Fiscal Conservatism Rules

This entry was posted in Listener, Macroeconomics & Money on by .

Should we have tax cuts without cutting government spending?

Listener: 20 May 2006.

Keywords: Macroeconomics & Money;

This columnist made himself highly unpopular in the 1980s by arguing for fiscal conservatism; ie, restraining the size of the government deficit between its revenue (mainly taxation) and government spending. Even the Treasury abandoned fiscal conservatism, arguing in 1984 that “with a floating exchange rate there is less risk that poor monetary and fiscal policies will impoverish those industries exposed to world trade while generating spiralling external debt”.

That was wrong, both in theory and practice. The Labour government in the late 1980s ran huge government deficits with spending far exceeding revenue, covering the gap by borrowing and by selling state assets – a strategy not unlike mortgaging and selling your house to pay for your high life. The exchange rate rose, exposing the tradeable sector to its world competitors, external debt spiralled and the economy stagnated for six years.

The structural government deficit was eliminated in 1991 by the Minister of Finance, Ruth Richardson. (I disagreed with her specific measures because they hurt the poor and they were so sudden that the economy collapsed.) Richardson’s courage (or folly) ended her political career, for she lost the finance portfolio in 1993, and left Parliament soon after. But her elimination of the fiscal deficit laid a foundation for the strong economic growth of recent years.

Reserve Bank Governor Don Brash was a beneficiary. Had the irresponsible deficit continued, monetary policy would have been a more difficult process, with an outcome of significant inflation, or more stagnation (or both).

Today there is a general consensus on the orthodoxy of fiscal conservatism, although there are disagreements over other aspects of fiscal policy. (One lobby wants lower taxation paid for by lower government spending.) The Treasury is fiscally conservative again, and the current Minister of Finance, Michael Cullen, is also a committed conservative – in this dimension, anyway.

Sadly, most journalistic commentators are not. You will see it in the headlines after the coming Budget when Cullen will be called “Scrooge”. But he will run as large a fiscal deficit as he dares, using any additional available funds for public spending on health, education, prisons and so on, rather than cutting tax. You, or any commentator with a different political stance, may favour cutting income taxes rather than increasing spending. But that is not saying that the fiscal deficit should blow out.

The deficit? Isn’t there a huge operating surplus in the government accounts? Well, yes, as measured, but most of that is then spent on capital investment and the like. So NO, really. The true fiscal deficit, the government’s net impact on the economy, is probably near zero for this stage in the business cycle. Given the government’s spending plans, there is no room for a tax cut. If there was, Cullen would give one.

Yet, predictably, following the Budget announcements there will be calls for tax cuts. This column has no trouble with the Act Party’s demands, for they want to leave the extra money in your hand to enable you to purchase the health and education (and probably some other things) that they plan to privatise.

But if election policies are any indication, it is National that is unorthodox, all the more surprisingly, given that the party is led by the major beneficiary from fiscal conservatism, Brash. Richardson must have wept when she saw the party’s 2005 promises of tax cuts, spending increases and guarantees not to cut some of the biggest sectors. Had National’s policy been implemented, the exchange rate would have risen, the export sector would have been crushed, and economic stagnation would have followed. And it is so hard to regain fiscal discipline, as Richardson knows.

National’s excuse might be that the official data came out too close to the election for them to do their sums. That was over six months ago. So let them publish their own Budget showing the deficit that they would generate after their tax cuts and spending plans. If they keep to their manifesto promises, they will be shamed out of court.

This column will not be welcomed by the fiscal irresponsibles. Been there, done that.

A Listener column that explained the government accounts is Stressful Fiscal Sums: Should the Government Spend More and Tax Less? (December 13, 2003) See also Notes on OBERAC. The Cash Surplus and Other Measures in the Government Accounts.

The Future Of the Nation-state in a Globalised World

This entry was posted in Globalisation & Trade, Governance on by .

Presentation to a Leadership New Zealand seminar, 18 May 2006.

Keywords: Globalisation & Trade; Governance;

I am working on a book, The Globalisation of Nations, sponsored by the Marsden Fund. As the title suggests I am concerned with both the process of globalisation and how that affects the nation-state. Today I begin by giving a brief overview of the economics of globalisation, but my main focus will be about its impact on the nation-state.

Globalisation Themes

The study is founded on five themes. You will be surprised how often people write or talk about globalisation, without defining it, so my first I define it.

1. Globalisation is the economic integration of economies – regional and national economies. This definition is the standard economics one with ‘regions’ added to ‘nations’ because I do not want to preempt what is a nation.

Next, when has globalisation been happening?

2. Globalisation began in the early nineteenth century, so the phenomenon is almost two centuries old. Since globalisation is an historical phenomenon, focusing on the last few decades throws away a rich source of insights.

Third, what drives globalisation?

3. Globalisation is caused by the falling cost of distance: transport costs, plus the costs of storage, security, timeliness, information, and intimacy.

While we can not measure the fall in the costs of distance precisely we can observe them schematically. In 1855 it took about three months to get from New Zealand to Britain, whether it was sending a package, a person or a message. Let’s represent the time by a line:

************************************************

Today it takes only a month to get to Britain by ship. That’s because ships are faster, and they can go through the Panama Canal. That line now looks like:

**************

But that is misleading in regard to people and light valuable goods. Once they went by ship to London too. Today they can fly to London in less than two days. Compared to the 1855 their world looks like:

*

Yet information can be sent in vast quantities almost instantaneously via the world wide web. On the same scale that time is represented by something smaller than the full stop which ends this sentence.

One implication is that as long as the costs of distance fall, globalisation will continue. It may continue in different ways. Who even twenty years ago would have predicted a whole range of services were tradeable – business service offshoring, call centres, and electronic purchasing among other activities – facilitated by cheap telecommunications means. The future form of globalisation may surprise us.

Fourth, why is globalisation such a powerful force?

4. Globalisation has exceptionally powerful effects when the reduced costs of distance combine with economies of scale. The first half of the book sets out this story, but I wont go into it today.

My fifth theme is the consequences of globalisation.

5. Globalisation is not solely an economic phenomenon. It impacts on politics, society and culture, which within the context set by technology, influence the course of globalisation.

These impacts are investigated around two hypotheses.
– Globalisation causes cultural convergence;
– Globalisation causes policy convergence.

The study concludes that, ‘yes’ convergence happens, but ‘no’ differences are not eliminated. In summary

5A. Globalisation impacts on, but does not eliminate, cultural differences,
and
5B. Globalisation reduces, but does not eliminate, the policy discretion of states

Thus, and too my surprise from where I was when I started the study, I think the nation-state will continue despite globalisation, although it will have to adapt.

The Nation-State

While each Nation-State presents itself as having a long history, in fact it is a relatively recent phenomenon. We are partly misled by being English speaking, because we think of England as typical. Shakespeare’s Henry V, written 400 years ago, while the threat of the Spanish Armada still was in the memory, is so nationalistic that a film of it was made in 1944 as a part of the British war effort. However even Britain does not become a modern nation-state until the nineteenth century.

More typical is Germany. Two hundred years after Shakespeare, Germany’s greatest writer, Johann Wolfgang von Goethe, did not live in a Germany but moved between the forty and more German speaking principalities which existed in central Europe at the time. His literary community defined their Germanness by their common language, not by membership of a common nation-state – for it did not exist. Towards the end of Goethe’s life there was some amalgamation of the principalities and the formation of a customs union, but Germany as we know it, did not really begin until 1871. This is not untypical of most countries. New Zealand, while thinking of itself as a ‘young’ country, is actually an old one, about the 20th oldest nation-state on some criteria. Most of the world’s nation-states were formed after New Zealand’s, evven though their cultural roots may be much much older. .

For the nation-state was the product of globalisation, or more precisely the falling costs of distance. which drove the integration of localities into regions, and regions into a larger grouping we call the nation-state. The logic of this process might thought to be continuing amalgamation, with the nation-state losing all meaning in the future.

Curiously, the best example of this phenomenon occurred before the era of nation-states. Many of the peculiarities of the federation we know as the United States of America arose because had when its constitution was written, the model of the state was the European continent at the time of the young Goethe – fragmented, fluid, not particularly effective, and quarrelsome. While there were some who believed in the individual power of the US states, most notably Thomas Jefferson before he became president, the reality was they were stripped of their powers in order to provide a strong central government to protect the Americans from Britain and France.

When, almost two hundred years later, the sometimes called ‘United States of Europe’ was formed, the nation-state was in rude good health. So the European Union’s constitution gives greater weight to its constituent states, and less to individuals, than the US one does. Those nation-states are reluctant to give up many key powers: Europe was all over the place in the run up to the invasion of Iraq, and while we talk of the difficulties that the European Union is presenting in reforming agriculture in the Doha Round negotiations, the problem seems to be primarily obduracy by France.

The European Union may be a better model of the future of the world than the United States of America. There is unlikely, in the mid-future anyway, to be any world government really powerful relative to the constituent states. Look at some supranational institutions – such as the United Nations, the IMF (the central bank of the world), and the World Trading Organisation. Their effectiveness is dependent on the cooperation of nation-states. Ironically, one of the chief resistors to a US model of world government is the United States itself, with its is reluctant to give up its sovereign power.

The book cautiously predicts that the US will become less economically powerful because of World economy structural changes consequent on globalisation (and earlier than need be, if it continues to be fiscally irresponsible). But I dont see any of the other four big economies – the European Union, China, Japan or India being eager for a powerful World government either.

In his Shield of Achilles, Phillip Bobbit argues the nation-state may become domestically irrelevant. He sees the nation-state, with a concern for the welfare of its peoples, transforming into the market-state whose primary purpose is to give people choice. Now Bobbit is an American Republican, which does not necessarily invalidate his argument, but tells us where he is coming from. He is more interested in the foundations of military power – an understandable concern of any American intellectual – but it means that the story he is telling makes more sense in America, whose public might have internal choice together with a sense of nationhood as the biggest bully on the block. Other countries do not have that option. In any case, it is pious to say all Americans have choice. Certainly many do, beyond the wildest dreams of their ancestors and much of the rest of the world today. But America has a largely disenfranchised underclass which, for instance, lacks access to decent health care. It seems unlikely they will remain quiescent forever. It is possible that Bobbit’s market-state unconcerned for the welfare of its people, may descend into fractious class warfare.

Today, however, my concern is going to be primarily with smaller, by population, nation-states than the US. Are they likely to fade away?

Here the two hypotheses of cultural and policy convergence become very relevant. A rejection of both hypotheses is necessary for the survival of the nation-state. First, suppose there is total cultural convergence, then what have the citizens of one state that distinguishes them from those just across the border? Why in such a world is one state of any significance over another?

So is there cultural convergence? Of course the adoption of common technologies leads to a kind of cultural convergence: an observer from a developing country will see similarities in all rich country cities, with their domination by the motorcar. But aside from technology it seems likely that the convergence process is weak.

To investigate the hypothesis I considered whether there has been convergence between Canada and the US, the longest peaceful neighbours with a common border, with the largest international trade flow. Testing the convergence thesis this way is a no brainer. Canada and America are very different societies, despite the 150 years of respect. Indeed, once I began thinking about the comparison, I was struck how there are very different societies within the US – the red-blue split of the Presidential elections being just one example. So the US cannot even get cultural convergence within it.

What is happening is that, despite globalisation (and technology) pressuring cultural convergence in a sort of deterministic economic way, the dynamism, the creativity, the eccentricity of culture means the convergence forces are unable to overwhelm the forces for divergence.

But nation-states not only have to reflect cultural commonalities which distinguishes them from the rest of the world. They have to be able to express that distinction. Hence the relevance of the policy convergence thesis.

Policy Convergence?

There is no question that there is much policy convergence. The book identifies two processes which drive it.

First an optimal policy, if it exists, is likely to be adopted everywhere. Thus virtually all countries use money as a means of bringing together producers and consumers.

The second policy convergence process arises from the consequences of international trade. Trading partners need commercial commonalities. The book illustrates this with the need for a common system of time and calendars. While in principle a sovereign country may choose a different clock and calendar, in practice they dont because the rest of the world sets the standard. We need to distinguish between de jure sovereignty– what a country can legally do with itself – and de facto sovereignty – its real freedom in a interdependent (globalised) world.

Some of these commonalities are so common, we hardly think about them. More contentious are commercial policy issues like the degree of border protection. Each country has the de jure power to impose tariffs and quotas, but its de facto power is limited by the international agreements it enters into, under its de jure powers, such as free trade agreements and the protocols of the WTO. Very often a country gives up this power reluctantly – which is the reason that the Doha Round to reduce border and related interventions is stagnating. But in order to get commercial intercourse between economies, concessions are necessary.

The concessions are slowly converging to a world in which there is minimal assistance to internationally traded commodities, although we are a long way from the rock bottom – especially for agricultural products.

However, not all commodities are traded – a couple of examples. First health care. The bulk of health care is not internationally traded. Pharmaceuticals are, some advice and testing can be using IT, medical personnel move around, and sometimes people change countries to get treated. But most health services are provided on location.

Moreover, there appears to be no optimal health care system, for while everyone has their own theory, there is little agreement. (Contrast the commonality of the agreement clinicians have about the treatment for most conditions.) Thus there can be considerable variation between countries on the funding and provider arrangements. Generally there are no reasons for international commercial policy to interfere in such arrangements.

An even more difficult area is that of culture.. To what extent may a nation-state intervene in commercial operations to protects its culture. May Basques insist on labelling all products in Euskara in order to foster their language? What if the government restricted the provision of education to institutions dominated by locals, thereby excluding foreign providers? What about local quotas? Positive answers result in non-tariff barriers, anathemas to free traders. Such questions are unresolved, but despite great pressure from the dominant cultural provider – currently the United States – my guess there will be strong resistance to a free-for-all in cultural policy. However in some areas the effect of these policies will be to slow down convergence rather than prevent it. I shant be surprised if everybody’s second language is eventually English.

So there are still areas of policy discretion. Some will be crucial in sustaining the nation-state. One of the dimensions the Canadians distinguish themselves is they have a different – and one might daresay better – health system than the Americans.

But what about commercial policy. Again there may be some room for differences. New Zealand and Australia have differences in their competitions policy, I think it unlikely that the WTO will try to harmonise infrastructure policies. New technologies create new opportunities for difference – there is no internationally agreed commonality on research and development funding. There is a lot of discretion in education policy. So while the policy space for commercial assistance is narrowing, it is unlikely to be zero, except in some areas, especially where there is international intercourse across borders..

Borders

Nation-states need borders. Yet falling costs of distance and the resulting changes in commercial policy have made borders more permeable to goods, certain services, capital, technology and tourists, although they remain practically necessary for phytosanitary reasons and to restrict terrorism. The book suggests the freedom of workers across borders is less certain. Most countries are not as hospitable to foreign workers as we – or, better still, the Canadians – are. Of course there are great flows of highly skilled workers, it being quicker and cheaper to import them than to train them up domestically. But what about unskilled workers? Two quick points here – the study’s coverage is much richer.

First, international trade is a substitute for labour migration. Rather than the worker moving to a new country and producing the good or service there, the commodity is produced in the worker’s country of origin and moves to the country where the worker might like to locate and cannot, with the worker’s labour embodied in it.

Second, not all goods and services can be traded. You cant move land, which is why unskilled Mexicans can find jobs on US farms. Many services can not be traded either. One of the pressures for increased migration of unskilled workers comes from the aging of the rich countries’ population, suggesting that world migration flows may have to double current levels to deal with this. Since those migrants will be ethnically different from the host populations, they present quite a challenge.

Permeable or not, will the borders be stable? There are still border disputes – quarrels which occasionally boil over into armed conflict – but since the post-war settlement nation-state borders have been remarkably stable, with one notable exception. There has been considerable fragmentation including the breakup of the Soviet Union and Yugoslavia, the division of Czechoslovakia and the Indian subcontinent, and the break out of East Timor. Additionally there are implicit fragmentation in the successful demands for regional autonomy of the Québécois, the Scots and the Welsh, the Basques and the Catalonians for example.

The Size of Economies

This fragmentation at first seems counter-intuitive because we tends to think in terms of economies of scale, so that larger the economy is better. An economist might argue that fragmentation was a tradeoff between materialism and national and cultural autonomy. If so, and the cultural convergence hypothesis is an overstatement, this supports the optimistic case for the future of the nation-state.

But there is another strong argument for small states. Most economic analysis is about the market sector where, generally, there are economies of scale. In the non-market sector, arguably, there are diseconomies of scale. Big governments – in terms of the population they cover, not the proportion of the economy – are less efficient. Smaller government – above a certain population threshold – are better governments. You might say that small countries have a comparative advantage in the provision of public services. If this be true it explains a couple of features of the world. First, many of its richest countries – European and Australasian ones – have small populations. Second they are more likely to use non-market delivery for such things as health care and education, and achieve a high performance from those sectors. The contrast here is that the US, with its bigger population and less efficient government, has to use market delivery for health and education and has a relatively poor achievement, except at the elite end of tertiary provision.

The Future of Small Nation States

This is the good news for small countries. The bad news is they lack economies of scale in their market sector. But this deficiency can be mitigated by specialisation, so there are some big sectors by international standards – dairying in New Zealand for instance – which trade internationally, financing the importing of those products the economy does not produce. So small countries have to vigorously engage in international commerce to attain the economies of scale to be wealthy. In doing so they give up some of their de facto commercial autonomy.

This is nicely illustrated by Slovakia which separated from the Czech Republic (perhaps to its economic detriment).Then both countries joined the European Union as soon as possible. Small nation-states may join federations, but if the European Union is any guide, only if they believe they retain sufficient autonomy.

The conclusion that international commerce creates dependence applies to all small nation-states. Commercial success means a lack of commercial independence, almost exactly the opposite conclusion to the premise on which so many nation states were born, and evolved in the twentieth century.

And on that paradox, I leave the nation-state in a globalised world in – as I have said – rude good health but having to redefine itself as a cultural entity, with some but not unlimited policy discretion.

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Comment on mardi Gras: Made in China Director: David Redmon

This entry was posted in Globalisation & Trade on by .

Shown at the 2006 Wellington Human Rights Film Festival. Comments while on a panel which followed the film.

Keywords: Globalisation & Trade;

While the intended messages of the film are obvious enough, I want to comment on a few more subtle issues.

First, the film draws our attention to the anonymity of the market. It is one of the market’s great strengths – it connects you with the products but you need not know the people – and its great weaknesses, as we saw tonight when the bead users did not know where the beads came from, and the bead makers did not know where the beads went, where it is possible for the consumer or producer to isolate oneself from any human rights or environmental issues elsewhere in the chain. Karl Marx talked about the ‘alienation of labour’ and the rise of ‘commodification’.

This lack of knowledge can lead to misunderstandings. We were told that the Chinese workers earned 10 US cents an hour (although other, higher, figures were provided in the film). But that is their earnings after food and lodgings. Nor does it allow for differences in purchasing power. The Chinese workers are probably really earning about $US2 an hour or $4NZ, still too low, but not as outrageously as it appears.

Second, the father of bead worker Qui Bua says that had she not her bead or other factory job, she would have to go ‘overseas’. If this was nineteenth century England that would be a code for a brothel. Now I dont know how you judge the merits of brothels or bead factories, but an economist would say that work in a bead factory gives her some choice. I thought it interesting too, that in the film’s epilogue some of the bead workers had left for other factories. They had a choice. That’s not as good a choice as we have, but more than if there had been no industrialisation.

Finally, seeing the film sent me back to read again Friedrich Engel’s The Conditions of the Working Class in England, written 150 years ago. I was struck by both the parallels and the differences. Except for his race, Roger the factory owner, could have come out of a Dickens or Galsworthy novel. The English industrialisation put their working class through a terrible experience – so awful that some fled halfway around the world to New Zealand to escape. The Chinese industrialisation is pretty tough too, but not as tough as the English one.

That is to the good, but it is no reason why we should not hasten the Chinese industrialisation, while ensuring is their workers have their human and economic rights enlarged.

Poor Relations: Another Doha Round Deadline Nears …

This entry was posted in Globalisation & Trade, Listener on by .

Listener: 6 May, 2006.

Keywords: Globalisation & Trade;

In November 2001, trade ministers in Doha in the Arabian-Persian Gulf declared the next trade negotiations round to be a “development round”, aiming to enable the poor countries to experience “growth, development and prosperity”. But there were conflicting reasons for their vision.

The “Poor Countries” have long believed that the trading practices of the “Rich Countries” damaged their economies. The Rich’s limiting of access to their markets and domestic subsidies denied the Poor lucrative exporting opportunities, while export subsidies depressed the Poor’s returns elsewhere. Even the tariff structure can cause damage. A zero tariff on copper and a low one on copper products penalised adding-value activity in the copper-exporting country.

Meanwhile, the Rich Countries observed the high and distorting protection and subsidies in the Poor Countries and believed that it would be beneficial if the Poor Countries eliminated them.

So there were quite different reasons for the Doha Round to be pro-development. The Poor thought it should change the Rich’s practices: the Rich, although not denying that some of their practices had to change, thought the Poor should dramatically change theirs.

A recent book, Fair Trade for All: How Trade Can Promote Development, by Joseph Stiglitz and Andrew Charlton, argues there is justification for the Poor’s resistance to wholesale reform. (But, like this columnist, they favour trade liberalisation, supporting export-oriented growth strategies, especially for small countries.)

The simplest justification is that many depend upon Customs revenue to balance their budgets. They lack the sophisticated bureaucracies that we take for granted, which can administer effective income and sales taxes. If tariffs were cut, their loss of revenue would unbalance the budget, which would be inflationary or require cutting government expenditure at a time when more would be needed to ease the adjustment. (In the 1980s, we gave social- security benefits to workers unemployed after the ending of protection and grants to some businesses and farmers to enable them to move out of protected industries.)

The authors add that reduced protection may increase unemployment and inequality, and it may discourage entrepreneurship. Of course, all these arguments can be taken to the extremes – that is certainly not their intention. But Poor Countries can reasonably argue that extreme reforms may damage their national welfare.

Their doubts are reinforced by a recent report from a Washington think-tank, the Carnegie Endowment for International Peace, which concluded that the Doha Round proposals could be detrimental to those least able to afford it, such as Bangladesh and countries in East and Sub-Saharan Africa. The agricultural reforms are also problematic. Food prices are expected to rise, so net food importers and their citizens will have to pay more, and their subsistence farmers will not be well placed to seize the opportunities that the new conditions will present. (However, the study concludes that significant trade liberalisation will ultimately benefit the poor.)

There appears sufficient respect for such arguments that the Rich are not insistently demanding too much from the poorest countries, who are content, not so much from the economic logic, but because it does not disturb their domestic pressure groups. However, the economic case against reform by developing economies that were recently poor – including China, various East Asians, India and some Latin Americans – is less compelling. They have strong domestic political pressures to maintain the protection.

The Rich Countries are insisting that those countries whose exports are vigorously competing with their products should increase the world’s access to their protected domestic markets by reducing tariffs, abandoning quotas and withdrawing subsidies. So the Rich Countries are saying that unless there are substantial non-agricultural market access (NAMA) concessions, there will be minimal concessions in the agriculture area. (A convenient argument for such are the objections of the Rich’s farmers that they don’t seem to be too keen to make the concessions, anyway.)

The Doha Round negotiations continue in Geneva this week. Unless there is considerable movement in both areas, the round could collapse. As one country whose farm sector is particularly oppressed by the existing agricultural protection, New Zealand has much to win or lose from the final decisions. Our hopes rest not just on the agricultural negotiations, but also on the NAMA ones.

Improving the Electoral System

This entry was posted in Governance, Political Economy & History on by .

This is a submission to the select committee considering the Electoral (Reduction in Number of Members of Parliament) Amendment Bill

Keywords: Governance; Political Economy & History;

1. I wish to make a submission on the Electoral (Reduction in Number of Members of Parliament) Amendment Bill. I do so because my book The Whimpering of the State: Policy After MMP, raised some matters which are pertinent to the deliberations of the committee.

2. In particular the Bill does not address the quantum of electorate seats. I shall propose the case for increasing their number.. I will also add, the proposal – not strictly relevant to the bill, but I useful development nonetheless – that the tolerances for electorate size should be reviewed.

3. I do not make a submission on the direct purpose of the Bill, which proposes to reduce the numbers of MPs in parliament from 120 to 100 (overhangs aside). I do not have the expertise to make an informed assessment on this matter. It seems to me to depend upon whether the current number of MPs are under-worked, or whether a smaller number could do the same tasks satisfactorily, without serious overload.

The Number of Electorates

4. However the bill does not address the number of electorate seats. There are currently 69, but the numbers are likely to increase following the Representation Commissions’s review. Because I do not want to pre-judge the Commission’s decisions, this submission is based on the existing number and configurations of electorate seats.

5. In which case the bill offers a choice between 69 electorate seats and 51 list seats in 120 member parliament, or 69 electorate seats and 31 list seats in a 100 member parliament.

6. This is clearly not an appropriate comparison. In once case 57.5 percent of the seats would be electorate ones, in the other it would be 69.0 percent. A better comparison would be a parliament of 120 seats with 83 which were electorate seats, with a parliament of 100 in which 69 were electorate seats. (I am not considering the alternative of comparing a parliament of 120 seats with 69 electorate seats with a parliament of 100 in which 58 were electorate seats because the larger electorates would become even more unwieldy to service by an MP.)

7. In the following I shall largely ignore the problem of electoral overhang, when the number of members exceeds the set number because some party wins more seats than to which it is proportionally entitled by its list vote. This will happen the more electorate seats there are as a proportion of the total quota of members. I can make a separate submission on this matter if the Select Committee requests.

8. The number of electorates in parliament is determined by the requirement that there be 16 general seats in the South Island. This sets the population size of the North Island and Maori seats, and by division into the toal population, the number of electorates. Were there 19 South Island seats then the current (i.e. based on the 2001 census) number of electorate seats in a 120 member parliament would be approximately 82, with 52 (rather than 46) North Island seats, and 8 (rather than 7) Maori seats. (If the South Island number of seats were set at 18, there would be 52 North Island seats and 8 Maori seats. This would number would reduce the probability of a overhang.)

9. I have looked at how this will change the existing electorate boundaries, although because of the changes that will arise as a result of the post-2006 revision, and given also my second recommendation below to change the tolerances the exercise would be largely academic. As a rough rule without a change of tolerances there would be an additional seat in every cluster of six or seven seats if the South Island quota was 19, (or an additional seat in each cluster of eight seats if the South Island quota was 18).

10. A consequential change would be there would be fewer list Members of Parliament. This would largely impact upon the larger parties, who would thereby have more electorate MPs. The smaller parties would remain largely list parties, although given the greater number of and more homogeneous seats they may also have a greater chance of winning electorate seats.

11. The benefit to the population at large and the electorate MPs is that the electorates would be smaller and easier to service (although list MPs also do constituency work).

12. In my judgement that public support for 100 MPs partly arises because of an uncertainty of the role of the list MPs and an affection for electorate MPs. I should not be surprised if there was a considerable public support for more electorate MPs and smaller electorates in a 120 member parliament compared with fewer electorate MPs and larger electorates in a 100 member house.

13. I recommend as a first step towards clarification of the choice between 100 or 120 seats in parliament , that the number of electorate seats be changed so that each option has the same proportion of electorate seats. My preference would be for more electorate seats in the 120 seat option, rather than fewer electorate seats in the 100 seat option.

The Electorate Tolerances

14. The electoral law currently does not require each electorate to have exactly the same population, allowing some variation from the exact population quota. The margin – the tolerance – is that an individual electorate may be up to 5 percent above or below the quota. The Representation Commission is required to take into consideration such factors in community of interest, communications facilities and topographical features when it is setting the electorate boundaries within the range.

15. The existing tolerances predate the MMP era when it was important to avoid gerrymandering because it could affect the balance of parliament. In a MMP system such gerrymandering is less important since the balance of parliament is largely set by the list vote rather than the electorate vote. Since I am suggesting we should review the numbers of electorates, it is also appropriate to consider the size of the tolerances.

16. The narrowness of the tolerances results in some geographically large general electorates. The worst is surely West Coast-Tasman which has a length close to that of the entire North Island, and must be a very difficult to service. Other large electorates include Clutha-Southland, Otago, Aoraki, Rakaia, Kaikoura, Wairarapa, East Cost, Rangitikei, Taupo, Taranaki-King-Country, and Northland. While they may diminish in size with the proposed increase in the number of electorates (if the 120 option is maintained), they will remain large, and perhaps increasingly so, with the shift to urban centres.

17. Not only are these electorates difficult to service by an MP, but unlike many urban electorates there is neither a list MP active in them, nor can a constituent go to easily an MP in adjacent electorate.

18. In principle the Representation Commission could be given total freedom so that it there were no specified limits on deviations from the average. At this stage this may be too permissive. On the other hand, increasing the tolerances slightly and uniformly (say to 6.5 percent) would not address the problem of the West Coast-Tasman electorate and some of the other cumbersome ones.

19. I have thought of various formula of various levels of sophistication. However for the purpose of public debate I want to propose that the Representation Commission be allowed to in the case of up to 10 percent of electorates, that the actual population size may be up to 20 percent less than the average quota where topographical and communications circumstances make a larger electorate difficult to service.

20. I make no proposal for the Maori Electorates which by their nature are going to be large. In any case, the 20 percent toleration would not apply because there are less than 10 Maori electorates. One possibility would be to increase the tolerances for all Maori electorates to 6.5 percent which would be about the average for the General Electorates if my proposal was adopted. (This would not, of course, increase the number of electorates, but might giver the Representation Commission a little more freedom.)

21. I recommended that the current allowances for deviations from population quotas for electorate sizes be reviewed, with the aim of reducing the geographic size of difficult to service electorates.

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Can We Improve the New Zealand Health System?

This entry was posted in Governance, Health on by .

Keywords: Governance; Health;

Discussions on the effectiveness of the health system need to separate out the funding from the provision. The Labour Government has poured a lot of money into the public health system in recent years (the boost actually began earlier under the National-NZF coalition government in 1996), and it has been disappointed by the results. It has concluded that there is something wrong on the providing side.

I would be a bit more cautious. We dont actually know where the money has gone. Some has gone into public health (such as education and prevention) and, although not all of it has been spent wisely, any benefits will be in the years ahead. Some has gone into primary care, which might be functioning better (although there is a worry about the adequacy of GP’s remuneration), some has gone into high pay for hospital specialist as we compete with rising world medical salaries, and some has been used to deal with the backlog from past failures to provide adequate resources. (Probably some has gone into new technologies which are not very effective or efficient, but that is a world-wide problem.) It is an indictment of the Ministry of Health, though, we know so little about where all the extra funding has gone.

But we should acknowledge success. A recent release from the Minister of Health celebrated that New Zealand had done well in a US comparison of six countries. Here are the broad results, but note the study does not include many of the Europeans nations (such as the Scandinavians) who are the real leaders. Even so, we came second, behind Germany and ahead of Britain, Australia, Canada and the lamentable last of the US.

  AUS CAN GER NZ UK US
Patient Safety 4 5 2 3 1 6
Effectiveness 4 2 3 6 5 1
Patient-centeredness 3 5 1 2 4 6
Timeliness 4 6 1 2 5 3
Efficiency 4 5 1 2 5 3
Equity 2 4 5 3 1 6
OVERALL
RANKINGs		 4 5 1 2 3 6

Source

They also gave comparisons of outlays on health. International value comparisons are tricky. The study used the GDP PPP deflators. Forgive me for not going into them in detail, but basically they reflect the price of everything produced. There also exist Health Care PPP deflators (which I dont entirely trust). In the next table, I give the results for both measures.

  AUS CAN GER NZ UK US
Using GDP
deflator		 $2903 $3003 $2996 $1886 $2231 $5635
%US 52 53 53 33 40 100
Using Health Sector
deflator		 $2970 $2507 $2704 $2205 $2251 $2829
%US 105 89 96 78 80 100

What the data using GDP deflator says is that the US spends the most on health in terms of the GDP it forgoes. But this is partly because the US sector’s remuneration is so expensive (relative to US average wages). When you look at the actual inputs (which is what in principle the Health Sector deflator is doing) it appears that the US is doing relatively less well.

By either measure we are not funding (public and private) the health system as well as the other five. We and Britain are about 20% lower than the US, but we probably spend it more efficiently because relatively more goes into public health, it is allocated more by need and less by ability to pay, there is less defensive medicine here, and a private insurance system is more costly to run than public provision. .

The implication is that we should be spending more on health to be internationally comparable (sorry to have to say that Michael Cullen) , but not a lot more (cheers off stage from Treasury officials). On outturn terms, we seem to be doing reasonably well in comparison with the others.

However there is no health system in the world without public criticism. As I understand it, the government is turning its mind to whether it can improve provision. I shall make just a few remarks.

As a general rule the opportunities for competitive supply are limited in New Zealand. Perhaps in Auckland you can get a choice of hospital for your heart surgery, but you cant in Invercargill. I am not ideologically antagonistic to competitive supply, but the efficacy of competition is frequently overrated.

For instance, health providers tend to compete on the basis of perceived quality without reference to price, rather than actual quality for price. They rely on the uniformed patient to be unable to make efficient price-conscious judgements. (Patients may be also shielded from price by a third party funder – say private insurance.)

Second, those who advocate health insurance are confusing funding with provision. What they are saying, I think when they are not muddled, is that a particular form of health insurance can increase the competitive supply mechanism. Perhaps, and only for selective treatments. In any case, they often dont define what they mean by health insurance – it could range from voluntary private insurance to compulsory public insurance (ACC is an example of the latter) with a host of possible arrangements in between – so the advocation is not making much progress.

(Incidentally, I use to be very nervous over the effect of private purchase of health care (and hence supplementary private insurance), which is sometimes associated with ‘queue jumping’ and superior access for the rich over the poor. I am more relaxed today for the following reasons. If the public sector is effectively utilising all its available funds, then queue jumping is sucking more resources into the health sector, and so is increasing overall welfare. There are a couple of major caveats. First it is possible that the private sector obtains its resources at the expense of the public sector – rather than offshore – which would be to the public detriment. Second – and I owe this to an insight from Geoff Fougere many years ago – a strong health private sector may discourage politicians funding the public health sector.)

Third, there is evidence of dysfunction within the hospital system. I dont hear about all of the DHBs, but too frequently I hear of demoralisation among the clinicians working at the sharp end of the treating of patients. The problem seems to arise from what I called the ‘cult of the generic manager’, the view that this approach to management does not need to know much about the activity it is managing, and so discounts the contribution of professionals to management. ( Some of my writing.)

Its partly an attitude of mind, captured by a research program investigating the DHBs involving interviewing board members and managers. When I asked whether they were also interviewing clinicians, a blankness swept over the researcher’s face. The fact that the clinicians whose success or otherwise would determine the success of the treatment – the ultimate health of the patients – seemed to have completely escaped the project.

We dont know how expensive this management system is. I favour a bench-marking exercise in which individual DHBs report on their management outlays as a proportion of total funds and compare them. (Incidentally, universities do this for their administrative systems.) Of course there will be economies of scale, and there are also effects from service mix and board area. So the data has to be handled sensitively. But you can be sure that were the data available, there would be close scrutiny of the outliers and some of the more pernicious managerial waste would be eliminated.

I hear a lot of grumbling from clinicians about the managers in their hospitals. They may not be entirely right. Clinicians think in terms of their own patients – bless them – and often miss the big picture. That means they can be wasteful of resources, devoting them to their individual patients, and not thinking about whether the resources can be better applied elsewhere where the health gains may be greater. (If you have doubts about this, think of the calls for listing some pharmaceutical for public funding, and how infrequently there is any discussion of the economics of the drug. If there are, how crude and self serving the economic claims are.)

Providing it is not dangerous to the patient’s health clinicians are happy to prescribe procedures whose treatment effectiveness is not well understood, and who efficiency (cost effectiveness) is probably low. Unless they become more sensitive to these issues, they are going to find their clinical freedom will be circumscribed.

However, putting in managers to restrict them may not be particularly effective/efficient either, especially if the managers are unsympathetic to and ignorant of the clinician’s task However anecdotes suggests that many managers dont think enough about clinical delivery, and, like that researcher, lose sight of the sharp end of their operation. I reckon that were one to sack every so often the five percent of managers with the most demoralised clinical staff, there would be a marked improvement in health sectoral performance. But curiously – the adverb is ironic – the theory of management which drives the cult of the generic manager is oblivious to the question of its competence.

These considerations dont solve the problem of provider failure which seems to be the government’s current concern. That is because we are stronger on anecdote than research. One once more wonders about the contribution of the Ministry of Health to providing the rigorous overview which is its obligation.

PS. I am grateful for Rob Bowie ‘s comments on an early draft.

The Youth Labour Market Guarantee: the Environment

This entry was posted in Education, Growth & Innovation, Labour Studies on by .

This was prepared in May 2006 for a report on a Youth Labour Market Guarantee.
 

Keywords: Education; Growth & Innovation; Labour Studies;
 

Introduction.
 

This paper provides an environment in which any Youth Labour Market Guarantee package must function. It covers the Government Vision statement, the latest Department of Labour 2005 statement The Labour Market and Employment Strategy – Better Work Working, and discussion on measuring the labour market with particular attention to the youth transition.
 

The Government Vision Statement
 

In Growing An Innovative New Zealand (2002) (and subsequently in Sustainable Development for New Zealand: Program for Action (2003)) the government set out its vision for New Zealand as follows:
 

A New Zealand Vision
            • A land where diversity is valued and reflected in our national identity
            • A great place to live, learn, work and do business
            • A birthplace of world-changing people and ideas
            • A place where people invest in the future
 

We look forward to a future in which New Zealanders:
            • Celebrate those who succeed in all walks of life and encourage those who fail to try again.
            • Are full of optimism and confidence about ourselves our country, our culture, and our place in the world, and our ability to succeed.
            • Are a nation that gains strength from its foundation in the Treaty of Waitangi and in which we work in harmony to achieve our separate and collective goals.
            • Are excellent at responding to global opportunities and creating competitive advantage.
            • Are rich in well-founded and well-run companies and enterprises characterised by a common sense of purpose and achievement. They are global in outlook, competitive and growing in value.
            • Derive considerable value from our natural advantages in terms of resources, climate, human capital, infrastructure and sense of community.
            • Cherish our natural environment, are committed to protecting it for future generations and eager to share our achievements in that respect with others.
            • Know our individual success contributes to stronger families and communities and that all of us have fair access to education, housing, health care, and fulfilling employment.
 

In principle this vision should provided a context for all the government’s policies, although perhaps not all government agencies yet take it into account as rigorously as they should.
 

In order to be adopted, any Youth Labour Market Guarantee Strategy must take the Government Vision Statement into account. Fortunately the perspective of the Statement is sufficiently visionary to easily accommodate a policy concerned with the transition of youths from schooling to full adulthood. Indeed, without such a policy the vision will be incompletely fulfilled.
 

The Growth and Innovation Framework (GIF)
 

Growing an Innovative New Zealand (2002) also expounded a Growth and Innovative Framework summarised by the eight points listed below. They are presented here in a slightly different order, to separate out those components of the framework which are primarily about how the economy and economic growth is to be managed, with those parts which are more about the economic outcomes are to impact on people.
 

How the Economy Is To Be Managed
            • A stable macroeconomic framework.
            • An open and competitive microeconomy.
            • A highly skilled population.
            • Sound environmental management.
            • A globally connected economy.
            • A solid research, development and innovation framework.
 

How the Economy is To Impact on Society
            • A modern cohesive society.
            • A healthy population.
            • A highly skilled population.
 

One element ‘a highly skilled population’ has been included in both groupings because it is a key element of the growth, and also because it has considerable impact on the lives of people. It is also central to any Youth Labour Market Guarantee.
 

It is central to economic development, because without a highly skilled workforce, New Zealand industries and workers will be only involved in those production processes which compete internationally with low skilled workers and therefore which can reward only with low pay rates. While such a strategy has little intrinsic merit, it would also mean the out-migration of New Zealanders to countries with higher wages, which would immiserate the economy further.
 

But a skilled population (note not just ‘workers’) also reflects a social outcome consistent with the Government’s Vision. A country which was exceptionally well endowed with some valuable natural resource might be affluent without a highly skilled population (needing some skilled workers, but not all the population). But it would not conform to the Vision.
 

Upskilling occurs throughout an adult’s life, informally in the workplace and home, formally in educational situations. However the most important formal upskilling occurs in the late teen age and early twenties years. This is evident from a cohort comparison shown in the following table:
 

Percentage by Cohort by Highest Qualification



















Cohort: Years Born 1981/85 1981/85 1976/80 1976/80
Census 1996 2001 1996 2001
Age Range 15-19 20-24 20-24 25-29
None 34.4 15.1 20.1 15.8
School Only 60.4 48.4 50.4 41.9
Basic Vocational 3.1 8.3 6.4 6.4
Skilled Vocational 1.1 3.3 6.0 5.8
Intermediate Vocational .2 3.6 1.1 2.9
Advanced Vocational .7 5.3 6.5 8.0
Bachelor .1 11.8 9.5 14.5
Higher Degree .0 2.2 1.9 4.7
TOTAL 100.0 100.0 100.0 100.0
School or None 94.8 63.5 70.6 57.7
Lower Vocational 4.2 11.6 12.4 12.2
Upper Vocational .9 8.9 7.6 10.9
Degree .1 14.0 11.4 19.2
TOTAL 100.0 100.0 100.0 100.0

Source: 1996, 2001 Population Census
 

Unfortunately the data is in five year cohorts but it may be reasonably interpreted that at the age of 17 very few of those born in the early 1980s had any tertiary qualification. Five years on, now in there mid-twenties, a third of them had.
 

Projecting forward using an earlier cohort,[1] and adding the considerable effort since 2001 that has gone into extending tertiary education to a wider section of the community, we must be getting to the stage were almost half of the cohort has some tertiary qualification by the their late-twenties. A few more will get their first tertiary qualification after 30 (and many more will obtain additional and upgraded ones). But the big gains – from zero to half – are in the late teens and early to mid twenties.
 

There are two consequences:
 

First, if New Zealand is to have a ‘highly skilled’ population then the youth transition is crucial (although of course the foundations for this transition are built in the home and the school).
 

Second, a large proportion of the emerging adult population are not ‘highly skilled’. It would be the fallacy of credentialism to say that figure was near a half, since many people have skills without a credential, typically gained from work and life experiences. (Also, sadly, some of the reported credentials are of little value.)
 

In summary, the vison of a ‘highly skilled population’ has yet to be attained. To do so will involve even more effort in the youth transition.
 

The Labour Market and Employment Strategy
 

The Department of Labour’s http://dol.govt.nz/PDFs/better-work.pdf>The Labour Market and Employment Strategy – Better Work Working Better (2005) is a lower level statement of policy principles, providing greater detail but founded on the vision statement and GIF.
 

Its principles apply to all workers and not just those in the youth transition. But they set out a picture of the sort of work experience that New Zealand aims to give all workers, thereby raising the issue that if those are the sort of workplaces that youth are meant to experience, what sort of path in the transition from school to them is necessary.
 

Youth in the Labour Market
 

An important conventional measure of the state of the Labour Market is the unemployment rate which is the proportion of the labour force who are without work. The labour force is internationally defined as those working at least 1 hour per week plus those who without work are actively seeking work (it this group who are the unemployed). On this measure young people experience much higher employment rates than older workers.
 

We should always be cautious proposing non-standard definitions (although always willing to challenge the standard ones in order to understand them better). But in the case of the youth unemployment rate, the statistic can be very misleading.
 

Consider a group of 100 teenagers, 98 of whom are doing courses in tertiary organisations, 1 of whom is in work, and 1 of whom is unemployed (without work but actively seeking work). The unemployment rate on the standard measure is 50 percent. Consider another group of 100, 98 with jobs and 2 unemployed. Its unemployment rate is 2 percent. Despite the second group’s unemployment rate being markedly better than the first, it is hard to argue that the second group is in a better state.
 

The dissonance arises because those in educational institutions are treated as not being in the workforce, perhaps reflecting the time when young people moved directly from school into the labour force. This story is further complicated because there are those in the workforce who are in training, such as apprentices, and there are those who are doing full-time and part-time courses who are also employed for more than 1 hour a week, while if those students without a job actively looking for work are also classified as in the labour force (and as unemployed).
 

In order to avoid the statistical paradoxes, we can treat those young people doing educational and vocational training courses as if they are in the labour force. This will reduce their unemployment rate (the ratio of those unemployed to those in the labour force) because:
            – students studying in formal courses and looking for work are treated the same as others with work but looking for jobs, thus reducing the numerator of the ratio;
            – students doing courses will be treated the same as those with jobs, thus increasing its denominator.
 

Similarly, the change in definition will increase the participation rate (the ratio of those in the labour force relative to the total age group) because
            – students studying in formal courses are treated the same as those with jobs, thus increasing the numerator of the ratio;
            – without changing the denominator of the age group total.
 

The point of this exercise is not to claim that unemployment is lower or participation is higher. It is to get a better comparisons across age groups, one which acknowledges the particular circumstances of the young.
 

Unfortunately the data to do such comparisons has only been collected since June 2004. Moreover the published data is only available on an total basis and not by age groups. The age group figures in the table below are estimated. Nevertheless they illustrate that the size of youth unemployment can be exaggerated.
 

Labour Market: Year ended June 2005.







Age Group Standard
Unemployment
Rate		 Adjusted*
Unemployment
Rate		 Standard
Participation
Rate		 Adjusted*
Participation
Rate
15-19 years 14.2% 5.5% 53.5% 77.9%
20-24 years 7.7% 5.6% 72.5% 80.8%
25-64 years 2.6% 2.5% 68.6% 68.9%
WAP 3.9% 3.1% 67.5% 70.5%

Source: Household Labour Force Statistics.
* Treating Study as Work.
(WAP = Working Age Population)
 

The adjustment by treating study as work halves the late-teenage unemployment rate from 3.6 times the national average to 1.8 times. At the same time the late-teenage participation rate is above the national average if study is included, instead of being markedly below it.
 

This does not reduce the importance of the Youth Labour Market Guarantee. There are still over 12,000 teenagers (and another 12,000 in their early twenties) who are unemployed, and probably making are poor transition to to adulthood. There are others, maybe almost as many, who are so discouraged that they are not seeking work but would take it up, were it available.[2] And as previous sections have pointed out, many young people have jobs, but are not obtaining sufficient skills for long run employment success.
 

Endnotes
[1] Comparing the two middle columns the younger cohort is generally better trained than the older cohort. The one exception is that the proportion of ‘skilled vocational’ is much lower, reflecting the collapse of apprenticeship training in the 1990s.
[2] Those ‘jobless’, which includes others who are not sufficiently vigorously seeking work to qualify as unemployed, is just under double the unemployed for the population as a whole.
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Development & Transformation

This entry was posted in Growth & Innovation, History of Ideas, Methodology, Philosophy, Listener on by .

Great development economists remind us that we can oversimplify.
Listener: 22 April, 2006.

Keywords: Growth & Innovation; History of Ideas, Methodology & Philosophy;

West Indian Arthur Lewis (1915-91) shared the 1979 Nobel Memorial Prize in Economic Sciences for his work in development economics. His “Lewis” model divided the economy into two sectors – (subsistence) farming and (capitalist) manufacturing. Labour shifting from the first to the second presents a very powerful growth process. I am using his model in my Marsden study on the globalisation of nations (particularly to explain Chinese economic growth). He was also an early advocate of the importance of infrastructure and education in development – views that are today’s conventional wisdom.

Famously, Lewis described economic development as turning a “five percent [of income] saver into a 15 percent saver”. If a country is a low net saver, it has only enough to replace worn-out capital and meet the needs of a growing population. More savings can be invested in more capital per worker, generating higher productivity.

Although he was never awarded the Nobel Prize, German-Jewish refugee Hans Singer (1911-2006), who died last month, made parallel contributions. With Raoul Prebisch (1901-86), he is best known for the thesis that there has been a long-running tendency for food export prices to fall relative to manufacturing prices. My study found this true in the 20th century, but suggests that it may not be true in the 21st.

I most recall Singer, a kindly, courteous man, for his insight that development was turning an 80 percent farmer into a 15 percent farmer. As economic development progresses, the economy’s proportion of farmers diminishes as the manufacturing and service sectors expand. However, and in this respect Singer differed from some of his contemporaries, it is not just a matter of promoting the manufacturing sector. Raising farm productivity is crucial, for the fewer farmers still have to feed everyone.

Both economists were primarily concerned with poor economies, but they also offer critical lessons for rich countries. Economic development is not just about there being more of everything. It is also about the changing balance among sectors.

It is a lesson easily overlooked. There are good political reasons to do so. No sector nor business wants to be told that it is going to grow slower than average. But the lesson’s logic is that, despite the hardship to those involved, some businesses are going to be closed down because their products can be better sourced offshore, with the released resources shifted to where they will be more productive.

Treating the economy as merely GDP can be dangerous. An economy’s output can be thought of as a basket of produced goods and services. It is not just a matter of the basket getting bigger; the composition of the basket also changes. A basket with a fixed composition of product is equivalent to a single-commodity economy.

English economist Joan Robinson (1903-83), who missed out on the Nobel Prize because of politics, although thrice worthy of it, invented the notion of “leets” (the reverse of steel), a general sort of product that can do everything. You eat them, wear them, live in them, travel in them and even use them for health and entertainment. We treat GDP as if it is a basket of leets. Although a single-commodity economy is not very plausible, you would be surprised how often the economy is treated as if it produced only leets. Important economic issues get lost.

For instance, insofar as the Singer-Prebisch thesis is true, it explains many of the difficulties that we, and other rich food producers, have faced. But the argument is unintelligible if we treat both food and manufactures as leets. Another example is that too much of our monetary policy thinking has been based on leets, so that one price index (the consumer-price index) is used to summarise all the complexities of the inflationary process. That leads to ignoring the exchange rate, which, in a single-commodity theory, is unintelligible. What is the point of exporting and importing the same leets? Hence the reluctance of leets-driven economists to think about the external sector.

In order to attain some rigour, we have to simplify. But as British-Hungarian economist Tommy Balogh (1905-85) said, “Rigour can go to the point of rigor mortis.” The great economists of the past were rigorous, but they never forgot the complexity of economies.

‘irrationality’ and Measuring the Social Costs Of Substance Abuse

This entry was posted in Health on by .

A note prepared for the International Working Party on Substance Abuse.

Keywords: Health;

Introduction

While considerable progress has been made on measuring the social costs of substance abuse, the question of how to deal with the ‘irrationality’ of consumers has not yet been resolved.

The incorporation of irrationality into actual behaviour does not come easily to economic theory, which traditionally has assumed that consumers are always rational. In recent years however, there as been a characterisation of consumer behaviour which involves time- inconsistency in their decision making.

This paper explores the implications of this characterisation for the measurement of the social costs of substance abuse, and thereby suggests a resolution to the problem of the extent to which the costs incurred by the substance abuser to her or himself should be included in aggregate social costs. The proposed resolution involves an analytical framework, together with the use of an empirical parameter, the estimation of which is hardly discussed here.

Rationality in Consumption – the Standard Account

There is a standard account in economics of how consumers make decisions which involve effects through time. At a very simple level it goes like this.

Each consumer faces a choice between two streams of net benefits reflecting different two different options. In one option the stream might be
b0, b1, b2, b3, …. bi …,

Where bi is the net benefit (benefits less costs) in the ith period.
and the other might be
c0, c1, c2, c3, … ci ….

Note the some of the elements may be negative, that is in a particular time period the costs may exceed the benefits.

In order tho choose between the options the consumer calculates
(1) B = Σbi/d^i
and
(2) C = Σci/d^i
Where
– in each case i is summed from 0 to infinity.
– d is a discount rate (often characterised by 1+r) which reduces the value of future costs and benefits in proportion to the time they are away from the present. Notice that 1/d<1, so the consumer is likely to give little weight to the effects in ten years time, and even less to those in twenty years time.

The rational consumer in the theory then choses the option (either b or c) based on which of B or C is the larger.

It would be foolish to assume that individuals are as calculating as this. However, the basic notion of their taking into considerations of all the costs and benefits to them, but giving less (in a systematic way) weight to costs further in the future seems to be a reasonable characterisation of most people’s behaviour most of the time.

This behaviour is usually called ‘economically rational’.

Irrationality and Time-Inconsistency

In order to give an intuition of the phenomenon being discussed, consider a three period situation where in the first period the individual plans their consumption of alcohol in the second period, and potentially suffers a consequence, say a hangover, in the third. Suppose in the first period, the individual decides that they will confine themselves to, say, three glasses in the second period, thus avoiding a hangover in the third period. However, very often the actual consumption is, say, six glasses and the individual suffers a roaring hangover, laced with the regret that if only they had kept to their first period drinking to plan.

Economists label this ‘time- inconsistency’ which can be defined as situations where, with the passing of time, policies that were determined to be optimal (yesterday) are no longer perceived to be optimal (today). That applies between the first and second period of our example.

Because such terms as ‘rationality’ and ‘irrationality’ and ‘addiction’ are used rather loosely, while there are technical terms like ‘rational addiction’, it is proposed to hereafter call this behaviour ‘time- inconsistency’ and leave others to decide whether it si rational or irrational, or addictive.

This time- inconsistency can be modelled with ‘hyperbolic discounting’ proposed by David Laibson (1997). A simpler algebraic presentation will do for our purposes.

Suppose the net benefit in one course of action, say the restrained drinking, in each of the three periods is b0, b1, b2 (as judged by the consumer), and the other course, the greater imbibing, is c0, c1, c2. Since in our example b0 and c0, incurred while they are planning ,are the same, they may be taken as zero. The second period net benefits (including the offset for the financing of the drinking) b1 and c1 are both positive with c1 the greater because consumption is higher. We assumed that b2 was also zero, there being no hangover or other subsequent costs from the restrained drinking of the earlier period. However c2 is negative.

So the decision-maker faces two streams: cautious drinking (0, b1, 0) and higher imbibing (0, c1, -c2). In the first period the decision-maker does the standard discounting. of the flows and calculates the net benefit of the first option is b1/d and c1/d-c2/d2. (Where, we use, for simplicity ‘d ‘as the discount factor). Since the individual plans the more restrained option we know

(3) b1/d > c1/d – c2/d2
or
(4)b1 > c1 – c2/d.

In the second period the decision-maker faces (b1, 0) and (c1, -c2) which gives exactly the same decision. If b1 > c1 – c2/d, then the choice will remain the restrained consumption. There is time- consistency: the policy chosen in period 1 remains the policy chosen in period 2.

However, sometimes the individual chooses the high consumption option.

So we have to modify the analysis. Perhaps the simplest form of the hyperbolic discounting involves an adaption of the standard discounting rule from
(5 – ie.e (1)) maximise Σbi/d
to
(6) maximise b0 + βΣbi/d.

where β <1. (Were β=1, it would be the time- consistent formula again.)

What is happening is that when making the decision the individual devalues future costs and benefits relative to those in the decision period (above that of standard time- discounting). The smaller the β the less notice is taken of the future consequences of a current decision.

Apply this to the simple example we looked at earlier.

From the first period perspective equation 1 becomes
(7) βb1/d > βc1/d – βc2/d2
which remains as for equation 4..
(8) b1 > c1 – c2/d.
So exactly the same decision is made as in the time- consistent case.

In the next period the sequence (b1, 0) is valued as b1, but the sequence (c1, -c2) is valued as c1 – βc2/d, which is larger than c1 – c2/d.

The decision inequality is no longer (8), but b1 against c1 – βc2/d so that now it is possible (say β = 0) that
(7*) b1 < c1 – βc2/d.
so the consumer would abandon the restrained drinking option, and imbibe more generously. Thus the consumer exhibits time- inconsistency.

This analysis is being applied in many areas of consumer behaviour, including the case for higher sales taxes where such behaviour occurs, demonstrating they may generate a gain in consumer welfare. (O’Donoghue & Rabin, 2003) However, as far as is known, nobody has yet considered its relevance to estimating the social costs of substance abuse.

The Social Costs of Substance Abuse When there is Time-Inconsistent Behaviour

When the social costs of substance abuse is being estimated, one of two options are typically preferred in regard to the costs imposed by the consumption on the consumer. The first is that any costs that a substance abuser causes to her or himself is included in their rational calculation during the consumption decision, and therefore should not be included in social costs since it is offset by the benefit the consumer gets from the consumption. The best known proponent of this view is Gary Becker. (His 1988 paper with K. Murphy defends this view based on rationality but introduces the notion of rational addiction).

The alternative approach has to be to include all the costs incurred by the substance abuser after the consumption (that is excluding the purchase price).

Which is the more correct?

Suppose there is the time- inconsistent behaviour and the consumer takes into consideration only β of the future costs to her or himself. They ignore (1-β) of those costs in their calculations.

This suggests that this (1-β) of the costs should be included in the social costs of substance abuse, because just like the costs to other people, to businesses and to the public sector they are ignored when the consumption decision is made and are not offset by any benefits that the consumer gains from the use.

We can see that those who are arguing that none of the costs which a consumer imposed upon themselves should be included in net social cost, are assuming that β = 1 and there is no time-inconsistency. Conversely, those who argue that all of the costs should be included are arguing that β=0, and there is total time-inconsistent behaviour.

Thus what appears to a be a theoretical dispute proves to be an empirical one, the size of β.

Applying the Consequences of Time-Inconsistent Behaviour to Social Cost Estimates

In the following I am going to assume that the economist’s description of addiction is acceptable to sufficient specialists in the addiction field. Behavioural economics is based on economists’ understanding of the psychological literature. Even so, I have not seen a lot of non-economics expertise supporting it.

In some respects the above resolves a theoretical dispute by showing it is an empirical dispute by proposing to bell the cat. The tough job still has to be done. What are the β?

Note that we are considering only the application of the β to the personal costs to the substance abuser (including sickness and death as well as financial layouts). The costs to others, to businesses and to the government are to be treated exactly as they are recommended in such guideline as Single et al (2000) and Collins et al (2005)

In the current state of knowledge, the best we might get to a guidelines. The following is intended to be indicative – a basis for discussion. Empirical evidence to support some conclusions needs to be scouted out. The last section discusses how to deal with development of addiction.

Narcotics

Perhaps it will be recommended that β = 1 for narcotics, that is the abuser completely discounts the costs incurred. This is an extreme assumption. One could imagine a mild abuser whom we would not call an addict, making calculated assessments of the effects of their consumption including subsequent harm. However since such harm is likely to be small, β is probably very close to unity.

Alcohol

Many people consume alcohol with their β equal to or near equal to unity. But they probably dont cause a lot of damage to themselves. (How much?) What we need is an estimate of the βs for those who consumption leads to significant damage to themselves. It would be easy to assume that for them β = 0, that is they completely ignore subsequent costs when they are drinking. That may be true for some, but is probably not true for everyone (as when one takes just one more than is ‘good’ for one). Note too the relevant β is not the average for addicted drinkers but the average weighted by the self-damage they cause which is likely to be nearer to zero. Probably the required β is very low, but how low?

We need a panel of experts to make an assessment. What empirical evidence might help them?

Tobacco

Unlike alcohol, all smoking of tobacco is self damaging, although because of the damage to the heart (and perhaps for other medical conditions) the damage on average depends upon the age of the smoker.

We also have got past the stage that smokers can claim ignorance of the consequences of their smoking. There may be some – perhaps the very young – and there may be some dangers of which we are not yet aware. But the anti-tobacco/public health campaigns have sufficient effect that the message that smoking is damaging to one’s health is broadly understood by the vast majority of smokers.

More problematic is that much of the damage is some distance in time off. An ordinary discount rate may reduce the significance of the damage to a rational addict so they continue to smoke. We probably need to think more carefully about how this impacts on the social cost measurement. It may differ between the two standard counterfactuals which lead to either avoidable costs or total cost calculations.

But even ignoring this time dimension, there remains the problem of assessing an appropriate β.

When surveyed many, but not all, smokers regret they smoke, saying they would like to give it up. Presumably those smokers have lower βs than unity (although not necessarily zero). But what about those who say they have no regrets? Are their βs unity or are they showing bravado?

And how do we deal with the young? If the costs are low (as on their hearts) or a long way away they might smoke with a β of unity, even though later they incur considerable costs (say cancers precipitated years earlier). The next section discusses a further complication.

It is not evident from this that the relevant aggregate β is close to zero. Again we need a panel of experts to make an assessment. What empirical evidence might help them?

Consuming which Generates Addiction

Currently most behavioural economics assumes the β is given for each individual.

But practically we know of people who start off as non-addicts (β=1) and become addicts (β<1, even 0). It is not hard to envisage that the value of β depends upon past consumption either in terms of aggregates of some nonlinear function where intensity (consumption per unit time) is important.

For instance young people who have never smoked are not addicted to tobacco. As they smoke (presumably discounting the low likelihood of heart disease and the distant likelihood of cancer) many become addicted, their β falling below unity. How do we incorporate that behaviour into the personal costs they generate? Obviously we need to model the phenomenon more precisely than these paragraphs (and the modelling may lead to insights of how to better deal with the young’s pre-addictive behaviour).

And then there will be the task of incorporating the insights into these models, no doubt with some empirical evidence to guide us on the parameters.

Conclusion

Science generally develops by incremental steps. This paper has clarified the dispute between those who want to incorporate all personal costs from substance abuse into social costs estimates and those who argue that none should be included. It has shown that the true response depends on a parameter β which lies between zero and unity which reflect the two extremes of the dispute (and perhaps on some other parameters). However despite the progress, there is much theortical and empirical work to be done.

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Global First

This entry was posted in Globalisation & Trade, Growth & Innovation, Listener on by .

Can We Transform Auckland From A Gateway City to A Global One?

Listener: 8 April, 2006.

Keywords: Globalisation & Trade; Growth & Innovation;

Many cities are gateways, connecting a country or region to the rest of the world. Some are “government” cities, capitals of region or country. But some are global cities, where key global industries boost their size and vibrancy far above their dependence on gateway or government activities.

Most obviously, they are headquarters cities, with the central offices of businesses that sprawl all over the country and world. Headquarters require finance, law, accountancy and other business services that cluster around them. Their workers’ need for leisure means a global city is typically a cultural centre – art, fashion, publishing, restaurants and theatre. Typically, too, it is a centre of specialised medicine and education, made possible by the size and the economic activity that a global city generates. Its size and specialist services may even generate other industries, which could not survive anywhere else in the country.

So will Auckland be a gateway city or a global city? Will it just be the port and service centre for a resource-based economy? Or will it take on the vigour of a global city contributing to a richer, more dynamic, more diversified New Zealand?

The answer is not obvious. As global cities go, Auckland’s population is on the low side, although if the rest of the country works with it, it is probably above the critical threshold. Auckland has governance problems, with far too much conflict between its various local authorities – although recently they have become more co-operative. And it has serious infrastructural problems with water, waste water, energy security, and – most of all – transport congestion. Because the central government is their primary funder, that requires a national commitment.

But should the rest of the country worry? After all, Auckland is an adequate gateway city, with our two biggest international ports, Ports of Auckland and Auckland International Airport, while Warkworth is the primary telecommunications link. If Auckland fails, we can use the Port of Tauranga, Christ-church International Airport and so on.

But do we want New Zealand to be just a resource-based economy? Are we not more ambitious?

A global-city Auckland will make advanced economic activity possible elsewhere in New Zealand. It should be our biotechnology centre – it is near the critical mass already – enabling other biotech businesses to thrive elsewhere in New Zealand. They could not if the nearest centre was in Australia. That may also be true for other industries like fashion and publishing. Workers based in other urban centres or even quiet rural locations will be able to connect electronically to Auckland-based businesses, with only the occasional visit to the Big Kiwifruit to see them.

Business is not the only activity that those outside Auckland will benefit from. Size means that Auckland can provide specialist medical services that would otherwise be available only overseas. It is not accidental that our highest internationally ranked university is based in Auckland. It offers opportunities not available elsewhere in New Zealand and pressures our other universities to perform up there, too. Nor is it an accident that big international conferences like CHOGM and APEC were hosted in Auckland.

So do we want the headquarters of our businesses to be based overseas? Oh, I know many are subsidiaries, but they tell their head offices that things are different here, for they are more responsive to the New Zealand way of life than those offshore can be. Do we really want – as once happened to me – an Auckland answerphone responding by advising its Sydney telephone number?

Some friends recently announced that their son was coming back home. Well, not to his home town. There are no high-finance jobs there. But Auckland is much closer than London. The choice may be regularly visiting one’s children and grandchildren in Auckland, or the occasional overseas trip.

If Auckland is New Zealand’s first global city, will there be a second? Which will it be? I can’t tell, because we do not know enough about the interaction between urban centres and globalisation. What is certain, though, is that if Auckland is not our first global city, there won’t be a second.

Build a Nation

This entry was posted in Political Economy & History on by .

The following was a contribution to the New Zealand Management cover story, “Big Ideas”, of the March 2006 edition. p.30.

Keywords: Political Economy & History;

New Zealand is beset by colonial cringe: we cant do it ourselves and those overseas are better at it. We are followers of the latest fashion, obsequious to third rate foreigners, promoting them and their lack lustre domestic disciples at the expense of quality New Zealand work.

Of course we should follow what is going on elsewhere – confidence in oneself need no mean chauvinism – but the challenge with it is to engage with it rather than slavishly imitate it. What was most wrong in the 1980s’ economic policy (which stagnated the economy for six years, knocking us out of the middle of the OECD, on the GDP per capita measure, down into its lower half), was that we adopted unproven policies fashionable among certain right wing elements in the US, which may not have worked there, and certainly did not work in the very different local conditions here.

Meanwhile we ignored the rest of the US debate, and the more relevant experience of many other countries. We are still doing it. The colonial cringe, following fashion, is the easy path. Keynes, had he been writing in New Zealand, would have talked of practical men and women being slaves of defunct overseas intellectuals.

Thinking for ourselves, adapting the relevant from overseas, implementing it creatively at home, is the tougher course. But without such a commitment, New Zealand will become an increasingly poor offshore neo-colony – as almost happened in the 1990s. We can do better, but first we have to have the confidence in ourselves that we can.

“Brian Easton is an economic commentator and author of The Nationbuilders”, he is currently writing The Globalisation of Nations, with a grant from the Marsden Fund.”

Undermining Governance

This entry was posted in Governance, Listener on by .

Small countries like New Zealand have a comparative advantage in good government.

Listener: 25 March, 2006.

Keywords: Governance;

At the end of the 1970s, we had to decide whether to have a high or low dam on the Clutha River. The Labour Opposition took a firm position. On the same day, its environment spokesperson said the party favoured the low dam, while the energy spokesperson said the party’s policy was for the high one. Mike Moore impishly explained that the plan was to make the dam high on one side and low on the other.

That’s the advantage of being in Opposition. You don’t have to have a coherent policy. Even today, one spokesperson announces that there should be more government spending, another that there should be spending cuts; one that there is too much regulation, another that we need more controls. The impression is of an Opposition that is bereft of discipline, and lacking policy.

The way of covering the policy deficit is an unremitting string of personality attacks, often based on thin allegations, punctuated by feeble calls of “resign”, no matter how distant the Cabinet minister was from the alleged problem. It is surely enough to make a decent person shun a career in Parliament. Fortunately, however, some excellent people were elected to Parliament last year.

This may seem to have little to do with the economy, but in recent years there has been a growing realisation that good governance is crucial for economic success. The parliamentary Opposition attacks have done little to improve its quality – they seem to think there is nothing wrong except they could do a better job. But the personality attacks, from all sides of the House, are undermining the nation’s faith in our governing institutions, while disguising that the critics have no policies – except “tax cuts” (that is for another column). Just what is accomplished in governance terms by hounding a minister to resignation for alleged long-past personal indiscretions?

Because of their greater homogeneity and socially intimacy, small countries, above a minimum size, tend to have better governments than large ones. Things get done efficiently without corruption; there are fewer pressure groups, so problem resolution is easier. The economy benefits. However, the system needs to tolerate diversity, in order to reduce the oppressiveness of the majoritarian state. Toleration liberates economic innovation, too.

Decentralisation is also vital. In The Size of Nations, Alberto Alesina and Enrico Spolaore argue that the one exception of a large state with poor governance is the US, because it is so decentralised that in a sense it is 50 economies. Others argue that the US is not well governed – the economy performs well because of its resource base and the vigour of its people.

A good decentralisation mechanism is the market, which allows price signals to co-ordinate individual decisions. It is not perfect, but in many areas it is the best we have. In others, it is as good as any alternative.

Small countries probably deliver their public spending better than large countries, which means they may spend relatively more. In effect, small countries have a comparative advantage in public spending and good governance.

What about economies of scale – the tendency in some industries and activities for unit costs to fall as production runs get bigger? They rule out small economies producing everything. Instead, they have to specialise, exporting what they can do well and importing what they cannot. The specialisation need not be solely on comparative advantage principles – such as where pastoral products are exchanged for machinery. The competitive advantage of intra-industry trade can mean that we will sometimes export and import similar things: pharmaceuticals to Europe and pharmaceuticals from Europe; IT to the US and IT from the US; films to Hollywood, films from Hollywood. This requires innovation, technical sophistication, high labour skills, design, branding and servicing customer needs. Many small countries meet the challenge. We are going to have to, too.

We rightly fear foot and mouth disease for the damage it can do to our economy. But perhaps the foot-in-mouth disease that bedevils Parliament is a greater threat. Wouldn’t it be awful if an Opposition were to become the government – bereft of policy – and discover that because of their unthinking attacks they have seriously damaged the quality of the governance they were taking over?

Health Status and Income Inequality

This entry was posted in Distributional Economics, Health on by .

This version was revised in March 2006.

Keywords: Distributional Economics; Health;

Introduction and Summary

This paper brings together some recent research about the relationship between health status and income inequality. It focuses upon a set of propositions which challenge the conventional wisdom. They are:

1. That in a rich country poverty – low material standard of living – probably does not directly impact on health, but does indirectly through stress which income differences generate.

2. The increase in household inequality in the period of the late 1980s and early 1990s was more due to changes in tax, benefit, and government spending policies than it was due to market liberalisation. However, the market liberalisation increased stress on New Zealanders.

3. There is some evidence that income inequality may be increasing, due to factors such as globalisation and technological change.

4. The most common poor New Zealand household is a couple with children who are of Pakeha ethnicity, who own their home (usually with a mortgage), and who depend upon wages for their main income. There are other groups who have higher incidence of poverty, but because they are smaller they do not involve as many people. This means that effective poverty eradication involves working on a broad front rather than targeting minority groups.

5. Illness does not correlate well with income, unless age is controlled for. The sick in New Zealand are the elderly, although the paper goes on to argue that policies aiming to reduce poor health in the long term need to target those with low incomes and low in the socioeconomic status hierarchy.

Does Poverty Affect Health?

Much of the international research on the social determinants of poor health in rich countries focusses on the effect of socioeconomic status (SES) – a composite of such things as occupation, education and housing conditions.

However there is not a lot of SES data readily available in New Zealand, so that often household disposable income adjusted for household composition (‘equivalised’) is sometimes used as a proxy, but also because it can be directly influenced by policy instruments. The two variables need not correlate well, for household income varies both in the short term and over the life cycle, while SES is largely for an adult’s life. Life time income would be a better indicator of SES than current annual income, but we do not have much data on that either.

What the international research shows is that there is an ‘SES gradient’, in which those with low SES experience higher morbidity from respiratory and cardiovascular diseases, ulcers, rheumatoid disorders, psychiatric diseases, dementia, a number of cancers, and so on. Often those at the bottom of the SES scale have life expectancies five to ten years shorter than those at the top of the scale (Wilkinson 2000).

Part, but not all, of the differences can be explained by differences in access to health care and by ‘unhealthy life styles’ such as the consumption of tobacco and excess alcohol, lack of exercise and obesity (all of which might be addressed by conventional health care and health promotion policies). Even so, there remains a significant residual which cannot be so readily explained.

The search for alternative explanations has paid much attention to socio-environmental explanations, perhaps intermediated through economic and psychological channels. However, in rich countries there is not a lot of evidence that income has a direct effect on health, even though – as we shall see – the poor tend to be sicker. Unlike those in much poorer countries, the affluent nation’s poor would appear to have sufficient to purchase healthy food, adequate clothing, reasonable housing and so on. (Sapolsky 2004, 2005)

For instance, today’s sickness benefit for a married couple is about 5 percent more in value, after adjusting for consumer price rises, than it was fifty years ago (and the beneficiary is likely to be entitled to more supplements). Yet there are foodbanks today, while there were none in 1956. (We do not know about the homeless, since they were not well monitored then.) The simplest explanation is that real wages (i.e. adjusted for price changes) have risen about 55 percent more in the period. In principle we need to make a host of other adjustments such as for households now earning two wagees but paying higher rates of taxation, but the basic conclusion is that the beneficiaries are relatively poorer and find it more difficult to cope.

This is not to argue that had they more income, they could not improve their consumption for a healthy life style, or that they spend their income wisely. (The same is largely true for those with greater affluence). At issue is that by itself it would appear that income is not a determinant of health, although it is a correlate. Once the minimal resources are available to sustain a basic level of health, absolute levels of income seem unimportant in determining health.

In recent years it has been proposed that the intermediating channel is stress. There is a substantial biomedical literature which has established that individuals are more at risk from stress-sensitive diseases – which include many of those listed above that were associated with the SES gradient – if they
(i) feel they have minimal control over stressors;
(ii) feel that they have no predictive information and intensity of the stress;
(iii) have fewer outlets for the frustration caused by the stressor;
(iv) interpret the stressor as evidence of circumstances worsening; and
(v) lack social support for the duress caused by the stressors. (Sapolsky 2004, 2005)

While there has been less research to test the hypothesis, it is plausible that the poor are subject to greater disease-inducing stress than those further up the income scale. This is not to argue that others do not suffer stress: but that they have better opportunities to cope with it (in terms of the previous paragraph) than the poor.

An intriguing insight is that while the objective state of being poor appears to adversely affect health, the subjective state of feeling poor seems even more important. (Adler 2003) In which case, the notion of relative poverty levels becomes very relevant. Many of the stresses – such as those of inferiority feelings because of low spending power – do not go away just because of a general rise in income. Thus the downside of low income in a rich country involves different mechanisms to that in a poor country. The notion of an absolute poverty line is no longer relevant, while relative poverty is.

It is possible that the observed connection between income inequality and poor health is a stress caused-effect. (Kawachi & Kennedy 2002) The most probable channel is that the lower in the social pecking order, the more likely that it causes stress.

However the stress hypothesis is not confined to a channel to sickness only through household disposable income. Other economic phenomenon cause health damaging stress. The best studied is unemployment where it is clear that psychological and financial stress puts at risk the unemployed and her or his partner. More generally, early life experiences, social exclusion, work and social support as well as unemployment have all been identified as sources of health damaging stress. (Wilkinson & Marmot 1998)

Changes in the New Zealand Income Distribution: 1980s to mid 1990s.

New Zealand household income inequality increased sharply in the late 1980s and early 1990s. Table 1 shows that the shares of the bottom four quintiles of (equivalised) household disposable income fell between 1987 and 1997, with the top quintile gaining the 3.3 percentage points the remaining 80 percent lost.

Table 1: Shares of Household Equivalised Disposable Income by Household Quintile

Year
(Sep or Dec)		 Bottom
Quintile		 4th Q Middle 2nd Q Top
Quintile		 Income
($2004)
1987 10.3 13.7 18.3 24.3 33.3 23,500
1988 10.2 13.5 17.7 24.0 34.7 23,300
1989 10.0 13.2 17.6 23.6 35.6 23,300
1990 9.9 12.6 17.7 24.1 35.7 22,700
1991 9.7 12.3 17.3 24.2 36.5 21,500
1992 9.5 12.2 16.0 24.2 37.3 21,600
1993 9.5 12.4 17.1 24.3 36.7 21,000
1994 9.8 12.3 16.7 24.0 37.1 22,000
1995 9.9 12.6 17.3 23.9 36.3 22,400
1996 9.3 12.1 16.9 24.4 37.3 22,600
1997 9.6 12.1 17.3 23.9 36.6 24,300
… … … … … … …
2000 9.4 12.0 17.2 24.3 37.2 24,600
… … … … … … …
2003 9.1 11.9 17.5 24.7 36.8 25,800

Source: Perry 2005.

On some comparisons the increase in inequality was the greatest in the Western World over the period. (Easton 1996)

Unfortunately in 1997, in a cost saving measure, the New Zealand government replaced the annual household survey from which the income shares were derived by a triennial one, so it is more difficult to discern trends afterwards. However, Table 1 indicates the likelihood that the bottom two deciles continued to lose disposable income share, the middle one made some gains but did not recover back to its 1987 level, while the upper two deciles seems to have had a share increase. If so, inequality continued to increase after the mid 1990s, although the following section argues that it may be due to different causes.

Why did the changes in the late 1980s and early 1990s occur? Aside form the complication of the business cycle, three groups of reasons have been considered:
1. The economic reforms involving sweeping liberalisation of the economy (increased use of the market mechanism) from 1984 to 1993.
2. Changes in tax and benefit (and other welfare policies).
3. Fundamental changes in the structure of the economy arising from technical change and globalisation (the external impact of those forces which are integrating the world economy).

Obviously all the explanations had some effect, but a careful analysis concluded the dominant impact came from policies which cut income taxes on the rich which were paid for by higher income taxes on the poor, cuts in social security benefits and cuts in other government services (Easton 1996, 1999).

This is not to say that the other effects were unimportant. Unemployment peaked at 11.1 percent in March 1992, although the percentage at a point in time can be misleading. In the 57 months between October 1988 and June 1993, 754,312 sought work by enrolling on the New Zealand Employment register. (Department of Labour 1994) To give some idea of this magnitude, those who registered as unemployed in the period represent about 47 percent of the the average size of the labour force over the period, or around 10 percent of the labour force each year when the average rate of unemployment at any point in time was 8.7 percent. This overestimates the likelihood of being unemployed because of inflows (from school leaving, returning to work, and immigration), and underestimates it insofar as not all unemployed registered.

Whatever is the true figure, it would appear that a high proportion of the labour force experienced unemployment in the period. Those who enrol more than once, are counted but once in the above total. In fact over 45 percent were enrolled at least twice, and 2.1 percent more than 5 times. This suggests that at least 21 percent of the labour force experienced repeated unemployment in the 4¾ year period, and 1 percent experienced it on five or more occasions. The average number of enrolments was 1.8 times for non-Maori, and 2.2 times for Maori. The average cumulative duration on the register was 59 weeks – the Maori averaged 69 weeks. The register does not pick up all the labour market churning, but it suggest it was substantial in the period.

However, because the stress was substantial it was more evenly spread than at first one might have expected. Similarly, while the liberalisation resulted in people both suffering and benefiting, there is a tendency to focus on the big losses. For instance, substantial reductions of protection on the clothing industry resulted in job losses, but the price of the now-imported clothing fell for the population as a whole. Did those small but widespread gains offset the large losses to a small set of workers? Or – and perhaps this is the more relevant – in the case of each individual did the myriads of small benefits from the ending of protection in many industries offset the one (or more) big employment losses?

If they did not, was there a particular social group of New Zealanders who were privileged by receiving only the benefits but not the downside. When we look at the available data – inadequate though it may be – we can conclude that those on high incomes benefited not from the change in their market incomes but from the marked reductions in income tax they paid. It turns out that many of the rich also suffered – from a loss of wealth, perhaps following the sharemarket crash, perhaps because they too lost benefits from the protection their investments had enjoyed. Equally, there were those on modest and low incomes who would have been better off from the changes, once the terrible transition of high unemployment had worked its way through, except they found themselves paying higher income taxes, or receiving less benefits from the state.

This account keeps to the conventional distributional approach, which largely ignores any economic growth and looks only at distributional shares. But in the six years from 1987 to 1993 average income per head fell. (See the final column of Table 1.) The distributional impact was such that real income fell for the bottom four household income quintiles, but remained (roughly) constant for the top quintile, because the tax cuts offset the fall in their market income. Falling incomes are a further source of stress (although again there is considerable churning).

Changes in the New Zealand Income Distribution: After the mid 1990s.

We need not report the details of the distributional policy changes which occurred after 1996, merely noting that there were both progressive and regressive changes, but none were of the redistributive magnitude of the earlier period. Because of the data gaps it is also harder to assess whether there have been major redistributional changes since 1996.

However there seems to have been a tendency for increasing inequality, but this time the changes involve more the bottom two quintiles losing and the top two (or three) quintiles gaining. This suggests a different redistributive mechanism from that of the previous decade. (See also Dixon (1998) for more clues.)

There is a vigorous debate about the extent to which the forces of globalisation and technological change are modifying the income distribution of rich countries. It can be only sketched here, beginning with a simplified account of how globalisation may impact unfavourably on the rich country’s income distribution.

In the following schematic figure the economy is characterised by quadrants, by dividing it into a tradeable and non-tradeable sector (the sector exposed to overseas competition to that which is not exposed) and a skilled and unskilled labour.

  Tradeable Sector Non-tradeable Sector
Skilled    
Unskilled Hollowed out?  

It is the tradeable sector/unskilled labour force quadrant (in the South-West of the block) which appears to be ‘hollowed out’. The most evident example is demise of the textile, clothing and footwear industry. There will still be unskilled jobs in the tradeable sector (e.g. janitors for high tech food processing) and there will also be unskilled in the non-tradeable sector (such as in rest-homes). However one would expect that major job losses in the hollowed-out quadrant would reduce unskilled wage rates elsewhere. Unskilled wage rates are low, and wages are an important component of low income households (see below). Such changes may have contributed to the increased inequality that appears to have ben occurring in the late 1990s. The effect of the hollowing out from globalisation is therefore increased income inequality unless there is an upgrading of skills in the labour force.

Broadly the same story applies for technological change except in this case the (relative) reduction in unskilled jobs is the result of technical change favouring skilled jobs (and it is unnecessary to make the tradeable versus non-tradeable sector distinction, since the technological change can occur in either sector or both of them). Again, unless there is sufficient upskilling of the labour force, there will be downward pressures on unskilled wage rates and increased household inequality.

Who Are The Poor Households in New Zealand?

I now report some research which Suzie Ballantyne and I did using the Household Economic Survey (HES) for the three year period covering 1994/5-1996/7 when the HES included questions on the respondents’ recent utilisation of health services together with a subjective assessment of each’s health status, as well as socioeconomic variables such as income and expenditure and personal characteristics. (Easton 2002, Easton & Ballantyne 2002)

Our work involved detailed econometric analysis, with considerable more care taken in the application of the household equivalence scale, which adjusts for household composition, for housing (since outlays are different for those who own their houses and those who rent), and for the choice of poverty line. The following tables are based upon the Michelini equivalence scale, income econometrically adjusted for housing circumstances, and a poverty line based on the benefit datum line of the Royal Commission on Social Security, although using other assumptions will not markedly change the broad conclusions.

Table 2 shows the proportion in poverty and the proportion of the poor by household type. While the highest incidence of poverty is among households consisting of a single adult with children – as is frequently commented upon – they make up only a sixth of the poor. In contrast households with two adults and children have less than half of the poverty incidence of the single parent households, but make up more than twice its numbers. This illustrates the danger of focussing on solo parents, and ignoring the vast majority of the poor, who are children and their parents, most of whom live in two adult homes. Households with children contain over four fifths of the poor.

Table 2: Poverty by Household Type

  Proportion in Poverty Proportion of the Poor
Adult not in Labour Force    
Adult in Labour Force 4.6 1.6
2 Adults, neither in Labour Force 2.6 0.4
2 Adults, 1+ in Labour Force 6.0 3.5
1 Adult with 1+ Children 4.0 4.4
2 Adults with 1 Child 38.7 16.3
2 Adults with 2 Children 13.9 7.6
2 Adults with 3+ Children 21.5 18.0
All 2 Adult with Children
Households		 18.4 42.3
3 Adults without Children 7.2 8.0
3 Adults with Children 22.8 23.5
In Households with Children 21.9 82.1
In Households without Children 5.5 17.9
ALL 14.2 100

Source: Easton and Ballantyne (2002)

Table 3 looks at the poor by ethnicity and shows the same pattern of differences between proportion in poverty and proportion of the poor. Non-Pakeha poverty is higher than Pakeha poverty. Yet almost three fifths of the poor are Pakeha (because there are a lot more of them).

Table 3: Poverty by Ethnicity

  Proportion in Poverty Proportion of the Poor
Pakeha 10.7 58.5
Maori 23.7 19.9
Pasifica 33.4 11.8
Asian 26.3 9.8
ALL 14.2 100

Source: Easton and Ballantyne (2002)

Similarly, Table 4 cutting the data by housing tenure, shows that renters have the highest incidence of poverty, but that over half of the poor live in their own homes.

Table 4: Poverty by Housing Tenure

  Proportion in Poverty Proportion of the Poor
Rent 27.3 47.4
Own with Mortgage 13.5 37.5
Own without Mortgage 6.0 15.0
Rent Free 1.2 0.1
ALL 14.2 100

Source: Easton and Ballantyne (2002)

It is messier, but it can also be shown that the poor households are more likely to receive market income (wages) then depend on benefits. (Nevertheless beneficiaries with children are more likely to be in poverty.)

In summary, the most common poor New Zealand household is a couple with children who are of Pakeha ethnicity, who own their home with a mortgage and depend upon wage income. There are other groups who have higher incidence of poverty, but because they are smaller they do not involve as many people.

There is a tendency for poverty rhetoric to emphasise single parent households, ethnic minorities, renters, and beneficiaries. The reality is while a household with any of these features is more likely to be poor, the poor are more likely to be mirror images of the characteristics. The policy implication is that poverty eradication involves working on a broad front rather than targeting minority groups. If there is a typical poor household, it is one which contains children.

The Location of the Sick in the Income Distribution

The particular advantage of the years the study used was that respondents were asked to rate their health status on a scale ‘excellent ’, ‘good’ ‘fair’ or ‘poor’ health. Very few categorised themselves at the bottom, so we combined the two into a single category. Some 8.6 percent of the population were in it. Note the health rating is self reported and subjective.

Again there is an apparent paradox in the results, for the sickest are more likely to be in the middle quintile than the bottom quintile of the overall household distribution. (Table 5)

Table 5: Percent of Total Who Rate Themselves As ‘Fair’ Or ‘Poor’ Health

  Bottom
Quintile		 4th Q Middle 2nd Q Top
Quintile		 ALL
ALL 21.7 25.3 25.5 16.3 11.2 100

Source: Easton and Ballantyne (2002)

However an examination of the characteristics by age and gender shows that the poorest in each category have the highest incidence of poverty. (Table 6) The old are the sickest – over half of those in the fair or poor categories are aged over 65 – but they are not as poor as the young. As far as poor health is concerned, age is a more important determinant than income.

Even so, within age groups, those in the lowest income quintiles tend to be the sickest. The gradients vary (and are erratic, presumably because of the low numbers involved) and they seem to be stronger for females than males, which itself constitutes a puzzle – perhaps the females are under more stress.

What the gradients suggest for those under 65, is that health levels in those in the middle three household quintiles are much the same. But poor health is markedly more common – typically about double – for those in bottom quintile households.

Those in the top income households tend to have fewer who are in inferior health. Does their income enable them to purchase better health care? Are they suffering less illness inducing stress? It cannot simply be that those adults with poor health tend to sink into lower income groups because their earning power suffers, since children in such households who are less likely to compromise the family income, are also in better health.

Table 6: Incidence (%) Who Rate Themselves As ‘Fair’ Or ‘Poor’ Health

  Bottom
Quintile		 4th Q Middle 2nd Q Top
Quintile		 ALL
Under 15 Female 7.4 3.6 2.9 3.1 1.2 4.5
Under 15 Male 5.8 5.8 3.4 3.0 3.1 4.7
15-64 Female 19.7 11.0 8.7 7.2 3.9 7.9
15-64 Male 10.2 8.3 7.4 4.2 3.8 6.2
Over 65 Female 42.5 29.4 27.5 22.3 21.2 26.5
Over 65 Male 40.2 29.8 25.2 21.3 19.4 25.5
ALL 9.3 11.0 11.0 7.0 4.8 8.6

Source: Easton and Ballantyne (2002)

Conclusion

This chapter has focused upon a set of propositions which may be summarised as :

1. That in a rich country poverty – low material standard of living – probably does not directly impact on health, but does indirectly through stress which income differences generate.

2. The increase in household inequality in the period of the late 1980s and early 1990s was more due to changes in tax, benefit, and government spending policies than it was due to market liberalisation. However, the market liberalisation increased stress on New Zealanders.

3. There is some evidence that income inequality may be increasing, due to factors such as globalisation and technological change.

4. The most common poor New Zealand household is a couple with children who are of Pakeha ethnicity, who own their home (usually with a mortgage), and who depend upon wages for their main income. There are other groups who have higher incidence of poverty, but because they are smaller they do not involve as many people. This means that effective poverty eradication involves working on a broad front rather than targeting minority groups.

5. Illness does not correlate well with income, unless age is controlled for. The sick in New Zealand are the elderly, although the paper goes on to argue that policies aiming to reduce poor health in the long term need to target those with low incomes and low in the socioeconomic status hierarchy.

The policy conclusions might be that there is an socioeconomic (SES) gradient on health status, services whose purpose is to provide health care to individuals need to take more into consideration the age of the local population.

However where services are aimed at the entire population need to take more into consideration the age of the local population, aiming to raise health status in the long term, the international research evidence suggests SES effects appear to be important.

How to target the SES effectively is another matter, especially as it is not the same as income (or even lifetime income, although that would give a better correlation). It seems likely that reducing income inequality may help – especially perceptions of income inequality, and or its importance. (If so the largest single cause of inequality is having children.)

But it may be also possible to address some of the stress channels directly. Certainly it makes sense that for any policy change, that there needs to be an accompanying audit of what stress it will generate and to what extent the further stressed will be able to deal with it.

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References
Adler, N.E. (2003). ‘Looking beyond the borders of the health sector: The socioeconomic determinants of health’ in E.R. Rubin & S.L. Schappert (ed) Meeting Health Needs in the 21st Century (Association of Academic Health Centres Washington, DC) p.14-27.
Department of Labour (1994) An Analysis of the Dynamics of the Registered Unemployed: Exit Probabilities and Repeat Spells (Department of Labour, Wellington).
Dixon, S. (1998) ‘Growth in the Dispersion of Earnings: 1984-1997′, Labour Market Bulletin , p.71-107.
Easton, B.H. (1996) ‘Income Distribution’, in B. Silverstone, A. Bollard, & R. Lattimore (ed) A Study of Economic Reform: The Case of New Zealand (North Holland) p.101-138.
Easton, B.H. (1999) ‘What has Happened in New Zealand to Income Distribution and Poverty Levels,’ in S. Shaver & P. Saunders (ed) Social Policy for the 21st Century: Justice and Responsibility (SPRC, Sydney) Vol 2, p.55-66.
Easton, B.H. (2002) Validation and the Health and Household Economy Project , Paper to the Wellington Health Economists Group,
Easton, B.H. & S. Ballantyne (2002) The Economic and Health Status of Households , (Wellington School of Medicine)
Kawachi, I & B.P. Kennedy (2002) The Health of Nations: Why Inequality Is Harmful to Your Health (New Press).
Perry, B. (2005) Social Report Indicators for Low Incomes and Inequality: Update from the 2004 Household Economic Survey (Ministry of Social Development, Wellington)
Saplosky, R. (2004) Why Zebras Don’t Get Ulcers : A Guide to Stress, Stress Related Diseases and Coping (Harry Holt & Company)
Saplosky, R. (2005) ‘Sick of Poverty’, Scientific American , December 2005, p.72-79.
Wilkinson, R. (2005) The Impact of Inequality : How to Make Sick Societies Healthier (Routledge)
Wilkinson, R & M. Marmot (1998) The Social Determinants of Health: The Solid Facts (WHO)

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Macro-economic Thinking

This entry was posted in Listener, Macroeconomics & Money on by .

Why have the do-nothing policies of the 1980s gone out of fashion?

Listener: 11 March, 2006.

Keywords: Macroeconomics & Money;

Just under 20 years ago, the Kiwi dollar was overvalued. A spendthrift government was running a large internal deficit that had to be financed by borrowing. As the offshore loans flooded in, attracted by high interest rates, the exchange rate (the Kiwi dollar relative to overseas currencies) was pushed up.

Exporting became less profitable and importing more profitable. Export firms stagnated, those that competed against imports closed down, there was widespread unemployment, and the economy stagnated, with six years of falling per capita output. In 1985 we were in the top half of the OECD on a per capita GDP basis (just). By 1993 we were about 20 percent below the OECD average, securely in the bottom half.

At the time, the conventional wisdom said that the exchange rate was determined by the market. There was nothing that policy could usefully do about it, they confidently said. Interfering would only make things worse …

A waking Rip van Winkle from those times would be greatly puzzled by today’s policy debate, which says that the government ought to do something about our high exchange rate, which is once more strangling the export sector (there is hardly any import substitution left) and which promises to stagnate the economy again. We may not agree about what the Minister of Finance and the Governor of the Reserve Bank should be doing, but we seem to agree they should be doing something. What is the difference, Rip might ponder. Why have the do-nothing policies of the 1980s gone out of fashion?

An easy answer is that the policy advisers of the 80s, much honoured at the time, made a cockup roughly comparable to that made by the equally admired advisers of the early 30s. In some respects, the Roger-nomics recession was more severe than the Depression – it was certainly longer. The important difference was that in the early 30s the entire world economy was suffering. In the 80s, it flourished while New Zealand stagnated.

This time, the world economy is neither in depression nor in a reasonably balanced expansion. Rather, the US economy is stimulated by a huge and growing fiscal deficit, arising from tax cuts that generate consumption but not as much production or savings. This savings deficit is financed by the Chinese and Japanese. When they switch to safer havens than the US dollar, the world economy is likely to suffer a wrenching blow, although there is little agreement on exactly what will happen.

Although the current difficulties that the New Zealand economy is facing are not entirely of our making, we are exacerbating them. This time, however, the culprit is not the government’s fiscal stance. Today it runs a modest surplus rather than the deficit of the 1980s. (There would be one, had National been elected with its extravagant tax cuts, and simultaneous promises not to cut government spending, although nobody believed them because their lips were moving.)

So this time the nation has a savings deficit from household overspending. Rip would vaguely recall that in the 80s the do-nothings said that since households made optimal decisions (how did they know?), there was no need to worry – even if their effect was to unintentionally wreck the export sector and growth. This government is introducing savings incentives (despite opposition from the do-nothings), but they have yet to impact.

Meanwhile, the Reserve Bank uses high interest rates to discourage household overconsumption and excessive investment in housing. The economy is slowing down – not surprisingly, given that the export sector’s profitably is undermined by the high exchange rate. The popular concern issue is whether the economic expansion is just faltering, or whether there will be a contraction (as occurred in the late 80s). The greater worry is how long it all will last. Will it turn into a prolonged recession? Will New Zealand still be slowing down (or contracting) when the world economy wrenches?

Rip does not know the answers. But he would notice that we are once more fighting the last war, hardly thinking through the new issues that challenge us. He might conclude that although we have learnt a little from our past mistakes, he expects us to make new ones.

What New Zealand’s Economic Transformation Is About

This entry was posted in Growth & Innovation on by .

Paper to a breakfast session of New Thinking ‘06 a conference promoting New Zealand’s latest biotech, creative and technological capabilities. Lead sponsor: New Zealand Trade and Enterprise. Auckland 27 February- 2 March, 2006.

Keywords: Growth & Innovation;

David Skilling’s presentation is pessimistic because its message was known twenty and more years ago and little seems to have changed. [1] Then we had poor global connectedness with an overemphasis on resource exports. Twenty years later we still have poor global connectedness with too high a proportion of resource based exports.

I could, in another context, explain how we wasted the two decades, but this morning I am going to talk about what at last we are doing about it. Note there is nothing wrong with primary exports per se, and we expect them to flourish in the future, especially if we get a sensible outcome from the Doha trade liberalisation round. However countries which depend upon resource based exports tend to grow more slowly that those with sophisticated manufactures and service exports where there are greatest dynamism and productivity gains.

Exporting such sophisticated products need not be at the expense of primary production. Were New Zealand in the middle of OECD countries on an export to GDP it would be exporting about 40 percent more. That is another $20 billion of exports a year on the most conservative assumptions. The additional exports cant come from primary sector, because there are resource constrained.

What the NZI report does not capture is the economic transformation that is underway. That’s what this conference is about. Its about developing certain capabilities which already exist into major export industries.

I’ll talk mainly about biotechnology, the theme of the day. New Zealand has a long and proud record in biotechnological innovation. We have a capable, skilled ,and technologically savvy work force, we have world class research laboratories, and we have a strong tradition of private public partnership. But with the molecular revolution, biotechnology is changing and we have to too.

So the industry is going to look different. Some will continue to be an enabler to the primary sector. But much will strike out to sell biotechnological products directly overseas. For us the technological transformation involves producing high value but light products. Auckland International Airport is already our third largest exporter of goods, while broadband is about as high value to lightweight as you can get.

Unlike the old biotech industry the new one will be more located in Auckland. That means ensuring that Auckland is a global city. The current priorities are infrastructure – transport, broadband and energy security – plus the airport and university. But because New Zealand is a small country expect to find contributors in other centres. An Auckland biotech company I’ve worked with gets some of its testing done in Wellington. Dunedin is likely to be a strong biotech centre too..

There are many things which have to be done to maintain the transformation’s momentum. Let me finish by mentioning something that key people in this audience have to contribute. New Zealand does not just need direct investment in the firms in the biotech and other transformational industries. It needs the commercial intelligence that the investors bring with them. We know that many of the ventures are going to fail – that is the nature of this sort of innovative industry. We dont want to waste resources in these failing industries – the trick is moving your quality resources into the most profitable industries. But it is difficult to make good judgements. Investors putting up their funds are helping the selection of successful firms, in that decentralised way which the market does.

So the economic transformation requires investors not just for their funds but for their judgements. Let me say to them, let me say to all of us embarked on this exciting structural transformation, ‘bon voyage’.

[1] Based on the New Zealand Institute report Dancing with the Stars: The International Performance of the New Zealand Economy. (December 2005)

Sovereignty Under Siege: Globalization and New Zealand a Review

This entry was posted in Globalisation & Trade on by .

Editors: Robert Patman and Chris Rudd. Published by: Critical Security Series, Ashgate Publishing Ltd, Aldershot. England. 258pp. $US99.95/£55.00.

NZIIA, May/June 2006, p.28.
Keywords: Globalisation & Trade;

Much of the public’s anxiety about globalisation is concerned with sovereignty. However its understanding of the previous sentence’s last two nouns is vague and imprecise, for each requires careful definition. Patman and Rudd’s introduction defines sovereignty by tracing back to the 1648 Treaty of Westphalia as ‘a sovereign state … exercises supreme legal unqualified and exclusive control over a designated territory and its population’, claiming that there are ‘close to 200 sovereign states’ (which almost resolves their question, since if they exist what is the problem?). They are less sure of giving a ‘precise meaning to the term globalisation’, broadly defining it as ‘the intensification of interconnections between societies, institutions, cultures and individuals on a worldwide basis’. Note the first definition involves a situation, the second a process, which complicates the coupling of the two.

That aside, the introduction is a useful beginning, although it is not clear that the eleven chapter writers saw it before they wrote their essays. As with many such books the quality of the contributions is uneven, and the argument not consistent. A serious weakness is their insularity, for there is little reference to issues except in a New Zealand context, despite the topic of globalisation crying out for comparative analysis. It is one thing to look at the New Zealand-United States relationship, but surely it needs to be put in the context of the US relationships with a host of other countries.

Part I, Political and Economic engagement, begins with Brian Roper asking whether there has been a decline of national and state autonomy. Roper has his own distinctive (Marxist) approach to New Zealand which begins by contradicting the editors by taking globalisation to be the latest stage of capitalism (as indeed does the London ‘Economist’). So did Lenin 90 years ago. History provides such challenges. Did New Zealand ever have much de facto sovereignty? Have we not always been a colony or neo-colony? Is the golden past when New Zealand was really ‘sovereign’ just a myth? Such questions undermine the pristine definition of ‘sovereignty’ of the introduction.

The remaining three chapters of this Part – Martin Richardson (the economy), Paul Roth (human rights) and Tony Wood (parliament) – provide solid backgrounds, rather than new insights and do not address the issues raised in the previous paragraph.

I skip past the middle Part of four chapters on national identity (by Paul Spoonley, Manuka Henare, Richard Bedford and Janine Hayward) which while academic contributions from a New Zealand perspective do not grapple sufficiently with the pressures globalisation places on culture.

Part III consists of three essays on Security and Foreign Policy Directions, by David McDonald (regionalism), Richard Jackson (multilateralism) and James McCormick (the US relationship). Each is a standard foreign policy essay with some remarks on globalisation added. The first two are upbeat: ‘globalisation has increased New Zealand’s ability to project its influence regionally and internationally’. All the contributors to this book are academics: I suspect those in the foreign service would add that the writers dont realise how bloody hard any projection is. The Doha Round negotiations (barely discussed in this book), for instance, are a test of just how much influence we do or dont have. My impression is ‘almost negligible’ were it not for the quality of our foreign service.

Patman and Rudd’s conclusion argues that the capacity of the New Zealand state to make decisions has not been substantially eroded by globalisation, although the contributors support the notion of that the role of sovereignty is ‘being redefined by the state actors themselves’. Themselves? Little attention is paid to the degree which that redefinition is a response to external pressures. For instance, did New Zealand abandon the Dairy Board because it wanted to, or because it reluctantly judged that in the totality of all the pressures on it, this state monopoly had to be given up?

In order to belong to a globalised world, one has to abandon the practice of much of the sovereignty implicit in the Treaty of Westphalia. That is why it is important to distinguish between de jure sovereignty and de facto sovereignty. A country may still appear to exercise supreme legal unqualified and exclusive control in principle . In practice that control is modified by the actions of other states (the smaller the state, the greater the modification). The reality of statesmanship is how to maximise such control that is left. Regrettably, the book does not really address this issue, central though it is to sovereignty under globalisation.

To finish more lightly. This is an English published book which uses American spelling. At one point the book reports New Zealand’s GDP in 2003 was $85.34 billion, sourced from the CIA World Factbook (which I also use when working on foreign countries). So the figure is not in New Zealand dollars (its about $NZ136 billion) but in foreign prices – the meaning of which I leave you to work out, since the CIA definition is slightly wrong. Such are the incipient impacts of globalis(z)ation on culture and intellect.

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Janice Gill: Artist Of the Narrative and the Marginalised

This entry was posted in Literature and Culture on by .


Keywords: Literature and Culture;

The first paintings I saw by Janice Gill were at an exhibition at the Gallerie Legard on Kelburn’s Upland Road. I was particularly taken by one based on her previous opening. It looked from across the street through the gallery window at the guests sipping wine, talking to one another, but not looking at the paintings. The exception is the gallery director – presumably the much-loved Kay Roberts, for you can only see her back – looking at the wall with Gill’s paintings across them. Someone is walking through the door: a friend says it was John Drawbridge, although Janice tells me she did not have anyone specifically in mind. Anyway, let’s say it is a fellow artist, who is looking at the street in front, where one of the bag ladies – a painting of another is a part of the exhibition – walks along the pavement. She is oblivious to the ‘beautiful people’ inside, they oblivious to her, or to the painting about her.

It’s a Cartier-Bresson moment, where the artist clicks onto a reality that others of us see only in retrospect. Janice and I both lived in Christchurch in the 1970s (although we never met). Janice saw bag ladies and painted in locations familiar to me, such as Cashel Street. I saw them first in her paintings.

Wellingtonians (and perhaps others) go to openings (and book launches) as social occasions. Often you cant see the works because the patrons stand in the way, looking away from the pictures on the walls, networking instead. Sure – some buy, and some regret they cannot. But how many engage with the works on the night? Especially if they are Gill’s, portraying the lives of the bag ladies and their marginalised kin.

Not that the paintings are exact images of the click. (The gallery door was located differently from the way it is shown in the picture.) But the essence of a Gill painting is the narrative – the representation of both a particular reality and a universal verity. That first painting to take my eye is called – appropriately given its self-referential content – ‘Real, Real, Unreal’ (1981) (you work out to whom the labels refer). However – in a frustration with which many artists are familiar – I think of it as ‘Inside and Outside’. Janice is definitely the outsider.

Renaming is not as serious an arrogance as the behaviour of the patron who thinks ownership of a painting confers ownership of the image – copyright law is clear that it remains with the artist, other than in exceptional circumstances. Sometimes the renaming captures an essence which the artists knows anyway. When I call the painting of the bag lady hanging on the Gallerie Legard wall, ‘The Streets of Christchurch’ – its actual title is ‘Going On’ (1980) – I am recalling Ralph McTell’s “Have you seen the old girl/ Who walks the streets of London/ Dirt in her hair and her clothes in rags?/ She’s no time for talking, /She just keeps right on walking/ Carrying her home in two carrier bags.”

Yet while there is passion in Janice’s painting – and sly humour, visual and often verbal including in the titles – rarely is there overt anger. Maybe it is her bright colours. ‘Forty Years On’, with its bag lady walking down a dark narrow lane to age, death and oblivion, is the darkest Gill I know. But let not the careful choice of contrasting colours obscure the sharp lines of the geometrical design, often involving overlapping rectangles. Some paintings are Piet Mondrians with a superimposed narrative.

It’s the narrative with which most observers engage. A “Listener” column, for instance, always has some deep analytic propositions – like the disciplines of a painter – over which is patterned a story to engage the reader. Getting the balance between narrative and analytics is harder than it appears. Well done it seems easy – but it aint. The superficial may read (or see) only the narrative and fail to see the underlying analytics.

But neither should the narrative be ignored. Janice first painted Winton, where she grew up, and surrounding Southland: the buildings, local characters, old machinery, workplaces, recreation, railway and Stewart Island scenes, recreating places and events familiar to the locals but hardly known to New Zealanders living to the north. Two local myths are the repeatedly portrayed: Minnie Dean, Winton celebrity and the only woman legally hanged in New Zealand (for baby murder, in 1895); and illicit whiskey distilling in the nearby Hokonuis. Such themes gave Janice an early reputation as a folk painter.

But her entire oeuvre of the time is the creation of a Southland world of its people and its places. One day a retrospective will have the locals saying ‘this is who we are, this is what we are really like’. Expatriate Trevor Agnew, writing about his desire to return to the South, wants again ‘to see the thirty shades of green that Janice Gill used to paint the Southland landscape’.

At the age of 29, Janice moved north to the Christchurch branch of the stock and station agent for whom she worked, where she met a harsher, less cosy, world. The resulting images are more urban and the marginalised appear more often, together with business men from the other end of the social spectrum.

A short stay there has been followed by a quarter of century in Nelson where again the paintings recreate the locality with buildings, shopping, click moments which capture the nostalgia or the pomposity of a ceremony. And people – bag ladies, the unemployed, solo mothers, workers – paintings of those who would not normally expect to be subject of portraits.

I call her ‘Community Care’ painting (1991), ‘The Lowry Man’, not only for the obvious parallel with his matchstick men, but because Janice has a passion to paint the ordinary people of her community, as they are, with affection and without judgement, just as Lowry did for his Salford. Art critic Richard Dingwall writes ‘her achievement is to have created a remarkable body of work that is entirely distinctive and fully realised within its own terms.’

Over the years she has travelled: click moments in America, in Auckland, in art deco Napier, in Wellington. Some pictures recall her active involvement in the Labour Party – the traditional Labour Party with its commitment to the marginalised. Others satirise the business culture – often accompanied by business logos and mirror glass buildings. Now the business people include women, but they too remain oblivious of the marginalised around them.

Ironically, and sadly, Janice became a beneficiary following an accident while working on a farm. She has had a long battle with the Accident Compensation Corporation for appropriate rehabilitation and work options since the use of her arm is limited. She too has faced the reality of the subordination and humiliation which thousands of beneficiaries experience. The physical injury mean that she paints with less freedom and for fewer hours. All painter’s styles change with time, but in recent years Gill’s work has become smaller, tighter and fewer are painted.

Janice recently revisited her ‘folk artist’ tradition, painting a series on the Burgess Gang – the Maungatapu murderers of 1866 – acquired by the Nelson Provincial Museum – Pupuri Taonga O Te Tai Ao. The series involved new challenges, not just from the physical limitation. ‘Grim Procession’ (2004) – the bringing of the four bodies down the mountain – dispenses with her usual rectangles, its strong diagonals converging on the peaceful Waimea Plains below. The four telephone polls – crosses for the bodies (and homage to McCahon) – also reflect research as meticulous as the painting, for the line had been installed only a couple of months before the murders and was then the new-fangled amenity. The down-sloping winding track is through dark bush – detailed fern and beech forest – her first real landscape, for normally she has been a painter of towns and people.

Gills has provided three book covers. Art and book covers often do not go well together (unless they are art books). McCahon’s landscape “The Promised Land” is a central notion in my ‘The Nationbuilders’ but it took skill by the book’s designer, Katrina Duncan, to get the ‘landscape’ painting comfortably on a ‘portrait’ cover.

It was perhaps inevitable that the cover of Lynley Hood’s biography of Minnie Dean should have a work painted specifically by Janice Gill. She also illustrated my ‘Wages and the Poor’, a book written in 1986 to demonstrate that there was an alternative to Rogernomics– one Labour cabinet minister of the era received three Christmas copies from concerned friends. The cover picture portrayed a poor family in simple surroundings, but still maintaining their dignity.

For ‘The Whimpering of the State: Policy after MMP’, we were getting desperate for a cover. Suddenly Janice’s ‘Lunchtime Wellington: Rogernomics in Progress’ (1989) became obvious. It shows from outside the building site a large hole where the foundations of the Mayfair Centre were being laid. (In the course of its construction, the cost of the building crashed three major corporations.) Behind it are other identifiable Wellington buildings (although not in location). Three suited spectators gaze admiringly at the hole, oblivious to the young punks walking to the left or the bag lady to the right. The picture had to be trimmed slightly on both sides to fit the cover more easily, and the 1987 wall slogan ‘Prebble without a cause’ (a reference to the then minister of State Owned Enterprises with a propensity to sell off everything) had to be removed for a book about the late 1990s.

Our writers have largely avoided the topics that Janice paints (and I write about). One exception is Maurice Gee. His novel Crime Story contrasts the criminality of the underclass with the no more moral activities of financiers. A wife of a financier is walking her dog along ‘Upland Road, past the doctor’s rooms and the reassuringly scruffy seven-day dairy. The gallery – another station on her dutiful way – came next, with new paintings in place, ugly and bright. Deliberately ugly? There was a lot of that about, and now and then she saw the point. Deliberately beautiful never had anything to say, or even show, when you got down to it. She did not tie the dog up and go in, had not sufficient strength of mind for glum women with shopping bags and jowly Roundtablers – were they? – even in paint. She did not want to know about hunger and poverty, either of the body or the mind, not just now. There were times for being angry and times for fear, and the air was fresh this afternoon, the wind lifting the petrol fumes into the upper air. She did not want her easiness disturbed.’

Janice Gill uses her painterly craft to disturb our easiness.

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Alcohol – Socioeconomic Impacts (including Externalities)

This entry was posted in Health on by .

Draft for “The International Encyclopedia of Public Health” (2008) vol.1 pp.112-116.

Keywords: Health; Regulation & Taxation;

Depending on the cultural context and particular circumstances, the same drink of alcohol can generate a feeling of benign prosperity, or moroseness, or stupor. The immediate health benefits for the individual may also be benign (or even beneficial), or the drink may result in injury or death – in the short run from accident or in the long run from one of the diseases alcohol can precipitate. The consequences for others may also be benign or beneficial, or damaging or mortal from violence or collateral accident. Someone may be born as the result of intentional or unintentional impregnation. The loss of production due to poorer workplace productivity or non-attendance from drinking alcohol may cause financial loss to the drinker and possibly to others. Among the many sectors of the economy alcohol may, or may not, especially generate additional costs in the criminal system, in the health system, and in the transport system. The national budget probably gains from the specific tax it levies on alcoholic beverages, but these levies may, or may not, cover its costs from the consumption of alcohol.

The impact of alcohol consumption is so multifarious that it is not easy to track all its social and economic impacts. This review confines itself to the ones which ‘social costs of alcohol misuse’ studies have paid most attention to, excluding the burden of disease caused by alcohol which is covered in this volume by Rehm. The framework used is that of the WHO report International Guidelines for Estimating the Costs of Substance Abuse, and related and subsequent studies although some of the technical issues such as the valuation of life, counterfactual hypotheses, and discounting are not considered here,

As the opening sentence reminds us, the social and economic impact of alcohol is affected by the cultural context, even though the physiological impact may not be. This means that each country, or culture within a country, has its own quantitative and qualitative particularities. This entry deals with the heterogeneity by its bibliography including recent country specific studies (especially cost studies, because they look at most dimensions of the impact).

Following brief discussions on externalities and irrationality, the main areas of impact are dealt with in alphabetical order, because their relative significance will vary from country to country.

Externalities

The social cost of an activity is the total of all the costs associated with it, including both the costs borne by the economic agent involved and also all costs borne by society at large. This includes the costs reflected in the organisation’s charge (price) which covers the use of the various resources (including labour capital and risk as well as natural resources) excluding taxation, together with the costs external to the firm’s private costs. If social costs are greater than private costs – the costs of purchase – then a negative externality is present.

When the market economy is working effectively, and there are no external social costs, rational consumer will only purchase and consume the product if it is more valuable to them than the price paid for it. In this case society is better off since the consumers deem themselves better off from the transaction, and society is no worse off since it has traded off the social costs of the consumption for the payment which embodies the ability to purchase other products with equivalent social costs.

There are all sorts of subtle assumptions embodied in this analysis: public health analysis often worries about the equity in the distribution of income – the power to purchase. But even if those assumptions hold (near enough), alcoholic beverages are one of a number of products for which the purchase price cannot generally equal social costs because the social cost of each unit of consumption varies greatly. Thus the social cost of the first drink in a session may reflect the private cost, but later drinks may generate additional social costs in poor health, material damage, public and private outlays which were ignored when the drinking decision was made, violence to others, and even death to the drinker or, in the case of motor vehicle accidents and the like, to innocent bystanders.

As a later section discusses, taxation and other public policy measures aim to reconcile in one way or another the inconsistency between the purchase price and social costs. However there is still likely to be a substantial difference for at least a number of significant ingestions.

A useful term is ‘misuse’ for where the consumption generates outcomes which were unintended by the consumer and not taken into account when the purchase/drinking decision was made. It is sometimes preferred to ‘abuse’ in order to emphasise, that much alcohol consumption is useful, in the sense of its social impact is benign or even (mildly) beneficial.

Irrationality

The previous discussion has assumed that consumers are acting rationally, taking into consideration all the costs of the consumption which affect them (although they may discount costs in the more distant future).

However, it is not immediately obvious that ‘rationality’ applies when there is drunkenness or addiction. Economists explore this use a theoretical definition of irrationality where consumers show time inconsistency between decisions, as when they go into a bar to have three drinks, change their minds as a result of the resulting euphoria and drink more, and the following day regret the change of mind. Ainslie (1992) Frederick, Loewenstein, and O’Donoghue (2002) O’Donoghue and Rabin (2003).

It is unclear how to define externalities in such circumstances. The tendency has been to ignore such irrationality, but increasingly cost of alcohol studies need to address it, incorporating it in a rigorous way consistent with the theory.

Crime

Pernanem et al (2000, 2002), based on Goldstein (1985), proposes four models (‘modes’ might be a better word) to account for alcohol associated crime.

1. The pharmacological model in which intoxication encourages the commission of crimes which otherwise would not have been committed.
2. The economic means model in which crimes are committed to fund alcohol consumption.
3. The systemic model involving the illegal economy, as in unlawful brewing or distilling or sale of liquor.
4. The substance-defined model, where actions are defined as being criminal by laws which regulate drug use, such as drunkenness in a public place, supplying underage or drunk people (if that be illegal) and drink-driving.

Note these apply also to illicit drugs, where that modes 3 and 4 are more important than to alcohol.

This crime causes social costs, both directly via damage to property and individuals but also with consequent costs to the public purse for policing, justice and corrections, transport management and indirectly when it adds to concerns about community safety and security.

Estimating the attributable fractions (the proportions which alcohol causes) for criminal activity is much less advanced than for disease. Because law, practices of enforcement and culture vary by country, fractions cannot be easily borrowed from other jurisdictions. (Indeed care is also required in generalising research findings on the relationship between crime and alcohol.)

Diseases (Drinkers)

Rehm (2006), this volume, describes the impact of the consumption of alcohol on the health of the consumer.

As well as affecting the health of its drinkers, alcohol can affect the health of others. These include:
1. Children born as the result of an unplanned conception as a result of intoxication. (It is not obvious how to deal with this.);
2. Those suffering Foetal Alcohol Syndrome and Foetal Alcohol Effects, said to be the major source of mental illness and behavioural disorders, and generating on average a large public cost during their life time; Harwood (2000)
3. Those close to the drinker who may experience pain and suffering, abuse, violence, injury and death;
4. The public at large who may experience pain and suffering, violence and death including from motor vehicle accidents.

There are rarely good estimates of these phenomena, and the incidence and costs vary from country to country.

Motor Vehicle Accidents

As well as injury and death from motor vehicle accidents caused by alcohol consumption there is damage to the cars and property, the costs of law enforcement and prevention (which may include road design), and the costs of administrating the insurance system. (There are also costs in the resulting travel delays).

Motor vehicle accidents are particularly onerous, but there are other accidents. Industrial accidents caused by alcohol are usually covered in the next section.

Production Losses

Drinking alcohol may result in production losses from the
1. Reduced workforce size as a consequence of death or premature retirement;
2. Absenteeism from sickness or injury;
3. Reduced on-the-job productivity from sickness or injury and accidents.

Alcohol misuse may also cause loss of production in the unpaid household sector and in other non-market activities. Although the informal economy is not included in the standard measures of market output (such as GDP or GNP) the losses or production in it due to alcohol misuse may be significant.

Public Spending

Most of the above events described above, to some extent impact on public spending (or, for those countries which depend more upon private provision, on the private insurance system). Such an impact is a classic externality, because it is unlikely to be taken into account by the drinker.

Among the most significant sectors affected by additional spending are costs to the health system (at every level from prevention to advanced tertiary specialities, but also for nursing care later in life). social security or other forms of public income maintenance, traffic management, and also to policing, justice and corrections.

Taxation and Public Policy

Historically, specific taxes on alcohol were imposed because they could be readily collected at brewery, distillery or port. (There are greater difficulties collecting excise from small vineyards.) Later in some, but not all, jurisdictions the justification for special duties shifted from convenience to a notion of the propriety of taxing ‘sinful’ activities.

More recently, in some jurisdictions, alcohol taxes have been justified by the arguments that raising the cost of alcohol better reconciles the private cost and social cost of alcohol consumption. If so, the pure logic might conclude that the level of taxation should be related to the quantity of absolute alcohol rather than the value of the drink, imposing more heavily on low value drinks. An extension would be to focus on the minimum cost of alcohol, structuring the excise to maintain a minimum cost of absolute alcohol, where some of the worse social costs occur. Easton (2002).

However no country has an economically rational alcohol taxation regime, and revenue considerations still remain important in its design as well as political and cultural considerations.

Moreover, as previously mentioned, the divergence between private and social cost varies from drink to drink, so a taxation regime cannot be perfect. Thus other public policy measures have to be implemented. See 355 Effective Alcohol Policy and 366 Integrated Alcohol Control, this volume.

Insofar as such policy measures are effective, there would be a reduction in the divergence between private and social cost, and the optimal excise duty is lower than if the policies are ineffective.

Conclusion

The impacts of alcohol consumption are manifold, and it is not practical to list them all. The ones discussed here are generally those which are known to be largest in quantifiable terms, as measured by their impact on GDP (or GNP) the standard measure of the aggregate output produced in the formal economy (generally valued at market prices). It asks what of the available production had to be diverted to deal with the costs of alcohol misuse. (Technically it is an estimate based on supposing that alcohol misuse had not occurred, what additional resources would have been available for consumption and other purposes.)

The table below provides estimates for a couple of countries of this (tangible) ‘social cost of alcohol’, as a proportion of GDP. The estimates come from studies which broadly conform to the International Guidelines. Single et al, 2002. They do not include estimates of the intangible costs, arising from death injury and poor quality life which alcohol misuse generates (avoiding, among other things, the problem of valuing of life). Nor do they include the impact on the informal economy, because there is no measure of the aggregate value of its output (the equivalent of GDP).

The (Tangible) Social Costs of Alcohol as a proportion of GDP

Country Australia Canada
Year 1998-9 1992
Costs of Crime, Law and Order .42% .20%
Health Care Costs .03% .19%
Loss of Production .23% .60%
Motor Vehicle Accidents .24% 0.7%
Other Government Resource Costs included elsewhere 0.3%
TOTAL .92% 1.09%
Source Collins and Lapsley 2002 Single et al 1998

In each case the costs are estimated to be near 1 percent of GDP, the implication being that without alcohol misuse effective GDP would be 1 percent greater. However the increase in GDP per capita would be lower, depending on the mortality impact on the population.

Note that despite using the same international guidelines, there are considerable differences between the subtotals, only some of which may be explained by classification differences or by the different cultures and institutional arrangements of Australia and Canada..

Nevertheless, while other countries may have different social costs of alcohol misuse, representing the waste from drinkers not taking into consideration the social consequences of their decisions, the magnitude as a proportion of total output is likely to be significant. The quantification reinforces the common sense conclusion of a need for behaviour change and public policies in regard to alcohol consumption in order to reduce its misuse.

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Andlin-Sobocki P. and Rehm J. (2005), “Cost of addiction in Europe”, European Journal of Neurology, 12(s1): 28-33.
Babor, T. Caetano, R. Casswell, S. Edwards, G. Giesbrecht, N. Graham, K. Grube, J. Gruenewald, P. Hill, L. Holder, H. Homel, R. Österberg, E. Rehm, J. Room, R. and Rossow, I. (2003), Alcohol: no ordinary commodity. Research and public policy, Oxford and London; Oxford University Press.
Collins, D.J. and Lapsley, H.M. (2002), Counting the cost: estimates of the social costs of drug abuse in Australia in 1998-9, Canberra, National Drug Strategy Monograph Series No. 49,
Collins, D. Lapsley, H. Brochu, S. Easton, B. Perez-Gomez. A. Rehm, J. Single, E. (2006) International Guidelines for the Estimation of the Avoidable Costs of Substance Abuse, Ottawa, Canadian Centre on Substance Abuse.
Easton, B. (1997), The Social Costs of Tobacco Use and Alcohol Misuse, Public Health Monograph No. 2, Department of Public Health, Wellington School of Medicine.
Easton, B. (2002) Taxing Harm: Modernising Alcohol Excise Duties, Wellington, Alcohol Advisory Council of New Zealand,
Elster, J. (ed) (1999) Addiction: Entries and Exits, New York: Russell Sage Foundation.
Frederick, S. Loewenstein, G. and O’Donoghue, T. (2002) Time discounting and time preference: A critical review, Journal of Economic Literature Vol. XL June 2002: 351–401.
Gmel, G, Rehm, J. Room, R. and Greenfield, T. (2000) Dimensions of alcohol-related social and health consequences in survey research, Journal of Substance Abuse 12:113-138.
Goldstein, P.J. (1985). The drugs/violence nexus: A tripartite conceptual framework, Journal of Drug Issues, 14, 493-506.
Harwood, H. (2000). Updating estimates of the economic costs of alcohol abuse in the United
States: Estimates, update methods, and data, Report prepared by the Lewin Group for the National Institutes on Alcohol Abuse and Alcoholism, Washington.
Haworth, A. And Simpson, R. (2004) Moonshine Markets, New York and Hove: Brunner Routledge.
Heather, N. Peters, T. and Stockwell, T. (eds.) (2001) International Handbook of Alcohol Dependence and Problems, Chichester: John Wiley & Sons.
Huakau, J. Asiasiga, L. Ford, M. Pledger, M., Casswell, S. Suaalii-Sauni, T. and Lima, I. (2005) New Zealand Pacific peoples’ drinking style: too much or nothing at all? New Zealand Medical Journal 118:1491-.
Klingemann, H. and Gmel, G. (eds.) (2001) Mapping the Social Consequences of Alcohol Consumption, Dordrecht: Kluwer Academic Publishers.
Mathers, C. Bernard, C. Iburg, K. Inoue, M. Fat, D. Shibuya, K. Stein, C.; Tomijima, N. and Xu, H. (2003) Global Burden of Disease in 2002: data sources, methods and results, Global Programme on Evidence for Health Policy Discussion Paper No.54, Geneva, World Health Organization,
O’Donoghue, T, and Rabin, M. (2003) Studying Optimal Paternalism, Illustrated with a Model of Sin Taxes, American Economic Review Papers and Proceedings 93(2), May 2003: 186-191.
Pernanen, K. Brochu, S. Cousineau, M.-M. Cournoyer, L.G. and Fu Sun (2000), Attributable fractions for alcohol and illicit drugs in relation to crime in Canada: conceptualization, methods and internal consistency of estimates, Bulletin on Narcotics, Volume LII, Nos. 1 and 2, United Nations Drug Control Programme.
Pernanen, K. Cousineau, M-M. Brochu, S. and Fu Sun (2002), Proportions of Crimes Associated with Alcohol and Other Drugs in Canada, Ottawa, Canadian Centre on Substance Abuse, www.ccsa.ca/docs/crime2002.pdf.
Österberg, E. and Karlsson, T. (eds) (2002) Alcohol Policies in EU Member States and Norway: A Collection of Country Reports, Helsinki, STAKES.
Rehm, J. (200?) The Burden of Disease Caused By Alcohol,” This volume.
Rice, D. Kelman, S. Miller, L. Dunmeyer, S. (1990) The Economic Cost of Alcohol and Drug Abuse and Mental Illness, 1985, DHHS Publication No. ADM90-1694, San Francisco: Institute for Health and Ageing, University of California.
Room, R. Babor, T. and Rehm, J. (2005), “Alcohol and public health”, Lancet, 365(9458): 519-30.
Single, E. and Easton, B. (2001), Estimating the economic costs of alcohol misuse: why we should do it even though we shouldn’t pay too much attention to the bottom line results, paper presented at the annual meeting of the Kettil Bruun society for Social and Epidemiological research on Alcohol, Toronto, May.
Single, E. Collins, D. Easton, B. Harwood, H. Lapsley, H. Kopp, P. and Wilson, E. (2003), International Guidelines for Estimating the Costs of Substance Abuse-Second Edition, Geneva, World Health Organisation.
Single, E. Robson, L. Xie, X. Rehm, J. (1998) The economic costs of alcohol, tobacco and illicit drugs in Canada, 1992, Addiction 93:7: 983-998.
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Acknowledgements
Serge Brochu, David Collins, Mike MacAvoy, and Pierre Kopp all commented on an early draft of this entry.

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Ethnicity and the Census: Statistics New Zealand Asks ”’whaddarya?”

This entry was posted in Listener, Literature and Culture, Maori, Statistics on by .

Listener: 25 February, 2006

Keywords: Literature and Culture; Maori; Statistics;

March 7 is Census Day, the day on which Statistics New Zealand (like Foreskin) asks “Whaddarya?” The Census may not cover all the questions you think important, but a good quality Census response makes the surveys that ask such questions cheaper and you are surveyed less often.

Most Census questions are straightforward. However, the ethnicity response is complicated. It is an important “whaddarya?” The 2006 Census is asking exactly the same question as in 2001. Its notes give no guidance. You respond as you feel. It need not be a race-based response. We know there are people of part-Maori descent who say they are not of Maori ethnicity. And there are those who say they are of Maori ethnicity but have no Maori ancestors.

I shall write: “Pakeha.” Asked whaddarya? when I am overseas, I say “New Zealander”. But at home I provide a finer distinction, because I respect the 30% who say they are “Chinese”, “Maori”, “Samoan” or so on, as well as being New Zealanders. I am comfortable with “Pakeha”, which Henry Williams used for the translation of “European” in the Treaty of Waitangi. A missionary using “Pakeha” in an official document shows it is a dignified word.

Ethnicity is such a nuanced notion that the Census allows us to record multiple options, publishing detailed tables so we can trace how groups respond. But for public purposes we need a summary.

Until recently, the practice was “prioritisation”. All those who ticked “Maori” were classified as of Maori ethnicity, even if they ticked other categories as well. Pasifika peoples were similarly counted (unless they were already in the Maori classification), and so on. The proportion of (ethnic) Maori in the 2001 Census Population was reported as 14.7%. But 44% of them said they were something else as well. This group is particularly prone to multiple ticks. Only 8% of the whole population gives more than one ethnicity. Those who ticked “Maori only” came to but 8.2%. (See table.)

Such prioritisation is insulting to those who ticked Maori and something else: they clearly did not want to be classified only as Maori. It is also insulting to those who only ticked Maori, since it is diluting their ethnic commitment.

Worse still, it has distorted public discussion. Sure, there are about 15% who think they are whole or part Maori ethnicity. But often the relevant proportion is the 8.2% who think themselves as sole Maori. (That better explains the number of Maori electoral seats, for instance.) It’s a case of Gilling’s law. The statistician’s technical prioritisation rule has changed the way the nation thinks about its ethnic relations.

Realising this, Statistics New Zealand now simply records everyone by all the ethnicities they report. That means, unfortunately, that the total of people’s ethnicities exceeds the total number of people, since multiple tickers get counted more than once. If you know what you are doing, it does not matter, but, in a recent report, I had to laboriously explain this complication.

There is a simpler solution. Suppose we record a new ethnicity, “Maori-Pakeha”, which is all those who tick both categories. We are not inventing it. You already did that when you designated yourself that way.

The shares of the population by large ethnic categories in 2001 were sole New Zealand European 72.8%, sole Maori 8.2%, sole Asian 6%, sole Maori-Pakeha 5.4%, sole Pasifika 4.6%, sole Other (eg, African) .5%, with only 2.5% of the population reporting they belong to two or more of these categories.

But this is statisticians resolving technical problems. What is really important is that over 5% of New Zealanders say they belong to an ethnicity that has components of both Maori and Pakeha. They are entitled to be recognised in the statistics and in public policy, and to be celebrated as part of the exciting ethnic diversity that is evolving in New Zealand.

Whaddarya According to the Census

  Only Multiple ’Priority’
European 72.8 80.1 72.8
Maori 8.2 14.7 14.7
Asian 6.0 6.6 6.3
Maori-Pakeha 5.4 n.a. n.a.
Pacific Islander 4.6 6.5 5.6
Other 0.5 0.7 0.6
More-than-one 2.5 n.a. n.a.

n.a. = not applicable.

Our Treaty: What Can the Treaty Of Waitangi Mean Today?

This entry was posted in Listener, Maori, Political Economy & History on by .

Listener: 11 February, 2006.

Keywords: Maori; Political Economy & History

I was appalled by the proposal that the government should ban the teaching of the Treaty of Waitangi. Repressing bits of disapproved history is the practice of despotic regimes, not of liberal democracies.

Although the Treaty may be divisive today, hiding from the dissension will not resolve it. History, if we teach it, reminds us that although 19th-century Europeans ignored the Treaty, discussion continued on the marae. Today we are confronted with the breaches that occurred during the years of neglect.

How are we thinking about the Treaty? It evolves, just as it has in the past. Its Third Article extends the rights and privileges of British subjects to Maori. In 1840, women did not have the vote. It would be plain stupid to stop Maori women voting on this basis.

Eminent jurist Ronald Dworkin likens the evolution of law to each generation adding chapters to a novel. They can write what they like, providing they do not contradict what is in earlier chapters. Similarly, we can update how we apply the Treaty, providing it is consistent with the past.

Article Three does not present a problem. It is easy to extend it to all the rights that apply today, be they “British” or international law or whatever.

Nor is Article One a problem. The government of the country was ceded to Queen Victoria and her successors. Not only does that establish a basis for government in New Zealand, but also it allows considerable freedom as to what it may be, providing it develops in a proper way from an earlier regime (just as a story does). Under the First Article provisions of the Treaty, New Zealand can become a republic, should we want, if it occurs as a part of constitutional evolution.

It is the Second Article – about ranga-tiratanga or property rights – that causes the division. The public debate, from most sides, implies that Article Two applies exclusively to Maori. That is literally true, but it does not make the article racist. The article says that Maori and their successors have certain rights. So, too, do individuals and families. If the government breaches them, as when it unjustly seizes anyone’s family property, there is a grievance for generations to come until it is remedied. That is what the Waitangi Tribunal process is about.

But the Second Article need not, as some liberals seem to feel, just create an obligation to be nice to Maori. Without undermining the specific 1840 intent, the article can be extended to include everyone. For if it is saying that, in 1840, the government should not unjustly seize Maori property, it must also be saying that the government should not unjustly seize anyone else’s private property, either. Not to thus extend it would be racist.

The principle is not peculiar to the Treaty. MP Shane Jones recently reminded us that the Magna Carta (aka “Te Tiriti o Runymede”) says, “If we [ie, King John] have deprived or dispossessed any Welshmen of lands, liberties, or anything else in England or in Wales, without the lawful judgment of their equals, these are at once to be returned to them …” Whichever version, the principle of the integrity of private property rights makes good sense. The stability that it gives is a cornerstone of economic progress. Our European forebears regrettably often ignored the principle when it came to Maori property. Remedying the mistakes of the past is not only correcting the injustices, but reaffirming the integrity of private property.

Some Maori argue that the “rangatira-tanga” of the Second Article refers to the wider notion of autonomy (of which property rights are only a part). I do not always agree with their proposals for its implementation, but the principle that private organisations (and individuals) have the maximum practical independence from the state is called “subsidiarity” by European theorists. The iwi are such organisations: so is the local bowling club. From this perspective, the Second Article is about decentralisation: again a central principle of a liberal democracy.

We can elaborate the Treaty so that every article applies to all of us, and underpins a liberal democracy. Better that than the censorship of the authoritarian state.