the
Productivity Commission to improve the pursuit of economic material output –
one of its members was an ACT party candidate. As far as I know, there is no
group in the public sector – or outside – which is thinking in terms of the
long-term issues this paper covers.
To avoid
appearing too grumpy, I note the response to the Covid Crisis has been to
prioritise public wellbeing over commercial profit. That has not been true
everywhere in the world. What is surprising though, is that a government which
a year earlier had an aspiration of promoting wellbeing has hardly mentioned
the connection.
Admittedly,
the slogan ‘be kind’ was brilliant, as was the earlier ‘they are us’ coined
after the mosque massacres. Perhaps these slogans, more than anything, give a
sense that we have a social-democrat oriented government. (On the other hand,
decisions not to nurture the reading sector – some decisions have undermined it
– leave one uncertain.)
The
neoliberal commitment to a private sector continues to dog us. To be clear,
this pragmatist has no problem with the use of competitive markets to regulate
commercial sectors – between supermarkets, for instance – but there are many
places where competitive regulation is inappropriate. I have noted here some –
but only some – of them. A further big example is that to leave all the
environment to the unregulated market would be disastrous for the environment.
The
pragmatic view is that neither the public sector nor the private sector are
perfect; that it is necessary to give careful attention to the design of the
provision and funding of each activity to get the best, albeit still not
perfect, balance.
The
downside for honest social democrats is that a larger public sector requires
more taxation. There is a very strong public rhetoric that taxation should be
kept as low as possible, which means keeping the public sector as small as
possible. The consequence, as we saw under the Key-English Government, is a
starved public sector. One of the difficulties the Ardern-Peters Government has
faced is that it took over a limping public sector, unable to do what the new
government was voted to do.
Taxation
regulates the balance between private and public expenditure. To call for
increased public spending in one area, without acknowledging that it must be
paid for by increased public revenue, amounts to rearranging public spending
without increasing the overall public good. Social democrats have to sell the
principle that taxation is the price of citizenship, and that higher tax rates
are necessary for a civilised prospering society.
A Return to New New Zealand Social Democracy?
Institutions
of society shape the way we behave. Thirty years ago, most public ones were
changed from aligning with the public good to neoliberal principles of
self-interest. The promise was that the change would result in higher material
output and greater wellbeing; the outcome was that there were no discernible
material output gains that would not have happened under the old regime, while
many New Zealanders suffered a deterioration in their wellbeing. Instead,
Rogernomics created a new elite with an ideology which has been used to
maintain their power and wealth.
This was
achieved by dumbing down the public debate. Thirty years ago the Rogernomes
could not match the left moderniser critique against them, so they used their
political and financial power to undermine those providing the critique and the
rules of public debate. That pattern continues to this day. Expertise is not
judged important, evidence-based discussion and policy is dismissed unless it
bolsters the conventional wisdom. Better go for opinion and fake news.
It has been
a bit like the treatment of universities in the Hawke Report which treated
education as training. Now the dumbing down of anything goes conforms to the
underlying commercial ideology. The country takes notice of celebrities without
expertise and with uninformed opinions if it meets the truthiness text – it
sounds true even if the evidence contradicts it.
What has
been remarkable about the Covid Crisis is the public acceptance of expertise –
not all countries and leaders have been so sensible. There have, of course,
been motor-mouths and nutters, but generally they have been marginalised.
Perhaps the celebrities have found the issues too complex. It has been a
pleasure to watch a politician working so effectively with an expert.
The cult of
celebrities was well-illustrated by the sports reporter who announced he could
do a better job of being prime minister than the current incumbent. The point
is not that he made such a stupid claim – clearly he has as little idea about
the challenge of running a country – but it illustrates how we are in a media
environment which allowed him to think he could publicly talk such nonsense.
Probably
social democrats have had no better opportunity in the last three decades, but
it remains a big ask. They have to begin their task by lifting the quality of
public discussion. That means using evidenced-based arguments in public policy
and public debate, it means respecting expertise while being careful to define
experts, it means giving journalists enough time to be able to be more
discriminating about the quality of public pronouncements, it means rejecting
false news and truthiness and exposing claims to be promoting the public
interest which are thinly disguised self-interest, it means our education
system giving greater emphasis to the skill of constructive scepticism. We
shall never eliminate all the bad arguments that swill round but we can improve
the public’s ability to identify and counter them, to distinguish analysis from
opinion.
Such a task
is not easy, especially as many social democrats can be lazy about the issues
raised in the previous paragraph when it suits them. But if they cannot raise
the standards of the public debate, they will be overwhelmed by those with very
low standards.
Is the Covid Crisis a Hinge?
Are we are
at a ‘hinge’ in world history? You might have expected the Global Financial
Crisis, which began in 2008, to be a hinge for the world and New Zealand but
there was really no new direction. The social democrats fumbled it. Perhaps the
Covid Crisis will lead to the new direction which the GFC seemed to presage.
Unquestionably
the world faces a major fiscal challenge (which only ideologists can ignore)
for the upward pressures on government spending are increasing. In addition it
is facing a increase in liquidity from the government debt arising from the
huge injections fiscal injections to bridge the malfunctioning economy during
the Covid Crisis.
How this
may be resolved, and what might be the new direction might be, is hard to tell.
The post-wool-price transition tells us that there will be strong conservative
forces trying to maintain the old direction. Resisting the change will have
short-term advantages, but it will prolong the transition and perhaps redirect
it in unacceptable ways.
Perhaps a new progressive
direction will be summarised by the social democrat slogan, ‘wellbeing over
ideological purity’. Yet, there is so much we can but guess at. Not in
Narrow Seas reduces the guesswork.
