The Ultimate Greeting: when Homo Economus Meets Homo Sapiens.

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

Listener 23 December, 2000.

Keywords History of Ideas, Methodology & Philosophy

Take two people, A and B, who do not know one another. Give person A $100. A has to offer to B a share of the $100, say $x. If B accepts the offer, then each keeps their share (that is, B keeps $x and A keeps $100-$x). If B rejects the offer then neither gets any of the money. That is the ‘ultimatum game’.

The logic of the theory called ‘economic rationalism’ is that A has to offer B something or B will say no and A will get nothing too. But A needs only to offer the minimum $1, since B is now better off and so will accept the offer. But when the ultimatum game is played with real people and real money, the most common outcome is A to offer $50 (keeping $50) while the average offer is about $44 (keeping $56). This seems to apply in the US, Israel and Britain. When Wellington economists Judy Bethwaite and Paul Tompkinson tried the game on their economics students (early in the course, so they had not been taught the ‘right’ answer) with hypothetical money (our research funding is not that generous) they too got a mode of $50 and an average of about $44. The dominating conclusion is the experimental outcomes diverge greatly from the theory.

Now one can always patch a theory to bring observation in line with it. But the practical import of most of the patches is that one cannot rely on economic rationalism to predict human behaviour. Inconveniently perhaps, we do not behave like the selfish calculating animals of that theory. US economist Elizabeth Anderson says ‘there is probably no other hypothesis about human behaviour so thoroughly discredited on empirical grounds that still operates as a standard working assumption in any discipline.’ Yet it is was the theory used to inform and justify rogernomics and ruthanasia. Thus many of the foundations of many of the reforms – especially those which involved the public sector – may be deeply flawed. Perhaps that is why we are having so many problems today.

Suppose we design a system based on this economic rationalism. It would tend to reward the more selfish (those who offered less than $20, say) and we end up being ruled by those who lack the generosity and altruism that mark most of our behaviour. Physician Peter Roberts of the salaried doctors’ association has said that there are too many ‘institutional psychopaths’ running our hospitals. Perhaps they are perfectly rational – even sane. It is just they may belong to the minority who offer only $10 in a $100 ultimatum game. Consider a $10 person and a $50 person in a negotiation. A minimal offer may make each better off but the $50 person, incensed that it is not fair, will reject it. Both are bewildered, one because the outcome solution is not efficient, the other because the efficient outcome is not equitable. Complicate the situation to a practical reality far beyond that of the ultimatum game and one side seems pathological, the other naive. Although the rogernomes tried to eliminate the words from the meaningful lexicon, ‘equity’ and ‘fairness’ are fundamental to the human condition.

One study found some Amazonian Indians who generally make very low offers, behaving like the theory says. Auckland university economist, Tim Hazledine points out that the tribe is hardly an example of successful capitalist development. It is those in capitalists societies that seem to behave quite differently from the theory being used to explain capitalism. He thinks that this is a way to start thinking about ‘social capital’. (I am more cautious, because the term ‘capital’ used here has little to do with the economists’ analytical notion, although most non-economics advocates think in some way it does.)

The nagging doubt is if the behavioural assumptions that underpin the economics are plain wrong – if rigorous to the point of rigor mortis – the resulting policy prescriptions may be useless. Consider the debate about retirement policy. Various contributors seem to use a model of savings behaviour which is based on this economic rationalism and is inconsistent with the way people actually save. Their policy prescriptions to increase private savings frequently conflict with actuality, and probably lead to the opposite outcome – less savings, not more. (It may be the advocates behave like the $10 people of economic rationalism. It is just inconvenient for their public policy that the rest of us – the vast majority – do not.)

US economist Richard Thaler, whose research has – time and again – shown the economic rationalism model is wrong, has discussed how the economist’s model of human behaviour has to be modified. He concludes that when the modifications are made, Homo Economus will become – well – Homo Sapiens.

It is because some economists have tried to think about these more realistic accounts, that they live reasonably integrated lives between their understanding of the human condition and their practice of it. The $10 people may exult Ebenezer Scrooge, but Judy, Paul, Elizabeth, Tim, Richard, and your columnist – and indeed many other economists – have no difficulty sharing Tiny Tim’s Christmas sentiment of ‘God bless us every one.’

The London Economist and the New Zealand Economy

This entry was posted in Growth & Innovation, Macroeconomics & Money, Political Economy & History on by .

A response to an Economist article of 30 November 2000.

Keywords: Growth & Innovation; Macroeconomics & Money; Political Economy & History;

A summary of The Economist’s position of the New Zealand economic reforms might be:

New Zealand had to change its economic policies from at least the early 1980s. The path of the reforms was riddled with ‘blunders’ and ‘hubris’. The Economist enthusiastically supported them at the time, despite warnings of the weaknesses that the microeconomic reforms were extremist and the macroeconomic reforms faulty. The outcome has been a much poorer performance than other countries – such as Australia – which tackled the same problems with a more thoughtful, incremental and technically competent approach. This conclusion applies even ignoring the rising inequality and the social distress. Nevertheless, The Economist thinks New Zealand should continue to pursue the policies which have failed in the past. Victory is about implementing ‘right’ policies, not getting better outcomes.

In its issue of November 30th, 2000, The Economist of London once more reviewed the New Zealand economic reforms. From an early stage The Economist was an uncritical (and often uninformed) enthusiast for ‘rogernomics’. Fifteen years on it is beginning to acknowledge that the outturns have not been as successful as it hoped, although it continues to praise the reforms.

It does this through a neat logical twist. Comparing the rogernomics policies with those policies which preceded it is no great challenge (especially if the earlier policies are presented as a parody). Indeed, the Rogernomic policies of the 1980s were also better than what the Vogel-Atkinson policies of the 1880s would have been, had someone attempted to implement them a century later. However, the issue has never been whether the pre-1984 policies were to be continued, but what policies would follow them. Even Rob Muldoon, the architect of the pre-1984 policies, would agree since he was seeking a post ‘freeze’ strategy when he called the election in 1984. In any case, he had changed his economic policy following winning the two previous elections, so one may have expected him to change it in the (unlikely) event he was returned in 1984. At issue was which of the alternative policy options would be the most beneficial. By reducing the argument to TINA (there is no alternative), The Economist misses the point (again).

After the 1984 election the policy process was captured by a group – rogernomes – who were ideologically extremist and economically wrong, who thought TINA (apparently because they could not envisage there could be other policies). The resulting the economic management of the economy was incompetent, and the economic record disappointing in comparison to what less extremist more technically expert policy would have achieved. To New Zealander’s chagrin, one need only to look across the Tasman to see a far higher standard of economic management, and a better economic performance as a result (even though on some measures the Australian economy sustained worse external shocks than New Zealand over the period).

In one sense that is all that needs to be said about The Economist’s views. It set the reformers a very low hurdle of doing something different from the Muldoon era. The dwarves managed to just get over it.

But here follows a detailed commentary.

New Zealand, a small, far-off country of which most people know little, has attracted disproportionate interest from economists over the past two decades. It was once one of the most protected and regulated economies in the developed world. But in the 1980s and early 1990s it became the liberalisers’ darling, as it pursued market reforms more dramatically than any other economy—including Margaret Thatcher’s Britain. New Zealand was hailed with promises that it would change from ‘the Poland of the Pacific’ into another Hong Kong.

Yet today, 16 years after the reforms began in 1984, the economic rewards seem disappointing. Several recent articles have gone so far as to conclude that the reforms were misconceived. For instance, John Kay, a British economist, argued in the Financial Times that ‘the New Zealand experiment has failed’ and that ‘liberalisation has left it poorer than before’.

On the surface, the justification for such claims is strong. Since 1984, the growth in New Zealand’s GDP per head has been the slowest in the developed world. And, even more embarrassingly, the country’s nearest neighbour, Australia, which for years was lambasted by commentators (including The Economist ) for not pursuing reform with the same vigour as New Zealand, has actually experienced much faster economic growth over the past decade.

A reasonably uncontroversial opening. Note the acceptance that Australia with its cautious reforms has done better.

Most New Zealanders accept that some reform was necessary, but many feel that it went too far and too fast; and some think that the social cost, notably through increased inequality, has exceeded any modest economic gains. Indeed, since last December, a Labour-led coalition government has started to reverse some of the previous reforms. Trade unions have been given more power in wage negotiations; the top rate of income tax has been raised from 33% to 39%; workplace accident insurance has been renationalised; further privatisation has been ruled out; and the government is considering tougher regulation of business.

In practice, the government’s new measures only modestly reverse the reforms of the previous decade and a half. But they have created the perception that the government is anti-business. Business confidence has plunged on fears that the government plans to do more to undo the reforms. Consumer confidence has also dived, and GDP fell in the second quarter of this year.

This looks out of date even as it is published. In early 2000 the New Zealand economy went into a classic cyclical downturn, probably as a result of a cutback in government spending and some activities coming off the boil (house building, the America Cup, activity associated with the millennium). So too did a number of other economies. It suited the rogernomes to blame the downturn on the government (and in truth its handling of its political relations with business in its first nine months was clumsy). Now the economic cycle has hit the bottom – as it always does, has stayed at the bottom for about one quarter – the usual length of time, and is back into upswing – as is normal, with a recovery in business and consumer confidence.

Note that the article says there is only a modest reversal of the past measures. But the effect of the reversal is to move New Zealand economic policy to where it is considered orthodox in most of the world. For instance the rogernomes have much criticised the recent labour market reforms but industrial relations are now on a footing similar to elsewhere in the rich world (and consistent with the ILO conventions – the rogernomic arrangements did not).

Incidentally, this is the only reference in the article to the increase in ‘inequality’ which has accompanied the reforms, apparently a matter of no moment to The Economist. There have been two main factors causing this increase. By far the most important is that the reformers gave themselves large tax cuts, and had to cut social spending and raise taxes on the rest of the community to pay for them. The second is that for the first time since the war, the market mechanisms seem to be systematically increasing inequality in the 1990s, probably because of the ripping out of the social mechanisms which ameliorated the market in the past and the impact of globalisation. (The research has yet to separate out the two effects.) Thus the incomes of 80 percent of the population have fallen over the years of the reforms (generally modestly) while the top 10 percent have had average income increases in the order of 25 percent.

Who called Roger?

Yet the current gloom needs to be compared with the conditions that led to the reforms in the first place. In the 1950s, when it functioned largely as Britain’s larder, New Zealand was the world’s third-richest country. By the mid-1980s, it had dropped to around 20th; and its GDP per head had fallen from 20% above the OECD average to one-third below. The country suffered two severe blows in the 1970s. Not only did oil prices soar, but Britain’s entry into the European Community meant that New Zealand lost its preferential access for farm produce into the British market (then 35% of its exports, now 6%). The government of Robert Muldoon responded with massive fiscal expansion, including big subsidies for industry and farming, and heavy public investment in industrial projects. As inflation soared, the government froze wages, prices and rents.

The figures in this paragraph come from the standard rogernomics rhetoric and are not quite right. New Zealand had around the sixth to highest GDP per capita in 1950, not third (and per capita income does not equate with wealth). Note that while New Zealand was about 20 percent above the (24 country) OECD average in 1950 (for the war torn economies were still recovering), but it was only about 13 percent below average in 1980 and 20 percent in 1990. (See In Stormy Seasfor details.)

The paragraph ignores that the 20 percent structural fall in the terms of trade in 1966 which markedly slowed down the GDP growth rate for the next decade – evident in the statistics if one cares to look. But it does recognize something the rogernomes did not. New Zealand’s economic difficulties had largely arisen from external circumstances – the pastoral terms of trade fall, the oil price shocks, the loss of markets and foreign market protection. Poor economic management can compound these difficulties. The rogernomic policies are proof enough of that.

The reason the rogernomes could not admit to the significance of the external shocks is that their diagnosis of the poor post-war economic performance was entirely in terms of the failure of domestic policies, which they promised to remedy. The sad consequence of their introversion was they ignored the external sector, and so damaged the New Zealand economy. The irony of the rogernomics record, is that is when the external circumstances are allowed for, this is the worse economic management as measured by outcomes. There have been worse outcomes, but they were when there were difficult external circumstances. The rogernomic failure occurred in a period of favourable external circumstances.

By 1984 New Zealand’s economy was on an unsustainable course, with enormous budget and current-account deficits (8% and 9% of GDP, respectively) and mounting inflationary pressures that were masked by price controls. It was also the most distorted economy in the OECD. Almost all its prices, which in market economies are supposed to send signals to firms and individuals, were controlled, and high trade barriers shielded inefficient producers from competition.

I don’t want to challenge this too much, except to draw attention the early 1980s current account deficit being the consequence of a spectacular investment boom (so called ‘Think Big’, detailed in In Stormy Seas, for the story is much more complicated than the rhetoric). The internal deficit was being covered to a large degree by the inflation which reduced the value of the government liabilities. That was the ‘unsustainable’ element in 1984. There is more credit to be given than this Economist article does for the rogernomic success in bringing inflation down. However, the cost to the tradeable sector of the consequential overvalued exchange rate and resulting damage to economic growth was horrendous (acknowledged later in The Economist article).

A comprehensive view must cover the economic growth record before 1984. In the post-war era until 1966 New Zealand GDP grew at much the same rate as the rest of the OECD (but because its population growth was higher at a slightly slower per capita rate). Following the permanent terms of trade shock of 1966, the New Zealand growth rate slowed down (as one would expect because the main – indeed almost only – export drivers suddenly became unprofitable and capital obsolete). The transition was largely through by the mid 1970s, after which New Zealand GDP began tracking at the OECD growth rate again, albeit at a lower level. Indeed for the seven years from 1978 to 1985 (when the reforms began) New Zealand grew fractionally faster than the OECD, albeit in part dependent upon heavy overseas borrowing.

Enter Roger Douglas, finance minister of the Labour Government after 1984. ‘Rogernomics’ consisted of both microeconomic reform and macroeconomic stabilisation. The exchange rate was floated, foreign-exchange controls were scrapped and financial markets were deregulated. Trade tariffs were slashed and import licences abolished. The top marginal rate of income tax was cut in half, to 33%. Subsidies to farming and manufacturing were eliminated, and many government activities, which then spread far and wide, were privatised.

Although Mr Douglas subsequently fell out of favour with his party and lost his job in 1988, the National Party government that took office in 1990 continued with the reforms he had begun. Their most important measure was the Employment Contracts Act of 1991, which decentralised wage bargaining, putting contracts on an individual basis between the worker and employer.

Notice that the two year period from Douglas’s fall to Richardson’s rise is not classified as a reforming one. That is not what the record shows. (For instance, the main privatisations occurred then). Moreover, extremist reforms continued to made about the post-Richardson era, although not as comprehensively. The Economist’s distinction seems to be that the intensity of the reform fell off a little, so implicitly it considers only extremist reforms are valid.

The ECA was not ‘the most important measure’, except ideologically. Future generations are likely to see it as another example of an extremist policy which did not deliver the promises advocates made for it. More significant were the structural cuts in government expenditure, even though they precipitated the unnecessary 1991 recession and caused an immense amount of social hardship.

There is no mention of the health system reforms, which are an example of the extremist ideologically driven reforms, which were so typical of the rogernomes, and which fell unsuccessfully apart. The Economist could also have learned much from the electricity reforms, which again were extremist and poorly thought through, and resulted in outages, including a prolonged one to the Auckland CBD. Today’s government is trying to remedy these failures, and a good few other such messes.

At the same time the framework for macroeconomic policy was radically reformed. In 1989 the Reserve Bank won full independence to set monetary policy, with an explicit inflation target. This model has been widely adopted elsewhere, as has the Fiscal Responsibility Act, which helps to impose budgetary discipline by making policy more transparent and making governments take more account of the future implications of today’s policies. After two decades of double-digit price rises, New Zealand’s inflation rate has averaged just under 2% over the past decade. The government has run a budget surplus since 1994, reducing its ratio of net public debt to GDP from 50% to 20%.

The Reserve Bank does not independently ‘set’ monetary policy. It independently ‘operates’ monetary policy. One is astonished that The Economist does not know the difference.

A major source in the reduction of the public debt to GDP ratio has been the sale of public assets part of the proceeds from which were used to repay public debt, so the relevant assessment is the public balance sheet (the statement of assets and liabilities) which did not improve nearly as much. Moreover it seems likely that some public assets were sold at price below their true value. There are credible (but not universally accepted) estimates that the loss to the government was up to $20 billion. If true, that means had the public assets been at full value, there would be a near zero net public debt.

A few myths about these reforms should be laid to rest. Although they were radical in their speed, their extent can be exaggerated. New Zealand is often portrayed as undergoing a decade and a half of non-stop change. In fact reform occurred in two brief waves: ‘Rogernomics’, under the Labour government of 1984-87, and ‘Ruthanasia’, under the National government’s finance minister, Ruth Richardson, in 1990-91. In both cases, after an initial spurt, reforms stalled during their governments’ second terms of office.

The notion that little reform occurred in each governments’ second terms is a historical nonsense. (Did the writer knew that social policy in the early 1990s was called ‘Jennicide’ after Jenny Shipley?)

The reforms also appeared more radical because the economy was so tightly regulated to begin with. New Zealand required much more extensive restructuring in 1984 than did other developed economies, such as Britain’s in 1979. British politicians and civil servants used to visit New Zealand to seek tips on economic reform, yet the country remains more regulated in several ways than Britain, let alone the United States. Take, for instance, agricultural producer boards, which act as monopoly sellers of produce in foreign markets—at a high cost to the economy. With no competition, the dairy board, which accounts for one-fifth of exports, has little incentive to innovate and shift to higher value products.

Have you noticed the only example people ever give now is producer board reform? Are there no other ‘big’ ones? Or is the rest of the agenda too publicly unpopular to mention publicly. (The claim that dairy products are a fifth of exports is wrong, because it ignores service exports. Tourism is a big foreign exchange earner than dairying, for instance.)

Another myth is that New Zealand’s welfare state was largely dismantled. In the early 1990s, benefits were cut and stricter eligibility rules introduced. But government spending still accounts for more than 40% of GDP, higher than the OECD average and well above Australia’s 32%. By international standards, New Zealanders still enjoy generous state pensions. Even today, New Zealand is hardly a test-case of the economic benefits of small government.

The dismantling was not for want of trying.

According to the OECD the General Government Total Outlays by New Zealand come to about 40 percent of GDP (depending on the exact year – 40.2 percent in 2000) as does the average for all OECD countries (39.5 percent). So New Zealand is near the OECD middle, not an at extreme, and in any case the magnitude is dependent upon institutional arrangements.

The scorecard

Which, it will be noted, does not include assessments of income inequality, social cohesion, or the impact of the reforms on ordinary New Zealanders. As the colonel said to his economic advisers some years after the coup, ‘you say the economy is doing well, but the people are not.’

Judged by average growth since the reforms began, they might appear to have failed. Since 1984 GDP per head has grown by an average of only 0.9% a year, even slower than the 1.5% average in 1971-84. But it is unfair to judge the reforms over the whole period since 1984. One of the biggest reforms, labour-market deregulation, did not occur until 1991. The urgent need to reduce inflation and government borrowing also depressed growth during the early years.

It is a standard rhetorical device to omit any years which undermine the thesis.

Between 1984 and 1991, the economy broadly stagnated. But since 1992, GDP has grown by an average of 3% a year and GDP per head by 2.2%—slightly above the OECD average. The OECD reckons that New Zealand’s potential growth rate has risen to 2.5% a year, compared with about 1.5% before the reforms. New Zealand’s income per head has stopped falling relative to other economies, after doing so continuously since 1950. Unemployment, now 6% of the labour force, is roughly the same as in 1983, but over the past decade New Zealand has seen one of the fastest rates of growth in employment of all OECD countries.

The current OECD Outlook shows an average growth for all OECD countries (including those which have recently joined) of 2.9 percent p.a. from 1992 to 2000. The choice of period is from the bottom of the New Zealand downturn in 1992, whereas the OECD came out of its recession a year later and so has one additional poor year. Notice that The Economist acknowledges that the OECD thinks New Zealand is actually capable of only 2.5 percent p.a. in the long run, which is lower than the OECD potential. This contrasts with the fact that for most of the postwar era New Zealand GDP grew at the long term growth rate of the OECD average or above. (1945-1966, 1978-1985, 1993-2000. The gaps are the transition period after the terms of trade shock of late 1966, and the rogernomics policy intensity period).

There is not an international standard statistic for unemployment in New Zealand before 1986 (when the HLFS commenced). The OECD gives an estimate of 1983 (at a cyclical peak) of 5.3 percent (although domestic estimates put the true figure closer to 4 percent), compared with the comparable March 2000 figure of 6.4 percent. Adjusting for the falling New Zealand labour force participation rates (from 65.3 percent to 64.7 percent) relative to the rising OECD ones (from 68.6 percent to 70.8 percent) would add another 3.5 percentage points on to the rate. So the underlying unemployment rate rose about 86 percent.

To make a proper assessment of the reforms one needs to consider what would have happened had New Zealand stuck with its previous policies. And the truth is that those policies were unsustainable. Underlying problems were hidden by subsidies, protection and price controls, but public-sector debt and inflationary pressures were exploding. Eventually they would have had to be corrected—and the longer the delay the more painful the adjustment would have been.

As already pointed out, a comparison is between the actual policies and the previous policies is hardly a demanding one. It is not what the debate is about.

Critics point out that New Zealand’s labour-productivity growth has actually slowed since its reforms began. That is true, but it partly reflects a big increase in hiring after the 1991 labour-market deregulation, which reduced labour costs for lower-skilled workers. In any case, a better gauge of productivity performance is total factor productivity (TFP), which measures the overall efficiency with which inputs of both labour and capital are used. And the most comprehensive study of this finds that, if TFP is measured on a comparable basis to that in Australia (ie, excluding certain hard-to-measure sectors), TFP growth in New Zealand spurted in the 1990s, broadly matching productivity growth in Australia.

The implication in the first two sentences is that real wages fell for many New Zealanders. Correct.

The so-called ‘most comprehensive study’ (by E. Diewart and D. Lawrence) is well documented to involve mistakes in the calculation of real output, the capital price index and capital series, and the labour force series. The effect of these mistakes is to bias up the Diewart and Lawrence TFP figures in the 1990s. There is no evidence of any productivity acceleration in the 1990s, when it is properly measured. Probably there was a slowing down.

Moreover, official GDP figures almost certainly understate recent gains in New Zealand, because they fail to take full account of improvements in the quality of products, which have been much bigger than elsewhere. Since opening up to foreign competition, New Zealand has enjoyed huge gains in the quality of goods and services, along with a vast increase in consumer choice. Restaurants, telephone services and air travel have all improved out of recognition. The scrapping of import controls has given New Zealanders access to foreign (and typically better-quality) goods that once they could only dream of. There used to be only two sorts of refrigerator on sale, made by the same manufacturer and to the same specifications. If you wanted a foreign car, you faced a long waiting-list. New Zealanders even had to get foreign-exchange-control approval to subscribe to The Economist .

The problem of the measurement of quality changes in GDP is not unique to New Zealand. Many of these statements are also true for other OECD countries, and would have happened under a less extremist liberalisation. But two points:
– ‘Choice’ is only meaningful when one has income, and many New Zealanders are worse off in income terms than when the reforms began. (One study found that the beneficiaries of these quality improvements tended to be in the higher income brackets.)
– The rogernomes’ list never includes where there is a deterioration in the quality of service. For instance the public sector financial cutbacks have led to major reductions in the service to the public – a commonly cited statistic is that a third of callers to the IRD hang up because the underfunded department is taking so long to answer calls. But there are private sector failures too. Few New Zealanders are happy with their bank’s service.

Inflated expectations

It is nonsense, therefore, to argue that the reforms have failed and that New Zealand is worse off than it would have been had they never happened. Doing nothing was not an option. And growth in output and total factor productivity have increased, not fallen.

A profoundly confused paragraph. Let us agree on the second sentence, since even Muldoon would have said to do nothing was not an option. But there were alternatives from that which the rogernomes pursued. It is far from nonsensical to argue their reforms have failed, in the sense that other options would have resulted in better outcomes. (One could cite Australia’s approach as an alternative.) As for the statement that growth in output and total factor productivity have increased. (I think that is what the last sentence is trying to say.) Not true. Their levels have increased, but the growth rates have fallen.

Nevertheless, it is true that the rewards of the country’s reforms have failed to live up to their promises. The OECD, in its latest economic report on New Zealand, forecasts average annual growth of 3% over the period 2000-06. But because of rapid population growth, that would imply no significant narrowing of the large gap between New Zealand’s income per head and the average for all developed countries.

New Zealand’s population growth rate is about .8 percent per head, about the same as that of the OECD. (However the writer may have had in mind ignoring some of the poorer OECD countries with their higher population growth rates.) But if high population growth rates are a drag on convergence in this decade, they were also presumably a drag before 1984 (as argued in In Stormy Seas). Too often the special justifications for poor post-reform performance are equally (or more) true in the pre-reform era.

One lesson is that initial expectations from the reforms may have been too high. Indeed, international hubris about the Kiwi experiment may have exacerbated a financial bubble in the 1980s that left the economy horribly vulnerable when global stockmarkets crashed in 1987. There is a parallel here with Thatcherism in Britain, whose effects have also been more modest than many had hoped, and which also was associated with a financial and asset-price bubble. Britain, like New Zealand, has halted its relative decline, but it has not experienced the economic miracle that some were looking for.

The Economist was among those whose initial expectations were too high. One notices it gives no credit to those who said so at the time.

With hindsight, it takes a long time for an economy to change. One reason is that the economic pay-off does not flow direct from the reforms themselves, but rather from companies that take advantage of the new opportunities they offer. And after decades of protection and state coddling, it is bound to take time for managers to learn new rules. This is one reason why comparisons between New Zealand and Australia may be unfair. New Zealand started off far more regulated and protected than Australia.

Ah, editorial hindsight is the privilege which allows one to overlook those who correctly showed foresight. The last two sentences are a wonderful reversal of the traditional rogernomic argument. In the past the argument was that liberalisation would benefit over-regulated economies most greatly. Now it is the opposite. (A less surprising conclusion after the disasters that occurred to the economies east of the collapsed iron curtain, and in Latin America – as another article in the same Economist points out).

Nevertheless, New Zealand’s reformers made some serious blunders, which must carry some of the blame for the economy’s performance. The biggest mistake may have been that the reforms were done in the wrong order. The exchange rate and financial markets were set free before the budget deficit and inflation had been brought under control, and before product and labour markets had been deregulated.

The failure to eliminate the government’s enormous budget deficit early meant that interest rates had to be pushed even higher in the late 1980s to hold down inflation. With capital controls removed, foreign money flooded in, resulting in a massive appreciation of the exchange rate. This savaged many industries that might otherwise have benefited from the reforms, and it also discouraged investment in new industries. Increased competition certainly drove out inefficient producers, but few new industries sprang up to take their place. Worse, because the labour market was not yet deregulated and wages, set by a national system, continued to rise rapidly, unemployment soared, deepening the recession of the late 1980s and early 1990s.

Oops. So our reformers made serious blunders. So there were more options than the one the article has focussed on.

As for the sequencing argument. The blunderers were told at the time. A 1983 column in The New Zealand Listener raises the issue. In an article on the New Zealand economic reforms in the Journal of Economic Growth in 1989/90, Alan Walters, economic adviser to Mrs Thatcher, said there was no sequencing issue.

With better sequencing of the reforms, the costs of adjustment could have been smaller. As it was, the overvalued exchange rate during the 1980s and much of the 1990s largely explains New Zealand’s poor export performance. Since the early 1980s New Zealand’s volume of exports has grown at only half the pace of Australia’s.

This argument has been around for at least 15 years. Good to see The Economist has now begun to understand it. Indeed it seems to be arguing if it and its friends had not been so ideological in the 1980s and technically more competent, New Zealand would not have suffered to the extent it did. Well, well, well.

Many economists (especially in Australia) reckon that another serious policy error was made by New Zealand’s Reserve Bank during the Asian crisis. In 1997 the bank adopted a ‘monetary conditions index’ that combined interest rates and the exchange rate into a single measure of monetary tightness. As the New Zealand dollar fell in response to the problems in Asia (the destination for one-third of New Zealand’s exports), this forced the bank to raise interest rates sharply. Yet this happened at the very moment when demand was being squeezed by the slump in exports to Asia. In contrast, the Australian Reserve Bank left interest rates unchanged even though its currency also sank. Unlike Australia, New Zealand dipped into recession in 1998.

Let us not disagree, but instead raise the question whether the ideology and technical incompetence from the rogernomics/ruthanasia era has persisted through to the late 1990s. Does it continue today?

The extent to which monetary policy was to blame for New Zealand’s recession is debatable, however. After all, during the Asian crisis, New Zealand’s farmers were also hit by two successive years of drought. Nevertheless, the argument suggests that it is as important to get macroeconomic policy right as to introduce microeconomic liberalisation: indeed, if the first is wrong, it can dilute any beneficial effects of the second.

The argument that macroeconomic policy is more important than microeconomic policy has been around for over fifteen years in New Zealand (and Keynes made it in The General Theory).

A third explanation of why the growth dividend from the reforms has disappointed is that New Zealand suffers such huge inherent disadvantages. In theory, free trade and deregulation should boost growth by encouraging a shift of resources to industries in which the country has a comparative advantage. The snag is that New Zealand’s main comparative advantage lies in agricultural produce (two-thirds of total exports), and trade barriers in global markets prevent New Zealand from fully benefiting from it.

New Zealand’s small population and geographic isolation from large markets also limit its scope for exploiting economies of scale. As ‘the last bus stop on the planet’, New Zealand is at a disadvantage compared with other small economies such as Ireland or Finland. A circle with a radius of 2,200 kilometres centred on Wellington encompasses only 3.8m people and a lot of seagulls. A circle of the same size centred on Helsinki would capture well over 300m people. Even if New Zealand had the best economic policies in the world, its isolation would probably still constrain its growth rate.

In 1950, when The Economist thinks New Zealand was the ‘third richest in the world’, that same circle encompassed less than 2 million people (but possibly more seagulls). So what is new?

The Economist may be skating on very thin ice here. Perhaps what is new is that there have been major falls in transport costs in the fifty years (including falls in the costs of information transmission). Thus the natural protection has been reduced and the economy has suffered, possibly because of strong economies of scale in key industrial processes and high international mobility of factors, both of which undermine the standard results which favour the free trade polemic which is so basic to The Economist’s editorial vision.

Never-the-less, changes in the world protection and subsidisation of pastoral products have exacerbated New Zealand’s difficulties. That was as true before the 1984 era as after. The post 1984 reforms ignored this fundamental fact that external circumstances were significant. No wonder they went wrong.

Unfinished business

Having admitted there was blundering and hubris, one might have expected The Economist to have shown a little humility when it came to the future policy course. But …

To the extent that the mis-sequencing of reform and New Zealand’s inherent disadvantages may have reduced the growth dividend so far, the country’s relatively disappointing performance should not be seen as a verdict on free-market economics. It does not, in short, prove that the model is wrong. But other changes may be needed to improve New Zealand’s performance.

It does prove The Economist’s particular interpretation of the model was wrong.

Michael Cullen, Labour’s finance minister, accepts that the reform programme was necessary to open up the economy to competition. But he says it was not enough by itself. He favours a more active industrial policy to promote growth, along with government measures to address structural problems, such as education standards (New Zealand performs badly in international tests) and low saving. Thanks to inadequate saving, New Zealand still has an alarmingly big current-account deficit (almost 7% of GDP in 1999), which leaves it vulnerable to the whims of foreign investors. The country’s net foreign liabilities amount to a horrendous 90% of GDP. To reduce the deficit New Zealand needs to boost private savings or run a bigger budget surplus. Instead, the budget surplus has fallen.

Mr Cullen is really worried about skill levels and saving, he should pay more heed to the latest reports on New Zealand from the IMF and the OECD, both published during the past month. The IMF warns that the recent increase in top tax rates could accelerate New Zealand’s brain drain and further reduce the incentive to save. It also frets that there is a risk that new labour laws and increased regulation could reduce flexibility of labour and product markets. The OECD also reckons that recent policy has moved in the wrong direction, making New Zealand a less attractive place in which to invest.

Having got the policy prescription wrong for the last fifteen years, why will a repeat get it right this time?

While the higher income tax rates reduce the incomes of the rich by 9 percent at most (6/67), The policies which we are now told were blunders are associated with a relative reduction in New Zealand’s per capita incomes by around 15 percent. Did that have no effect on migration?

Note The Economist’s concern for the current account deficit. Earlier it observed that New Zealand has an inferior export performance compared to Australia (and just about everyone else in the OECD). In fact the deficit is comparable to the levels of the early 1980s (after adjusting for changes in definitions), except this time it is not associated with an investment boom. So just as it was argued earlier that New Zealand’s rapid GDP growth rate in the late 1970s and 1980s (slightly faster than the rest of the OECD) was in part due to the sizeable current account deficit, the same analysis largely applies for the New Zealand growth rate in the 1990s.

The current gloom about the ‘New Zealand experiment’ is, however, overdone. The reforms could have been better managed, with better results, but the economy would today be in a worse state had the reforms never taken place. It is alarming, therefore, that the government believes that some reforms need to be reversed. If anything, New Zealand should do the reverse: press on with reform, as most other economies around the world are now doing.

But we have just been told that doing nothing was not an option. Repeating the TINA mantra, as does the second half of the paragraph will just get us back to the poor economic performance The Economist now acknowledges happened under rogernomics.

New Zealand’s smallness and remoteness mattered less when it produced mainly for the British market and when people had less choice about where to work and invest. But in today’s more integrated world it is a serious handicap. As the OECD points out in its report, to offset its natural disadvantages, New Zealand needs to have better economic policies than other countries, if it is to be an attractive location for investment and for skilled workers to live. As other countries, notably in continental Europe, continue to liberalise their own economies, New Zealand’s policies are no longer so exceptional. By reversing its reforms now New Zealand could snatch defeat from the jaws of victory.

Earlier it said that recent changes were only modest reversals. A better balanced analysis would see them as correcting past failures (and worry that other measures to correct past failures are still not being addressed). The Economist’s wonky logic of the last sentence is that implementing its ideologically extreme policy prescriptions is the victory, irrespective of their impact on economic performance and the people. Reversing them, even if it gave a better economic and social outcomes, would be a ‘defeat’ for The Economist and their ideological travellers, if not for the people of New Zealand.

So here is a summary of the article. New Zealand had to change its economic policies from at least the early 1980s. The actual reforms were riddled with ‘blunders’ and ‘hubris’. The Economist enthusiastically supported them at the time, despite warnings of the weaknesses that the microeconomic reforms were extremist and the macroeconomic reforms plain faulty. The outcome has been a much poorer performance than other countries – such as Australia – which tackled the same problems with a more thoughtful, incremental and technically competent approach. This conclusion applies even ignoring the rising inequality and the social distress. Nevertheless, The Economist considers New Zealand should continue to pursue the policies which have failed in the past. Victory is about implementing ‘right’ policies, not getting better outcomes.

His Way

This entry was posted in Listener on by .

Listener 9 December, 2000

Keywords: Political Economy & History;

One of the rogernomic reviewers of Barry Gustafson’s His Way: A Biography of Robert Muldoon, Rod Deane, asked how could Muldoon be the leader of a ‘free enterprise party’. As it happens the National Party has not been primarily such a party, but a private enterprise one, advocating the state actively supported business. When the party was founded in 1936 the proposal to include in its constitution opposition to interference by the state in business was defeated.

National’s leader for around ninety percent of its history has been a ‘private enterpriser’. Even Jack Marshall, who would be placed in the free enterprise wing, imposed a wage and price freeze when he was Prime Minister. In the early 1950s, Syd Holland put government money into the Tasman pulp and paper plant. It was Muldoon who privatised Tasman in 1980 (and ironically, Deane has just presided over the sale to foreign interests).

National’s private enterprise vison was not surprising. In the previous century New Zealand had developed from a synergy between business and the state (and has done so since) – development by private enterprise supported by the state, not free enterprise without state involvement. In the last fifteen years the free enterprise wing may have been more dominant in caucus and cabinet than in the National Party, or among its voters, and of course at some time in the future the party could redefine itself as a free enterprise party. But historically Muldoon was not an anomaly – in this respect anyway.

He was anomalous in other ways. It is very unusual for a party leader to be so absolutely confident of knowing best. Indeed the greatest – Keith Holyoake and Jim Bolger (and, I add, Gordon Coates) – pretended to be simple souls who listened to the advice they were given and followed pragmatically what seemed best. Muldoon’s difficulties arose in part from his arrogance. It is said he died still thinking he knew more about the New Zealand economy than anyone else. Perhaps, but there were dozens of pairs of people who between them knew more than Muldoon did alone. Such were his economic times, many heads were needed.

Probably Muldoon was Minister of Finance in the most difficult period of the New Zealand economy – the agonising twisting as the economy adjusted to the collapse of its main export prices after 1966. The other candidate is the Great Depression of the 1930s, which was deeper but shorter, and which Coates handled magnificently. The difference was that Coates not only listened to his advisers, but he looked for progressive solutions, building new institutions for his day. Muldoon was much more backward looking, using policy instruments from the past to resolve new problems arising from the social and economic diversification. Muldoon was a social conservative, so he chose to align himself with the past rather than the future. Many of his social views, such as on royalty, now seem quaint, while the hero worshipping ‘Rob’s Mob’ is literally dying out. (This is not as true for all of Norm Kirk’s views, although on some matters – notably women – he was as antiquated as Muldoon.) This same nostalgia for the past, underpinned Muldoon’s economic policies.

That has left National with a problem. The economy has been achanging. The increasing complexity of the economy and business decisions requires new ways to support private enterprise (including sometimes not intervening and leaving things to the market). Muldoon grudgingly allowed some market liberalisation, but frequently it was almost over the dead bodies of forward looking ministers. Thus the party could never properly debate what was the appropriate support for private enterprise, and its minority of free enterprisers took the initiative by default. It was as late as a couple of years ago that Max Bradford and Bill English began to gingerly feel their way back to a contemporary version of private enterprise. Before they got there, the electorate foreclosed on their stewardship.

Perhaps they, and certainly many other thoughtful members of the National Party, will be reading His Way over Christmas, pondering on Muldoon’s backward looking version of private enterprise, and wondering what constitutes a progressive one.

Closing the Gaps: Policy or Slogan?

This entry was posted in Listener, Maori, Social Policy on by .

Listener 25 November, 2000

Keywords Distributional Economics; Social Policy

For over a quarter of a century we have been quantifying the differences in income, employment, education, health and crime levels between Maori and non-Maori. Taking income we find that:

* About 20 percent of Maori are in the bottom income quintile (roughly, below the poverty line) compared to 14 percent of the population being of Maori descent.

* Thus the Maori poverty rate is over 50 percent more than the non-Maori. However

* About 80 percent of the poor are not Maori, and

* The poverty rate for Pacific Islanders is higher than for Maori.

* Moreover, the gap between Maori and non-Maori has been slowly closing in the post-war era (although the general policies of the late 1980s and early 1990s setback the trend). Additionally

* Part of the effect is the differences in the age distributions, since the young are more likely to be poor than the old, and the Maori are a younger population.

* Another cross-cutting factor may be social position . As ex-Police Commissioner Peter Doone concluded ‘simply being Maori does not lead to a life of crime, but Maori are more likely to grow up in an environment plagued with social problems.’ So do many non-Maori, and they suffer the same cycle of deprivation.

* There appears to be a ‘dilution’ effect. The Maori who say they are also part-European, appear to better off on average than the Maori who give no additional ethnicity. (A major difficulty is different definitions of Maoriness. Some of (part) Maori descent will call themselves ethnically ‘Maori’, ‘part-Maori’ or ‘non-Maori’ in different situations. Official recording can be even more erratic.

There are similar salient facts for other social dimensions. They warn just how complicated the technicalities of a coherent ‘closing the gaps’ policy framework can be. But there is no such framework. Rather the policy seems to be a throwing together of some good – and not so good – ideas without much attention to how particularly well targeted they will be, or whether they are even effective.

For instance, I have to be convinced how reserving places for Maori on hospital boards will improve Maori health. I do understand how Maori based providers of public health (e.g. the anti-smoking program, Ahua Kore) can be effective, since cultural responses can be critical here. But most hospital provision is not so culturally dependent. (The proposal may be actually about recognizing the rights of minorities to be properly represented in decision-making, but that is a political matter – rangatiratanga – not a matter of reducing social inequality).

Alas, flinging together a variety of part-thought through policies, under a slogan is becoming too common. Recall 1999’s ‘knowledge society’. Great notion. But every thoughtful comment begins with ‘of course I agree, but I don’t know what it means’ (other than as an incoherent policy package).

The ‘knowledge economy’ slogan has not generated any political backlash. But because ‘closing the gaps’, is about social relations, even the most socially sensitive ask ‘what is going on?’Raising average Maori incomes could increase the incomes of rich Maori, while reducing incomes of poor Maori (as well as those of the poor non-Maori). There being no policy framework, they get no useful answer. As a result those who explore these questions, like economists Simon Chapple and John Gould, get misrepresented.

Relevant robust research gets ignored. In separate studies, John Gibson, Sholeh Maani, Liliana and Rainer Winkleman, and Chapple have all found that the (private) rate of return to education of the average Maori is higher than the return to the Pakeha. This (probably) occurs because the average Maori, being poorer, cannot afford to invest in education as much as the average Pakeha. But the policy conclusion is not to fling money at the Maori – rich and poor – but to recognize that our education system still discriminates against the poor – white, brown, yellow, black, and every hue between. Addressing this discrimination benefits the Maori (and Pacific Islanders) more, because they are on average poorer.

It would be to miss the point of this column to suggest that this research should add another item to a disjointed policy package subsumed under a slogan. What is needed a coherent policy framework, rigorously developed out of the available research.

Private (Debt) Worries

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

The Story of Our Economy has been one of Secret – and Occasionally not so Secret – Debt Crises.
Listener 11 November, 2000

Keywords: Macroeconomics & Money; Political Economy & History;

In 1939 New Zealand faced a debt crisis. The government had to roll over £17m of debt and borrow a bit more to pay for imports in excess to export revenue. The Minister of Finance, Walter Nash went to London to obtain the money. The terms initially offered were so harsh that expressions like ‘bankruptcy’ were used. Privately, of course, for the public had no idea how close a run thing it was. Writing up this story recently led me to think just how much the story of the New Zealand economy has been one of secret – and very occasionally not so secret – debt crises. Listing all of them would take more than this column, but many readers will recall the currency crisis of 1984.

The incoming Labour Government was traumatised by the experience, and addressed it – so they thought – initially by floating the dollar, and later selling by public assets and using the proceeds to repay public foreign debt. Today the government hardly owes anything overseas. Unfortunately the rest of us – the private sector – do. Relatively, we are one of the most heavily indebted of the rich countries.

Part of the foreign debt occurs because the country has been spending more than it has been earning, but a big chunk resulted from the privatisations which have swapped public debt for private debt. Now just as there was a theory in the mid-1980s that floating the currency would remove many external problems, there was a related theory that foreign private debt did not matter. It was, after all, the voluntary decisions between a foreign lender and a local borrower. Why should the rest of us worry?

The theory seemed to me to be wrong on at least two accounts. First, it assumed that the government was just like a household, and its decisions would have as much impact on the economy as your or my household. But it is so much bigger, its actions do materially affect the rest of the economy. Second, it assumed that the government was not interested in the welfare of the people. While that may be true for the officials who were giving the advice, it is certainly not true for the politicians.

That the burden of private debt did not matter was being vigorously argued as late as last July in a private meeting I attended. However since the exchange rate collapse in August, the advocates have been reluctant to express that view – if they still hold it – anymore than they are willing to tell us that the exchange rate is just a market price, and it does not matter whether it is high or low. Rather they are likely to say the economy is in a dreadful state, without mentioning for the last fifteen years we have been following the policies they advocated.

No doubt a future historian will report the true situation of our current debt worries. I have to guess. Our politicians are probably being told by overseas investors that they are no longer interested in the New Zealand economy, unimpressed by its poor performance over the last fifteen years, wont invest any more here, and desperate to get their money out, except they cant without taking a huge loss from the exchange rate depreciation. They probably quote generously the advocates of the past economic policies who are badmouthing the economy their policies have created.

I imagine our politicians are responding by reporting the good things happening in the economy (yes there are some), describing the disciplined fiscal and monetary policy they will stick to, and crossing their fingers behind their backs. Walter Nash would know how they felt.

In 1939, Bernard Ashwin, the Secretary of the Treasury, was not with Nash in London but receiving the gloomy reports about our debt difficulties in Wellington. He wrote:

‘I attended Cabinet daily while cables were considered. Each day as the latest cable was read out the first comment came from [Bob] Semple (Minister of Public Works) – ‘Tell them to go to Hell’ – and most of the Cabinet were inclined to support that view. Each time I had the job of pointing out that we were not in a position to do that.’

Does the IMF Work? in Another Great Depression the Answer Be No.

This entry was posted in Macroeconomics & Money on by .

Listener 28 October 2002.

Keywords: Macroeconomics & Money;

Wanting to avoid the Great Depreciation of the 1930s, the leaders of the world established the International Monetary Fund in 1945. It has a number of purposes but a major one is to provide enough international liquidity should a 1930 type crisis ever occur again. Think of the IMF as the international equivalent of a reserve bank, and don’t confuse it with the International Bank for Reconstruction and Development (a.k.a. ‘World Bank’) whose purpose is to provide international capital for development investment, not short-term liquidity.

International financial crises of the magnitude of the 1930s happen very occasionally, so the main activity of the IMF is providing international liquidity for countries in individual (or regional) financial crisis. Their immediate problem is they have a shortage of foreign exchange. There are usually requirements of what the country has to do to qualify for an IMF loan. But this is no different from going into a banker for a large overdraft. Prudence requires some confidence that it is going to be able to payed it off, and not just incur more debt. Very often a country going to the IMF for financial assistance has been doing some stupid things (like spending extravagantly) and in order to get the foreign exchange loan they have to cut back. So the IMF is often associated with austerity measures, although the measures would be a lot more austere if there were no IMF advances, because the country would be desperately short of foreign currency and, for instance, it might be unable to pay its food, medicine, and oil bills.

Critics of the IMF have been recently joined by the weighty Joe Stiglitz. He has an impressive record: chairs in a galaxy of top level universities, impressive text books, major theoretical contributions, service on the US President’s Council of Economic Advisers, and chief economist at the World Bank, before his criticisms became so serious that he was ‘moved on’. In a recent paper evaluating the IMF’s response to the Asian financial crisis, ‘gravest economic crisis in a half-century,’ he says ‘I was appalled.’

He summarises the IMF (and the US Treasury) response to it as ‘quite frankly, a student who turned in the IMF’s answer to the test question “What should be the fiscal stance of Thailand, facing an economic downturn?’ would have gotten an F (ail mark).’ He accuses the staff of being ‘third rate students from first rate universities’, and ‘the mathematical models the IMF uses are frequently flawed or out-of-date. Critics accuse the institution of taking a cookie-cutter approach to economics, and they’re right.’ He goes on ‘the calamity in Russia shared key characteristics with the calamity in East Asia – not least among them the role that the IMF and US Treasury policies played in abetting it.’

Yet his logic is not that New Zealand should withdraw from the IMF, although it would be wise to do our damnedest never to have to borrow from it. Moreover, Stiglitz would be appalled by those who argue the IMF should be abolished. He certainly sees the need for some international provider of liquidity to deal with financial crises. Ultimately his argument is that international economic issues are often supranational, and the world needs supranational institutions to deal with them.

He wants greater openness. Stiglitz is uncertain as to how decisions are made at the IMF and who is responsible for them. But there is also an implicit demand that the US Treasury should be less involved, or perhaps should pursue a different policy (which – and Stiglitz does not say this, although it seems to be an implication – should take a broader perspective than the immediate interest of US financial capital). The US authority comes from it still being the world’s biggest economy, and that the US dollar is still the currency which people want when they are short of foreign exchange. (The European Community and Euro ought to be offering a challenge, but they don’t seem to be sufficiently politically organised to do so.) One has to conclude from the closely argued paper that if we have another crisis like that of the 1930s, the current international institutions may be quite unable to cope.

Changing Policy Horses

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

Should the Economic Reforms be Intensified or are New Policies in Order?
Listener 14 October, 2000

Keywords: Growth & Innovation; Macroeconomics & Money;

There is a debate going on about what to do about the economy. The loudest view is that it is the fault of the new government, and that we only have to return to the policies of the last fifteen years and everything will come right. There are three reasons why this is not very compelling. First, the Labour-Alliance government does not seem to have changed policy that much. Second, the ‘collapse’ began in early 1999 or even 1998, well before the new government took power. And third, over the fifteen years the performance of the New Zealand economy has been the worse in the rich OECD, inflation excepted. So the past policies have failed, and are unlikely to succeed in the future.

The alternative view is that the current economic difficulties were broadly predictable (although when they would happen was not). The policies were fundamentally flawed, and the inflation and external imbalance are their consequences.

At issue, then, is whether the reforms should be intensified or whether they have generated the crisis and a different macro-economic policy needs to be pursued. How might it evolve? Typically new policy develops, as it is confronts practical difficulties. That may well be happening in regard to the Reserve Bank’s next monetary policy announcement.

The ideological 1989 Reserve Bank Act was predicated on the belief that monetary policy can control inflation, but there is not a single paper from the officials which discussed whether this is possible or how it is possible. Over the decade the Reserve Bank has tried to develop a theory of the economy to justify their legislation. Inflation has been low, largely through running an over-valued exchange rate, which influences directly about 40 percent of the consumer price index. It has been a bit like a student who is allowed to mark 40 percent of his own exam papers. He gives himself an A+ which, with a modest C for the remaining papers, gives an overall grade of B+.

However, in the long run the Reserve Bank cannot deny the underlying logic of its policies. An over-valued exchange rate means too many imports and too few exports, so the current account deficit opened up. Eventually the foreign lenders notice the poor economic performance, and stop advancing as much foreign funding. The exchange rate falls. This is exactly what has been happening.

The Reserve Bank seems to focus its theory of inflation on demand management. It argues that if there is too little slack in the economy, businesses and workers push up their prices too fast. Higher interest rates discourages investment and consumer spending booms creating slack in the aggregate demand, and so eliminating the inflationary pressures. As it happens the high interest rate also pushes up the exchange rate. Hence the B+.

This time the foreign lenders are very grumpy. Higher interest rates are not going to attract new foreign funds, nor raise the exchange rate much. Meanwhile, oil prices are high adding to the cost pressures. The Reserve Bank could try demand suppression to keep the inflation rate within the target, but that would mean some domestic prices might have to fall. The most likely price to do this, is that of labour – the wage rate. Depressing nominal wages would require a rip-roaring depression.

Fortunately there was a little commonsense when they settled the Policy Targets Agreement which sets the Reserve Bank’s operating objectives. It allows for unusual cost pressures. The Reserve Bank could discount its inflation target for the collapsed exchange rate and the price of oil, and thus would not have to screw down the economy to the extent an strict reading of the 3 percent annual inflation target implies. ‘Great,’ you say if you are a worker or a borrower (or both). But true inflation would be higher.

The government is only forming a policy view as I write. My guess is that its package may require coordination between the Reserve Bank and Treasury, some public understanding, and possibly (probably?) some involvement by the major private sector players (including the unions). If so it could be a shift from the failed policies of the last fifteen years.

Sutch, William Ball 1907 – 1975: Teacher, Economist, Writer, Diplomat, Public Se

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

Dictionary of New Zealand Biography, Volume Five (1941-1960), 2000, p.504-506.

Keywords: Political Economy & History

William Ball Sutch was born in Southport, Lancashire, England, on 27 June 1907, the third of five children. He arrived in New Zealand at the age of eight months, when his family migrated to Wellington. His father, Ebenezer (Ted) Sutch, was a journeyman carpenter, and his mother, Ellen Sutch (née Ball), a dressmaker. Both had determined characters, and were widely read in the social fields, despite having only elementary schooling. They were staunch Methodists and were involved in the United Ancient Order of Druids Friendly Society. The household allocated various tasks to each child, independent of gender. Bill’’s included making the soap, jam, pickles and Yorkshire pudding, polishing the floors, turning the mangle, bringing the findings (such as cotton thread) for his mother’’s work, and minding the baby. His strong-minded and financially canny mother, whom he adored, gave him a lifelong commitment to women’s causes.

After Wellington College, Sutch went to Teachers’ Training College (1926–27) and Victoria University College, Wellington, where he graduated MA (1928) and BCom (1931). To finance his studies he worked as a telegraph delivery messenger, newspaper vendor, farm labourer, builder’’s labourer and grocery assistant. He taught at Nelson College from 1928 to August 1930, when he transferred to Wanganui Technical College. The sickly child had developed a fine physique and in his youth he was active in sport and the church: he participated in several tramping trips, one over the Copland Pass, and another in the Tararuas, where he became stranded with three others for 16 days. He remained a handsome man throughout his life, with a dapper moustache and neatly dressed, and a teetotaller. He had an intense personality, with the capacity to charm, as well as alienate.

A fellowship at Columbia University, New York, led to a PhD with a thesis on ‘‘Price fixing in New Zealand’’ in 1932. He travelled through the United States and Western Europe, sleeping rough ‘‘to see how the poor people of other countries had to live’’. Returning through Scandinavia and the Soviet Union to Afghanistan, India (where he contracted malaria) and Australia, in late 1932 he reached New Zealand, which was in the deepest part of the inter-war depression. His entire family was unemployed, doing a little relief work. For a short time so was Bill, but in early 1933 he went relief teaching at secondary schools. The experiences of his friends and relatives during the depression years shaped Sutch’’s thinking about New Zealand and the world economy.

In August 1933, because of his advanced qualifications in economics, Sutch joined the staff of the then minister of finance, Gordon Coates. He became private secretary to Coates and, after the 1935 election, to Walter Nash, accompanying him on overseas trips. Thus he was closely involved in most of the main economic debates of the period, including those on the Reserve Bank, guaranteed prices, and exchange and import controls. He was on the committee of the Social Science Research Bureau and the Advisory Council of New Zealand Standards Institute.

On 12 January 1934 at Wellington, Bill Sutch married Morva Milburn Williams, a schoolteacher. There were no children of the marriage. An active member of the Wellington cultural and intellectual community, Sutch helped found the Fabian society that year and was active in the New Zealand Institute of International Affairs, the Left Book Club, Progressive Publishing Society, and the Wellington Co-operative Book Society (Modern Books). He began publishing regularly on a wide variety of contemporary economic and political issues, in Tomorrow (frequently under pseudonyms) as well as in learned journals and official publications. As unofficial Wellington editor of Tomorrow, he was involved with the publication in 1939 of John A. Lee’s controversial ‘Psycho-pathology in politics’.

In 1941 Sutch’s Poverty and Progress in New Zealand, a history with the theme of social difficulties driving national development, was published as a Penguin special. In 1942 The Quest for Security in New Zealandwas published, selling over 100,000 copies. Both were originally versions of a text commissioned by the National Centennial Historical Committee for the centennial publications as a social history, but each had been rejected. It is said that Sutch was advised by J. W. Heenan, under-secretary for Internal Affairs, that the two manuscripts should be locked away and left for a long time.

These public activities by an official closely involved in political advice led to conflict with his political masters, especially the prime minister, Peter Fraser, and late in 1941 he moved to the Ministry of Supply (later incorporated into the Department of Industries and Commerce). He entered the army in June 1942 and became a gunner, and later a gunnery instructor. He did not serve overseas and was discharged in November 1943. He worked briefly for the Prime Minister’’s Department and the following year returned to the Ministry of Supply as an advisory economist, dealing with policy issues such as lend-lease, foreign trade, and price equalisation. He was the trade union nominee on the first Government Railways Industrial Tribunal, which fixed wages.

His marriage to Morva was dissolved on 2 February 1944, and he married Shirley Hilda Stanley Smith, a lecturer (later a lawyer), in Auckland on 2 June that year. They were to have one daughter.

In 1945 Sutch was based in Sydney, as deputy director of the United Nations Relief and Rehabilitation Administration, responsible for the south-west Pacific. He moved on the following year to direct its operational analysis division for Europe, based in London. From 1947 to 1951 he was secretary general of the New Zealand delegation to the United Nations in New York. There he chaired the United Nations Social Commission in 1948 and 1949, and UNICEF in 1950. He contributed to the creation of an independent international public service, and actively discouraged race discrimination. Later he played a crucial role in a UN decision to continue with UNICEF, despite a United States desire to close it down.

Returning to New Zealand in 1951 Sutch became, in turn, economist, assistant secretary and, in 1958, permanent secretary for the Department of Industries and Commerce. His term commenced with a downturn in export prices. The Department of Industries and Commerce applied import and price controls, and promoted industrialisation and diversification. It sponsored trade promotion and export incentives externally, and trade practices legislation, the New Zealand Industrial Design Council and the Consumer Service (later Consumers’ Institute) domestically. Sutch’’s promotion of industrialisation, with an explicit argument that New Zealand was too dependent upon pastoral products, was anathema to much of the farming community, while some in the business community did not trust him. In March 1965 he was forced to retire after 40 years of public service employment. While Sutch’s administration promoted protection via import controls and created some new domestically oriented firms – of which the Marsden Point oil refinery and the Glenbrook steel mill were the largest – it also laid down the foundation for the major export diversification that occurred in the 1970s following the fall in the terms of trade in 1966, which he predicted and feared.

Sutch had rejoined the Wellington cultural and intellectual community, including being involved with the Architectural Centre (he was chairman for seven years) and chairing the Festival of Wellington Arts Committee that organised the Industrial Design Exhibition in 1961. A magnetic public lecturer, he contributed actively to such groups as the WEA. His modernist house, high in Brooklyn where he had grown up, was designed by Ernst Plischke. He again wrote on contemporary issues, including book reviewing and art criticism, in the New Zealand Listener and Here & Now. In 1973 he was appointed chair of the Queen Elizabeth II Arts Council of New Zealand.

At 57 he began a new career as a consultant, especially to the textile industry. He made extensive submissions to the royal commission on social security and to the committee of inquiry into equal pay. As well as a revision of his two earlier books, which became much fuller economic and social histories of New Zealand, his major publications included Colony or Nation?, The Responsible Society in New Zealand, Takeover New Zealand, and Women with a Cause. His Festschrift, Spirit of an Age, was published in 1975.

Sutch’’s writing provides one of the most comprehensive accounts of, and visions for, New Zealand. While his views were often original and independent, many that were rejected at the time are now accepted. He was a nation-builder who wanted to see an economically strong and socially fair New Zealand, free from colonial ties, whether economic or political. New Zealand had been a dependent colony, a monoculture which grew and processed grass, mainly sold to Britain as wool, meat and dairy products. Sutch saw the need to foster industry and employment, and to earn foreign exchange by exporting goods and services, as well as conserving foreign exchange through import substitution. Production had to be of high quality and make full use of human resources. Thus Sutch was a tireless advocate for the development of a national culture. People were at the core of his development vision: children were a key to the future, and women were entitled to equality both as a right and because it contributed to the broad social development. He advocated decentralisation to local authorities and was concerned with human rights. His vision was of an interventionist democratic state, promoting economic activity based on high-quality exports and providing protection and support via full employment and public education, health and welfare services.

In September 1974, after some meetings with a Russian diplomat, Sutch was charged under the Official Secrets Act 1951 with the offence of obtaining information that would be helpful to an enemy. Although the act (since repealed) was so general that it could cover almost any communication, no evidence was brought that he had obtained information of any kind, and there was no significant evidence on his security file. He was acquitted in February 1975.

There is no evidence that Sutch was ever a member of the Communist Party: he once said that he could not join because he would not allow anyone to control his thinking. He had many friends with diverse politics and political views. For much of his life he was an admirer of the Soviet Union. If he was in any way a ‘‘fellow traveller’’, he walked a very independent path. Like British socialism, Bill Sutch was more influenced by Methodism than Marxism.

The events surrounding the trial overshadowed the significance of what went before, and have muted subsequent recognition of his intellectual contributions. Sutch’’s health began failing after his arrest. He died on 28 September 1975 at Wellington, shortly after holding his just-born first grandson. He was survived by Shirley Smith and his daughter, Helen Sutch, an economist.

The Experiences Of Monetary Union

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

Listener 30 September, 2000.

Keywords: Macroeconomics & Money;

It is extraordinary how much economic debate in New Zealand is oblivious to any evidence. Recent advocates of the New Zealand economy going into monetary union with Australia or the US seem quite unaware that it has spent over half of the time since 1840 in one, and is currently in one. We can learn from both experiences, but the lesson is not what the advocates want us to hear.

Here is an example of what happened in the early 1930s. The story is told by Bernard Ashwin, later Secretary and founder of the modern Treasury, although here he is only a Treasury officer.

“I recollect quite vividly one day my door in the Treasury opening. [Gordon] Coates [then Deputy Prime Minister] came in and said ‘come on. Get your hat. We are going to take the Bank on.’ By that he meant the Bank of New Zealand, of which the government at the time owned about one third of the shares. So we went to meet the Board of the Bank, which at that time was known as the ‘Kelly Gang’. And our argument was long and fierce.”

Ashwin then describes Coates’ request that the trading banks should ease the monetary pressures, and goes on:

“Coates, of course, took the ring and I was more or less in the position of holding the towel and being his second. However, they would not shift. Mr Buckleton [the BNZ board chairman] dominated the discussion and he would not budge at all. So on the way back in the car, Mr Coates said to me, ‘well, where do we go now?’

I replied ‘there is only one answer. We must found a Reserve Bank and take the right of note issue and control of credit away from them.’

‘All right,’ he said, in his direct manner, ‘you see [the Minister of Finance] in the morning and go to it.’

At the time New Zealand was in a monetary union with Britain which set monetary policy for those countries whose trading banks held their reserves in sterling (the British currency) and had no Reserve Bank. The exchange rate was fixed, and there were no exchange controls. Coates wanted New Zealand to run a different monetary policy from Britain. That made sense at the time because the Great Depression impacted on us rather differently from Britain (because we were so dependent on pastoral exports). However he was unable to, because that required the New Zealand government to get agreement from the trading banks, and they refused. Whether it was because they were conservative or because they were controlled by British monetary policy hardly matters. The lesson is that in a monetary union with a larger economy, New Zealand would have to adopt their monetary policy, and would lose the freedom to run a different one.

We are also currently in a monetary union. Don’t laugh: it is with the Cook Islands. Look it from the perspective of the smaller partner. It the 1990s, the Cooks suffered from a severe external stock basically they suffered more than New Zealand from the economic policies we were running at the time. They tried to run an independent monetary and fiscal policy, but to cut a long story short, the trading bank that acted as the Islands’ banker forced them to change, causing government layoffs, unemployment, hardship, and depopulation.

As it happens, I do not agree with the policy the Cooks tried to run. But the policy I would have in their circumstances, which would have included addressing the external shock by an exchange rate change, was precluded because in a monetary union the Cooks’ exchange rate is fixed rigidly to the New Zealand dollar.

This repeats the first lesson. In a monetary union the smaller partner has much less freedom of policy manoeuvre. Note that both cases involve major shocks. When things are going fine the economy may not need an independent monetary policy. Arguing for a monetary union while ignoring shocks is like advocating abolishing the fire service because our houses are not usually on fire. We tend to have a significant external shock about once every three years and a major one about once a decade a higher rate than the chances of your house burning down.

Space precludes my detailing the problem of fixing the exchange rate in a monetary union. The experience of the British pound in the early 1990s has some relevance here. Joining in a preliminary monetary union with the rest of the European Union, they chose the wrong rate, and suffered a currency disaster. When Britain chose the wrong rate in the 1920s, it had a decade of depression as a result. Fixing an exchange rate is a bit like trying to land a plane in a fog on an aircraft carrier in a ranging sea. Better stay floating in the air than crashed rigid on the deck.

Keynes said that he did not ‘know which makes a man more conservative – to know nothing but the present, or nothing but the past.’ Some of our commentators seem to nothing about either.

NORMAN KIRK: 1923-1974.

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

Chapter 11 of The Nationbuilders

The ex-cabinet minister had been through many battering years including the fag end of the Fourth Labour Government, losing a safe seat in the 1990 landslide. But his paper recalling the exhilaration of Norman Kirk’s time, lifted a quarter of a century off the mid-fifty year old.[1] Kirk alone among post-war New Zealand politicians was an inspiration:

“Let us have a sense of pride in being New Zealanders. Let us recognise the value of the unique way of life we have built here – a humane, non-violent society, free from the social and economic injustices that plague so many societies.


“Let us proudly cultivate a sense of nationhood and stand up for ourselves in international political and trade circles, not acting in a spirit of independence merely for the sake of asserting ourselves, but to protect our own interests, both political and commercial. Cooperation with other nations does not necessarily mean subservience or submission: we are seeking friends, not masters.


“Let us recognise the fact that a fierce competition exists in nearly every sphere of marketing between most nations, including between ourselves and our closest neighbour, Australia. Let us recognise that there is a conflict of interest between our own farmers in New Zealand and the farming community of our longtime friend, the United States. Let us recognise the nature of the impact on our own industry of an open-ended commitment to free trade with highly industrialised nations like Japan or Singapore.


“But let us not be frightened of all this or run for shelter. Let us have faith in our own ability and strive to protect our economic interests by energetic and imaginative marketing, and through hard-headed political negotiations at a high level.”[2]

This front-piece for Kirk’s collection of speeches Towards Nationhood, published just before the 1969 election. The booklet is mainly a mixture of policy pronouncements, and has no systematic account of nationbuilding. But it argues that New Zealand was in an early phase of its economic development, overspecialised in a basic industry – farming, and overdependent on a single export market – Britain. The strategy should be a more open trade stance, finding new export markets and new export products, including further processing of resources and commodities. ‘The Department of Industries and Commerce should ensure that industry uses New Zealand raw materials to the maximum.’[3]

It advocated setting up a three-tiered economic planning council, harking back to the war where the private and public sectors worked closely together. (The book’s editor anxiously adds that Kirk’s planning proposals antedate the National government’s 1968 National Development Council, arguably a response to Kirk’s rhetoric.) The effect would be to reinstall the sense of nation among the peak organizations and key players. But it also reflects the then conventional wisdom’s reluctance to rely solely on market decisions. We see this in Kirk’s preference for reallocating the use of import licences rather than abolishing protection; his preference for a different price control regime rather than its abolition.

There is a change in economic policy thinking going on here, moving away from a focus on the domestic market to greater emphasis on sending but of a wider range of exports to a wider range of markets. This shift in Labour Party thinking has never been fully documented, so here it can only be sketched, around the career of Arnold Nordmeyer.

Nordmeyer had entered parliament in 1935 as a radical, but given the portfolio of health in 1940, he had proved himself to be one of the few able cabinet ministers, and may well have been the next leader of the Labour Party if he had been in parliament when Peter Fraser died in 1950. Because Walter Nash was old, Nordmeyer dominated the second Labour Government in the 1957 to 1960 period, and has been described as ‘the best prime minister who never was’ by John Roberts. He is remembered as the author of the 1958 ‘black budget’, while a vocation as a Presbyterian minister, his quiet personal life style, and his high domed forehead and baldness all reinforce its public image of austerity. It was a consequence of generous 1957 election promises by both parties coinciding with the first significant downturn of the terms of trade in the post war era. Henry Lang recalls:

The Treasury always made tougher recommendations than they expected to be accepted. And Nordmeyer to our horror accepted the lot. And I remember fighting like hell in the last two days and he wouldn’t consult which was interesting. He had all these reports and then he produced his budget and the week before, he sent it down just for editing, we saw this and we went and saw him and told him ‘This is horrible. This is far too much’ despite the fact we had tendered the advice … As it was it cost him the election.[4]

Probably, but it was a budget which dealt with an uncomfortable – albeit short-lived – external shock without a major rise in unemployment, a feat beyond subsequent ministers. In 1963, Nordmeyer became leader of the Labour Party, now in opposition. The election manifesto was seen to contain a quite new industrialisation strategy with an emphasis on export manufacturing and manufacturing in depth and diversification of the agriculture sector. Its abandonment of insulationist economic development strategy was seen as a betrayal. Bill Sutch may not have thought so. He wrote in 1966:

… the development of cabinet recommendations [in the Second Labour Government] was much more with Nordmeyer and P.N Holloway, the Minister of Industries and Commerce, … Despite cabinet’s general lack of interest and sometimes the opposition of individual members, Nordmeyer and Holloway began to influence policy towards changing New Zealand’s industrial structure.[5]

Nordmeyer, who became first New Zealand born leader of the Labour Party in 1963, obtained his greatest political satisfaction as Minister of Health and then Minister of Industries and Commerce in the 1940s.[6] Presumably, he saw the 1963 manifesto policies as a logical development of those industry policies. He continued to promote them after he returned to the back benches after Kirk replaced them as leader in 1965. It is not extravagant to argue that the open economy stance which the current Labour Leader, Helen Clark, exhibits (neither insulationist nor uncritically free trade) can be traced back via Mike Moore and Norman Kirk, to Nordmeyer and thence to Sutch, although Sutch also directly influenced Kirk. (At the 1973 opening of a West Coast factory, aimed to stimulate regional development, Kirk singled out him for his contribution to nationhood.) .

The difficulty with export-oriented strategies is that they depend upon domestic political responses in the foreign markets. While the New Zealand government could control the local market, the usual situation would be a small New Zealand firm exporting to a much larger foreign market, which was being controlled by its government in the interests of the domestic producers. In the past Britain had been a sort of exception, based on the belief that mother will treat a child fairly, although by the late 1960s the view was on the wane, as Britain applied for entry into the European Common Market. Elsewhere, the history of exporting pastoral products is one of exclusions, restrictions, and penalising barriers.

There is an economic argument that since protection is not in the interests of a nation as a whole, the protection will be reduced once the special interest lobbies are overcome. However, it is not at all obvious that all protection is against the entire interests of a nation, once a realistic description of the production process is assumed. Given the considerable difficulties inherent in an export led (or open economy) strategy, how to persuade the nation to embark upon it? One option is to argue there is no alternative to free trade. But since there are a lot of people who argue the contrary – that domestic protection and expansion is an alternative – the trading naked approach has not been very persuasive (except to those whose direct interest is involved).

Kirk used nationhood to offer a vision which enabled the open economy strategy. New Zealanders could work together to survive in a not altogether benign world. Exporting from New Zealand could succeed if the nation worked as a cohesive collective in the task. He asked, ‘[c]an we really pursue relentlessly and vigorously the search for new and expanding markets without making a conscious effort to cultivate a sense of nation, a sense of independence and self-reliance?’[7] The rhetoric remains popular. Witness the parallels that are drawn between New Zealand’s successful defence of the Americas Cup in 2000, and a national business strategy.

In 1973 Britain joined the European Economic Community. There are still those who blame that event for the subsequent difficulties of the New Zealand economy – colonials wringing their hands because Mummy has rushed off with those Continentals. In fact the ties were already loosening. Between 1966 – just before the wool price shock, and 1972 – just before Britain entered the EEC, Britain’s share of total exports fell from 45 percent to 31 percent. The share continued to decline. It was below 20 percent after 1975 and is about 5 percent today. While some sectors – notably cheese producers – were hit hard, the common perception of economic impact of Britain joining the EEC is an exaggeration, reflecting the psychological dependency of many New Zealanders on Britain, rather than the economic dependency.

It is not true that up to 1972 foreign policy was run as though New Zealand was on the Dogger Bank in the North Sea. At the officials’ level it could be run with considerable subtlety, even when the politicians were not so inclined. But New Zealanders’ colonial nostalgia often located it there, and the issue was to find another economic and political protector. New Zealand increasingly shifted into the US political sphere, symbolically with the accession to the ANZUS pact in 1951, but practically with the arrival of the US servicemen in 1942. But the US, more conscious of its voting farmers’ needs, rather than those of a country on the farthest side of the Pacific, was never the economic saviour. It was not until 1980 that it was a bigger export destination than Britain, and today the biggest economy in the world ranks but third behind Australia and Japan as a New Zealand export market.

The other option for the transferring of the colonial affection was to Australia. Relations got politically closer in the 1940s – especially with the signing of the Canberra Pact in 1944, again as a part of the war effort. There had been trade posts in Sydney and Melbourne as early as 1906, the Canberra High Commission was not opened until 1943. The New Zealand Australia Free Trade Agreement (NAFTA) signed in 1966. It was broadened to the much more comprehensive Closer Economic Relations (CER) in 1982. But again, while Australia is an important market for some New Zealand exporters – usually the largest destination – it still has only around 20 percent of the export share.

Besides, the US and Australia have political interests – including the Atlantic for the former, the Indian Ocean for the latter – which hardly touch New Zealand. As early as 1943 Alister McIntosh, in the Prime Minister’s Department between 1935 and 1966 (and head from 1943) and the founding secretary in 1943 of the Department of External Affairs (now the Ministry of Foreign Affairs and Trade), was to ponder, ‘I never did think New Zealand had anything to gain by teaming up with Australia either in the ANZAC command or, for that matter, in any other common enterprise, and I am certain now as I was then that our rightful place is in the South Pacific paddling our own canoe as best we can.’[8] McIntosh’s forebodings were nicely illustrated as he retired in 1966. Vietnam is halfway around the world, and yet New Zealand was getting involved, not because it had a strategic interest there, but because it was in the interests of its US and Australian allies. Participation in the Vietnam war hangs over New Zealand foreign policy to this day, not least because of some of the most vociferous critics at the time have since become publicly influential.

Vietnam posed a dilemma for Kirk. Within the party and among its supporters there were many who opposed involvement, and saw this as a key issue to take a stand on. The country was not so persuaded. In any case Kirk knew as prime minister he would have to work with the US and Australia. In the end Vietnam may have been the crucial reason why, despite a sudden sharp deterioration in the economy, Labour lost the 1969 election (although an industrial dispute did not help). Even so, Kirk belonged with the ‘canoe paddlers’. New Zealand had to run its own independent foreign policy. In some ways it is epitomised by a nation having only interests rather than friends. They who offer protection do so in their interests, which rarely fully align with the protected. The path by which Kirk reached this conclusion is far from obvious.

He was born in 1923 at Waimate. His Baptist father was a cabinetmaker, but there was no specialised work for him after 1930, and when he was not unemployed he did odd jobs. Kirk spent most of his childhood in Christchurch, leaving school at the end of standard six in the depths of the depression. Working life as a ‘stationary engine driver’ (Kirk’s joke) was not that much easier as the economy went into upswing, at the end of the 1930s. His account of his Katikati house where the rats ‘literally chewed the wallboard up like Weetbix’ illustrates the 1935 housing report’s estimate that many houses needed to be replaced.[9] Kirk had health problems even then, and was not called up for war service. In the early 1950s he settled down in Kaiapoi, where he built his own house. He became Kaiapoi’s mayor (the youngest Mayor in the country) in 1953. He entered parliament representing south Christchurch (first the Lyttelton electorate, later Sydenham) in 1957. His maiden speech was strong on foreign affairs, as well as passionate about the needs of the workers and his electorate.

Kirk first travelled overseas at the age of 37, on a parliamentary delegation in 1960. It was part of the education which parliament gave him. He was bright enough to have had a university education, but the modern welfare state was younger than he was. He became a prodigious reader, using the parliamentary library. But the autodidact was suspicious of those better educated. Some justified his mistrust by sneering at Kirk for his calloused hands, his large and sometime overweight frame, his gaucheness, his lack of sophistication, and his lack of qualifications. His image was made over when he led the opposition, but the resentment remained. Many reports suggest Kirk was suspicious to the point of paranoia. Any able working class boy, who makes good in the way that Kirk did, is bound to be sensitive and resentful of such treatment. To the late overseas experiences, one could add other factors (all his grandparents were born in New Zealand; he had succeeded by his own efforts) which led him to the vision of an independent New Zealander. Whatever such sociology and history of his personal factors, Kirk articulated a vision, which remained an inspiration three decades later.

At the heart of his nationbuilding was national identity. Kirk saw foreign policy – in the Pacific, South Africa, nuclear disarmament, racialism foreign aid and speaking on small independent nations – contributing to national confidence. Lee Kuan Yew said ‘Norman Kirk was by far the most impressive New Zealand Prime Minister I have known. He was a heavyweight. He had “gravitas”.’ His head of the Prime Ministers’ Department, Frank Corner, added that ‘a component of that “gravitas”, indeed a vital enhancement of it, was the warm humanity and intellectual conviction that pervaded all Kirk’s thinking and actions in the field of foreign policy.’[10]

The nationbuilder operated domestically too. He promoted the arts – the public lending right for authors and a requirement that all public buildings should acquire paintings and cultural artefacts are his initiatives. The environment became politically important. He cancelled the Springbok Tour proposed for 1973 (avoiding the social chaos generated by the failure to cancel the 1981 Tour).

Kirk opened a dialogue between Pakeha and Maori. His speeches on the Waitangi Marae still bear repeating. On February 6 1973 he said:

“We have come to Waitangi to mark an occasion that founded a nation and it founded a nation in a way that was unique. At that time the great countries of the world were scrambling for overseas possessions which they seized without regard to the wishes or the interests of the occupants of those lands. Hobson’s visit to New Zealand was unique. The Captain was under instructions that the annexation of New Zealand was not to be offensive or without the consent of the occupants of that country. And indeed it was because of those instructions that the Treaty came into being.

“There is a tendency to think of that as a monumental milestone in the history of the Maori people but Waitangi is not just for the Maoris or for Northland, it is for New Zealand. And we want to remember that those of us whose ancestors came from across the sea, some of these left countries that no longer held opportunities. They came to this country of scope and opportunity, and there set down their roots in a bi-cultural togetherness and tonight we mark the gift of opportunity that was given to all peoples of New Zealand by the wisdom and agreement of those who stood on this spot 133 years ago. …
“The Treaty of Waitangi has stood for 133 years. The focus and dignity of that agreement should and will be recognised by Parliament in a form that signifies and symbolises the importance of that Treaty to every New Zealander, and tonight I want to say that we observe together in New Zealand not a society that demands that some give up their identity in the interests of a majority, but that we each can preserve our culture and our identity and concentrate on building a society in which we have equal opportunities to participate in the development and responsibility of New Zealand. Let Waitangi Day be both a memorial and a milestone, and let us remember that the future that we as a country achieve by ourselves is a future we must face to better ourselves.
“Because the generation my young friend represents cannot wait too long to seize the opportunity that we must create. This is our nation, our opportunity to foster and encourage New Zealand’s nationhood. Let it be marked with pride and gratitude for what has been, and resolve that for the future together we work to build a society in New Zealand that gratifies us and becomes the envy of others.”

A year later

“Here at Waitangi, 134 years ago today, representatives of the Maori people and Captain William Hobson representing the British Crown, signed a treaty which has become the foundation stone of our nation. …
“Other nations celebrate on their national day acts of violence, a revolution, a coup, or perhaps a war. But we achieved our independence and our nationhood gradually and peacefully. We have no desperate revolution as the focus of New Zealand’s day. We remember no martyrs who fought to overthrow a tyrant or drive out alien powers. We were the lucky country. Others before our time caused the Government of Great Britain to consider new ways. The genius of the British people has been to learn from experience and to adapt. For us independence was handed on a plate in the most friendly, gentlemanly, rational fashion. We came to nationhood with no legacy of bitterness, no old scores to pay off. True, Maori and Pakeha came to blows but there was valour and honour and restraint on both sides.
“We emerged from this testing period with a great respect for each other and so now we look to Britain, to each other, to other countries with respect, with friendship and yes, with love. We are born in peace and so we commemorate as New Zealand Day not an act of violence but an act of trust and a pledge of cooperation. This is part of our nation’s inheritance and we should never forget it. We were born in peace and justice and we shall deal peacefully and justly with each other, with our neighbours and with all peoples.
“For 134 years we have been a nation. Men and women from many lands and many cultures have left old lands to make a new life in these lovely islands in the South Pacific. Already, as we have seen tonight, we are a distinctive nation unlike any other in the world. This is so largely because the history, the culture, the lifestyle of the Maori is woven in a rich gleaming thread in the fabric of our society.
“For 134 years, we have been making a nation and we should perhaps ask ourselves, ‘Are we yet a completed nation? Have we yet achieved a true New Zealand civilisation?’ Not yet. But the very ease with which independence came slowed down the process of establishing a clear New Zealand personality. We didn’t have to react against another country so we have not yet fully developed ourselves. Now as a nation we are independent and on our own. As Britain joins her destiny with Europe’s we must draw more upon the spiritual and cultural strength of the people who make our nation. We are ready. I know that we have not reached the end of the road; we have scarcely started on the journey. The Maori people similarly have not reached the end of the road. They are in the middle of a great migration as significant and meaningful as the migration that brought them to the shores of New Zealand. As they move from country to town as the lifestyle changes, as the old traditions of strength of history and culture are drawn upon, so new methods, new traditions are in the making. Here in these islands great things are happening. All of us together are in our way making New Zealand.”[11]

The cynic might say that Kirk appropriated Maori culture to resolve a Pakeha problem. New Zealand nationhood could not be simply based on an Anglo-Celtic culture with its roots in the British Isles, even if it is added to by other immigrants. It requires roots much deeper in the soil than the 130 odd years of European settlement.[12] Of course, but Kirk’s response was intuitive rather than calculating, even if the conclusion was the correct one. Genealogical research rejects the myth that Kirk was part-Maori, but its persistence reflects a belief that his spiritual origins could not be wholly European.

One of the vivid images Kirk invokes is the huge man walking hand in hand with a tiny Maori lad on the Waitangi Marae in 1973. The Maori rewarded Kirk amply and with sincerity by their public expressions of grief following his death. In doing so they articulated an emotional response which although felt by the Pakeha too, could not be then publicly expressed by more repressed public traditions which came from Britain. For while he has precursors in Gordon Coates and Fraser, it is Kirk – in the television age – who opens the dialogue between tangata whenua and tangata tauiwi, today so central to New Zealand nationbuilding.

Where Kirk failed, was to offer an economic component to that vision. Certainly he was good at identifying the objectives of economic policy, perhaps best summarised in a 1973 essay ‘The Philosophy of the Labour Party’.
“We must be a country that is fair to its own people, a country that seeks the expression of its nationhood in the strength of family life, social justice, and steady progress. Our objective always has been social justice for all people in the sense that everyone is able to live decently without having to face constant hardships.
“Social justice relates to four basic principles, four basic rights on which, in an industrial society, the security and freedom of the individual depend.
– the right to work …
– the right to housing ….
– the right to good health …
– the right to education …

“We believe that freedom, social justice, equality, and prosperity are not alternatives between which people must choose, but are, in fact essential prerequisites for human fulfilment. We believe that the material resources of our whole society should be used for the good of the many and not for the exclusive enrichment of the few.

“It was the misguided approach which put money before people that led us to the social mire where people wondered what the next day might bring.
“I made it clear when we took office that from the outset, the Government would determine its actions and its policies on the concept of human values and human needs.
“Money will be running second and people first. [13]

Now as noble as this account is, it is has difficulties. It confuses health with health care. It is not strong on human rights. (Kirk’s position on women’s rights was quaint, even for the times.) But the biggest problem is the implementation – the economics.

Paul Samuelson, the twentieth century economist second only to Keynes, remarked that economics is based on the laws of thermodynamics, which can be summarised that you cant get something for nothing. There are real world constraints on what can be produced and so be available for consumption. It is very easy to announce the objective that everyone should have a decent standard of living of X (although to be considered a visionary, do it with more rhetoric). But what if the sum of all the Xs adds up to more than the total production of the nation? Produce more, but what if insufficient can be produced, or the additional producers require an additional share of their product? These far from trivial underpin much of economic analysis. An especially acute problem is if the decent standard of living includes items that can only be sourced from overseas. How are these to be paid for? If the production capacity exists in New Zealand – say for housing as it did in the 1930s – they can be paid for by the issuing of New Zealand money, up to the point that people are willing to hold the money. But they may try to convert it into goods which cannot be produced causing inflation. Or into imports, causing a loss of foreign currency. How is it to be replaced?

Out of government it is easy to ignore such constraints, assuming that once the objectives are set, they can be implemented without compromising other goals. It is like designing an engine by assuming thermodynamics do not matter – the politics of perpetual motion machines. The left – concerned with foreign policy, human rights, the environment and so on – tends to be prone to this fallacy, and vigorously critical of those who think practical constraints limit possibilities. But it is not just an oversight of the political left. Other persuasions can be as blind. The US sharemarket boomed in the late 1990s under the misapprehension that changes in the value of financial paper can produce something for nothing in perpetuity.

It can be a fundamental attitudinal cleavage between those whose concerns are economic and those whose concerns are elsewhere; those who try to understand the economy and those who do not bother. Kirk belonged to the second group, but unlike Fraser he lacked an outstanding economic adviser of the calibre of Bernard Ashwin. (Corner was, like his predecessor McIntosh, superb in his specialist areas of foreign affairs, race relations, and cultural affairs.)

A consequence of this cleavage has been a dual leadership of the government, which frequently appears in New Zealand politics (but also elsewhere, as in the Blair-Brown leadership in Britain), where the Prime Minister is the public and political manager of the government and the Minister of Finance (Treasurer) has the dominant role in the management of the public organizations and resources. The dual leadership of David Lange and Roger Douglas is the best-known New Zealand example, but there was a similar arrangement in the Kirk government. Underpinning Kirk’s success was the solidity of his Minister of Finance.

Four years younger than Kirk, Bill Rowling missed the worst of the depression which together with his tobacco farmer family being a little socioeconomically higher, meant he got to university. After serving in the army, he won his childhood home seat (Buller, later Tasman) in 1962. (Ironically he took over the seat following the death of deputy leader Jerry Skinner, who had won the seat from Keith Holyoake in 1938, with Rowling’s father an active part of the campaign.)

As president of the Labour Party Rowling successfully ran the 1972 election. Although in opposition he had had responsibilities for overseas trade, he was made Minister of Finance, ‘a portfolio intended under the new ministry to be a service portfolio rather than a dominating one as it had been under the Holyoake one’ (a reference to Rob Muldoon).[14] Kirk was seen as the shrewd politician bestowing on a rival an onerous and unpopular task. The overseas trade portfolio was given to Kirk’s close political associate Warren Freer, ranked in cabinet above Rowling (who had supported Nordmeyer over Kirk in the 1965 leadership vote). But Rowling was better qualified than most and ‘[a]fter a few months of controller of the purse strings, … Rowling began to assert his old authority … [from when he was president of the party. He] … quickly won the respect of officials in Treasury and those from outside who deal with him, and must inevitably become a power to sit alongside Freer and Kirk.’[15] Barry Gustafson describes him as matching Rob Muldoon for ‘intelligence and determination’, and ‘more willing … to take hard decisions. But while he was a capable and compassionate man, he lacked Kirk’s or Muldoon’s presence, flair and instincts.’[16]

When Kirk came to power in late 1972, the economy was in a strong expansionary phase from an international commodity boom which temporarily lifted prices for New Zealand exports. Because foreigners were willing to pay more for the wool and meat that was exported, so the farmers were better off, and as they spent some of their earnings on domestic producers, so was the rest of the country. The boom had been accelerated by a fiscal stimulus (notably an income tax cut) from Muldoon’s 1972 budget. To the economically inexperienced, the economy appeared to be on a strong growth trend, although others might wonder whether the boom was only the upswing phase of a business cycle. The Kirk government continued to stimulate the economy in 1973. The past six years had been of fiscal austerity and it was easy to say ‘yes’ to every worthy public expenditure proposal. The situation was further inflamed by the abandoning of wage controls in 1973, a short explosion, followed by a reimposition.

It was Rowling who tried to restrain the spending, steady the ship, maintain policy coordination. As Kirk’s health declined, he became increasingly powerful, holding the cabinet and government together, and was not unexpectedly appointed Kirk’s successor following his death in August 1974 from a heart attack induced by a string of medical problems. Rowling was a pre-television politician in a post-television age. Had he gained office two decades earlier, he might have ranked with some of the great prime ministers – it is hard to imagine Peter Fraser or Keith Holyoake performing adequately on the box either.

Successful politicians have luck. Rowling did not. He led a party which won more votes in the 1978 and 1981 elections than did Muldoon’s National Party. Even so it won fewer seats. Perhaps more unluckily, just before Kirk’s death the first world oil price shock collapsed the world commodity prices and put the world economy into recession. Kirk had had the benefit of the economic boom, better managed than his natural inclinations deserved, because of Rowling’s effectiveness, and he left his successors – Rowling and, subsequently, Muldoon – to struggle with the aftermath.

But as critical as one may be of Kirk’s economics, perhaps he understood his own inadequacies, and chose the best man for the economics job not just to sideline him, but because he needed that competence. He could have marginalised Rowling to, say, the overseas trade portfolio. It would have kept him busy and out of the country, without providing a path to power. Was Kirk that understanding of his personal deficiency? Keith Eunson says Kirk had a high regard for Rowling, and described him as an honourable man in an interview when he was freely criticising his other colleagues.[17]

Just as the generation knows where they heard of John F. Kennedy’s death, a New Zealand one recalls hearing of Kirk’s. Karl Stead captured in a sonnet which ended.

              Beyond the dunes blue of the sky out-reaches

              The blue ocean where the spirits of our dead

              Stream northward to their home. Under flame-trees

              By Ahipara golf-course someone’s transistor tells me

              The news again, and down on the hard sand

              In letters large enough to match the man

              The children have scrawled it: BIG NORM IS DEAD.[18]

Kirk had been able to progress his vision into a reality in the short time he was in office: in foreign policy, in culture, in race relations. Twenty-five harsh years later Bill Jefferies and his generation would still recall the vision and honour the man. As Wordsworth said at the time of the French Revolution:

            Bliss was it in the dawn to be alive,

              But to be young was very heaven!

Biographical Sources

Bassett, M. (2000) ‘Kirk, Norman Eric’, DNZB, Vol V, p.271-274.

Clark, M. (2001) Three Labour Leaders, Palmerston North.

Dunmore, J. (1972) Norman Kirk: A Portrait, Palmerston North.

Eagles, J. & C. James (1973) The Making of a New Zealand Prime Minister, Wellington.

Garnier, T., B. Kohn & P. Booth (1978) The Hunter & the Hill, Auckland.

Hayward, M., (1981) Diary of the Kirk Years, Wellington.

Endnotes

1. W. Jefferies (2001) ‘Kirk’s Prime Ministership 1972-1974′, in Clark (2001), p. 107-116.

2. Kirk (1969) p.10.

3. Kirk (1969) p.12-14.

4. Recorded by T. Bollinger 2/5/96.

5. W.B. Sutch (1966) Quest for Security in New Zealand: 1840-1966, Wellington p.426.

6. This was his response to a question in a Stout Research Centre Seminar at which the author was present.

7. Kirk (1969) p.14.

8. I. McGibbon (ed) (1993) Undiplomatic Dialogue, Auckland, p.31

9. Dunmore, p.41.

10. F. Corner (2001) ‘Kirk Presents a New Zealand Face to the World,’ in Clark (2001), p.146.

11. Quoted in Jeffries (2001) p.111-113.

12. While it is true that the European cultures were often only formally articulated in the nineteenth century, their roots usually go back many more centuries. See E. Hobsbawm & T. Ranger (1983) The Invention of Tradition, Cambridge.

13. Quoted in Garnier et al p.193-5.

14. Eagles & James, p.27.

15. Eagles & James, p.229.

16. B. Gustafson (2000) His Way: A Biography of Robert Muldoon, Auckland, p.157.

17. K. Eunson (2001) Mirrors on the Hill, Palmerston North, p.161.

18. C.K.. Stead (1983) ‘Twenty Two Sonnets: 1 (1 September 1974),’ Poems of a Decade, Auckland, p.42.

<>

1.

Douglas Robb: 1899-1974

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

Chapter 6 of The Nationbuilders

Keywords: Health; Political Economy & History;

Douglas Robb may appear to be among the most privileged of the nationbuilders in this book. His father was a manager of the Kauri Timber Company and the father-in-law from his marriage to Helen Seabrook in 1935 was even better placed. He was too young for the First World War, too old for the Second. The depression of the 1930s did not impact as heavily on the practice of the promising young surgeon as it did for many other occupations. But a year before he was born, Robb’s father came to New Zealand because the climate would be better for his tuberculosis. Two of his sons caught the disease in their infancy. There were no particularly effective therapies in those days, and the eldest died from TB at the age of 21. The second, Douglas, suffered until he was almost 40, when the symptoms suddenly disappeared.

The disease limited Robb’s early life options. Because of intermittent periods of convalescence he missed academic honours that his earlier performance had promised, but even so graduated in medicine at the Otago Medical School. It was probably the reason he gave up his adolescent ambition of being a missionary in China. The time in bed meant he was well read, and it gave him more time to think. Perhaps too, it taught him of the vulnerability of the patient, which gave him an exceptional bedside manner. At his funeral Owen Baragwanath recalled “Visiting patients on the eve of major surgery I would find them radiant and smiling and they would tell that ‘Dr Robb’ had spent half an hour sitting on the end of their bed talking about their family or football or something else. The following morning there would be no fear. Their life would be in the hands of a friend.” [1]

Yet this does not explain the origins of Robb’s reputation as someone who was a ready dissenter from the conventional wisdom, and in public. The personae may have come from the Presbyterianism of his Scottish parents, especially his mother to whom he dedicated his first book, but the story is as much about New Zealand. His differences were largely with a narrow and backward looking medical establishment. For them for some, even after he died he was an upstart challenging current practices and acting outside the conventions of the college of professionals. With hindsight he may simply appear progressive sometimes wrong for good reasons, but usually right and often farsighted.

Although rebellious at university and he represented junior medical staff in a dispute with a hospital secretary in Norwich, Robb’s adult reputation as a maverick began when he returned from his England in 1928 after five years surgical training. Back to Auckland he immediately became a private consultant, rather than working his way up through general practice. His confidence was the result of the advanced knowledge of minor surgery he brought back with him, together with the injection method for haemorrhoids and varicose veins, which he introduced (no doubt generating envy among the older surgeons). He was elected an honorary surgeon to the Auckland Hospital Board in 1929, but was not reappointed in 1935. To add to his list of sins he attempted to introduce medical auditing of surgeons, offered to train the house surgeons in new surgical techniques (an innovation much resisted by the surgeons in private practice), wrote anonymous articles in the New Zealand Herald criticising the Board, and on occasions took in patients directly rather than having been referred through a GP.

If he remained in trouble with much of the medical profession for some time and some of the medical profession for all time in 1938 he was elected as a graduate representative on what is now the University of Auckland Council, a position he held for 33 years. Within the wider Auckland establishment he was already building a respected reputation. He even looked it: tall, imposing and distinguished. If there was a wilderness at this time it was the frequent rests and an overseas trip that treatment of his tuberculosis required.

To see his nationbuilding role we scroll back to 1935 and shift the location from Auckland to Wellington, where the first Labour Government had been elected on, among other things, a promise to introduce free health care. The story of what happened is both tortuous in itself, and complicated by some strong personalities, while its accounts are often partisan and thus far incomplete.

The conflict between the BMA and the Labour Government is sometimes portrayed as the government pursuing the wishes of the vast majority of the population for ‘free’ medical services with the majority of the doctors resisting in their own self interests. The underlying political philosophy here is majoritarianism – that the majority may impose on the minority. In a hollow society the minority are only individuals, but in a liberal democracy there are social institutions not wholly dependent on the state which arise organically out of the individuals, or some section of them. This, of course, does not resolve a particular case where there is a conflict between the desires of the majority (a liberal democracy does not equate this as a right) and the rights of a minority. But it does offer a framework by which the dispute can be organised, pursued and, hopefully, resolved. A key feature is that it is rare for either the majority or the minority social institution to be wholly united internally, so there is a possibility of some compromise arising between factions from the two sides.

Initially the Labour Government’s health sector policies were driven by David McMillan, a doctor who had worked with Presbyterian minister Arnold Nordmeyer in the Waitaki Basin. Both became MPs in 1935. (A local union official, Jerry Skinner, joined them in 1938, to become a successful cabinet minister under Fraser – handling postwar rehabilitation – and after Fraser’s death in 1950, deputy-leader of the Labour Party.) McMillan and, probably, all the Labour Caucus were extremely antagonistic to a class-based system of health care supported by the doctors’ professional association in which the state provided medical care would be means tested: free for the poor, subsidised for those on middle incomes, and at full cost for the rich. Walter Nash was not alone in being distressed by the ‘two door’ practice of some British doctors – one for those who paid and one for the indigent.

The New Zealand doctors’ professional association was one of the exceptions to the hollow society, for it was largely independent of the state, being based on the support of the doctors it represented. Oddly or perhaps consistently with the colonial nature of the hollow society it was called the ‘New Zealand branch of the British Medical Association,’ and known as the BMA. It did not change its name to the New Zealand Medical Association until the 1970s, and then it did so only when a ginger group, led by Austrian immigrant Erich Geiringer, adopted the name first, underlining the colonial demeanor of the older body.

The profession about 70 percent general practitioners in the 1940s was understandably anxious to maintain that independence of the state, arguing that being put on a state salary compromised the relationship between doctor and patient. The opponents accused them of wanting to maximise their income by charging what the market would bear, and being subsidised by the state where they would be insufficiently remunerated. The BMA was led in its negotiations by a crusty Scots doctor, James Jamieson, who was particularly concerned about the independence issue – moreso, it would prove, than the profession as a whole.

Labour was initially over-dependent on McMillan, who had even less following in the profession. Peter Fraser was Minister of Health from 1935, where he had introduced a number of changes: extended health camps, improved working conditions for the health profession, established the Medical Research Council, increased the numbers of school medical officers, district nurses, and health inspectors, and so on. But when he formally gave up the portfolio, a month after becoming Prime Minister in April 1940, he had not addressed the structural issues, and the funding provisions of the 1938 Social Security Act had still to be implemented. Initially he passed the portfolio onto Tim Armstrong, previously Minister of Labour, perhaps indicating that the four years negotiations between government and the BMA had the characteristics of an industrial dispute. However Armstrong proved lost in the complexities of the health portfolio, and in January 1941, Nordmeyer became Minister. (Ironically, he joined the cabinet when McMillan, who had been Minister of Marine since June 1940, left to go on leave from parliament and back into general practice.)

By 1940 Labour had introduced the sickness and invalids benefit, had taken over responsibility for mental hospitals, introduced a maternity benefit as a doctor’s full payment, and begun state funding of hospitals. The overt major issue it faced was the funding of general practice, but the covert (and related one) was the structure of the provision of medical care at both primary and secondary levels.

The Labour Government tried a number of schemes to fund general practice so that patients did not have to pay. Some succeeded in that some doctors adopt them, weakening the claim that the BMA represented a united front. Even so the majority of doctors resisted. The crucial meeting between the BMA and the government may have been in September 1941. Perhaps an even more important meeting had taken place immediately before. Jamieson recalled “The atmosphere [of the meeting between the BMA and Fraser, Nash and Nordmeyer] was electric. There had obviously been a row and they had barely composed themselves. Fraser could assert himself when he wanted to. Messrs Nash and Nordmeyer looked as black as thunder. [2]

The BMA record of the meeting relates that Fraser said “He had studied the proposed legislation on the ‘plane on his way back, and he had debated with himself [and probably the officials accompanying him] what should be done to avoid the impasse that was developing. It occurred to him, continued Fraser, that the objections of the doctor or at any rate, most of the objections, might be eliminated in this way: Suppose medical practice was to continue in the ordinary way, but when the doctor’s bill was presented and the patient paid it, the patient should be able to present his receipted account to the Social Security Department and obtain a portion of his costs.” [3]

The key word in this passage is ‘portion’. Fraser was agreeing to the doctors’ demand for the possibility of a co-payment by the patient, allowing that the system of primary care need not be wholly publicly funded. And that where arrangements broadly settled over the next fifty years. The state paid a part of the cost, and the patient paid a top up if the doctor thought it justified.

Bill Sutch, who was advising Nash at the time although there were no officials at the meeting, broadly confirms the story, adding he thought a key element was a friendship between Fraser and James Eliott, a former president of the BMA, and Fraser’s personal physician. Sutch concluded bitterly that ‘the financially beneficial arrangements for doctors resulting from the Elliot-Fraser friendship and from Fraser’s own predilections made the work of Robb, McMillan, and Nash a nullity. The health service concept had disappeared.’ [4]

Yes and no. Sutch is right that paying general practitioners on a fee-for-service basis with a government subsidy undermined the notion of a ‘free’ health service. Whether it undermined a general ‘health service concept’ or just that particular one can be debated, and in any case it had little impact on secondary care arrangements.

Robb was never directly involved in the negotiations. His was the role of ideas man and polemicist. He corresponded and talked to Sutch, and with someone in the Minister of Health’s office (probably Martyn Finlay). Following a meeting at National Park Minister Nordmeyer wrote to him: “Thank you for your letter on hospital finance and control. I am taking the opportunity, whenever I have a spare moment which is not often these days of dipping into your book and re-reading the long chapter on the hospital system. Undoubtedly something will have to be done before long, and I am giving a good deal of consideration both to your suggestions and to others that have been made to me.” [5]

John Lovell-Smith says that Robb’s writings may have been influenced by the 1943 proposals for the organisation of medical care in Northland, but other structural reforms reflect his approach too. [6]

Altogether he authored, or co-authored, four books or booklets in the 1940s. The first, Medicine and Health the one mentioned by Nordmeyer was self-published in 1940, arguing for more preventative medicine and more medical education before discussing general practice and hospitals. It proposed the reform of primary care with:
1. Reconsideration of undergraduate training for men and women destined for general practice.
2. Provision for regular periods of post-graduate study.
3 Library and journal service.
4. Mutual relief amongst doctors, regarding night work and weekends.
5. The attachment of every general practitioner to some large institution or organisation …
6. A salaried service, with the usual accompaniments such as retiring allowance, regular leave, etc., …
7. Once the people have decided the form the service is to take, medical men should be placed in charge of its management. [7]

Except perhaps the sixth point, there would be few doctors who would bridle at these proposals today. Yet he obviously considered these as radical proposals in the 1940s, and even went to the extent of covering himself by quoting an article in an overseas journal at the end of the first chapter, with the apparent intention of emphasising he was none of the last epithets. “Any medical man who strays outside his speciality is apt to be regarded askance. If you are a bacteriologist and you make your life work the thirty two types of pneumococci you will be honoured by all your colleagues: but try to limit the spread of pnueumococci infection by clearing the slums and you will be called an advertiser, or an adventurer, or perhaps, the final insult, a Communist!” [8]

The three chapters on the public hospital system are more devoted to the problems facing the institutions than presenting solutions. That would come in the later books.

Reading the book more than sixty years later, one is struck that Robb is aware of an upheaval going on in the medical profession in terms of the amount of knowledge that doctors were increasingly requiring, with implications for new education, post-experience training, specialisation, and new ways of organising professional arrangements. If one wanted to distinguish his views from those of many other advocates of major health reform, Robb was as concerned with the ‘production side’ of the supply of health services than the equity one. Of course he cared about patient access, but his focus includes the changing conditions of providing healthcare.

But we may be seeing here the devastation to the profession of the world war he just missed out on. Other young doctors would have died in it, and the profession was depleted of the generation who should have been offering leadership with Robb, while the older generation whose skills and outlooks were becoming obsolete were left entrenched.

Robb’s thoughts about hospitals are developed in his next three books. Perhaps the appointment to a position in the Auckland Hospital in 1942, in part the result of the doctor shortage induced by the war, gave him new insights. In 1943, A National Health Service was published by eight authors, although it is said that Robb wrote 90 percent of it. Aside from the funding and payments issues, the publication is concerned with two key matters: the structure of the hospital sector it being argued that there were too many hospital boards and the internal management. Neither would be considered particularly revolutionary today, although later he advocates 11 boards instead of the 42 at the time, which he described as an ‘absurd anachronism’. [9] Given the current 21, in the fifty years we have got half way there.

The 1943 booklet provides the most detailed account of the organisation of medical care in Northland, where six hospital boards served a population of less than 70,000. There was to be a base hospital at Whangarei and five district hospitals which would do simple surgery, perhaps with a general practice also on site. Robb’s interest in the Far North had been stimulated by ‘Rawene’ (G.M.) Smith, a larger-than-life doctor who ran a practice in the Hokianga, after fleeing a promising career in Glasgow on account of a matrimonial indiscretion. Robb had first met him when he was in the district for rest in 1933. It was at Smith’s he probably first met Rex Fairburn, the Auckland based poet, and the social credit theories, which Smith and Fairburn and, less publicly, Robb held. Fairburn was a frequent visitor to the Robb household.

Fairburn wrote a tribute to Robb in 1945 as a part of a series about ‘various people [in fact eleven men] who deserve to better know.’ [10] Writing to Allen Curnow, one of the eleven, he said ‘I am trying to keep clear of the old gang, and give the boys a hand’. [11](Among the others were Owen Jensen, Eric Lee Johnson, Smith, Bill Sparrow and Sutch). Of Robb he wrote ‘there can be very few public men in New Zealand whose motives are more disinterested, and whose intentions are simpler. … In his attitude there is something of the spirit of the mediaeval guilds, in which group responsibility was accepted, and high standards were maintained by internal discipline.’ He concluded, ‘I think I am justified in saying that his book , Medicine and Health in New Zealand, is one of the really significant events in New Zealand medical history.’ [12]

Fairburn dedicated one of his three great poems To a Friend in the Wilderness to Robb. Its final stanza, which begins ‘Old friend, dear friend’ and is sometimes used at funerals, could be Fairburn referring directly to Robb.
“Old friend, dear friend, some day
When I have had my say, and the world in its way,
when all that is left is the gathering in of ends,
and the foregathering of friends,
on some autumn evening when the mullet leap
in a sea of silver-grey,
then, O then I will come again
and stay as long as I may,
still the time sleep;
gaze at the rock that died before me,
the sea that lives for ever and ever;
of air and sunlight, frost wave and cloud,
and all the remembered agony and joy
fashion my shroud.”[13]

But it seems unlikely that the poem as a whole refers solely, or even mainly, to Robb. Fairburn wrote three long poems, each of which is dedicated, and to argue that To a Friend in the Wilderness refers specifically to Robb, would have to mean that Dominion referred specifically to Jocelyn Fairburn and The Voyage to Philip Smithells. (It was Robb who operated on Fairburn for the kidney tumour which killed him in 1957.)

The relevance of the poem left even Robb a little bemused, although he uses the wilderness image in his autobiography, Medical Odyssey. Robb saw himself not so much as a rebel as a prophet, drawing an analogy with Isaiah. He was modest enough not to draw attention to the idea that prophets lack honour in their own country or house, if that be the Auckland medical establishment as late as the 1960s. When the whole BMA had its joint annual meeting with the New Zealand Branch in 1961, a New Zealander needed to be chosen as the president. His Auckland division did not nominate Robb but other divisions did, and so he was elected to the prestigious international position, one of a number at the end of his life, albeit with some resentment from within his ‘house’. [14]

Robb wrote in his autobiography of ‘the art of the dissenter’. “This art is surely necessary in our midst, lest we stagnate, and ‘one good custom should corrupt the world’. It should, by rights, be valued, sought out, taught, and its practitioners encouraged. That in essence is what higher education is about, or should be about. But it will be a long time before this is openly done. I expect the dissenter will continue to be a lone wolf, or to hunt in a small pack. They must not be discouraged by the enmity, or opposition they arouse. …. Then the day comes scarcely heralded, perhaps almost unrecognised by the dissenter himself when … the new ideas begin to be accepted. The dissenter who started it may no longer be there, or he may have long since given up, and gone fishing. But however close he is to the now favourable seat of operations he dare not show his satisfaction, nor allow himself the gratification of saying ‘I told you so.’ He commonly sees others often former opponents climbing up and riding on the now rolling wagon.” [15]

There was in Robb the attitude that Sutch praised Gordon Coates for. You do what is right, and expect others to recognise your integrity. Robb wrote “The truth is I never felt myself to be much of a rebel … I started out with a few fundamental attitudes, for which I suppose I may praise or blame my elders, at least in part, and simply went on applying them. It is true that the conclusions I came to on some occasions proved to be at variance with customary practice though I always seemed to be the last person to appreciate the dire implications of what I was pleased to embrace. At almost every stage I was naive enough to think, for much longer than anyone else did, that I had been a rather helpful fellow, who had at least come up with some good ideas.” [16]

From 1950 Robb was less involved in health reforms, as other matters absorbed his restless physical and mental energy, even if his manner was unhurried. The Auckland Hospital Board appointment had led to his development of the heart unit at Greenlane Hospital. Part of the achievement was bringing on young heart surgeons. He ran the unit as a team, as his writing of the 1940s advocated. He was noted as a surgeon who carried a stethoscope in his medical coat, showing that he was willing to work like a physician where necessary. And he bought on people of great ability, working harmoniously with them in a manner reminiscent of Coates and Fraser.

The pioneering of new surgical procedures was not without difficulties. In order to acquire the skills for the Blalock operation (for ‘blue’ babies), they had to practice vascular surgery on pigs and sheep. Initially it was in the ‘pathology laboratory at Auckland Hospital in dead of night, so as to escape the notice of vigilant anti-vivisectionists.’ Fortunately they were offered facilities as Ruakura, although not without moments of mirth (and team building as they drove down to the Waikato). [17]e was also humorous in the treatment. ‘Hole-in-heart’ children were told after the operation: ‘Roses are red, violets are blue/ Carnations are pink,/ And so are you. [18]

Greenlane became a world leader. Robb relates how returning home he was in Hong Kong he ‘heard the news that William Liley’s pioneer ant-natal transfusion had reached the world and we suddenly realised that we were coming away from Europe towards New Zealand and into the news medically.’ [19] The lesson is not that ‘the kiwi can do it’, but that Robb set and maintained world standards, and so Greenlane joined the innovating frontier of the world.

There were numerous minor activities, of course, for the energy meant that friends could readily co-opt him into worthy projects, including attempting to develop a local art gallery less dependent upon the philistines of the Auckland. However the second major theme of his later years was the University of Auckland (as it became in 1962) where he was on the Council from 1938, the Pro-chancellor from 1952, and the Chancellor in 1961 to 1968, retiring in 1971. That combined with the pursuit of medical education, which had been a priority from the 1930s, led to the establishment of the Auckland School of Medicine.

On the other hand he was somewhat sceptical of the academic pretensions of the business-oriented faculties arguing ‘it was a matter for debate as to how suitable subjects like law and accountancy are for University studies.’ [20] Perhaps he was referring to that most law and commerce students were taught largely part-time, but he might well have thought his doubts were fully justified with the attempt to commercialise the health system in the early 1990s, especially in the way it downgraded the roles of the health professionals. If he had been alive then he would have been in his nineties Robb would have been the patron of the organisations which resisted the reforms.

Robb’s nationbuilding was by polemic and example, contributing to the health services framework largely adopted today, even if his specific contribution is not directly remembered. Adjusting for the effects of technological and social change, what he advocated has been largely implemented, the exception being the co-payment (and sometimes full-payment) for primary care. Today we largely accept the Robb vision, which seemed so radical in the 1930s: a health service based on professional excellence and ongoing education, that gave weight to preventative medicine, that recognised specialisation and medical teams (including high quality nursing which he devoted some of his writing to), and which had an organisational structure which reflected these goals, and so would be largely publicly funded and publicly provided. The health system is at the heart of the welfare state: in more ways than one, Robb contributed to its development.

Go to top

Biographical Sources
Baragwanath, O.T., (1974) Address given in St David’s Church, 30 April 1974. (Robb papers, 17/1).
Bush, A., et al (1943) A National Health Service, Wellington.
Cole, D.S. (1974) ‘Obituary’, New Zealand Medical Journal 80, No 251 (Aug. 1974), p.128-132.
Dow, D. (2000) ‘Robb, George Douglas’, DNZB, Vol 5, p.440-441.
McEldowney, D. (undated) draft chapters for a biography, four completed, in the possession of the author.
Morris, S. & D. Robb (1949) Hospital Reform in New Zealand, Auckland.
Robb, D. (1940) Medicine and Health in New Zealand: A Retrospect and a Prospect, Auckland.
Robb, D. (1947) Health Reform in New Zealand, Christchurch.
Robb, D. (1957) University Development in Auckland, Auckland.
Robb, D. (1967) Medical Odyssey, Auckland.

The Robb papers, including a number of interviews by Denis McEldowney of those who knew him, are held in the Auckland University Library

Endnotes
1. Baragwanath (1974) p. 2.
2. J.B. Lovell-Smith (1966) The New Zealand Doctor and the Welfare State, Auckland, p.142.
3. Ibid, p.142-3.
4. W.B. Sutch (1979) The Responsible Society in New Zealand, Christchurch, p.69.
5. A. H. Nordmeyer, letter to Robb, 26 June 1941, in Robb Papers (5/3).
6. Lovell-Smith (1966) p.188.
7. Robb (1940) p.70-1. (Note his awareness of the women in the profession.)
8. W.R.F. Collins (1940) Irish Journal of Medical Science, May 1940, p.199, quoted in Robb (1940) p.8
9. Robb (1947) p.58.
10. Robb (1966) p.108.
11. A.R.D. Fairburn (1944) ‘T.W.M. Ashby’, Action – The Thinker’s Digest, December 1944, p.16.
12. Fairburn to A. Curnow 4.10.1944, in L. Edmond (ed) (1981) The Letters of A.R.D. Fairburn, Auckland, p.134.
13. A.R.D. Fairburn, (1966) Collected Poems, Auckland, p.57.
14. A.R.D. Fairburn (1945) ‘Douglas Robb’, Action – The Thinker’s Digest, April 1945, p.32-34.
15. Robb (1966) p.110-111.
16. Robb (1966) p.108-109.
17. R. Nicks (1984) Surgeons All: The Story of Cardiothoracic Surgery in Australia and New Zealand, Sydney, p.162.
18. Robb (1966) p. 100.
19. Cole (1975), p. 130.
20. Robb (1957).

Go to top

Peter Fraser: 1884-1950

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

Chapter 3 of The Nationbuilders

Keywords: Political Economy & History;

It is easier to become prime minister than to be a good one, for that involves transcending the leading a political party to leading a nation. Unlike the much beloved Michael Joseph Savage, Peter Fraser was bereft of public charisma. Yet he is the greatest prime minister of those who presided only in the twentieth century, and has been described as the only New Zealander leader ‘with a plausible claim to be recognised as an international statesman’.[1]

Fraser was born and raised in highland Scotland   his father a shoemaker. His formal education was brief for the family needed his contribution to their income. The apprenticeship in carpentry was cut short by poor eyesight. For the rest of his life he wore thick spectacles and a preferred discussion over document. Yet he studied as widely as the informal education system would allow. That included the Presbyterian church (to which he returned to towards the end of his life), evening classes, adult education, and reading, which he did all his life. In a parliamentary eulogy in 1950, the the Minister of Education and ex-professor of law, Ronald Algie was to say Fraser was ‘an educated man in the truest sense of that much-abused and oft-despised word’.[2]

When young he was strongly influenced by Robert Blatchford, Keir Hardie, John Stuart Mill, John Ruskin and William Morris and other English writers, and later by Karl Marx and the US syndicalist Industrial Workers of the World. The Fabians were also important. He frequently quoted Bernard Shaw, and that may be where his lifelong love for the theatre began. While that early socialist education would have given him a preference for public ownership, and a suspicion of the market, it was supplemented by a more orthodox training via the WEA. (John Condliffe claimed that while professor of economics at Canterbury College, he taught there three future prime ministers: Savage, Fraser, and Walter Nash.)

Pat (as he was then known) Fraser arrived in New Zealand in 1911. He found employment as a labourer and then on the Auckland wharves, quickly becoming president of the Auckland General Labourer’s Union, which was transforming into a class-conscious, industry-based union. During the next few years he became involved in a number of industrial disputes, including the representative of the Red Feds (the New Zealand Federation of Labour) at the site of the 1912 Waihi strike, and a leader in the 1913 Auckland wharf strike. Neither was a union success. The syndicalist Labourer’s Union opted out of the provisions of the Industrial Conciliation and Arbitration Act, and found itself out manoeuvred by the employers setting up a scab arbitrationist union. Fraser learned a lesson his government was to use on the Auckland carpenters in 1948, but more generally it may have been a major factor in shifting him towards a more evolutionary socialism. ‘[F]rom 1916 or thereabouts he swung gradually from a left-wing to a right-wing socialist viewpoint’, including reversing his support for land nationalisation in 1919, to opposition by 1927 as an unrealistic policy.[3] Even so, he was at first an enthusiast for the Bolshevik revolution. In 1918, at the age of 34, he was elected to Wellington Central, a seat   transformed to Brooklyn in 1946   he held till his death 32 years later.

The world is different within government By September 1938 Fraser was telling the Police Association:

Now, the point is that our standard of living, which at present is probably the highest in the world, cannot be maintained, far less [be] increased, unless the whole economic resources of the country are organised and utilised in the production of more commodities. That is the background of the whole of our economic life and of the activities of the Trade Unions and all the rest. The intelligent people among the Trade Unions know that today. That is where inefficiency in service is stultifying and destroying the efforts of the Government. If any band of workers, whether on the Public Works, on the waterfront, in shops, factories, or in any government service, are not pulling their weight, and doing their work more efficiently than before, they are simply striking away the foundations from the edifice that is being built. For instance, if in any industry 80 percent more men are employed, but the production is only increased 60 percent, then they are destroying the economic basis of that industry. These are matters we are talking about very frankly to responsible officers of the various Trade Union organisations. If men loaf in loading a ship or if the men responsible for getting the trucks down to a freezing company do not do their work efficiently, as a result of which other men are held up with nothing to do, then those responsible for the hold-up are destroying what the Government is trying to build up. No government can go on improving the conditions of the people in town and country unless the volume of production is increased and the people in turn give good service.[4]

This might be thought of as a statement typical of a minister who was resisting pressures in pay and conditions, although the mention of talks with unions is an indication that Fraser saw from an early stage the union movement had to be included in economic decision making.

Bernard Ashwin’s diary’s first reference to Fraser is at the time of the 1939 budget. The New Zealand economy was in severe stress arising from the current account deficit, while the Labour caucus was deeply split on economic policy, the dissidents led by John A. Lee advocating greater use of Reserve Bank credit. (Nash was in England):

As a result of my daily talks to him my opinion of the Prime Minister [Savage] improved. He will face facts and has courage. He agreed to my ideas being written into the Budget but he had to go to hospital for an operation the morning after he delivered it. In fact he was laid up a week before hand and came from his bed to read the Budget. Fraser (deputy Prime Minister) thus had a hand in finalising [the] document and above all else he is a keen politician and watered down some of the warnings against using Reserve Bank credit to pander to the left wing of the party. Mr Savage’s operation was apparently successful and when I called upon at his residence I was surprised how well he looked.[5]

Ashwin discusses the economic measures needed for the war effort, and mentions legislation the caucus promoted which would have enabled the government ‘the power to take over the Bank of New Zealand and in fact all the Trading Banks … Fraser and Nash were both opposed to it but apparently would not defy the caucus as I think Mr Savage would have done once he was convinced of the dangers involved in such hasty action.’[6] (Caucus got their way in 1945, when Fraser and Nash were out of the country.)

The diary was abandoned in October 1939, but its short record draws attention to three features of Fraser. First, he was a keen politician, sensitive to caucus pressures. (However he was not in thrall to caucus, although as deputy prime minister he had less authority than Savage. He would also have been mindful of the likelihood in the very near future that he would be dependent on caucus votes in any bid for the premiership.) Second, he was an efficient chairman of cabinet, when Savage was away. And third, Ashwin already had direct access to the prime minister.

While Ashwin remained critical of Nash, he reveals a quite different relationship with Fraser. Reflecting he 1969 he said:

I saw him almost every day during the war. For some reason he liked me and often asked me to call to see him. On my way home from work   usually around midnight   we would sit and talk through the early hours of the morning, He would give me some of his new proposals and seek my opinions of them. I always answered honestly; if I thought his plan crazy I would tell him so and I think Fraser respected me for this. I accompanied Fraser on most of his overseas trips.[7]

The rapport was not, however, unique. Alistair McIntosh gives a similar account of working with Fraser, as no doubt could have other departmental heads. Yet Ashwin was not uncritical of Fraser, although any reproach was overwhelmed by admiration:

Fraser could be very petty, and often wasted time arguing over trivial matters. But on major decisions he was most impressive and was quick to grasp what the really important factors were. I think his decision to leave the Second Division in the Middle East was an example of this. He was also particularly good at keeping his own party in line with his decision. He maintained a good relationship with Walsh, and thus got the Labour movement as a whole behind the war effort.[8]

Ashwin’s warmth was due not only to Fraser’s abilities and personality. There was considerable agreement between the two on practical economic matters. The convergence would have arisen partly because of the desperate situation of the war effort, but also because Fraser took a more orthodox line than the economic dissenters in caucus, especially on monetary policy. He did not give a lot of budget speeches, and their content tended to be political rather than indicating an economic philosophy. But there are occasional exceptions. The 1940 budget was particularly important for the new prime minister:

Without in any way raising any alarms or boosting any methods that might be called unorthodox, I would like to repeat what I said in a statement to the press on Saturday. I said that if we think we can fight the war with approved orthodox methods, when many of the old financial, social, economic, and fiscal lampposts and signposts have disappeared, then we are mistaken. I want to say this: nobody in the world wants to avoid inflation more than I. My opinion is that, in the long-run, it makes people pay in a roundabout way   sometimes even in a dishonest way   and it is preferable that they pay it straight out. I am not going into all the intricacies of the case that can be made for the issue of credit but everything must be based on goods and services. I want to say this: that this country cannot be stultified in its war effort, no matter what means have to be adopted financially. We cannot be defeated financially on the home front.[9]

Now this is all a bit tortuous, but the sentiments about inflation involve quite sophisticated economics thinking, for he is saying he is going to be as orthodox as circumstances allow (e.g. credit creation backed by production), but for the monetary reformers in the Labour caucus he also implies that he might be as unorthodox as necessary.

As soon as he sat down, John A. Lee, who had just been thrown out of the party, rose. ‘This budget is cast on more orthodox lines, although it is harsher to great wealth than any Labour Budget yet introduced, and the criticism from the Leader of the Opposition was, of course, along the lines of orthodoxy.’[10] Lee then went to move ‘that the question be amended by the omission of all words after that,’ and went on to add a series of unorthodox proposals, but in the Labour monetary reforming tradition. The amendment was seconded by Harry Atmore, independent MP for Nelson, and was lost 2 votes to 63. No doubt Lee had more support in the Labour caucus, even if it was unwilling to show itself in such public circumstances. No doubt Fraser knew this; hence some of the features of his preceding speech.

The dispute between Lee and Fraser (and, earlier, Savage) is somewhat of a puzzle. From this distance it appears to be about personalities   of a younger man threatening the established order. Fraser’s concerns were compounded by his being jailed in the First World War, objecting to the conscription of men but not of capital. Thus he was no pacifist, and thought the Second World War a just one, for Hitler’s aggression was monstrous, and that ‘[t]o fight and crush him, and everything he stood for, was the solemn duty of all democrats and socialists.’[1] The extraordinary economic powers he acquired and delegated to such as James Fletcher and the Economic Stabilisation Commission were his attempt to ‘conscript capital’. McIntosh thought however, that ‘what stopped Fraser from misusing his authority was his well-balanced knowledge of British constitutional history. He always weighed the propriety of actions before taking them.’[12]

On the other hand Lee had been a war hero, and could claim a moral superiority to prosecute a war. It is said that in opposition all that MPs have to do is to plot against one another, and many keep to the habit in government. The (regrettably) final entry in Ashwin’s diary in September 1939 reports on Savage’s poor health and continues:

… his absence will I think prove a much greater calamity for N.Z. than most people realise. When he went into hospital the left wing of the party seemed to take it for granted that he would not return [so much for Lee’s protestations that he did not realise how sick Savage was] and rumour has it that Nash would be forced out of his position as Minister of Finance. Barnard (the speaker) was to be Prime Minister apparently because it was considered Lee would not be generally acceptable in that capacity. He is a lawyer but has not much in the way of ability or personality. I also heard that Lefeaux was to be pushed out [of the governorship of the Reserve Bank] and Kelliher, a brewery magnate, who is an advocate of the so called ‘new economics’ and social credit ways to be installed as Governor of the Reserve Bank. If there was much truth in these rumours it is a good thing for N.Z. that Mr Savage survived his operation. Nash is undoubtedly unpopular with the party and pressure might have been put on him to resign [h]is finance portfolio but just as he reached Wgtn war broke out in Europe. [13]

With hindsight, one might say that there were some domestic political benefits from war breaking out (and also it resolved the foreign exchange supply). In the hothouse of intrigue, Fraser’s initial paranoia may be understandable, and Lee was at the heart of the plot. There was an ideological dimension to the dispute. Bill Sutch commented in 1971:

But you must bear in mind that the Labour mandate in 1935 wasn’t a socialist mandate. It was a mandate to have an economics and social system that what would work in terms of the happenings that occurred to every man and woman, namely sickness, unemployment, age, poverty, housing, fluctuating prices. It was a political response and though the Labour Party had what was called a ‘socialist background’ and there were one or two socialists in it, it was not a socialist policy, unless of course you use the terms of my friend John Lee, who talked in terms of these things being socialist.

Now I may be the odd man out in this because I find that the present Labour Party also talks in terms of any ameliorative process that assists the rank and file of this country as socialism. That’s why I begin by saying this is a definition of socialism, but it wasn’t any of the definitions I knew because the essence of every definition I knew was that socialism at least was non-capitalism. And this country was of course a capitalist country.[14]

Lee, like others in the Labour caucus, was really a monetary reformer, with a bit of public ownership of commercial enterprises tacked on. In 1938 Fraser had told the police exactly the opposite. Production was key to welfare, not finance. In 1940 he said even more explicitly ‘We do not eat banknotes; we do not wear credit; we do not build factories with credit for material. Credit in itself does not make machinery or turn out goods.’[15] Even so, the outcome of the plotting may have been to push, in a way the conspirators did not intend, Fraser and policy towards ‘the historic compromise’   the extension of the power of the state over capitalism, rather than the replacement of capitalism, with the implication the state would be controlled by the people or workers and not the capitalists. Fraser had come a long way from the ‘Pat’ of his twenties and early thirties.

As deputy prime minister Fraser chose the portfolios of Education and Health (and Marine and Police). His health interests reflected those of his wife, Janet, who could have been a formidable MP or official, and became de facto (research) assistant to the Prime Minister, even to the extent of having an office next to his. She was a voluntary health worker, a member of the Wellington Hospital Board between 1925 and 1935, and on government committees inquiring into abortion and maternity services.

Education reflected an even greater interest. Fraser had joined the parliamentary select committee on education in 1921, which he served on until his death. As minister he forged one of those extraordinarily creative partnerships with the Director General for Education, Clarence Beeby. The two are associated with one of the great statements about the purpose of education:

The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.[16]

While Beeby drafted the statement, he has insisted that the sentiment was Fraser’s. Bill Renwick shows this is not a false modesty, nor a public servant attributing his own words to his political master. Fraser had expressed similar notions earlier. In his first major speech as Minister in 1936, before Beeby had entered government service, he explained education in human terms that a

[r]easonably well-designed education should aim at … the development of personality of each individual child, in an atmosphere of comradeship, equality, and mutual work and open air activity.[17]

Education has a key role in nationbuilding in that it may, or may not, transmit to the next generation a national set of values images, stories and aspirations   a culture. Undoubtedly Fraser and Beeby had such an objective in mind, and largely succeeded in pursuing it, although perhaps it was the teacher colleges, rather than the universities with their dependence on imported staff which were the flag bearers at the tertiary level. (The irony is the Fraser created a formal education system, which often produces graduates far less accomplished than its informally educated creator.)

Fraser gave up the portfolios shortly after taking the premiership in April 1940. But he continued to take a close and effective interest in them, as he did in the arts, working closely with the Secretary of Internal Affairs, Joe Heenan, with whom he shared a love of literature. Among the institutions they created or developed out of their initiatives were a literary fund, an arts council, a national orchestra, and the history branch, some of which withstood the onslaught of the post-1984 barbarians. Similarly Fraser worked closely with the Maori, especially after 1946 when he took up the portfolio. It is said that he had an empathy with their land losses arising from the devastation to his family of the Scottish Highland clearances.[18] He promoted the development of women.

Fraser was a war prime minister. Given Savage’s increasing deterioration in health from just before the war began because of, there is a sense in which he was New Zealand’s only Second World War prime minister. Ian Wards says such was his commitment that he was a ‘warrior prime minister’ although, as previous few paragraphs tell, he was also very active on the civilian front.[19] The war was being pursued to create a new society in New Zealand.

On the war front there was the domestic problem of providing the resources to prosecute the war. Fraser left this to the Supply Council and the Economic Stabilisation Commission, discussed in chapters 2, 4 and 5. A 1944 Budget speech throws some light on his economic thinking.

The country has adopted a stabilisation policy; the country approved of it at the general election. It is not 100 percent perfect, and nobody expected it to be. Any person with a knowledge of the difficulties, the intricacies, and the contradictions of our economic system in regard to prices, importations, productions, cost of production and so on will agree to think that a government could produce a system that is 100 percent perfect would be to hope for the impossible. I do claim, however, that the work is efficient, and more efficient indeed than stabilisation processes in any other country that has adopted the idea. It is not perfect, and I admit right away that, on the price index there have been commodities that were not obtainable …

Excluding the rhetoric, the statement has the hallmarks of an economist   presumably Ashwin   all over it. Observe the unease about the interfering with the market, as well as the appreciation of the significance of shortages on a price index. After the war, Ashwin would have wanted to liberalise the economy somewhat faster than occurred, perhaps because of Nash’s reluctance to make decisions and Fraser’s political judgement. But Fraser’s 1944 budget speech hints that he may well have been more sympathetic than Nash.

Then there was the military leadership role. As the Encyclopaedia of New Zealand says, ‘[t]he New Zealand Army was less ready for war in 1939 than it had been in 1914.[20] (Presumably it was tact which left out the ‘even’ between ‘was’ and ‘less’.) Perhaps the Navy was a little better prepared (it had despatched a couple of cruisers into a protection role in the mid-Pacific a few days before war was declared). Other chapters record how Ashwin, Fletcher, and F.P. Walsh worked with Fraser to provide equipment, infrastructure and resources (coupled with economic stabilisation). Again Fraser left the fighting to his commanders, such as Bernard Freyberg, but they knew could rely upon him. (Ironically Freyberg and Fraser had been on opposite sides in the 1913 Auckland Wharf strike.) They turned a band of raggle-taggle gypsies into an impressive fighting force. Reminiscent of Oliver Cromwell’s ‘I’d rather have a plain russet-coated captain that knows what he fights for and loves what he knows than what you call a gentleman and is nothing else,’[21] Fraser said of his troops

Every officer had come through the ranks, and has proved our system of education and the general opportunity given to our young men fir them for grave responsibilities. Nothing has given greater pleasure to our General [Freyberg], who has lived and worked under different circumstances, than the fact that his Division is officered by men who had come from the ranks.[22]

Fraser was beset with consequential, and yet over-arching, political decisions. He chose to keep the New Zealand Army active in the European-Middle East theatre of operations, while the Australians withdrew back to the Pacific theatre. He forged the Canberra Pact with the Australians which, being a foundation for Trans-Tasman relations, reflected the drift away from Britain as the sole basis to New Zealand’s international strategy. He dealt with conscientious objectors at home more humanely than they were treated in the First World War, and with recruitment from the Waikato tribes who refused in the previous war duty too.

The military-politico decisions plus the internationalist vision of Fraser and the Labour Party, naturally led him on to after-war world politics (although he was not the first – nor last – prime minister having mastered home politics had his interests journeying abroad). He was an active founder of the United Nations at San Francisco in 1945, and attended its general assemblies while he remained prime minister. He chaired the committee which led to the establishment of the Trusteeship Council. It was a critical pert of the story which led to the ending on British and other empires and, more locally, put Western Samoa into the trusteeship system thus setting it on its way to independence in 1961). His performance in the chair has been one of the greatest of New Zealand’s foreign affairs triumphs, perhaps challenged only by Bill Sutch’s contribution to the founding of UNICEF.

Being a small country far from the centre of the world, New Zealand has little leverage in international forums. Fraser used all his skills to ensure that the New Zealand interests and his visions were prominent. He insisted that the UN should have a peacekeeping role, and that economic and social issues should be matters of significance. Small states must have a voice. The tension became all the more severe as the Cold War developed. Fraser disliked the notion of a bi-polar world, yet became strongly anti-communist, while trying to avoid becoming uncritically pro-US. While the centre of Western power was shifting to the US, he tried to maintain a Commonwealth element in foreign policy, not least for defence.

New Zealand’s international status was paradoxical. For a country that was keen to promote independence for others, it did not enact the provisions of the Statute of Westminster, which technically gave it full international independence, until 1947. It had had the option from 1931. Its adoption had been considered in the early 1940s, but deferred because it might have sent the wrong signal to the enemy. In the interregnum, discussion could be as confused as Fraser’s 1945 statement that ‘[t]o us of the British Commonwealth it is very difficult to distinguish between self-government and independence, for the self-governing sovereign States of the British Commonwealth, self-government is independence and independence is self-government.’[23] More fundamentally, the world of the late 1940s was riddled with contradictions and paradoxes, and Fraser had to pick New Zealand’s way through the minefield. As McIntosh wrote   implicitly criticising Sydney Holland, Fraser’s successor   ‘[w]e do miss Peter Fraser’s farsightedness, astuteness, breadth and enlightened humanitarianism.’[24]

In assessing the greatness of Fraser as a prime minister, one cannot but observe the outstanding men with which he surrounded himself (although there were few in caucus): men who appear in this book   Coates, Ashwin, Fletcher, and Walsh   or would have had there been more space or a slightly different focus   including Beeby, Freyberg, Heenan, McIntosh, and Shelly (plus Janet Fraser). One gain recalls Cromwell. ‘Sir the state in choosing men to serve, takes no notice of their opinions, if they be willing faithfully to serve them, that satisfies.’[25] From one perspective Fraser’s achievements were based on their competence, but from another, his ability to judge and use such men effectively is a mark of his greatness. There has been no other prime minister   Coates is the challenger   who has been so surrounded with ‘great men’ (and women), and who looked as good as they did.

Perhaps the most touching relationship is that between Coates and Fraser in the war administration, which drew together old parliamentary opponents. Fraser made similar use of Arnold Nordmeyer’s talents. His radicalism must have been a trial in the early years of the Labour Government, but he proved to be one of the few able cabinet ministers, and seems to have been Fraser’s choice as successor. (As ironies would have it, Nordmeyer lost his Waitaki seat in 1949 and was not in parliament when Fraser died. He returned by winning Fraser’s Brooklyn seat). Sutch was another trial in the early years of the Labour government, and yet in 1947 Fraser was instrumental in appointing him to a UN office in New York.[26]

With Lee he failed. Given Erik Olssen’s drawing of parallels between Fraser and Lee, there seems to have been almost a father-son antagonism.[27] Perhaps Lee was too ambitious, too in a hurry, too irascible to have led to any other outcome. Yet a little more patience, a little more insight, and he could have led the Labour Party, perhaps as early as following Fraser’s death.

Fraser’s last years in parliament were beset by health problems and dying colleagues. Janet’s death in 1945 broke his heart, and reduced his administrative effectiveness. Perhaps he was over concerned with international problems, perhaps he was exhausted of ideas on the domestic front. The transition to peace and rehabilitation of returning soldiers was not the disaster of the post-First World War era, but he could have liberalised faster – if Nash would have let him. The extraordinary economic growth rate of the 1935 to 1945 era of 7 percent p.a. in real terms (similar to the Asian economies in the 1980s), slowed down and even stagnated in the late 1940s. Fraser lost power in 1949, and died a year later.

Fraser’s memory was devalued by subsequent generations, as his achievements became taken for granted. And it is hard to forgive the way he used the power of the state to get his desired outcome on the conscription referendum of 1948: this time there was not even the pretence of conscripting capital. In the political arena, Fraser could be a thug. Martyn Finlay recalls how he was a master of caucus ‘exercising control partly by hectoring and sarcasm.’[28] Yet there was a poetry in the mater of politics, he loved and quoted it, promoted the creative arts, and cared for the world they represented. As of Cromwell it could be said a ‘ larger soul, I think, hath seldom dwelt in the house of clay than was his.’[29]

To have got New Zealand successfully through a world war was no mean achievement. But at the same time Fraser was building a better New Zealand – in education, health, the arts, for the Maori and women, and in foreign affairs. Of course the ex-Scot was not building a better England, but trying to ‘build Jerusalem in our most green and pleasant land’. [30]

Biographical Sources

Bassett, M.E.R. & M. King (2001) Tomorrow Comes the Song, Auckland.

Brown, B. (1966) An Encyclopaedia of New Zealand, Wellington, Vol I, p.748-751.

Beaglehole, T. (1998) ‘Fraser, Peter,’ DNZB, Vol IV, p.182-187.

M. Clark (ed) (1998) Peter Fraser: Master Politician, Dunmore, Palmerston North.

Stacy, H. (1998) ‘Fraser, Janet’, DNZB, Vol IV, p.181-182.

Thorn, J. (1952) Peter Fraser, Odhams Press, London.

Endnotes

1. Bassett & King (2001) p.296.

2. R. M. Algie (1950) NZPD, Vol 294, 28 June 1951, p.40.

3. B. Brown (1966) p.751.

4. Official Report, Third Annual Conference of the New Zealand Police Association, Wellington September 6-8, 1938. p.5.

5. B. Ashwin, private diary in Ashwin family papers, p.10-11.

6. Ibid, p.27-28.

7. J. Henderson, J. (1970) ‘Interview with B.C. Ashwin’, copy held in Ashwin family papers, p.13-14.

8. Ibid p.13-14.

9. NZPD, July 3, 1940, Vol.257, p.326.

10. Ibid, p.336.

11. Reported in I. Wards ‘Peter Fraser   Warrior Prime Minister,’ in Clark (1998) p.146.

12. Bassett And King (2001) p.197.

13. Ashwin, private diary, op. cit. p.28.

14. Reported in T. Simpson (1976) the Scrim-Lee Papers, Reed, Wgtn, p.51.

15. NZPD, Vol , Chx, 19 July, 1940, p.Chx.

16. Reported in C. Beeby, The Biography of an Idea, NZCER, Wgtn, p. 124. Gender adjusted as Beeby’s memoir implies.

17. Reported in W. Renwick, ‘Fraser on Education,’ in Clark (1998), p.74.

18. These activities of Fraser are detailed in R. Barrowman, ‘Fraser, Heenan, and Cultural Patronage,’ and C. Orange, ‘Fraser and the Maori’ in Clark (1998).

19. I. Wards (1998) p.147.

20. W. Murphy (1966) ‘Wars’, An Encyclopaedia of New Zealand, Government Printer, Vol III, p.569.

21. C. Hill (1970) God’s Englishman: Oliver Cromwell and the English Revolution, London. p.67.

22. Reported in Thorn (1952) p.225.

23. New Zealand Foreign Policy Statements and Documents:1943-1957, Government Printer, Wgtn, p.93.

24. A. McIntosh, letter to C. Berensden in I. McGibbon (ed) (1993) Undiplomatic Dialogue, AUP, p.207.

25. Hill (1970), p.68.

26. McGibbon (1993) p.119.

27. E. Olssen, ‘Fraser and Lee’, in Clark (1998) p.27-44.

28. M. Finlay, ‘Opening Recollections’ in Clark (1998) p.12.

29. John Maidstone to John Winthrop, cited in Hill (1970) p.192.

30. From a 1935 speech reported in Bassett and King (2001) p.136. Renwick (1998) p.87 reports a similar phrase in a 1938 speech.

Muldoon’s Mark

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

Listener 16 September, 2000

Keywords: Political Economy & History;

Barry Gustafson’s comprehensive biography of Rob Muldoon was launched in the same week that the New Zealand exchange rate sunk to a record low against the US dollar. Had Muldoon been alive he would have predicted the collapse (although not its exact date), and he would be predicting further turbulence on the world financial markets (as he did before the 1987 sharemarket crash). Of course Muldoon got a lot of things wrong, but his single biggest prediction proved far too correct. He resisted the advice to liberalise the New Zealand economy other than at a cautious pace, because he said it would not work and it would damage people.

He had some understanding of why the economy had been in difficulties in the 1967 to 1984 period. The wool price collapse in late 1966, compounded by the turbulence in world financial and commodity markets afterwards, meant that New Zealand suffered from a major change to its external environment. The ideological who saw the solution as economic liberalisation missed the point, for they overlooked the external shock, and took measures which damaged the external sector.

In the 16 years since Muldoon left the finance portfolio, New Zealand’s export revenue has trebled in nominal terms, while net debt servicing has increased by a factor of six times. We have been increasingly acquiring foreign exchange by borrowing rather than selling. Anyone who thinks the world will see this as a sustainable strategy must be a financial sector commentator or a journalist parroting them. When the foreign investors saw through the hype, they reduced lending to New Zealand, and the exchange rate fell as it has been doing steadily since early 1999 eventually plummeting to a new low.

In the 1970s I supported a somewhat faster economic liberalisation than Muldoon did (and unlike some of his latter day critics, I said so publicly at the time). But for me, and for Muldoon, that had to be accompanied by strong growth in the external sector. That was the point of the 1979 budget which may have been his greatest economic achievement (although it could have been better). The outcome was New Zealand began growing faster than the rest of the world, as John Gould observed in his 1985 book, The Muldoon Years (overlooked because it does not conform to the official ideology). And then Muldoon’s successors took over, and their policies damaged the external sector.

They had some luck. Some of Muldoon’s export schemes came on stream after 1984, and there was an export price boom in the early 1990s which gave the temporary impression of a recovery. Meanwhile we went on a borrowing spree.

The Government seems to have been trying to address the problem, by trying to stimulate the export sector (including letting the exchange rate fall, which makes exporting more profitable and putting in a pro-export industrial assistance package). However, the external sector has suffered from 16 years of neglect, and it needs time. Much – particularly the biologically based exports cannot be wound up over night. Exporting is a long-term business of building up production capacity and developing overseas markets and distribution networks.

In the interim we must suffer the downside of higher inflation, without any immediate prospects of an additional economic expansion. (Indeed the domestic sector may begin to contract.) Whatever the pyrotechnics of the shifts in the New Zealand dollar, and the hysteria it engenders among commentators, for most people the real effects are both complicated and long term, although many will be evident by the end of the year. However the outburst of price rises will be earlier. Key elements for success will be the wage path, the fiscal and Reserve Bank response, and what businesses and consumers do. (I’ll keep you posted.)

Of course there will be ‘experts’ far more certain than I about our future – notably those who have got the last sixteen years wrong. To evaluate their prognoses, ask when they first predicted that there would be a dollar plunge. For too many the answer is ‘the day after it happened.’ As Gustafson’s book shows, Muldoon would have done better.

The Nationbuilders

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


Auckland University Press. 2001. 318pp.

Who shaped the New Zealand nation in the middle years of the twentieth century: Whose were the ideas. the visions. the practical skills: The Nationbuilders is a collection of linked essays on individuals and companies in the years from 1931 to 1984 who contributed in major ways to building a New Zealand nation. They include well known individuals like W.B. Sutch and forgotten influences like Douglas Robb. The book captures the intertwining of the lives of politicians. their advisors and their mentors as well as the experiences which drove them.

While the focus is on the economic strategy of the times. Brian Easton also looks at the cultural. social. union. business and foreign policy strands in the nationbuilding project. The book finally explores what happened to nationbuilding in recent years and options for the future. An original lively and provocative book. it is backed by powerful nationalistic emotions and by a deep distaste at the kind of country that has been fashioned since 1984.

Essays which extend the general themes of “The Nationbuilders” and describe the book’s development (in order of writing).

Engineers and Nationbuilders
What Happened to the Nation Building Stale in New Zealand?
Writing The Nationbuilders
Building a Nation
Brian Easton Reviews The Nationbuilders
Nationbuilding and the Textured Society
Treasury and the Nationbuilding State
Singing Jerusalem in New Zealand
Science and Nationbuilding
Will You Look At That?

There are some other nationbuilders at the end

CONTENTS

List of Illustrations
Acknowledgements

Dedication
Harry: Harold Stewart Parnell Easton. 12-7-18 to 29-4-00
The (Economic) Life of Harry

Introduction
Prologue
The Political Economy of Robert Chapman
Towards A Political Economy of New Zealand: The Tectonics of History

I. Gordon Coates: 1878-1943

2. Bernard Ashwin: 1896-1975
Treasury Man: Bernard Carl Ashwin, Secretary to the Nation Building State
Bernard Ashwin: Secretary to the Nationbuilding State
Dictionary of New Zealand Biography

3. Peter Fraser: 1884-!950
Remembering Peter Fraser

4. James Fletcher: 1886-1974
Who’s Hugh

5. Fintan Patrick Walsh: !894-!963

6. Douglas Robb: 1899-1973

7. Bill Sutch: 1907-!950 (-!975)
Trying to Understand Dr Sutch
Dictionary of New Zealand Biography
Sutch and UNICEF
The Political Economy of Fish

8. Denis Glover: 1912-1980

9. Colin McCahon: 1919-!987

10. Dr Sutch: (1907-) !951-1975
Marshall and Sutch
Sutch and Security

11. Norm Kirk: 1923-!974

12. Sonja Davies: 1923-

13. Bryan Philpott: 1921-2000
The Model Economist
Curiouser and Curiouser

14. New Zealand Steel

15. Rob Muldoon: 1921-1995
His Way
Muldoon’s Mark
Two Economic Lieutenants

16. Henry Lang: 1919-1997
Regarding Henry

Epilogue

Envoy: Bruce Jesson 1944-1999
His Purpose is Clear: Reflecting a Life of Thought and Experience
Global Warning What would have Bruce Jesson have said about APEC?
Nationbuilding and the Textured Society (Bruce Jesson Memorial Lecture. October 2001)

Notes and Bibliography
Index

Some Other Nationbuilders

Bob Chapman: 1923-
The Political Economy of Robert Chapman

Elsie Locke: 1912-2001
Elsie Locke 1912-2001

Wolfgang Rosenberg
Review of New Zealand Can Be Different and Better
A Wolf in Lion’s Clothing

Go to top

Henry Lang: 1919-1997

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

Chapter 14 of The Nationbuilders

Keywords: Political Economy & History;

The day I finished the first draft of this chapter I walked past the Henry Lang Memorial sculpture, in a small park nestled between various government buildings, where once had been Broadcasting House, an architectural gem in its own right, and an important centre of the nation’s culture in general, and drama and music in particular. In the Great Hall of Parliament House, magnificently restored by the Warren & Mahoney partnership, Helen Clark, the Prime Minister announce a major funding and structural package, ‘Building Cultural Heritage’, for her adjunct portfolio, Arts, Culture and Heritage. Did I hear Peter Fraser and Norman Kirk chuckle? Henry Lang would have said, ‘absolutely first rate.’

The refugees who fled the tyranny of Central Europe in the 1930s benefited New Zealand’s cultural, intellectual, and government life far out of proportion to their small numbers. Perhaps the jewel in this studded crown was Heinrich Lang, who became Secretary of the Treasury the greatest successor to Bernard Ashwin and contributed much else besides to the New Zealand which was evolving in the second half of the twentieth century. But the Central Europeans are also an example of a wider phenomenon. While for much of the century New Zealand pretended to be wholly Anglo-Celtic, with a bare acknowledgement of the Maori presence hidden in the backblocks, there has always been a non-British immigrant presence in New Zealand. Once they looked, New Zealanders found themselves a much greater cultural polyglot than the conventional wisdom allowed.

Like most, but not all, Central Europeans refugees, Lang had Jewish ancestors. His grandparents were practising Jews, but his Viennese parents were not. Even so, they were persecuted after the Nazis took over Austria and his father, a successful industrialist, was detained for a time in a camp. By the time they fled, his father and mother, Anna, were divorced, and she had remarried a promising young architect, Ernst Plishke, so it was with his stepfather and mother that he arrived in New Zealand in 1939 at the age of 20.

Plishke was a gentile, but following the Anschluss his career opportunities had been limited by the marriage to Anna. They came to New Zealand because another Central European found him a job in the government architectural service which was under pressure given housing needs at the time. He did not have a happy time here. In part his formal Viennese background meant he did not fit in his stepson recalls he found the New Zealand visiting habit of dropping in disconcerting. He required New Zealand workmen to operate at much tighter tolerances than they were use to.

But neither did New Zealand quite know what to do with him. He was one of the first modernists architects to work in New Zealand, but his oeuvre is limited to little more than 40 houses (the best known is the Sutch House in Wellington), some churches, and Massey House, an eight-story office building with a glass curtain wall on Wellington’s Lambton Quay, the city’s first modern high-rise – since modified. (Parsons Bookshop, established in 1947 by Roy Parson an English migrant dedicated to promoting quality books, remains located in it to this day. It also contains a well-known coffee shop, established before café life was normal.)

Lang tells of Plishke going to some New Zealand furniture-makers, and offering to design them modern furniture. (Plishke had worked in the family joinery business.) They explained they had no need, showing him pictures in an European magazine from which they got their ideas. They were Plishke’s design. Later, he was turned down for the chair of design at the School of Architecture at Auckland University College, ‘seemingly because he was too modern in his approach and represented a European rather than English tradition of architecture.’[1] (The students protested vigorously.) In 1963 he returned to Vienna to a chair in architecture.

His major influence was on subsequent generations of architects, partly transmitted through the Architectural Centre, together with the nostalgia of an ‘if only.’ As Lang said ‘[h]e did a lot of houses and things, but there were few people a narrow sophisticated group, you know, the Bill Sutchs of this world who were interested. …artistically things were pretty backward here ’[2] (Sutch chaired the Centre for four years.) To put it bluntly, Plishke came to a bit of a cultural desert.

So did Lang, but he was a generation younger, had already spent time in England, and was fluent in English in a way his elders were not. Lang described Vienna as ‘a highly sophisticated, fairly formal sort of society. And much more structured in class terms than it was here.’ In his new home there was a ‘lack of class distinction which was obvious, and a lack of poverty which was agreeable. I always hated living in a city like Vienna where there were well off and there were beggars all over the place and people did not have enough to eat.’ Throughout his life Lang was to combine the gentlemanly courtesy of Central Europe and its commitment to cultural and intellectual excellence together with some fundamental New Zealand attitudes and values such as egalitarianism. Although ‘Mr Lang’ to Mr Muldoon, he was ‘Henry’ to everyone else. While he was a member of the Order of New Zealand (the highest honour, restricted to 25 living people), he was never a knight. ‘Sir Henry’ was unthinkable.

Lang’s first job was ‘factory labourer in a fruit packing outfit [in Petone] and I learned a hell of a lot.’ Including how to get on with New Zealanders. Within two years he became a foreman. Then went into a number of commercial jobs, followed by war service as a mechanic in the RNZAF. At the same time he was attending Victoria University College part-time. He says his time at Vienna’s elite Akademisches Gymnasium made the New Zealand degrees in commerce and philosophy relatively easy. He was a keen tramper and skier. And in a tumultuous first decade for the newly arrived, he married Tup (Octavia) from a Hawkes Bay farming family in 1942.

In 1983 Henry reflected on this period very positively, although it is difficult to believe that there were not times of uncertainty. ‘I was thinking of going into business, but I’m totally inept for that sort of thing I am not a business type you know.’ The story is told in the context of his rarely being discriminated against because of his Central European origins the buying of the barrels for the sauerkraut he was considering manufacturing being one of the few instances. (Later in the interview he mentions that some Hawkes Bay in-laws never really accepted him until he became Secretary of the Treasury after 25 years of marriage.)

He joined the Economic Stabilization Commission as an investigating officer in 1945, when Ashwin was still involved. Lang greatly admired Ashwin who was a mentor and model. In 1949 and 1950 Lang went full time to university, on a Public Service Commission grant. The Diploma of Public Administration did not make onerous demands, so he did many other things, read many other books. He said they were ‘the best years of my life’. By now the Stabilization Commission had been closed, so he went to Treasury in his early thirties, with a rich variety of experiences behind him.

Lang said ‘I am not an economist although I taught it [at Victoria University of Wellington after 1978] but I never really learned it.’ There is both a truth and a modesty in this judgement. The economics Lang would have done at Victoria University College would have been institutionalist, and he probably had little knowledge of the details of the theory developed from the 1950s. But he was intellectually sharp, and able to grasp the nub of issues. He would never be only an economist. He never confined recruitment to commerce students.

“It is obvious that all this work can be done effectively only if we can recruit and retain highly professional staff. The days are long gone when all that was needed were some accountants and a few economists. We now have a wide range of graduates, one third of whom have what are called ‘non-relevant degrees such as languages, geography, history or political science. I have always believed that in policy-making there is no such thing as a non-relevant degree and the main requirement is a first-class mind.”[3]

When approached to join the Treasury, one political science graduate demurred, saying he was not an economist. Henry replied ‘but can you write?’ When he ran Treasury, the Treasury officials could write. It was a lively and exciting place which actively encouraged debate. It suited Lang’s temperament and style of management to have disputes between, say, Keynesians and monetarists. He would insist they explore fundamentals, and agree on a common policy. If they could not, he would decide.

Lang’s kindness was legendary, and he could behave with principle. When Sutch was prosecuted in 1974, his daughter, Helen, wanted to return from London where she was working as an economic adviser in the UK Govt Economic Service. After interviewing her, Lang offered her a job, and then defied instructions from the State Services Commission that she was not to be employed. He also sent out a circular to his staff warning that he would not tolerate victimization. He had seen this sort of thing in Austria, and he was not having it in his New Zealand.

Lang joined Treasury when it was undergoing a development in economic analysis. Keynesianism was developing as a systematic framework. ‘More market’, the view that very often interventions were inefficient and ineffective, seems to have developed in the Treasury in the 1950s. (There is little evidence in the Ashwin-signed papers of such judgements, except in monetary policy. But they always show fiscal caution.) Lang was not necessarily the leading innovator. The most important theoretical contribution of the period may have been the balance of payments constrained model of the New Zealand economy written up by Geoff Schmitt (who is a valued source on Ashwin’s later Treasury years, leaving Treasury shortly after to work for the Tasman Pulp and Paper Company).[4] Lang would have provided a commentary on the paper.

Returning from being an economic counsellor in the London High Commission in 1955 to 1958 it was he and Tup’s OE together he became chief research officer at the Treasury, in effect principle adviser on economic policy, for the secretaries immediately after Ashwin were not economists. Lang rose quickly through the ranks to become Secretary of the Treasury, at the age of 49 in 1968, a position he would hold till 1977.

There was a struggle from the late 1950s between Treasury and the Department of Industries and Commerce over the direction of economic policy, with Lang the champion for the former (and Sutch the latter, notionally after he was sacked in 1965). Nominally it was an argument about protection. There may have been an element of temperament in Lang’s position. He was irritated by the insularity of many protectionists (although Sutch demonstrates some were not). His was a cosmopolitan world in which nations succeeded by engagement, rather than avoidance, so he objected to ‘Fortress New Zealand’.

The protection debate is the proxy for a wider one of how government could be effective in promoting economic performance. Treasury were (and are) sceptical about the efficacy of the government being able to over-ride the market. (Between the mid-1980s and the mid-1990s, it became almost total disbelief.) I&C (as it was known) believed that intervention could enhance the growth performance of the economy. (I&C’s successor, the Department of Trade and Industry, did not abandon a belief in its ability to intervene effectively until about 1980, partly arising from an increasing distrust of politicians in general and Rob Muldoon in particular, to make good judgements.)

The debate has occurred in other countries and at other times, often signalled at the political level by the establishment of a planning or economic development ministry to offset the power of the Treasury. Almost always the keepers of the public purse have won, partly because fiscal discipline cannot be avoided in the long run. They would add that they had the better arguments, and also that opportunistic politicians cannot be trusted to intervene solely to enhance the economy.

Lang took over the Secretaryship, shortly after Muldoon took the financial portfolio, following the 1966 collapse in the wool price, and all the complications that followed including the 1967 devaluation. (A similar situation occurred in the early 1930s which brought Ashwin to the fore.) Shortly after the Court of Arbitration settled on its infamous 1968 ‘nil wage order’ which disrupted the wage system, although arguably the recent shocks to the economy would have tested any wage setting system. Before long New Zealand was in a period of double-digit inflation (i.e. more than 10 percent p.a.) and disorganized wage setting. There was a lot more besides: the National Development Council planning experiment, microeconomic reform, and export diversification.[5]

Lang was at the centre of these policy issues, often personally. His negotiating skills, tested against the British on butter and lamb quota, were so cosmopolitan that Whitehall officials called him the ‘Hapsburg Diplomat’. It was he who suggested converting the original Kirk-Douglas contributory superannuation scheme into a two tier one with a government-provided tax funded flat rate universal first tier, and a private contributed earnings related second tier – arguably a policy insight of genius.

Institutionally, there is a cabinet minute that all expenditure proposals require a Treasury paper, giving it the power to comment on virtually anything which comes before cabinet. While the oral tradition of the 1980s had it that Lang and Muldoon instituted it, it goes back to at least the 1920s, and was probably formalized in the cabinet manual of 1949 (where Ashwin’s presence lurks). But even in economic areas which did not directly involve spending, Treasury could be very active, often with personal involvement from Lang. The standard arrangement was a desk officer who reported (in those days) to a section head, and thence up through a layered hierarchy with the Secretary of the Treasury at the peak. On wage setting, the desk officer often worked directly with Lang.

The Treasury from the 1930s to the 1970s might be called the Ashwin-Lang Treasury, very different from the primary focus on keeping the government accounts which preceded it, and pragmatic and practical in contrast to the one which followed it. The path of Dick Campbell as an advisor to Coates in 1926, through the Brain’s Trust of the 1930s came together with the keepers of the public purse from day one of the government of New Zealand, to the modern Treasury, which Ashwin founded and his greatest apprentice, Lang presided over. (The detailed history has to include the Economic Stabilisation Commission of the 1940s, but again it is an Ashwin institution, where Lang began his public service career.)

Lang wrote about the Treasury shortly after he left in 1977, although still in the careful considered style of a public official. Perhaps the article’s subtitle ‘Control and Advice’ tells it all.[6] The control of the public finance had been there from the beginning. From Ashwin’s time the advice role became as important.

He set down three key principles.
– The Treasury policy advice was competent and broad based. Under him the Treasury attained the excellence which it prides itself on (although not always attaining it). He described his best as ‘absolutely first rate’.
– While ‘Treasury has no monopoly on wisdom … it does have … the professional ability to stand aside from narrow, sectoral, geographical or partisan interests, to assess and analyse the available options without self interest, and to provide the Government with clear, independent advice and a basis on which it is possible to make rational decisions.’[7] (While accepting this as a goal, and acknowledging the Ashwin-Lang regime usually attained it, the Treasury is under constant fiscal pressure, and this biases its decisions towards fiscal conservatism. The ‘control and advice’ are bolted together.)
– A close effective working relationship with the Minister, or where the minister is ineffective for whatever reason – recall the long periods Nash was overseas in the 1940s – with the prime minister, and preferably both.

However the Ashwin-Lang Treasury suffered two weaknesses which appeared soon after Lang’s retirement. The first was that as numbers of policy analysts grew it was no longer possible to coordinate them through a personal network, even had the institution been led by someone of Ashwin’s or Lang’s charisma. This led to a structured hierarchical organization. But policy shifted from a pragmatic empiricism coordinated by one man, to an emphasis on theory (‘the policy framework’) for coordination. Unfortunately it became a narrow anti-empirical theory, which became the check for internal consistency even if there was not always coherence with the real world.

Second, the structure consisted of two economic policy divisions, in addition to two finance policy divisions, and four investigating – that is expenditure control – divisions, plus various operational activities which have now been largely shed. The internal economics division was primarily concerned with short term economic management – monetary and fiscal policy, taxation policy, and the budgets and mini-budgets. The external division was concerned with foreign trade policy, in coordination with other government departments. It is far from clear where economic growth fitted in. The issue appeared to be addressed by the separation of the internal economics division a few years later into Economics I and Economics II, the former to deal with short term macroeconomics the latter with the long term. The story is yet to be written, but at its heart is the inherent tension between fiscal control and growth policies.[8]

(In addition there was the New Zealand Planning Council, a quango outside government, was also nominally concerned with thinking about the long term (it having no operational responsibilities). However it was never really committed to ‘planning’ in any normal meaning of that word, and with the exception of the work centred around Bryan Philpott, had a very short term focus – no longer than the direction current government policy was moving. Much of the work, again Philpott’s being a notable exception, was of very poor quality – a combination of the conventional wisdom and platitudes – and little is recalled today. What is extraordinary about the Planning Council is how little influence it had, either then, or in the long term.)

The systematic refining of fiscal control that Lang describes in his 1977 paper ruled out Vogelist investment and direct promotion of industrial development. They were to be replaced with nothing but fiscal prudence and minimal market intervention, and a promise that these would generate a climate for economy growth. The analysis had no connection with the actual growth of the New Zealand economy in the previous hundred years. It was not necessarily based on fiscal extravagance, but the historic record is that fiscal subsidisation and other forms of industry assistance was associated with rising per capita incomes and expanding population.

The issue is nicely illustrated in Michael Bassett’s The State in New Zealand 1840-1984, an assiduous, if somewhat erratic, compilation of state economic activity in New Zealand.[9] Bassett, a born-again anti-interventionist as a minister in the Fourth Labour government, tries to put the case for the policies his government adopted in the book from a historical perspective. Yet the picture he presents is that the government actively promoted industrial development, with an outcome of broad economic success. On more than one occasion private initiatives were failing, and the state stepped in to assist a now successful business. On others – Tasman Pulp and Paper is an example – there would have been no private initiative without government support. In particular, under the First Labour government in the late 1930s and 1940s, the economy grew at a similar rate to the Asian economies of the 1970s and 1980s. Yet economic intervention had sharply increased. Conversely when the government stopped assisting industry there is no better example than the tenure of the Fourth Labour Government economic growth languished. While correlation is not causality, the unintended message of the book – if not the explicit message of its author – is that New Zealand’s economic success has been a partnership between public and private sector.

The story of the major projects, or ‘Think Big’ is commonly used to illustrate the dangers of interventionism. The energy based projects were successful in engineering terms, and some were constructed within budget. But while they may have been commercially viable on the projected assumptions, one assumption proved fatally wrong. The real price of oil (of world energy) was assumed to remain high and to continually rise. But just as the new plants were being commissioned in the mid 1980s, the world price of oil collapsed. By this time the New Zealand economy was stagnating, the economy disinflating with high nominal and real interest rates (which raises the cost of servicing the capital), while the exchange rate was over valued, so the projects’ commercial viability was heavily hit.

The contracts between the private owners and the government which established each project – unavoidable given the government supplied the energy on which the projects were based – had the public taking the downside risk. When the adverse factors came together, the government ended up writing off the loans it had made or guaranteed, adding to the fiscal deficit.[10] This was a fundamental defect in this Vogelism, but not so evident in earlier periods when the economy grew. This time the slow growth of the economy exposed the shortcoming, while the magnitude of the schemes relative to the total size of the economy, meant the failure could not be easily hid. The debate had been about whether the projects contributed positively to the economy. It should have been about what happened if they did not[11] It was said that the pre-1984 New Zealand economic system ‘privatised the profits’ and ‘so.cialised the losses’. That certainly applied to the major projects, including New Zealand Steel.

What if Lang had still been Secretary during the ‘Think Big’ debate? Treasury would have still resisted the government direct and indirect funding of the projects, and they would have failed, for the political circumstances was against it. But it is also plausible to argue that common-sense Lang would have required sufficient of an internal debate to identify the key element of risk. Recall that Ashwin set up Tasman so if it had been a commercial disaster, Fletchers would have first gone down the tubes.

Lang died before Bassett’s book was published, so I never had an opportunity to discuss it with him. But although he was more market and fiscally prudent, he certainly was not a supporter of the extremism of the post-1984 commercialisation policies. He may have wanted less government involvement and more market direction than, say, Sutch, but he would have still seen a place for a partnership between government, business and the unions, arising out of his Economic Stabilisation commission days, but also well grounded in the Central European democratic tradition from whence he came.

While he served Muldoon for over half his secretaryship, Lang had a far greater respect for Bill Rowling, who was his minister in 1973 and 1974, and whom he continued to see when Rowling became prime minister. (Later, Rowling was to select Lang as one of his committee to establish the Museum of New Zealand. In the memorial corner behind the marae their pictures are next to one another.)

The replacement of the Holyoake-Muldoon regime by the Kirk-Rowling one was a breath of fresh air to many senior civil servants. Lang showed his delight in a paper he gave to the New Zealand Institute of International Affairs in August 1973. Nominally it was about the economic policies which would be consequent upon the sort of foreign affairs policy which Kirk had described the previous day, but while Lang was probably supportive of Kirk’s vision, he describes a view of the development of the economy which he would have advocated anyway. Much of the paper is the carefully argued officialese, but sometimes Lang offers a personal view.

The 1972 election had had a strong environmentalist element, not only in the appearance of the Values Party (the precursors to the Greens) but in Labour’s own campaigning. It would be improper for a senior public servant to address such elements directly, so Lang considered ‘The Club of Rome’s Limits to Economic Growth. He concluded

“Economic growth properly defined simply means increased standards of living. It does not necessarily mean increased production or increased use of goods. The fruits of growth may, for example, be concentrated entirely on improvements in our social system. Nobody can say that dealing more adequately with the sick, improving the lot of unfortunate minorities, using resources fro crime prevention, or spending money on the rehabilitation of criminals is undesirable. In other words unless we have economic growth we cannot use increasing resources to improve our standard of living. Thus if we have a choice – and this choice is open to us – that there should be no growth we automatically opt in favour of not raising our living standards in the widest sense. I think that the right answer – and this of course is a personal view – lies in trying to attain a somewhat higher level of economic growth than in the past but to use nearly all of the benefits in the field of our social environment rather than the provision of additional material goods. Moreover, unless we are able to sustain a reasonable rate of growth we will not be able to attain the degree of political independence hoped for …”[12]

No other Secretary of the Treasury has so publicly argued for the merits of public spending over private spending. He went on to consider economic structure:

“We need thus to develop appropriate policies for growth and structural change in the economy, in parallel with our changing foreign policies. We should be consciously aiming to create an open, adaptable economy, based on natural advantages and talents. We are some distance from that objective at the present time. Despite great advances in exports of manufactured goods over recent years , many of our industries are still micro-copies of the industries of the large industrial countries in both structure and techniques. That is a direct result of excessive protection and is in my view inappropriate to New Zealand conditions. We have much still to do to shape our industrial sector to our own individual strengths. I believe that a prerequisite tot he fulfilment of our foreign policy goals, is the implementation of effective innovative industrial policies, embracing market research, technology, fiscal incentives, tariff reforms, adjustment assistance for firms and industries, and an active labour market policy. …

“As abroad objective of foreign and economic policy, promoting both grwoth and independence, this prescription will meet with little quarrel. However, when it comes to the question of methods and some of the basic implications, such as the pattern of employment, then the voices of dissent will certainly be heard. There are those who believe that we need high and continuous protection for industrial development and the maintenance of full employment. Many people who hold such views are laso opposed to a more open economy generally, to membership of multinational organisations and to foreign investment. In essence they believe the right policy for us is a kind of ‘Fortress New Zealand’. And this bests fits our national aspirations. While such a policy is tenable it is inconsistent with the kind of foreign policy I have discussed earlier, and is also inconsistent with reasonable economic growth.

“I believe that the fears expressed by some manufacturers and trade unions at the prospect of a move towards a more open economy are exaggerated and under-estimate the basic strengths of large sections of our industry.”[13]

This is clearly an alternative to the Sutch vision of the economy, as it was then interpreted by many manufacturers and unionists, and indeed it addresses a key element to Sutch in the 1960s, who saw nationhood as being like other successful rich economies – the ‘mature economy’ as he called it – with a ‘balanced industrial structure Lang saw the case for a specialist economy reflecting the peculiarities and strengths of New Zealand. But it was not a colonial economy.

“… as a part of a comprehensive policy aimed at modifying our industrial structure, we should aim to use our native scientific and technical resources, for example by hiring out to a greater extent the services of the DSIR on a contract basis and where this is feasible, also purchase technology direct from overseas for application by New Zealand companies. This would lessen our present reliance on the technology provided by overseas companies and it should in time lead to the development of special technologies designed for New Zealand conditions and for the industries in which we have a special advantage. Technologies of this type could well have their own export value. Over a period of say 20 years we might create by such means, a New Zealand industrial structure which is unique, resilient, innovative, and competitive as our agriculture.”[14]

These were not the only sentiments of Lang which Sutch would have applauded.

“I am convinced that our highly educated labour force is sufficiently adaptable to develop industries and activities where we are as good or better than any other country. It also goes without saying that the extent to which we can develop an open economy is limited by the need to avoid unemployment. The maintenance of full employment in New Zealand is a permanent goal of economic policy. However full employment in the sense of everyone who wants a job having one is not sufficient. It is of equal importance that people get satisfaction from the work they do.”[15]

As it happens Lang is more favourably disposed to agricultural development than Sutch – perhaps more optimistic about its trading and pricing potential. And although it is not explicit, he would have used a different balance of micro-policy instruments. But one might envisage the two men in a civilised conversation, identifying their differences and agreeing to disagree on some key assumptions, rather than the conventional portrait of each at the other’s throat. They are more in harmony there than, say, Lang and the Rogernomes.

Not long after Muldoon took the premiership, Lang retired. Perhaps at 58 he thought he could make a new career. (This man who said he was ‘not the business type’ became a director of many major companies.) He was probably exhausted after eight tough years. Almost certainly he wanted to give his successor, and close friend, Noel Lough, a chance at the top job he was that kind of man. But undoubtedly a reason was his distaste for Muldoon’s style illustrated by the extremely discourteous way Muldoon treated Rowling.

The myths include his taking a senior official to see Muldoon shortly after he was elected prime minister. As they walked back he remarked, ‘my father said nothing in this world was perfect. But you have just met a perfect bastard.’ On another occasion when Muldoon acted unilaterally, Lang was heard to say, ‘he has a right to reject my advice, but he could at least show the courtesy of listening to it first.’

After he retired Lang discreetly flitted around the margins of economic policy. Muldoon cut him out. So did, largely, the following governments. Had his practical commonsense skills been applied to the 1991 health reforms for instance – health policy was always a special interest – a lot of its stupidities would never have happened. He turned his policy talents elsewhere: on setting cardiac surgery criteria; he was consulted on the 1989 review of the Prime Minister’s Department; he was a representative of the public on the Press Council, where he used his intelligence, common sense, experience, and sense of justice. He passionately promoted the arts: as chairman of the Wellington Sculpture Trust he is associated with many of the out-of-doors sculptures which grace Wellington.

After he died, the Trust created the Henry Lang Memorial Sculpture in the grass park surrounded by Parliament House, its Executive Wing, the Treasury building, the Reserve Bank building and the Bowen State Building which once housed Sutch. (You can also see it by looking from Plishke’s Massey House.) Lang would have been modest enough to see Brett Graham’s ‘The Navigator’ as a tribute to all the public servants who were ‘absolutely first rate.’

But there is a caution. He told Ann Beaglehole, ‘I mean the one thing you’re not to allowed to do in New Zealand, if you want to get anywhere at all under any circumstances, is indicate you’re intelligent. That’s fatal.’ He was echoing Michael Joseph’s Secular Litany, written three decades earlier. ‘That we may avoid distinction and exception/ Worship the mean, cultivate the mediocre.’

Sometimes one is at a watershed of history but realises it only years after. At the time of the 1984 Economic Summit, there was a furious argument among officials as to whether there should be consultation or whether the market measures should be pursued unilaterally. An anti-Summit Treasury official remarked to me something like ‘Henry is trying to get back involved in economic policy, but we wont let him.’ Nationbuilding had been abandoned.

Go to top

Biographical Sources
Beaglehole, A. (1986) Interview of Henry Lang, MSC 3806, Alexander Turnbull Library Oral History Archive.
Easton, B.H. (1997) ‘Regarding Henry’, Listener, May 17, 1997, p.60.
Lang, H. (1973) ‘The Relationship between Economic and Foreign Policy,’ New Zealand Foreign Affairs Review, August 1973, p.16-25.
Lang, H. (1977) ‘The Role of the Treasury – Control and Advice,’ Canterbury Chamber of Commerce Economic Bulletin, 610 No 4/1977.
Martin, J. (2000) ‘Lang, Henry George’, DBNZ Vol V, p.278-279.

The chapter has used ex-Treasury officials’ oral traditions surrounding Lang. They are yet to be recorded. [Added in 2004: Malcolm McKinnon collected many in his interviewing for Trerasury.]

Endnotes
[1] L. Tyler (2000) Plishke, Ernst, Anton’, DBNZ Vol V, p.415.
[2] Otherwise uncited quotations come from the Beaglehole (1986).
[3] Lang (1977) p.4.
[4] The balance of payments constrained model is described in B.H. Easton (1997) In Stormy Seas, Dunedin, Ch 2.
[5] For details see Easton (1997) Chs 5,6.
[6] Lang (1977).
[7] Lang (1977) p.5.
[8] But see B.H. Easton (1997) The Commercialisation of New Zealand, Auckland, Chs 1, 2, 6 for a preliminary analysis.
[9] M. Bassett (1998) The State in New Zealand, Auckland.
10] This is a simplification, for some projects were bailed out in other ways but still at the public’s expense.
[11] The economic debate got hooked on the question of the discount rate (roughly the rate of return required to justify public spending), as a result of Treasury being unwilling to publish its account of its policy to require a real rate of 10 per cent p.a. The consequence of this prolonged, and ultimately inconclusive, debate was that economists did not move on to the issue of the management of risk.
[12] Lang (1973) p.19.
[13] Lang (1973) p. 20.
[14] Lang (1973) p. 21.
[15] Lang (1973) p. 20.

Go to top

Dr Sutch: (1907-) 1951-1975

This entry was posted in History of Ideas, Methodology, Philosophy, Political Economy & History on by .

Chapter 10 of The Nationbuilders
The earlier part of his life.

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

Sutch must have returned to New Zealand in 1951 with renewed self-confidence. His overseas sojourn had proved he was world class, while he had successfully published two books in the previous decade, and had a record as a valued adviser to the New Zealand government. There were also high expectations of him from others. Just before he went overseas Rex Fairburn had written of the then 37 year old, in a series to promote the reputation of a group of New Zealanders, ‘I think it is safe to say that very few, if any New Zealanders, have a more distinguished record, in such a wide range of activities.’[1]

Yet he returned to a much less favourable climate within the Wellington Establishment, with a new National government in power, and growing doubts among some key public servants. For instance Alister McIntosh, permanent secretary to the Prime Minister’s Department, and the recipient of dedication of a book by Sutch in 1936,[2] had shifted from an admiring ‘one of the ablest chaps I know’ in 1944, to growing reservations by 1948.[3] The problems were partly administrative arising from the structure of the New York office, which were identified before Sutch took the position and thus cannot entirely be his fault. But there were allegations of fraternisation with the Russians (more likely Central Europeans) together with that willfulness – doing what he thought was right, rather than what he was told.

It is likely that Sutch also returned with economic forebodings. He had been through the Great Depression, and his subsequent writings suggest he never ruled out another one. Like many of the nationbuilders of his generation, much of his policy was directed to protecting New Zealand from the damage which another world depression would generate – insulating the economy by increasing self sufficiency.

He became Department of Industries and Commerce economist, and rejoined the Wellington cultural and intellectual community, including chairing the Wellington Architectural Centre. A magnetic public lecturer, Sutch contributed actively to adult education via such groups as the WEA and broadcasting. As late as 1960 he was involved in organizing the Wellington Festival of Arts. His modernist house, high on Brooklyn Hill not far from where he had grown up, was designed by Ernst Plishke. (While the house is called ‘the Sutch House’, he would have acknowledged his wife’s financial and design contribution: modernist Bill did not want a fireplace, traditionalist Shirley insisted on one. Today it is a feature of the house’s main living room.) He again took up writing on contemporary issues, including book reviewing and art criticism, in the N.Z. Listener, and Here and Now (under the pseudonym of `William McChesney Martin’ which, with his deadpan humour, he explained was not the Federal Reserve chairman of the day).

In 1957, Assistant Secretary Sutch presented a paper The Next Two Decades of Manufacturing in New Zealand. It is based on statistical projections by a departmental officer (and Central European refugee), Hans Lachman, and was discussed with Jack Baker, who was to become the Government Statistician. While Sutch did not do the sophisticated (for their time) projections, he grasped their significance. The agriculture and service sectors would not grow sufficiently to maintain full employment. To maintain full employment, the manufacturing sector would have to absorb over one in three of the new workers over the next 20 years. While working through the implications of this growth, which implied considerable manufacturing investment (and protection) to promote the new businesses, he noted that Jack White, a respected agricultural economist, thought that farm production could grow only 2 percent p.a.. Sutch concluded that there may be insufficient foreign exchange to increase standards of living (even with the import substitution which came for manufacturing) ‘unless New Zealand’s export income rises more rapidly.’[4]

With hindsight, the conclusion is a weak one, but Sutch was feeling his way. His term as Secretary commenced with a (brief) downturn in export prices in 1958. The Department of Industries and Commerce, charged with administering the supply-side of the economy, applied import and price controls, and promoted industrialization and diversification. To boost export income, and consistent with the logic of his earlier paper Sutch extended the strategy from import substitution to ‘manufacturing in depth’, in which New Zealand manufacturing would aim to add value to raw materials. (An important component of which was the further processing of agricultural exports to a more advanced state.) By 1962 he was actively talking of exports other than those based upon the pastoral industries, and by 1963 he had strengthened the case for the agricultural sector being unable to provide sufficient foreign exchange, by suggesting there would be a tendency for pastoral export prices to fall relative to the cost of imports (that is, the terms of trade would decline overtime).[5]

The commodity terms of trade (the price of pastoral exports relative to import prices) play a crucial role in the development of a small open multisectoral economy such as New Zealand, because they determine the imports that can be purchased for each unit of exports.[6] Their pattern can be split into the long term, or ‘secular’, and the short term or ‘cyclical’.

There is a view there is a declining long term trend. This is partly based on an interpretation of the nineteenth century statistics, and partly a account of the relationship between the manufacture supplying first world (the ‘core’ or ‘imperium’) and the commodity and the commodity supplying third (the ‘periphery’ or ‘colonies’). Sutch was aware of the arguments but in public tended to stress the first world protection of farmers and the threat of substitutes (synthetic fibres for wool, white meats for red meat, margarine for butter). The general proposition is still disputed, but the Sutch was proved absolutely right about the particularities of pastoral products, whose prices have shown a secular decline through most of the post-war era.[7] He certainly would not be surprised today that the pastoral terms of trade are about where they were in the 1930s (and could argue that the economy is not as seriously affected because of some of his policies were pursued).

The conventional wisdom – the Planning Council for example – has been much more optimistic about the terms of trade than was the actual outturn, although it may not want to be reminded of this today. To admit the failure makes Sutch’s policy prescriptions more relevant, rational, and farsighted. For if the terms of trade are going to fall for any export, the policy logic is to diversify from it, generating new exports and import substitutes. And it is prudent to prepare for that contingency before the fall. That is exactly what Sutch advocated.

Thus while Sutch’s administration promoted protection via import controls, and created some new domestically oriented firms of which the Marsden Point oil refinery and the Glenbrook Steel Mill were among the largest it also laid down the foundation for the major export diversification which occurred in the 1970s.[8] And by talking about the possibility he gave New Zealanders the confidence that non-pastoral exporting could succeed. Sutch can be thought of as the grandfather of that diversification.

It is not just fishing which is now an important part of exporting. Today there are also energy and mineral products, forest products, general manufacturing, horticulture, tourist services, plus a host of smaller activities to numerous to list. It is sometimes claimed that farming still produces 55 percent of exports (albeit that proportion is well down on the 90 percent plus when Sutch took over the Secretaryship). But to get the figure above 50 percent, forest products have to be included, and the service sector (including tourism which is the largest exporter) forgotten. In any case farm product exporting has a considerable manufacturing component, a consequence of the manufacturing in depth that Sutch promoted.

Would the industrialisation would have happened anyway? Throughout New Zealand’s history, economic development took place because nationbuilders seized opportunities. Sometimes they took the wrong ones, but more often they chose well. Without Sutch the economy would have moved in roughly the direction it did, but later and with greater pain.

Cyclical changes in the terms of trade cause volatility to the export revenue, and hence to the economy as a whole. Diversification to exports which are less volatile (or cycle differently) reduces that impact. It is also possible, to some extent, to insulate the economy frm these temporary occurrences. As an economic adviser in the 1930s and 1940s, Sutch had been concerned with the establishment of the Reserve Bank, the arrangements for dairy farmers, and economic stabilisation, as well as import controls. These are all measures which could be used to insulate the economy to some degree from variations in the external environment.(Another mechanism is the government borrows overseas to cover any temporary deficit in overseas export revenue.)

A major policy difficulty is that practically it is difficult to separate out the beginning of a new secular trend from a cycle. The Second Labour Government and Sutch seem to have thought the cyclical downswing of 1957 was the begining of a long run decline in the pastoral terms of trade. It proved to be temporary. The conventional wisdom treated the sharp fall in the pastoral terms of trade which occurred in late 1966 as temporary where it is much more the beginning of the long term decline in relative export prices which dominated subsequent economic behaviour.

Looking at Sutch’s writings one is struck by how while Secretary of Industries and Commerce he was thinking through the issues that were confronting the New Zealand industry. His were practical responses to practical issues, developed with his colleagues, and using the most recent data. He supported what today would be called an ‘East Asian’ model of development, which has a highly protected domestic market which is the base for aggressive exporting of increasingly skilled and technological manufactures. That may no longer be an option, because of world trading arrangements (every country cannot be protectionist at home and expect easy entry elsewhere for their exports), but many East Asian economies succeeded with that strategy in the latter part of the twentieth century. The parallel is not exact, since Sutch had major non-Asian concerns in social welfare and insulation from the terms of trade shocks, while the Asian’s inefficient agricultural sector gave a source of new workers unavailable to New Zealand. (Sutch was keen on immigration.) Nevertheless he neither favoured the purely protected, almost autarchic, regime some attribute to him, nor the export oriented industry with unprotected home base that many of his critics seem to favour (and is a reasonable description of the pastoral industries).

In 1963, Sutch described his vision for New Zealand’s economic structure in Towards Economic Maturity, which has to be seen in the context of the economic debate of the time. Contemporaneously with widespread decolonisation, there was the view that the imperial powers had distorted the development of their colonies for their own interests, by confining them to being international providers of raw materials, and preventing manufacturing in depth and import substituting. This resulted in an imbalanced economic structure. From today’s perspective the New Zealand economy of half a century ago, with its emphasis on exporting processed grass to Britain, certainly looks imbalanced.

Sutch quoted Walt Rostow’s then fashionable theory of ‘the stages of economic growth’ as to what is meant by a mature economy:
Formally, we can define maturity as the stage in which an economy demonstrates the capacity to move beyond the original industries which powered its take-off and to absorb and to apply efficiently over a very wide range of its resources – if not the whole range – the most advanced fruits of (then) modern technology. This is a stage in which an economy demonstrates that it has technological and entrepreneurial skills to produce not every thing but anything it chooses to produce. It may lack (like Sweden or Switzerland for example) the raw materials or other supply conditions required to produce a given type of output economically, but its dependence is a matter of economic choice or political priority rather than a technological or institutional necessity.[9]
(Characteristically, Sutch extends the notion of the ‘mature economy’ to the ‘mature society’ mentioning education, the arts, industrial design, housing and town planning and infrastructure.)

Now it is not a great step from Rostow’s argument to conclude that a mature economy will have an economic structure as much like that of other ‘mature economies’ as is practical. (So the argument does not extend to New Zealand making its own jet planes.) This apparently flies in the face of ‘comparative advantage’, which argues that an economy should specialise. But that analysis ignores externalities between production processes and industries which are important, if not central, to Rostow’s thesis.[10] (While the notion of ‘intra-industry trade’ – that is two countries trading the same products rather than inter-industry trade where they specialise and exchange different products – became prominent only subsequently, that it is practically important provides some empirical credibility to the balanced economic structure policy.[11])

Thus Sutch saw the need to reduce the over-specialised structure of the New Zealand economy as a part of a growth strategy as well as a means of reducing the vulnerability of the economy to fluctuations and downturns in the world economy. However, it does not insulate the economy from a major world economic and financial downturn. Nor does increasing autarchy do that, as long as key products (such as oil and tourist services) have to be imported.

We shall see a decade later Henry Lang arguing for more specialist economy than he thought Sutch supported. Even so, Sutch was right to draw attention to the extreme specialisation, and to look for a more diversified export and domestic structure. Moreover the economic assumptions – of interdependencies between production processes in different firms – which underpin the analysis should not be neglected. Sutch’s emphasis on education and training, on industrial design, on technology and research, and on infrastructure are no less relevant today.

But insulationism need not be isolationism. It is clear that Sutch wanted to engage with the world. Under him the Department deliberately allocated import licences for more carpet making machinery than the domestic market could sustain, on the basis that New Zealand should be exporting woolen carpets from the overcapacity.
Sutch’s promotion of industrialisation, with an explicit argument that New Zealand was too dependent upon pastoral products, was an anathema to much of the farm community, while some in the business community did not trust him. At the time there was a three way inter-sectoral fight for political dominance. Sutch was a major spokesperson for manufacturing. The farm sector, which had been happy to use the state when they had political dominance (as in the 1920s), was now increasingly moving towards less state involvement in industry (although even in the 1990s they were not unknown to make special cases for farmers – as in the case of disaster relief and rural mail deliveries. Farmers were probably right in judging that as their political power diminished, the government interventions would less frequently favour them. So the farm sector increasingly aligned itself with the financial sector, which also – as was illustrated in the Coates and Fletcher chapters – have long advocated minimal government involvement when it was in their interests. Sutch saw them as committed to the colonial economic structure dependent on a few imperial countries. Similarly the financial sector was dependent upon a few capital exporters. The result was Sutch became offside with both groups.

So he was involuntarily retired in March 1965, after 40 years of public service employment. At 57 he began a new career as a consultant while he taught, lectured, reviewed and wrote. (His festschrift includes a bibliography of over 800 odd items covering an extraordinary range of areas and ideas.) His writings are in general not analytically detailed. Instructively, in an early 1960s clash, discussed in greater detail in the Philpott chapter, Sutch talked about ‘manufacturing in New Zealand’, but Philpott only of ‘agriculture in the New Zealand economy’.[12] A consequence is that Philpott’s argument is economically tighter, because Sutch used the space to cover much wider issues such as education, design and research.

He worked across an even more comprehensive canvas in his post-Secretaryship days, revising his two earlier widely read books, to became much fuller economic and social histories of New Zealand, [13] and adding numerous other major publications, including four books. Three are discussed below, and there was also Women with a Cause (describing women’s struggle for equality, and finishing with his submissions to the Committee on Equal Pay). In 1973, he became chair of the Queen Elizabeth II Arts Council. At the end he was working on a biography of his hero, Gordon Coates. [14] It is doubtful he would think that subsequent biographers have captured the man, or recognised all his nationbuilding achievements.

Sutch’s thinking was not without its paradoxes. He promoted the wine industry, but was teetotal; he supported the car industry but did not drive; he encouraged the tobacco industry but did not smoke. To the end Sutch was a royalist he especially admired Princess Anne. To the dismay of his republican followers, he sought a knighthood from the Kirk government. (Hardly anybody complained when that other great nationalist historian, Keith Sinclair accepted a knighthood in 1985, although he was almost a generation younger.) As later as 1944 he wrote of himself as an ‘Englishman’, although the subsequent experience at the UN may have led to a greater awareness of the distinction of being a New Zealander. Sutch reflects the ambiguities of attitude other mid-century nationbuilders had towards Britain.

The greatest paradox is that in September 1974 the ‘most loyal New Zealander’ was charged with an offence of obtaining information that would be helpful to an enemy, following some outdoor meetings with a Russian diplomat, cum KGB agent.[15]

There has been much speculation as to what occurred at these meetings, and indeed on Sutch’s security record over the preceding four decades. ‘Speculation’ is the operative word, for the hard facts are few. We have a reasonable idea of what was on his security file, which all public servants had. The memoirs of John Marshall, who as Sutch’s minister would have had access to it, records
A security check not long before his retirement in 1964 did reveal visits to the home of a member of the Communist Party, but no more than that. Some people, from time to time, alleged that Sutch was a communist, but there was no positive proof to support the charge. [16]
Significantly, the trial provided no further evidence (other than the events of 1974), and so broadly confirms this assessment. (It would be very difficult to live in New Zealand and never visit a home of the member of a Communist Party or one of its successors.)

The spy story is not particularly related to the main themes of the book, and it would be fallacy ad hominem to argue that were Sutch a spy, his theories were fundamentally flawed (although, sadly, recourse to the fallacy is stock in trade of much New Zealand debate). Reviewing the available material, my conclusion is that there is no evidence that Sutch was a spy, although he shared freely information in the public domain.[17] The events of 1973 were that it was a bungled intelligence operation by a KGB agent, in which Sutch acted unwisely but not dishonourably, and that the NZSIS bungled too.

For the record, a jury of twelve ordinary New Zealanders acquitted Sutch of the charge of treason in February 1975, despite the legislation (since repealed) being so general that almost any communication with a foreigner was covered by it. Extraordinarily, he was not demoralised by the events, and bore himself afterwards with considerable dignity. Yet the arrest and trial seems likely to have hastened his death at 68, a year later.

The trouble with this spy industry stuff, is that it deflects attention from Sutch’s ideas. For his writings provide one of the most comprehensive accounts of, and visions for, New Zealand. The title essay in Colony or Nation illustrates the difficulty to coming to terms with Sutch.. He identifies the problems of the economic structure in the mid-1960s, by twelve propositions, set out in italics below, each followed by an assessment from the perspective of 35 years later.[18]

1. New Zealand is just as exposed to a world depression as in the past. This remains true although there has yet been no world depression, and New Zealand has been a beneficiary from world prosperity.

2. There has been no change in the price characteristics of New Zealand’s exports. The terms of trade fluctuate less following the diversification of the export sector. That is what Sutch advocated and facilitated.

3. New Zealand’s vulnerability to changes in the terms of trade have not changed. Insofar as the terms of trade fluctuate less (see proposition 2) the statement is no longer strictly true. But New Zealand still remains very vulnerable to fluctuations in the world economy (see proposition 1).

4. New Zealand still has to rely on one main market, the United Kingdom, for the major part of its exports. New Zealand is no longer dependent upon the British market, and now has a pattern of foreign markets characteristic of a ‘mature’ economy. Sutch had a hand in that diversification.

5. New Zealand’s prospects in international trading have not been improved by the General Agreement on Tariff and Trade to which New Zealand is a party. Sutch is observing that GATT barely addressed agricultural protectionism. However the WTO regime includes its regulation.

6. New Zealand has, in fact, to face not less but more intensified agricultural protectionism in the industrial countries of the temperate zone. His prediction of increased protection (and the dumping of surpluses into third markets) proved correct. Even under the WTO regime, there has not been a lot of progress in reducing protection the agricultural products most relevant to New Zealand.

7. No serious attack has been made yet on the need to diversify land use. That happened during the post-1966 diversification, but the pastoral sector still produces about half of gross farm output.

8. In general, New Zealand’s pattern of (and attitudes towards) international trade still savour very much of colonial attachments. Sutch was concerned about New Zealand’s rejection of bilateralism in trading relationships, and its emphasis on multilateralism. In fact the world has become more multilateral, while today New Zealand has bilateral deals with Australia, most Pacific Island States, Chile and Singapore, and is exploring others.

9. Many economic institutions are still characterised by lack of diversity and flexibility. It is unclear what Sutch meant. It might be argued that Sutch was right, but the institutional issue has since been largely addressed. However Sutch seems to have had in mind the need for more public institutions.

10. In industrial development the continuing shortage of foreign exchange has brought a minimum of expansion of manufacturing: but no guiding lines have been laid down about the direction and extent of the various industrial sectors. Much of the essay is concerned about the failure to expand manufacturing fast enough. (For Sutch that meant active interventions.) In fact the post-1966 diversification expanded the composition and scale of manufacturing. However it has suffered an enormous setback since the mid-1980s.

11. Far too much development in manufactures has been because of investment and activity in foreign countries. This discussion is detailed his later book Takeover New Zealand. Sutch most certainly would see greater foreign penetration today.

12. New Zealand’s unique contribution to human welfare is being threatened at an accelerating rate. This might have seemed excessively alarmist in the 1970s, although the threat was always there. The changes to the welfare state in the late 1980s and 1990s justified the alarm.

The essay is all the more prescient because it was written in September 1965, before the collapse in the terms of trade at the end of 1966. Sutch’s strategy of export diversification was the economy’s response, part driven by market opportunities, part by the measures which Sutch’s administration had put in place, and part by the confidence he had given New Zealanders by talking about it. The conventional wisdom is reluctant to acknowledge his contribution to the shift to export oriented industrialisation. Failure is an orphan, while success has many parents. Sometimes an identifiable grandparent is overlooked.

With the benefit of hindsight, one might score half the propositions (1,6,10,11,12, possibly 5) as still broadly true today, and the remainder (probably excluding 9) less true because of Sutch’s contribution. This is an impressive record, but this response misses much of the point. The book concludes
The crisis for New Zealand in the mid-1960s is not that the basis of our wealth has suddenly gone. It has not gone and the trends which have produced the crisis are not sudden. The crisis consists in this: the time in which we can take remedial action is getting shorter and shorter; and the longer we delay these measures , the more the crisis deepens. Rapid and radical action is needed to readjust our economic structure and institutions to meet our new development needs: the building of industry to supply raw materials, components, and capital goods, and the basing of our society on a broad range of skills. In all too many respects we have been outpaced by a large part of the developed world and we may, for all we know, be in the process of being outstripped by many developing countries. These latter at least recognised their problem – the need to develop rapidly – and they the will to try to solve it.
The crisis is one of time and of attitude. It lies in a failure to understand fully the fact and nature of a crisis that has already arrived; and a failure to meet it quickly enough. It is also a crisis of dependence – a ‘decisive moment for our future – colony, or nation?[19]

Stripping away the rhetoric of ‘crisis’ (much used in New Zealand and elsewhere), Sutch is arguing that too many New Zealanders still had colonial attitudes, and that compromised the viability of the nation. This may have seemed less so fifteen years after the book, but the post-1984 regime as illustrated how subservient to international fashion and lacking in self-confidence so many influential New Zealander were.

Takeover New Zealand took up the theme of foreign control and greater self sufficiency. Unfortunately the book exhibits some of the weaknesses of today’s antagonists to foreign investment. It begins with a short (and not uninteresting if one is unfamiliar with the period) economic policy history from 1920 to 1950) and then has six chapters which describe the extent to which New Zealand resources, businesses and finances are owned or controlled by foreigners. (The extent would be even greater today.) So far so good. But it provides very little account of why this has happened, other than specific instances of takeovers or investments, alerting readers but not providing much analysis. The fundamental reason is that New Zealanders do not save enough, so the economy has to borrow from overseas to provide itself with the capital investment it needs. If the savings deficit is great, then much of that overseas supply will have to be terms of equity investment. And so the New Zealand economy is steadily taken over by foreigners. Unless the savings deficit is addressed, any undesirable foreign penetration cannot be either.

Indeed, harking back to John Ballance’s vision of ‘self-reliance’, probably the best single insulation New Zealand can do from the vicissitudes of the world economy would be more self-sufficient in capital. Even so if there is a major world contraction, New Zealand exporters must suffer, as must those who supply the exporters, and thence the economy as a whole. There is no way a small economy dependent upon overseas resources can avoid all the costs of an international downturn. But it can insulate itself to some degree.

The Responsible Society, Sutch’s evidence to the 1972 Royal Commission on Social Security, was described by its chairman, Thaddeus McCarthy, as ‘your plan here not as one standing by itself but as a part of what might also resemble a minor social revolution which you desire to see happening in the country in ways of our social living, our social approaches, which may be highly desirable.’[20] Again it contains a short history, but its main concerns were to protect and extend the social welfare system of social security (including a particularly powerful chapter on ‘Our Children, Our Future’), and health. His vision was underpinned by human capital theory, which was becoming popular. Indeed when he introduced it to the 1960 Commission on Education the approach was so new in the former case, that the Commissioners consulted another economist to test it.[21] His vision may be summarised by the motif on the dedication page of Poverty and Progress, although it is became banal after prime minister David Lange began chanting it in the mid 1980s while his government pursued exactly the opposite course.
Ki mai ki au, he aha te mea nui o te au?
Makue ki atu, he tangata, he tangata!
(Tell me, what is the most important thing in the world?
Well, I’ll tell you: It’s people. It’s people!)

Thus Sutch has a unique place in New Zealand’s history, and its history of ideas. For while from one perspective he is but one of many prominent nationbuilders of his times, his compass was wider than most, and because of his writing, and the values he expressed, which impacted on subsequent generations – as Bruce Jesson reports in the Envoy. Some of his theories – especially the political economic framework of New Zealand – are now a part of the conventional wisdom, likely to be taught, debated, and elaborated for some time to come, while policies he first advocated are now accepted as integral to New Zealand’s development.

He argued New Zealand had been a dependent colony, a monoculture which grew and processed grass mainly sold to Britain as wool, meat, and dairy products. Sutch saw the need to foster industry and employment within New Zealand, and to earn foreign exchange by exporting a diversity of goods and services to many countries, as well as conserving foreign exchange through import substitution. Production had to be of high quality, well designed, and make full use of human resources. Thus he was a tireless advocate a polemicist for the development of a national culture. People were at the core of his development vision: children were a key to the future, and women were entitled to equality both as a right and because they contributed to the broad social and economic development. Full employment, education and the welfare state promoted human resources.

He saw a key role for the state, but it was a Fabian one, for he advocated decentralisation and was concerned with human rights. It certainly was an interventionist state by the standards of the 1990s, promoting economic activity, and providing protection and support via public education, health and welfare services. But his support was no different in this respect from that of most of his contemporaries. He was just more prominent publicly arguing the case, and perhaps more farseeing. If his views were often original and independent of the times, many are now accepted as part of the main stream of New Zealand discourse. Sutch has attained the status of Keynes’ defunct economist, whose thinking practical men rely upon without realizing it.

Were he alive today, Sutch would be delighted with the external diversification, but appalled by the lack of industrial assistance since 1984, and the neglect of the productive sector in favour of the financial one, with the resulting reduction in the import substituting sector and a poorly performing export sector. He would be distraught by the degree of foreign ownership of New Zealand industry, and unbelieving at the extent of the dismantling of the welfare state. Yet Sutch would be delighted at the social progress of women and many ethnic minorities, and amused that the human capital approach he initially almost alone advocated in the early 1960s, is now accepted by even the most practical of politicians.

From one perspective Sutch was a man of his times. His economics reflect the paradigm of his day and it does not always make sense to judge him according to later developments in economic theory or the new circumstances which he helped to create – or at least no more harshly than today’s commentators expect to be judged in the future. Even so, he gets misrepresented, by both left and right, who focus on his 1957 vision of import controls as the central issue for industrial policy, and do not allow that his approach pragmatically developed thereafter. If he were alive today, he would develop his ideas further, absorbing new theories and new circumstances. We misrepresent his intentions if we focus on his specific policies which were of their times, to the detriment of his principles which remain relevant into the future..

Go to top

Biographical Sources
See bibliographical sources of Chapter 7.

Endnotes
1. A.R.D. Fairburn (1945) ‘W.B. Sutch’, Action – The Thinker’s Digest, February 1945, p.32-34.
2. Sutch (1936)
3. McIntosh to Berendensen in I. McGibbon (1993) p. 68, 158.
4. Sutch (1957) p.20.
5. Sutch (1962); Sutch (1963)
6. B.H. Easton (1997) In Stormy Seas, Dunedin,
7. Easton (1997) p.75-81.
8. R. Cullen & P. Wooding (1981) ‘Export Incentives in New Zealand: 1962-1978,’ NZEP, 15, p.144-162; P. Wooding (1987) ‘Liberalising the International Trade Regime’, in A. Bollard & B. Buckle (ed) Economic Liberalisation in New Zealand, Wellington, p. 86-101.
9. W. Rostow (1960) The Stages of Economic Growth, London, p.10, quoted in Sutch (1963) p.14.
10. For more on the protection debate see Easton (1997) Ch.11.
11. See Easton (1997) Ch.9, on the intra industry trade evidence for New Zealand and the implication that New Zealand is not a ‘mature’ economy.
12. Compare Sutch (1964) with B.P. Philpott (1964) ‘The Future of Agriculture in the New Zealand Economy’, in M. Lloyd-Pritchard (ed) (1964), p.24-43.
13. Sutch (1966b, 1969).
14. Sutch (1973a).
15. N. Hilliard (1975) ‘Thinkers of Evil and the Most Loyal New Zealander’, New Zealand Monthly Review, March 1975, p.1-4.
16. J. Marshall (1989) Memoirs, Auckland, Vol II, p.145-146.
17. I prepared an appendix for this purpose. It has not been published, because it distracts from the central themes of the book.
18. Sutch (1966a) p. 163-172.
19. Sutch (1966a) p.183.
20. Reported on the back cover of Sutch (1971).
21. Told to me by a member of the secretariate of the Commission.

Go to top

Bill Sutch: 1907-1950 (-1975)

This entry was posted in History of Ideas, Methodology, Philosophy, Political Economy & History on by .

Chapter 7 of The Nationbuilders 
Chapter 10 – later life from 1951Keywords: History of Ideas, Methodology & Philosophy; Political Economy & History;
 

Bill Sutch was not only one of a handful of public servants who shaped economic and social policy between the 1930s and the 1960s. His thinking has continued to influence economic and social development after his death, for he was the mid-century nationbuilder who expounded the most distinctive and influential vision of New Zealand‘s economic and social development. Yet arguably, his supreme achievement may occurred offshore in the early years of the United Nations, when he was in his early forties. And, of course, he was tried and acquitted under the Official Secrets Act, just before he died, which adds an unnecessary mystery to his life.
 
Anomalously for someone who has been described as ‘the greatest New Zealander’ of his generation, Sutch was conceived in South Africa, and born in England, when his mother returned home because she was concerned about the local maternity conditions. Rejoining her husband, they decided that South Africa did not offer them a future. Sutch arrived in New Zealand at the age of 8 months. Ted, a builder and joiner, and Ellen, a dressmaker, were Lancastrian working class Methodists. Each was a strong determined character, and widely read in the social fields (despite only elementary schooling). His financially canny mother, whom he adored, gave him a life-long commitment to women’s causes.
 Sutch was the middle of five children. The household allocated various tasks to each child, independent of gender. His Brooklyn primary school headmaster persuaded his family that he should go to secondary school, rather than an apprenticeship, changing not only Sutch’s expected life path, but no doubt the course of the trade union movement.
 

Following Wellington College, Sutch went part-time to Wellington Teachers College and Victoria University College studying history and economics. To fund himself, he worked as a telegraph delivery messenger, seller of newspapers, a farm labourer, a builder’s labourer and a grocery assistant, teaching at Nelson College from 1928 to 1930. He was active in his church, in 1971 recalling
[I came from a] North of England background which was one of carefulness of saving, of good behaviour, of hard work and respect for the products of man’s skills that’s hard to disentangle because the Methodists have the same views. Now at the Methodist level you have two parts to this. One was the behaviour …. Now I don’t smoke or drink or swear … but this is not just a behaviouristic sort of thing. This is respect for the human body and this is what we were taught. The human body was a temple for us to respect. So there’s more in it than these external things. Now the second aspect of the Methodist upbringing was here were we in Bible class at the age of 17, 18, 19. You were going to university and bible class was our free discussion club. The Methodists encouraged us to be sceptical, to question, for just as the Baptists began by departing from the Anglicans in years gone by here they were willing to take their logic further and examine things like the Virgin birth things like walking on the water & all those … but more than that. What was the — with man in society what was his obligation to his neighbours? We thrashed this one through — neighbour — myself. Now all this came out of the way what you might today call my teens.[1]
Bert O’Keefe, a Catholic, recalls that ‘[a]n early common interest was attending services at most of the numerous churches in Wellington … We took in the lot.’[2]  It was a logical step from his sunday school days.
 The sunday school was where adolescents of Sutch’s generation got their ‘education’ – where they had to learn, challenge, and think. Sutch was unusual for his generation going to teachers college and university, but in 1960 he offered an implicit critique when he said
One of the curious things about New Zealand is the small impact the university makes upon the community. This is perhaps because the university is regarded as a place where one gets a journeyman’s certificate in medicine, law, science, commerce and the rest, rather than a place to broaden and deepen the mind and carry out the kind of research which is a contribution to human knowledge.[3]
Some 35 years earlier, when Sutch was a student, the (Reichel-Tate) Royal Commission on Universities had commented that New Zealand ‘offer[ed] unrivalled facilities for gaining university degrees but … is less successful in providing university education.’[4]
 

In 1931, at the age of 24 he went to the Department of Economics at Columbia, at the time the most important in the United States, where it taught the dominant economic paradigm of the times ‘institutionalism’.[5] The neoclassical synthesis (often abbreviated to ‘neoclassical’)   a combination of the macroeconomics that Keynes pioneered and the modern theory of markets (including a welfare economics which emphasises their beneficial outcomes), strongly laced with mathematical techniques   only becomes important after the Second World War. Institutionalists trace their origin to Thorstein Veblin. Among the best-known are Gunnar Myrdal and John Kenneth Galbraith. Maurice Clarke, who lead interwar Columbian economics.
 Yuval Yonay summarises ‘the trademarks of institutionalism [are] empirical research, suspicion towards deductive theory, emphasis on the changing nature of economic institutions, habits, and norms, special attention to the divergence of market values (prices) from social values, and the belief in the reality of informed concerted action to improve human welfare.’[6] The (largely valid) implication of this definition is that the neoclassical economics which followed it is less empirical and more deductive. It tends to assume that institutions, habits and norms are irrelevant (but often the implicit assumption is the norms of an idealised white middle class US males). It thinks market prices normally match social prices, and while collective actions rarely improve human welfare, but individual ones usually do.
 

Readers may be a little dismayed to see such disagreement between the two economic paradigms, and may not even be reassured by Paul Samuelson, the key neoclassical innovator and doyen of MIT economics which replaced Columbia’s supremacy after the war, who said in 1999 ‘I do not come today to bury institutionalism nor to dispraise it. I believe it lives on as a lively element inside today’s mainstream economics, … American institutional economics [is] a force that will endure and flower in the next century to come.’[7] The eclectic economist has a toolkit, in which both institutionalist and neoclassical paradigms (and others) reside. Faced with a particular problem, the economist uses the tool (or tools) which best tackles the job.
 Sutch did not have much neoclassical economics in his tool kit (other than that which derives directly from Alfred Marshall, who influenced both paradigms), although he kept in touch with many developments in economic and social thinking throughout his life. (For instance, his evidence to the Royal Commission on Social Security shows he was conversant with recent developments in social economics.) His economics is often evaluated according to the neoclassical paradigm. To do so is anachronistic (as it would be to do so for Bernard Ashwin, or to assume that Karl Marx knew the neo-classical economist’s theory of markets which developed after his death). In particular, Sutch is much more sceptical of the efficacy of the market that later generations, and favoured planning and economic intervention – as did all of the mid-century nationbuilders. Sutch is criticised because he is the most vocal – the most remembered, but he was part of their mainstream. Moreover streams flow, and sometimes Sutch is condemned for views which he moved past.
 

American institutionalism was greatly influenced by nineteenth century German philosophy, as was Marxism. Both thought planning was an important part of economic policy, but for different reasons. Once I assumed Sutch was strongly influenced by Marx, and spent much time looking for evidence. But the only support was the cover of the second edition of The Quest for Security, with a picture of the Featherston Street riot of 1913, which could be interpreted as a class struggle. But as Nineteenth Century English socialist thought shows, those who thought about class struggle need not be Marxists. (Some attempts to nail Sutch had their humorous side. I once went through his home bookcase, and found texts by Marx in it. Some had the name of his father-in-law, David Smith, inscribed on the flyleaf. Sir David, a judge of the Supreme Court, was unlikely to be a Marxist. Rather, he was an intelligent concerned intellectual, interested in important ideas of the day.)
 Lawrence Jones has argued that the preface of the first edition of The Quest for Security has ‘a deconstruction of the myth of progress, more from a Marxist than from a cultural nationalist perspective’, citing such sentiments as ‘[t]he very subject matter of the book and the demands for space bring sharply to the foreground the topics of poverty and unemployment and the struggles of those to whom economic depression and personal misfortune brought destitution.’[8] It would be a sad day, if Marxists were the only people to view society from the perspective of the underprivileged. Sutch also praises the American emphasis on ‘independent farm owners who with their family provided their own livelihood.’ Not a lot of Marxist sentiment there.
 

The preface contains the following paragraph:
History is not a procession of dates nor a description of acts of Parliament, nor does it consist in surveying press editorials or political speeches, although these may be guides to emotional attitudes. If history is to mean anything, it must deal with the causes as well as effects, it must deal with the conflicts and alliances of social and economic forces, the process of change, the underlying reasons for surface happenings, the social and legal institutions which provide a framework for these happenings. In a short book it is not possible to study the dynamics of history in any detail, but it is essential to indicate on broad lines the main forces operating to produce developments and difficulties   to answer the question Why? [9]
 Here, I thought, was the smoking gun for the passage has Marxist overtones. However, the strongest alternative hypothesis is that it might better reflect the approach of Arnold Toynbee, who also offered a forces-of-history approach from a Christian Socialist perspective. I approached Peter Munz, acknowledged as New Zealand‘s foremost historical methodologist, read him the passage without identifying its author. His immediate reaction was that it was written by a follower of Toynbee rather than of Marx.[10]
 

Sutch’s writings suggest he was strongly influenced by Fabian socialism. His attitude to local government resonates with Fabianism.[11] In the 1971 radio interview he said
[O]nce upon a time somebody asked Bernard Shaw what to do to be a good socialist. Bernard Shaw said ‘what are you’ and he said ‘I’m a carpenter’. ‘Well, be a good carpenter.’ Now I’ve never forgotten that, and whatever a socialist may be I believe one can make a very big contribution in doing what you can do well. What I can do well other people can say   I sometimes think it’s only gardening   but for whatever skills I have I make my contribution, I think, through them.
If one wanted a simple summary of Sutch’s philosophical foundations may be that like British Socialism, Bill Sutch was more influenced by Methodism than by Marx.[12]
 
There is no evidence that Sutch was ever a member of the Communist Party. His wife, Shirley Smith, whose active membership lapsed in 1945, tells of attempting to get him to join it. Sutch explained that ‘he had never belonged to any party, that he would never be told by anyone what to think he would never follow any party line.’[13] His repeated the sentiment when describing the British Fabians who ‘stressed the value of independent research as a guide to any political party wishing for social and economic reform.’[14]
 Sutch was fascinated by, and a supporter of, the Soviet Union. (So were Fabians Bernard Shaw and Sydney and Beatrice Webb.) He remained so, long after many leftists had become disillusioned. But seeing the Soviet Union as a bulwark against the worst of capitalism or American imperialism does not make one a Marxist or a member of the Communist Party. It is also true that Sutch had American leftists friends among his friends, such as Leo Huberman (whom he met at Columbia) and Paul Sweezy, editors of The Monthly Review for which Sutch wrote in the 1950s. (He seems to have been trailed by the FBI when he visited Huberman in New York. In cold war parlance Huberman was a ‘communist’ and therefore Sutch was too. That does not get us far.)
 

Sutch saved enough of his Columbian grant to travel after completing his PhD. Describing it for a 1944 book on New Zealand-Russian relations, he wrote:
From [Columbia University ] Dr Sutch led a life of what is called in the United States a ‘hobo’. That is, he wandered around with the unemployed, going from town to town and sleeping where he could, perhaps in a prison cell, perhaps in an abandoned house, perhaps in a haystack. From the United States he went to Europe and during the latter part of 1932, travelled, still as a hobo, through France, Switzerland, Italy, Austria and Germany and England, still sleeping at unemployment camps, doss houses or in the open air. His idea was to see how the poorer people of other countries had to live and he wanted to exist with them in order to get a proper background.
            From England Dr Sutch took a ship to Norway and travelled up the coast of Norway round the North Cape and landed [in] Lapland. …. Dr Sutch continued by himself with a pack on his back and some bread and cheese, through Finland to Helsingfors. Then he crossed to Leningrad, to Moscow and there through Samara (Kuibyshev) to Tashkent, then on to Samarkand, to Bokhara, to Termes, which was a garrison outpost on the Afghan border.’ [The trip only took two weeks, and was largely by train. It took place in a time when the Soviet Union was relatively favourable to tourism. A number of other New Zealanders travelled there at about the same time.[15]]
   From the borders of Afghanistan, Dr Sutch went in a Russian aeroplane over the Hindukush mountains to Kabul, the capital of Afghanistan and even in the northwest of India. In India he travelled through the main towns to Calcutta and across from Calcutta to Bombay, living with the poorer Indian worker. In India Dr Sutch contracted malaria and decided to go to a better climate so he took [a] ship from Bombay to Australia, visiting the main Australian towns and finally returning to New Zealand, where the world depression was still in existence.’[16]
 His entire family was unemployed or doing a little relief work. For a short time so was he. He often recalled the hardship of those years.[17] Forty years on he ‘wept openly when he recalled an old school friend who invited him to his home to welcome back to New Zealand. For the meal they had only bread and some butter which his friend proudly explained they had “saved up” for the occasion.’[18] It was not only in New Zealand.
I … saw millions of unemployed and the desperation. I’ve seen people dead from starvation. I saw them lying on the tops of the underground vents in Paris to try to get warm. I’ve seen them lying under newspapers in New York to try to get warm. Now this kind of thing, if it is the product of the economic system, obviously leads to the conclusion that [the] economic system must be changed.[19]
 

He went teaching in Wanganui and Palmerston North in early 1933. Bryan Philpott, a pupil at the Boys’ High, and recalls a ‘smart film-star looking guy with a moustache and staccato-firing questions the moment he walked into the room. The first impact was you were in the hands of a new prophet …’ [20] In August, Sutch joined the ‘brains trust’ of the then Minister of Finance, Gordon Coates. Again the events of the time are riddled in myth. There was an Easter tramping trip in the Tararuas in which he and three others took 17 days to find their way through because of injury and torrential rains so they could not cross rivers.[21] One of his companions, O’Keefe was to write many years later ‘I learned a lot about Sutch during those 17 days. In mental equipment, fortitude and kindness I found him the best of the four on the trip. …. I don’t think I’d have survived if it had not been for Bill’s constant help and encouragement.’ There was a major search effort, and the party was widely criticised when Sutch said they were not ‘lost’, meaning they knew where they were. There is an irony here, for as O’Keefe recalls George von Zedlitz saying ‘we frustrated many people’s maudlin expectations by walking out on our own efforts … if say, three had emerged carrying one dead body, the survivors would have been intrepid national heroes.’[22] Shortly after, about the time Sutch was to join Coates’ staff, Dick Campbell and Coates discussed the new recruit:
Campbell said, ‘He’s a very unpopular man in the country,’ and Coates said, ‘Yes, I know that. I read the papers and as I am probably the most unpopular man in the country maybe I will get on very well with him.’[23]
 Sutch’s role as an adviser to Coates ‘brain’s trust’ is often misunderstood insofar as he (and others   which formally included Campbell and (later) Horace Belshaw and, informally, Ashwin and Paul Verschaffelt, Chairman of the Public Service Commission) is said to have radicalised the Minister of Finance. Certainly the young men were radical in their own way. Sutch relates how
In February 1934 a Wellington Fabian Society was formed with the sole purpose of inviting George Bernard Shaw to give a public address. The moving spirit was R.M. Campbell (the writer assisted). Both of us were on the staff of J.G. Coates, who we told of our actions; and Peter Fraser readily cooperated.[24]
 

The detail is given here because John Marshall implies there was something wrong.[25] He overlooks that if Sutch was a Fabian, he was unlikely to be a Marxist. While it is not untypical of right-wing writing to lump all left-wing activity in the same anti-capitalist camp, without attempting to understand the distinctions, there is an enormous gulf between the revolutionary approach of Marxists, and evolutionary approach of the Fabians. Shaws’s visit was so influential that Ashwin mentions in a lecture his proposal to provide milk free and charge to the rates. [26]
 In fact Coates had already adopted the strategy of the nation building in the 1920s, and many of the major economic decisions contributing to the depression recovery had been taken before Sutch joined Coates. Sutch and the other members of the ‘Brains Trust’ was probably more influenced by Coates,. From him Sutch may have learned about nationbuilding. No wonder Sutch worshipped his mentor.
 

Sutch’s story told in the Coates chapter, of the latter’s belief of doing what you thought was right, irrespective of what others thought, is another lesson which Sutch learned from him. His wilfulness was the problem the public service had with him, rather than any security risk.
 Sometimes his doing what he thought right lead to the comical.
There was a minor contretemps at the Polish-Russian border [in 1937]. Dr Sutch, whose tactlessness sometimes amounted to genius, had a Nazi flag and some Nazi literature in his bag. Their bags were searched, despite Nash’s protest that is was an infringement of his diplomatic status. However, Nash induced the Russians not to search the ‘diplomatic bags’, and he succeeded in placing Sutch’s bag with these.[27]
Sutch must have been so confident he was not a fascist, that it never occurred to him that his possession of Nazi souvenirs could be taken as anything but a joke. If there is an enigma about Sutch, it is how one so intelligent could also be so innocent.
 

Sutch had become private secretary to Minister of Finance, Walter Nash, following the election of the Labour Government in 1935. Thus he was closely involved in the main economic debates of the 1930s to early 1940s, including those on the Reserve Bank, guaranteed prices, and exchange and import controls. He became an active member of the Wellington cultural and intellectual community, including in the Institute of International Affairs, the Left Book Club, Progressive Publishing, and the Wellington Cooperative Book Society (Modern Books). He began regularly writing (frequently under pseudonyms) on a wide variety of contemporary economic and political issues, in such journals as Tomorrow as well as in learned journals and official publications. As de facto Wellington editor of Tomorrow he was involved with the publication of John A. Lee’s ‘Psycho-Pathology in Politics.’ No doubt his doing what he thought was right, did not endear him to Peter Fraser.
In 1941 he published Poverty and Progress in New Zealand, a history with the theme of social difficulties driving national development. In 1942 The Quest for Security in New Zealand, was published by Penguin, selling over 100,000 copies. Both were originally versions of a text commissioned for the Centennial Series as a history of the social services, but each had was rejected. It is said Sutch was advised the two manuscripts should be locked away.
 Such public activities by an official closely involved in political advice led to conflict with his political masters, especially Fraser, and in 1941 he moved to the Ministry of Supply (later incorporated into the Department of Industries and Commerce). In 1943 he was a gunner, and later a gunnery instructor, in the Army. In 1944 he returned to the Ministry as an advisory economist, dealing with policy issues such as Lend-Lease, foreign trade, and price equalisation. He was the trade union nominee on the first Railways Tribunal, which fixed wages.
 

In 1945 Sutch moved to Sydney as deputy director of the United Nations Relief and Rehabilitation Administration (UNRRA), responsible for the South West Pacific, and then went on the following year to direct its operational analysis division for Europe, based in London (where he edited a number of surveys on European economic recovery). From 1947 to 1951 he was secretary-general of the New Zealand delegation to the United Nations in New York, where he chaired the UN Social Commission in 1948 and 1949, and the UN Children’s Fund in 1949 and 1950. There he contributed to the creation of an independent international public service, and actively discouraged race discrimination.
 About this time, we do not know when, he developed a framework for organising thinking about New Zealand. Alpers recalls Sutch giving a speech to the Economic and Social Council in 1949 which you said ‘that the only true natural resource with which New Zealand was blessed was grass.’ [28] The notion that New Zealand was essentially a ‘monoculture’ of grass for most of the late nineteenth century (preceded by the quarry), and the first three quarters of the twentieth, is one of the best ways to organise the political economy and economic history of the period. It almost certainly draws upon the ‘staples theory’ of Canadian political economist, Harold Innes, but when Sutch first met that, and saw its relevance to New Zealand, is not known. It was probably not until the late 1940s.
 

Sutch never wrote these ideas into a comprehensive account.[29] The oral tradition recalls a lecture Sutch gave to a WEA Summer School in Nelson in 1962 in which he used fishing as a metaphor to describe New Zealand economic development. People who attended talked to me about the lecture over 15 years later. His notes or draft speech, if any, have not been found. I tried to reconstruct the presentation for a Listener column.
Sutch would have started with the classical (pre-contact) Maori. Fish was a major part of their diet; they conserved the fish stock; many were skilled fisherman; according to Captain Cook, they were in some ways superior to the fishermen of Europe.
That changed with the arrival of the European. As the Maori lost their population and their rangatiratanga their fishing became marginalised too. Fish stocks began to be run down. In Sutch’s terminology they were quarried rather than developed on a sustainable basis.
Initially fishing was important to the early settlers too. Fish supplemented their diet, while whaling was the foundation of much of the commercial enterprise of Wellington in the 1840s. Other east coast settlements may have been as equally dependent. Once the whales were largely exhausted, the exports of the fishing industry became negligible.
Sutch would have drawn attention to the oddity that New Zealand was surrounded by sea rich in fish. (Later we were to acquire one of the largest Exclusive Economic Zones in the world.) Yet our fishing industry was primitive in 1962. Certainly we still ate fish   mainly battered with chips. But at the time, excluding crayfish which were being depleted like the whales, New Zealand imported more fish than it exported. All fish exports came to less than 1 percent of total exports.
Fishing was then a ‘stunted industry’, a term we know that Sutch would have used, because it is in a report of his Department of Industries and Commerce later that year.[30] The official report tiptoes around Sutch’s explanation. Fishing has ‘good possibilities and it is regrettable there has been insufficient impetus and encouragement.’
He would have been franker to the WEA. Sutch both commended the enormous government contribution to the development of the pastoral industry, but also thought that the government interventions had favoured the farmers at the expense of everyone else. While post-1984 farmers may flagellate themselves over that assistance   cheap loans, subsidies, infrastructure, producer boards, preferential treatment, and so on   Sutch’s message was not a popular with the farmer government of the day, even though farming had built itself on this government assistance. Farming was the great success. But because had emphasised assistance to farming, other industries had suffered. Sutch described the New Zealand‘s economy as ‘over-specialised and over-sensitive’ (a euphemism of the day for ‘over-vulnerable’), calling the New Zealand economy ‘immature’.
The last part of the lecture would have been to advocate the development of fishing as ‘a major export industry’. He would have emphasised that it was not just a matter of exporting the fish, but that we should process them to as sophisticated a level as possible, including by feeding quality fish based meals to tourists. He would probably have mentioned the possibilities of exporting fishing equipment, as a result of the need to provide sophisticated technology to the fishing fleet.
 The audience would have been enthused, not just by much more historical detail than can be given here, but by the way the example was used to illustrate the vision of New Zealand as a mature diversified economy.[31]
 Forty years later, he would be pleased with many of the developments in the fishing industry. But he would argue for more processing in New Zealand and the development of the associated servicing and equipment industries. He assuredly would have been disappointed that so much of the industry was foreign controlled.
 

The now 42 year old Sutch played the crucial role a UN decision to continue with UNICEF. The incident, like the Fraser one chairing the Trusteeship Council of the UN, is not well known in New Zealand. Benedict Alpers describes to Sutch:
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 … 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. …. [D]id 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.’[32]
For a man who has generated so much popular myth, it is ironic that his greatest achievement is not a part of it.
 Although Sutch could have stayed on as a career civil servant at the UN, he returned to New Zealand in 1951, as someone who had proved himself in the international arena, determined to do the same for New Zealand. Many of Sutch’s political masters were less sure.

Go to top
 Biographical Sources
Alpers, B. (1975) ‘David from Down Under’ in J.L. Robson & J. Shallcrass, op. cit. p. 215-234.
Anderton, J. (1999) ‘William Ball Sutch’ in Unsung Heroes, Auckland, p.51-68.
Barr J.C. (1973) ‘Interview of W.B. Sutch’, Alexander Turnbull Oral History Archive
Bollinger, T. (2000) Prophecy and Process on the New Zealand Public Service: The Administrative Career of Dr W.B. Sutch, 1958-1965, Unpublished manuscript.
Easton, B. H. (1998) Trying to Understand Dr Sutch, unpublished paper, Stout Research Centre, Wellington.
Easton, B.H. (2000) ‘Sutch, William, Ball’, Dictionary of New Zealand Biography, Vol.5, p.504-506.
Endres, A. (1986) ‘The Political Economy of W.B. Sutch: Towards a Critical Appreciation’ NZEP, Vol. 20, p.17-40.
McLintock, B. (1998) The Economic Ideas of Dr Sutch, unpublished paper, Carthage College, Kenosha.
O’Keefe, A.H. (1982) Sutch as I knew him 1932-1975, MS 1172, Auckland Institute and Museum Library, 28 September 1982.
Robson, J.L. & J. Shallcrass (ed.) (1975) Spirit of an Age: Essays in Honour of W.B. Sutch, Wellington.
Shallcrass, J. (1975) ‘W.B. Sutch’ in J.L. Robson & J. Shallcrass, op. cit. p.3-11.
Sutch, W.B. (1936) Recent Economic Changes in New Zealand, Wellington.
Sutch, W.B. (1941) Poverty and Progress in New Zealand, Wellington.
Sutch, W.B. (1942) The Quest for Security in New Zealand, Wellington.
Sutch, W.B. (1957) Manufacturing in New Zealand: The Next Two Decades, Wellington.
Sutch, W.B. (1959) The Economics of Television, Wellington.
Sutch, W.B. (1960) ‘Programme for Growth’ in Background Papers: Industrial Development Conference, Wellington.
Sutch, W.B. (1962) Selling New Zealand’s Exports, Wellington.
Sutch, W.B. (1963) Towards Economic Maturity, Wellington.
Sutch, W.B. (1964a) ‘The Future of Manufacturing in New Zealand’ in M. Lloyd-Pritchard (ed) The Future of New Zealand, Auckland, p.1-24.
Sutch W.B. (1964b) Local Government in New Zealand: A History of Defeat, Wellington (Reprint of a paper written in 1956).
Sutch, W.B. (1966a) Colony or Nation, Sydney.
Sutch, W.B. (1966b) The Quest for Security in New Zealand: 1840 to 1966, Wellington.
Sutch, W.B. (1969) Poverty and Progress in New Zealand: A Re-assessment, Wellington.
Sutch, W.B. (1971) The Responsible Society in New Zealand, Christchurch.
Sutch, W.B. (1972) Takeover New Zealand, Wellington.
Sutch, W.B. (1973a) ‘Gordon Coates: the Lonely New Zealander,’ New Zealand’s Heritage, v.6, pp.2195-2204.
Sutch, W.B. (1973b) Women with a Cause, Wellington.
 

The Sutch papers are in the Alexander Turnbull Library.
A full bibliography of Sutch’s writings will be found in J.L. Robson & J. Shallcrass, op. cit. p.239-258.
 

Endnotes
1. Radio interview by Hamish Keith, 1971. Tape and transcription held in Radio Archives. ‘–’ indicates where word(s) cannot be heard or easily inferred.
2. O’Keefe (1982).
3. Sutch (1960) p.21.
4. Quoted in R. Butterworth & N. Tarling (1994) A Shakeup Anyway: Government and the Universities in New Zealand in a Decade of Reform, Auckland, p.19.
5 The next few paragraphs are informed by Y. Yonay, The Struggle over the Soul of Economics: Institutionalist and Neoclassical Economics in America between the Wars, Princeton.
6. op. cit. p.52.
7. P.A. Samuelson, ‘The Golden Virtue of Eclecticism in Economics’, The American Economist, Vol.44, No.1 (Spring 2000), p.4.
8. Jones (1999) await publication details.
9. Sutch (1942) p.v.
10. Brent McLintock has drawn my attention to:
When productive forces expand and improve or change materially this means that the substructure of society is altering, and the conditions of production (social relations of production) – law, institutions etc. – no longer quite fit the changed productive forces – and so the conditions of production gradually change. Society gets out of gear. The conservatives cling to old forms. (From a WEA lecture on Trade Union History, Sutch Papers, ATL, Acc 85-185-17-01)
            However the ‘gradually’ suggests Fabianism rather than Marxism.
11. Sutch (1964b). Sutch also advocated a decentralised televison system (1959). He decentralised the arts council in the 1970s.
12. The original quotation is by Morgan Phillips, and is cited in J. Callaghan, Time and Chance, London. Less alliteratively, Leslie Lipson says New Zealand was more influenced by Fabianism than Marxism. See L. Lipson (1948) The Politics of Inequality, Chicago, p.227.
13. S. Smith to Turnbull Librarian, 14 November 1989.
14. Sutch (1966b) p.338.
15. J. Weir (1996) ‘Russia Through New Zealand Eyes – to 1944,’ New Zealand Slavonic Journal, p.14-20.
16. The manuscript was never published. It is held by the daughter of its coauthor,
17. His memories of the Great Depression are recorded in T. Simpson (1974) The Sugarbag Years, Wellington, p.10-12, 92-93, 104-108, and Anderton, p.56-57.
18. Anderton, p.37.
19. Radio interview, 1971.
20. Interview of B.P. Philpott, reported in Bollinger (2000) 1/6.
21. C. MacLean, Tararua, Wellington, p.155-163.
22. O’Keefe (1982)
23. Barr (1973). Original’s emphasis.
24. Sutch, (1966b) p.338. A more detailed account by Dick Campbell (confirming Sutch’s account) is in The(Auckland) Weekly News, 29 August 1956, p.21.
25. J. Marshall (1989) Memoirs, Auckland, Vol II, p.144.
26. B.C. Ashwin The Practical Problems in Public Finance, Notes of a lecture to the Commerce Society, Victoria University College, 15 April, 1935. Copy held in MacMillan Brown collection of the University of Canterbury Library (presented by W. Rosenberg), p.11.
27. K. Sinclair (1976) Walter Nash, Auckland, p.144.
28. Alpers (1975) p.216.
29. He wrote a letter about the grass monoculture to G. A. Wood, the Government Statistician, on returning to New Zealand. Woods’ (not very enthusiastic) reply is in the Sutch Papers in the Alexander Turnbull Library, Acc-185, Box b.
30. W.B. Sutch (1962) Submissions to the Select Committee on the Fishing Industry, Wellington.
31. Revised version of B.H. Easton, ‘Fishy Tales’, Listener, Jan 18, 1997, p.60.
32. Alpers (1975) p.227-229.
 Go to top

Bernard Ashwin: 1896-1975

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

Chapter 3 of The Nationbuilders

Keywords: Political Economy & History;

‘Fraser ruled in very close consultation with the Federation of Labour. The other powers in the land were Walter Nash and Bernard Ashwin.’ [1] ‘[He] was clearly one of a small group – Nash, Fraser, and Walsh being the others – who were at the centre of the decision making process.’ [2] For Ashwin, secretary of the Treasury from 1939 to 1955, that central role continued into the early years of the first National government.

He was much liked by his contemporaries, who – perhaps because they were so aware of his power – liked to recall his simple diction and his dry, sometimes irreverent, sense of humour, often  associated with a degree of self-deprecation. Geoff Schmitt, his personal assistant in the mid 1940s, tells how he ‘overcame a restriction preventing admission of non-military persons to a security area in Kent by pointing out that he was Paymaster General to the New Zealand Forces’. [3] In 1917, as a private in the New Zealand Expeditionary Force, Ashwin acquired a distaste for some of the more formal British he experienced. He liked to recall that the highest he got in his signals company was ‘acting lance-corporal’.

While Ashwin had an attractive personality, it was by intellect and position that he dominated the economics of nationbuilding policy from the 1930s to the mid 1950s. His personal views were clearly of the right. He was a fiscal conservative, as one would expect of any senior Treasury official. Government expenditure policy involves numerous ministers and departments, all anxious to spend the government’s money on the public’s behalf, and the lone Treasury and its minister have to raise the money.

Ashwin was also a political conservative. Of course, his official writings do not betray such leanings, addressing the specific question with a narrow answer dependent on the context, exactly as is required of a public servant. Yet there are numerous clues that he was on the political right: his general economic approach, his close friends, and his commercial career after Treasury. Even so, he was an interventionist nationbuilder.

Born in 1896, in Paeroa where his father was a storekeeper supplying the Waihi gold fields, Ashwin’s family later moved to Cambridge, where he had but two years at the local district high

school. He was the oldest of seven, and ‘the limits of my father’s purse decreed work for me’. Cambridge was still largely rural, and he recalled the ‘roses and buttercups’ of the farm. He even considered taking up farming under the rehabilitation scheme for returning soldiers after the First World War, an opportunity which a decade later he was glad to have turned down. [4]

We scroll forward to shortly after the Second World War. New Zealand and the US are negotiating in Washington over the windup of the Lend-Lease deal. Schmitt recalls:

“The difference in money was daunting. With an hour of the first session to go Ash obviously thought it was the occasion to play for time and regroup. So he started to talk about farms about Cambridge, describing them in some detail. . . . Then he had them ploughing up the pasture and the wife in the shed growing cabbage seedlings; then planting out, spraying with derris dust etc., etc., getting the order to produce the cabbages ‘nice and fresh’ for the US supply ship, cutting

them, terrible sore backs, etc. Then the punch line – ‘you chaps must be pretty dry after all the talking you’ve been doing. Show me the nearest pub, and it will be my shout.’ [It] took some explaining to tell the US types what was meant by ‘shout’! End of day one . . .

“ We went back to the legation. Ashwin and company got the embassy wives round and we repriced the meat and butter and cheese, and of course, cabbages at current US retail prices less a (modest for negotiation’s sake) margin back to wholesale. . . . we went back next day and say that, at common prices, we just about broke even. In fact they owed us just about $2m. . . . it was settled that we should settle for (I think) $US7mto them, to be paid in New Zealand currency, for a new house for the US emissary, and funding our end of the Fulbright [fellowships].

“. . . At a luncheon related to the signing, Eugene Black [the leader of the US team, later chairman of the World Bank] said ‘It is now written in the heart of everyone in the US Administration that, if ever a New Zealander starts talking about cabbages you might as well give

him what he wants, and save time.’” [5]

Schmitt’s story illustrates Ashwin as a superb negotiator. But it also reminds us of his origins: while one may take the boy out of the country, you can never quite take the country out of the boy. Ashwin was rooted in the texture of New Zealand life, of rural life, even though he was to live for over 60 years in Wellington.

Ashwin’s memoir, written in the late 1920s, says he wanted, but could not afford, to go to engineering school, and that there was ‘a narrow escape from becoming a bank clerk’, ironically for a man who became a founder and director of the Reserve Bank of New Zealand. The path to becoming New Zealand’s most powerful public servant began in June 1912, when Ashwin, not quite sixteen, went to Wellington to join the Education Department, one of three cadetships won in the public service entrance exams.

The First World War was his Overseas Experience. Like many others, he over-reported his age to join up in 1916. He spent seven months in England before going on to France. Free rail passes

enabled him to visit much of Britain. He visited the theatre as often as he could, cathedrals and churches, and once spent all night arguing the English land question with a stranger, who he found out later was the novelist Rider Haggard. ‘The class distinction, a comparative new thing to colonials, did not operate against us to anything like the effect to which it was observed in the case of less fortunate “Tommies”.’ Everyone made a great fuss of ‘colonials’. He served in Ypres. ‘Dead horses and mules were plentiful and tens of thousands of men had been buried all over the place. The countryside literally stank.’ He twice diced with death, probably more often, leaving us to wonder how many other less fortunate potential mid-century nationbuilders are buried in Europe.

He returned home after the Armistice. “As a result of the war I had seen much and learned much. I had some good times and some bad times, but fortunately the former sticks more in one’s memory. Still I never got quite used to army routine and having to obey orders from all sorts of people was irksome to me. . . . Before the war my chief interest in life was sport and my work merely a tiresome necessity. Coming back, with all my old associations completely severed

and older than my years as a result of my experiences I was forced to stand aside as it were and ponder as to which way I would go.”

He ‘wanted to be more than an ordinary clerk’ and began to study part-time, initially to qualify as an accountant. As Sam Barnett, a secretary of justice, has remarked, ‘pre-war, the only training for public servants in New Zealand was provided by the Society for [sic] Accountants’. [6] But for Ashwin, ‘accounting was becoming so popular . . . it was clearly advisable to go further’, to degrees in economics. In 1925 he graduated with an MCom in economics from Victoria University College.

Ashwin began work in the Treasury in 1922, marrying in 1926. He and Rachel had three children. From 1930 he appears regularly in the bureaucratic record. He was promoted to assistant account-

ant in February 1930, and prepared a Treasury paper on currency and monetary policy, presented as a personal view to the Economic Society in June 1930, which his colleague Dick Campbell saw as a key step in the development of the Reserve Bank. [7] In November 1931 he was promoted to second assistant secretary, a newly established position, probably created for him. The report of the Economic Committee – commissioned by cabinet (by Coates?), and signed by four academics (James Hight, Horace Belshaw, Douglas Copland and Arthur Tocker) and by the secretary of the Treasury – ‘express[es] its thanks to Mr Ashwin . . . who was constantly in

attendance’. [8]

He became first assistant secretary in  1935. He was not a member of Coates’s brains trust, a postscript in a letter by Coates in 1934 explaining: ‘I don’t see how the Treasury could possibly spare Ashwin, though were it otherwise there is nobody whose services would be more acceptable to me.’ [9] He was close to Coates, even before he became minister of finance, as is indicated by the visit to the bankers in 1931 or 1932, which led to the creation of the Reserve Bank ofNew Zealand. Later Justice Arthur Tyndall described him as ‘the father and mother and everything else of the [Reserve Bank] Act’. [10 ] (Ashwin demurred: ‘that may be going a little too far’.)

In the 1930s he was the Treasury’s only economist. He had a strong grasp of the positive theory of markets (how they work), but little of the normative theory of markets, of welfare economics and how the market can generate allocative efficiency, since those branches of the subject had been developed after he left university. His economics training would have emphasised the importance of physical investment in the growth process. We see this concern in his occasional writings, as when he criticised government spending to reduce unemployment on the grounds that it diverted the money from capital formation. (Marxists would readily categorise Ashwin’s activities as the state being used by capitalists as an instrument of capital accumulation.)

When Keith Holyoake became minister of marketing in 1949, he received some long memoranda from Ashwin advocating major reform and liberalisation. Thus Ashwin was not an arch-interven-

tionist, great interventionist though he was in the 1940s. Markets and interventions were a means to an end. In Ashwin’s day all economists studied Alfred Marshall, who defined a good economist as one who has ‘less need of elaborate scientific methods, than a shrewd mother-wit, a sound sense of proportion, and a large experience of life’. [11]

Perhaps the significant event for the putative nationbuilder was that humiliation by the trading bankers. It was reinforced by a second great humiliation of New Zealand by the financial system

in 1939, where (uniquely) Ashwin was also involved. The requirement to roll over some £17m of British-based debt plus the need for more borrowing – there was an exchange crisis – had Nash travelling to London. The British reaction was hostile, ranging from antagonism to the recently imposed import controls (which they thought were an abrogation of the Ottawa Agreement because it limited access by British manufactures), to anger at the focus on welfare rather than preparation for war, and to dismay at the economic crisis which seemed to be overwhelming New Zealand. Among the options considered by the British government were ‘take over’ and bankrupting New Zealand, although neither option was thought practical. Instead, the loans were offered on appallingly harsh terms, and although eventually those terms were moderated, the experience reinforced the Labour government’s dislike for overseas borrowing. [12]

Ashwin was in Wellington receiving the cables. He knew there was an exchange crisis: export revenue was not keeping pace with import payments, despite the recently imposed import controls; private capital movements were unfavourable; and foreign suppliers were reluctant to provide trade credit. He was turning his mind to the use of exchange controls, perhaps out of desperation, and developing internal loans to soak up domestic savings:

“Nash has had a rough spin in London. Terms of conversion of the 1940 maturity (pay off £2min 1940 and £3.5m thereafter) are severe but the proposals submitted in the course of negotiations practically amounted to putting in a receiver. I attended Cabinet daily while cables [were] considered. Each day as the latest cable was read out the first comment came from [Bob] Semple (Minister of Public Works) – Tell them to go to Hell – and most of the Cabinet were inclined to

support that view. Each time I had the job of pointing out that we were not in a position to do that.” [13]

Such are the experiences which create nationbuilders, committed to national independence, concerned about their country having the policy instruments and institutions, such as the Reserve Bank, to frustrate international bullying.

The history of economic policy development in the 1930s has thus far largely been written by historians, and largely through pink and populist (even Social Credit) glasses. The approach is extremely critical of official policy. Of course there was incompetence. In retirement Campbell wrote: ‘if Ashwin had been there, instead of subordinate to [A. D.] Park and [G. C.] Rodda [the

secretaries of the Treasury before Ashwin], at least there’d have been an above-average intelligence at the top. There wasn’t.’ [14] Nevertheless much of the criticism is excessive and misdirected, taking into account neither the size of the external shock nor the lack of economic instruments to deal with it.

The deep depression of the early 1930s haunted the nationbuilders. We do not know the effect of the record unemployment on Ashwin, but we know later he was anxious to promote New Zealand industry by active intervention. He would have been particularly concerned about the lack of a reserve bank and other macroeconomic policy instruments, the mismanagement of the

loans account, and the dreadfully imbalanced fiscal stance.

Ashwin was not just the Treasury’s longest-serving (co-equal) secretary, but at 43 one of its youngest, [15] nd the Treasury’s first graduate. By the time Ashwin left Treasury there were 31 graduates in the main division alone. Despite Ashwin’s pleasure at such numbers, these statistics hardly represent his significance to Treasury. As Leslie Lipson commented in 1949: ‘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 acquired a stricter control over departmental appropriations since the depression.’ [16] The Treasury extended its role as the keeper of the government finances to become economic manager as well – from bookkeepers to analysts, the path Ashwin himself followed. If there be any doubt, consider the 1928 National Industrial Conference, a Coates initiative, which was attended by over 70 delegates from the private and public sectors, including five university economists and nine heads of government departments. The record shows no Treasury representation. That has been unthinkable since Ashwin’s time.

Ashwin served longest under Walter Nash. He kept a personal diary in the first months when he became secretary of the Treasury in February  1939. Only a month into the new job he shrewdly

summarises Nash, after commenting that ‘matters drift dangerously’:

“In [import licensing] and many other things the driving force is Walter Nash and he is definitely not a man of action. Other Ministers lean on him or fret at his delay but he keeps a tight hold on most things. He works hard in his office till midnight every night and is there on Sundays. His room is referred to as ‘the cemetery’ by other ministers who are unable to get decisions out of him. He has hundreds of files in his room and some of them have been there for months. He has a curious habit of sorting them up and stacking them neatly periodically. He is probably the best brain in the ministry and he is fond of ideals to improve the lot of mankind and [the] feelings(?) of the people. In his opinion anyone should be willing to work for £500 a year. [About twice the average male wage.] While personally pleasant to meet and a likeable person in many respects he is suspicious and does not really trust anyone very far. His egoism is unbounded. His greatest failings are indecision and a passion for detail. He wastes hours each day over matters that [he] should not consider at all, while urgent matters of national importance are laid to one side. I sometimes feel that he turns to small things for relief from big ones.” [17]

In the case of Savage and Fraser, Ashwin started off distancing himself, but later became respecting of, and warm towards, them. Ashwin’s relations with Nash were more of a trial, moderated by the time Nash spent overseas.

“[T]he fact that Nash refused to resign when he took up his position in Washington did make things a little awkward for me although I had no difficulty in carrying on without him. . . . Nash could not hope to run Treasury from 12,000 miles away. I wrote all the budgets and although he arrived to present them, there was never time for him to alter anything of basic importance. I let him play with a few words to make him feel that he had contributed to the budget, for Nash had a great love of the theatrical and made a great show of presenting ‘his’ budget to the house [18]

(The practice of the Treasury writing the entire budget was not new. Ashwin’s predecessor remarked: ‘we never consult a minister in advance of preparing a budget.’[19])

The gossip has it that Ashwin was frustrated by Nash’s dithering (plus the uncaring way he treated his officials). There is a story of  Ashwin standing over Nash in his last day in office in 1949, and taking a grim pleasure in insisting that Nash sign some documents over which he had been delaying.

In contrast, Ashwin was extremely popular among those who worked for him. Henry Lang, a subsequent Treasury secretary, described him as an ‘excellent manager of staff’, and ‘very accessible’. Schmitt uses the expression that the staff used to ‘worship’ Ashwin. An outsider, Jim (J. C.) Fletcher reported he was ‘approachable’ and ‘an outstanding public servant’. In contrast to most public servants he was a ‘visionary’. [20]

The promotion of industrialisation was part of his vision, a strategy reinforced by war needs. In 1942, faced with a crisis of a lack of equipment, Ashwin became deputy chairman of the newly

established Supply Council. He commented that ‘he was left with a good deal of authority and discretion with which to act’. There was ‘only the flimsiest of engineering industry’ and yet by ‘improvisation we did manage to achieve some impressive results which meant that the country would not have been completely lacking in defensive equipment had the Japanese threat eventuated’.

“Rifle ammunition was desperately short . . . there was only enough for one decent skirmish. Ammunition was manufactured by the Colonial Ammunition Company in Auckland but, as it was situated right by the Mount Eden prison, it was regarded as a too obvious target for the Japanese. The Supply Council requested that it be shifted but Army said this was not possible as production had to be maintained. . . . First the ammunition producing plants were converted to an independent source of power. . . . The Waikato was chosen for it was necessary to defend the area as it held the country’s key power operations. We arranged with Fletcher to build a number of small Army type sheds. The ammunition producing plant was placed on the back of the trucks, the girls who worked the machines were put in the cab, and the machinery shifted to the huts in the Waikato. The whole operation was so well planned that production loss was only a matter of hours.” [21]

At the same time Ashwin was in charge of financing the war, and his office was close to those of James Fletcher, commissioner of defence construction (J.C.’s father), and F. P. Walsh. Wellington was a small, intimate, and informal place for those inside.

‘At the official level [of economic policy] the dominance of Sir Bernard Ashwin [was] extraordinary.’ [22] In 1943 he was made chairman of the newly established Economic Stabilisation Commission. As well as secretary to the Treasury and chairman of the ESC and the chairman (in effect) of the Supply Council, he was chairman of the Office of National Development and served on the boards of the State Advances Corporation, the Defence Council,

and the Reserve Bank of New Zealand, where his resignation in 1955 left a vacuum.

A constant preoccupation of any Treasury secretary (indeed of any Treasury official) is fiscal control. In Ashwin’s case his natural conservatism would have been reinforced by experiences in the early  1930s, when the government’s fiscal position was under extreme pressure. [23] A paper he presented in 1935 is instructive not only for the way he passes quickly over theory to get to the practicalities of the current situation, but how modern his analysis sounds half a century later. (That impish sense of humour could not resist ‘it is not unknown for men to join in some resolution [that public expenditure must be drastically cut] and then in some other capacity go with a deputation to the government with a request that involves further government expenditure.’) [24]

As Treasury secretary, Ashwin travelled overseas extensively; he was at Bretton Woods (for the founding of the International Monetary Fund and the World Bank), and negotiated with the British government for the meat and dairy prices. A widely quoted story is that the two Treasuries would settle the deal on the first day, and then there would be more public negotiations to come to the same agreement. It is said that once the parties disagreed by a farthing on the price of butter, and that the dispute was settled by a game of snooker in which Ashwin represented New Zealand. Although versions differ as to whether he won or lost, we may be sure that the outcome was judiciously in New Zealand’s long-term interests.

One consequence of the overseas travelling was a network of contacts in foreign financial markets, which became especially useful for government financing. This was illustrated by the

founding in 1946 of BP (NZ), which was 51 percent owned by the New Zealand government,  49 percent by the British company (itself with substantial British government ownership). Ashwin was ‘largely responsible for BP getting off the ground’. [25] He was a director from  1946 to  1967. Significantly, in  1957 Ashwin was angry when the National government sold its share to the parent company. One takes it that he saw New Zealand ownership and control of the oil company as a part of the nation’s independence.

It does not follow that Ashwin always favoured public ownership. He rejected the full nationalisation of the Bank of New Zealand in 1945, taking the view that public ownership was unnecessary since the Reserve Bank controlled trading banks. But ownership of an oil company gave the New Zealand government information about world oil prices, helping it to monitor and

reduce transfer pricing. The full nationalisation of the BNZ and the failure to join the IMF are among the few occasions where Ashwin’s views did not prevail. The Social Crediters in the Labour caucus were probably as much the bane of his life as was Nash.

Social security was another trial. Ashwin was on the departmental committee on national superannuation and health insurance which reported to Coates in 1935, and all the major officials’ committees which reported to the Labour government in preparation for the passing of the 1938 Social Security Act. Most accounts of its development focus on the conflict in the Labour caucus and overlook the technical constraints of funding, eligibility and generosity which the officials faced. To simplify, the 1936 interdepartmental committee investigated a scheme based on the election manifesto, estimated at costing 14.5 percent of GDP. The cost steadily came down as eligibility was tightened and generosity reduced. It was almost halved by the time of the caucus committee report, and another third was clipped by the time it was introduced in 1939–40. Yet the 4.0 percent of GDP was still more than double the cost of the old scheme. [26] The big reductions were in the provision for the elderly and the slower implementation of the

health benefits.

Ashwin resisted the various extensions, on fiscal grounds. In 1938 he was arguing against the size and generosity of the scheme (especially the age of universal eligibility), claiming that ‘the budget would be virtually out of control’ and it would ‘endanger the financial stability of the Dominion’. [27] When the war broke out, he advised Nash to postpone the parts of the universal health and superannuation components of the scheme not yet introduced. In 1955, to the royal commission on money and banking, Ashwin was still doubtful about the sustainability of this later scheme (which then was costing 6.7 percent of GDP). Undoubtedly social security (or, more precisely, its substantial extension) was a major achievement of the first Labour government, but it succeeded in the form for which it is much admired because it was made fiscally sustainable by people like Ashwin. As Robert Muldoon was to learn in the mid-1970s, an overgenerous pension scheme may be electorally attractive but causes severe fiscal and economic problems.

Perhaps Ashwin’s greatest industry achievement, nicely illustrating his pragmatism, was his involvement in the founding of the Tasman operation at Kawerau, the pulp and paper mill which was to process Pinus radiata from the vast Kaiangaroa forest, the planting of which had been begun in the 1920s. His son says Ashwin thought the project so important that he talked of giving up the Treasury secretary job early, so that he could be more closely involved in it. But when he in fact retired in 1955, not yet 59 and entitled to another six years of service, the deciding factor may have been sheer exhaustion. Moreover early retirement meant that he could still enjoy a new career as a company director. While his power may have diminished, his networks and mana did not. In 1957, Sutch asked for his support when applying for the secretaryship of Industries and Commerce. [28]

He remained one of the three government appointments on the Tasman board, and was their director of finance. He ran the Tasman office in Wellington (from the BP building) until his five-

year appointment ended in 1960, when he was replaced by the then secretary to the Treasury. The government then appointed him to the Dairy Products Price Authority. As well as BP(NZ), he held a number of directorships in the private sector, very often involved with the private financing and construction of nationbuilding projects (including the Coastlands shopping centre at Paraparaumu, which was once the only significant shopping centre in the Wellington area open on weekends).

The Tasman story straddles both the public and private sectors, so typical of New Zealand’s industrial development. So here it straddles two chapters, with the post-1950 development  covered in the chapter on James Fletcher. It is also a story in which the environment and the economy interact.

Around 200AD, a central North Island volcano, whose crater is now Lake Taupo, erupted. The clouds reached the Northern Hemisphere and were recorded by the Romans and Chinese, the first time that something happening in New Zealand came to the attention of mankind. The scattered ash lacked cobalt, molybdenum, and selenium. Without those trace minerals, livestock grazing on the Central North Island land wasted away with bush sickness, as the nineteenth-century pastoralists soon learned. (Vogel’s solution, it will be recalled, was to grow fruit trees as the basis for an export canning industry.) From  1913 the land was planted in radiata pine, a Californian tree which flourishes in New Zealand. During the interwar period large areas of the Kaiangaroa

forest were planted by the government as a form of regional employment and to provide an alternative source of timber as the native forests were depleted.

Pat Entrican, the director of the Forest Service appointed in 1939, saw the potential and commissioned a report from a newsprint manufacturer in 1941. Ashwin was ‘generally sympathetic with the proposal and . . . inclined to suggest for the government’s consideration that it might be adopted.’ He saw advantages from direct employment and savings in foreign exchange (but he was not then thinking of its export potential) in that ‘the scheme, if sound, should assist in the widening of the diversity of industry which is so desirable to a balanced economy’. But he was not ‘satisfied that the future income and outgo is reliably estimated’, expressing reservations as to the project’s profitability.[29]

The war set aside the ambitions, as it did for so many others, the trees kept a-growing, and when the project was revisited in 1947 the costs had leapt to five times the original estimate (but still

only a third of the actual outcome). The cabinet had agreed with the principle of the scheme in April  1949. Ashwin became increasingly cautious. He told Nash: ‘As you are aware our present

capital programme is much in excess of available capital resources and therefore inflationary, and it is clear that the large project in addition to the Roxburgh hydro scheme and other large works

cannot be financed from internal savings.’ (About the same time he was advising delaying the Auckland Harbour Bridge for the same reasons.) He recommended that the project be established in the form of a corporation or company, that £6m be raised in share capital and that the company would pay half the capital costs and the government would assist by advancing the rest in the form of interim funding. Later, approaches should be made to the likely large subscribers. This is almost exactly what emerged in 1955. [30]

Entrican said that Ashwin was showing ‘passive resistance’. But this is no more than fiscal conservatism. Ashwin had expressed anxiety about the already substantial pressure on the Reserve Bank to increase the money stock. Basically he saw a private contribution to funding (less than half, for the infrastructural costs including rail, roads, port, rental housing, and electricity would be borne by the government) as a means of relieving the pressure. He may have favoured private enterprise, but his positive response to the government’s purchasing a majority share holding of BP(NZ) shows a pragmatic approach rather than the ideological position of

a free enterpriser.

Ashwin and Entrican were involved in a dispute about the nature of the government’s involvement in the Tasman enterprise. It was a heated one, not least because Entrican was a ‘man who was quick to state his own opinion’, in contrast to Ashwin’s more taciturn approach. [31] It can be usefully portrayed as an argument about the means by which the project should proceed. On a spectrum from government department to private corporation, Entrican favoured the left and Ashwin was, with J. C. Fletcher, more to the right. The dispute was more about means than ends. The government finance and support was provided by a (right-wing) National government led by Holland who, though at first suspicious of his public servants, came to respect Ashwin. He was knighted in 1956.

Tasman was not the last time Ashwin as secretary of the Treasury was involved in the development of industry. The secret, but abortive, negotiations between the British and New Zealand governments to convert geothermal steam into heavy water for the British nuclear power industry (which led to the geothermal electricity generation programme) took place in Ashwin’s office.

The end was economic nationhood, with New Zealand trading internationally but having the independence and status of a nation, not a colony. The New Zealand country boy who got to Bretton Woods, via the hardships of the war in France, the self-discipline of a part-time MCom, and the policy shambles at the beginning of the Great Depression, saw the need for nationhood, as much as did the younger Sutch, who had similar – yet different – experiences and saw things from a different political perspective. The 30-year-old Ashwin wrote, before his distinguished career was to be evident, that in early adolescence, ‘I acquired a desire which I did not entirely abandon for many years to be an engineer and build bridges and tall buildings’. [32]

Instead he became a social engineer, and built the mid-century New Zealand economy.

Endnotes

1 K. Sinclair (1976) Walter Nash, Auckland, p.208.

2 J. Martin (1991) ‘Economic Policy Making n the Early Post-war Years’, Society an Culture: Economic Perspectives, Proceedings of the Sesquicentennial Conference of the New Zealand Association of Economists, Vol I, June 1991, New Zealand Association of Economists, Wellington, pp.245–72.

3 From a memoir written by G. Schmitt in 1997. A copy in Ashwin files of B. H. Easton.

4 The quotations in this and the next few paragraphs come from a memoir written by Ashwin between 1926 and 1929, held in the Ashwin family papers.

5 Schmitt (1997), p.63.

6 Campbell papers. (Notes on A. D. Park.) Original emphasis by Campbell.

7 B. C. Ashwin (1930) ‘Banking and Currency in New Zealand,’ Economic Record, 6 (November 1930), pp.188–204.

8 Ashwin memoir, p.7.

9 Coates Papers MS 1785/188, held in Alexander Turnbull Library.

10 Proceedings of the Royal Commission on Monetary, Banking, and Credit Systems, Wellington, 1956.

11 A. Marshall Principles of Economics, 8th edition, London, 1920, reset and reprinted 1949, p.642.

12 Sinclair (1976), pp.170–89.

13 Ashwin diary, 8 October 1939.

14 Campbell papers, letter to W. B. Sutch, 30 Sept 1971.

15 Second only to Murray Horne (1993–97).

16 L. Lipson (1949) The Politics of Equality: New Zealand’s Adventures in Democracy, p.443.

17 Ashwin diary, 8 October 1939.

18 Henderson (1970), p.7.

19 Henderson (1970), pp.13–14.

20 These quotations come from interviews I had with the three.

21 Campbell papers, letter to W. B. Sutch, 1 July 1973.

22 Martin (1991), p.217.

23 As well as the revenue fall-off, the government’s London borrowing was inept. See Campbell papers. (Notes on A.D. Park.)

24 B. C. Ashwin The Practical Problems in Public Finance, Notes of a lecture to the Commerce Society, Victoria University College, 15 April, 1935. Copy held in Macmillan Brown collection of the University of Canterbury Library (presented by W. Rosenberg).

25 J. C. Fletcher, interview, 13 February 1997.

26 Expenditure figures from Hanson (1980), pp.154–5; GDP figures from Easton (1997), In Stormy Seas, p.299.

27 Ashwin to Nash, 4 Aug 1938, T25/20. National Archives.

28 G. Fraser (1990) Both Eyes Open: A Memoir, Auckland, p.114.

29 M. Guest (1997) ‘The Murupara Project: The Tasman Pulp and Paper Company Ltd and Industrial Development in New Zealand 1945–1963’, MA thesis, Victoria University of Wellington, pp.36–7.

30 Op cit., pp.40–3. Much of the material in this paragraph is based on a letter from Ashwin to Nash dated 24 August 1949.

31 Op cit. pp.40–3.

32 Ashwin memoirs.

BIBLIOGRAPHY

Barr J. C. (1969) ‘Interview of B. C. Ashwin’, Alexander Turnbull Oral History Archive.

Easton, B. H. (1997) ‘Bernard Ashwin: Secretary of the Nation Building State’ New Zealand Studies, Nov 1997, pp.13–21.

Easton, B. H. (1998) ‘Ashwin, Bernard Carl’ DNZB, Vol. IV, pp.21–2.

Easton, B. H. (1998) ‘Fraser and the Development of the Nation-Building State’, in M.Clark (ed) Peter Fraser: Master Politician, Palmerston North, pp.119–30.

Henderson, J. (1970) ‘Interview with B. C. Ashwin’, copy held in Ashwin family papers.

The Ashwin family papers, which include a memoir written from about 1926 to 1929, and a diary of 1939.

I have collected a couple of box files on Ashwin, which will eventually be deposited at the Alexander Turnbull Library. The files include memoirs written about Ashwin by G. Schmitt in 1997.

Sutch and Security

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

This was originally intended as an appendix to Chapter 10 of The Nationbuilders. It was decided that the story distracted from the main themes of the chapter (and the book) and was omitted. It is placed here on the record. This is the version prepared in September 2000.

Keywords: Political Economy & History;

The evidence that Sutch was security compromised before the meetings which led up to the incident in Holloway Road in 1974 is almost non-existent. It is true he admired the Soviet Union, and the US government treated him as a security risk in the 1950s, although given its McCarthiest frame of mind that may say no more than he had thwarted the US over UNICEF, and in New York he was friends of East-Central Europeans (some of whom subsequently fled to the West), although apparently he had little to do with the Russians.

We have a reasonable idea of what was on his security file (all public servants had one). The memoirs of his minister, John Marshall, devote more space to Sutch than to his long time colleague Keith Holyoake. They record
“A security check not long before his retirement in 1964 did reveal visits to the home of a member of the Communist Party, but no more than that. Some people, from time to time, alleged that Sutch was a communist, but there was no positive proof to support the charge … the final act of folly which, at last gave hard evidence of his communist sympathies and in more ways than one, exposed his double life.25. Marshall, p.145-146.”(1)

In summary there was no hard evidence that Sutch was a spy, other than an interpretation of the events of 1974.

The trial confirms Marshall’s 1964 report. The prosecution must have known they had a thin circumstantial case. Yet they did not attempt to bolster it with evidence of spy activities before 1974. Why not? At the depositions, no evidence was supplied of his compromised security status, but the prosecutor said enquiries were being made overseas. Nothing was provided during the trial. All the prosecution had was the hope that if Sutch had testified, a fishing expedition might have elicited some incriminating evidence. But Sutch chose not to enter the witness stand, on the basis he had no case to answer.

The assessment of Sutch security status therefore depends upon what happened in 1974. Dimitri Razgovorov, a KGB agent, who had recently come out to New Zealand, was almost certainly not considered very high powered (Why waste someone of ability on New Zealand? The local spy industry wants you to think that New Zealand was a major centre for espionage operations but they would, wouldn’t they?) This assessment is reinforced by the Soviet legation’s Charge d’Affaire, Alexei Makarov, who has expressed a low opinion of the agent’s ability.

According to Makarov, Razgovorov was keen to demonstrate his competence, so we may assume that he approached Sutch, possibly others, to elicit information. One thing which gives Sutch’s account credibility is his report of the simplicity of the questions asked of him such as ‘what was the attitude of the New Zealand Chinese to the Chinese government?’ It seems unlikely that he made them up.(2) They are consistent with Makarov’s description of Razgovorov, while the siege mentality of the embassy (reinforced by the various restrictions the New Zealand government placed on it) would not have helped. Razgovorov’s espionage skills do not seem overwhelming. Indeed the meeting venues were outside, open and easily observed, and the Russians went there is an easily identifiable embassy car, suggesting they were hardly secret. The Hopper Street meeting took place in the most lighted entrance in the street, and in full view of two NZSIS outposts. (This has encouraged some to suggest that Razgovorov was a CIA plant framing Sutch, but he did return to Moscow. Another theory is that the KGB wanted to damage Sutch’s reputation.)

Why did Sutch respond to Razgovorov? He said he was curious. No doubt he was flattered. He may have lost some of his judgement and intellectual quickness towards the end of his life, perhaps from the atheroma of the brain which the autopsy identified. In any case it was a stupid thing to do, and does not suggest someone who had a long history of thinking about passing on secret information.

If Sutch prepared information for Razgovorov it could not have been more than what was in the public domain which an informed person might know. One of the greatest problems in this whole story is what information could Sutch have had. He had been out of government for over eight years, and his only government appointment was Chairman of the Queen Elizabeth Arts Council, which is unlikely to have been an interest of the KGB. (The right of the spy industry has suggested he may have been an intermediary for some other spy or mole (unnamed) who had collected secret information (unspecified but possibly commercial) to be passed on. If one believes Sutch was a spy, there is no trouble constructing a story plausibility and Occam’s razor will not be a part of the tool kit.)

Some of the events involving the arrest had a keystone cops aura. (For instance while Sutch presented himself as a fastidious man, but do not forget his tramping background. So instead of availing himself of the nearby public lavatory, he used the bushes. Had he been more delicate, he would have entered a building in which a number of policemen were secreted, presumably pretending to be the Holloway Road Gay Club. Instead, some poor cop had to search through the nitrogenated bushes in case Sutch had put something else there.) One cannot help feeling that had the matter been handled better, it would never have gone to trial. Some of Sutch’s responses did not help.

For the record, a jury of New Zealanders found Sutch not guilty of the charge. Extraordinarily he was not demoralized by the events, and bore himself afterwards with considerable dignity. Yet the arrest and trial seems likely to have hastened him to a death at 68 later that year.

This prosaic reconstruction of the events – while lacking the romance of the spy novels, reports or films – reflects the reality of most security transactions. Alas, there is nothing here that will persuade the spy industry that things were this simple. They will continue to create psuedo-facts to pursue their own beliefs. After all, it is the only New Zealand spy case they have.

Endnotes
1.. J.Marshall (1989) Memoirs, Auckland, Vol II, p.145-146.
2. Shirley Smith reports the other questions were ‘What did the New Zealand Jews think of Israel?’ and ‘How do I get in touch with the New Zealand Israeli Society?’

Cultural Commerce

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

Listener 2 September 2000

Keywords: Literature; Social Policy;

This column is written more in sorrow than anger. Hopes were high when the then Leader of the Opposition, Helen Clark, announced that on assuming the premiership she would also take the Arts and Culture ministerial portfolio. The National Government had been squeezing public spending and that, with the appointments it was making, was generating an authoritarian, politically correct, and backward-looking distribution of the limited funds and leadership in the arts and heritage sector. Hopes were exceeded with Clark’s announcement of some $86m funding for the next three years, although much was a catch-up of the deficit arising from the miserliness of the previous government.

Then the HOT (heart of the) Nation report was published. Written by a government appointed group from the cultural sector, its purpose was to give new directions to cultural policy. The government has not adopted the report, and so nothing said in this column about the report reflects on the government (other than, perhaps, the wisdom evidenced by choosing that particular group). What is distressing is what the report says about the state of the leadership of the cultural sector.

One is immediately struck by the report’s language. It defines activities in terms of ‘cultural enterprises’ and ‘cultural industries.’ A large part of the report is devoted to ‘the market’ and ‘investment’. It writes about ‘economic returns’ and ‘value chains’. In places it reads like a business magazine. Sadly the report’s writers have adopted the language and framework of commercialisation.

One had hoped that the Labour prime minister had taken over the portfolio because she wanted to abandon the narrow focus, and the even narrower policy, of treating arts and heritage (and a whole lot of other activities) as if they were businesses, assessed by business performance measures, and run on business principles. The previous government had tried that strategy. It failed. Clark may still be seeking an alternative. If so, her advisers let her down badly. The HOT Nation report is presented in a context of political correctness and some nonsensical economics. Ignore these, and the report is left with a commercialisation framework

It is not simply that one might have hoped for a different leadership from the cultural community, perhaps even generating a framework which could also be applied to other activities where business principles are clearly inadequate and insufficient. More worrying is that the report’s writer has not learned from the experiences of others, almost as though they have not been living in New Zealand over the last two decades. Education, universities and science research went down a similar advocacy path. Previous governments took them at their word and began running the sectors on the commercialist lines that underpinned the advocacy. They are now suffering from constrictive policies which prevent them from doing what they do well and pursuing their fundamental purposes. If the policies which have been imposed on the universities were applied to Oxford, Cambridge, Harvard and MIT, they too would have been remorselessly turned into centres of mediocrity and stress.

Other sectors – notably health, broadcasting and the core public service have had business principles forced over them too, and suffered in similar ways. One hoped the prime minister secretly wanted to get the arts and heritage activities properly (and non-commercially) functioning, in order to shed some light on how to treat other activities so they do what is required of them, rather than what business principles said they should.

It is not widely known that in 1984 a government taskforce reviewed economic policy. The outcome was the policies of privatisation et al in the private sector and trying to run the public sector like businesses. The taskforce probably did not have education, arts and heritage in mind (although it almost certainly had science, perhaps because its approach was so anti-scientific and it was eliminating opposition). Arts and education suffered from collateral damage as the commercialisation policies were imposed unthinkingly everywhere.

Most ministers probably do not accept commercialisation as underpinning their approach, but policy advice continues to be dominated by it. What else is there to offer as a comprehensive approach? Alternative viewpoints have long been eliminated from the advice loop. There appears to be no similar taskforce established in 2000 to offer an alternative. We have a recipe for tears, although we do not know whether it will be the government, the advisers, the economy or the electorate who will be crying. (I’d bet at least three out of four.)

The HOT Nation report is a gift to a future right wing ideologically driven government. Strip out the political correctness and the bad economics, and one has a framework justifying commercialisation, accelerating the thin nasty authoritarian unimaginative colonial outcomes which the policies of the 1990s were producing. This is not to ignore some sensible and innovative ideas in the report, but they are overwhelmed by the commercialisation framework, and can be quickly discarded in favour of the application of business principles, to be administered by business leaders.

It seems inappropriate to finish with a literary allusion, so I use a metaphor from another part of our heritage: Cultural Community 0 Commercialisers 1 (own goal).