Journal of New Zealand Studies; NS40 (2025):
Critics of the
restructuring of the New Zealand economy in the 1984 to 1993 period have
suffered from there being no good defence of the changes that were made. There
are memoirs by various actors and the odd academic article, but they do not
address the two elephants in the room. Namely: why was the restructuring
associated with the decade of a stagnant economy (and why were there no changes
in the underlying growth rate afterwards) and whether it was necessary to
downgrade the role of equity in economic policy and substantially increase
economic inequality? One might therefore welcome a study by Canadian historian
John Weaver, a Distinguished University Professor at McMaster University. But
one will be greatly disappointed.
Weaver relies heavily upon
conversations with, and the archives of, Roderick Deane, Roger Douglas, Michael
Bassett, Stan Roger and David Caygill but he does not seem to have talked to
any informed critic, a failure compounded by a cavalier coverage of the
literature. As far as I can judge, the omissions are from ignorance rather than
bias. Extraordinarily, his bibliography does not include Douglas’s Unfinished
Business (1993), which, one would have thought contained Douglas’s most
profound reflection on the politics of the restructuring. Nor does it refer to
Hugh Oliver’s article ‘The Labour Caucus and Economic Policy Formation,
1981-1984’ (1989) based on Douglas’s archives, which sets up the background to
the Rogernomic era.
The book is primarily based
upon archival material, especially those of the aforementioned. Weaver is a historian,
so he is comfortable working with archives and personal papers, but does not
seem aware of their limitations. If the period of interest had been, say, the
Tudors, one does not have much choice of reasonably reliable information other
than the documents and so Hilary Mantel had to resort to fiction while being
consistent with their evidence. But she would have leaped at the opportunity to
interview Thomas More, say, even though there is a view that she was less than
fair to him.
A document has to be taken in
a context. The Sunday 17 June 1984 Treasury recommendations to Robert Muldoon
for measures to deal with the run on the New Zealand dollar which began on 15
June, the day after Muldoon called the 1984 election, would not be Treasury’s
proudest effort. Weaver does not discuss it, but it is a good illustration. It
was produced in a hurry but, more importantly, it had been preceded by
discussions with Muldoon, who had already indicated what options he was willing
to contemplate. Thus the document was not standalone but part of a dialogue.
Many of the archives Weaver cites are similarly part of a dialogue and need to
be evaluated in this context.
Weaver also said he had
‘conversations’ with some of the Rogernomes. Not all: Graham Scott is a notable
omission and while Roger Kerr predeceased the study, he certainly deserved more
attention than three references in the book and nothing in the bibliography;
there were people close to him would have been good sources.
Weaver sometimes seems
cavalier with the records he uses. There were assessments attributed to them
which surprised or intrigued me. Looking at the references, it turned out the
assessments did not come from the record but were Weaver’s own, although that
is not clear in the text. One does not object to an author presenting her or
his own views, especially in such a controversial area, but the duty of the
dispassionate scholar is to distinguish them from the narrative. Perhaps Weaver
was so enamoured with Rogernomics that the scholar was not always able to
distance himself from their rhetoric. He can be obsequious, as when he quotes,
without comment, an anonymous source describing Douglas as a ‘genius’ (p. 388). While Douglas had some impressive political
skills, he would only be judged a genius by someone who was very distant from
that status.
Weaver readily dismisses
opponents of Rogernomics with the Rogernomes’ misleading descriptions. Anderton
is described as a proponent of deficit financing (which was not evident in his
time in the Clarke-Cullen cabinet), ignoring that when the Rogernomes cut taxes
they would leave a deficit hidden by the cuts being introduced halfway through
the fiscal year. They may have believed that the economic growth that the taxes
were meant to generate would provide the revenue, as do those holding the views
the Rogernomes criticised. The following year they would scramble to restrain
expenditure or invent some mysterious accounting device which hid the
underlying deficit; Ruth Richardson’s 1991 ‘mother of all budgets’ was partly
the result of their deficit financing.
While published by an academic
publisher and with almost a hundred pages of notes and bibliography, the book
does not really meet scholarly standards. The manuscript does not seem to have
been discussed much with knowledgeable New Zealand scholars, which may explain
the numerous irritating factual errors that slipped past the Canadian editor
and the failure to understand New Zealand practices. One is reminded of the
FIFO, the Overseas Expert who ‘flies in and flies out’ and, in between, gives
polemical seminars at a more relaxed standard than he or she would ever dare to
scholars at home.
The book is a bit of a
potpourri and can jump around from topic to topic and period to period. How to
review the book other than in a page-by-page critique as its editor should
have? Briefly, the opening is three chapters on the politics of restructuring
from a Rogernomics perspective omitting any reference to the other side’s case;
there were mistakes and deceit on both sides. Little attention is given to the
critical feud between the Douglas and Lange offices. That would have required
more oral history – of participants on both sides – and access to memoirs and
diaries which Weaver did not pursue. Had he done so, Weaver would have met the
social-democrat modernising discussed below.
Part Two, the Macroeconomics
of Restructuring, is six chapters. It starts with monetary policy, perhaps
signalling Weaver’s commitment to monetarism. It’s a curious chapter beginning
with a general history of monetary theory from the nineteenth century, but
omits the particularity that New Zealand was once on a sterling exchange
standard, which is still a useful background for understanding New Zealand’s
monetary situation during, say, the Global Financial Crisis. This is but
another example of the repeated feeling that Weaver has a poor grasp of the
intricacies of New Zealand’s institutional arrangements.
The so-called macroeconomics
section includes taxation, corporatisation and privatisation. There is a
Rogernomics convention that they made no mistakes. So there is no discussion,
for instance, on the Telecom privatisation which skipped standard parliamentary
scrutiny – it was treated as a budget bill – which meant the private monopoly
had no adequate regulatory framework; it took two decades to address the
monopoly’s excessive profitability and the poor innovation record which
resulted.
Disappointingly the book gives
little attention to the ending of border protection which modernisers argued
was necessary given the diversification of exports and the changing global
economy and was the reason that so much internal restructuring was needed. A
discussion on fiscal consolidation – one of the significant achievements of the
time – is omitted, perhaps because it was led by largely ignored Treasury
Secretary Scott. More generally, the focus on politicians as heroes – a not
infrequent biographical trope – underplays the central role of officials –
especially Treasury economists – and outsiders in the revolution. Admittedly,
it is politicians who give the decisive political leadership to implement the
policies, sometimes after having their minds redirected by non-politicians’
logic.
The four chapters of Part
Three are more focused on the state: social welfare and changes to the public
service together with labour relations (which really belong to Part II). I
shall critique this chapter because it opens up the central problem when discussing
Rogernomics. The chapter starts with what amounts to a Rogernomics rant at the
wage setting system before the mid-1980s, simplifying its complexity. Stan
Rodger, on whose papers the chapter is based, had more understanding because he
had been the president of the PSA before he entered Parliament. Weaver seems to
bracket Rodger with the Rogernomes, which further distorts the chapter’s
account. Rodger was a moderniser but he was a social-democrat moderniser seeing
the need to change arrangements within a social democrat context; the
Rogernomes were neoliberal modernisers aiming to change that social and
political context.
The labour movement – both its
political and union wings – were torn between traditionalists keen to maintain
the status quo, especially the relativities built into it, and modernisers who,
observing the economy and society had changed during the postwar era, saw a
need to change – in this context – the wage-setting arrangements. The wider
internal political dispute substantially undermined the ability of the labour
movement to resist the neoliberals; there is a sense that the tension remains
unresolved today.
Rogernomes ignore the
social-democrat modernisation option because it challenged their rhetoric that
‘there was no alternative’. They only contrasted their policies with that which
existed before 1984. Weaver seems to agree with them, even including in the
book’s subtitle the claim that the restructuring was ‘incomparable’, a
dangerous notion for a scholar since scholarship is dependent upon explicit or
implicit comparisons. In fact, but unnoticed by Weaver, Rolf Gerritsen and I
did a comparison between Australia and New Zealand (1995). Any comparison is
imperfect, and Australia had some advantages – and disadvantages – over New
Zealand but the comparison demonstrates there was a social-democrat modernising
option.
The tension between the
modernising and traditionalist unions is evident in Weaver’s chapter on the
labour market, but his Rogernomics perspective obscures the story. Rodger found
his way through the tensions with the 1987 Labour Relations Act. But getting
the greater flexibility that the modernisation required meant there was some
loss of traditional relativities, while some well-established (traditionalist)
unions were undermined. The difference between the social-democrat modernisers
and the neoliberal modernisers is evident in the contrast between the 1987 Labour
Relations Act and the 1991 Employment Contracts Act; Weaver seems hardly to
have noticed the difference.
Yet, despite the book’s titular
claim to be a ‘1980-1995’ history it has the barest discussion of what happened
after Labour lost power in 1990. The 1990-1993 period is usually treated as the
second half of the restructuring. It is not clear whether Weaver simply ran out
of energy to complete the story – it was already a big book – or whether he was
confined by his narrow sources. All the Rogernomes were out of power after 1990
(except Deane who was CEO of Telecom). The unfortunate effect is to give the
impression that these were heroic men, but it disguises others who continued
with the restructuring after the ‘heroes’ had faded. Focusing history on
individuals neglects the processes which are driving the change and giving them
the opportunity to achieve their heroism.
While I am grumbling about the
title, it is anachronistic to associate the restructuring with Adam Smith. It
is doubtful he would have supported all the changes had he been alive. After
all, he also wrote The Theory of Moral Sentiment before, and became a
commissioner of customs after, he published The Wealth of Nations.
I draw to a conclusion by
returning to the two questions that Rogernomes hardly address. First, why did
the economic changes we associate with Rogernomics make no discernible change
to aggregate economic performance? I confess I have more invested in this
question than a mere observer. I was trained in orthodox economics (although I
have explored the non-orthodox) and have probably done more research on
economic growth than any other New Zealand economist. When the Rogernomics
policies (especially its market liberalisation) were instigated, I assumed
there would a one-off boost to economic performance – in the medium term at
least – and perhaps even some acceleration of the economic growth rate. Neither
happened.
The Rogernomes have responded
that they did all the things which their theory said would boost the
performance so it must have occurred. That the evidence says otherwise
indicates there is something wrong with their theory – with the theory I was
trained in and respect. A subsidiary Rogernomics response is that not all their
measures were adopted and improved economic performance only happens thereafter
is just silly. Sufficient policies were implemented to have made a difference
but any difference is not evident. This is not the place to go through a subsequent
analysis, but it would help if a Rogernome would put her or his mind to
providing an evidence-based answer to the performance question.
Insofar as Weaver addresses
the growth issue it is in the third- and second-to-last paragraphs of the
book’s conclusions – almost as an after-thought. The section starts, ‘I used
Statistics New Zealand data that provided an annual index number representing productivity’
(p. 434). No source is cited. Nor does Weaver explain which measure he is
using; Statistics New Zealand provides three. The confusion is compounded by
his citing calendar years, whereas the Statistics New Zealand data periods are
years ending in March. His periods do not match the Statistics New Zealand
summaries and the remaining presentation is a jumble; there is no tabulation.
I went back to the Statistics
New Zealand data. It is only for the ‘measured sector’, so it is not
economy-wide (and even that is not comprehensive until from 1995/96). Moreover,
the Statistics New Zealand series do not exist before 1977/78 so we cannot use
them to evaluate long-term trends. Forgive me, if I don’t go through the
tedious details – this discussion on growth is already almost as long as Weaver
devotes to the topic without his obiter dicta – but per capita GDP was flat
from about 1985-1994; that is the Rogernomics stagnation. New Zealand’s per
capita GDP fell 15 per cent relative to the OECD average over this period and
that deficit has never been caught up since. Not only does that greatly trouble
me, and should trouble other economists concerned about growth, but it provides
a background to the second question.
Was it necessary for economic
inequality to be substantially increased during the restructuring? Weaver
records that ‘reconstructed gini coefficients show a slight [sic] rise in
inequality from the early 1970s to the early 1990s (from 0.30 to 0.40)’ (p. 214).
It is not clear where he got the 1970s figure from the data does not exist
since New Zealand’s household income series do not start until 1984. The is not
in the 2011 OECD report, Divided We Stand, Weaver cites after the next
sentence. Figure 1 of that report points to New Zealand having an exceptional
increase in inequality between 1985 and 2008. It is comparable to Sweden’s
increase but that took longer than the 1985 to 1993 period in which New
Zealand’s happened, and was from a much lower base.
Weaver describes the increase
as ‘slight’. That Figure 1, which has different estimates for the gini
coefficients from his, shows the term is a nonsense. A shift in the gini
coefficient from 0.3 to 0.4 represents a doubling of the standard deviation of
a log-normal distribution. To simplify, the share of disposable income for the
top fifth increased from about 20 per cent to 25 per cent in the period from
1984 to 1994; that represents a boost of their incomes of around a third
relative to those left behind. Meanwhile, the share of income of the poorest
fell; their absolute income did not return to its mid-1980s level until roughly
20 years later. The reader is left to decide whether this change is ‘slight’.
Surprisingly, to me anyway,
the change was not a result of changes in market (factor) prices. As best as
can be judged, the market price changes – we saw the anxieties about the wage
rate dimension debated with the 1987 Labour Relations Act – were not particularly
biased against any income strata in society. Rather the dramatic share changes
were the result of the cutting of top income tax rates and the switch to the
imputation method of assessing corporate taxation. The reductions were funded
by higher taxes further down the income distribution and cutting benefit levels
and entitlements. One consequence was that, while the economy stagnated, those
at the top of the income distribution continued to experience real disposable
income growth while others suffered real income reductions. That the elite were
insulated from – and often unaware of – the hardship of those lower in the
distribution says something about growing class divisions in New Zealand
society. To round off the story, the tax cuts on the rich were initially
unfunded with the resulting financial deficit (and resulting debt) a burden on
future generations. The early initiatives of the National Government elected in
1990, which cut income support (benefits), shifted the burden from the future
onto, especially, the poorest.
Despite the book’s title,
Weaver does not cover these 1990 and 1991 measures. He even seems unaware of
them, commenting that ‘a report from the United Nations Children’s Fund
claim[ed] that starting in 1984 New Zealand had “demolished a cradle-to grave social
welfare system in the name of economic efficiency”. This allegation is patent
nonsense’ (p. 186). Weaver is reporting a statement made in 1995 after the Ruth
Richardson-Jenny Shipley ‘redesigning of the welfare state’ (their expression)
of 1990-91. The shift was from a European-style welfare state which aims to
enable everyone to participate in society to one closer to an American one
which aims to provide the minimum to sustain life and health. You may disagree
with UNICEF but the term ‘patent nonsense’ is extravagant for a scholar.
The change was justified as
being necessary in order to stimulate economic growth. The faster growth has
not happened; perhaps its advocates should apologise. But there was also a
moral dimension in the change. The neoliberals wanted to change the political
economy of New Zealand. In this they were more successful.[1] Was that
transformation and its increase of economic inequality a necessary consequence
of the restructuring? Weaver does not discuss the question. At issue is whether
social-democrat modernising was possible, with the hint from Australia of a
cautious ‘yes’. What is unquestionable is that the significance of equity in
public policy has been downgraded since the neoliberal changes.
What are we to make of
Weaver’s book? The uncritical Rogernomes and their allies will be delighted
with it; I am not sure what Rogernomes with a critical facility will think.
Anti-Rogernomes and those antagonistic to neoliberalism will be outraged.
Uninformed readers may find the text a bit tedious. Depending on their
background, they may recognise enough signals to know the text is often
unreliable and incomplete, this will be particularly a problem for offshore
readers. No doubt some lazy or uninformed readers will use the material in
their own writings, in part misled by the inadequate bibliography. Scholars
will admire Weaver’s diligence and be grateful for his work from archives and
personal papers but will soon find they have to check his findings against
primary sources. As for me, I greatly regret that Weaver did not follow normal
scholarly standards. The purpose of the book was ambitious, but the writer had
neither the resources nor equipment to achieve his ambition. One does not
object to a scholar having a strong point of view, but they should test it
against the alternatives, especially by engaging with those who disagree with
theirs.
[1] B.H. Easton, Not in Narrow Seas: An Economic
History of Aotearoa New Zealand (Wellington: Victoria University Press,
2020).