A Dissertation on Rare Essays

Presentation to ‘First Loves’, a session at ‘Reader’s and Writer’s Week, 17 March 2002.

Keywords Miscellaneous

Sometime in middle school – between Standard Three and Form Four – my class was read Charles Lamb’s Dissertation on Roast Pork. It may have come from a school journal, because others of my age have a similar memories, whereas commonly those who are a little younger dont know the essay. …

… Whether it was the decision of a teacher or a journal editor – both I suppose – I was transported into the realms of gold by the essay form. I still read essays, but they are typically from overseas journals – The New York Review of Books, say.

Consider a recent London Review of Books essay on escalators, by their art editor Peter Campbell. It opens, oh so seductively, ‘stepping onto an escalator is an act of faith’ – like beginning to read an essay – and then goes through much detail on the escalators in tube stations to move onto a discussion on the privatisation of public transport. The romp around the London Underground finishes that ‘one would scamper down a stalled escalator once in a while.’ completing the circle to the essays opening. I learned this trick of starting from one issue and concluding almost on another from Lamb. The Listener column I filed on Friday is an example of the technique, although its title – ‘Guard Dogs that Fail to Bark’ – misleads about the size of the gap between the column’s opening bark and the tail which wags it.

Yes, the columns in our dailies and weeklies are the modern New Zealand essay. Sadly, many are not crafted, but hurriedly ripped off on a predictable topic with predictable content, to meet an editorial deadline. Their one merit is they fill the space set for them. Few of the columnists are subtle or deep or sophisticated – the best tend to be humorous. Even fewer capture that indolence that Lamb used to conceal his craft. The biggest contemporary influence on my short essay or column is The (London) Economist: style that is, we dont agree on policy.

Columns are short, and opportunities for longer essays are very limited. The great venue was Landfall under the editorship of Charles Brash. But alas that vision has disappeared. Why are short stories still acceptable, but the essay hardly at all? They are closely related forms, differentiated by notions of truth: the essay has an ongoing external truth, the short story’s internal truth being part of a larger external one. Lamb on roast pork embodies much of a short story, which perhaps enabled me to reach out from the form I already knew, to the elegance of the essay.

I enjoyed Michael King’s Tread Softly, and I am looking forward to reading Greg O’Brien’s After Bathing at Baxters launched a couple of days ago. Many readers have treated my The Nation Builders, as a series of essays. In a way each biographical chapter is, but they are intricately and independently linked, so it is also a thesis – a book. But be it King, O’Brien or Easton, these essays are generally written for A SERIOUS PURPOSE. The joy of writing an essay for the sake of good writing, for the sharing with the reader, for amusing and informing her or him – the joy kindled by that first love from the reading of Dissertation on Roast Pork – is, alas, a charm from a distant era.

Canterbury and Globalisation

Overheads for Environment Canterbury Seminar 13 March 2002

Keywords: Growth & Innovation

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

GLOBALISATION DEFINED AS

THE CONSEQUENCES OF THE DIMINISHING COSTS OF DISTANCE

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

GLOBALISATION IS A PROBLEM

BECAUSE

DIFFERENT DISTANCES DIMINISH AT DIFFERENT RATES

– INFORMATION

– PERSONS

– GOODS

– HEARTS

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

EXAMPLES OF GLOBALISATION

REFRIGERATION

MESSAGES

CONTAINERISATION

TRAVEL

TELEVISION

INFORMATION

MOBILE PHONES

FACTORIES – LARGE/SMALL

WHOLESALERS

COMMUNITIES

YOUR TURANGAWAEWAE

TELEVISON/TRAVEL/SUPER 12

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

OLD INDUSTRIAL STRUCTURES

PRIMARY – NEAR RESOURCES

TERTIARY – NEAR CONSUMERS

SECONDARY – TRADEOFF OF TRANSPORT COSTS VS ECONOMIES OF SCALE

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

NEW INDUSTRIAL STRUCTURES

PRIMARY

SERVICES NEAR CONSUMERS

SERVICES – CONSUMERS MOVE

SERVICES- INFORMATION CONNECTIONS

MANUFACTURING – LARGE SCALE

MANUFACTURING – SMALL SCALE

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

THE DETERMINANTS OF LOCATION

RESOURCE INDUSTRIES

INERTIA

MARKETS

ECONOMIES OF SCALE

ECONOMIES OF SCOPE/EXTERNALITIES

SPECIALISATION /CONNECTIONS

NICHES

AMBIENCE/LIFE STYLE

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

THE FUTURE OF GLOBALISATION

MOMENTUM (FOR DECADES?)

COULD THE COSTS OF DISTANCE CHANGE DRAMATICALLY AGAIN?

INFORMATION

PERSONS

GOODS

THE HEART

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

THE IMPLICATIONS FOR CANTERBURY

SOME BUSINESSES WILL CLOSE DOWN AS THEY CONSOLIDATE ELSEWHERE

BUT THOSE SAME PROCESSES WILL CREATE POSSIBILITIES FOR OTHER BUSINESSES

– LOW ECONOMIES OF SCALE

– LOW DISTANCE COSTS

– REASONS FOR BEING HERE

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

IDENTIFYING THE GROWTH INDUSTRIES FOR GLOBAL SUCCESS

STAY AWAY FROM THE HAS BEENS

DONT STEAL

THINK GLOBAL

SMALL SCALE

LOW DISTANCE COSTS

HIGH EXPERTISE

CLUSTERS

RESOURCE BASE

INTELLECTUAL BASE

Of Roast Pork: Treasury Debates the Economy

Listener 9 March, 2002.

Keywords: Growth & Innovation;

Just before Christmas the Treasury released seven papers on the ‘economic transformation’, the government’s term for where it wants the economy to go. The papers are individually authored, and do not represent the Treasury view. Indeed the Treasury has not yet got one. …

… (Given the precipitate policies of the 1980s, that is good news.) Rather, the papers are a part of the debate which is going on within the Treasury. There were such debates in the 1970s but the Official Information Act and electronic publishing mean that nowadays they can be more public. (The papers are available on www.treasury.govt.nz.)

Two of the papers – The Impact of Size and Distance on New Zealand Firms by Geoff Simmons and The Behaviour and Performance of NZ Firms by David Skilling – are really research papers, which ought to be done in the universities. They attempt to link firm size with exporting, but they give insufficient attention to exporting as a cluster activity, so that some of our smallest firms – farms – are our biggest export producers, because they use large agencies (such as Fonterra) to do their overseas selling.

The papers are trying to support two earlier papers by Skilling, The Importance of Being Enormous and Comparative Disadvantage. The papers seem to me to be profoundly wrong, when they argue the New Zealand economy is handicapped by its size and location. They only look at the last half century and do not consider how a much smaller and more distant (in economic terms) economy was doing so much better fifty years ago relative to the rest of the world. Something else must be happening. Because the papers ignore the diminishing distance, they do not consider its implications. It would be like explaining the long depression of the 1870s and 1880s by the distance of the world was from New Zealand, and not noticing that by the 1890s refrigeration and the telegraph had dramatically lowered effective distance.

Skilling’s fourth paper, The Cheque’s in the Mail, will no doubt be widely quoted as the first public admission by a Treasury official that the reforms have not been successful (but remember, it is not THE Treasury view).
“… there is little evidence of ongoing productive and dynamic efficiency gains in the business sector. That the improvements in growth have been small 17 years after the commencement of the reforms is concerning … My interpretation is that any further gains from the 1984-96 reform process are likely to be small, and will not improve NZ’s potential growth rate.”

Subject to a caveat below, I broadly agree with this conclusion, but I certainly do not agree with Skilling’s analysis. His papers see a steady slide down the OECD ladder in the post-war era. That is inconsistent with the evidence. The economy mainly lost its placing following two major shocks – in the late 1960s when the price of wool collapsed, and the late 1980s when there was a grossly overvalued real exchange rate. If Skilling was right about the remorseless decline, the best option might be to migrate. Because he is historically wrong, there may yet be a future for New Zealand.

Struan Little’s Lessons from the Losers compares the economic performance of four unsuccessful small economies (Uruguay, Switzerland, Tasmania and Canada’s Atlantic Provinces) and four successful ones (Denmark, Finland, Iceland, Ireland) to draw conclusions – generally that the conventional wisdom is wrong on some matters it is passionate about, like high government spending is a handicap to growth. (It seems not.) The paper is too dense to summarise here, but well worth reading.

Jas McKenzie’s Lessons from the Past reminds us that some – but not all – of the reforms of the 1980s were sensible. For him the key gain was the switching from an inward-looking growth strategy to an outward-looking one (called ‘Open Growth’ in my 1990 book). He does not think the switch was well managed (although he does not go as far as I do, to argue the macro-economics were so badly managed that the economy was set back a decade). The paper asks ‘where’s the roast pork’, recalling the same query by Secretary of Trade and Industry, Harry Clark in 1985, which alluded to the Charles Lamb essay in which a peasant invented roast pork by burning down his house.

McKenzie is more optimistic than Skilling, thinking that ‘there is now a very good platform for moving forward’, because more businesses are outward looking. If he means we are now capable of growing at the OECD rate again (Skilling’s thesis is that we will continue to slip), then I broadly agree (providing we maintain an open growth strategy). If McKenzie means we can grow significantly faster, the case is unproven. I am doubtful we will catch up the deficit caused by the macroeconomic mismanagement of the 1980s and 1990s for a very long time – if ever.

These are but some views from the diversity of Treasury officials. Regrettably there are none from its rogernomes. (There must be some, reflecting the diversity in the profession.) Whether they are in or outside Treasury, they will not have had much roast pork.

The Macroeconomics Of the Superannuation Fund

This was a note I prepared: 24 February 2002.

Keywords: Macroeconomics & Money; Social Policy;

Unfortunately the debate on the superannuation fund established by the Labour-Alliance Government in 2001 has largely ignored its macroeconomic effects. This paper takes the orthodox position that a government has to manage its fiscal position, including its deficit or surplus. There is no necessary rule – such as that propounded by the US right – that sets an a priori level for the fiscal position – such as the government should be in exact balance.

The Historical Perspective

The judgement from historical experience, underpinned by a theoretical perspective is that the New Zealand government should run a surplus on its current account. For most of the post-war era it did. Except in periods of extreme stress (or manifestly incompetent management) current revenue exceeded current outlays. The surplus was then invested in the state owned enterprises – electricity, communications, transport … – which however required more funds than the current surplus (and depreciation) provided. The government borrowed to fund these businesses’ investment, and so its overall position on current plus capital account was a deficit – it is was a net borrower.

The point here is not to defend the effectiveness of the investment in state owned enterprises, which is a growth and efficiency issue. The point is that for macro-economic purposes the government usually ran a current account surplus (a.k.a. the ‘internal’ current surplus), which was invested in productive enterprises. When the government divested itself of these enterprises it was no longer required to invest in them. Now they went directly to the financial market to raise funds, so that the macro-economic pressure on economy did not change much. (There is a second order effect from the balance between public and private financial paper, but that need not bother us here. Privatised Telecom’s bond may be judged by the market as only a little different from a government bond.)

Following the prolonged fiscal reorganisation of the 1980s, the 1990s saw the return of the current government surplus which had dominated the post war era. In my view – I set out the macroeconomic theory below – that surplus remains as necessary as it was in the past. In particular it is not available for current consumption (either as higher government expenditure, say on education and health, or higher private expenditure, say with lower taxation or higher social security benefits). One of my anxieties is that because the debate has ignored these macroeconomic issues, and the theory set out below, it will lead to fiscal irresponsibility, and ultimately fiscal instability and poor economic performance.

The Theoretical Perspective (1)

The following macroeconomic theory is orthodox. (I shall mark the one step which is not wholly accepted). Basically the argument is that given the poor domestic savings record (relative to total investment) the New Zealand economy needs a government current surplus to reduce the balance opf payments deficit which will contribute to New Zealand’s growth prospects.

The analysis begins with the standard national accounting identity that output (GDP = Y) is the sum of a series of expenditure comments.

Y≡ C + G + I + X – M,

where the relevant variables will be defined below. The equation can be rewritten

M – X ≡ (I – ((Y – T) – C)) + (G – T)
or
M -X ≡(G – T) + (I – S).

That is the deficit of the current account of the balance of payments (Imports (M) less Exports (X))
equals
the deficit in the public sector (Government Spending (G) less Taxation (T)) plus the deficit in the private sector (Investment (I) less Private Savings (S)).(2)

The import of this is that a smaller government sector deficit (or a larger government sector surplus) will contribute to the reduction of the current account (external) deficit.

There are a number of reasons why a smaller external deficit (all other things being equal) may be preferable, but they are often of second order.(3) There is a compelling first order reason. A large external deficit is associated with a high real exchange rate. A high real exchange rate discourages the tradeable sector. (The inverse of the real exchange rate is a measure of the profitibility of exporting and import substitution. (4))

In my view – it is the theme of my book In Stormy Seas – a competitive tradeable sector is the key to the growth performance of a small open multisectoral economy such as New Zealand. First it can grow faster than the economy as a whole as it penetrates overseas markets. Second this fast growth is usually the result of new technologies and other productivity improving activities (which, it must be added, feed from the tradeable sector into the domestic sector). That the New Zealand producers are competing against foreign ones forces them to adopt new and best techniques in a way that need not happen in the sheltered economy. Third, the tradable sector generates and conserves one of the most scarce of all resources – foreign exchange – which is demanded by consumers (and in New Zealand’s case investment) as the economy grows, and a shortage of which can choke of growth. (5)

Thus by maintaining a current internal surplus, the government can contribute to economic growth by keeping the external deficit down, and so increasing the profitability and ultimately the growth, of the tradeable sector which drives the growth of the economy. (While Keynesianism is often associated with deficit financing, this policy prescription – as distinct from the prescription that the surplus or deficit must be managed – only applies in particular circumstances, and arose when governments were large investors in enterprises and infrastructure.)

IIt should be noted that the history, and implicit in the application of the theory, makes the behavioural assumption an inability of the private domestic sector to fund the private investment required for economic growth. While we have exaggerated the failure of private savers (because the rhetoric ignores there is an interaction between the household saving on which it focuses and business savings which it ignores) there seems to have been a deterioration in the last fifteen years, which suggests a higher current internal surplus may be required. (6))

Implementing the Strategy

What we have seen here is that the New Zealand government needs to run an internal current surplus as a part of its economic growth strategy. The practical issue is what it is to do with the surplus. Aside from consuming it, and damaging the growth prospects, the viable strategies include:

1. Invest it in state owned enterprises. This was the strategy until the mid-1980s. It is not possible now because there are not the same depth of SOEs. (There is also the issue as to how wisely the government invested in the past, and to what extent it could more effectively invest in the future. One of the reasons for the government divestment of the SOEs was the lack of confidence in the ability of the political process to invest efficiently.)

2. Pay off government debt. This has been largely the strategy of the 1990s, and was probably a prudent thing to do given the high government debt. But eventually there will be no government debt to pay off, and in any case some public sector bonds are almost certainly necessary for the efficient working of the monetary system. (The government could go on to accumulate significant foreign assets. Probably this is impractical – leaving aside the domestic consequences – given that there will arise an almost irresistible public clamour to spend them.)

3. The government invests directly or indirectly in private enterprises. This strategy happened in the past through such mechanisms as the State Advances, the Rural Bank, the DFC, the contribution of the funding of Tasman and NZ Steel and so on. (Nationalisation may also seem to be another example, although strictly the purchase itself is portfolio rearrangement.)

This option has to be considered, not for ideological reasons of public ownership, but because prudent macroeconomic management requires it. Indeed I would greatly regret if the issue became an ideological debate over nationalisation, rather than a technical one of the best way to bet the macroeconomic balances right.

Any investment of the government surplus arising from these macroeconomic considerations in the private sector should be largely on the basis of commercial criteria. If there is a belief there is a need to subsidise or provide incentives for some particular enterprise or industry, this should be done with another policy instrument (and that should be transparent). (8) Moreover, any investment should be relatively conservative and low risk. As good a model as there is for such investments is a pension fund, especially if there is separation between the managers of the fund and the government.

I do not know whether the logic of the analysis set out here had any influence of the thinking during the development of the Cullen proposed superannuation fund. However as I understand the institutional arrangements, the outcome is not inconsistent with the pragmatics set out above. This does not mean the scheme is macroeconomically perfect, and cannot be fine tuned. But the broad structure seems sound.

There are potentially three other advantages to the arrangements. First the government has on its books an item which reminds us that we have a growing problem of funding New Zealand Superannuation (and, more generally of providing for the elderly) as the population ages. The amount is not an actuarial representation of the actual situation, but at least there is an institutionalised marker.

Second, the scheme does not interfere with private provision.

Third, the fund and its investments are less vulnerable to political interference, especially of the form in which the public wants the funds to be used for a (temporary) increase in consumption by selling off the investments. That the funds are instead being used for New Zealand ownership of New Zealand enterprises offers an understandable alternative that would be supported by many New Zealanders (and New Zealand businesses).

Summary

The public debate over the scheme has been largely in terms of it as a pension scheme for individuals. As such it has missed the macroeconomic implications of the scheme, which on the basis of the above analysis seem to be largely beneficial.

If the aim of the fund is to increase the prospects of the nation being able to handle the growing numbers of elderly in the future, the greatest gain is likely to be from the improved macroeconomic management of the economy.

Endnotes
1. The analysis here has been simplified (e.g. there is no government investment nor public non-taxation revenue, the flows are measured net), but the conclusions are robust to such simplifications.
2. Private Savings (S) = Total Income (Y) less Taxation (T) less Private Consumption (C)
3. Lower overseas debt means the gap between domestic production and national income is smaller.
4. Although import substitution can be important in principle, I do not see many prospects for efficient import substitution in practice at the moment, so the remaining account focus on exports.
5. While the views expressed in this paragraph do not seem particularly contentious, I am not sure they are as vigorously held as I hold them.
6. The so-called ‘Ricardo’ effect in which public saving is offset by private dis-saving has little behavioral credibility.
7. It is tempting to suggest the investment should be solely in the tradeable sector. Such a strategy should be eschewed insofar as it offers low cost funding to exporters. Their profitability should be governed by the exchange rate, and I do not see a case for additional support. If there is, it should be transparent.

Terrorism and the WTO: The Importance Of the Rule Of Law

Listener 23 February 2002

Keywords Globalisation & Trade; Political Economy & History

I fear the terrorists have won. Oh sure, they may all be eventually eliminated by the efforts of the Western Alliance, but another generation will rise, who will have had confirmed that the methods of bullies and thugs are justified. …

… Many people live in political systems where such arbitrariness and tyranny predominate. But we in the West generally do not. A few hundred years ago it did, but our sort of society evolved a system of the rule of law in which the brutal power of the executive was increasingly restrained.. The Red Queen’s ‘Sentence first – verdict afterwards’, is a joke to us, but a barbarous reality in some regimes, where even the trial, if there is one, can be a farce.

The terrorists were bullies when they crashed planes into buildings. They may argue that their actions were justified by some higher power, of which they were the sole judge. (The English cut off the head of the head of a king who argued that.) When America and its allies struck back against those who they deemed terrorists, they were appealing to the same principle. (The British government at least admitted they did not have enough evidence to convict Osama Bin Laden in a court. But they sentenced him anyway, and joined in the attempted execution.) The West’s responses sets a bad precedent for any terrorists: might is right; bully if you can get away with it.

The rule of law not only protects our human rights, but in doing so it protects private property rights, the result of which has been to promote economic growth. Thus the prosperity of security against arbitrary interventions by the state, is combined with material prosperity as business takes place in a context where outcomes are not upset by arbitrary interventions, and where there is the security of knowing that the proceeds of successful enterprise will not be arbitrarily confiscated.

While this broadly applies in some economies – perhaps not a majority of them, although in all prosperous ones that do not depend on quarrying resources – does the rule of law apply to trade between economies?

It is getting there. In 1999 the US slapped a tariff of at least 9 percent and up to 40 percent on our lamb exports despite an agreement that it was bound to (could not be higher than) only a few cents per kilo. The surcharge was entirely for domestic political purposes, and it may have cost New Zealand farmers up to $45m over three years. Our redress against the bullying was to follow World Trade Organisation (WTO) procedures, which found in our favour. The US, having stated it was bound by international trading rules, reduced the tariffs to the bound levels.

The role of the WTO is to develop a rules based international trading system, where traders cannot do the equivalent of acts of terrorism or invading other countries because they are angry. Of course the exact rules matter and, just as in our history, the powerful are most active in establishing them and the rules the create favour themselves. But rules evolve. When signing the Magna Carta the barons meant literally that they should be judged by their peers, and did not envisage the day where the principle would apply to their serfs.

Today’s barons are countries and corporations. How should New Zealand, down at the serf level, approach the WTO? In my view we should welcome the development of rules-based international trading system, but criticise – preferably in association with other small like minded nations – where the rules favour the powerful. But in the end we must expect – with rare exceptions – to sign up, even where the rules are onerous.

We should vigorously promote human rights, minimum (appropriate) working conditions, environmental standards, and the protection of culture and national identity. Sometimes another agency may be a better means of regulation, such as protecting working conditions via the International Labour Organisation conventions. But we should reject the principle that every existing job must be permanently protected, which seems to be the only concern of some – but not all – protestors against the WTO (their own jobs of course). Other non-governmental protestors will contribute to the development of more humane and ecologically sustainable ones.

(The logic of the evolution of a rules-based international trading regime does not apply to bilateral trading deals. We seem to be involved there because competitor countries, especially Australia, want them, and we fear being discriminated against if we dont join in. )

A common complaint against the WTO is that it reduces national autonomy. Sometimes it has tried to unnecessarily. But usually the loss of autonomy begins with the country getting involved in international trade. That is the point of the rule-of-law based societies. Once involved in social intercourse, we give up some autonomy. Rules and conventions in a civil society dont reduce autonomy, but enable it to be maximised. They limit tyrants, bullies, thugs, terrorists and other savages. We should pursue the rule of law in international trade: we should pursue the rule of law in international politics.

Mind Your I’s and Q’s

Book Review of Capitalism and Social Progress: the Future of Society in A Global Economy, by Phillip Brown & Hugh Lauder (Palgrave, $67.95)
Listener 16 February, 2002.

Keywords Political Economy & History; Labour Studies

The book recalls ‘in the aftermath of the Second World War the state emerged with a new mandate to create greater economic security and opportunity, where all would see their slice of the cake increase even if some were getting more than others.’ It was a ‘“Golden era” of western capitalism … built on “walled” economies of massed-produced goods and services which offered a decent family wage to low-skilled workers. … Much of the prosperity in this period depended on a political settlement between the state, employers and workers.’

The broad details of the era applied as much to New Zealand as to other Western economies, And as here, throughout the West it broke down in the 1970s. The authors suggest a couple of reasons. Partly there were inherent contradictions: the era spoke of equality but it treated genders unequally and barely recognised minorities. The authors note the structural change in the 1970s’ world economy, with lower true profitability and slower productivity growth. (I would add some critical technological changes and the social diversification arising from affluence.)

The breakdown led to an intensification of globalisation. There are many books which tell this story. This book’s interest derives from the two professors of education distinctive perceptions about future possibilities. The ‘Golden era’ cannot be recreated. Instead we need to harness the ‘forces of knowledge-driven capitalism’. They particularly emphasise ‘collective intelligence’, which is ‘integral to the reinvention of society’.

There is a fashion for combining two grandiose words to give the impression of a deeply significant concept which is as shallow as the writer. (Most purveyors of ‘social capital’ have little understanding of the meaning of ‘capital’.) ‘Collective intelligence’ would appear to be such a phrase, except the writers are expert, and earlier in the book set down much of the professional understandings on the underlying notions. They argue we must ‘reclaim “intelligence” from the grip of the eugenics movement and from its impoverished representation in the form of IQ tests. … The idea of intelligence in the Golden era is redundant in the world in which we live.’ It now has to encompass the artistic and emotional dimensions of human capability, the ability to solve problems, to think critically and systematically about the social and material worlds, to apply new skills and techniques, to empathize and to have personal skills needed to communicate and live along side one another.

The ‘collective’ comes from the author’s rejection of individualistic accounts of the human condition. ‘Private troubles felt by people require public solutions, which cannot be resolved without collaboration with family, friends, neighbour, co-workers or fellow citizens. In post-industrial societies it is the collective intelligence of families, communities, companies and society at large, which will determine the quality of life as well as competitiveness.’

This leads to a stimulating discussion of the learning state and the high-skills economy. What a pity that the authors were not asked to speak to last year’s Knowledge Wave Conference (especially Hugh Lauder, who was a New Zealand university teacher and also published poetry here). It would have had a more focussed outcome if they had.

Subjects Education, Growth & Innovation, Labour Studies

The Other Side Of the Ditch Cartoon Exhibition

Notes for Panel Discussion, National Library, 14 February, 2002.

Keywords: Globalisation & Trade; Literature and Culture;

The superficial relationship between Australia and New Zealand was captured by last night’s Evening Post article ‘Why do We Hate Australia?’. The short answer is, of course, if the ‘we’ refers to New Zealanders, that we dont hate Australians – we have a complicated relationship with them which is similar to a couple of siblings living with one another in the same unfashionable corner of a city.

However if you are a columnist or a journalist the cheap easy is to vigorously pretend that we hate one another – or that we ought to – blowing past incidences into eternal grievances. Of course we should laugh at, like siblings do, over events of the past, the other’s foibles and the interactions that occasionally go wrong, perhaps with a gentle affectionate chiding. But ths is not hate. And note – as curator Ian Grant observed the smaller less successful sibling jokes more than the other, for there are more New Zealand than Australian cartoons in the gallery.

Yes, in many ways the Australians have been more successful than New Zealand in recent years. There are exceptions – not all of which are contestable – but that shallow journalists can list those exceptions reminds us that they are uncommon. So let me talk about the largest failure in my own area of economics.

I first got into the systematic comparisons of the Australian and New Zealand economies about twenty years ago, when international data began becoming available. Reflecting this improving data base, the Australians then had a richer more robust debate on their relative place in the world economy and it was natural to look to it as an alternative to the thinness of the New Zealand discussion. By about ten years ago it became quite clear that the Australians had managed their economic transformation in the 1980s better than we had, despite on some measures having the more difficult task. That superior economic performance applied through the 1990s, as a recent paper by Paul Dalziel confirms.

It seems that the superior Australian economic performance reflects superior economic policy. Both sides of the Tasman had vigorous advocates of those neo-liberal polices we call Rogernomics. The difference was we implemented them, but the Australians were much more selective, so the extremism of Rogernomics was moderated.

Why did the Australians fail to adopt rogernomics? The answer seems to be in the different constitutional arrangements. Until recently it was possible in New Zealand for a small group of politicians – inside parliament and out – to seize power and implement policy without any public consultation or agreement. If those policies are effective, then the economy benefits, but if they are flawed – in the way that rogernomics has proved to be – there is no mechanism to weed out faulty policies. This the story of the decade after 1984. Australian political institutions, with their complicated set of formal and informal checks and balances, broadly prevented the seizure of power by bolsheviks – albeit in this case bolsheviks of the right – and required policies to be debated and evaluated, so that bad policies get eliminated, or if implemented reversed as their failure becomes apparent. I add that MMP means seizure of power by bolsheviks – of the right or left – is much less likely nowadays. It is now an interesting question whether as to whether New Zealand or Australia has a better political framework for economic management.

One test may be the question of a common currency – which really is about New Zealand adopting the Australian dollar as its underpinning currency, in a manner similar to the Argentinians who until recently had a full US dollar backed peso, except their whole system has collapsed in the last month or so, to great economic and political turmoil.

It would be easy to argue that the New Zealand advocates for the common currency are post-rogernomes, and suggest that, like Jubilation T. Cornpone, undeterred by their ongoing record of failure they march from defeat unto defeat, . One might also note the incredulity (and mirth) of the Australian economics profession when the proposal was first mooted. Hooking into the Australian dollar may be in some New Zealander’s interest. A fixed exchange rate between one’s two markets is clearly advantageous to the exporter whose one ambition is to sell to Australia. Unfortunately over 80 percent of exporters, and over 90 percent of the economy, have other ambitions..

But really to argue the case we need to go back to fundamentals. At issue is a fundamental weakness of the economic model which Rogernomics used. Basically it is a one price model – the price between money and aggregate production. If relative prices between the various components of production and expenditure do not change or do not change quickly, then the one price model works reasonably well. But the reality is that sometimes prices of the components change rapidly. For instance the Argentinian crisis was precipitated by the US dollar rising relative to other currencies, which impacted adversely on the exporters who operated outside the dollar zone, and the import substitutors who competed against imports from elsewhere.

For a number of reasons Argentina was not a well run economy and we could easily get bogged down in the details of its failure. So consider another example of a country which was in a common currency which slumped into economic and social turmoil when there was a significant relative price shift: New Zealand in the early 1930s, when the economy had a common currency with sterling, which had the merit that most of our exports went to sterling destinations. Even so, when the world depression crashed New Zealand export prices relative to import prices, much of the policy of the time was focussed on how to restructure the domestic price levels. A part of that restructuring was the devaluation of the New Zealand currency against sterling – in effect the busting of the common currency union we had with Britain. In the seventy years since, New Zealand has never entered a common currency.. Nothing has happened since to suggest it will work a second time, if we get a major relative price shock – which the Argentinian experience shows remains a real threat in the volatile international system.

Why then advocate a currency union with Australia? As I have said up to 10 percent of the economy may be beneficiaries. And of course, those who have only got up to speed on the exceptionally simple one-price model (the model used by monetarists) are not going to see the treacherous prospects for a real economy with many prices. But I think there is a deeper issue.

There exists a group of New Zealanders who suffer from the colonial cringe – an inferiority complex about the prospects for New Zealand. They do not have that sturdy faith in the country being a success which I portray in my recent book The Nationbuilders, and which is common in Australia today. Instead they believe that New Zealand cannot make a go of it on its own, but needs to hook up with some bigger economy.

Australia is an obvious economy to combine with, and so little brother – lacking confidence – suggests he rejoins big brother. But if New Zealand is too small to go it alone, then the likelihood is that Australia is too small too. Its economy is after all only six time bigger than New Zealand. The two countries combined would be but 2 percent of the OECD. So let me make a prediction if New Zealand adopts the Australian currency. The benefits – if any – would prove minuscule. In a very short time the Jubilation T. Cornpones would be advocating joining their cousin, the United States of America.

Dont Cry for Us Argentina

Listener 9 February 2002.

Keywords: Globalisation & Trade; Macroeconomics & Money

Street demonstrations and the fall of four presidents in a fortnight tell us something is desperately wrong with the Argentine economy (which, with 56 million people, is the world’s 17th largest economy on some measures). It is a century since the expression ‘as rich as an Argentinian’ was in vogue, and many things have gone wrong since. But the precipitant of the recent crisis was the ‘currency union’ with the United States. The Argentinians had abandoned an independent currency and locked their peso to the US dollar. This ‘dollarisation’ is much stronger than pegging the exchange rate, as occurred in New Zealand before 1984. In a currency union there is a common currency – in effect the US dollar was the Argentinian currency, although they used a ‘currency board’ so that while there was a local currency, the ‘peso’, all financial contracts were effectively written in US dollars. The arrangement has the advantage of price stability if prices in the primary currency (the US dollar) are stable.

When the US dollar appreciated relative to the rest of the world, the peso lock-stepped up too. Suddenly the Argentinian exporters found they could not afford to export, while their domestic industries were destroyed by a flood of cheap imports. (Brazil began selling meat to Argentina.) Unemployment doubled. The obvious solution was to devalue the peso, but that is impossible in a currency union. Those who had peso deposits in banks wanted to convert them into US dollars before the devaluation. The government slapped on financial controls which had bizarre impacts: small businesses which traded in cash rather than credit found they had no customers. At the same time, people’s debts – their home mortgages – were denominated in US dollars, so a devaluation increased their debt burden. Even if you had a job you might wake up one morning to find your debt servicing had increased by around 50 percent. People took to the street, governments fell, Argentina reneged on its international debt repayments, and the peso was clumsily devalued. (The banking system may even collapse.) The currency union was destroyed forever – or at least until the Argentinians forget.

Twelve countries of the European Union have recently formed a currency union. They took a further step at the beginning of the year when they introduced EU wide notes. Could they too have a similar crisis? It is much less likely. The European economies are far more dependent on each other’s markets. (Only about a tenth of Argentine exports go to the US). There is a common labour market, so the unemployed can move to areas of labour shortage. (Argentinians cannot move to the US.) There is an, admittedly weak, fiscal union, which means that transfers could be made to struggling regions. (At best the Argentinians could only get international loans, which have to be paid back.) The fault is not that of the US. Argentina unilaterally locked to the US dollar, without any encouragement from America (other than from its right-wing ideologists).

Could this happen in New Zealand? It has. Until 1933 New Zealand was in a currency union with Britain. A different shock – compounded by a world depression – led to similar economic stress, including the Queen Street Riot. Could it happen again? Yes, if we form another currency union.

This is the official policy of Business New Zealand, who want a common dollar with Australia. (About a fifth of our exports go there.) A 1998 report by Victoria University of Wellington’s Institute of Policy Studies vigorously championed an ANZAC dollar. (Others at the time favoured an ANZUS one.) This column did not review the report because its monetary theory seemed exceptionally muddled, and there was no reason to waste the reader’s patience. But even the most superficial reading then would have observed the report paying little attention to the lessons that could be learned from the 1930s, which would have flagged that the report’s uncritical support for the ANZAC dollar was unwise. Today’s reader might reflect that there is nary a hint in the report that the sort of crisis which hit Argentina was a possibility under a currency union. The report is not the deliberation of policy analysis, but the rhetoric of policy advocacy.

When an economy is going well there is a wide range of economic managements which appear to work, and it is straightforward to advocate any one of them. It is when the vicious external shock happens – typically about once a decade for New Zealand – that the management regime really matters. When the sea is calm, the captain and steering hardly count. In stormy seas differences in policy quality come into their own. As Keynes said ‘economists set themselves too easy a task if in tempestuous seas they can only tell us that when the storm is long past the ocean is flat again.’

Gambling in New Zealand: an Economic Overview

Draft Chapter in Bruce Curtis (ed), Gambling in New Zealand (Dunmore Press, 2002) Chapter 3, p.45-58.

Keywords Regulation & Taxation

While the practice in New Zealand is to define the gambling industry as that which the Department of Internal Affairs is involved with – including casinos, the TAB, gaming machines, the Lotteries Commission and a host of raffles and housie evenings – it is not immediately obvious why the share market or the insurance industry should be excluded.(1) Both involve the purchase of entitlements with uncertain outcomes, and each involves some of the regulatory problems of ensuring the purchase being honestly managed. Moreover, much of the gambling industry uses the terms such as ‘investment’ with the implication that, say, backing a geegee is not very different from investing in GG Corp. However this chapter focuses on the DIA defined industry, perhaps because it is seen as recreational compared to insurance and equity investment, although their regulatory lessons will not be ignored.

Another industry where there are some parallels is the alcoholic beverage industry, insofar as both gambling and drinking can generate socially damaging consequences. It would be foolish to waste the lessons learned from alcohol regulation.

The economic framework of this chapter arises from taking the price system as one of our social coordinating mechanisms. If the true social cost of any transaction is reflected in (proportion to) the price involved, then the coordination system generates self-policing beneficial voluntary transactions, because a transaction will not occur unless the transactors each think each will be better off. In practice, the assumption of price reflecting social cost appears to apply for most transactions, but there are exceptions – ‘externalities’ – where the transactors do not (or cannot) take into consideration all the costs. For instance a drinker may be unconcerned that driving in an inebriated state may cause death and destruction to others. Insofar as the price of the drinker’s alcohol does not reflect that cost there is an externality. Economic policy is often concerned with minimizing such externalities, although there are other tasks, such as ensuring the transactors know the true prices.

Gambling has been associated with sin. Secular economics is inclined to abjure such judgements, leaving them – in economist’s Denis Robertson’s famous retort – to the Archbishop of Canterbury.

A variation is that gambling is essentially an economically regressive, that is it increases the inequality of wealth by transferring it from the whole population to a few winners. This is something economists should be able to address, albeit without necessarily imposing their own personal judgements on what is an acceptable wealth distribution. Capitalism involves regressive processes, in that it depends upon, and creates opportunities for, people attempting to improve their lot. Thus, Bill Gates becoming the richest man in the world was economically regressive. However a central feature of this process is that in doing so, it involves new products or cheaper processes which benefit others – in Microsoft’s case the benefits may be spread over perhaps of others. Most defenders of capitalism would say that the benefits from the innovation outweigh any wealth regressivity. Many would say that the evidence is that most often the overall outcome is a reduction in inequality – for income anyway – as competition shares the benefits of the innovation through the entire economy.

While there may be some – probably minor – offsetting gains from workers obtaining jobs in the gambling industry, generally gambling has these wealth regressive effects, without the innovation that goes with the just described capitalist process. (We should not make too great a distinction though. Keynes likened stock exchanges to a casino and, noting that it is ‘usually agreed’ that the latter ‘should, in the public interest, be inaccessible and expensive’, thought ‘perhaps the same is true of Stock Exchanges.’(2) Ambrose Bierce commented that ‘the gambling known as business looks with austere disfavour upon the business known as gambling.’(3)) It is a matter of public policy whether the regressivity from gambling is a reason for prohibiting or restricting it. The chapter returns to this issue in regard to taxation.

In practice the economics discipline simply observes people gamble, usually for pleasure. Even so it acknowledges that insofar as there are unusual and large externalities, there may be a case for specific regulation, and wonders uneasily about the wealth regressivity of outcomes. Thus the approach is to examine the gambling industry, from an economist’s perspective, in much the same framework as for any other industry, although it will be necessary to look at the peculiarities arising from the regulatory interventions. It then looks at the externalities arising from ‘problem gamblers’, and finishes by exploring some of the regulatory issues which arise as a result, including that of tax.

The Gambling Industry

It may be useful for non-economists to begin with the distinction between ‘turnover’ and ‘expenditure’. This is necessary because some proportion of gamblers’ outlays are returned. There are no comprehensive figures but in the March 1998 year, turnover seems to have been around $7b of which around four fifths was returned to the punters. (Table 1) It is not logical to compare a turnover with the usual measure of economic activity, GDP, any more that it is sensible to make a similar comparison for the high turnovers of financial markets (many of whose transactions also cancel out), or to measure a supermarket’s performance in terms of the cash handed across the counter and ignore that which is it returned in change.

The convention is to describe the difference between the punters’ outlays and their prizes as expenditure. This corresponds sufficiently closely to the National Account’s measure of GDP to allow the comparison that in 1998/9 expenditure on gambling in New Zealand was around 1.2 percent of GDP, or around 2.0 percent of Consumer Expenditure. It is not a big industry. The standard national accounts ‘contribution to GDP by industry’ table lists 30 industries. Were gambling to be separated out – instead of being in the cultural and recreational services industry – it would have been 27th.

Industry growth seems to have largely been due to new products, typically in new establishments. The nominal expenditure on ‘racing’ betting has hardly changed over the last decade, despite the introduction of betting on other sports. Nor has the expenditure on the New Zealand Lottery Commission products grown much over the period (after a boom in the late 1980s following the introduction of lotto). Growth in gambling outlays has been on gaming machines introduced in 1990 and casinos introduced in 1994. At least some of that growth of outlays on the new products may have displaced the more traditional forms of gambling. However, some may have come from increased tourist outlays, or from New Zealanders using domestic outlets rather than going overseas. (There seems to be no information on internet gambling, which technically occurs offshore). But assuredly a major source of the growth has been the attraction of new products.

It is easy to argue that this growth represented an economic benefit, problem gambling aside, because of the jobs and economic activity created. Economics is cautious about the magnitude of the gain, because the additional expenditures on gambling usually reflect less spending elsewhere in the economy and hence fewer jobs and less economic activity there. Insofar as some of the additional gambling is by foreign tourists (and especially when gambling opportunities in New Zealand are a reason for their coming to New Zealand), or where it results in New Zealanders staying here rather than go overseas to gamble, there are net gains to the economy. However, almost certainly the main gain is the additional pleasure New Zealanders obtain from the opportunities that arise from the new products. The economics discipline tends to be relatively unreflective about the exact source of the pleasure. The gambling may be incidental, as when one goes out with one’s mates for a flutter at housie or a casino. It may enhance some the pleasure on another activity, such as following horse racing. Or the individual may obtain greater pleasure risking some money on a gaming machine than spending it, say, at McDonalds. Economics simply acknowledges that people generally deem themselves better off because they take advantage of the new gambling products.

The gambling industry operates under specific statutes (as well as the general law), the effect of which is often to create barriers to entry for new businesses and impediments to innovation. Economists have an a priori expectation that the barriers to entry would discourage efficiency and innovation, both of which would reduce consumer welfare. However that has to be proven, and the alternative of an unregulated industry might be more inefficient and less welfare inducing than one with appropriate regulation. The reasons, for and consequences of, this regulation is the central concern of this chapter. Were there not such regulation, or need for it, the gambling industry would be one of numerous small industries which make a contribution to economic welfare by employing workers, resources and savings, and providing people with activities they appreciate.

The Economics of Problem Gambling

According to the 1999 New Zealand Gambling Survey, around 1 percent of New Zealanders were then problem gamblers (and they accounted for 20 percent of reported gambling expenditure, so each spends about 25 times as much as the average for the rest of the public). Other chapters address the details of this addiction. This chapter merely accept that there is an economic problem, in the sense that some people’s gambling behaviour generates economic externalities. The problem of such externalities has been best explored in the case of alcohol misuse, where around 5 percent of the population are deemed problem drinkers (drinking about 40 percent of the total alcohol consumed, or about five times as much as the average for the rest of the public).

In drawing parallels between problem drinking and problem gambling, the intention is not to suggest they are identical, nor that gambling addicts cause the same level of social and health havoc as alcoholics. However it is useful to reflect on the various ways that the community has tried to deal with the drink problem. In particular until the late 1980s, industry control was seen as the main way of dealing with alcohol problems. Since then there has been a switch to great emphasis on the normalcy of drinking, while policy instruments have been increasingly targeted on prevention of pathological behaviour, of both individuals and social groups. In the jargon this is a shift from ‘supply-side’ controlling of the detrimental activity, to ‘demand-side’ controls.

Yet although alcohol industry regulation before 1990 focussed on prevention of pathological behaviour by restrictions on industry activities, there is little evidence that it was effective. Despite limiting access to alcohol by restricting outlets by location, and by hours of opening (not to mention a host of petty restrictions on what may be purchased from, or consumed at, an outlet) alcoholism was rife, and death and injury from heavy drinking evident.

Following the 1989 Sale of Liquor Act, which was largely aimed to regulate the liquor industry much like any other, and specifically states that the only reason for a specific restriction is to reduce liquor abuse, there has been no upsurge of drunkenness. (Indeed alcohol consumption has continued to fall, although this probably reflects long term trends in social behaviour and attitudes, changes in the tax regime, and successful public health promotion policies, rather than the legislative change per se. More recently there may have been a surge in teenage drunkenness, for reasons possibly attributable to wider liquor advertising or the lowering of the drinking age.) Of course the industry remains subject to the ordinary requirements of industry legislation (such as outlets requiring consents under the RMA) but generally the production and distribution side of the industry is as unregulated as any other. There are some requirements in regard to customers, including minimum drinking and purchasing ages, and that those who inebriated should not be served. There has also been a vigorous public education campaign targeting alcohol abuse (especially at prone groups), rigorous measures to curb drunk driving, while the taxation has been raised and rationalised.

The point here is not to argue that exactly the same policies should apply to gambling (and it is certainly not to imply that gambling addicts should be treated with alcohol and drug addicts). The point is that a shift similar to that which occurred in the alcoholic beverages industry is occurring in the gambling industry, although perhaps less coherently because there has been no community-industry based equivalent of the Alcohol Advisory Council of New Zealand. It seems likely this trend to increasingly treating the gambling industry much like any other will continue, although there are some production side issues peculiar to it.

In summary, while not denying there is a problem of pathological gambling, it is not obvious that this should be the sole focus of regulating the gambling industry. Excessive zeal at the expense of normal gambling will result in welfare losses to the population as a whole, through reduced opportunities and inefficient uses of resources.

Production Side Issues

There is an association between gambling outlets and criminals, which must come partly because of legal restrictions on an activity for which there is a popular demand. Even if these restrictions were minimized there would still be an attraction for criminal elements, in part because gambling provides an opportunity to launder illegal acquired funds, and also because of the opportunity to bias outcomes against the apparent odds.(4) New Zealand has dealt with criminal potential by a licensing regime which involves the licensees to not have a criminal record. This seems eminently sensible, for it is a form of quality licencing not a substantial barrier to entry. Similar provisions apply to the car hire industry, but there is no shortage of crime-free taxi drivers.

The issue of the possibility of a business organizing its gambling operation in order to make an ‘unfair’ profit by biassing outcomes to favour the business, is more complicated. It is an old problem. The life assurance industry required statutory regulation from the nineteenth century for a similar reason. It probably cannot be simply covered by existing legislation, such as the Fair Trading Act, because of the complexity of the transaction (although of course existing consumer legislation applies to gambling and there may be usefully extended). In recent years the general approach in financial markets has been to provide investors with as much information as seems reasonable and then leave them to judge. However requiring, say, a casino to provide each customer with a prospectus would seem clumsy, while the consumer information provisions of the Fair Trading Act may not be sufficiently robust. It is not always obvious what information a punter requires. In the case of fixed odds betting, the true odds may be all that punters need to know. But it is hard to identify a meaningful set of information for, say, a lotto transaction. The finance industry and government are currently struggling with the required information for consumer credit transactions. There is no single parameter which really reflects the ‘true cost of credit’, although it may be possible to legislate for one which gives the borrower a rough indication of the return they face. Much the same complexities apply to gambling where there are not fixed odds.

Were there a demand, there would be a case for providing the odds for other fixed odds transactions, such as in casinos or gaming machines and housie. The remainder of the industry would then be dependent upon the trust of the punters, as for racing and the lotteries commission activities, underpinned by an annual report and parliamentary scrutiny. Raffles would require some other provision. This suggests that consumer information is not a justification for restrictions or barriers to entry where there are clear fixed odds, although there may be a role for licensing operations to eliminate criminal activity, and perhaps a case for some prudential supervision to ensure that the offered odds are true, where the punter cannot verify them.

In which case what is the justification for restrictions such as on the number of casino outlets and the prohibition of private bookmaking? Undoubtedly some of the public opposition is exaggerated fears of problem gambling – a reversion to the past liquor strategy of attempting to control outlets as a resolution. One suspects some of the opposition comes from puritanism – H.L. Mencken described it as being haunted that someone, somewhere, at sometime may be having fun – an externality the economics profession tends to dismiss, but which remains politically important. There is also a widespread belief that a casino (in particular) damages local interest in ways that resource consents do not fully take into consideration – but that is an issue for reforming the RMA. (As also in the case of the liquor industry another source of litigation is incumbent competitors try to use the regulatory environment to restrict entry of competitors.)

Whatever the personal view an economist, the discipline draws attention to the consequences of the barriers to entry, which are likely to lower efficiency and slow product innovation. In addition, in the case of casinos those regions which have them may benefit from their presence via the attraction of New Zealand tourist from outside the regions the expense of other regions.

Where it is harder to provide the consumer with meaningful probabilities – such as the lotteries and totalisers – there may be a case for closer supervision of those activities. A government-owned monopoly is one such means of doing so (which also enables the government to appropriate any monopoly profits). Even so, the economist would worry about inefficiency and reluctance to innovate. A government monopoly would provide evidence to deny both worries, but the economist is likely to be happier with a market test.

Another issue is the gambling business which does not (or cannot) pay its debts – the myth includes the (illegal) bookmaker who skips when the long odds horse wins and the raffle whose prizes are eaten up in costs. These are but examples of business failure, as occurs in other industries, although the likelihood of it happening may be higher because of the gap between the payment (bet) and the return (winnings). It is not obvious that this should be managed in any other way than through the usual market arrangements of the supplier’s reputation, the criminal law, and caveat emptor. It may be, as in the case of the financial securities and insurance industries, some not overly restrictive requirements could add to the effectiveness of the market information flows in gambling transactions too.

In summary, there are peculiarities of (parts of) the production process of the gambling industry which may require regulation (outside the issue of problem gambling). However the oddities are not unique, for they are found in different combinations and to different extents in other industries. Their experience suggests that there may not be an ideal regulatory regime and the regulator ends up being faced with uncomfortable tradeoffs.

Taxing Gambling

It is not obvious why the gambling industry should be subject to an industry specific taxation regime. (Of course, where applicable, the agency will pay generic taxes such as GST.) Even so, much of it has been. The explanation may be the historical notion of gambling being sinful, with the payment of taxation as a penance. But there is also the practical difficulty that most of the institutions providing gambling activities are not corporations (excepting casinos), and therefore do not pay taxation on profits via corporate taxes. Some tax may be to offset this loophole.

Whatever, the result has been a series of ad hoc gaming duties:
Totaliser duty is 20 percent of the betting profits of a racing club or totaliser agency board;
Lottery duty is 5.5 percent on all tickets (and so on) sold on behalf of the Lottery Commission;
Gaming machine duty is 20 percent on the profits of dutiable games;
Casino duty is 4 percent on the ‘casino win’.

Most gambling activities also make a ‘community contribution’.
– The TAB contributes to the costs of the racing industry and makes grants to other sports. (It could be argued that without these transfers the racing industry would collapse, to the detriment of the punter. Those who follow sport without punting are also beneficiaries of these payments.)
– More than a fifth of the outlays to Lotteries Commission products are distributed by the New Zealand Grants Board to community causes such as arts, sports, charitable and community causes.
– A smaller proportion of turnover from the outlays to private gambling businesses is disbursed in a similar manner.

Since the punter has no control over these grants, and since they are not a cost of running the activity, they may be thought of as a ‘voluntary’ tax. (Economic analysis might suggest that if there was open entry to the gambling industry, these grants would be would be driven down to near zero, so they might be thought of as an element of monopoly profit.) But there also seems to be an acceptance by punters that they should make a community contribution. This may seem irrational – or a penance for the guilt of sinful gambling – but this public willingness to pay a voluntary taxation reduces the dependence on compulsory taxation.

Taxing Gambling Per Se

Insofar as the taxation is on gambling per se, rather than as a substitute for a tax on operator profits, consider the specific taxation on alcohol. Again the justification for special taxation because of a view of the sinfulness of alcohol has been a part of the story but, practically, excise duties have been relatively easy to collect, because of the restricted numbers of points of wholesaling (although that is less true for wine, and there are leakages such as smuggling and home brewing). In these secular days sinfulness is less attractive as a justification for taxation. Today there are two broad reasons for taxation on alcohol.

First, it remains relatively easy to collect. (There is the added attraction that the deadweight loss
from the additional tax is relatively small, so there is not a loss of efficiency although that may still be equity issues. I propose not to expand this orthodox economic argument.) Given that all tax revenue is difficult to raise while conversely it is easy to spend on worthwhile projects, there is some merit is taxing something where the task as simple as it is for alcohol.

Second, the taxation is justified on the basis of the externalities that are involved with alcohol misuse. Some drinking involves social costs which are not captured in the private market cost. These include mortality and morbidity, and associated treatment costs. Importantly, the costs are not all borne by the drinker but by others both from general taxation and in personal costs of injury, death and heartache as well (as private property damage).

Imposing a specific tax on alcohol consumption operates in two ways. By signalling to the purchaser that the costs to the community are higher than the private costs of the production of the drink, excessive drinking is discouraged. Where it does not, the excise revenue contributes to community funds to cover (some of) the social costs incurred.

One major difficulty is that it is not possible to signal precisely the additional costs of drinking since that varies with circumstances. (Not all drinking involves alcohol misuse, and the same drinking situation can generate different levels of social cost – e.g. a driver and non-driver in a bar.) Thus the excise duty on alcohol is only a crude approximation as to true social cost. (Indeed the policy advice tends to be to align all the other policy instruments as efficiently as one can in order to minimize alcohol misuse, and then use an excise duty in an attempt to reduce it further.)

A second major difficulty is that it is not clear what should be the appropriate level of excise duty. In practice the revenue exceeds the known fiscal costs of alcohol misuse, but is substantially less than the estimated total social costs, including non-government costs. (While the argument in the previous sentence is put in terms of average costs, optimal policy uses marginal costs, which in the case of alcohol misuse are higher than average costs, implying that tax rates should be higher than what the averages would suggest).

Applying these principles to gambling is helpful, but still leaves many gaps. If the purpose of the special tax is to reduce externalities, there are no estimates of the social costs of gambling, so there are not even orders of magnitude. If the ‘sinfulness of gambling’ argument still predominates, in which case economics analysis provides little guidance.

Gaming Duties as a Profits Tax

An alternative approach might be to see gaming duties are proxies for the business taxation that non-corporation operators would pay were they businesses. (But casinos pay corporation taxes and a gaming duty.) If this were a concern, then it might be easier to require the various operators holding licences to set themselves up as corporations and tax them accordingly or, where that is impractical, impute to impute a tax as if they were corporations.

Gaming Duties as a Tax on Monopoly Profits

Another justification for gaming duties is that because of licensing restrictions on entry some operators may make monopoly profit. A tax pulls that profit back to the community. This shifts the question to why the monopoly in the first place. Even if that were justified, it might be more economically efficient to auction the right to the monopoly. (Possibly a levy rate on turnover may be the tender variable, the franchise going to the highest offer.)

Gaming Duties because Gambling is Wealth Regressive.

Suppose the justification for specifically taxing of gambling is to reduce its impact on the wealth distribution. That, presumably, would involve a rate which progresses by the size of the winnings. As far as I know there has been no attempt to tune the tax rate for such a purpose (although it is noticeable that the highest effective tax rates apply to the Lotteries Commission, which offers the greatest prizes). In any case, it may be that it would be more efficient to moderate any redistributive effects via a comprehensive lifetime capital transfers tax which would also cover capital gains, gifts and inheritance. There is a gifts tax, apparently as a mechanism to reduce income tax avoidance, but since there is no public enthusiasm for such a tax regime, it is not obvious that gambling should be separated out for such taxation treatment.

In summary there are a number of reasons which might justify a gaming duty. In fact there are too many, and until that is clearer which are the reasons for intervention, it is not obvious what the duty rate if any should be. It is not even obvious what should be taxed: turnover, expenditure, business profits (perhaps defined by analogy as if the operator was a corporation), or punters’ winnings? (A parallel puzzle in the finance sector, means that GST is still not levied on its output.) The danger is the wrong tax regime could generate the deadweight costs of economic inefficiency. For instance the tax could be so high it could discourage some forms of gambling altogether without, say, reducing gambling addiction (if that is the purpose of the tax).

A particular issue is whether the levy on gambling should be at the same rate and on the same base for all activities. Excise duties on alcohol are on absolute alcohol content (although there is still no alignment between the rates on spirits on the one hand, and beer and wine on the other). Of all the available practical candidates for a levy, absolute alcohol is probably the closest to proportional with social costs. An analogue for gambling is far from obvious. The existing hybrid probably reflects a historical mixture of ad hoc decisions and practical reality, rather than any rational overview.

(An issue of concern to Treasury is whether the various ‘community contributions’ should be absorbed in the overall tax, and the revenues distributed via the public purse. A particular anxiety is that these are defacto taxes which are not subject to standard constitutional arrangements. The advantage of the current regime is that there is a decentralisation of the disbursement, a useful feature of any government decision making and especially valuable in a democracy. On the other hand some funds may go to projects not which are not considered appropriate – donations to a political party are an often cited example – although this may be resolved by tighter legislation.)

In summary, there may well be a case for rationalisation of specific taxation on gambling, but until the purpose of that taxation (other than to raise revenue for public and community spending) is clear, the implementation of any rationalisation is likely to be confused.

Direct Demand Management

Gambling is unlike alcohol consumption in that while both have addicts, alcohol misuse includes nonaddictive behaviour such as binge drinking with the potential to damage others by violence or accidents. There is not a comparable public generated externality in binge gambling. Its costs are largely internalised to the individual (and her or his family).

The issue of gambling addiction is considered much more thoroughly in other chapters, but the economists’ point is to ask to what extent it is any more of a problem than, say, eating too much or loving too much. The point is that these may be proper issues for the health services to treat, but they are hardly matters for economic measures targeting eating and loving. There may be, of course, a case for education on eating, loving and gambling, but it is not obvious in economic terms that there is a need for any further industry specific measures.

There would be some justice in levying the industry to fund treating problem gambling and the public promotion of prudent gambling. (The liquor industry with its specific levy to fund the Alcohol Liquor Advisory Council provides a model, but it might be thought inconsistent with the constitutional principles of taxation, insofar as it is a tagged tax.).

In summary, it is not obvious that there is a need for an active program of demand management as there has been for alcohol (and tobacco), other than health services for the problem gamblers and some public education.

Conclusion

While some parts of the gambling industry were established many years ago, the economic liberalisation of the late 1980s has created new gambling activities, which have not been integrated with the older ones. As the change in alcohol policy at the time indicates, there was also a change in the view of social regulation of activities which had previously been treated as ‘sinful’. But the logic of this has not yet been systematised in relation to the gambling activities, nor has the logic of market principles been applied to ensure that there is maximum welfare from the resources used.

Among the difficulties the policy analyst faces are that a country’s gambling industries and activities reflect the particularities of its history and culture. Given the rapid changes that have occurred in the last decade, it is difficult to predict what (quasi-)rational policies are practical in the public agenda and which are likely to be adopted. In the interim policy advocacy will dominate, often based on far from fully articulated views or analysis and, even more often, on self interest.

Table 1: Licensed Gaming Activity: Turnover and Utilisation
Estimates for March year 1998 ($m or %)
Gaming Activity – Turnover – Winnings – Winnings
(% of turnover) – Gaming Duties Revenue – Tax (% of turnover)
Casino 3060 2815 92.0 10 0.3
Clubs & Pubs /Trusts 2600 2140 82.3 58 2.2
Housie 45 30 66.7 0 0.0
Lotteries Commission 639 351 54.9 35
(+CC =135) 5.4
(21.1)
TAB-Racing 999 809 81.0 37 3.7
TAB -Sports 53 46 86.8 0? 0.0
Other (raffles etc) 20 10 50.0 0 0.0
TOTAL 6916 5969 86.3 140 2.0

Sources: First two columns B – Curtis estimates. Column 4 – Treasury. (CC community contribution).

Endnotes
1. I am grateful to Bruce Curtis and John Yeabsley for comments on an earlier draft.
2. J. M. Keynes, The General Theory of Employment Interest and Money, 1936, p.159
3. A. Bierce, The Devil’s Dictionary, 1911.
4. Criminals may also have a(n illegal) comparative advantage in collecting gamblers’ debts

 

Being and Doing

The Tricky Economics of Creating a Better Quality of Life
Listener 26 January, 2002.

Keywords History of Ideas, Methodology & Philosophy

The life expectancy of someone living in Western Europe or North America was about 45 years in 1900. Today it is closer to 80 years. The increased longevity reduces the material standard of living (measured by GDP* or consumption per capita), since people are now retiring for far longer. Is the increased life expectancy a good thing? If we were to execute everyone over 65 years of age, we would raise the GDP per capita figure by about the same as the increase since 1981. Why dont we?

Although we often treat material output as though it is an ultimate objective, in practice we have a more fundamental notion of the economic objectives of society, which might be summarised as the ‘quality of life’. I meet the paradox in some of my work. Eliminating alcohol misuse would increase both life expectancy and per capita incomes (because grog kills the young). However, if no one had started smoking tobacco, per capita GDP would fall, because people would live longer in retirement. (Would the ideal cigarette might be one which extinguishes past smoker’s lives on their 65th birthday?) In both cases the non-abuser would lead a better quality life while alive (no hangovers, no hacking coughs), as would their friends, relatives, and associates. But how to include all this in the economic assessment?

Rather than thinking about what we can be and what we can do, economics is founded on the utilitarian notion of what we can consume. The result is most economists find these paradoxes too complicated to think about. The outstanding exception is (Nobel prize winner) Amartya Sen, who starts with the notion of ‘functionings’ which summarise the life a person might lead. Some functionings are elementary: being well nourished and disease free. Some are more complex: having self respect, preserving human dignity, taking part in the life of the community. Sen then introduces the key notion of ‘capability’ which refers to the alternative functionings (‘life choices’) a person might have, indicating the freedom of choice a person has over their life. Material consumption is only a part of that totality.

The logic of Sen’s approach led to the World Bank’s ‘Human Development Index’ (HDI), which is intended to replace GDP per capita as an indicator of the state of progress of a nation. It combines per capita material output with measures of educational achievement and longevity. Thus a rise in life expectation increases the HDI even if GDP per capita goes down. Literacy is there, because the capability markedly affects our ability to flourish and enjoy life. The index has to be simple, because most countries do not have complicated statistical bases. Had it been practical, Sen would have wanted a measure of the differences between men and women, which can be grotesque (as it has been in Afghanistan).

New Zealand is 19th in the world on current HDI standings, three above our GDP per capita ranking. (If we bumped off the over 65s the ranking would go down.) However the index is not be very good at discriminating between rich countries, since the World Bank’s interests are poor countries. Sometimes the difference in rankings can be dramatic. The biggest divergence is for South Africa, whose HDI ranking is a whopping 44 places below its GDP per capita ranking, a terrible indictment on apartheid’s record on health and education. That will take generations to repair.

The HDI appeared in to New Zealand officials’ reports about the ‘inclusive society’ published last year. While they referred to Sen’s ideas, there was little attempt to master his challenge, their references being to his popular book rather scholarly papers. In part it is because it is very hard for an economist trained in one paradigm to see outside it. However, there is a deeper problem. Like the New Right, Sen talks of ‘freedom’ and ‘choice’. But unlike the New Right, Sen does not assume that if everybody has ‘freedom’ (in the New Right sense) in a ‘free’ market they will all be better off. This is partly because Sen is an expert on inequality, and he knows ‘free market’ outcomes will have some people worse off (as happened in New Zealand). But the capability approach also diverges markedly from the New Right when it concludes that government spending (on education, on health care, on other things such as the environment, culture and recreation facilities) can enable individuals to do and be so much more.

Today’s officials are reluctant to go down this path (especially in election year, when the fisc will be under awful pressure). Yet the notion that the government can spend public funds to create a better quality of life is deep among New Zealanders’ beliefs, if not in today’s public policy. Sen’s extraordinary insights shows there is a sense they are right and that narrow economics is wrong. They offer the opportunity to create an inclusive society built around a high quality of life.

* A reminder: Gross Domestic Product (GDP) is all of a country’s market production of material goods and services, valued at market prices and, usually, measured in a year.

Subjects Quality of Life

Government Spending and Growth Rates: a Methodological Debate

The following is a sequence of letters in “The Independent” in early 2002. I have not got the letters being criticised, but the readers should be able to infer much of what was in them. I have tried to bring my text in line with “The Independent’s” (sensitive) subbing.
Keywords: Social Policy; Growth & Innovation;

Govt spending and growth rates: A matter of values

The Independent January 23, 2002.

Roger Kerr uses some extraordinary logic in his letter on growth and government spending. ( 19 December) John Stuart Mill for one, would be bemused.

But let us follow the ‘no country has sustained per-capita income growth of 4 percent [per annum – sic] or more with a government sector share of the economy as high a New Zealand’s level of around 40 percent.’

As it happens in the 1990s some OECD economies have had a ‘government sector share’ of below that 40 percent and have not sustained that growth rate either: United States, Japan, Australia, and Iceland. Two have had low government spending and high per capita GDP growth: Ireland and South Korea. However those two economies have had vigorous industries assistance policies. On the Kerr logic, I take it he joins with Jim Anderton and Peter Hodgson in advocating a more active industries assistance regime.

Of course one can torture the data until it confesses. I leave that task to the sadists, and report that un-tortured data shows no meaningful correlation between the level of government spending and the economic growth rate. This seems to suggest that either the theory which predicts the relationship is wrong or that the effect is so small it is drowned out by other more significant effects.

The policy import appears to be that within quite wide limits a country can chose the size of public sector without affecting aggregate economic performance (providing it is fiscally responsible and manages the sector efficiently, and so on).

Thus the best balance between the public and private sectors is a matter of political values, of which I, Kerr, Susan St John, the editor of The Independent, and each of the paper’s readers may have a view. We may disagree, but it would be torturous misuse of economics to try to buttress our political views by alleging that the balance somehow affects the overall growth rate of the economy.

Ideology selects the facts in GDP analysis

The Independent 13 February, 2002.

Roger Kerr is struggling with his logic. (The Independent 30 Jan)

He said a certain set of countries with high growth rates had “property A” (low government spending) and this demonstrated that property A was necessary for high growth.

I pointed out that those countries also had property B (industry policy), so Kerr’s logic was that property B was needed for high growth.

Kerr responded that property B was not needed because he disapproved of it.

It seems to be that the countries with high growth rates happened to have property A which Kerr approves of, at which point he draws an illogical inference to strengthen his approval. But he is not willing to do this in regard to property B, if he disapproves of it.

Bryce Wilkinson tries to defend Kerr by improving his logic. (The Independent 30 Jan) I am sure all readers will wish him well in this challenging task. Wilkinson’s problem is an empirical one. Certainly there is a problem of government failure, so not all its spending is as effective as it can be. But some of the spending is very effective, so the problem is in practice (not logic) the two effects trade off.

Is the net effect positive or negative? The empirical investigations suggest they seem to cancel out as far as the impact on output and growth is concerned. The policy implication is that carefully designed government spending should not damage output, and can enhance community welfare in ways that GDP does not measure.

Wilkinson cites Winston Bates’ study for the Roundtable. May I say I was disappointed by its quality, but no more than I am frequently so by Roundtable commissioned work.

It is a pity that Bates has not even tried to take in to consideration some of Susan St John’s points, which would tighten up its empirical quality. Sadly much of Bates’ contribution is written in the language of ideological rhetoric rather than independent research, and his bibliography indicates how ideologically selective he has been. Still, unlike Wilkinson, he does not descend into anecdote.

Ambiguous, conflicting research on GDP

The Independent 27 February, 2002.

Bryce Wilkinson has still not grasped the point. (The Independent 20 February)

The entirety of the research on the impact of government spending on economic performance is equivocal.

Anybody can select some of the research to give the conclusion their ideology prefers, but they have to be carefully selective by ignoring research that contradicts it.

Readers will be aware that an article published in December by a Treasury official comes to a quite different conclusion from Wilkinson, for instance.

On the basis of the totality of that ambiguous and conflicting research I conclude that levels of government spending, with in reason, do not affect economic performance. Wilkinson concludes otherwise. From reading her letters and other writings I believe Susan St John is closer to my view, and of course Roger Kerr is closer to Wilkinson’s.

However Wilkinson is misleading himself if he thinks I have no account of the New Zealand growth process, or how we can improve it. I have written general articles, learned articles, and books on the topic. I can only take it that since they do not fit Wilkinson’s preconceptions, he has not turned his mind to them yet.

He also makes a grave analytical error when he says the government’s declared goal is ‘lifting New Zealander’s incomes back into the top half of the OECD’ The government’s goal is in terms of production (GDP per capita) not income (Say, GNI per capita). Every first year economics student knows the difference between the definitions of ‘domestic’ and ‘national’, important because some of the income from production goes to non-national factor owners offshore.

This is an important distinction where a country is running a large current account deficit or planning to rely heavily on foreign direct investment.

For instance Irish National Income has risen somewhat less than Irish GDP.

Desperately seeking definition of standards

The Independent 27 March, 2002.

Roger Kerr The Independent has asked Susan St John and myself to ‘cite any body of reputable research that suggests New Zealand can achieve 4 percent income growth on a sustained basis with a government spending ratio as high as 40%.’

Perhaps Kerr could cite some which demonstrates the opposite first. Then we would know what his standards of ‘reputable research’ are.

The work commissioned by the Business Roundtable is certainly not.

Eminent economist omitted from government spending argument

The Independent 8 May, 2002.

Roger Kerr’s whiskey winning letter ( 10 April) mentions the Bates’ report ‘has six-and-a half pages of references’. He did not mention that most of them are not learned research articles, and even fewer are on the topic which is in dispute: the extent to which there is overwhelming evidence that moderately high government spending inhibits economic performance. Nor does he mention that the most cited author in the list is R. Kerr.

What alerted me to the inadequacy of the Bates’ report is there is not a single reference to Tony (A.B.) Atkinson, an economist so eminent that he does not need to be introduced to the profession. Writing on the welfare state and economic performance Atkinson said ‘Countries with higher spending, it is alleged, have poorer economic performance. However, not only is the evidence mixed, but also such an argument is more difficult to establish than may first appear.’

Atkinson looks at nine research studies and concludes ‘two find an insignificant effect of the welfare state variable on annual growth rates, four find that transfers are negatively associated with average growth, and three studies find a positive sign to the coefficient of the welfare state.’ Not a single one of these studies is cited in the Bates’ report. I suggest Kerr drink his whiskey before readers demand he return it.

Bryce Wilkinson accuses me of having a mote in my eye. (The Independent10 April) I accept the finding of a speck of dust clouding my vision. Every honest scientist knows that he or she makes mistakes, which will be corrected by future research, and so thereby there will be progress. That is the difference from ideology.

Wilkinson may recall that he is quoting from the biblical injunction ‘Why beholdest thou the mote in thy brother’s eye, but consider not the beam that is in thine own eye?’ He may contemplate whether a bottle of whiskey is enough to float a beam.

This letter won “The Independent’s” weekly prize for the best letter of a bottle of Dewar’s whiskey.

‘Theology ‘not science, dominates debate

The Independent 29 May, 2002.

Bryce Wilkinson (The Independent 15 May) seems unable to recall the content of some of my letters to The Independent . I acknowledged that there would be behavioural responses to tax, government spending and other interventions, so why does he repeat the argument?

Wilkinson should address the evidence that their effects on the GDP growth rate do not seem to be great, perhaps because some are negative and some are positive (as Tony Atkinson discusses).

Wilkinson changes his argument. I said that the Bates report omitted a number of studies, especially ones which contradicted his conclusion. I was asked to nominate one. I nominated a group of studies, plus the judgement on them by an eminent economist who comes to quite a different conclusion to the Bates report, arguing that the evidence for an impact on GDP is ambiguous, and the channels through which government taxation and spending impacted on economic performance were complicated, but both positive and negative.

Wilkinson acknowledges that much of the evidence is inconclusive, and now begins to count the number of studies in the Bates report in comparison to that which I mentioned.

Recall my point was that the Bates report was not comprehensive and the totality of the evidence was inconclusive, which suggested that insofar as there was an effect it could be in either direction and was probably small.

I am also astonished about Wilkinson’s claim that ‘test of statistical significance are not tests of economic plausibility.’

What is a test of economic plausibility if economics is a science which aims to describe an empirical world? And in the light of this stunning new methodology, why does he waste time trying to defend the unsatisfactory empirical conclusions that the Bates report and Roger Kerr derive?

Having apparently satisfied himself of the smallness of the mote which he said was in my eye, Wilkinson changes his criticism to that I am concerned with ideology. Since one of my interests is in scientific methodology, again I plead guilty.

‘Ideological’ is a useful shorthand to describe the approach which Chicago professor Melvin Reder called the ‘tight prior’, a Bayesian expression to describe the situation where the theory is invulnerable to evidence which contradicts it.

One can observe such ideologists relying on anecdote, shifting the tests for their theory when the evidence is unfavourable, deploring well respected methodologies when they undermine the argument, stumbling over their logic, using extravagant expressions when standard language would suffice, attacking the critic rather than the argument, and so on.

In a recent review on a book on Science and Religion, the well known physicist Freeman Dyson wrote ‘[Polkinghorne’s] argument makes sense if you accept the rules of theological argument, rules which are different from the rules of scientific argument.

‘The way scientific argument goes is typically as follows: We have a number of theories to explain what we have observed.

‘Most of the theories are probably wrong or irrelevant. Then somebody does a new experiment or a new calculation that proves Theory A is wrong. As a result Theory B now has a better chance of being right. The way a theological argument goes is the other way around. We have a number of theories to explain what we believe. Different theologians have different theories. Then, somebody, in this case Polkinghorne, declares Theory A is right. As a result, Theory B now has a better chance of being wrong.’

Too often, I am afraid, economic debates in New Zealand are dominated by theological rather than scientific approaches.

So I would be happy to accept Bryce Wilkinson’s accolade of my being a serious methodologist, and promise that any bottle of whiskey that goes with it will not turn me into a tight prior.

This letter won “The Independent’s” weekly prize for the best letter of a bottle of Dewar’s whiskey.

Economic Directions: What Does the Government Think It’s Doing?

Listener 12 January, 2002.

Keywords Growth & Innovation; Macroeconomics & Money; Social Policy

A government needs a policy framework to coordinate its various decisions, and give it, its supporters and commentators a sense where it is going. The Labour-Alliance government has not announced one. If it did, what would it look like?

The best starting point may be the policy on which the Lange Labour government (which in those days included members of the Alliance party) campaigned in the 1987 election. It favoured an open market-oriented economy with a commitment to public spending in education, and health and the like. After the election this liberal vision was hijacked by the rogernomes (who remained after Labour lost power). Since 1999, this government has rolled back some of the extremist measures. It raised the top tax rate (to 39 percent, still lower than the 48 percent of the 1987 election) spending more on health and education, and pulled back their commercialisation. It stopped privatising public assets (although there were few possibilities left) and even renationalised some (Air New Zealand and public rail transport). In electricity and telecommunications it has tried to shore up the mistakes made during privatisation by a tougher regulatory framework. It replaced the extreme individualistic Employment Contracts Act with the more balanced Employment Relations Act.

It has reversed even some policies of the 1984 to 1987 Labour government. Today’s industrial policy reflects more the 1984 manifesto, which did not support substantial external protection but wanted government assistance for research and development, regional development, marketing and so on. It has also started to address the quality of the mix of output, with better public provision of arts, broadcasting, the environment, heritage and recreation, but latterly it seems to have lost its way. The rhetoric of the ‘innovative society’ or whatever is not a substitute.

The biggest reversal has been macro-economic policy, where this government has proved much more fiscally conservative than its rogernomic predecessor. That has meant spending restraint – a strategy which may get intolerable in election year when those out of government make wild promises. The benefits have been the lower exchange rate, which stimulated the export sector – probably the best form of industrial assistance. To be fair, the exchange rate fell in 1999 under the National government, and they can claim some of the credit for the resulting strong growth. But their successors have held it down. The miracle is that we have not had an inflationary blow-out.

There are some areas where the government has not reversed rogernomics. Competition policy is still weak. Its regulatory regime assumes that there are numerous businesses in a market, whereas in New Zealand there are often only one or two. The failure to address the inadequacies of the public sector reforms may ultimately be the more damaging. The government does not know what to do, and its advisers, being beneficiaries of the reforms, are unlikely to tell it. One only has to recall the damage the previous government took in 1999 (or the Christine Rankin circus) to see the potential political danger, but thus far the responses have been largely cosmetic. The fundamental problem – the tension between accountability and responsibility (between managerialism and professionalism) – will have to be addressed. If it were only a matter of cabinet ministers and senior servants making public fools of themselves, then we get our money’s worth in entertainment. But the indications are that, for instance, the strain pervades the health sector. We pour in money to ease them.

Most surprising has been the uncritical free trade stance which the government seems to have taken. The prime minister must have known she would put intolerable strain on the Alliance wing of the coalition when she committed troops to Afghanistan. But the free trade deals will compound that stress, especially as at least one of the ministers involved presents himself as an unreconstructed rogernome. The Labour Party could still be committed to an open economy stance, as it was in 1984, without the extremism of its current position.

The government has asked officials to generate a policy framework in two major areas. As the prime minister said of ‘the inclusive society’ reports, there is still a long way to go. The ‘economic transformation’ reports are yet to be released, but may have similar problems. Often behind the pieties is a continued commitment to the rogernomics framework, with its unwillingness to consider seriously alternative paradigms, and its failure to look at history and the empirical evidence. This is understandable given they provide such a powerful critique of the policies which the rogernomes hold, but they are also inherent in the rogernomics methodology. I do not know if the desire of this government is to continue the domination of rogernomics in its policy advice. When it loaded its tax review committee with people of that persuasion, the inevitable outcome was to blow the chance of a useful review.

In the end it is all about ‘the vision thing’. As we move towards the election the government (and the opposition) will have to find a rhetoric with an underpinning policy framework, which will attract the support and the mandate it needs.

Singing ‘Jerusalem’ in New Zealand

Music in the Air Summer 2002, p.13-14.

Keywords Literature; Political Economy & History.

I loved singing ‘Jerusalem’ in the full voice of my school assembly – especially the militancy and optimism of the last two verses – so much so that on the day I left I asked that it be sung for a last time.

Unbeknown to me, another boy in the school, Bruce Jesson, took a very different view. Years later, he wrote “state schools…were even more English in their tone than their curriculum. ‘Jerusalem’ was sung in school assemblies”. Bruce is the subject of the envoy in my book, The Nationbuilders, which quotes this as a part of a longer passage setting down his view of how English Christchurch was. Attending the funeral of another good friend, Bryan Philpott, I was struck by the appropriateness of some of the final lines we sang, ‘I shall not cease from mental fight/nor shall my sword sleep in my hand’. Bryan was a battler right to the end of his 79 years – as Bruce was to his 56.
So I was forced to confront the hymn.

I noticed I had also used it at the end of the chapter on Peter Fraser, who modified the last line, as I do, to: ‘Till we have built Jerusalem/In this our green and pleasant land’. Moreover, I discovered I had used the image of Jerusalem in the opening page of the book, talking about the aspirations of our ancestors coming to New Zealand:

“For them, New Zealand was a land to be transformed into an Arcadia where the wrongs and mistakes of the Old World could be left behind, and a new society built. This vision of a new Jerusalem was a part of the rhetoric of this new colony, as it is for many others. It goes back to Revelations, 21:1, ‘And I John, saw the holy city, the new Jerusalem, coming from God out of heaven prepared as a bride for a bridegroom’, but perhaps Thomas More’s 16th century classic, ‘On the Best Form of the State, and the New Island of Utopia’, began to concentrate the mind on the building of one in this world (especially the New World which was being discovered about that time) .”

There was no getting away from it. I could not leave the bits of ‘Jerusalem’ hanging loosely around in the book.

I began reading around the history of the poem. Oddly, it does not come from Blake’s long poem, ‘Jerusalem’, but is part of the prologue of his as-long ‘Milton’ written about 1802. Suddenly, the prose bursts into an untitled poem of two verses, which is usually anthologised under the title ‘And did those feet in ancient times’. We use ‘Jerusalem’ as title for the hymn with Herbert Parry’s score, which when done with full organ has an Elgarian pomp and circumstance which Blake may not have approved of, and I certainly don’t. All very confusing, because that means Blake’s ‘Jerusalem’ is not Blake’s hymn of that name.

Even more confusing is that Bruce would have agreed with William Blake’s general sentiment. The prose prologue preceding the poem has Blake rejecting ‘Greek (and) Roman Models if we are true to our own Imaginations’, in favour of a local one – precisely Bruce’s concern, to create an authentic local culture, albeit two hundred years later and twelve hundred miles away.

The poem’s Englishness is further compromised by a note in an American anthology of English language poems which remarks:

“Blake’s words are very likely the most inspiring ever written by an Englishman for Englishmen. A grand tradition of rugged struggle in politics and religion extends from John Milton and John Bunyan in the seventeenth century, through Blake and Wordsworth in the eighteenth and nineteenth, down to our own times in writers as diverse as W.B. Yeats and Joyce Carey”(1).

Yeats and Carey were Irish. But then again Fraser was a Scottish Celt. No doubt some at the school Bruce and I attended believed they were singing about ‘England’. But others were singing about their ambitions for New Zealand. For them, England was as much a geographical reality, as Jerusalem was for Blake, who never travelled outside Britain.
‘Jerusalem’ was not the only puzzle in the writing of The Nationbuilders, and it interacted with another.

One biography in the book is that of Colin McCahon –one of the two creative workers, the other being Denis Glover. I included him, partly because whenever I write I am overwhelmed with strong visual images, and McCahon’s works vividly convey the interaction between the environment and the nationbuilding which was always transforming – and often destroying – the environment.

One of the enormous jumps McCahon made was the introduction of biblical scenes into his New Zealand landscapes. In one sense he was doing no more than the practice of Renaissance Italian painters, but they put the bible in Italy because they had no way of knowing what Palestine looked like. But what led McCahon to his vision?

At this point the story is a wild goose chase, of the sort researchers are familiar with. I conceived the possibility that McCahon was inspired by Blake. Surely, I thought, the mystical McCahon must have known the mystical Blake? While I found no evidence that McCahon knew of Blake in 1946 when he began his biblical paintings, I conjectured that when he first met James (Hemi) K Baxter in 1943, as reported by Gordon Brown in the standard McCahon biography (2), Baxter introduced him to Blake. However, some intricate scholarship by Peter Simpson (3), has demonstrated that the meeting was actually in 1947, as Brown thought, and so too late to inspire the innovation.
My current conjecture is that if there was a local inspiration, it was the poet Charles Brash, who had been in Palestine and likened its hills to those of Central Otago. Brash returned to New Zealand in early 1946, and it is possible (a personal meeting, or a letter, perhaps?) he might casually have mentioned the parallel.

Diligently chasing the goose, I had asked Jacqueline Sturm, Baxter’s wife, if Hemi knew Blake. Her answer was ‘of course’. I asked if he did when he was an adolescent – I was still thinking the meeting was in 1943 – and she said that she was not sure, but he would have sung ‘Jerusalem’ at school. And then she added that Baxter would refuse to stand up in the cinema for ‘God Save the Queen’, but in a room when the radio played ‘Jerusalem’, he would spring to attention, sometimes so choked with emotion that he could not sing the words.

Of course he sang ‘Jerusalem’ at school in Dunedin. So did Sonja Davies, another who appears in my book. We all sang ‘Jerusalem’ at school: me, Bruce, Bryan, Peter, Hemi, Jacqueline, Sonja, you…And so must have Colin McCahon. So it is plausible that ‘Jerusalem’ inspired this new direction in his painting, perhaps reinforcing any stimulus from Brash.

And there the book leaves the matter of ‘Jerusalem’, or the final sentence does, as it commends the commitment of the nationbuilders to building ‘a Jerusalem in this our green and pleasant land’. But I need to add a little more about where ‘Jerusalem’ is in the canon of being a New Zealander.

Like Bruce, and many other New Zealanders, I am uncomfortable with that first verse. But should we rewrite it to maintain the marvellous force of the second? Probably not. The Nationbuilders discusses our cultural origins, and our relation with today’s England (or Britain if we include the Celtic nations). There has been a tendency to see England as ‘the mother country’. That is wrong and misleading. The England of Blake and of Shakespeare is the land of many our ancestors, and one of the most important cultural sources for all New Zealanders. We may call that England a ‘mother’ although in the whakapapa she is more a grandmother, perhaps with a few ‘greats’ thrown in. But the England of today is a descendant too, and so is not our mother, but a sibling or cousin. In genealogical terms we are the same generation as today’s Britain. Getting this right is fundamental to our moving from colonial status to nationhood. My book summarises it by saying, ‘Shakespeare is a New Zealander – and an Australian and an American – Phillip Larkin is not’. It could have bracketed Blake with Shakespeare.

We might change the last line as I do, but there is no need to rewrite the last verse. We interpret the first verse of ‘Jerusalem’ in the way that Blake would have wanted us to. The ‘England’ of the hymn is not today’s England, but an ancestral one.

And did Jesus walk in Aotearoa? McCahon thought so. And if Jesus did, so did Shakespeare and Blake and a whole lot of others. Every time we walk through our land, with a quiet pride of being a New Zealander, we walk with the ancestors we honour and who still mean so much to us today.

Endnotes

(1) 1. W. Harmon (ed) (1990) The Classic Hundred: All-time Favorite Poems, New York, p.105

(2) Gordon H. Brown, Colin McCahhon: Artist, revised edition, Reed, Auckland, 1993.

(3) Peter Simpson, ‘McCahon in 1947-48′, Art New Zealand, Spring 2001.

****************
The following was a footnote to a Listener column on 5 June 1999.

ARTISTS AS PROPHETS

The painting “Storm Warning”, gifted to Victoria University of Wellington by the artist, Colin McCahon in 1981 and recently sold by them, paints the words:

YOU MUST FACE THE FACT

the final age of this world
is to be a time of troubles.
men will love nothing but
money and self they will be
arrogant, boastful and abusive;
with no respect for parents
gratitude, no piety, no natural affection
they will be implacable in their hatreds.
Paul to Timothy

Perhaps it is understandable that the most pro-rogernomics of our universities privatised this prophetic work.

Great artists prophesy. Maurice Gee’s 1982 novel The Sole Survivor is about the grandchildren of George Plumb, a contemporary of the first Labour government. Duggie Plumb is an unprincipled thug; Raymond Sole an ineffectual liberal. Ian Wedde’s 1975 “Pathway to the Sea” was so insightful about development and the environment, I asked him if he revised it in the light of “Think Big”. He did not have to.

Some Auld Acquaintances

Adam Smith, Robbie Burns and Enlightenment
Listener 29 December, 2001.

Keywords History of Ideas, Methodology & Philosophy

Adam Smith (1723-1790) was the first great economist. The political right promenades him as one of their own, but in a recent book Economic Sentiments, Emma Rothschild argues that he was originally a radical. However, shortly after his death censorious decisions in the courts led his followers to reinterpret him in a more conservative manner. (Rothschild dedicates the book to her husband, Nobel prize-winning economist Amartya Sen, who is obviously influenced by her work.)

Such is Smith’s breadth, that one can usually find something in his works to suit one’s politics. The Business Roundtable is want to quote that ‘By pursuing his own interest he frequently promotes that of society more effectually than he really intends to promote it,’ (although on occasions they leave out the ‘frequently’). Those who dont like the Roundtable can quote back ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public,’ (although they might prefer to change ‘seldom’ to ‘always’). Americans like him because he supported American Independence (The Wealth of Nations came out in 1776 the year of their revolution), free traders because he opposed mercantilism, protectionists because he spent much of his life as an excise officer.

Even his much cited ‘invisible hand’ begins with support for domestic over foreign investment. ‘By preferring the support of domestic to that of foreign industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases led by an invisible hand to promote an end which is not part of his intention.’ Rothschild observes he mentions the invisible hand only three times in all his writings, and suggests he was being ironical. Even so, it led economists to wonder to what extent the market promotes a common good. The theoretical conclusion is that it frequently does not, even using a loose definition of the interests of society. However, frequently the invisible hand of the market is the best way we have of making resource allocation decisions.

Smith was a polymath, in an age in which economists were not confined to proving obscure theorems, also writing on philosophy, history, sociology and jurisprudence. He subscribed to the publishing of the poetry of Robbie Burns (1759-1796). They almost met on one occasion, but Smith’s ill health aborted the event. (Smith was trying to arrange a job for Burns in the Excise Service.) One wonders what would have happened had the contemplative bachelor met the rumbustious drinker, who sired ex-nuptial children.

They were a part of the Scottish enlightenment. (The great philosopher David Hume (1711-1776), who also contributed to economics, was a friend of Smith’s.) The Enlightenment, which began in France, was a key passage in European development. It argued people’s habits of thinking were based on irrationality, polluted by religious dogma, and over-conformed to historical precedent and irrelevant tradition. The way to escape was to seek true knowledge in every sphere of life, to establish the truth and build on it. Its premises were liberal, pro-science, anti-superstition, and that the state was a proper vehicle for the improvement of the human condition.

The Wealth of Nations is a part of this program, but so is Smith’s earlier book, The Theory of Moral Sentiment, in which he constructs a psychology of moral judgement originating in, and working through the emotion of ‘sympathy’, the imaginative capacity to project oneself into another person’s place, and then evaluate their actions both in the light of the situation in which they occurred as well as with respect to their social propriety. Smith would be very perplexed by how his broad humane conception of humankind has been whittled down to the rational economic man which underpins so much of today’s economics.

New Zealand economist, Nancy Devlin, currently working in London, has drawn attention to The Theory of Moral Sentiment influencing some of Burns’ poems. For instance “To a Louse” echoes Smith’s ‘If we saw ourselves in the light in which others see us, or in which they would see us if they knew all, a reformation would generally be unavoidable.’

O wad some Power the giftie gie us
To see oursels as ithers see us!
It wad frae monie a blunder free us
An’ foolish notion
What airs of dress an’ gait would lea’e us
An ev’n devotion!

More speculatively Burns’ poem ‘The Twa Dogs”, one owned by a wealthy man, the other by a poor man, discussing the life of their masters, covers the same theme.

This is not to argue that Burns was enamoured with all of Smith’s economics. But there is a sense in which Burn’s poems (the ribald ones aside) capture the vision of humanity which underpinned Smith’s economics. We might be wiser to read (and sing) Burns, than some of the ideologues who have misrepresented the first great economist. Auld acquaintances should never be forgot.

(I was telling a friend of Scottish descent about planning to use this material for my Christmas column. ‘Och, mon’, he said, ‘y’mean Hogmanay.’)

Letter The Listener 26 January, 2002.

Roger Kerr, executive director of the Business Roundtable, asks about those occasions when his organization leaves out the ‘frequently’ from Adam Smith’s well known sentiment, ‘By pursuing his own interest he frequently promotes that of society more effectually than he really intends to promote it.’ (January 12, 2002) The replacement of Smith’s caution with an uncritical confidence is a common feature of Kerr’s paraphrase of the quote. For example he wrote that ‘Smith’s famous metaphor of the invisible hand, … holds that business people promote the general interest more effectively by pursuing their own interests than by directly trying to “do good”.’ (3 December, 1996) I discussed this example in greater detail in my column of March 15, 1997. Kerr did not object at the time.

Brian Easton.

P.S. Keith Rankin pulled me up on an invisible hand quote, in which left some key phrases out – as do many economists. His correction and my explanatory response are at What Adam Smith really said about the “Invisible Hand, 26 October 1998.

Notes on Sutch and UNICEF

The following is an attempt to write down what seems to be known about Sutch and the saving of UNICEF. This was a note which backgrounds pages 133-135 of The Nationbuilders. It was finalised 22 December 2001.

Keywords: Political Economy & History;

Sutch at the United Nations

In the mid 1950s, Sutch wrote
“I was New Zealand delegate for three years on the Economic and Social Commission of the United Nationsand was Chairman of the United Nations Social Commission in 1948/49, Chairman of the Board of Inquiry into the United Nations Staff conditions in 1949, Chairman of the Executive Board of the United Nation’s Children’s Fund in 1950 and Chairman of the UNICEF Administration and Budgeting Committee and Committee on Fund raising from 1948 to 1950.”

From ‘Sutch, W.B. 1907-1975, Papers relating to Public Service and UN Appointments’, Reference No 96-145-1/05, Alexander Turnbull Library. It is a single sheet (no 33), which appears to be from a longer paper, which was probably an account of Sutch’s career written for the purpose of some public service grading or appeal.

Comment: Given that the events were recent, and could be readily verified at the time, we can take this account as reasonably accurate.

In a letters to Alistair McIntosh in the (A.D. McIntosh letters, Alexander Turnbull 6579-353, IRN 571054) Sutch writes
“I have been heavily engaged lately in consultancy and committee meetings with UNICEF.” (14 Feb 1950)

That he presides over UNICEF board meetings because the Polish chairman is absent (14 March 1950)

Comment: There is no earlier mention in the letters to ‘consultancy’ which presumably means lobbying.

Benedict Alper

Alper writes in the Sutch Festschrift (‘David from Down Under’ in J.L. Robson & J. Shallcrass (ed.) Spirit of an Age: Essays in Honour of W.B. Sutch, Wellington. op. cit. p. 215-234.):
“By mid-1949 when you were Chairman of the Social Commission which had the future of UNICEF under consideration … Parallel with the efforts of private citizens to promote a political climate to force Truman to reverse his policy with the discontinuance of aid, was the work done by you with delegations … who were committed to making UNICEF a permanent, rather than an ‘emergency’ operation. …
“Well, I won’t bore you with repeating back to you what you told me of the manoeuvres you went through to keep the US guessing as to how their ‘loyal’ supporters in Latin America and the Middle East would vote, or the special campaign you waged to get all the woman delegates on your side. The day the decisive vote was taken, you stood at the door of the … meeting room and looked into the face of each incoming delegate: to remind him to keep you on his conscience, as well as to see if you could judge how he was going to vote. …
“The issue was now … before the Third Committee of the General Assembly where they were debated for three days …
“One of the saddest aspects of the conflict – to some of us – was the role of Mrs Franklin D. Roosevelt, who introduced the resolution for her delegation … ‘The general needs of many countries and especially the needs of the under-developed areas of the world were vastly beyond the scope of UNICEF.’ …
“And then came, as the Henty books use to say, ‘Your finest hour’ or, more accurately two of them. … The hall was packed, the tensions were high, you spoke without notes, and while it would be stretching the point to say, again in the Henty tradition, that strong men wept and women fainted, it is true many were profoundly moved by your presentation. .
“In any case that speech of yours turned the scales. When Uruguay came in with an alternative which went well beyond the main (non-US) resolution, you knew your side had one. Two questions I meant to ask you: Did you help ‘plant’ that Uruguayan Resolution? And did you ever in your wildest hopes expect to win by 40 to 0?…
“The award to UNICEF of the Nobel [Peace] Prize in 1965 must record somewhere (however small the print) the names of W.B. Sutch and New Zealand as joint recipients.”

Comment: Alper appears to rely on two sources, his memory of what he was told, and the Yearbook of the United Nations 1948-49 (next entry).

Note: Jack Shallcrass also mentions the event in his biographical essay in Robson and Shallcrass op cit but I assume that this is based on Alpers, and offers no additional or independent evidence.

Yearbook of the United Nations 1948-49: The Third Committee.

The Yearbook reports a discussion of the Third Committee on the 18 to 21 November, 1949 (p.630-631). The Third Committee is described as a ‘Main Committee’ of the General Assembly of the UN. There were six. It covered ‘Social, Humanitarian and Cultural’ which seems to be shortened to ‘The Social Committee’. (p.13) In 1949 (or 1948-49) its chairman was Carlos Stolk of Venezuela (p. 48).

The Yearbook summary of the meeting reports a joint draft resolution submitted by Australia, France, Israel, New Zealand and Mexico. Following amendment it was passed 40 votes to none with 3 abstentions. ( I am taking it the head ‘Resolution Adopted by the General Assembly’ is place one paragraph too high, by a typesetter.) The General Assembly on 2 December 1949 then adopted the resolution by 44 votes to none with 3 abstentions. Almost certainly one of the abstainers was the US, and its representative in the Third Committee was probably Eleanor Roosevelt, described as ‘she’, although there was also a Mrs Sampson representing the US too, although she does not appear in the 1948-49 Yearbook.

The adopted motion appears innocuous, but the issue becomes clear from an alternative US motion which would have had the effect of terminating the fund at the end of June 1950. The Assembly motion has the implicit assumption that UNICEF would continue after that date.

The account records that
“The representative of New Zealand [almost certainly Sutch] pointed out that the Fund had no fiscal year which ended 30 June 1950, as mentioned in the United States resolution, and, as mentioned by the Fund, that date was merely a target date for certain projects. He therefore did not see why the Fund should end on that date. Moreover in reply to remarks of the representative of the United Kingdom, he pointed out that the General Assembly, in 1946, had given UNICEF its terms of reference, and had laid down a system of priorities which had hampered the Fund in its effort to expand activities in a more balanced manner, although it had done so to a considerable degree.”

Comment: I can identify at least seven similarities between this report of the meeting and Alper’s account. Moreover he quotes the US position exactly as reported in the account, which suggests he used the Yearbook to refresh his memory. However Shirley Smith says that Alpers was not in the UN at this time. The possibility is that he cited the wrong meeting. There are some minor disagreements. For instance it is not evident that Sutch spoke for ‘two hours’, and there is no mention of the Uruguay motion in the Yearbook account.

Shirley Smith’s Letter

Shirley Smith after seeing the Yearbook account wrote to me:
“This is not the debate [i.e. the one Alper refers to] I was referring to – You’ll see the 3rd Committee refers to a number of submissions, heading which is the report of ECOSOC.
“It was the debate in the ECOSOC meeting that was regarded as saving UNICEF. I know that … Maurice Pate [executive director on UNICEF in 1949], thought so. He was a tall good looking Quaker, a US citizen, unmarried, whom I knew too. He had been desperate. The US was keen on ending UNICEF … & he regarded Bill’s getting ECOSOC to support UNICEF as what saved it.
“You’ll see the final decision of the General Assembly, 2nd column p.631 – the resolution reads ‘having considered the report of the Economic and Social Council … and the report of UNICEF … they resolved to do everything they’re asked – by 44 votes to none, with three abstentions.
“Presumably there is a report of the ECOSOC debate? That was where I was present & heard Eleanor R and Bill’s 2hr plus speech where not a pin dropped. I don’t think anyone else spoke – tho’ I had to leave after 2½ hours to get Helen . She was in the UN school – an old farmhouse in Lake Success Grounds. Bill was still speaking when I left.” (16 June 2001)

Comment: Smith, who was there, is arguing that the events occurred in a different committee. (I add that her memory of her daughter at this time is that Helen was nearly five. This could make the events taking place in 1950, since Helen was born in November 1945.)

Yearbook of the United Nations 1948-49: ECOSOC

The Economic and Social Council was established by the Charter as a principle organ of the United Nations to act under the authority of the General Assembly. To add to the confusion it has a Social Commission which is not the Third Committee (i.e. the Social Committee), while sometimes the Second Committee of the General Assembly (‘Economics and Financial’) sat jointly with the Third Committee (p.89-90, 16). New Zealand was on the Council and the Social Commission in 1949, and was re-elected to the Social Commission in 1950 but not the Council (p.106, 114, 37).

Comment: If the agency was ECOSOC, the events Smith refers to must have taken place in 1949. However, were they in the Social Commission they could have taken place in 1950. UNICEF is a special body under ECOSOC. New Zealand was on the executive board.

The Yearbook devotes over two pages to each of the reports from the chairman of the Executive Board of UNICEF to the General Assembly in its third regular session (in December 1948) fourth regular session (probably December 1949) (p.623-630).

Comment: I was puzzled by Alper’s and Smith’s recall of Sutch speaking for a long period to a United Nation’s committee. Leaving aside the willingness of the delegates to listen for this time, I wondered what on earth he could have spoken about. That he was chairman of the Social Commission and Co-chairman of UNICEF suggests that there was some authority in his speaking, and that much of the material may have been a review of the activities of UNICEF, which are described in so much detail in the Yearbook.

Among the occasions that ECOSOC discussed UNICEF in 1949 on March 18 and 28 July (the latter preceded by a two-day meeting of the Social Commission). The first meeting was at Lake Success, New York the second at Geneva (p.99).

Comment: The first meeting of ECOSOC in 1949 is too early, and the second meeting is in the wrong location.

National Archives

The file EA2 1949/18D 108/72/5 pt 3 Social Commission reports to ECOSOC is missing. Parts 1,2 and 4 are there.

EA2 1950/8B 108/22/2 pt 1 Social Commission Sessions 1946-1950 provides reports on the Social Commission over the period, but sheds no light.

Foreign Relations of the United States, Vol II: The United Nations; The Western Hemisphere

This collection of documents includes a report written by the US Deputy Director of United Nations Economic and Social Affairs dated December 22, 1950, and classified as ‘restricted’ (p. 575-582). Its subject is a ‘Post-Mortem on the Third Committee’ and it remarks
“UNICEF – This item proved the most decisive and embarrassing defeat for the [US] delegation, which found itself in a minority of eight on the [Social] Committee, and the only abstainer in the plenary meeting. .. We were criticized for taking a much more restrictive position than at ECOSOC last summer [presumably about July 1950, and possibly in Geneva].”

The paper’s ‘reason for defeat’ are given as follows:
“The blame for this unsatisfactory record most certainly does not fall on Mrs Roosevelt or Mrs Sampson who did everything possible to explain and argue the United State position, both in committee meetings and in informal conversations. Both representatives were personally popular; both entertained extensively, including many small luncheons, and both conversed frequently with other delegates. …
Special Characteristics of the Third Committee – Many members of the Third Committee seemed to me to be motivated by deep emotional convictions rather than political considerations which are evidenced elsewhere in the assembly. They take very seriously the fact the Third Committee deals with social, cultural and humanitarian problems, and they take pride in discussing these problems on their own merits … in the Third Committee [the small delegations] take pleasure in voicing their independence and in functioning almost as if the ‘cold war’ does not exist. … They tend to freewheel as individual experts and to be swayed by the oratory of their colleagues.
Leadership of the Underdeveloped Countries – … the Third Committee is a forum for the underdeveloped countries and those who oppose ‘colonialism’. … We had not anticipated the vigour and bitterness of their disagreement with United States policies on almost every item, because the Near and Middle Eastern views had not been fully expressed in the Social Commission and the Economic and Social Council. Many debates had obvious overtones; the colored people in opposition to the white, the newly independent countries against the administering powers, and the underdeveloped against the industrialized countries. Many of them had overtones of the Palestine conflict as well, …
Absence of Soviet Opposition – The Soviet Delegate and its four satellites took a relatively minor part in the work of the Committee …. As a result, the other delegations did not coalesce into an anti-Soviet group, but were left free to carry on their battles against the United States.
Unpopularity of the United State Positions
Lack of support from the United Kingdom , France etc. …
Absence of Adequate Liaison with other Delegations

Yearbook of the United Nations 1950

The sixth and final amendment at the Third Committee in October 1950 was from Uruguay which recommended that ‘States in making budgetary provision for social services for their own children, set aside a special amount for UNICEF.’

Comment: This corresponds to Alper’s account, except he locates it in the Third Committee a year earlier.

The UN Documentary Record

These are held in the General Assembly Library. (I am grateful for the assistance of Felicity Rashbrooke.)

It is possible to trace some of the movement of the UNICEF process as follows:

Third Commission (17, 18, 21 November 1949)
This was a wide ranging debate which included Roosevelt (30cms reported on the 18th) and Sutch (50cms on the 18th but 5 pages later – an intervening speaker was Mrs Castle of the United Kingdom, 62cms) together with each giving short procedural interventions on the 21st This is an extended account of the meeting reported in the 1948-49 UN Yearbook. (Official Records of the Fourth Assembly of the General Assembly.)

Economic and Social Council
I do not have a full account, of what happened here, but as best as I can construct, the Council adopted a report and motion of the Social Committee (sic) on 11 August. (Economic and Social Council: Official Records, Eleventh Session.) The record of the meeting is not in the bound copy (sigh).

Comment: Bother the omissions. Somewhere in here is probably Sutch’s ‘finest hour’. (Query – was this meeting at Geneva?)

Third Committee (9, 18 October 1950)
Tom Davin (brother of Dan) spoke on behalf of New Zealand, as did Roosevelt for the US. The Greek delegate said that his country had been delighted to learn that the Economic and Social Council had decided at its eleventh session that UNICEF should cease to be a temporary organization, for it had hoped that UNICEF’s activities would henceforth be permanent and would embrace all the countries of the world’ (p.70) The Australian motion was adopted 43 votes (including New Zealand) to 8 (inc US), with one abstention (China) (p.105). (Official Records of the General Assembly Fifth Session)

Comment: This is the vote reported in Foreign Relations of the United States at which the US was in a minority of 8.

General Assembly Plenary Session (1 December)
The crucial amendment was adopted 51 votes to one, with five abstentions, and then the draft resolution was adopted unanimously. The US representative, Mrs Sampson, apologised for the absence of Mrs Roosevelt (p. 526). (Official Records of the General Assembly, Fifth Session, Plenary Meetings).

Comment: This is the vote reported in Foreign Relations of the United States at which the US was in a minority of 1.

Comment: Except for the Economic Commission and ECOSOC meetings, I think I have traced all the key public events.

Conclusion

On reflection, it seems to me that it is most unlikely that the preservation of UNICEF depended upon one key meeting. Rather the momentum would have built up over a period, developing through a series of increasingly supportive motions, operating through a number of committees.

On the basis of the information we have, Sutch played an important role in the development of the momentum. He chaired the Social Commission of ECOSOC in 1949 and was on it in 1950. He was chair of the executive committee of UNICEF in 1950 (perhaps because of the absence of the Polish chairman), and he seems to have been important in its administration and development. When Maurice Pate spoke well of Sutch’s role in UNICEF he was presumably recognising the previous work as well as the ultimate politicking.

In my view the Alper account confuses the Social Committee (of the General Assembly) with the Social Commission of ECOSOC. Moreover he has collapsed a number of meetings together, perhaps inevitably given that he is dependent on someone else’s (Sutch’s?) account since he was not there. (Not hearing or recalling some of the fine distinctions – such as the Social Committee and the Social Commission – would not be unusual in such circumstances.)

Smith probably gets the arena right. It began in ECOSOC in 1949, almost certainly in its Social Commission, rather than the plenary, but it moved on later back through the Social Commission and ECOSOC in 1950, and then to the Third Committee and the General Assembly later. As Pate reminded Smith, that ECOSOC was committed to the preservation of UNICEF, was influential on the decision of the Third Committee of the General Assembly (the Social Committee) in 1950 to recommend the preservation to the General Assembly.

It seems likely that Sutch was more directly influential in the early stages, when he was directly involved in ECOSOC and its Social Commission. However Alper’s story of Sutch standing outside the meeting as the delegates entered may apply to Third Committee, but in 1950 not 1949. It seems unlikely that Sutch completely withdrew from the lobbying in late 1950. The reference to the Uruguay resolution suggests that the story told to Alper included that meeting.

Rewriting the Story of Sutch and UNICEF.

On the basis of the evidence available to me, I do not think I can simply quote Alper’s account of Sutch’s efforts in regard to the preservation of UNICEF. My current thinking is of writing along the following lines, as reported in The Nationbuilders.

“The now in his early forties, Sutch played the crucial role a UN decision to continue with UNICEF, the UN International Children’s Emergency Fund . The incident, like Fraser chairing the Trusteeship Council of the UN, is not well known in New Zealand, and indeed much has been lost in the drifts of memory. What seems to have happened is this.

“Following his work at UNRRA Sutch moved onto New York where he was New Zealand delegate for three years on the Economic and Social Commission of the United Nations. Both by his personal reputation and reflecting the reputation of New Zealand Sutch was Chairman of the United Nations Social Commission in 1948/49, Chairman of the Board of Inquiry into the United Nations Staff conditions in 1949, Chairman of the Executive Board of the United Nation’s Children’s Fund in 1950 and Chairman of the UNICEF Administration and Budgeting Committee and Committee on Fund raising from 1948 to 1950.

“About this time the United States took the view that UNICEF, which as the ‘E’ indicates was originally envisaged as a temporary institution, should be disbanded, and so in the Social Commission there were a variety of (often apparently innocuous motions) which would have the effect of maintaining or terminating UNICEF. By lobbying and leadership Sutch ensured the preservers would win. Two sources suggest he spoke in silence for more than two hours on at least one occasion to promote and defend UNICEF, describing in detail its activities. Having gained a strong majority in the Social Commission (the few dissenters tended to abstain) the recommendation was accepted by ECOSOC and passed onto the Third Committee of the General Assembly (the Social Committee), which again supported it. Maurice Pate, the executive director of UNICEF thought this was the key step in the saving of UNICEF.

“It seems likely at the crucial meeting of the Third Committee in October 1950 (or possibly the General Assembly in December 1950, when the final decision was made) Sutch literally stood at the doorway looking at the face of each entering delegate: to remind her or him of ‘their deep emotional convictions rather than political considerations’ (as a US report recalled) and to vote according to their conscience rather than along Cold War lines

“The outcome of the preservation of UNICEF was described by a US official as ‘the most decisive and embarrassing defeat for the [US] delegation, which found itself in a minority of eight on the [Social] Committee, and the only abstainer in the plenary meeting.’ The children of the world may take a different view, and Benedict Alper says ‘The award to UNICEF of the Nobel [Peace] Prize in 1965 must record somewhere (however small the print) the names of W.B. Sutch and New Zealand as joint recipients’.”

The endnote to this paragraph will state something like:

“This account is compiled from Alper (1975), a letter and discussions with Shirley Smith in 2001, some minor New Zealand sources, various United Nations documents, Foreign Relations of the United States 1950. A detailed report [i.e. this one] of almost 4000 words attempting to reconcile the various accounts, has been deposited in the Alexander Turnbull Library.”

Peaches, Lemons, and Elephants: the 2001 Nobel Economics Prize

Listener 15 December, 2001.

Keywords History of Ideas, Methodology & Philosophy

Prizes for economic achievement are so idiosyncratically given out, that occasionally they get awarded for excellence. This year’s Nobel Prize went to economics to George Akerloff, Michael Spence and Joe Stiglitz, for their investigations into what happens when there is asymmetry of information in market transactions, and the buyers and sellers know different things about the purchased. Their studies show markets do not always function smoothly. For instance, the seller of a second hand car is likely to know more about its defects than buyers, who are therefore suspicious that anything being offered. (Why sell a good car?) Akerloff’s classic 1970 paper ‘The Market for Lemons’ showed how the outcome could be less than efficient. Noone will trade peaches, because buyers suspect them of being lemons.

Stiglitz extended the notion to insurance markets when it is the purchaser of insurance that has the additional information and the seller has to make sure the insured is not too risky. (It turns out one function of an excess or deductable is to bring the two interests in line.) Spence’s contribution, was to show how to convey credibly information that the product you are selling is valuable. For instance a student can signal to potential employers he or she is smart and motivated by achieving academic success in subjects which have little to do the actual job. (MIT economics professor, Paul Krugman, who can never resist a bon mot no matter how unfair, cites the author of “Liar’s Poker”, offering a ‘meaner but similar analysis [when] he declared that would be-investment bankers studied economics in order to demonstrate their willingness to engage in boring, humiliating activities.’)

The immediate practical implication of these studies is that where there is asymmetric information, there may be a case for intervention, although the caveat of the effectiveness of the action applies. (How would one effectively improve the market for lemons?). Recently Akerloff’s analysis has been applied to the share market. How does one know the insider (that is someone who has information most people do not) is actually offering a lemon, while promising a peach?

The analyses also have implications for how to manage the economy as a whole. Keynes’ ‘macroeconomic’ account of how economies experience persistent unemployment, involved some assumptions about how markets functioned, for which there was no underpinning microeconomic theory. (‘Macro’ refers to the economy as a whole; ‘micro’ refers to individual markets.) Monetarists argued these assumptions could not apply because they assumed irrational economic behaviour. While Keynesianism was never extinguished (it worked in practice if not in theory), the lack of proper foundations was a legitimate criticism. Models of markets with asymmetric information have provided the sort of microeconomics which the Keynesians originally assumed, and today the monetarists are on the backfoot, because their account of market behaviour now appears primitive.

I greatly admire these rigorous mathematical models. (Before I became an economist I was trained an applied mathematician.) But by focussing on them, the Nobel Prize committee ignores the really big issues which were once the heart of economics. Like: how do economies and society evolve? how does the economy interact with society? how can we influence the evolution and interaction? (A spoof applied mathematics question might illustrate the irrelevance. The student is asked to calculate the speed of an elephant sliding down a grass slope. An incredible amount of information is given – the coefficient of friction, the angle and direction of the slope, the day and time, the location of the sun and strength of the wind, the colour of the elephant and the grass, and so on and on. The last instruction is ‘you may neglect the shape of the elephant’.)

This irrelevance is well illustrated by the award to Stiglitz, which does not mention among his achievements the redirection of the development strategy of the World Bank, a policy development which is likely to benefit hundreds of millions of peoples in poor countries. It is easy to praise the specificities of his original paper, and ignore the enormous accomplishment of applying it and other key economic ideas (which he did not personally develop), even though the relevance and elegance is lost in order to derive useful conclusions. We do the same in our teaching of economics. Students may (or may not) be able to jump though the hoops of the rigorous models they are taught, but the really important issues are not taught, and they go out into a world bereft of any ability to tackle them. Some through sheer ability and diligent reading and discussion get up to speed, but one is continually struck by the irrelevance of much of the economists’ contribution to the big economic questions New Zealand and the world faces.

Alas, the Nobel Prize in economics reinforces this narrowness. It encourages us to appoint teachers who are as limited, and to belittle those who try to tackle questions because they are important rather than because they are mathematically tractable. Stiglitz’s real contribution to human welfare is unlikely to be recognised by a Nobel, unless they give him the Peace Prize.

The Treasury and the Nationbuilding State

Revised Paper for the 2001 Conference of the New Zealand Historical Association, December [1]

Keywords: Governance; Political Economy & History

My just published The Nationbuilders is an account of the creation and implementation of the idea of using the state to develop a nation, especially the national economy, but also in a number of other areas such as cultural policy and the environment. The story is told through a series of biographies of New Zealanders who were closely involved in nationbuilding. While I hope the book is a contribution to New Zealand biography, the book’s structure was the best way I could think of presenting the idea of nationbuilding for a general New Zealand audience. Among the alternative approaches would have been a rather dreary academic account of the origins and development of the idea, which would however have had the merit of being able to draw more directly on parallel developments in other countries. Another approach would have been to tell the story through institutions rather than people. Today’s paper is an example of this approach, for it looks at the central role of the Treasury in nationbuilding period, taking material from the book and presenting it a different way. In doing so it sharpens some of the themes, and allows the relating of the Treasury story to some the issues it faces today, reminding us that an understanding of the past can help understand the future.

The Treasury’s original function was to look after the royal treasure, taking in the revenue from taxes and estates and disbursing the monies for expenditure. Because kings had a tendency to spend more than they received – ‘on their wars and whores’ – the Treasury was also the manager of the royal debt. Over time the royal finances became separated from the national ones – a central issue in the development of the history of modern economy – and so the Treasury came in charge of the government finances. It is no surprise that the Treasury was therefore one of the earliest departments of state for the nascent New Zealand government. (Michel Bassett says the Colonial Office was the first, but one doubts that it would have done anything without first being paid.)

For most of its history the primary function of the New Zealand Treasury has been the management of the government’s finances – today sometimes called ‘the fisc’. Fiscal management remains a central role today. However, about seventy years ago the Treasury developed a second major role of economic management, when its policy advice moved from just the fisc to the economy as a whole. That economic management role in Treasury is now so publicly dominant that we tend to forget the larger part of its activities is still essentially concerned with fiscal management – after all, its statutory authority comes from the 1989 Public Finance Act.

Not surprisingly then, today the Treasury is one of the premier government departments, and its Minister is usually second only to the Prime Minister in power – on occasions he or she has seemed more powerful. That was not always so. In 1928 the activist prime minister, Gordon Coates, held a National Industrial Conference, which was attended by over 70 delegates from the private and public sectors, including five university economists and nine heads of government departments. Unthinkably today, there was no Treasury representation. In 1940, Hunter Wade began work at the Treasury as their first graduate recruit, and left shortly after when he did not see much prospect in a career there. For many of today’s senior public servants, working at the Treasury through to mid-career was not only rewarding, but was the platform from which they were eagerly recruited for top jobs elsewhere.

This initial transformation from a department of state looking after the fisc to THE department of state looking after the economy – and much besides – is associated with a single person, Bernard Ashwin, one of those with a biography in The Nationbuilders. He was the only Treasury economic adviser in the early 1930s, and was the longest serving Secretary of the Treasury – from 1939 to 1955. So he was involved in every important economic decision (and most non-economic decisions) the government made for almost a quarter of a century. At the same time he created the modern Treasury.

Methodologically, ‘great men’ theories of history leave me deeply worried, and I have reflected on the course of the Treasury, and the New Zealand economy, had the bullet which struck him in Flanders been a little higher. In fact there were other factors increasing the importance of economic advice from the 1930s. One was the rising authority of economics as an intellectual discipline. This is often associated with the rise of Keynesian macroeconomics, but economics also penetrated other vital policy areas as microeconomic tools were also fashioned. A second factor was the establishment of a department of economics at Victoria University College in 1921. Other colleges of the University of New Zealand had earlier economics departments, with graduates who made careers throughout the world. But all four economists profiled in The Nationbuilders – Ashwin himself, Bill Sutch, Bryan Philpott, and Henry Lang – were graduates of Victoria University College.

However, need the economic advice agency be based in The Treasury? Originally it was not. The advice task begins with the attachment of Dick Campbell, another Victoria economic graduate, to Coates’s prime-ministerial office in 1927, and it evolved to the so called ‘Brains Trust’ who advised Coates when he became Minister of Finance in 1932. The group included formally Campbell, Sutch, and Horace Belshaw who was on leave from his chair of economics at Auckland University College. But Ashwin, as a Treasury officer, and Paul Verschaffelt, chairman of the Public Service Commission, were also closely involved. Sometimes other professors of economics were active in policy making in a way inconceivable today.

We do not know why the brains trust approach was not carried over when Walter Nash became Minister of Finance. Perhaps it was because Campbell and Belshaw had moved on, and so Sutch was carried forward as his private secretary. Moreover, Ashwin was increasingly dominating the Treasury, and while as far a I can gather from the official papers I have seen, he was the only official giving economic advice – one could think of him as a Brains Trust in his own right.

Even then Treasury did not seize the economic policy advice initiative, other than that by Ashwin in a personal capacity. For much of the 1940s it remained dominated by fiscal management, and in any case there were no other economists in it. (There were some potential ones. Noel Lough who was to become Secretary of the Treasury was recruited from school in 1939, and studied university economics part time.) This impression of the irrelevance of Treasury and the relevance of Ashwin is reinforced by the memoirs of Geoff Schmitt, personal assistant to Ashwin in the mid 1940s, and the son of the Secretary of Industries and Commerce. He recalls Ashwin not spending a lot of time in The Treasury, but coming in each morning, checking that things were going smoothly and then going out on the business of the day.

Instructively, Ashwin was deeply involved in the creation of the powerful Economic Stabilisation Commission in 1942 (he was deputy chair) which initially was outside Treasury. That is how Lang began his career in the public service. While the Commission was subsequently absorbed into The Treasury, it is conceivable that with a weaker Secretary than Ashwin it could have had a longer independent existence as an economic adviser and policy manager.[2]

And yet, even had the Treasury a weaker secretary than Ashwin, there is a practical reason it would have been the core economic advice agency. Fiscal management is intimately related to economic management. It is not so much that the level of government spending and taxation affects the demand of the economy (although that is true). Rather, the difference between them determines the level of borrowing, and that has implications for monetary policy, inflation, the balance of payments and economic growth. Moreover, and despite a rather simple theory promulgated in the 1970s by monetarists and adopted by the Rogernomes, fiscal management provides an effective policy instrument (or set of instruments) for economic management.

A central element of the Treasury authority comes from a cabinet minute the effect of which is that all matters which become before Cabinet which have fiscal implications require a Treasury report. Since it is hard to think of a policy which has no fiscal implications, the Treasury has to report on everything, and also to maintain a competence to report on anything the government could possibly contemplate doing. The origin of the minute is not without its interest. The belief in the Treasury in the late 1970s was introduced by Secretary Lang and his Minister Rob Muldoon in about 1967. But Lang, when I asked him, said it was much older and Malcolm McKinnon has found various forms of the direction going back to the 1920s. I suspect that the modern significance of the direction begins when the Cabinet Manual was created in about 1949. If so, it has the hand of Ashwin behind it.

If he spent little time in the office, Ashwin built an effective agency. Writing in 1949, Leslie Lipson commented ‘In recent years, however, the powers and influence of Treasury have been considerably strengthened by a vigorous secretary. Originally an agency which did little else than prescribe departmental accounting systems, it has acquired a stricter control over departmental appropriations since the depression.’ Lipson does not mention that Ashwin also created a professional career structure. He was their first graduate, doing his degree part-time, and one of only two graduates when he became secretary. (In those days the standard qualification was accountancy professional.) By the time Ashwin left Treasury there were 31 graduates in the main division alone.

This paper has focussed on Ashwin for four contemporary reasons. First it is challenging a common historical perspective that politicians make policy and officials merely implement it. For instance Keith Sinclair’s biography of Nash hardly refers to Ashwin, although they were close associates for ten years. He is not alone. My impression is that Campbell had an enormous impact on Coates’ thinking, but he is barely mentioned in the biographies. I am also rejecting the tendency to present pious histories of government departments, ignoring that often those departments had active policy stances. The picture of the shadowy passive public official behind the politician distorts the historical record of the policy process, and gives the wrong impression in contemporary accounts of what actually goes on. If I have made Ashwin a ‘great man’ it is because I have diminished the politicians he served a little.[3]

Second, and a counter to the great men approach, suppose there had been no Ashwin.[4] There was a major structural reason why the Treasury became the principal economic adviser to the government. Fiscal management gives the Treasury a particular authority, a power reinforced by the knowledge derived from them being the only department who have access to the workings of all public agencies.[5] This is of very contemporary relevance. There are a number of proposals to balance the Treasury’s economic advice, including the just established Ministry of Economic Development, and the suggested Social Responsibility Act. But the proponents do not look at the structural issues from when Treasury derives its power.

That leads to my third point. In the Ashwin Treasury economic management grew out of fiscal management, but there is a severe tension between the two, illustrated by the image of the Treasury official as the ‘abominable noman’ who turns down every expenditure proposal. Spending departments offer alternative advice, but in practice they make their case in terms of their concerns and not the society and economy as a whole, so their advice is rarely comprehensive either – for instance they will not give consideration to the fiscal consequences. Thus each adviser comes from its bias own interest – in the case of the Treasury it being the protection of the fisc – and the cabinet has to make the judgement on advice which is incomplete and not comprehensive.

There is another reason for the ‘abominable noman’. The Ashwin Treasury was led by a man of great ability and charisma who personally coordinated the Treasury policy advice. Ashwin’s immediate successors were not as outstanding as he was, but from the late 1950s, Lang, initially as chief economist, took on this coordinating role. Again a man of great ability and charisma, he seems to have maintain this personal control, which he probably learned from Ashwin his mentor, until he retired in 1977. Even so, Lang’s management style was more collegial, probably in part because he had colleagues of comparable training and seniority but complementary expertise. Lough, his successor, played an especially important role in this respect. If Ashwin is associated with the increasing power of the Treasury, it is Lang who creates the modern institution. The probable explanation is that Ashwin had no relevant model of what a Treasury could be like, Lang saw the British one when he was in the High Commission in London.

Since then the Treasury was increasingly complex, staffed by more graduates, and involved in a wider range of policy areas. Today the coordination can no longer be undertaken by a single person as it was in Lang’s day. This issue of policy coordination which can no longer be done by a single person, even in a Treasury led by an Ashwin or Lang, has bedeviled it since the late 1970s. One solution is simplistic policy, be it the abominable noman rule of never supporting a public expenditure increase, or the rogernomics rule of commercialising everything. Of particular interest to historians is that today’s policy development is done in an almost entirely ahistorical framework, with no sense at all of what has gone before, and little use of the past to assess the potential effectiveness of policies. The public, and more recently the politicians, do not want such simplistic responses to oversimplified accounts of their concerns. But how is a Treasury to get the creation and coordination of a sophisticated policy when the pressure is for a sort of Gresham’s law of simple policy driving out complex ones?

That leads to the fourth point of the institutional structure. Under Ashwin it was possible for policy to be embedded in a single person. Henry Lang did much of his development and coordination at the morning teas of the 1960s. Today the Treasury is a major bureaucracy, with the heads of policy divisions sometimes called ‘barons’ with the implication of a tension between them and the king-secretary. In the 1980s the king lost control for a period.

An historical account of the modern Treasury will not resolve these problems, but it sheds light, just as The Nationbuilders does not tell us what sort of nation we might want to or are able to build. But it provides some guidance if we wish to pursue the question. By setting out the history of an institution or idea we have a foundation for a discussion on contemporary and future issues.

Endnotes
1. I am grateful to comments by Malcolm McKinnon (who is writing a history of the Treasury) and John Martin, and to those acknowledged in The Nationbuilders.
2. Although perhaps not, given that there was a notable lack of talent among the Labour ministers, and despite Nash being way, there is no other candidate (other than Fraser) who could have been the independent agency’s effective minister. I take it that Nordmeyer would have been too junior.
3. Although in the case of Peter Fraser, I came to admire his greatness when I realised the importance of his ability to harness talented men and women for a common cause.
4. I am guessing Dick Campbell would have been the alternative secretary of the Treasury, although his heart was in Britain. He was Chairman of the Public Service Commission from 1946 to 1951.
5. Before 1988 it could be argued that the Public Service Commission/State Service Commission also had much of this knowledge.

Gloomy Days: What if Japan and the US Stagnate?

Listener 1 December, 2001.

Keywords: Macroeconomics & Money

As the chief economist of the OECD recently explained ‘even without further adverse developments, [I expect] an immediate slump and then global stagnation probably until late next year’. He went on to say he ‘is probably optimistic’. The pessimism arises from the splutterings of the three great motors of the postwar economy.

Japan has been stagnant for a decade, as a result of its past growth based on irrational exuberance financed by excessive credit creation. By 1990 the banks had widespread non-performing loans (that is were not servicing there debt and meeting other contractual obligations). Rather than deal with them precipitously, they tried to let the businesses trade their way out of the financial mess, but they (and therefore their banks) have been unable to do so. One estimate is that over a sixth of the outstanding advances of big Japanese banks are problem loans. (The total bad loans for East Asia has been estimated as about 5000 years of New Zealand’s current output/GDP.) Monetary stimuluses, tax cuts and increased government spending have failed to get Japan on a growth path again, because the monetary system which is underpinned by the banks is malfunctioning.

America is now in a recession (you will be told in January), which may be the worst since the 1930s. There are parallels to Japan. The US’s growth in the 1990s involved irrational exuberance too, so that much debt exists which is not backed by productive assets, and may already be non-performing. The acutest problem sectors are the new technology ones, with spillovers into the finance and real estate sectors (and worries about consumer debt). The airline industry is also in trouble. It was even before September 11, but the drop in travel since has made it worse. Of course people are spending their money on other things (like tourism closer to home), but the airlines are demanding government subsidies, an example of a central precept of capitalism: profits are privatised, losses socialised.

There is a view that the US may end up like Japan, although it is too soon to tell. On the upside, the Bush government has been giving enormous tax cuts (mainly to friends). While this may help the non-performing debts in the mining industry for instance, the new technology industries did not strongly support the republican election campaign, and were not greatly rewarded. Additionally, there is the surge in government spending for the ‘war on terrorism’, so that the military and security industries are recruiting, even if the new technology and financial ones are laying-off workers. Since monetary and fiscal stimulus did not resolve Japan’s economic difficulties, prolonged stagnation (but this time coupled with inflation) in the US cannot be ruled out.

Any US recession will affect Europe, as it exports less there, and gets less American investment. But if the US economy stagnates, can the European economic motor drive the rest of the world out of a long recession? Because the European economy is as big as the US economy and financially sounder, there are grounds for some optimism, but there are at least two cautions.

First, the European Union is a federation, lacking the central authority to make quick quality economic decisions. A further complication is that no country may run a government (fiscal) deficit greater than 3 percent of GDP. In the long run the rule will be so often breached (directly and by astute accounting devices) to become meaningless, but in the interim it reduces the flexibility of response to a deteriorating economic situation.

Second, while the financial affairs of EU businesses seem better placed than their US counterparts, there is a major exception. Earlier this year their telecommunication companies spent two years of New Zealand GDP to acquire the rights to use the part of the radio frequency spectrum called 3G(eneration), which wirelessly transfers data twelve times as fast as mobile phones. The European telecoms often paid up to eight times more per unit than elsewhere in the world. It seems likely they suffer from the ‘winner’s curse’ of paying too much in an auction. (The New Zealand payments were exceptionally modest.) The purchases were funded largely by bank debt, and the companies face huge debt servicing bills (say $NZ20-40b a year in total.) It seems unlikely that the use of 3G will generate those funds in the near future (some think they never will). So the European banks have just taken on a huge chunk of non-performing loans too.

I shall not be surprised if the European telecoms (and their banks) ask the governments from which they bought the 3G spectrum for some (a lot) of their money back (perhaps not as crudely, but that will be the effect). The best policy response is not obvious, but it almost certainly will contribute to the breaching of the fiscal constraint rule.

The prospects for 2002 are not great, even if we ignore the terrorism which is largely outside this column’s compass. Given that we can expect little comfort from the Japanese and US economies, all eyes are on Europe. Their difficulty is not the Taleban but their telecoms.

Nationbuilding and the Textured Society

The Bruce Jesson Memorial Lecture 2001.

This is a revised version of the paper presented on Tuesday 23 October.

Keywords: History of Ideas, Methodology & Philosophy; Labour Studies; Political Economy & History

I did not know Bruce Jesson as well as many of you in the audience, although I may have known him longer, for we went to the same high school. Bruce was in my younger brother’s class, so I only just knew him then. While I have a memory of him gawky in the dreary school gray, it may be this is re-created because we all looked awkward in the uniform, so it is easy to imagine with hindsight. We did not overlap at university, but I recall being stunned by the occasion in 1966 when Bruce and some friends burnt a Union Jack in front of the governor-general, asking why we were upset about damaging a foreign flag, We were already refusing to stand up in the cinema for ‘God Save the Queen’, but that protest lifted the level of analysis, challenging us to think more deeply about what being a New Zealander really meant. However, it was not really until the 1970s I began to link with Bruce, first by reading his wonderful journal, The Republican , and later visiting him in Auckland.

Our dialogue was a part of a wider one in which a handful of New Zealand intellectuals were, and are, redefining the political economy of New Zealand. Its brash public face was part of the resistance against Rogernomics, but the longterm goal has been to construct an account of New Zealand consistent with our history and our values. The intent is not just to interpret the course of New Zealand but to change it. Tonight, I want to use the honour of being invited to give the second Bruce Jesson Memorial Lecture to continue that dialogue, by developing one of his central insights — the thesis of the hollow society — and show how developing a textured society is central to nationbuilding.

Bruce’s book Only Their Purpose is Mad, is pregnant with ideas but none was more exciting than this one. I used it in The Whimpering of the State , which I was writing at the time, and it also has a central role in my just published The Nationbuilders , which Bruce told me he was so looking forward to — except it is out too late. Making Bruce the subject of the book’s envoy is little compensation.

Bruce summarises the thesis as:

“New Zealand was a state-created society in that the state did not emerge from some already-existing social order, some civil society, but instead created it. The state was responsible for creating the infrastructure of the country: the social infrastructure, as well as the economic infrastructure. And while this was unavoidable, it meant New Zealand was a society without texture. New Zealand might without exaggeration be thought of as a hollow society.”(1)

(To begin with a scholarly disavowal. The notion of a textured society is intimately linked to that of civil society, it is a way of discussing rigorously the social capital, and I have also linked it to the writings of Joe Stiglitz, who has just shared the 2001 Nobel prize in economics.(2) Tonight I do not have time to explore these connections, because there are the particularities in their application to New Zealand which much of our colonial discourse ignores. Tonight’s presentation is in a New Zealand context.)

While the notion of ‘the hollow society’ can be oversimplified to parody, subject to thoughtful caveats it provides rich analytic insights. It is not arguing that New Zealand society is empty. Rather the key notion is that because the government of New Zealand preceded New Zealand society, the social institutions did not evolve organically out of its people. Rather, many have been largely imposed top down by the central government, which has given a particular character to New Zealand which Bruce has called textureless or ‘hollow’. We might contrast the New Zealand experience of continuous government well before settler society had developed to any significant degree with that of Germany whose state goes back only to 1871, but whose social institutions began hundreds of years earlier.

Bruce recognised his hollow society thesis was less true today than it was a hundred years ago. Another important exception is that the Maori social institutions are older than the New Zealand government. The theory also recognises that some of the ‘hollow’ has been filled by foreign institutions. Very often government sponsored institutions were created in order to replace foreign ones.

The theory enables us to explain some salient features of New Zealand’s development. What captured me was how it explained why there was so little formal resistance to ‘rogernomics’, despite it being an anathema to a large majority of the population. Because so many institutions were beholden to the government, they could not express the people’s opposition to the government. But the power of the thesis is much greater than just explaining the lack of institutional resistance to Rogernomics. Consider the development of the union movement.

The beginnings of unionism in New Zealand are traditionally associated with Samuel Parnell demanding a 40 hour week in 1840 on the Petone foreshore. A Sunday morning meeting outside Barrett’s Wellington pub in the following October resolved ‘that 8 hours shall be the working day, and that anyone offending shall be ducked in the harbour’. There were various industrial disputes throughout the land in the 1840s, including some which involved the Maori. Unions popped up in the 1850s, but it is not until the 1860s that we get the first unions whose descendants remain with us. Not surprisingly, their inspiration usually came from Britain, with names and rules copied from there. Some were branches of British unions.

Initially the unions were small, fragile and fragmented. But they reflected the working communities which they represented. Some of the most significant involved seamen, watersiders, miners and railwaymen, who came together in late October 1889 to form the Maritime Council, which covered a third of all unionists. We observe the Council in yesterday’s Labour Day, its date being chosen to commemorate the Council’s founding. It chose that date to link with the October 1840 meeting demanding the eight hour day. The Council had close links to the Maritime Council of Australia, which got involved in a bitter industrial dispute in 1890. The New Zealand struggle lasted 77 days, ending in complete defeat.

Weakened by the depression of the 1880s, and broken by the strike, unions took a lower profile for the next few years. But if working men and women had lost on the industrial field in 1890, the election of the Liberal government with a commitment to workers gave an alternative way forward. (The secretary of the Maritime Council, John Andrew Millar, now an MP, chaired the parliamentary committee which introduced the Labour Day holiday in 1899.) In 1894 the Liberals passed the Industrial Conciliation and Arbitration Act whose objectives included the encouragement of unionism. For the next hundred years the union movement was torn between those who saw the Act as a means by which unionism could be promoted, and those which saw it as an industrial leg iron. Instructively, the unions which most wanted to break away from the statutory framework were those that had arisen organically from specific social conditions which reflected the workers’ lives – the seamen, watersiders, miners, who had earlier formed the Maritime Council.

The tension was sharpened after 1936 when compulsory provisions for union membership were enacted. Once an award was established, everyone in jobs covered by the award had to join the union. The resulting union structure was haphazard. A single union could have a minor role in a dozen industries: a dozen unions could organise the same site. Demarcation disputes were common, and they do not contribute to solidarity.

Since the new members were easily recruited, there was no great need to respond to their specific needs. Often it was impracticable. In 1983 the clerical workers’ unions had 50,000 odd members on 20,000 work sites. Nor need the new workers be enthusiastic unionists. Between 1981 and 1990 turnout at annual general meetings of the Northern Clerical Workers Union was always under 5 percent of membership, and only 20 percent took part in the 1989 postal vote to elect the executive.

Compulsory and quiescent membership was not unattractive to some union officials. All they had to do was to be re-elected by the few associates who turned up at meetings, and take in the compulsorily levied union fees, collected by the employers.(4) The union ‘becomes a bureaucratic, fee collecting machine, dependent on compulsory unionism and the arbitration system and devoid of membership support.’ Of course not all union were such creations of the government. Some were deeply embedded in their social fabric. But the existence of these statute-created unions markedly changed the nature of the union movement.

Unions were not unaware of the effects of the changes. In The Nationbuilders I explore Bruce’s notion of ‘the historic compromise’. In the 1930s and 1940s Big Jim Roberts of the watersiders, Angus McLagan of the miners, and Fintan Patrick Walsh of the seamen all threw their lot in with the Labour Government, believing they could get a better deal for workers by using the powers of the state. This requires the state to be considerate of workers’ aspirations. Walsh learned in the 1950s that the historic compromise was much more compromising when the government was less sympathetic. The militant unions were not just shackled by the provisions of the law, but their room to manouevre suffered because solidarity required they recognize the concerns of the statute created unions, which could only survive with government legislation.

This tension came to a head in the 1980s. With a Labour Government, the union movement was able to some extent to look after itself in regard to the Labour Relations Act, although the public sector unions were steamrolled by the State Sector Act. But they found themselves unable to challenge other changes, no matter how unacceptable they were to the public which the unions represented, and the wider republic. After 1990, with an even less sympathetic government, the unions could do little about opposing the Employment Contracts Act. Despite the claim that the legislation was neutral towards unions, the ECA was anti-union, making it very difficult for unions to function properly. The International Labour Organisation concluded that the ECA infringed international standards.

The effect of the ECA was to dramatically change the union structure, halving the number of members and destroying a number of unions. The eliminated unions were those which were most the creation of statute, while those unions which had a organic relationship with their members survived, albeit in a diminished form. In an important way the ECA has had a positive impact on the union movement, for unions which survived are based on a close relationship with their members.

The union movement did not demand a reversion to its old ways when the Employment Relations Act was being implemented. They recognised that statute-created unions hinder their development, so there are no compulsory coverage provisions. When a right wing government comes along to replace the existing legislation, the union movement will not collapse as it did 1991 but have an independent base in the community. That does not mean that governments now have no role in industrial relations. Because the modern union cannot practically cover many workers in need of social protection, the state will have to enact statutes to protect those workers for whom there is not a suitable union.

So while the union movement is not turning its back on the government, and is still willing to operate as a partnership, it no longer trusts that government will act eternally in the interests of workers. By looking for a power base outside the government, in the voluntary support of and enthusiasm from its members, it is looking to the day when the government is again hostile to the interests of workers. By doing so the unions are contributing to the filling the hollow society – enhancing the social fabric.

The story I have told about the unions can be told about many other social institutions, whose dependence upon the government limited their ability to challenge government policy. When in 1989 two of the universities took the government to court, the other five universities did not join in. Given that Auckland and Canterbury won their case, the reasons for not joining cannot be that the legal case was weak. It seems that some of the other universities felt themselves so dependent upon the government that they were unwilling to challenge it, even when they were in the legal right.

The same story applies to local government, where again it has been rare for there to be serious resistance to the central government’s impositions. The Area Health Boards never had a chance, their elected representatives eliminated in a single sitting of parliament. So many of the social and political institutions were dependent on the government, they could not convey the people’s dismay at the pursuit of policies which the public firmly rejected.

New Zealand had evolved a government predicated on the assumption that it would act in the people’s interests. For most of the time it has been manned by an elite, who maintained some sort of empathy with the average New Zealander, perhaps recalling the hardships they had gone through before they became powerful. But it was, in Lord Hailsham’s phrase, an ‘elected dictatorship’. It worked as long as the dictators were benevolent. Less benign dictators were able to impose their will virtually unchecked. When terrorists took over government institutions designed for protecting the community, they could turn the guns on the people.

In the last decade the governmental arrangements have been changed to prevent such takeovers. That is the purpose of MMP, which hobbles the ruling powers by requiring two or more parties in government, thereby shackling potential terrorists. Additionally, as we saw with unions, some of the social institutions are now less dependent upon the state for their existence. There are more local authorities willing to stand up to arrogance from the centre. Even the universities have been less feeble recently. And to give the government due recognition, its current proposals for the reform of local government, the re-establishment of local involvement in district health boards, and the new structure for TVNZ, add to the independence of these institutions and the social texture.

The vision of the ‘Tomorrow’s Schools’ reforms was that empowering the local community in the running of their schools, would protect them from predations from the centre.(5) The shift was all the more intriguing because it took place during the greatest intensity of Rogernomics, and was diametrically opposed to it – one of the earliest counter-terrorism strategies. Perhaps the reforms were not as successful as the minister intended – therein lies an interesting tale of the reluctance of the centre to devolve power – but it was an attempt to base a social institutions more on people and their communities.

One of the problems any democratic government faces is the arrogance of power. The holders tend to forget from whence they came, and how even in an FPP electoral system the populace can transfer the power to others by the tick on a voting paper. More humble politicians would recognise that one day their party will no longer hold power, and try to thicken the texture of society so that they will have some support in opposition. With a few exceptions, such as Tomorrow’s Schools and history research, the Fourth Labour Government did exactly the opposite, hatchetting those who might have supported them after it lost office. Not surprisingly, it found few friends in opposition, probably spending an extra three years out of government as a result. My impression is that the current government has not yet learned from its predecessor’s mistake

Curiously, Rob Muldoon had alerted the Rogernomes to the dangers of the hollow society, and they embarked on a strategy to reduce the businesses’ dependence on the state. Theirs was an ahistorical vision, ignoring how the state had accumulated its powers in part to offset the power of business, and in part because business could not deliver what the nation desired. Many of the businesses they privatised had become state owned assets because of business failure, or to counterbalance the powers of foreign business, or a means of restraining local monopolies.

The Rogernomes approach assumed the only valid means of filling in the hollow society was through private corporations. Recall the attack on Maori social institutions in Treasury’s 1987 post-election briefing. Observe how Rogernomics deliberately undermined the nascent alternative institutions, especially those that might have been critical not only of the government but also big business. (No wonder the Labour Party had so much trouble being in opposition in the 1990s.)

Although the public may think it a dreadful failure, there is a sense in which the Rogernomic program to restrain the power of government was a success. Unfortunately the transfer of power was to foreigners operating through their branch businesses. That is fine if you are one of those businesses or one of their well remunerated acolytes, but it is less beneficial to the ordinary New Zealander. In today’s political environment the Rogernomes are able to run a sustained campaign against the government, albeit without success in reaching ordinary New Zealanders. One assumes they aim to return to power and turn their guns on the public again. No wonder they loathe MMP.

Ironically then, the broad effect of the Rogernomic revolution was to further hollow out society. Certainly the business community is less dependent on the state than it was two decades ago, but it is less a part of New Zealand society. You can see this in that membership of the BRT which has changed from being predominantly New Zealand producers to foreign financiers in a couple of decades.

This transferring of power to foreigners rather than New Zealanders worried Bruce, as it does many New Zealanders. Of course, New Zealand has been a colony or neo-colony for much of its history, but in the period from the early 1930s to the 1980s we sought as much control over our destiny as was possible for a small open economy on the margins of the world. Those ambitions have suffered a serious setback in the last two decades, and they are under further pressure from the current round of globalisation, which is one of those great forces of history, just as were the forces of globalisation and industrialisation in the nineteenth century. Karl Marx’s great insight was that despite the destruction to workers and their social and physical environment that those forces caused, they were ultimately progressive, and the descendants of the workers benefited from the resulting higher standard of living and the opportunities it generated. The issue was not to reverse the forces but to redirect them, to the benefit of mankind. That is the challenge which this round of globalisation also presents to us. (6)

One of the consequences of the current bout of globalisation will be a diminution of the role of the nation-state. The increasing requirement to tackle public issues in an international framework means that some of the powers of state will be passed to supranational agencies. That need not always be a bad thing. The union movement will not hesitate to obtain ILO support when there is another legislative attempt to impose ECA type industrial relations.

In fact, the nation-state is a recent arrival on the global scene. It seems to come out of the nineteenth century process of globalisation-industrialism. But recall that Germany, among others, was a nation-society long before it was a nation-state. While some may regret the diminution of the authority of Germany as the European Union evolves and as other supranational authorities become more powerful, there will remain German-society and German-culture, for centuries to come. We know organic communities and cultures can survive for a hundred and more years in a hostile environment: witness the Jews, witness the Maori.

The difficulty which New Zealand faces is that because the state preceded society, we are currently dependent upon it for too many of the institutions of our society. As globalisation reduces the power of the nation-state, government created and sponsored social institutions must suffer. But that is not a consequence of globalisation, it is a consequence of the hollow society. As New Zealand becomes a more textured society, we have less to fear from this aspect of globalisation.

The conclusion then, is that New Zealand needs to move on from the hollow society for two main reasons. The first is to limit the ability of terrorists to command the state against the interest of New Zealanders; the second to ensure we have a fully functioning society despite the significance of the nation-state being reduced by globalisation. How can we achieve these goals?

Bruce saw nationbuilding as a key element, although when he wrote about it in his very last essay, ‘How to Build a Nation’ he was gloomy about New Zealand’s prospects.(7) I do not think this reflected his health, for his natural cheerful self lasted to the end. Rather, the pessimism had accumulated over the previous twenty years as he watched terrorists tear the nationbuilding state apart. I understand his gloom but would like to be more optimistic. My book, The Nationbuilders, shows how a couple of generations – our parents and grandparents – built the nation over the middle half of the last century. We can learn from them, and pray for their courage, competence and commitment.

Even so, this century’s nationbuilding will be different from the last. New technologies and new products change possibilities. The next round of nationbuilding will not be simply a matter of defining a mature relationship with Britain and the United States. It will have to struggle with the complexities of today’s globalisation. And we will have to respond to new personal, social, and political demands. The postwar world unleashed the importance of human rights. Affluence has meant we can be afford to be more concerned with the environment.

A major challenge is how the Maori fit into the New Zealand nation. I did not find much evidence of Maori as a part of New Zealand twentieth century nationbuilding, partly because they were building a Maori nation (or nations). It is unclear what a Maori nation might be, especially as globalisation is changing the very meaning of ‘nation’. More broadly, there is a whole challenge of building ethnic diversity and tolerance into the New Zealand nation. As big a challenge is building a society which recognises the different situation of women. There were important women in the twentieth century New Zealand but again they were not closely associated with nationbuilding. It was a ‘white boys’ engineering thing’, and others often felt excluded.

The articulation of a vision of this millennium’s New Zealand in which men and women – white, brown and yellow – share their nationhood has yet to be made. I suspect that this is partly because the traditional war and rugby symbols of New Zealand do not grip women as much as they do some men. Yet women can feel as passionately about New Zealand. They may have different symbols, but it is still the New Zealand of the nationbuilders cared about and struggled for.

Allen Curnow wrote in 1945 ‘Strictly speaking New Zealand doesn’t exist yet, though some possible New Zealand glimmer in some poems and on some canvases. It remains to be created – should I say invented – by writers, musicians, architects, publishers; even a politician might help.’(8) Actually every generation has to re-invent the nation, maintaining continuity and yet responding to changing circumstances.

One of the reasons why Bruce was gloomy about the prospects was because of the widespread anti-intellectualism he saw in New Zealand. The closest we have to a manifesto by Bruce is a 1997 essay, ‘The Role of the Intellectual is to Defend the Role of the Intellectual.’ He wrote:

“I am an incorrigible romantic. I believe in the importance of the intellect as something that is essential to society, not for what it can provide in a tangible way but as something that is valuable for its own sake. I maintain the role of an intellectual is to be a critic of society as well as being a servant of it – and in fact there is no difference between being a servant of society and a critic of it. An intellectual serves society best by maintaining a position of critical independence. Society gains through the sorts of debate and discussion that question its values and beliefs and that challenge the sources of power and authority. Society is richer for containing intellectuals of independent spirit and integrity who value ideas for their own sake.”(9)

Amen.

The essay, which is a foreword to a book on the universities, goes on to discuss how so many people in intellectual occupations fail to function as intellectuals, and indeed how they are even anti-intellectual. That especially includes the Rogernomes, who followed Lenin’s dictum that after the revolution first shoot the intellectuals.

If nationhood is about a common set of symbols – that is the best short definition I came across when I was writing The Nationbuilders – then, as Curnow argued, it is the function of intellectuals to create or sustain them. However the Establishment will only tolerate a limited degree of dissent, insufficient for an intellectual to function properly. Thus the hollow society is inimical to proper intellectual activity, and the hollowing out that occurred in the last twenty years has made it even more difficult. For example the quality of the indigenous economic debate is vastly inferior to what it was two decades ago. Those in the private sector speak from the viewpoint of their employers who are usually branches of foreign firms. The academy makes hardly any contribution, perhaps because of the high proportion of foreign appointees, while government documents rarely refer to New Zealand research, but slavishly report American studies which are often irrelevant. We can be obsequious to second and third rate foreign visitors, even when their contribution is irrelevant to local issues. How can we have a nation when its intellectual workers strangle real intellectual endeavour, while adopting a colonial demeanour?

(A couple of weeks ago a second-year student wrote in an essay that the concept of a hollow society would be valuable to government officials thinking through the inclusive society. Looking at the official reports, one is struck the absence of references to local contributions and their dependence on foreign works. There can be no future in New Zealand if our intellectual workers imitate second rate foreigners, and dont systematically adapt the material for the particularities of New Zealand. What happens between second year studentship and graduation?)

There is no simple prescription for nationbuilding, but I am sure that this time it is not a matter of reinforcing the powers of the state, except insofar as it is necessary to use them to offset pressures from business and foreigners. Rather by replacing the hollow society with authentic indigenous social institutions, we enable the nation-society to develop even as the nation-state retreats. So my first recommendation is that we should pressure central government to devolve power to potentially viable community institutions. But the experience of Tomorrow’s Schools tells us there will be much resistance from the centre.

Second, we need to refrain from always expecting the government to do things for us. This is not the New Right philosophy which says the government is a block on progress, a view inconsistent with the historical facts. But they were right when the saw the tendency to turn to the government as a first resort, rather that using it after all other means of pursuing our goals have proved unsatisfactory, as a weakness in New Zealand political life. It detexturises society.

The third element of the strategy is that each of us has to play the greatest possible role in the social institutions. The possibilities are large, but include being an active member of your union, your school council, and various local organisations and pressure groups, depending on your particular circumstances. It means attending meetings, volunteering assistance, paying subscriptions, voting, supporting it in public and private.

The fourth element comes out of Bruce’s remarks on the need for genuinely independent intellectuals in a healthy society. We need to be less anti-intellectual, to support intellectuals and intellectualism – to respect them not to reject them, and certainly not to repress them. Reflect how those involved in intellectual work and failed to criticise the terrorism have done far better in terms of career opportunities, status and remuneration. As John Maynard Keynes remarked ‘Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.’

Out of this comes my fifth strategy and penultimate step. We need to regain the belief in ourselves as New Zealanders, able to tackles our own problems without being obsequiously imitative of second and third rate foreigners. Of course we need to be in constant dialogue with the world, as Bruce was, but we can do that as independent equals not as cringing colonials. The worst anti-intellectualism is to ignore our own intellectual resources.

My sixth, and for tonight, final element is the need to control the social surplus, that part of output over which a society has discretion to spend on its own purposes, rather than routine maintenance of living, which enables a people to maintain some control over its future. Some of the surplus will go into capital formation, some into education, some into health, some on culture, some on the fripperies of life (and why not), and so on. Until social institutions have discretion over resources they cannot function effectively and autonomously.

Historically New Zealand resolved the problem by the state commanding a share of the social surplus through taxation. Thus the social institutions became dependent upon the state, because the state held the purse strings. Hence the hollow society. When the state gave up some of its control over the surplus, it gave it to the rich and the corporations, so it is they who now make the discretionary decisions. They are not all bad ones, but the outcomes are not all ideal. For instance there is much commendable in the substantial flows into the world of the arts from rich patrons, although I would like to see more emphasis of authentically indigenous efforts, and less on imitative international ones. Similarly universities are benefiting from financial flows from corporations making them less dependent on state funding, although I wish more of it was for the liberal arts and sciences, and other intellectual activities, and less was for business schools.

But part of the social surplus comes from the activities of ordinary New Zealanders. When you do some voluntary work for your organisation or pay your subscription or give a donation you are enabling it to function with greater discretion. When you purchase a book or subscribe to an independent journal, you are promoting intellectual effort – often genuine intellectual effort.

So, the prescription of filling out the hollow society in order to avoid the dangers of political terrorism, and the dangers of globalisation undermining the nation-society as well as the nation-state are:
* decentralisation of institutions, giving them an independence to function on their own;
* relying less on central government;
* taking an active role in social institutions by individuals;
* rejecting anti-intellectualism;
* having more confidence in ourselves, and being less colonially imitative; and
* enabling the organic institutions to command a greater share of the social surplus.

Thankyou for the opportunity to develop the idea of the hollow society and the need to develop a more textured one. Thankyou too for the opportunity to pay tribute to Bruce in doing so. He would be delighted with such an occasion, not only because – I hope – he would see it as developing some of his ideas, but because the Bruce Jesson Foundation is an organic institution in its own right, promoting the ideals he valued so highly. The memorial lecture is a venue which offers a New Zealand intellectual the opportunity to constructively criticise economic, political and social life, without having big brother the state or big brother business limiting what can be said. While Aucklanders should name the second harbour bridge after Bruce for his contribution to infrastructural funding through his stewardship of the ARST, I suspect he would take greater pleasure in this annual lecture.

And if I have conveyed anything of the need to build self sustaining independent organic institutions for the survival of New Zealand, the following thought will occur to you as you leave the lecture hall and pass the buckets inviting a koha. Bruce’s memorial lecture depends on a share of the social surplus too. So any donation you make is not simply a way of saying thank you to the organisers of this event, as I do, but it is also an investment in the promotion of a selfsustaining socially organic institution. I know you will give generously – for Bruce, for New Zealand.

Endnotes
(1) B. Jesson (1999) Only Their Purpose is Mad: The Money Men Take Over New Zealand, p.205.
(2) See B.H. Easton (1999) The Whimpering of the State: Policy after MMP, Chapter 8 & The Epilogue.
(3) The early history largely follows H. Roth (1973) Trade Unions in New Zealand, supplemented by Sarah Gaitanos who is expert on the Millar family. Later history will be found in B.H. Easton (1997) The Commercialisation of New Zealand, appendix to Chapter 7 and B.H. Easton (2001) The Nationbuilders, Chapters 5 and 12, together with the primary material they cite.
(4) This applies to most business corporations, insofar as the shareholders normally have little control over their boards or the remuneration it receives.
(5) As E.B. Fiske & H.F. Ladd point out in When Schools Compete: A Cautionary Tale (2000), there is an original vision of Tomorrow=s Schools based on the Picot report, and subsequently expounded by the minister of education, David. Lange, and an implemented policy in which much of the vision was rolled back.
(6) For an elaboration of this argument see B.H. Easton New Zealand in a Globalised World, paper to the Wellington Branch of the New Zealand Labour Party, September 1, 2001.
(7) B. Jesson (1999) “How to Build a Nation”, Political Review, April 1999, p.24-33.
(8) A. Curnow, (1945) “A Dialogue by Way of Introduction”, with N. Marsh, First Yearbook of the Arts in New Zealand, p.2.
(9) B. Jesson (1997) ‘Forward: The Role of the Intellectual is to Defend the Role of the Intellectual’, in M. Peters (ed) Cultural Politics and the University, p. 9.

Elsie Locke: 1912-2001.

A revised version of a paper presented to the Friends of Turnbull Library, November 22, 2001

Keywords Political Economy & History;

Towards the end of her life, Elsie Locke asked me – ‘insisted ‘would be a better word. – to reread her prize winning essay ‘Looking for Answers’, published in Landfall of 1958. She was, I think, looking back over her long and productive life, and was reflecting on her period in the Communist Party from 1932 to 1956 which the essay covered. This essay is a response to Elsie’s request.

I take the approach of my book, The Nationbuilders, which is written around a series of biographical essays to explore the big theme of the nationbuilding program that occurred between 1932 and 1984. Right at the end of my writing, I added an extra chapter to explore the different experience of women in the nationbuilding state. This involved choosing a living woman, although all the male nationbuilders were dead. There were two prime candidates: Elsie and Sonja Davies. I chose Sonja, because that enabled me to extend the trade union story which I had begun in the chapter on Fintan Patrick Walsh. Elsie died in April 2001, shortly after the book had gone to the publisher, and it was not practical to add an additional chapter. This essay might be the missing chapter.

There is no biography of Elsie Locke. Some periods of her life are well recorded, others exist in primary documents including her own papers, and some gaps can be filled from memory, the oral record and conjecture. This was true for a number of other subjects of the book. Aside from autobiographical writing this essay is currently the longest written life of Elsie. This is true for eight of the subjects in The Nationbuilders. The sooner that number is reduced to zero, the better. Elsie’s full biography could be a brilliant work of scholarship so I will not be able to do her full justice. And while The Nationbuilders only indirectly explores some very contemporary issues, I directly mention the ‘war against terrorism’, as Elsie herself would want.

Elsie Farrelly, the youngest of four children, grew up at Waiuku, near what is now the site of the Glenbrook steel mill. Her Student at the Gates describes the life of a simple but loving family, not particularly well off. Her father was a builder. One cannot help drawing a parallel with the father of the five-years-older Bill Sutch. He was also a builder, and he too left the money management to his wife. Both mothers were committed to women’s causes. Elsie’s was especially committed to peace, bewailing the loss of young men in the First World War. As in Sutch’s case, her parents did not go past primary education, but they gave their children the best education available.

That was not easy. Waiuku was a long way out of Auckland – Elsie mentions two hours by train – and in those days the local school was limited. One educational influence was the local minister, although Elsie left church at the age of fourteen. Most other nationbuilders of her generation were also greatly influenced by a religious upbringing. The Nationbuilders remarks that New Zealand socialism owes much more to Methodism than to Marxism.

Elsie was the only child of the family able to go to Auckland University College, and the first from her district. She went with a secret ambition to become a writer. Her tertiary education story is both the joy of youth getting the best education available, and the eking out a frugal existence, missing out on academic opportunities as a result. In 1932, in her second year, public events were to change the course of her life. Let Elsie tell the story:

“On a grey day in April I stood on the pavement at John Court’s corner, Auckland, watching for the first time a demonstration of unemployed men. … There were, I think, ten thousand demonstrators, with no common characteristic except their shabbiness. Many bore the marks of their trade or background: the farmer, the navvy, the counterhand, the carpenter, the tailor, the office executive, and those too young to have any occupation at all. Eight abreast, they came and they came and they came; scarcely any banners, no music, no shouting, just thousands of feet beating ragged time, thousands of faces diffident or philosophical or determined.”

She recognised one of the marchers as coming from Waiuku.

“A moment before they all had been strangers. It seemed to me now that I might have known any of them. My father, my brother, my friends, could have been among the ten thousand. I do not think it was the poverty of these men that shattered me …. It was the injustice, the idiotic injustice, and the assault on the dignity of the human being that ‘the unemployment problem’ meant when translated into human terms and multiplied ten thousandfold. Everyone knew that the shops were stacked with goods the shopkeepers couldn’t sell, that the farmers, with butterfat at fourpence a pound and wool at sixpence a pound, were walking off their farms … When the last of the ten thousand had passed me, I was left on the pavement to answer the question these men had silently flung at me: whose side are you on? Whoever you are, and wherever you are going, I am going too, I had answered.’”(1)

Soon after came the Queen Street Riot, in which a protest march turned violent after the police brutally struck down its Communist leader, Jim Edwards. It was a turning point in New Zealand history. A number of seminal literary works came out of it: John Mulgan’s Man Alone, John A Lee’s Children of the Poor, Bruce Mason’s End of the Golden Weather the most prominent. The government reacted by passing the Public Safety Conservation Act, which was used so repressively against the watersiders in 1951. The Queen Street Riot marked the nadir of the Great Depression – the reality that a green and pleasant land could be so different from the dreams. As we have forgotten those events, and parallel ones which took place in other New Zealand cities, we have forgotten the terrible lesson of the breakdown in the world economic system.

Elsie never did. She was not at the riot, although became marginally involved when Jim Edwards hid in the house of the family with whom she boarded. But the economic and political tumult led her, step by step, to join the Communist Party in 1933. Very often we see institutions from the end of their history rather than the beginning. I suspect Elsie wanted us to see how the Party’s beginnings were very different from the view we have of it today.

Marx was one of the great intellectuals of the nineteenth century but, as so often happens, his ideas have been simplified and distorted by subsequent generations. From the perspective of the 1930s, Marxism provided a powerful account of the troubles that faced the world. Virtually all the standard economics we use today to interpret the Great Depression – of Keynes, Schumpeter, Friedman – has been developed since the 1930s, an admission that the economics of the day was not very helpful.(An exception was that at the time it was known that New Zealand had to realign its price levels. But that does not explain the world depression.) Marxism, on the other hand, already had a theory built round the falling rate of surplus value, which predicted increasingly intense economic slumps. That the depression of the 1930s was more severe than its predecessors and seemed to confirm the theory.

Moreover, Marxism was not just an economic theory. Its combining economics, history, philosophy, politics, and sociology is one of its attractions. The combination results in a prediction about the future course of the world, in the context of a deeply moral vision. (For all its strengths, today’s central economic paradigm cannot. Insofar as there is a moral vision in economics it comes from outside the strict paradigm.)

Third, there was the example of the Soviet Union, which was thought to be a land without unemployment while the rest of the world suffered. Of course there were some dreadful things happening in the Soviet Union at the time, but the information available to the world was restricted, and the odd criticisms were explained by propaganda, the transition from capitalism, or minor anomalies. A couple of letters to newspapers shortly after her death – perhaps the critics were unwilling to tackle her in life – argued that Elsie and others should have known about the true state of the Soviet Union in the 1930s.(2) That is an ahistorical judgement – I wonder how informed the critics were of what was going on in Vietnam in the 1960s.

A fourth compelling issue was the spectre of fascism. Many believed in the 1930s, and some believe to this day supported by some evidence in the historical record, that the western liberal nations wanted to cooperate with the fascist ones against communism, because their capitalists saw the communist attack on private property as the greater threat.

So it was not unreasonable for someone in the 1930s, concerned about the state of the world, to join the Communist Party, as Elsie did, even though they were strongly committed to democratic values, as Elsie was then and remained throughout her life. Perhaps she should have picked up a signal when she was criticised at an early stage, for her ‘pacifist illusions, … feminist tendencies and other divergences from the straight and narrow path.’ But as she said

“What really decided me was the overwhelming sense of social crisis. I couldn’t stand on the sidelines examining every facet while fascism rose in Germany, the world prepared for war and unemployed families went into their fourth year of hunger and humiliation. If I was going to look for a perfect way to peace and freedom and a decent life for all, I was not going to find it. The battle was on: we had to be in it.”(3)

Elsie was not alone. One of the best accounts we have of the early development of the New Zealand Communist Party is Rebel in the Wrong Cause by Sid Scott, who was a founder of the Party in 1921, who received training in Moscow in the late 1930s, who was the Party Secretary for a period in the late 1940s and who left the Party after 1956. Shortly after he published the book in 1960, he joined the local Methodist Church, a shift which was no surprise to his readers. Scott can be described as a ‘liberal communist’, as can Elsie and a good number of others who joined in the hope that Marxism offered the brave new world, and who left disillusioned after 1956. She defined ‘socialism’ as

“Concerned with the aim of men to become whole men, living in a society where individual and collective needs are in harmony; where the producer receives his due share of the product, and plays a full part in the administration of community life. This is inconceivable without intellectual and personal liberty.” (4)

Marx would be comfortable with that. The lyrical writing of the younger Marx (although most of those texts were not available in the 1930s) contrasts with the authoritarianism of some of his best-known followers.

Even so, there are serious methodological problems with Communism. Elsie’s Landfall article states: ‘The first fatal flaw is the concept of the monolithic party – party of single will – with the organizational structure of “democratic centralism” to uphold it. … This system gives a unanimity of action but no guarantee that the action will not be misconceived and misdirected – and no means of correcting it’. This criticism while true, might be attributed to the problems of Marxism-Leninism, rather than pure Marxism. (Indeed, it is equally a criticism of the rogernomes who blitzkrieged through a wrong economic policy in the 1980s and 1990s.) She goes on that the ‘… second fatal flaw ….. is in the confusion of this limited and relative knowledge with what are assumed to be absolute and universal truths.’(5) Intriguingly both her points could have come from Karl Popper. They are unlikely to have met. More likely, Elsie was affected by the milieu he left in Christchurch.

At the end of 1933, aged 21, she went to Wellington where, because the leaders of two successive national committees of the Communist Party had been jailed, she found herself Wellington District organiser/secretary, and organised Working Women’s Committees. She started, and wrote for, Working Woman, which evolved into Woman To-Day, which described itself as ‘non-sectarian, non-political and non-commercial’, concerned with ‘Peace, Freedom and Progress and all that pertains to women’s advancement in any sphere of thought, and that affects the welfare of children.’ In 1934 she had organised, with Freda Cook and Connie Birchfield, a Woman’s Convention, a precursor of the 1976 one in which Sonja Davies was influential. And, perhaps with less support from a Party unenthusiastic about Elsie’s ‘feminist’ tendencies, she was a key founder in 1936, with Lois Suckling and Jean Dawson, of the Sex Hygiene and Birth Regulation Society. A misprint in an advertisement, which mentioned ‘girth regulation’, led to a name change to the ‘New Zealand Family Planning Association’.

Probably her peace activities were more acceptable to the Party. In 1938, she, Connie Birchfield and Wally Jamieson had walked down Cuba Street carrying signs with slogans such as ‘English Materials are Smarter and Better’, and ‘Japanese Goods Means Japanese Bombs: Don’t Let Your Money Buy Bombs.’ They were charged with being in a ‘procession without a permit’. Their successful defence rested on the fact that there was a good distance between each of the protestors – twenty yards according to some witnesses – Elsie using the Oxford English Dictionary to argue this was no ‘procession’.

An active productive life and she had yet to turn 30. She married another communist, Friedrich Engels (Freddie) Freeman, and had a son Don, who later became a philosopher in a British university. The marriage did not last, and shortly after the divorce in 1941, she married Jack Locke. They moved to Christchurch where Jack became a Belfast freezing worker at the direction of the Party.

Jack had been born in England in 1908 and had come here at the age of 18, joining the Communist Party in 1935. He deserves a biography of his own, even though his life was almost wasted in the freezing industry. He had exceptional talents in relating to children, and in a fairer world he would have been a teacher. He did his stint for the Party, as a worker, local secretary and a candidate. The legacy he left to his workmates was his role in the ‘sick benefit society’ with its payments and other support for their families facing illness and death, to which he added his generous personal attention. He collected left wing publications, saving them for posterity, and helped run the Cooperative Bookshop. The good Lord gave him a second chance, for he lived twenty years after he retired, doing good works for progressive causes. He was a key figure in promoting community and the environment in the Lockes’ neighbourhood. Despite the wrong occupation, when he died at 88, his life was a triumph.

Shortly after they settled there, Keith arrived. He is now a Green list MP. Then Maire, a social worker who did a stint as a local body councillor. Then Elsie spent two years in hospital with TB. (Sonja Davies also suffered from the scourge.) It was a time for reflection about the nature of society and the role progressive politics played in it. There is an interesting parallel with Sid Scott, who being blind, would also lie in bed, reflecting. Both began to doubt the direction the Communist Party was taking.

Because Elsie was out of the way – in hospital, and far from the New Zealand Party centred in Wellington or Auckland – it is Scott’s Rebel in the Wrong Cause which is the primary source. He describes the difficulty the New Zealand Communist Party had in relating to the Labour Party which won the general elections from 1935 to 1946. The essential problem of the relationship between the Marxist and non-Marxist accounts of social development, and – not quite the same thing – the revolutionary and evolutionary traditions of the left, was compounded by the need, as far as the Communist Party was concerned, to support the Soviet Union, which was seen as the bastion of their socialism. Since the Soviet Union was allied with Hitler at one stage, and fought him later, this led to very supple accounts of the international situation by Communists. Elsie recalled in 1958 that in the 1940s

“I hated the military spirit [Communists] cultivated. What to us was a ‘people’s war’, a kind of civil war against fascism which stretched across all national frontiers was presented in Soviet propaganda as a patriotic war for the Russian motherland. What unsavoury developments were emerging beneath the surface of the heroic and self-sacrificing battle of millions of people to smash the fascist stranglehold? We were not channelling the river of history. We were being swept along in it, up to our necks in the water, silt and foam.”(6)

Shortly after Germans and the Japanese were defeated, the Cold War began, dividing the world – as far as the protagonists were concerned – into two. The effect was to leave the liberal Communists stranded, as the Communist Party became increasingly authoritarian and repressive towards dissent within its ranks. But so did the other side, as they organized a vision of the world into black and white, capitalism and communism, good and evil.

Were she here today, Elsie would not only condemn such crude simplifications, but draw our attention to how it has happened yet again, since September 11th, 2001. She would have had no truck with terrorism, but even so would have asked to what extent the other side had genuine grievances which were ignored by the American alliance, and would have vigorously questioned whether the use of terrorist methods by the alliance was justified in any war against terrorism. For my part, and I suspect Elsie would agree, I am extremely uncomfortable that there has been such an abandonment of the rule of law, and fear that whatever happens, by causing such an abandonment the terrorists have won.

If Elsie was not as aware of the stress within the Party, like Scott she was questioning the situation, and conflicting with the party-line. Once she expressed a reluctance to reach a conclusion on the expulsion of the Jugoslav Communists from the Cominform, until she heard Tito’s side of the story. She was told brusquely ‘If they say he’s wrong, then he’s wrong, and you have got to accept it.’ There are so many issues and problems, we all take much on the authority of others because we have not time to check it all ourselves. However, one of the natural activities of an intellectual – and Elsie was certainly an intellectual – is to consider independently, to go deeper, to challenge. Most people find this radicalism – going to the root – disconcerting. She recalled:

“These were times that called to faith, not questioning. I committed the supreme crime: I did question. Furthermore, though I did not realise it, I was attacking at the very point that had become the core of Party life: the absoluteness of centralised authority in ideology, policy and organization. In consequence, the officials could not even examine fairly the evidence I produced, for the raising of the challenge, quite apart from the nature of it, was impermissible.

“Now I was regarded as a menace within the camp: a petit-bourgeois influence which had to be dealt with, by limiting in every possible way my communication with other members; by appealing to my loyalty; by diverting my energies into innocuous channels; by directly or indirectly linking my views with those of the ‘class enemy’. …

“Having failed, I felt trapped. Believing that to condone or conceal evil is to share in the commission of evil, I was being made accomplice to the hypocrisies, cruelties and injustices which were rife under the shadow of the ageing Stalin. Had this been the whole picture, no choice would be necessary. But out movement’s original purposes still asserted themselves, too. At the ground level, where the ends of trade unions workplace or locality were concerned, the old methods – ‘listening to the workers’ and interpreting and guiding their aspirations – were still in evidence. I liked and admired my comrades, with their stalwart toughness and ready spirit of selfless service. Their advocacy of world peace was passionate and sincere. …

“‘When I get disgusted with my own side,’ said a friend to me one day, ‘I take a good look at the other side. I soon come scurrying home.’ And it was true that we could look at the state of the world from any one’s angle and ask, ‘Who is blameless?’ and receive no answer.

“No I was committed: I was not prepared to loosen my political loyalties, which a hundred personal loyalties were intricately woven. Here, where I already belonged, was the place for my own small effort towards changing the world. I felt very much alone: for Party rules forbade, under the heading of creating factions, and expression of doubts or criticisms outside formal meetings and procedures. I could not turn back. I could only go on searching.”(7)

Those sentiments were expressed a decade after they had arisen. However earlier she published a sequence of poems ‘From Hospital’ in Landfall which from one perspective expresses the joy of someone recovering from a severe illness, but from another can be interpreted as reflecting sentiments about her situation in the Party. The last poem reads:

III. RELEASE

I who have prisoned lain and still,
And watched the seasons rise and pass
Through iron frame and rigid glass,
Nor thrust my hand beyond the sill:

Now that there is rain upon my face,
Now there is wind about my hair;
The dusk shall be my sister, where
The trees reach up to her embrace.

Here secretly the river sways
Into an arc of crimson light,

And golden arrows tip her flight
And set the glistening lawns ablaze:

And casting off her peace again
The cosmic ducks flash in and out,
The children laugh, and run and shout!
And I am walking in the rain.

Winter 1948.

But where could she walk? There were now four children with the arrival of Alison who is a school counsellor. But this mother had to find a career. Her ambition remained to be a writer. It was not going to be through the Communist Party, which had, in effect, funded of much of her writing of the 1930s and 1940s. While Landfall and the Listener remained venues, with some remuneration, writing for them was not a career. Other possibilities were ruled out by her past Communist Party connections, exacerbated by the Cold War, and the aftermath of the 1951 Waterfront Dispute. She turned to School Publications, perhaps as vital a contributor to New Zealand’s intellectual development as Landfall and Listener. They cultivated her, and with the encouragement of an editor, Alistair Campbell, she wrote her first children’s novel, The Runaway Settlers.

Writing for children, if it is done well, is as demanding a task – if not more so – as writing for adults. Children are tough critics. The story has to be gripping all the way – with humour, even irony – or they quickly lose interest. Some write for children only while their own are young, for then there are eager critics waiting in the bedroom. Some writers make a lifelong career of it, trialing on their children, grandchildren, neighbourhood children, schoolchildren, young friends and anyone else available. Elsie continued to write for them until shortly before her death.

The Runaway Settlers is the paradigm for many of her subsequent works. It is a historical novel, based on a broad set of facts, although inevitably there had to be imaginative additions and also minor changes to accommodate the story. Historians say that Elsie’s historical writing, including her fiction for children, is so thoroughly researched they can rely on it. The subjects are ordinary folk, not the great and good. Her stories are deeply moral, although not overtly so, and the people – especially the women – typically appear as sturdy independent characters. Mrs Small runs away from a drunken husband, and survives by applying the skill of cattle management she learned in Australia, to the Port Hills of Christchurch. The happy ending reflects the Canterbury view of the gold rushes. The eldest son goes to West Coast but does not find gold. The mother herds her cattle over the Southern Alps, and sells them for the gold. Settlement wins over the quarry. There is a strong women’s perspective, not only in the model of Mrs Small, but the story hinges on the legal provision that until 1882 a married woman’s property was owned by her husband, so the family has to run away and hide, because if the husband found them he could take over all the assets his wife had built up and, if he wished, drink the proceeds.

Being a Canterbury based story, there is no Maori dimension. Although she grew up in the Ngati Te Ata rohe, there was little interaction between the Pakeha and Maori in her childhood. But when writing The End of the Harbour, she showed such sensitivity to the race relations – a feature of many of her later books – she was given kuia status in Ngati Te Ata.

She wrote children’s, and more occasionally adult, histories too. Not all her books are historical. The Boy with the Snowgrass Hair, based on the tramping diaries of Ken Dawson, is the ideal present for an adolescent who has just become an enthusiastic tramper. Not only is a good yarn, but it also has a lot of practical advice. Elsie was a keen tramper as long as her legs let her. One example pops up in the biography of the Australian Communist and painter Noel Counihan, who spent a few years in Wellington before he was shipped back by our immigration authorities. A walk she arranged over some Khandallah hills in 1939 led to Counihan meeting his future wife, Patricia Edwards.

The Runaway Settlers, indeed all of Elsies’s books, is an exercise – a conscious exercise – in nationbuilding. It gives children – the next generation of New Zealand adults – images of their country to which they can relate, which become a part of their culture. Elsie was not alone in this. Writing for children is one of the glories of New Zealand’s nationbuilding, for the books are ‘ours’ and yet they meet the international tariff of overseas sales and prizes.

In October 1956 the Soviet Union responded to the Hungarian attempt to liberalise their state, albeit in a Communist framework, by invading the country and putting in a malleable government. For my generation of New Zealanders, not steeped in the events of the previous quarter of a century, the suppression of a small state’s independence and autonomy by an outside superpower was totally unacceptable. For the liberal Communists who had been through those times, and who had been alternately dismayed by what was going on in the Communist Party and world, and hopeful (as Marxists should be) that it would be reversed, the invasion was a brutal termination of their greatest hopes. Elsie was asked to sell on the street copies of the Party paper, The People’s Voice, which praised the invasion. She refused. She left. Others left with her: Sid Scott, Connie Birchfield and others of the Party’s best and brightest.

It involved a rupture in hundreds of friendships, as some crossed the line and others stayed. Many of those ruptures were later to be regretted, and Elsie responded warmly when those who stayed with the Party approached her to renew their friendships. We have already seen how much she admired them, even if she thought them politically wrong.

Surely the most difficult case was her relationship with Jack, who remained a staunch member of the Communist Party and its successors right to the end, although in his last years he expressed doubts about Stalin’s role. When in the Landfall article Elsie expresses her admiration of the positive features of New Zealand Communists, one might think she had Jack most in mind. It seems possible she wrote the Landfall article in part to communicate with Jack. If so, there is a sense that the article is a love letter. I cannot tell the story of the difficulties of their relationship following Elsie’s breach with the Communist Party. In later years one was simply struck by what a loving and devoted couple they were. At Jack’s funeral Elsie said they agreed to disagree because of ‘good old fashioned love.’

Even so, the matter had to be handled with tact, and Elsie did not have the option that, say, Scott had, of joining a church or the Labour Party, even had it occurred to her. Instead those passions which had led Elsie into the Communist Party were turned to the peace movement, the environmental movement, the women’s movement, human rights, civil liberties, and anti-racism among the most prominent. It would take a book to record it all, but her peace activities deserve further mention.

Elsie’s Landfall article finishes with ‘Bold thinking and vigorous discussion are ahead if we are to snap out of the complacency and outdated attitudes, and fit ourselves for life in the atomic age’.(8) I do not know which was her favourite book, but perhaps she considered her most important was Peace People: A History of Peace Activities in New Zealand, published when she was 80. In recording the history of the peace movement in New Zealand, surely one of the most extraordinary triumphs in the history of the nation, she was also developing New Zealand.

Once on an Easter March in the 1960s, I heard her discussing with Quaker Mary Woodward, then national secretary of CND, how such activities were not merely dealing with immediate issues. It was also socialising the next generation of New Zealanders in the traditions from which they came and the values to which they were committed. Elsie was enormously proud of her role in this process. which extended beyond her children and grandchildren, to a host of others of their generations.

The nationbuilding that Elsie was involved in was not of the nation-state, but the nation-society, that broad community of people, with commonalities in their values, their histories, their images and symbols and their friendships and networks. She was not jingoistic, just immensely proud of being a New Zealander – a pride which acknowledged there had been failures as well as successes. If she had ever been a school teacher, her highest commendation would have been ‘done well, can do better.’ Hers was not the language of overstated rhetoric, but of practical achievement.

We all have regrets over some details of our lives. I do not think that Elsie regretted joining the Communist Party when it was possible for a liberal to see it as a progressive force. Perhaps she regretted that she stayed in it so long – a quarter of her life. Certainly she regretted Jack stayed longer, but that he did so was an expression of his character which remained loyal to her through the political tumult they went through together. While the New Zealand Communist Party may have ended up in a cul-de-sac, each of them had many nationbuilding achievements.

She is commemorated in Elsie Locke Park, beside Christchurch’s Avon River, part of the swimming pool complex to which Elsie cycled whenever she could. Not far downstream is the Avon Loop which forms three sides of the neighbourhood where Jack and Elsie lived for over half a century. Their cottage looks across a quiet road to a broad green riverbank. How many times did the couple take visiting children across there with bread to feed the ducks? Elsie recalled that the stream was once terribly polluted, but today eels come up past the cottage to her park, and beyond. Elsie saw herself as a steward of the environment (and the historical record), for future generations. When they rebuilt the kitchen, she insisted on a normal height bench, with a pedestal for this wee vigorous robust woman to stand on. She said that later the kitchen would be used by someone of standard height. Much later, it proved to be, for she lived to 88.

The Avon Loop is a quiet gentle civilised part of New Zealand – recovering from past environmental destruction, protecting itself from the pressures of commercialisation, a privileged oasis in a turbulent world. If the nation is lucky – and visionary – one day the Locke cottage may be a writer’s residence. But the oasis has not happened by accident. When developers threatened the Avon Loop, the neighbourhood – the Lockes in the vanguard – successfully organised a resistance against the predations. Later Elsie threatened to have her name taken away from her memorial park, when it was proposed to rename the pool after a commercial sponsor. Hers was a life of integrity which thought globally, and acted locally, and by those local actions made the neighbourhood, the city, the nation and – ultimately – the world a better place, and will inspire later generations to do the same. She stands next to us, as we stand up for a better environment, human rights, justice and peace, as today we protest against that ideological crudities of the war on terrorism, as we build a nation in this our green and pleasant land.

Bibliography
Birchfield, M. (1998) She Dared to Speak: Connie Birchfield’s Story, Dunedin.
Dawson, K. & E. Locke (197?) The Boy with the Snowgrass Hair, Wellington.
Easton, B. H. (2001) The Nationbuilders, Auckland.
Locke, E. V. (1952) ‘From Hospital’, Landfall 21, March 1952, p.33-35.
Locke, E. V. (1958) ‘Looking for Answers,’ Landfall 48, December 1958, p.335-355.
Locke, E. V. (1959) ‘Correspondence,’ Landfall 50, June 1959, p.199-200.
Locke, E. V. (1965) The Runaway Settlers, Hamilton.
Locke, E. V. (1968) The End of the Harbour, London.
Locke, E. V. (1981) Student at the Gates, Christchurch.
Locke, E. V. (1992) Peace People: A History of Peace Activities in New Zealand, Christchurch.
Scott, S.W. (1959) ‘Correspondence,’ Landfall 49, March 1959, p.100-102.
Scott, S. W. (1960) Rebel in the Wrong Cause, Auckland.
Smith, B. (1993) Noel Counihan: Artist and Revolutionary, Melbourne.
Smyth, H. (2000) Rocking the Cradle: Contraception, Sex and Politics in New Zealand, Wellington.
Taylor, K. (1998) ‘Scott, Sydney Wilfred’, DNZB, Vol IV, p.463-464.

The essay has also used various obituaries, copies of which will be placed at the Alexander Turnbull Library. It has also used memories of the author, the Locke family, and Elsie’s friends.

Endnotes

1. Locke (1958), pp.335-6; (1981), p.97.
2. Christchurch Press 11 April, 2001; Dominion 28 April, 2001.

3. Locke (1981), pp.175-6.
4. Locke (1958), p.355. Original’s italics
5. Locke (1958), p.352-3.
6. Locke (1958), p.341.
7. Locke (1958), pp.344-5. Original’s italics
8. Locke (1958), p.355.

Subjects Political economy