The Sustainability Of Student Loans

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Paper for the ‘Student Loans Summit’, 25 August, 2000

Keywords Education

It is important when thinking about Student Loans, or indeed about any other facit of government policy, that the policy which drives it is seen as a part of a total policy framework evolved out of a taskforce which was established in 1984 to completely review government policy. I imagine at the time that some of the outcomes of the taskforce thinking were expected like privatisation and corporatisation. But the comprehensive framework of commercialisation may well not have been, nor may they have expected the proposals to, say, reform student access to tertiary education. That was to come later. By that time the rule of making government activities run as though they were business ones, was no totally accepted in the policy community, and it was natural to do that as much as the public would allow. What that means is that the policy of student loans have to be seen in this wider context, and to challenge them involves a different policy framework.

That policy framework hardly exists. Certainly there has since been no taskforce with as comprehensive a remit as the 1984 one to offer an alternative. Since there is not time to take on the full might of the alternative policy framework, today I am going to accept the commercialisation framework and show how the current policy leads to problems, some of which are potentially serious in the long run.

In order to get the framework underway, we need to recognize that student debt is not a simple liability like a mortgage or overdraft. Repayment is contingent on the income stream of the debtor involved, and that income stream is uncertain. The technical term for the loan from the position of the student is a ‘contingent liability’. There is a good reason why the proponents of the student loan scheme do not use the precise term. For one thing it would display to the world that essentially the scheme is not more than a raising of the income tax levy on some parts of the population those with the contingent liability from the student debt in order to lower it in the rest, particular those of us who got a free tertiary institution, or who have been able to pay off their contingent liability.

There is a second reason, why there is not a lot of enthusiasm to call the student debt by a more precise term. Every liability of a person or institution has to be matched by an asset of some person or institution. Thus if student debt is a contingent liability, it has to be matched by a contingent asset. The holder of the contingent asset is the government. However were it to be described as a contingent asset the government’s statement of financial position would look a lot less satisfactory than it is. Here is a recent statement for of the government’s position for May of this year.

What it shows is that the government has a net worth in the statement of financial position called the ‘Crown Balance’ of $8.2b, made up of $ 60.9b of assets less $52.6b of liabilities. However $3.4b of those assets are contingent assets, dependent on the students for whom they are contingent liabilities earning sufficient income to pay them off and not being of low income, bankrupt, disappearing out of the IRD records, or finding a tax haven to shield them from the repayment of the liability.

That means that currently slightly less than half of the so-called net worth of the crown is covered by the contingent assets of student loans.

Think ahead. Current projections suggest that the student loan contingent liability will total above $20 billion in twenty years. We do not know what the state of the government accounts will be in 2020, but we can be almost certain that under current fiscal policies, the contingent asset will make up a larger proportion of total assets in the government accounts. Indeed, depending on policy outcomes, it may exceed net worth. What this means is that an increasingly important component of the government financial position is dependent upon the contingent asset of student loans.

Now there is a sense in which all assets are contingent assets, in the sense that their value is dependent upon uncertain future events. Accountants have procedures for allowing for these uncertainties. In the case of the contingent assets they write off some of the debt, on the basis that not all the debt will be recovered. In effect the total of all outstanding student debt exceeds that which is reported in the New Zealand government accounts.

Some of the write-offs are straight forward, as when the debtor dies or goes bankrupt. However how much should there be a write-off for the fact that students who are currently alive will never pay off all their debt, for whatever reason – insufficient incomes, escape overseas, fraud, or tax avoidance. Very often the government will not find about these failures for forty and more years into the future. But prudent accounting practice is that there should be some provision for them being written off now. Otherwise the value of the contingent assets is misleading.

Now there are rules on how much should be written off, but they involve judgements, which are particularly tricky when there is so little experience of the scheme. I was surprised when I looked at them, that in recent years only 3.0 to 3.5 percent of the outstanding balances are being written off. The underlying assumption is that around 10 percent of student debt will be doubtful debts and not be recovered, together with write-offs from death and bankruptcy. This suggests either students are exceptionally honest (or not very imaginative) or the Department of Inland Revenue is exceptionally efficient or vigorous. If these assumptions were wrong, then the true level of the contingent value would be lower, the government’s net worth would be correspondingly lower, and in some years the government would be making a deficit when it was claiming to be making a surplus.

My doubts were reinforced when I read last June’s report of the Controller and Auditor General. Its conclusion is that

“There is limited analysis on the financial risks attached to the Scheme, which makes it difficult for Parliament and the public to have an informed debate about the size valuation, financial performance and debt recovery of the Scheme, These factors make it difficult for student loan policy to be reviewed in terms of unintended socio-economic outcomes.” (Report of the Controller and Auditor General, Student Loan Scheme – Publicly Available Accountability Information, p. 29.)

And, I would add, for the policy to be reviewed in terms of its macroeconomic impact, its implications for human resources, and the usefulness of the government balance sheet.

A third method of measuring the value of the contingent assets would be to find out what they would be worth if they were ‘securitised’ sold to the private sector. (Note I am not arguing the government assets should be privatised, but this is the correct measure of value under the commercialisation policy framework.) This would reflect their true value allowing for the administrative costs the write-offs and doubtful debts, and the current interest charges. My guess is that if the government tried to sell the assets on the open market, they would get about half the value of what they are shown in the government accounts.

In summary then the figures that appear in the government accounts appear to be subject to a wide margin of error, and are probably overvalued. The error is of sufficient size to leave the Auditor General wondering whether the nation can have a sensible debate on student loans.

In addition, an increasingly significant item in the government accounts is subject to an uncomfortably high margin of error means that the accounts may be misleading, and the macro-economic implications of the government accounts difficult to evaluate.

In a way student loans are one of the think bigs of the 1990s. The government has gone into a massive commercial operation which may have led to a misleading government balance sheet (statement of financial position) and will probably lead to major write-offs further down the track.

Does that matter? Of course it matters in a democracy if we cannot know the true state of a particular government policy. It may also matter in the technical sense that we may have a poorly designed policy. In fact if we don’t know what the true parameters for debt write-off provisions are, it almost certainly a poorly designed policy. Moreover it is quite possible that the scheme is much more inefficient than it appears, because the write-offs are a cost of the scheme. For instance, reduced student fees may be more equitable and administratively less cumbersome to give students maintenance grants than to run the loan scheme if the true write-off rate is somewhat higher than that currently assumed. But we don’t know without a proper risk assessment.

Moreover, because the contingent asset of the student loan debt is going to be coming an increasingly important component of the government accounts, the uncertainty associated with it means that the statement of financial position will be of poor quality and misleading and the Crown Balance of net worth is probably wrong. It is no comfort this problem gets worse as we face a rising proportion of elderly, and the fiscal stress that generates. In effect the government accounts will be deceptive in regard to their ability to meeting the needs of the elderly, so the generation which had to take out student loans and which paid higher taxes as a result, will face another whammy of the public account being weaker than they were told. Think bigs come back to haunt us.

There are many conclusions this conference may come to. But one seems to me unassailable: that the Auditor-general’s call for a review of the valuation of the student loan debt should be proceeded with forthwith, preferably by an independent panel. I would advise students to take a very real interest in its deliberations.

The Model Economist: Bryan Philpott (1921-2000)

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

Listener 19 August, 2000

Keywords: History of Ideas, Methodology & Philosophy; Macroeconomics & Money;

Just before he was struck down by his final illness, 79-year-old Bryan Philpott completed the last of his many research papers. It reviewed the work he done at the Research Project on Economic Planning (RPEP) over its thirty years, first as McCarthy Professor of Economics at Victoria University of Wellington, and then in retirement. The paper reflects an impressive research achievement, but also includes and was intended to include, so he told me a powerful rebuke to the economic policy of the last 15 years. To explain how, requires some preliminaries.

The scientific core of the RPEP was largely concerned with a suite of ‘computable general equilibrium’ (CGE) models and the development of the massive data bank they require. (All largely done on the smell of an oily rag, for the government cut its funding many years ago apparently out of frustration that the models would not give the policy conclusions that the government desired.) I will not go into the detail working of a CGE model, but the reader needs to know they disaggregate the economy into a number of different industries, and thereby into a number of different commodities. In contrast, the standard economists’ workhorse, used by both the crude Keynesians (whom Bryan disliked, because he had been properly trained in England by a Keynesian) and monetarists (whom he loathed even more), models only a single commodity.

It is thus not very good at dealing with substantial shocks to the economy – such as dramatic changes in pastoral prices, oil price, or the exchange rate, or a technological innovation (like finding a big gas field). Such shocks involve changes in the relative balance of production and consumption of the different commodities where the convenient one commodity assumption is almost totally useless. At that point, economists start breaking their economic model into separate commodities and industries, their ad hoc actions clumsily mirroring what the CGE models do naturally. These shocks are some of the most important ones an economy experiences. Because they happen only occasionally the single commodity workhorse usually suffices. But when a shock does occur the CGE model turns up trumps.

The second point is that scientists thinking about the future have a particular approach involving a rigorous methodological framework. In contrast politicians, journalists and non-scientific economists (a genre with which we have been over-endowed) sling together a few anecdotes and tell you what they or their employers want (you or themselves) to believe, or what fits their ideology. The scientific methodology of prediction involves as formal a model as is possible (CGE models are very formal), and the setting out clearly the various assumptions that the model requires. In particular, by changing an assumption one can explore its implications. Retrospectively one can look at a scientific forecast and, without consulting the original forecasters (who are inclined to add ad hoc assumptions to defend their mistakes), identify what when wrong with the predictions.

As it happens, Bryan did not have to identify what went wrong with his 1985 forecasts, which he recalls ‘were regarded at the time as outrageously pessimistic’, especially the unemployment forecasts. In fact by 1990 it ‘was clear that they were all too realistic’. Thus Bryan can be said to have successfully forecast the failure of the Rogernomic economic policies at the time they were implemented, despite the promises of enormous improvement by the advocates.

Rogernomes usually come back and say the economic performance would have been worse if their policies had not been adopted, although these are but anecdotal claims with no scientific underpinnings (rather like their policy analyses, actually). Bryan can reply that in 1985 he also made forecasts based on an alternative economic policy package, and they projected a better economic performance. Whereas under the rogernomes the economy grew at 1.0 percent p.a., under Bryan’s package it would have grown 1.9 percent p.a.

Bryan reports a similar outcome in 1990 for the next decade. He forecast the growth rate reasonably accurate (1.8 percent p.a, when it was 2.0 percent p.a.), while his alternative policy projected 3.4 percent p.a. The implication is that had the sort of polices which Bryan had been advocating in 1985 been implemented, the economy would be over a fifth bigger than it is today. I leave you to work out the consequences of this prosperity, but I give you a hint. The tax policies of the rogernomes gave themselves an income boost roughly equivalent to what they would have received under Bryan’s polices. But the rest of New Zealand would have experienced a similar increase, rather than taking an income cut to pay for the rogernomes’ tax cuts.

The Rogernomes’ promises for better performance under their policies were wildly out of line with actuality and with the scientific forecasts that were made at the time. Which to a scientist, anyway, suggests that their policies were deeply flawed. Moreover there was an alternative policy, and the likelihood it would have given a substantially better economic performance.

Bryan wanted me to write this column. I am sorry he is not here to read it.

********************
From Listener 19 December, 1998.

Philpott’s Principles

At the 40th birthday of BERL (Business and Economic Research Ltd, New Zealand’s oldest economic consultancy firm), Professor Bryan Philpott, one of the three founders reflected on the economic principles which have dominated his (and BERL’s) thinking.

* The need for the analysis of all significant changes to include the effects at the economy wide level.
* support for low (but not necessarily zero) tariff protection and a role for efficient import substitution industries.
* Stress on the critical, and all pervading, importance of uncertainty as to the future, and of the need to relieve this (as far as possible) by good economic forecasting and economic planning as a substitute for, or a complement to, sole reliance on the market to solve problems related to the future.
* Concern at the destabilising of possibly malign speculation in, and movement of, mobile international capital.
* Tolerance (where necessary and when optimally designed) of government intervention, regulation and control, including the control exercised by the proper integration of monetary and fiscal policy.
Who said there was no alternative?

For Better or Worse

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

Listener 5 August, 2000

Keywords: History of Ideas, Methodology & Philosophy;

At the heart of much economic analysis is the belief is that it is better to have more material goods and services. The assumption underlies the economic policy objective that we should aim for higher real incomes and production because that means we can (sustainably) consume more and have more material possessions. Economists – or at least the good ones – have been aware of the importance of the assumption, but until recently they were not able to evaluate it in any scientific way. Now that we can, ‘more means better’ proves to be only marginally correct, not nearly as important as economic policy assumes.

The main evidence comes from an official US survey which asks each year whether each of the 1500 odd respondents were ‘happy’. (I take it the question is motivated by the US Declaration of Independence that among ‘certain unalienable rights’ is ‘the pursuit of happiness’.) Since the questions are asked through time (together with a whole range of other personal variables), it is possible to study the trends and associates of happiness.

The first oddity is that US citizens are no happier today than they were in 1972, when the survey began (or even back to 1946 according to older surveys). There are differences between groups. Men have been getting slightly happier and women slightly less happy. (On average men report themselves less happy than women, so gender happiness is converging.) This is an astonishing finding, given the social changes over the last three decades are generally thought favourable to women. David Blanchflower and Andrew Oswald, the authors of the paper I am mainly using, simply report their findings but (given the data limitations) are unable to shed light on why. A cynical possibility is that ‘women’s liberation’ is making women as happy as men.

Another outcome one may not have predicted, is that happiness changes over a lifetime, initially decreasing as one gets older, hitting the bottom in the thirties, and rising thereafter. Less surprising, given the findings about long-term trends, is that high incomes do not seem to generate greater happiness. While real incomes have risen since the survey began, happiness has not. There has been some dispute over this conclusion. One view is that while additional income may not make one any happier, having more income relative to the average may. If this were so, then it is relative income not absolute income which is important, and growth in material product contributes little directly to human welfare (once one has got out of poverty). However, not all those who have evaluated the data agree.

It turns out there is a very slight improvement in happiness as incomes rise. In order to quantify the effect, the authors compare the advantage of extra income to the advantage of being married, for respondents report being married is a much happier state than being widowed, separated, divorced or never married. (That is an average, of course. As Jane Austin reminds us, ‘happiness in marriage is entirely a matter of chance.’) The economists calculate being average married generates the same additional happiness as an additional income of $US 100,000 a year. These figures apply for the US, of course, but some less comprehensive European data generally supports the broad conclusions. (The annual sum capitalises to at least a $1,000,000. Look at your (average) spouse and think ‘you’re a million dollar baby.’)

The research draws identifies other economic variables over which the government has some influence, and which give a much better increase of happiness than income the more years of education the happier. It is also happier to have a job (for the same income). This last result is intriguing, for it suggests that work is valuable in itself, and that job creation may generate greater happiness, even if that reduces average incomes. I would not jump to the conclusion that make-work schemes or low paid jobs are necessarily a good thing. My reading of other studies is that such work has to be seen as socially valuable (and adequate remuneration is a signal that it is).

Encouraging people to stay on in education is also valuable in itself. The result may apply to older people returning to education too. A Swiss study found those who lived in more democratic cantons were happier than elsewhere. This suggests political devolution contributes to happiness. (Local Government New Zealand take note.)

I do not think the research implies the government should march around with a shotgun marrying everyone. But it does suggest it should not overstress stress strategies which increase average incomes. We probably need the additional production to create jobs, and relativity effects – especially when we compare ourselves overseas – may be relevant. An implicit conclusion may be that improving the quality of our consumption – a decent TV channel, arts and recreational pursuits, an attractive environment, better health care, more education, personal security, more genuine choice may all make significant contributions to the nation’s happiness.

Perhaps the research findings are too subversive to economic policy for economists to happily contemplate them.

Matter Of Opinion

This entry was posted in Macroeconomics & Money on by .

Listener
22 July, 2000

Keywords Macroeconomics & Money; Statistics

The premier survey of business opinion has been produced by the NZIER since 1961. When I looked at in the 1980s, I was struck by how unhelpful the business opinion question was in comparison to the questions of what the business respondents had actually done, and what they planned to do in future. These matters were not their opinions, which may or may not be well informed. They are the actions the respondents have taken and are going to take in their business lives, on such things as investment, employment, output, and inventories.

Sadly the media focus on the NZIER business opinion question in the survey, ignoring the rest. The mistake is compounded by the National Bank introducing its own survey in 1988, which asks only businesses opinions (business confidence) and nothing about what they are actually doing. Because it is monthly it gets even more media focus than the more respectable NZIER survey.

Last June’s National Bank survey reported a big deterioration in business confidence. A net 60 percent of the sample said they expected business conditions to deteriorate in the next year. This contrasts with almost all forecasters, who expect the economy to grow, albeit more slowly than it did recently. (However, if businesses panic, the opinion could be self-fulfilling, and forecasters may lower their expectations.)

What we do not know from the National Bank Survey, because they do not ask is whether businesses cutting back on their plans for investment, employment, production, and stocks. In the past, we have had businesses with opinions of the economy contradicting with what they were doing themselves. So we cannot be sure what is going on. There are a number of possibilities.

The most likely one is that New Zealand businesses are reflecting a general sentiment in the world, that prospects for the world economy need to be lowered. Among the reasons are the steady hikes in US interest rates, plus the increasing realisation that world share prices reflect irrational exuberance rather than any realistic assessment of the fundamentals. The chief evidence for this view is that other countries are experiencing reductions in business confidence too.

At the other extreme is the view that the situation is peculiar to New Zealand, and reflects a loss of faith of the business community in the current government. The Right tells us that the government is doing various wicked things to the business sector: the Left tells us it is businesses punishing the electorate for preferring a government which is not subservient to business interests. The first theory seems to be irrational, for the government policy changes have only been minor and malevolent only to the thinking of those who are so ideologically committed they view the last fifteen years as a great economic success. (For instance the ACC reforms take us back to where we were a year ago, when confidence was much higher; the employment reforms are hardly radical in international terms.) The second implies that the political judgement of businesses is as shallow as it appears on the business pages.

A variation is that it is not the government but the Reserve Bank who has got it wrong. It is raising interest rates, so the critics say, when the economy is slowing down. This reinforces the downswing, so things will get a lot worse. This column has argued that it is not the technical competence of the Reserve Bank which is at fault, but its underlying theoretical basis (which, alas, will not be addressed by the review later this year). Basically monetary policy is muddled in that the government, the Bank, the financial sector, and reality all have different views of what is happening.

A third possibility is the economy is undergoing a structural twist in which the tradeable sector, stimulated by the lower exchange rate, is expanding, at the expense of the non-tradeable sector. (If so, this may be government’s intention, because any addressing of the danger in our huge current account deficit requires such a twist.) Business opinion surveys are biased towards the non-tradeable sector, for they excluded exporters such as farmers, while those that are included are large firms who get only the same weight as small businesses in the non-tradeable sector.

A fourth possibility is that businesses have at last taken a hard look at the economy’s performance over the last fifteen years, and come to the realisation that it has been poor – possibly the worst in the OECD (outside some east-central Europeans). They have switched from an irrational exuberance about our prospects to rational realism, although they may have over-reacted.

I cannot tell the proportion of each the relevance of each of these explanations. Even the more sophisticated NZIER survey is not detailed enough to evaluate that. I do know there were major collapses in business confidence in 1967, 1970/1, 1974, 1978/9, 1981/2, 1984/5, 1991, and 1994, according to the NZIER survey. The current slide began about mid 1999 (following a minor slide in early 1998). I am not saying all of these were the same as the current one, or even of similar magnitude. But one can say with confidence these things happen (more often than not in the first year of the election triennium).

Metrology and the Economy (lecture)

This entry was posted in Business & Finance on by .

Paper to the National Measurement Conference, 14 July, 2000.

Keywords Business & Finance

In October, the Mars Climate Orbiter spacecraft burnt up in the Martian atmosphere because the acceleration data for controlling its thrusters had been provided in pounds of force (US customary units) but entered into the space craft’s computer as newtons (the SI unit). Little information was obtained from the trip, so most of its $US240 million was a complete waste. This is a spectacular example of how measurement failure can be costly, but in some ways it is misleading. The costs of a failure to have a sound measurement system are generally more subtle than that, as are the benefits. In total, a system failure from an inefficient measurement system may be relatively more expensive than the loss of a single spacecraft.

Measurement Systems as Economic Infrastructure

In recent years economists have become aware of the crucial role that the commercial infrastructure plays in an economy. We all understand how poor roading and other transport links, or poor telecommunications, directly adds to business costs. But the intangible infrastructure plays an important role too. Without a sound system of commercial law and effective means of legal enforcement private commercial transactions become clumsy, expensive to transact, and difficult to obtain redress. These do not only add costs to business, but they also discourage entrepreneurs from seeking new opportunities which benefit consumers. Economies with high transaction costs are inefficient, whether those costs arise from inefficient transport systems or inefficient legal systems.

Another part of the intangible infrastructure, which can add or subtract to transaction costs, is the national system of measurement. Suppose there was not one. Then businesses involved in any transaction which involved measurement would have to spend time (and so money) agreeing on some common standard. (Imagine the complication for a business if each business it traded with required a different common standard.) Or suppose each supermarket had its own weights and measures. Consumers would be unable to judge the relative prices in the various chains, and so the competitive system, which drives better quality at lower prices, would be less effective.

What would happen is that there would develop a system (or systems) of private measurement, so that two businesses trading together or consumers when purchasing would use the common standard it set. Hopefully there would be only one system, in which case it would be a monopoly. Moreover in an era of increasing international trade it would have to connect with similar systems overseas. There are gains from a single international system of measurement.

In practice the international and national system have to be government ones, or at least heavily regulated b the government. To see this, consider the many transactions where measurement is important and in which the government is involved – for example excise duties on alcohol and tobacco. The statute which sets the involvement – in this case that which sets the excise duty rates – requires authoritative government set measurement standards. Otherwise the private transactor could manipulate the measurement in its own interests. A similar issue arises in international trade. If two countries do not have a common measurement standard (or a means of linking them) trade negotiations would quickly become very complicated.

Such issues have become more acute with the increasing complexity of the modern economy. This means greater anonymity between transactors, and an increasing use of technology. Today, economic transactions (trading) typically occur between people or agencies who are not well known to one another, so that the accuracy that fairness and confidence in trade requires becomes important. Often the transaction is one-off with the transactors never trading together again (as when a traveller purchases petrol from a service station in an otherwise unvisited location), but even where the transaction is repeated (the regular visit to a supermarket, say) there is normally some personal distance between those involved.

Where the technology is simple, exact measurement may not be required. Conversely as it becomes more complex, measurement accuracy becomes more significant. Consider the precision required for the hardware of modern informational technology.

Note that while measurement is often discussed in terms of length and mass, this applies to many other areas including the requirement of a nationally determined calendar and clock. Some economists would argue that the goal of price stability is equally a matter of having a constant reliable and authoritative standard of value. For a transaction to occur smoothly, the seller, receiving money for the goods or service, needs to be confident of the value of the cash received or the reliability of the credit offered. Thus, there has developed a sophisticated monetary system, even at the retail end where there is an officially guaranteed money (supported by measures to eliminate counterfeiting), together with private provisions such as banks, international credit card agencies, and credit advice agencies. One of the functions of money is, of course, as a measure of value.

A national system of measurement is not static. As technology becomes more sophisticated, precision becomes increasingly necessary, and so therefore must the common standard. As measurement extends into other technological areas, common standards must follow.

The significance of accurate measurement is well illustrated by considering transactions where it is not possible. When purchasing a mattress, say, the buyer can be sure of its size to fit the bed frame. However, on the crucial matter of the degree of hardness and softness (recall a person will spend about a third of their life lying on mattresses), there is no agreed quantitative standards. As a result the purchasing process for a mattress can be much more complicated than for a bedframe. Or consider the measurement system becomes unstable changing over time so that inter-period comparisons are difficult. A good example of this is the fierce inflation which New Zealand experienced in the two decades after 1966, when prices rises were sometimes averaging one percent a month, and were irregular so it became hard to compare infrequent purchases. The usefulness of money as measure of value was reduced.

It would, however, be wrong to confine the importance of measurement only to economic transactions. When a couple of friends agree to meet at a certain time, they are dependent upon a national convention on how to measure time. Amateur sport, indeed much recreational activity, often requires precise measurement.

In summary, good standard measures underpin much of modern human endeavour. Where they do not exist (usually because they cannot) the transactions of economic and social life may be more cumbersome. A universal standard measure can simplify those transactions adding to the efficiency of economic activities and the quality of human life.

Measuring the Measurement System

Thus far I have argued the value of a sound comprehensive measurement system in qualitative terms. Ironically it is difficult to quantify its value, as is true for other elements of the commercial infrastructure. However there are some quantitative measures which give an indication of the importance of the measurement system.

It is estimated that total trade measurement transactions in Australia – commercial transactions requiring explicit measuring – amounted to $A320b.[1] It is tempting to compare this total with Australian GDP of around $A480b, but the measurement transactions include those which occur throughout the chain of production and distribution, and so the same item (in various stages of processing) may be measured up to seven times. An intriguing conclusion of the study was that only a fifth of the total involved final consumer transactions, so that is four fifths were between businesses or businesses and government. While the public may see the problem as the butcher with unreliable scales, measurement issues are far more pervasive.

One method of quantifying the system is to estimate the amount of resources being used in the economic activity of measurement. This is sometimes called a cost estimate, although that may be misleading because cost is generally seen as a penalty, so the measure does not indicate the benefits of metrology to the economy, since the resources are incurred because their benefits are thought to exceed their costs.

T.J. Quinn reports that ‘measurement and measurement-related operations are estimated to account for between 3 percent and 6 percent of the GDP of industrialised nations.’[2] If, as seems likely, the range also applies to New Zealand, then in 1999 the country would be spending between $3b and $6b on measurement and measurement related operations. Although the comparisons are not quite valid, similar size industries include tourism (a 3.4 percent contribution to GDP), agriculture (5.6 percent), construction (3.6 percent) and communications (3.0 percent).

Because there is no measure of net output, it is not possible to accurately estimate the amount of labour the measurement activity uses. But suppose net output is about half gross output, a not uncommon ratio in New Zealand industrial activity. That suggests that measurement activity employs the equivalent of around 26,000 to 52,000 full time workers (say 1 to 2 million hours per week). This, of course, is not the number of workers actually involved in the activity, since most of those who are spend only part of their time directly measuring. The number involved at some time in their working day is far larger.

One further indicator of the economic significance of measurement was that between 1970 and 1976 New Zealand, like some other countries at around this time, went through a process of metrication whereby the traditional ‘imperial system’ was replaced by the ‘international’ (or metric) system of weights and measures. The seven-year timetable was to reduce the cost of the transformation. There seems to be no estimate of the total cost of the change. Even so, one is unlikely to include the discomfort to individuals of changing the measurement system they grew up with, and some older people still have difficulty with the new-fangled measures (often not having an intuitive feel about their magnitude). One might justify the change by arguing that the metric system is intrinsically simpler and more efficient than the imperial system but, instructively, the justification for the decision to change ‘was based almost entirely on the necessity to keep in steps with overseas trading partners.’[3] It was international rather than domestic commerce which forced the requirement on New Zealand.

In summary, there is no doubt that the measurement activity is of considerable economic significance, whether it be assessed by:
– that which takes place at the individual work place, or
– by the value or equivalent employment in New Zealand output, or
– by the nation’s willingness to disrupt habits of a millennia to convert to a better system of measurement.

Compliance Issues

However no matter how valuable a national (and international) measurement system is, the economist is always worried about whether compliance costs – the costs of being required to comply with measurement standards set by the state – over-costly.

Firms value their reputation and even set measurement standards at a higher level than the statutory minimum. This involves costs. On the other hand failure involves costs too. It is not just a matter of a prosecution and the damage that could do to the business’s reputation among consumers. Consider the situation of a supermarket in an environment where there were no standards. Shoppers would be distrustful of the measure of their purchases, and likely to complain. The complaints would take up the shop’s time, and not be easily resolved. In contrast, one supermarket manager told me that he had but two complaints about weights and measures in three years. Each involved a person whose home scales proved inaccurate. The Trading Standards Service receives only a few hundred complaints a year – fewer than the transactions a single household might make in a fortnight. Only a fraction is substantiated. People trust the existing system.

The point of this counterfactual alternative is that it does not at all follow that were there no measurement infrastructure, transaction costs would be less. Arguably they would be more. That is the danger of quoting the 3 to 6 percent of GDP figure as the costs of measurement activity to the economy. The reality is that without incurring those costs there would be even more economic resources involved in the related activities of self-compliance, searching and litigation.

It is true that government regulation of measurement requirements can impose costs on businesses. Government policy is to minimise these compliance costs, although care has to be taken in doing so they do not raise transaction costs elsewhere. I have not come across any example of businesses considering metrological compliance requirements to be excessive. To the contrary, some supermarket chains require a higher standard than the law requires, which suggests they do not think the regulations are onerous. Even so, government policy needs to be conscious of compliance costs when reviewing or extending the regulatory framework. Ultimately, excessive compliance requirements are a burden on the efficiency of the economy, and raise prices to consumers.

The Public Understanding

While I have seen no survey, my impression is that the broad understanding of the public is that somewhere or other there is something or other which ensures that the products they buy are subject to accurate weights and measures. Their confidence is such that they rarely bother to test this belief. That supermarkets have few weights and measures complaints suggests that most of its customers do not check the weight of what they buy (for a high proportion of them must have inaccurate scales, and yet they do not complain).

Is this all the general public need to know? Perhaps having a vague confidence in the system is sufficient if they were only shoppers. However as workers, people are actively involved in measurement as a part of their jobs. There is an increasing recognition that for a worker to carry out a task properly (as is required by total quality management – TQM), he or she needs a thorough background in the fundamentals of their worktasks, and not just in its operational routines. Moreover, they meet measurement problems in their everyday non-commercial life. This suggests a need for a public understanding of metrology somewhat higher than merely having confidence there is a government backed measurement system.

There is also a wider public policy issue. While it is common to see measurement issues as being primarily of consumer interest, and only secondarily production matters issues (although the Australian evidence suggests the balance is the other way around), there is also the matter of international trade (the reason for the metrication upheaval). More insidiously, measurement criteria have been used as a non-tariff barrier to foreign competition.

Probably the most important long-term strategy is to ensure an integral part of the core curriculum of the education system includes a basing in measurement issues. Historically, students got some training in their mathematics, general science, home science or handicrafts courses. But not all students now do these, and one wonders whether in any case there was sufficient for an understanding of the increasingly sophisticated issues where metrology touches everyday life. (For instance, the increasingly inherent problem of measurement error in medical diagnosis – summarised in the notions of false positive and false negative.) Additionally, teachers of specialist subjects need to include in the performance checklist whether the course has adequately covered its measurement issues. If this sounds mundane, the history of metrology has some spectacular illustrations of its importance. A student doing advanced secondary school physics should revel in the metrology of the discovery of relativity; a cooking class has the opportunity to discuss the consequences of failures in recipe specification and interpretation; measurement in sport provides some examples, with riveting videos to illustrate them.

Issues for Further Consideration

1. Should the remit of the Trade Measurement Unit in the Trading Standards Services of the Ministry of Consumer Affairs explicitly recognise metrology’s importance to the external sector of the economy?

2. Should the government should review whether its role in the International Organisation for Legal Metrology (OIML) should be upgraded from corresponding to full membership, given the increasing importance of metrology in food, health, and environmental issues (and their impacts on key elements of New Zealand international trade)?

3. While there is no evidence of an unnecessary burden of compliance in regard to metrological issues is onerous, should the Trading Standards Service explicitly acknowledge that one of its functions is to reduce compliance costs, providing they do not add to transaction costs elsewhere in the economy?

4. Is there a need for raising public awareness of measurement issues in the long run? The program could include:
– ensuring that key formers of public opinion are aware of metrological issues;
– using news events which involve measurement issues to provide a background of the wider issues;
– ensuring there is adequate coverage of measurement issues in the core primary and secondary curriculum;
– expecting all specialist courses at secondary and tertiary (including vocational) levels to cover systematically the relevant metrological issues of the subject;
– approaching NZQA to assist in attaining the previous two objectives;
– providing the public with material to assist with these objectives.

Conclusions: New Directions in Metrology – The Economists’ Perspective

Transaction costs have been described as the friction in the economic system. Because of these costs the system operates less efficiently than it would in a world without transaction costs. One of the functions of government policy is to reduce that friction, to – in effect – put some oil into the machinery so it runs more smoothly.

Measurement is one of the sources of transaction costs. The metrological infrastructure is a means of reducing those costs, of putting some oil into the system to reduce the friction that would arise from inaccuracy and inconsistency of measurements. It is not possible to evaluate the contribution of the engineer which supplies the lubricating oil, nor the oil itself. Clearly, the contribution is not the same thing as the cost. Rather, we can imagine what would happen were there no lubrication. At best the machinery might come to a grinding halt. The users would hurry to find some oil, but because it was not designed for the particular use and because they were not trained in its application, the machine would still function poorly.

Metrologists are among those who design and apply some of the lubricating oils for the economic system, and ensure that it is applied as effectively as possible. Their value, like that of the engineers with machinery oil, is incalculable. But nonetheless, the value of a properly organised system of international measurement is palpable.

Endnotes
1. Committee of Inquiry into Australia’s Standards and Conformance Infrastructure (1995).
2. Quinn (1994).
3. The quotation comes from NZOYB (1982:854). (Despite the claim of efficiency of the metric system, we should acknowledge the linguistic merit of our forefathers’ simpler ‘pounds’, ‘feet’, and ‘miles’.)

Unchanging Fashion: Pete Seeger’s Journey Of the Spirit

This entry was posted in Literature and Culture on by .

Music in the Air, No 10, Winter 2000, p.6-9.

Keywords: Literature and Culture;

Looking back over eighty years of life, as Pete Seeger may well have done in May 1999, one seeks patterns and consistencies. There is the big pattern, of course, the living the eighty years, and the consistency of having been a professional folk singer for the last sixty, with his father, Charles, as a collector of folk songs before that. From the songs he wrote and sang, one might see Seeger’s life as a jumble of topics and engagements, held together by an enthusiasm for singing, considerable technical musical skills, and an involvement in radical causes.

Indeed, Seeger has been involved in so many social movements that at first they seem a jumble. Initially it was with the Almanac Singers (which at various times included Woody Guthrie, Beth Lomax, Lee Hayes with a commitment to the union movement reflected in such songs as ‘Talking Union’, ‘The Union Maid’, ‘We Shall Not Be Moved’, and ‘Solidarity For Ever’. That was the early 1940s, with the New Deal transforming post-depression America. But soon the need to organise workers into unions was replaced by the need for war songs to defeat fascism. After the war it was back to union organisation, campaigning for Progressive Party Presidential candidate, Henry Wallace, in 1948, and supporting Paul Robeson, whose pro-Soviet connections plus colour had him blacklisted and pelted by racists. Then it was the Weavers with their record-breaking ‘Goodnight Irene ” written by black ex-convict Huddie Leadbetter, although ‘If I Had a Hammer’, ‘Kisses Sweeter Than Wine’, and ‘So Long It’s Been Good to Know You ” are better remembered today. All this time Seeger was also singing, and collecting, traditional American folk, and foreign, songs, such as ‘Tzena, Tzena’ from Israel, the flip side of ‘Goodnight Irene’ , and ‘Wimoweh ‘ from South Africa.

From his teenage years in the 1930s, Seeger was a member of the American Communist Party. One of the major sources on his activities are released FBI files, which sometimes give the impression of surveillance by the Keystone Cops. By the middle of 1951 the FBI operation became more sinister -for example. providing information to others so concerts were cancelled, and publishing critical articles.

The Korean War was in full swing. and McCarthyism building up. The Weavers collapsed. Following a blacklisting, Seeger’s singing became a sort of guerrilla warfare. where he would sing for a (modest) fee at a venue and escape, before the anti-communists had time to enforce the ban. By 1955 he was in front of the House Un-American Activities Committee of the US Congress, described by ex-President Harry Truman a.” ‘more un-American than the activities it is investigating ‘.

Perhaps inevitably, given the courageous way he faced up to the committee, the Lower House of Congress cited him for contempt (with seven others including playwright Arthur Miller). He was found guilty in 1961 and jailed for ten years. The New York Post reported: ‘Dangerous Minstrel Nabbed Here: Amid our larger tribulations, the Justice Department has moved fearlessly and decisively against ballad singer Pete Seeger… That the combined powers of the House Committee and the Justice Department should be rallied to imprison him is bitter burlesque. Some jails will be a more joyous place if he lands there, and things will be bleaker on the outside.’ We can laugh today, but it was not much fun for Pete Seeger, his family and friends. Fortunately, there was an ,appeal, bail, and the US Court of Appeal dismissed his case in 1962, ending the decade of anxiety. (He managed to join the 1961 Easter Peace March in Washington between trial and sentencing.) Yet in these troubled times Seeger wrote ‘Where Have All the Flowers Gone?’, led the revival of interest in American folk music, and was a symbol for those with a civil liberties bent. But this revival was also a valuable-in-its-own-right exercise of saving a heritage before the older singers and their songs died forever. Seeger was a key player in the recording and publishing company Folkways (founded in 1948), which has done so much to preserve and promote traditional folk music, and the new topical songs of the 1960s.

While he was nurturing young singers and recovering old music, a new wave was sweeping America, the civil rights movement. The recording of the Carnegie Hall Concert in June 1963 nicely portrays Seeger’s style (1). The record begins with ‘If You Miss Me at the Back of the Bus’, recalling Rosa Park’s famous sit-down, followed by the black spiritual ‘Keep Your Eyes on the Prize (Hold On}’, and a couple of civil rights songs, ‘I Ain’t Scared of Your Jail’, and ‘Oh, Freedom!’ Now the segue to ‘What Did You Learn in School Today?’, telling how the white middle class learned their racism in their social institutions. On to ‘Little Boxes’ on social conformity, to ‘Who Killed Norma Jean?’, on the public pressures on private lives, finally on Side One, ‘Who Killed Davey Moore?'(the boxer).

Side Two opens with’ A Hard Rain’s A-Gonna Fall’, reputedly Bob Dylan’s response to the Cuba missile crisis, with the first line of every song he was never going to write if the damned things were launched, followed by a quick children’s song to rest the voice, then ‘Guantanamera’, the words written by a Jose Marti, a nineteenth century Cuban freedom fighter, followed by ‘Tshotsholosa’ an African song. The song ends on a triumphant ‘We Shall Overcome’ joined by the audience. All this when he was still blacklisted from television, including a programme called ‘Hootenanny’a gathering at which folk singers entertain, often with the audience joining in – a word which he had introduced into the English-American vocabulary.

There is a seduction of the audience going on here. The audience may have arrived passionate about black rights, but other causes are posed as related. Thus the themes of campaigning against nuclear weapons and the US treatment of Cuba get woven into the Civil Rights story.

A few years later Seeger is front stage for the Vietnam War protest movement.

In 1967 his ‘Waist Deep in the Big Muddy’ was a hit on the college circuit. Superficially, it is a soldier’s story, of a captain leading a platoon across a river which gets progressively deeper and more dangerous, ‘But the big fool said to push on.’ Eventually the captain disappears into quicksand, the platoon pulls back, and discover that, for all his confidence, the captain had misunderstood the terrain. But the audience knew it was a song about President Johnson leading the nation into the Vietnam morass. So did the media executives, and they banned it. What should have been a mass hit was stifled by censorship. (In 1991 I recycled the song in a Listener column to describe what the Rogernomes were doing to the New Zealand economy.)

Although Seeger does not always write great lyrics, he has an extraordinary ability to find others’ texts and put them to music. His co-writers include the Almanac Singers, the Bible, Alex Comfort, Fyodor Dostoevsky, Jose Marti, Matt McGinn, Malvina Reynolds, and William Shakespeare, sources indicating the breadth of material, embracing international and national, past and present, writers.

‘My Name is Lisa Kalvelage’ is an almost verbatim version of the statement of a woman arrested on a peace protest against napalm bombs. She had been born in Nuremberg, and as a GI bride wanting to enter America, was closely examined about her involvement in Hitler’s regime. This questioning, and the trials of her birth city, gave her an understanding of, and commitment to, the principles of personal responsibility, which, twenty years later, she applied in California, to be arrested for doing so. The words are so dignified, so apt, so moving, they are blazed on my conscience, yet I cannot recall the music, so beautifully subdued and supporting is the background guitar.

The song finishes up in the air, with the words of the final verse:

The events of May 25th, the day of our protest,
Put a small balance weight on the other side.
Hopefully, someday, my contribution to peace
Will help just a bit to turn the tide.
And perhaps I can tell my children six
And later on their own children
That at least in the future they need not be silent
When they are asked, ‘Where was your mother, when?’

leaving the audience to ponder their personal ‘when’. Seeger uses the same ending style for his standard presentation of ‘Where Have All The Flowers Gone?’, terminating abruptly at the finish of the third verse. The audience knows the circularity of the song.

Seeger’s musical skills are that of a melodist and instrumentalist, a fine one at that, who has written books on how to play the guitar, the 12 string guitar, the banjo, and even on the steelpan drums of Trinidad (2), Rescuing the banjo from its joke reputation as being something black minstrels played, to a respectable and complex musical instrument (it is his favourite) has meant that it can now contribute to a symphony orchestra, as occurred in a New Zealand Symphony Orchestra concert in 1999 (3).

From one perspective Seeger resisted modernisation. He had a key role at the 1965 Newport Folk Festival in which Bob Dylan moved into ‘electric rock’, leaving the traditional folksinger’s path. (Before then some had seen Dylan as the next Pete Seeger.) Deeply shocked by what many saw as a betrayal, Seeger nevertheless gathered the players together for the finale. But he withdrew from public involvement shortly after for a period. He never joined the movement to electric rock and beyond in his own performances. The times may have been a-changing, and he continued to develop techniques and write new songs often based on old melodies. But keeping to his craft, he allowed others to develop theirs. A recent double CD, Where Have All the Flowers Gone? (Appleseed Music, 1998), has a host of folk singers, each performing a Seeger song, and some of them using post-1960 folk musical arrangements.

Like many other loving musical fathers, there are a host of children’s songs in his opus/repertoire. One of my favourites comes from a Russian child’s painting on which he wrote, ‘May there always be sunshine, may there always be blue skies, may there always be mummy, may there always be me’.

Later, environmental songs are added. He sings passionately and movingly about the Hudson River on which he lives and sails, and which became polluted. Enjoy ‘Sailing Down My Dirty Stream’, an ironic comment on his earlier ‘Sailing Down This Golden River’.

Any complete record of Seeger ‘s achievements must also include mention of his efforts to preserve, publish and promote folk music. He still retains an active role with Sing Out! (4) , reflecting a host of earlier efforts to keep folk music alive and popular.

Slowly, but surely, he became accepted as part of America, even to the point that recently President Clinton honoured him. It has been a long journey from the days when he was considered so subversive that the mainstream media would not touch him.

What about Seeger’s spirituality? He does not seem to have been a regular churchgoer, although he came from a religious family, made use of church folk music and spirituals, and willingly sang in churches. Probably the most famous version of the well-known passage of Ecclesiastes is Seeger’s ‘Turn! Turn! Turn! (To Everything There is a Season)’.

Nevertheless I was struck by the spirit of his most recent CD, Pete (Living Music Records, 1997), in which he explores yet another issue: how to think about aging, and the end of human life. Death is perhaps the greatest challenge. Many people, even today, avoid its apparent finality by claims of an afterlife, although the proportion of the religious who make no such claims appears to be rising. Most humanists reject the possibility. Those that believe in the traditional afterlife have a simple explanation of why we are here. The rest do not, and yet as they get older they are faced with questions of the purpose of life and the meaning of death, while rejecting the answers from traditional religion. It requires considerable courage to face honestly the old questions without the old answers. Even for a humanist the answers appear to involve spirituality, a spirituality often related to music. It is almost as if the bits of the brain that deal with them are the same or close together. It is easy to see in Bach, say, a religious conviction in music rising out of a religious commitment in life, but Beethoven’s music and life challenge any direct connection, while enchancing the bond between music and spirituality. So does Seeger’s.

Seeger gives no direct indication of a belief in an afterlife: the final song in Pete is pointedly ‘To My Old Brown Earth’:

To my old brown earth
And to my old blue sky
I’ll now give these last few molecules of ‘I’ (5)

Instead, the songs on the CD celebrate a person’s life, friendships, and ideals. The penultimate contribution is a banjo version of Beethoven’s ‘Ode to Joy’, which is cheeky in one way, but in another shows the ability of a banjo, in Seeger’s hands, to play serious classical music. It also links Seeger’s philosophy to Beethoven’s and Schiller’s.

It is always instructive how a good song written for a specific occasion can be transformed to an apparently universal one. In the late 1960s Seeger was asked to write a song for Otto Preminger’s film Tell Me That You Love Me Junie Moon, which was about three severely disabled people living together, illustrating the capacity of people with disabilities to celebrate life. In Pete, a quarter of a century later, ‘Old Devil Time’ takes on a new meaning:

Old devil time, I’m goin’ to fool you now!
Old devil time, you’d like to bring me down!
When I’m feeling low, my lovers gather ’round
And help me rise to fight you one more time!

It would be easy to accuse Seeger of just being a stirrer, who hopped on to every fashionable bandwagon that passed. One could even argue the Communist Party engagement of the 1930s and 1940s was one of the earliest examples, for many people joined then because it seemed the thing to do. But to view Seeger’s life as a series of five year stints in fashionable radical causes is to miss its coherence.

In 1962, when he was 43, Seeger wrote’ Sailing Down My Golden River’ , a song of a child, or someone recalling childhood, involving messing about in a boat in a local estuary or complex of creeks:

Sailing down my golden river
Sun and water all my own
Yet I was never alone…
Sun and water, old life-givers
I’ll have them where’ er I roam
And I was not far from home.

By the time it is being sung by a man in his seventies in the album Pete, it is a statement of someone who has travelled far, done many things, for many causes, and yet was never far from the home of his beliefs. That is a more useful way to think about Seeger’s life. Each radical cause became an opportunity for him to express decency, humanity and the possibility of progress. He did so actively, leading a host of musical and social movements, and leaving a whole lot of great music, which will remain with humankind, as long as it sings.

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I was asked to nominate my Ten Favourite Songs that Pete Seeger is associated with:
The Bells of Rhymney
Declaration of Independence
Guantanamera .
How Can I Keep from Singing?
If I Had a Hammer
John Henry
Kisses Sweeter than Wine
May There Always be Sunshine
My Name is Lisa Kalvelage
Oh Freedom!
Old Devil Time
Peatbog Soldiers
Quite Early One Morning
Sailing Down this Golden River
Sailing Down my Dirty Stream
Seek and You Shall Find
Solidarity Forever
Talking Union
This Land is Your Land
Those Three are on My Mind
Turn! Turn! Turn! (To Everything There is a Season)
Union Maid
Waist Deep in the Big Muddy
We Shall Not Be Moved
We Shall Overcome
Where Have All the Flowers Gone?
Wimoweh

(OK. So Pete Seeger is such a big man, his ten is larger than most.)

Notes/Biblography /Discography
(1) The concert recording is We Shall Overcome: Pete Seeger Recorded Live at His Historic Carnegie Hall Concert, June 8, 1963, Columbia Records, Monaural BP 473073.
(2) Steel Drums: How to Play Them and Make Them, instruction manual by Pete Seeger, an Oak Publication, 1964.
(3) ‘Promenade Overture’ by John Corigliano, played by the New Zealand Symphony Orchestra in 1999.
(4) Sing Out!,founded in 1950, the New York based bimonthly magazine, published by Folkways, covering the entire North American traditional music scene as well as the contemporary urban scene, and described by one of the founding editors, Alan Senauke, , as an alternative to the predigested sounds of pop music, bought and sold by giant record companies and slippery-tongued promoters’.
(5) ‘To My Old Brown Earth ” words and music by Pete Seeger ( 1958), copyright renewed, 1964, by Storrnking Music Inc.

The Incompleat Folksinger , Simon and Schuster, 1976, is the earlier autobiography, and includes very extensive coverage of the singer’s own songs and traditional songs. A later autobiographical work, Where Have All the Flowers Gone?, Sing Out Publications, 1993, is described on the Seeger website as ‘absolutely THE definitive book by and about Pete Seeger for those who admire him and love his music’. This text seems to be out of print. The adventurous enquirer can contact Sing Out Publications, P. O. Box 5253, Bethlehem PA 180150253.

How Can I Keep From Singing? By David King Dunaway, McGraw-Hill, 1981, is the major biography.
http:/ /ourworld.compuserve .com/homepages/ JirnCapaldi/index.htm>The Pete Seeger Appreciation website contains an almost complete discography, a list of songs he has written, some with their words, and a list of books by and about Pete Seeger.

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Budget Philosophies

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

Listener 8 July, 2000.

Keywords: Macroeconomics & Money;

Just as nostalgia aint what it use to be, neither are government budget presentations. Once they were given in the evening when financial markets were closed, and were filled with surprises such as excise tax increases. Today, the budget is presented in the afternoon, there are few surprises (tax increases are announced at other times). The reduction in significance may be no bad thing. But the media still treats the budget as one of the great political events of the year. A few days later the news returns to normal, and the dispassionate observer wonders what it was all about.

What is disappointing is that for this year’s budget, like previous ones, the government has not take the opportunity to set down its economic philosophy. That may reflect the essential pragmatism of the politics in New Zealand, perhaps compounded by the inherent difficulties of a coalition government agreeing on such philosophical issues.

One can see some new directions. The approach, which began a decade ago, of continually reducing government expenditure has been abandoned. I am not sure what past governments thought they were doing, but the outcome has been a public service which was becoming dysfunctional, and a grumpy electorate which wanted more public spending on things it valued: arts and culture, education, the environment, health, and so on. National realised this in for health spending, after its ill informed reforms of the early 1990s did not produced the productivity increases that were promised by the well-paid consultants and officials. But, as the incoming government found, many other activities were dying from the tourniquet of spending cuts. Had National been returned it too would have had to bale out the Symphony Orchestra (which had funding only till last May) and a raft of other public agencies in as dire circumstances. Meanwhile mental health and other areas desperately needed extra funds, if they were to do what the electorate wanted from them.

The ‘closing the gaps’ initiative is more peculiar to this government. I am not sure what it means. Certainly the Maori and Pacific Islanders are worse off than on average on many social indicators, but it is not clear how the announced package will markedly reduce the inequality. The consequences of the last 160 years are not going to be reversed overnight. The package may not even be the most effective way to spend the money. After fifteen years of ignoring equity in economic policy, we now are without the intellectual capacity among the government’s advisers to tackle issues such as reducing inequality and poverty. Instead, the government responds to those who shout loudest. They may not be the most deserving. A number of spending decisions in the last six months, justified in terms of social equity, are almost certainly a waste compared to more directed policies.

Probably the single most practical way of reducing inequality is to create sustainable jobs. The issue was hardly addressed in the budget, perhaps because of the shambles in Work and Income New Zealand. Until that is resolved, and it will not be easy to do so, both the taxpayer and the unemployed will suffer. In the longer run job creation is about macroeconomic performance, a topic on which the budget was almost completely silent (except for the forecasts). The indicators are that this government is fiscally conservative, running a substantial budget surplus in good years. But compared to predecessor governments it may give a greater emphasis on growth through tradeable sector expansion (especially exports). Given the nation’s vulnerability to external shocks when the external deficit is so large, we should not be surprised.

This government is probably going to be more interventionist at the microeconomic level. There is to be substantially more spending on industrial and regional assistance, although neither I – nor, I suspect, the government – knows the details of how it is to be spent. Effectively allocated the spending could be beneficial, but like the spending on reducing inequality, much could be wasted.

The political story of the budget may be the uneasy relationship the government has with business. Admittedly previous governments were far too sensitive to business demands, no matter how unreasonable they were. Like spoilt children some businesses and their acolytes seem to have been angry that the electorate has indicated it wants a more even hand. At one stage, though, the new government’s seemed to go to the other extreme. In any case under MMP it cannot blitzkrieg through legislation without consultation, as the previous government did with the Employment Contracts Act.

What is needed is an economic (and political) philosophy which assures the business community that it has an integral role in the government’s account of how the economy works. Even if the government rebalances the economy towards a modestly larger public sector, as the electorate seems to want, the majority of goods New Zealanders consume, the jobs which employ them, plus almost all foreign exchange earnings will still come from the business sector.

Thus the lack of a comprehensive philosophy was the serious lacuna in the budget. Until the government expounds one, its economic policies will look as fragile as some of its critics claim.

The Economic Status and Health Status Project

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

By Suzie Carson & Brian Easton

New Zealand Journal of Social Policy December 2000, p.121-128. Based on a paper presented to the 1999 Conference of the New Zealand Statistical Association, Wellington, July 5-7.

Executive Summary

The increasing use of the Household Economic Survey for policy purposes raises issues about the assumptions which are used for transforming the unit records into aggregates which underpin the social policy analysis. This paper reports upon an HRC funded project to investigate the relationship between personal health status and economic status (especially location in the household distribution, but also in relation to other measures). The project uses unit records of the Household Economic Survey for 1994/5-6/7 years when personal health status was recorded, using both objective and subjective measures. The paper explores some of the processing issues which the analysis is addressing.

Introduction(1)

In the past research has been limited by access to the data base, which has been at either a high level of aggregation or the processing has been based on predetermined assumptions, without much opportunity to interact with the data to improve the estimates.(2) As a result a number of problems with the method have hardly been addressed. A research grant from the Health Research Council is funding extensive use of the Statistics New Zealand Data Laboratory (SNZDL) and so give the researchers direct access to HES data.(3) This offers the opportunity to deal with some of the past assumptions.

The Standard Model(4)

The HES collects a variety of information on household status and economic activity, including household composition and before-tax market plus benefit incomes. Each record contains both household-wide information (such as household spending and housing status), and individual information on each member of the household such as personal characteristics and income received (which can be aggregated up to household characteristics). Access to the SNZDL means that the project will be able to work with both sets of records.

The processing occurs as follows:

(1) The after tax (or disposable) income for each household can be calculated by applying known tax and abatement rates to individual records, and aggregating.

(2) Household needs vary with household composition, including the number in the household, and their ages. Aggregate household income is scaled to reflect this composition. Rather than use a simple per capita measure, a household equivalence index allows for economies of scale and the lower relative needs of children.

(3) The resulting ratio is called “household equivalent income” (HEI). The households are ranked in order of their HEI, and either divided into quantiles or partitioned by a poverty line (or lines).

The resulting estimates have been widely used. They are the primary data base for the debate on whether poverty has increased or decreased, and for the current discussion on income shares, which acknowledges that while the top decile has experienced a rise in its standard of living over the last fifteen years, the bottom eight deciles have not.(5)

Some Statistical Issues

Various conceptual issues complicate the standard model, including to what extent income is a measure of welfare? There is also a debate about the correct poverty line. Here we focus on the statistical ones and steps taken to resolve them, together with a comment in italics for the implications for social policy analysis.(6)

1. A minor, but frequently overlooked problem is that the data is often reported on a household basis. But since households have varying numbers of members, and because large households tend to be poorer, the proportion of household below any poverty line is less than the proportion of people in poverty. The analyst needs to check whether the data is presented by households or people.

2. Note also that the HES data is often reported in terms of years to March. This covers all the respondents in the period April of the preceding year to the march-identified year. Because respondents are asked to report retrospectively on their preceding year’s expenditure, the income data actually reflects more closely the period for September year preceding the March year. Thus, March 1999 year income data would be better attributed to the September 1998 year. This becomes important where there are income comparisons or where price deflation occurs. The data published in the recent edition of “New Zealand: Incomes” by SNZ allows for this,(7) but some of the earlier researchers do not. Unless there is an explicit mention of the time period issue it is probably sensible to assume the adjustment has not been made. This does not affect distributional shares over time, but without adjustment real income changes and timing of changes in real and nominal income levels may be wrong, although the long-run comparisons may be relatively reliable.

3. It turns out that incomes reported in the HES are inaccurate, probably to the extent of being 20 percent lower than accurate measures of income. SNZ is reviewing this inaccuracy. An important issue is whether the error has drifted over time (or even suffered a major change in the mid 1980s when benefit incomes were grossed up). Absolute levels may be incorrect, although changes over time may be more reliable.(8)

4. The results are sensitive to the choice of Household Equivalence Scale. A number are available, some based on a priori arguments, some on econometric estimation (at various levels of sophistication). The most popularly used, the Jensen 1988 scale (based on a priori assumptions), may be extreme compared to the other available ones, giving lowest poverty levels (especially among children).(9) One issue is the extent to which the scales change over time, perhaps as a consequence of relative price changes, especially the increased use of user charging for health services, education and housing which affects different household compositions and different positions in the income distribution (as when the user charging is income tested). The study has done some preliminary work (in draft publication) which suggests that the distribution in general, and the location of some social groups in particular, may be very sensitive to the choice of equivalence scale, among the ones currently available. Claudio Michelin (with Srikanta Chatterjee) has been econometrically estimating new equivalence scales.(10) While not yet having been used in the standard household model, preliminary indications are that they are of higher quality than those currently available.

5. Housing circumstances matter. The standard model treats those who own their own home (with or without a mortgage) and one who is renting (at market or subsidised rents) as all having exactly the same spending power with their reported income. One approach has been to deduct household spending on housing from disposable income. Not only does the resulting hybrid of income and expenditure indicate this method is conceptually wrong, but there also needs to be a resulting adjustment to the equivalence scales. A rigorous way may be to impute “normal” household spending on housing (based on housing characteristics and market income), and treat the net difference between imputed and actual housing spending as imputed income. This is yet to be done systematically. At this stage all the social policy analyst can do is be cautious. It seems likely that not adjusting for housing on average raises the incomes of households with children compared to those without, and lowers the relative incomes of the elderly who tend to own their own housing without mortgage.

6. A related problem exists for spending on education and health. For instance, a household with disability or illness may have medical outlays which a well household does not. The problem is not as large on average as for housing, and therefore probably not as acute across all households. It may be very important, though, to the sick. Again the only current counsel is caution in choice of equivalence scale and through time, especially where policy changes have affected private outlays on educational and health services.

There is, however, a deeper problem behind these statistics for the social policy analyst. What do they actually mean? So what, if we are told that such and such a percentage of the population are in poverty?

What we really want to do is be able to relate certain sorts of behavioural consequences – like the extent to which sickness is caused by poverty. While there are limitations from the essentially cross-sectional data of the HES, the inclusion of health status questions in some surveys means some progress is possible. A basic research technique is to contrast those who are well with those who are unwell. Suppose there is enough information on personal characteristics to make it is possible to predict each well person’s income and expenditure. The personal characteristics of each sick person can then be used to predict their income and expenditure as if they were well. The differences can be used to indicate to what extent the unhealthy’s living standards are depressed by poor health. The remainder of this paper describes how this might be done with the existing data.

Health Status and the HES Questionnaire

For the three years between 1994/95 and 1996/97 a set of health questions was asked in addition to the standard HES questions. Some of the information collected for all household members, including children, about their use of the following health services over the preceding twelve-month period, is essentially “objective”:
* Accident and emergency at a hospital;
* Other hospital services such as outpatient clinic, hospital pharmacies, laboratories or day wards;
* An ambulance;
* Nights spent in a hospital as a patient;
* Nights spent in a nursing home or similar;
* Length of time since visiting a GP;
* Number of visits to a GP or family doctor, nurse, medical specialist or consultant, chemist or pharmacist, optician or optometrist or other medical personnel;
* Medical support services such as laboratories, x-ray clinics or health caravans.

The health supplement also included a “subjective question”:
* In general, how would you rate your health?
with response options of “Excellent”, “Good”, “Not so good”, “Poor”.

Additionally, household members were also asked whether they had medical insurance, a Community Service Card or a High Use Health Card.

Constructing Health Status Indexes

The first step in exploring the relationship between health status and socioeconomic status will be to construct an overall measure of objective health status for each individual. This will be by way of a regression procedure with the objective measures of health status as independent variables and the subjective health measure as the dependent variable. Currently principle component analysis is being used to reduce the data set of health usage to a few variables.

The objective measures that best predict subjective health status should be identifiable. It may be that a combination of several simple objective health measures is a good predictor of subjective health status. The predictors are likely to differ by gender and age.

The objective and subjective health status of each household member will be combined into a household health status index, which can be compared with the household economic status using such measures as household equivalent income, housing status, material consumption, and employment status of household members.

Evaluating Health Status and Economic Status

The subjective and aggregate objective index will enable the researchers to investigate such questions as:
* To what extent do poorer households have poorer health, and those with poorer health live in poorer households?
* Does health related spending differ between different income groups when controlled for health status?
* What is the relationship between housing status and health status, when controlled for income?
* Are there any specific issues relating to children=s health and income?
* Do the unemployed have different health status from other groups, when income is controlled for?
* What is the effect of non-household health funding (such as medical insurance or the community service card) on health spending?
* How effective is the community services card? How successfully is it targeted?
* What is the impact of medical insurance on private health service spending and on health service utilisation?
* Are there differences in spending patterns on other commodities (such as food) between households with different health statuses?

Conclusion

Inevitably there are limitations to interpreting the data. Suppose we observe a concentration of those with poor health among those with lowest incomes. That does not tell causality. It may be the unhealthy become poor, or it may be that the poor become unhealthy. Probably it is a bit of both. Even so, the project will add to knowledge of where the unhealthy are located in the income distribution, in the housing tenure spectrum, and in the source of income spectrum. The study cannot resolve all the questions about health status and economic status. Its more modest objective is to use the HES to make some progress by providing some of answers.

While social policy analysts, especially those concerned with health and socioeconomic status, may eagerly await the research outcomes, they should also be cautious using the existing research, given the problems of data transformation identified here, but still unresolved.

Endnotes
1. The authors would like to thank the following for their assistance in the project thus far: Rob Bowie, Paul Brown, Denise Brown, Len Cook, the HRC, Dean Hyslop, Sandra McDonald, Diane Macaskill, Claudio Michelini, Clare Salmond, John Scott, Helen Stott, and Alistair Woodward.
2. Quasi-unit Records, which are averages of three observations stratified by household type, tenure and income are available for the 1995 year. Indications are they behave sufficiently like unit records for many purposes, and some of the results reported below use them. They are available from Brian Easton, and while there are some restrictions upon their use, which will be no complication for a serious researcher.
3. Any results presented in this study are the work of the authors, not Statistics New Zealand. Access to the data used in this study was provided by Statistics New Zealand in a secure environment designed to give effect to the confidentiality provisions of the Statistics Act 1975.
4. For a more extensive account of the model see B.H. Easton (1991) Updating the Economic Model of the Household, Paper to the Conference of the Social Policy Research Centre, University of NSW, Sydney, July 1991, Economic And Social Trust On New Zealand, Wellington.
5. See B.H. Easton (1999) AWhat Has Happened to the New Zealand Income Distribution and Poverty?, Social Policy for the 21st Century, Proceedings of the National Social Policy Conference Sydney, 21-23 July 1999, SPRC University of NSW, . Vol 2, p.55-66.
6. B.H. Easton, (1997) “Measuring Poverty: Some Problems” Social Policy Journal of New Zealand, 9, Nov 1997, p.171-180.
7. e.g. in New Zealand Now: Incomes 1998, SNZ, Wellington, 1999.
8. B.H. Easton (1997) How Accurate are the Incomes Reported in the Household Economic Survey? (Revised), Internal Paper, Economic and Social Trust on New Zealand.
9. B.H. Easton (1997) Household Equivalence Scales and the Household Survey Internal Paper, Economic and Social Trust on New Zealand.
10. C. Michelini (1998) The Estimation of Some Rank 3 Demand Systems from Quasi-unit Record Data of New Zealand Household Consumption, Discussion Paper 98.12, Massey University Department of Applied And International Economics.

Economics in the Healthcare Sector

This entry was posted in Health on by .

Pharmac Annual Review 2000, p.24

Keywords: Health;

It is increasingly common for an economist has been approached by some group lobbying for the introduction of a new therapy, or perhaps by the government who wants some guidance. The therapy is expensive, and so the question of whether it can be used involves issues of costs and benefits. Answering that question or, more precisely, making an economic contribution to answering that question is rarely easy, and yet the welfare of patients depends on it. Not only the welfare of those who may be treated but, given the overall budget constraint, diverting resources to the treatment of one disease will leave others without treatment or on a waiting list.

While in practice there has to be some restraint on the amount a nation spends on health, a further complication arises when someone other than the sick or their families pay for the care. The ‘other’ may be the public purse or a private medical insurance, but in either case there is a separation between the consumer of the treatment and the funder. Medical insurance may pass the additional costs onto the pool of insured, driving up insurance premiums. The government may pass the additional costs on as higher taxation. Eventually there is resistance to the higher premiums or taxes.

It is possible to ameliorate this impasse by ensuring the treatment is effective relative to its cost. This is easier said than done. In principle there is surprisingly little information on the detailed effects of many new therapies (and, indeed, many well established ones). This is partly a consequence of the difficulties of accumulating good scientific evidence, but it also reflects a willingness to market a therapy as early as possible. Delaying until a full understanding is obtained might mean some sufferers will miss out, and the profit to the supplier is reduced. Identifying all the consequences of a therapy, good and bad, may literally take generations.

Even where there is sufficient information there is still the problem of measuring the benefits and costs. The best available method involves evaluating the quality adjusted life years (QALYs) gained per dollar outlaid. However QALYs are difficult to measure and it is not obvious which costs should be included (those to the health budgets, to the entire government budget, to the nation as a whole, including or excluding the costs to the individual and family?).

The New Zealand public health system, including Pharmac, has been exploring the use of the technique. In practice this means that a medication is likely to be approved if its dollar cost per QALY gained is below some set threshold, but in practice the decision is supplemented by common sense. Currently, the main effect of the measure is to discard some very inefficient therapies. As a result there is more to spend on successful ones. Eventually the measure may give guidance on the right size of the Pharmac budget. I shant be surprised if it is larger than the current one, but we do not have the information yet to guide the political decision.

There is an ethical issue here. It would be unacceptable if economists, say, were to determine medical treatment. That is the clinicians’ job. We have a model to help resolve the tension. Hospitals have ‘preferred drugs lists’ which restrict the use of pharmaceuticals unless they are on the list, or unless senior colleagues approve. Pharmac has, in effect, done the same at the national level by deciding which are government funded and which are not. Their decisions should not merely be the expert judgements of Pharmac’s staff, consultants and board. The clinicians using the therapies have to be involved too, and committed to a strategy of ensuring that the therapies they use are not only clinically effective but are also cost effective. Otherwise economists and accountants will make the decisions for them, because the cost dimension cannot be ignored.

That is one reason why there must be a public discussion of the resource issues in medical care, and the need to allocate intelligently, humanely and ethically the available funds to get a maximum return for patients and the nation as a whole.

Global Warnings

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

Listener:24 June, 2000.

Keywords: Globalisation & Trade;

I probably read a major article or a book on globalization every fortnight. One usually finishes thinking the authors do not know what they are talking about either. ‘Globalization’ means so many different things, even to the same writer, that one ends up in confusion. The best I can conclude is that massive technological changes are changing the potential economic geography of the world. Globalization is the financial, economic, social and political response. Different writers look at different facets of the whole, and miss the complexity of the totality.

So it was with much pleasure I read Globalization and History, by Kevin O’Rourke and Jeffrey Williamson. Combining historical evidence, statistics, and economic analysis, together with common sense, in an attractive and readable way, I imagine the book is already a part of quality economic history courses, Since the general reader may have to struggle through some deeper bits of trade theory – Rybcyzynski’s theorem can be as obscure as the spelling of its author’s name – let me summarize it.

The book is primarily about the nineteenth century ‘Atlantic Economy’ of Western Europe, North and South America, and Australasia (although New Zealand is barely mentioned). It argues that those countries experienced a globalization even greater than the current one. The precipitant was a technological revolution in transport, with railways, steamships, refrigeration, and telegraph substantially reducing the costs of moving products and people. This resulted a shifting of production to low-cost centres, a shifting of capital to high return centres, and a shifting of labour to high wage centres. The economic outcome is known as ‘convergence’. There were reductions in the differences of the price of the same product in different localities. There were reductions in differences in returns on capital between different localities. There were reductions in differences in real wages between different localities. There were reductions in the differences of per capita incomes of the countries involved. But economic growth was stimulated by the reduction in transaction (i.e. lower transport) costs, so even the richest countries continued to grow.

The second post-1950 wave of globalization has some contrasts. Today’s main technological precipitants are the conquering of the airways, the airwaves, and information access. Again transport costs are lowered but this time the impact is more on some service inputs and services sectors. One can use the internet to buy (i.e. purchase retail services from) in locations on the other side of the world. An important difference is that labour is not as mobile today. The book reports 60 million Europeans setting sail for the New World in the century after 1820 – about a sixth of the total population. In contrast migration is much more restricted today, although non-Europeans are proportionally more involved. The other big difference is that technology seems to be more mobile – easier to transfer.

Some effects of this nineteenth century globalization are predictable. Rich countries tended to grow more slowly (per capita) than the poor ‘Atlantic’ countries. Unskilled workers’ wages grew more slowly than skilled ones. However, there were complicated interactions, so the ceteris paribus (all other things being equal) assumptions of the previous few sentences did not always hold. For instance, capital flows could accelerate productivity growth, offsetting any relative depressing of wages. Sometimes there are so many things happening at once that the authors have to use complicated (computable general equilibrium) models. The message I took is that you cannot predict the specific effects of globalization, unless you take everything into account. It is not surprising that people who consider only some things, end up with such different predictions from those who consider only others.

The authors argue that the period from 1914 to 1950 saw a reversal of the nineteenth century globalization, which they attribute to political pressures resisting globalization’s distributional consequences. In particular, the increasing inequality as unskilled wages stagnated led to a discouraging of unskilled immigrants, and border protection for the industries in which the unskilled worked. Economists might ask whether there were better ways than protection to deal with rising inequality. For instance, taxes and benefits could be made more progressive. Upskilling also benefits the unskilled left behind, because there are now fewer of them. But border protection may be a cheaper way of reducing inequality. (It probably was in the first half of the twentieth century, because many of today’s policy instruments were not then available.)

The authors begin the most recent bout of globalization in 1950. We are in its sixth decade. Oh, that some researchers were to explore it as carefully as Rourke and Williamson have done for a century earlier. In the interim I form the most tentative conclusions, which are unlikely to please either side of the current debate.

Globalization is caused by changes in technology which can benefit humanity as a whole It causes a convergence of per capital incomes and wages, so that rich countries benefit less. This time the service sector is involved as well and some non-Atlantic economies are among the beneficiaries. However globalization may not greatly contribute to the welfare of the unskilled, either in poor countries unless there is substantial international migration again, or in rich countries.

Sonja Davies: 1923–2005

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

Chapter 12, The Nationbuilders. (This was published in 2000, and does not record that Sonja died in June 2005.)

Keywords: Labour Studies; Political Economy & History;

The choice of people to be included in this book is based on a list of over forty names. For reasons similar to those of The Dictionary of New Zealand Biography, only dead nationbuilders were considered. There were a number of women in the list, but despite my trying – with a grim political correctness – none fitted into the story the book was telling. (For instance, Te Puea was building the Tainui nation.) It is, after all, but one story from all of those of the New Zealand nation. Those who saw early drafts often drew attention to the omission, but could not suggest a suitable candidate.

One explained to me it was because in the past women were so preoccupied with their husbands and children they did not have time. I thought that a nonsense, but explained to her, as I do later in this book, that one of the defects of the mid-century nationbuilding was that it was a boys’ thing, which largely excluded women (just as it was a white boys’ thing, so there was not much Maori involvement either). As the Epilogue argues, one of the reasons that nationbuilding could not withstand the onslaught after 1984 was that potential sources of resistance such as women and the Maori had ambiguous feelings about what they were asked to defend. If the next round of nationbuilding does not integrate women and Maori, and other minorities and strands of the nation, it will fail.

But there was another reason why there were to be no women nationbuilders in the book. There were some wonderful candidates but they were still alive.[1] They are women who had husbands and children and a lot more domestic life besides, and yet who contributed to nationbuilding, but with a different conception of nationhood. I will not bore readers with the account of how slowly I came to the conclusion that it would not be inappropriate to relax the selection rules to include one of these women. They will think it a better book for it allows the exploration of some issues more directly than would otherwise be possible.

Sonja Davies was born, about the same time as the other postwar nationbuilders, in Upper Hutt in 1923 (on Armistice Day as it happens – appropriately for a peace activist). Her mother thought she had an understanding with a man, but he reneged on it, apparently because he had an understanding with another woman back in Ireland. At a time when illegitimate children (as they were known) were almost invariably adopted, her mother kept her child and continued to work as a nurse. After the foster parents failed, she was taken over by her grandparents who gave her preschool stability, and the love and support which were the basis of her life. When she was five her mother married, and there were considerable tensions between stepfather and stepdaughter. Even so, the extended family was reasonably affluent middle-class, and despite being moved around the country and between family units and experiencing some early fostering, she had a not uncomfortable childhood, and was not greatly touched directly by the interwar depression.

Sonja – I am going to call her ‘Sonja’, because she did not acquire the name Davies until 1946, and in any case the decision leaves the reader to ponder on the significance of surnames for a woman of her generation – has Maori ancestors, although ‘in those days any Maori blood in the family was seldom, if ever, mentioned’.[2] At 46 she went to a whanau gathering which gave her ‘a sense of identity that was to change my life’.[3] She chose to leave school at fourteen, went through a number of jobs (it was the end of the Depression, and unlike Norman Kirk she was living in Wellington where prosperity came earlier), was married at seventeen and divorced not long after. By now it was wartime and she went into nursing training (by way of a brief spell at university, where in its tramping club she had met, among others, Henry Lang).

Sonja’s autobiography presents her youth as one of high spirits contrasting, say, with Douglas Robb’s, which portrays gravitas. In fact they were both feisty characters, both kept getting into scrapes, and both are fundamentally dignified people. Both had tuberculosis, Sonja catching hers during her nursing training. By today’s standards the medical establishment seemed quite unconcerned about the numerous staff who suffered this fate – even the meanest accountant would grumble of the subsequent treatment costs. For the ten years after 1945 Sonja’s life was dominated by visits to hospital for treatment and various strategies to reduce its effect. Just before its diagnosis she had a daughter to a US marine who died in the Pacific war, and whose early life of foster and family homes was not unlike her mother’s.

In this case the separation was more to do with preventing cross-infection. In 1946 Sonja married Charlie Davies, a returned serviceman whom she had known before he went overseas, and who proved to be a talented commercial and recreational landscape gardener (and husband). They moved to Nelson in the belief that the climate would be better for her lungs. Eventually Penny was able to join them, although the relationship between Penny and Charlie was much more loving than that between Sonja and her stepfather.

I want to pause for a paragraph, and reflect that I have had to include more personal detail of Sonja’s life than I did for any man. Yet in each of those particularities of marriage and pregnancy there was also a man. It is not just Sonja, for her autobiographies mention the lives of other women where it would be as important in their recounting to provide this detail. (A feature of her early life, and characteristic of other women of her generation, was just how little sex education was available.) And I have not listed – vivid though it is in the autobiography – the various episodes of sexual thoughtlessness and harassment (including an attempted rape in late pregnancy) that she and her fellow women experienced.

Sometimes the male reader of her biography has a sense that he is in a different country from that portrayed in the life accounts of the male nationbuilders. It is that sense I want to try to capture in this chapter, and yet to argue there has been some convergence, in which Sonja played an important role.

It took some time to get over the TB. To this day she has only a quarter of her lungs, although there is the toughness of steel in that apparently frail body. Shortly after the recovery she had Mark (and two painful ectopic pregnancies).

She had already come to public attention. The province of Nelson is one of those isolated parts of New Zealand, cut off by sea to the north and west, and by mountains to the south and east. (Today Nelson airport is the fifth busiest in New Zealand, although its city is not among the top ten.) There were ambitions to connect to the railroad network from the 1870s, but despite frequent promises from politicians, by the early 1950s the line south from Nelson had still not reached Murchison where it would have been connected to the main trunk line at Blenheim. In 1955 the National government announced it was going to close the railway. When the contractors moved in to start ripping up the lines, they found a group of women sitting on the tracks. The protest was lead by Ruth Page, a schoolteacher born in the first decade of the century. Sonja was a central part of the organising team. The demonstration, like most protests which arise from spontaneous local anger, had its bizarre elements (Page always wore a hat) and got national and international notice. The railway was nevertheless scrapped, although perhaps it is less necessary in the days of better roads and airways. Later Sonja was to protest over the closure of the Nelson cotton mill, clashing with both the National government and F. P. Walsh.

Sonja thinks she may have been born a dissenter. Certainly from an early age she showed a cussed independence – her parents were Presbyterians but she insisted on going to a high Anglican church. From her teens she got involved in union affairs, and in the peace movement, although during the war she was corresponding with both conscientious objectors and soldiers, which might reflect empathy overriding ideology. Because she was a woman, it was natural to ask how to improve their lot. In truth, like the other nationbuilders she was an activist, who was progressive rather than radical. Her apparent radicalism was a consequence of male misunderstanding of women.

By the early 1960s the activist was a justice of the peace (she kicked up a stink about the local practice of women JPs not doing court work), serving on the Nelson Hospital Board and the Nelson City Council, and deeply involved in the Nelson Labour Party (and later the national executive of the Labour Party) and also with numerous progressive local (and later national) organisations. Two deserve elaboration.

The peace movement is a long part of New Zealand’s heritage, including conscientious objection during both wars, and Riverside in Nelson, a Methodist community, not far from the Davies’ first home, which provided the family with support at critical times. The Campaign for Nuclear Disarmament started in the early 1960s, in imitation of the British organisation, but it soon developed distinctive features of its own, in part because the foreign model was not appropriate and New Zealand had its own preoccupations such as French testing in the Pacific. Because it was not trapped into a colonial subservience to an overseas model – unlike many of the local communist parties – the New Zealand peace movement was a nationbuilder. The world seemed a long way away geographically, and its ideological disputes seemed as irrelevant then as they seem today. The movement was not isolationist, but it saw there was no need to get embroiled in these ideological and imperial conflicts. Its demands included a nuclearfree South Pacific and the withdrawal of New Zealand from military pacts involving nuclear weapons, such as ANZUS and SEATO. Had the protesters been asked whether nuclear war or the fulfilment of these demands was the more likely by, say, the year 2000, most would have sadly predicted the former. The Cuban missile crisis nearly met their expectations, but today what were once outrageous policy demands are now in the core of the bipartisan New Zealand foreign policy. In between, CND metamorphosed into the campaign against military involvement in Vietnam, swelled by sympathisers who had thought its earlier goals were too ‘idealistic’ – practically unattainable.

The peace movement had community-wide involvement, but women were equal if not ahead in its leadership. (Sonja mentions the Christchurch-based national CND leadership of Mary Woodward and Elsie Locke. When it moved to Wellington, Shirley Smith became national secretary.) An historian of the nuclear disarmament movement, Lawrence Wittner, shrewdly observes that the male leaders were first famous in some other sphere, whereas ‘the fact that such talented women, in the years prior to their movement work, did not attain comparable eminence says a great deal about the discrimination against women in political and intellectual work of their time.’[4] Inevitably Sonja ended up as the secretary of the Nelson CND and an activist in the national movement. No doubt that strengthened her internationalism, although – extraordinarily, by contrast with the experiences of later generations and those of her contemporary male nationbuilders – she was 48 on the first occasion she went overseas. Sonja’s internationalism – her frequent support and involvement for overseas causes – demonstrates that nationalism need not be parochial. The point is it should not be subservient to the demands of other nations.

An important function of the anti-nuclear movement was that it enabled the older people, whose views of peace were formed in the 1930s and 1940s, to mentor the next generation. At home in Nelson Sonja was mentoring other young people by throwing her home open to them.

Her other major extra-political party activity was to found and be the first president of the New Zealand Association of Child Care Centres (now the New Zealand Childcare Association). Its origins may be attributed to the occasion when Don McKay, the minister of social security, grumbled to her that he was besieged by requests from individual child care centres, and suggested they should be ‘all joined together in one group. It would be easier for everyone.’[5] So they did. The ‘they’ were almost exclusively women (although Bill Sutch helped draw up the constitution). Despite a later widespread public misunderstanding these centres were not exclusively concerned with the children of working mothers in paid employment. Indeed the centre with which Sonja was originally involved was primarily a ‘swept-up shoppers’ creche’, although she was also concerned for 24-hour child care to deal with emergencies like a parent or child having to go into hospital. (Not every one has a friendly neighbour or a Riverside community.) Had one been betting on her destiny in the mid-1960s, the money would have been on a future career in Parliament. She was already on the Labour Party national executive, had stood for the marginal seat of Hastings in the no-swing election of 1966, and was a confidante of Norman Kirk, then party leader. Kirk, as has already been observed, was not strong on women’s issues. (He must have gritted his teeth when Sutch asked him to launch Women with a Cause, but such was the mana of the occasion he did it.) Sonja recalls that Labour’s 1972 election campaign strategy was devoid of references to women, so she lambasted the two MPs in charge of it. She even led a picket on the issue at the 1972 Labour Party conference, an especially heinous offence in an election year.

But her parliamentary prospects were already zero. Some years earlier she had warned Kirk of widespread rumours of alleged extra-marital affairs. He reacted strongly and never spoke civilly to her again. Since like so many institutionalised organisations in a hollow society, the Labour Party was hierarchically organised from the top, that put paid to that career path. The Labour Party’s loss was the unions’ gain. Charlie had given up self-employment and become a union organiser for a number of small unions, which could exist under the compulsory provisions of the Industrial Conciliation and Arbitration Act (IC&A). A major coronary attack in 1968 meant he could no longer work. Sonja looked after his members for a while, and then the family moved to Hawke’s Bay, where she became an organiser for the local food processing and clerical workers’ unions. She re-entered the full-time paid labour force at 45, having been out of it for almost 25 years.

About the time Sonja was born, only 15 or so percent of the (paid) labour force were women. By the time she re-entered the proportion was closer to 30 percent. Today it is over 45 percent. However, women were less likely to be unionised, although the unionisation data does not seem to have been collected by gender. Moreover, the higher up the union hierarchy, the lower the proportion of women. Sonja records only seventeen women delegates at the 1973 conference of the Federation of Labour (FOL), out of a total of several hundred, and of course there were none on its executive at the time.

Men were wont to explain the low involvement of women in the higher levels of unionism as a result of their lack of interest (and some women were apathetic but, then, so were some men). Moreover women tended to be concentrated in particular sectors which were difficult to unionise – clerical workers and distribution workers – so their membership was particularly dependent upon the compulsory union provisions of the law. But it is also an example of the hollow society, in which top-down institutions are imposed which while beneficial to those at the top, are not necessarily relevant to the membership. Consequently the top is relatively unresponsive to change at the bottom. As female employment grew, women’s interests would lag in the priorities. Of course the unions said they were democratic. Some were, but as we saw with Walsh, some were not. Bastions of male dominance were not going to adapt quickly to the rise of women, unless there was a bulldozer. Enter Sonja Davies.

She had to learn the trade first. Charlie had taught her some, and then there was her Hawke’s Bay experience. James Wattie called her the ‘million dollar woman’ because she had forced his Hastings works, so he said, to spend a million dollars on worker amenities. In 1971 Charlie died from his heart condition. Shortly after Sonja moved to Wellington, at first to the Public Service Association, subsequently to the Wellington Shop Employees’ Union. By 1972 the union had become moribund, with 38 percent of its book membership unfinancial.

Membership apathy and uninspiring, inadequate or perhaps incompetent leadership were definitely factors. But the ‘arbitration system’ also played a part. The provisions of the IC&A Act, especially those governing union organisations, union preference and the provision of awards, meant that most unions in New Zealand were small, fragmented and lacked internal vitality.[6]

The union secretary was bundled out, to be replaced by Graham Kelly, who set about rebuilding the union. Because the majority of shop workers were women, he wanted women organisers. Sonja was an obvious choice. Two campaigns – the demand for equal pay for women (the legislation was passed by Labour in 1973) and opposition to the extension of shop trading hours (passed by National in 1977) – were particularly important, and involved her and the union intensively.

In Wellington, she lived in Brooklyn near the Plischkedesigned house of Sutch and his wife Shirley Smith (another pioneer for women, who kept her surname on marriage, an almost unthinkable act in 1944). They had first met in early 1962 when the Sutch and Smith were in Nelson (at the WEA camp where he used fishing to symbolise the political economy of New Zealand), and had called in on Sonja and introduced themselves. They kept in touch, and Sonja would go to Sutch for advice. They had bought some surrounding properties to put a drive onto the grounds, and they rented one of the cottages to Sonja. Wellington enabled her to better pursue her political interests, which were focused on women’s causes in and out of the union, together with internationalism.

Travelling in Israel in 1974 she conceived a New Zealand Working Women’s Council, and an Australian Conference in 1976 led to the conception of a Working Women’s Charter. Neither birth was an easy one. I tell the council formation story in her own words: it is August 1975 and she has finally set up a meeting with prime minister Bill Rowling, Arthur Faulkner who was the minister of labour (and one of those Sonja had lambasted in 1972 for the lack of women in the election strategy), the secretary for labour, and Tom Skinner and Jim Knox, president and secretary of the FOL.

It was no easy task to get such busy men together. . . . I outlined the proposals, only to hear Tom Skinner reply that, while he thought it an excellent idea, there were serious industrial problems which must take precedence. Bill Rowling said he, too, was concerned about those problems, but he felt that the Working Women’s Council was a positive scheme and deserved support. . . . When he asked me if $80,000 would help I nearly fell off my chair, but recovered and stammered, ‘Yes, we could do quite a lot with that.’ I went out into the brisk air in a state of euphoria.[7]

The Labour Party after Kirk was beginning to respond to women’s contemporary needs.[8] But the Council was funded from the top. What the Lord giveth, the Lord may take away. Or rather the electorate did. A few months later it elected a National government which would not provide further funding, arguing that such things were union not government responsibilities.

The Working Women’s Charter was more revolutionary in terms of disturbing the status quo. A major principle of community-based unions is ‘organise’, something which was not always necessary to run a union under the IC&A Act. So Sonja had to organise, relying on the vast network of women that she had been involved with over the years in such activities as the childcare movement, the Labour Party, local government, the peace movement, the union movement, and the women’s health network.[9] The men in this book also had networks, but typically they were elite ones involving a few hundred at the most, mainly of people living in Wellington, and normally in positions of power. The women’s network was more like the World Wide Web, a vast array of nodes (in this case women) with interconnections which cannot often be readily traced. Drawing on this, Sonja was able to involve unexpected numbers of women at the Trades Council discussions, and in 1980 the FOL adopted the charter, despite spirited opposition from a small but vociferous group who objected to some provisions on religious grounds.

Undoubtedly there would still be protest on the issue of fertility regulation. (Sonja ‘began the Charter Campaign feeling rather ambivalent on the question of abortion, and to this day I do not believe I could have had one myself. However I realised I had no right to decide for anyone else.’)[10] But the rest would, today, be considered as uncontentious as – say – a nuclear-free New Zealand.[11]

By now Sonja had been elected to the executive of the FOL – the first woman to be so – and three years later in 1981 she became its vice-president, meanwhile participating in such activities as equal pay reviews, the Equal Opportunities Tribunal, chairing the New Zealand International Year of Peace Committee in 1986, and the New Zealand Women’s Refuge Trust Foundation. Retirement from the FOL, which covered only private sector unions, came in 1987, when the public sector unions joined the peak organisation, renamed the New Zealand Council of Trade Unions.

But it was not retirement. Before the end of the year she was elected to the parliamentary seat of Pencarrow – Eastbourne, Hutt, Wainuiomata – to experience the worst six years of her working life. She was almost 64. In the 1960s the Labour Party had prohibited those over 57 from standing for the party for Parliament – it was rumoured this was to keep Sutch out of Parliament, although it is difficult to imagine him functioning well there. (The chosen age meant an MP would be under 60 when they retired.) The rule was replaced with a 67 age limit (i.e. retirement before 70) but her nomination was no easy matter. We need to scroll back to 1984.

The incoming Labour government under David Lange, but driven by minister of finance Roger Douglas, had adopted economic policies which were anathema to the majority of the Labour Party (and to most voters). In 1987 the party – in this case both the party hierarchy and its grassroots – attempted to pull back the rogernomes by ensuring as many of the new caucus members as possible were opposed to their policies. While the strategy was successful, the rogernomes, aware of the move, tried to thwart it.

The candidacy for Pencarrow involved a particularly vicious fight between Sonja and an old friend who had moved steadily towards favouring rogernomics (and returned to Britain to become, eventually, a press officer to John Major, and later the Queen).

While the Labour Party had succeeded in changing the balance of its parliamentary caucus, there were still insufficient ‘loyalists’ in caucus to stop the policies it detested. Especially when it is in government, a parliamentary party is hierarchically organised, where the top usually has sufficient patronage and influence to be able to maintain a majority in caucus by recruiting ideologically weaker members.

The incoming MPs, many like Sonja and Kelly (who had been elected for Porirua) battle-hardened in other venues, initially found the culture of Parliament bewildering. (In those days there were not even induction courses.) With the exception of Richard Northey (who had entered in 1984 and was an old friend from Sonja’s peace movement days), the established MPs did little to support them. Moreover, when it became a direct dispute between a minister backed by a team of public servants and bunch of junior caucus members, it was hard to find any (necessarily voluntary) expertise to balance the sheer firepower, irrespective of how wrong the minister was (and much that ministers argued, we know with hindsight, was wrong). The group face had principles, but there had been economic changes which meant the principles had to be applied differently. But they never had the time, nor the technical assistance, to work out the new applications. Policy was blitzkrieged through – sprung on the caucus and country without warning, and rushed through without consultation and before the resistance could organise. Sonja reports:

At 6.00 every morning I stood in the shower with Morning Report on the radio balanced on the handbasin, it seemed that I kept hearing yet another minister talking about an imminent sale of yet another state asset, and I would leap out, bruising my shin, because this was the first I heard of it.[12]

Graham [Kelly] and I fought the sale of assets in any way [we] could. [Richard] Prebble [the Minister for State Owned Enterprises] persuaded pro-economics people in caucus that this particular sale had to go through by twelve noon or New Zealand’s economy would be threatened. . . .[13]

The incoming MPs were torn between loyalty to the Labour Party as members of caucus, and to their Labour Party principles and constituents. All their adult lives they had been nurtured by the labour movement, where loyalty was important. If you lost a battle, you stayed on to fight again. Now Labour seemed to be betraying itself. They could have walked out as Jim Anderton did. Here is Sonja’s explanation why they did not:

In 1988, Graham and I made the first of two approaches to the general secretary of the Labour Party . . . and the president . . . and asked them if the Party would support us if we voted against further privatisation of state assets. They turned us down. [Much later, a Labour Party council member] said that with hindsight he felt we should have been supported.

When it came to the debate over the sale of the Bank of New Zealand our small group of . . . MPs collectively walked out of the House as the bells were ringing for the vote. We decided we would issue a press statement to oppose the sale. We went down to Graham’s office, locked the door and started on the press release. Some time later there was an urgent tapping at the door. It was the Senior Whip [who in 1996 left the Labour Caucus and joined the United Party, thus assisting the National government to remain in power in the runup to the election]. She asked what we were doing and we told her. She said, ‘the Prime Minister asked me to tell you that you’re to come back to the House immediately.’ We told her to tell him we would not come back, and we added ‘tell him we may never come back.’ We spent the rest of the evening wondering what on earth we could do to stem the tide.

In the end we decided once again to consult Labour people in our electorates. The advice of my people was that I should hang in there, and Graham received pretty much the same advice.[14]

This was the hollow society at its most authoritarian. Because the institutions of society – including the Labour caucus – were organised from the top, the community was unable to resist, although it protested. The caucus dissenters’ defiance has been forgotten in the political turmoil of the week which followed, when Lange sacked Douglas from cabinet. Perhaps their resistance stiffened Lange’s resolve. It influenced the future course of their party, although ironically they received little subsequent recognition. Of the core dissenters, four lost their seats in the 1990 landslide, Sonja and two others retired in the 1990s, and neither of the two still in the Labour caucus gained cabinet positions in 1999, even though some 1980s rogernomes did. (Anderton, who left the Labour caucus and started his own party, became deputy prime minister.)

Following the 1990 landslide, in which the Labour caucus was nearly halved, the enemy was now on the other side of the lines. It rolled back the welfare state while the Employment Contracts Act abandoned almost a hundred years of industrial relations development. Its passing was a strange affair. There was a constant reference to how the new act would enable employment to be managed in the manner of the recently established Fortex meat processing works which, it was said, had the industrial relations regime of the future. When the company went bankrupt, it turned out it had a high labour cost structure – not the low one the debate promised – and was kept solvent by a financial deception resulting in its managing director and general manager being jailed.[15] There were no quantifiable productivity gains in the national economy either. The National proponents made numerous promises of better outcomes which did not occur, yet never apologised for the failure of their predictions. (The record of the previous Labour government’s promises were no better.)

The Act’s impact on the union movement was more predictable. The union structure which Walsh had led, with horizontal (occupationally based) unions spanning many industries, was obsolete. The increasingly open economy needed vertical awards covering a single industry (or enterprise), which could respond flexibly to industry-specific shocks. The horizontal unions – most notably those involving clerical workers – resisted the CTU’s recommended union restructuring. The new act collapsed them, although in some cases the workers were incorporated into industry-based unions.[16] Even these industry-based unions found recruitment and retention much more difficult. In 1995 the National Distribution Union (the result of an amalgamation between unions representing shopworkers, storemen and packers, and drivers) had 22,000 members, a little more than half of its 36,000 in 1991.[17] Pay and conditions were cut too. Women workers suffered most.

In 1993 Sonja retired to a house in the Wairarapa, frail in body but robust in spirit, where she continues to be active gardening, writing and getting involved in politics as much as her circumstances allow – perhaps more so.

Sometime in early 1923, millions of spermatozoa competing to fertilise one human egg resulted in a child born nine months later. As luck would have it, the winner was carrying an X chromosome, so the baby was a girl, who would lead a very different life from the one a boy would have led. Scroll forward a hundred years and in 2023 the same thing will happen, except that the life course of the child will be less dependent upon whether that chromosome is X or Y. There will be differences – biology still matters. But the lessening of those differences will have been in part a result of the efforts of that woman born in 1923.

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Notes

[1] Elsie Locke died in April 2001, after the text was completed.

[2] Davies (1984), p.20.

[3] Davies (1984), p.173.

[4] L. Wittner (1997) Resisting the Bomb, Stanford, p.404.

[5] Davies (1984), p.143.

[6] K. Hince, K. Taylor, K. Peace & M. Biggs (1990) Opening Hours: History of the Wellington Shop Employees Union, Wellington, p.68.

[7] Davies (1984), p.296.

[8] For an account of this thawing see M. Shields, ‘Women in the Labour Party during the Kirk–Rowling Years’ in M. Clark (2001) Three Labour Leaders, Palmerston North.

[ 9] There is also a very extensive rural women’s network, but in this case it was probably not called upon.

[10] Davies (1984), p.302.

[11] T. Neary & J. Kelleher (1986) Neary: The Price of Principle, Auckland, pp.139–46.

[12] Davies (1997), p.69.

[13] Note to BHE, February 2001.

[14] Davies (1997), pp.78–9.

[15] B. H. Easton (1996) ‘Ex-Fortex,’ Listener, 18 May 1996, p.50.

[16] B. H. Easton (1997) The Commercialisation of New Zealand, Auckland, pp.122–31. For the clerical workers’ unions see P. Franks (1991) ‘The Employment Contracts Act and the demise of the New Zealand Clerical Workers Union’, NZ Journal of History, 28, 2, October pp.194–210.

[17] E. Dannin (1997) Working Free: The Origins and Impact of New Zealand’s Employment Contracts Act, Auckland, p.214.

Bibliography

Baysting, A., D. Campbell & M. Dagg (1993) Making Policy . . . Not Tea: Women in Parliament, Auckland. pp.9–11, 41–2, 71, 91–2, 137–9.

Coney, S. (1982) ‘The Davies Dossier’, Broadsheet, June 1982, p.31.

Davies, S. (1984) Bread and Roses, Auckland.

Davies, S. (1993) ‘The Corridors of Powerlessness,’ in S. Kedgley & M. Varnham (ed) Heading Nowhere in a Navy Blue Suit, Wellington.

Davies, S. (1997) Marching On, Wellington.

McCallum, J. (1993) Women in the House: Members of Parliament in New Zealand, Picton, pp.214–23.

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The (Economic) Life Of Harry

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

Listener 10 June, 2000

Keywords: Political Economy & History;

So much history in New Zealand ignores the economic context in which the people’s lives take place – censored out, like death itself. Attending a recent funeral of an ordinary New Zealander, it occurred to me that I could illustrate my point in his life.

Harry was born in 1918 in Silverstream Hospital, near the Trentham military camp where his father was based. The family tradition is that he was born in a tent, for New Zealand was still at war. One doubts a tent would have lasted long in the Wellington wind. The delivery room must have been a makeshift building (although given the way we run our hospitals, it probably lasted half a century).

I wondered how much GDP had increased in the 82 years that Harry lived. Our best estimate suggests it grew at an annual average of about 1.5 percent per person. Today the economy is about 10 times bigger and the average person about 3.2 times better off measured by material output than when he was born. That does not allow for quality change. I should think that today’s maternity hospitals are more than 3.2 times better than Harry’s.

Harry was the first of seven children. In contrast he was to have three and each of his children two. Family size has diminished over the years. One cause has been women’s changing aspirations. Harry’s mother stayed at home (housework was onerous in those days), his granddaughters work. His father was a railway clerk in Christchurch, until a blood disease from the Great War got the better of him. That was in the 1930s, when they had also taken in an invalided grandfather. There was no comprehensive social security so times were tough. To support the family, Harry went to work as soon as he could leave school, drifted from job to job, until he became an electrician specialising in rewiring the armatures of motors. He did this into his sixties part-time, for it involved such specialised skills, few others followed. The job was created by import controls. Burnt out motors had to be recycled. In any case they came in such a variety that there was no certainty one could be replaced.

Harry benefited greatly from the welfare state. He was married in 1940 (missing war service by not being medically fit). He had job security. You could walk out on a bad boss (there were a few) and immediately find another job. There was even a bit of overtime. His kids got decent health care and education, in a benign – if not inspiring – social environment. In the mid 1940s the family moved into a state house. He died in one, except it had been bought from the state 30 years earlier on favourable financial terms. His wife, Thelma, went out to work, as a school secretary to pay off the second mortgage.

Harry played a lot of sport, and did more than his fair share of its administration. Halfway through his life, was sport that gave him the big chance. Forty years ago the Christchurch City Council did not allow sport on its grounds on Sundays. So enthusiasts played out at the Templeton Hospital for intellectually disabled men and women instead. One of its staff asked Harry if he had thought of psychopedic nursing. Harry proved to be a very good nurse, for he loved both the technical side, and cared greatly about the patients and fellow workers. (For a while he was a P.A. union delegate.) The hours were long and there was the shift work, but the pay was good. He became a charge nurse, not seeking further promotion because he wanted to be hands-on rather than an administrator. After retirement, he kept in touch with the hospital until it was closed down. It was not a job but his profession. Had he the chances of a later generation he might have become a doctor.

He retired in 1983 on New Zealand Superannuation, topped up by an employer subsidized occupational pension from the National Provident Fund, and a freehold house. He kept himself busy helping the neighbours, friends, and family. He was bewildered by post-1984 governments’ apparent desire to cut the welfare state which had given him so much.

Five years ago, he had a bad lung infection on top of emphysema and almost died. (Yes, he had smoked for forty odd years.) The local hospital gave him superb support as an inpatient, and then as an outpatient when he returned to moderate health. He died peacefully (and suddenly) about a month ago, from a dissected aneurism. The hospital staff were again marvellous. The health system to which he had given so much in his working life returned the favour, the state to whom he paid his taxes supported him in his need.

At Harry’s funeral, I thought about a book I am writing, of some of the great nationbuilders – politicians, economists, artists – of his generation. But we should not overlook the many ordinary men and women, who each made their own contribution, without whom those nationbuilders would never have succeeded. Ordinary people like Harry – Harold Easton – Dad.

Self-interest Rates

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

Listener: 27 May, 2000

Keywords: Macroeconomics & Money;

New Zealand’s economic debate can be bizarre. Take the recent rises in the Reserve Bank base interest rate. Hardly anybody made the point that world interest rates are rising. The American Fed(eral Reserve Bank) is putting up its base rate, the European Central Bank is too, so is Australia’s Reserve Bank (RBA), and so on. Can we ignore a rising tide? The rest of the world could then borrow unlimited quantities from the Reserve Bank of New Zealand (RBNZ), a scenario too absurd to contemplate. Something horrible would happen to our monetary system and economy if we ignore what happens overseas.

Once we could run a monetary policy with some independence from the rest of the world. There were interest rate controls, credit controls, money controls, exchange controls, and the government (the taxpayer) was subsidizing credit by borrowing overseas dear and lending domestically cheap. Moreover, gross foreign borrowing was much lower than today, relative to the size of the economy. It seems unlikely that the past controls could be reimposed effectively given the current external debt level and the evolving world financial markets.

Because of the particularities of the Reserve Bank Act, the Bank’s angst-ridden justification for the interest rate rises is the need to control inflation. It would be easier if the RBNZ Governor, Don Brash, could say something like “My good friend and colleague Alan Greenspan (chairman of the US Fed) is putting up interest rates yet again, and everyone else in the world is too, so we have to follow. The issue is whether we should put them up more or less than average. Higher interest rates are slowing down the world economy by braking credit-based decisions (such as investment and consumer borrowing). In our view that will sufficiently slow down the New Zealand economy. So we think it only necessary to raise our official cash rate in parallel with world trends.”

Financial commentators are not restricted by the Act, and they are ill-disciplined as a consequence. They seem to think that Brash running the monetary system on the margins of the world economy, is doing the same as Greenspan at its centre. So they parrot American commentators. It is a colonial attitude with its holders subservient to the imperial view of the world. Today it is a US view, although their grandfathers were as subservient to a view from London. Rather than think through what is distinctive about the New Zealand economy’s circumstances, they ape analysis of the dominant economy, often using tipster sheets that come from the US, or from equally cringing Australians.

The same problem bedevils the discussion on monetary union with Australia or the US. Let me make just a few points, for it is a complicated issue. (You would not suspect so from the public discussion.)

In many ways the fashion for monetary union is an acknowledgement of the failure of the last fifteen years, both in policy and performance. After all, a monetary union involves a fixed exchange rate, in which the value of the New Zealand dollar is rigidly anchored to a set rate of another currency. In March 1985 the rogernomes changed from a fixed to floating rate, probably the most important single decision they took. So were they wrong? I have yet to find any account of why those who supported the past reforms have changed their mind so dramatically.

And if the rogernomes got that wrong, their supporters seem to think the same of the RBNZ. A monetary union would transfer its powers to the central bank of the uniting economy. Now there are no controls as there was in the past, to enable an independent policy to be pursued. Those who want to fix must be assuming that the RBA or the US Fed can run New Zealand’s monetary policy better than the RBNZ. Perhaps it can, but that is something we ought to discuss, rather than assume. (Any monetary authority in an economy which has its share values so dangerously out of line with reality as in the US, cannot be given a top grade. History will be less generous with Greenspan’s reputation, after the millennium depression.)

Many of its most prominent advocates have a self-interest in monetary union. The policies they supported have failed the economy so desperately that even the financial sector is suffering. (They might stop whingeing about the poor performance of the local share-market, and instead reflect on how policies in their short term selfish interest have damaged us all in the long term.) A fixed exchange rate allows the financial community to get in on the financial action of more successful economies, irrespective of what it does to the rest of the country.

The point of this column is not to argue that interest rates should or should not be raised, or that we should or should not fix the exchange rate. Rather, it has tried to indicate the deep policy issues. It is a plea that the public deserves something more than the froth and bubble, and the naked self interest, that dominate the public debate.

Delayed Impact

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

Listener 13 May, 2000.

Keywords: Macroeconomics & Money;

To understand the consequences of dramatic change in share prices, think instead about housing. Suppose you are told the value of your house has doubled. Suppose it makes no difference to your behaviour (except a bit of skiting, disguised as grumbling about higher local authority rates). When sometime later you are told your house price has halved, it wont matter much either (except you have another excuse for grumbling).

Another possibility is that because your house price is higher, you decide you are closer to your retirement savings target. So you save less and spend more out of your income. That spending would give an extra boost to the economy. If enough people behaved that way, production would increase and unemployment fall. (That seems to have been happening with rising share prices. Savings out of incomes have been falling here, and in many other countries.) When the price of your house halves, you are now further from your retirement savings target and so you increase your savings rate by cutting back spending. If enough people did that, economic activity would slow down, although in some circumstances the government can increase its spending as an offset.

Alternatively, you might reason that if your house price has risen, it will rise again. So you buy more houses. Perhaps you mortgage your current house, in order to buy them. To illustrate, suppose your house was originally valued at $50,000, and leaps to $100,000. Expecting further rises, you take out a $75,000 mortgage and purchase three more houses of the same value, mortgaging them on the same terms. The figures do not matter too much, but if you are following them you now have $400,000 (4 X $100,000) worth of housing and $300,000 (4 X $75,0000) of debt. Your equity remains the $100,000 of your original house.

If enough people do this, house prices will rise from the additional pressure on demand, and you will have made a tidy capital gain. (I leave the reader to work out how a 10% increase in house prices gives a 40% increase in the equity.) As long as house prices rise, you can keep buying more, using the past capital gains to finance the new acquisitions. Encourage your friends. The more there are in the market, the more demand pressure, and the more house prices will rise.

This seems to be a philosopher’s stone, turning nothing into something of value. For there is no additional production and no increase in the flow of income your houses are generating. A measure of net revenue is the price to earnings (P/E) ratio, which is the (share) price of the asset divided by the annual earnings of the share or asset. Most “new technology” stocks have P/E ratios of more than 100. If your houses had that you would be earning a hundredth (or less) of $400,000, or $4,000 (after paying rates insurance and maintenance and so on), out of which you would have to service the $300,000 debt. You could get a better deal by investing your initial money in government stock at 7 percent p.a. (This gives a P/E ratio of 100/7 = 14.3). Not all your friends will want to invest in such an ultimately low return market, others will get into cash flow difficulties, and some will pull out taking their money with them. Eventually the speculative growth will slow down, peak, and stabilize. With no capital gains, more leave, and prices fall.

Asset prices falls are dangerous. Suppose they halve. (Estimates of the underlying values of US shares suggest they have often been overvalued by a factor of two or three, so a halving is not that implausible.) Then your total assets will be valued at a half of $400,000 to $200,000. But your debts will still be $300,000 so your equity is now negative. To (mis)quote Mr Micawber: “Total assets, twenty pounds, total debts nineteen, nineteen six, result happiness. Total assets twenty pounds, total debts twenty pounds ought and six, result misery.” It is not only your misery. Your debtors may suffer. Suppose you borrowed some money from dear Aunty Flo to buy a house. You wont be able to refund her.

We do not know how much of the US sharemarket boom has been financed by unwise borrowing, although every previous boom has. So we do not know the extent to which, as the market comes off the top, it will implode as investors struggle with negative equity (or illiquidity, when they have the assets to cover their debts but cannot quickly convert them into cash).

What I do know is that it is easier for the sharemarket to get into a speculative bubble than a housing market (where transaction costs are higher). The hype is correspondingly greater there too. (Which major media outlet gives real estate agents a daily slot to unashamedly promote their products? They do for the financial sector.) Thus the greater volatility of the share market will be compounded by great hysteria as it returns to equilibrium. The economic impact takes longer to emerge.

the Anti-economist Papers, by Paul Bieleski

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

Listener: 6 May, 2000.

Keywords: History of Ideas, Methodology & Philosophy;

The economics profession had a high standing 40 years ago. Clergymen would mention that before they took orders they took an arts degree in economics. An oft repeated joke was the accountant who wanted to be an economist but did not have the personality. It is ages since a priest made that confession to me, and today the joke reverses the professions. It is not that today’s economists lack the passions that drove their predecessors. Rather, the morality has changed, and with it the public perception. Whatever the individual ethics of today’s economists, the discipline has been increasingly developed around the notion that people primarily pursue their self-interest. Even altruism is marginalised, explained as another way of pursuing selfishness. Economics may be the only “profession” that does not have any code of ethics.

Forty years ago, economists were less powerful, or at least they seemed so to the public, if they were noticed at all. Admittedly the clergy had studied economics hoping to find an answer to the devastation of depression of the 1930s, but economists were not eagerly consulted on questions on which they had no expertise – they were hardly consulted at all. The Treasury was already the most powerful department of state, but its profile was low.

The Anti-Economist Papers does not trace this change. Instead it presents economists as Paul Bieleski sees them today. However, despite its title, the book does not distinguish between economists and economics. The book’s cover says it is “entertaining and hardhitting”. True, although most economists will not be amused. But it is more a harangue than a thoroughly researched study, The book’s presentation is picaresque, leaping from topic to topic. The editing is a bit perfunctory, with the same joke told on three different pages

I’m afraid the book is littered with errors and inaccuracies. It says that when two billiard balls collide, kinetic energy is preserved. In fact, some of the energy is turned into heat, the balls slow down, and eventually stop. There are equally nonsensical economics mistakes, or exaggerations and misrepresentations. (It always takes more space to explain an economic mistake than to make it.) Even where the book is broadly correct it can be misleading. The defects of the measurement of economic activity (eg, GDP) have been well known for years, although critics overlook that the non-economists’ complaints were anticipated by economists. (New Zealand economists were struggling with how to measure the non-market economy decades before environmentalists and feminists complained.) The trouble is that no one – economist or non-economist – has worked out how to resolve the technical issues. This book is stronger on criticisms than alternatives.

Moreover, the book often attributes to all economists the views of a single economist, especially one subject to ideological excesses and poor analysis. Doing this ignores the debates within the profession, albeit less healthy ones than 40 years ago. Where it criticises economics, the book still uses economic analysis. It is illogical to argue to ‘ban the study of economics’ when the book is part of that study. Although many books have advocated censorship, this may be the first one to advocate proscribing itself.

But behind the rhetoric there are serious questions that the economics profession has to face. Bieleski’s conclusion that ‘economists practice a religion, one devoid of spiritual or human concerns. They pretend to have a science of economics, but their gospel is anti-scientific’ reflects a widespread public perception. It is, of course, foolish to say this applies to all economists. There are some brave and wonderful exceptions, and most economists are honest, if perhaps limited, craftsmen and women.

But consider the public’s perception as reflected by Bieleski. He was taught economics, apparently badly (and by economists, mark you). He uses anecdotes as proof, as do far too many economists. He reports from a media in which the economic commentators regularly make obscure and misleading analysis or selfserving mistakes. Surely the public has a right to be cynical when a bank economist provides ‘independent’. commentary to the media on a Reserve Bank monetary policy announcement, and within a week is defending the bank’s interest rate hike that follows.

Journalists are cynical, too, for they no longer bother trying to get the economics right. Recently, two business journalists, presenting what was purportedly an informed review of the first 100 days of the new government, described the terms of trade as ‘the difference between what New Zealand exports and imports from overseas’. In fact, it is the ratio of export prices to import prices. (They then gave a ‘D’, when the government has little control of this foreign-determined ratio.)

Should economists ignore such widespread criticisms and misunderstandings? Surely a profession is the custodian of its discipline. If it fails to meet the challenge that the book poses, it will fail in its custodianship. The consequence, as we are seeing, is a hurnpty-durnpty world in which words have only the meanings the speakers give them. Frequently they mislead the audience in favour of the speaker’s, or paymaster’s, interests. Too often some economists use power without responsibility – like a harlot.

Will economists accept the book’s challenge? One must be deeply pessimistic about the economics profession in general. Economic theory predicts that professions do not reform themselves without external intervention. But I have derived this conclusion from using an analytical framework that remains one of the powerful means of improving the material lot of mankind if its discipline is properly pursued.

Harry: Harold Stewart Parnell Easton: 12-7-18 to 29-4-00.

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

My oration for Dad at his funeral service, 2 May 2000.

Keywords: Political Economy & History;

Tena kotou katoa. Friends of my father, and so friends of mine, and of his family, welcome to this service of remembrance of Harold Stewart Parnell Easton.

He was so quintessentially Cantabrian – one of his last requests was for a radio to listen to the Crusaders – that you may be surprised to learn he was born in Silverstream, Wellington. The family tradition is that he was born in a tent, for in July 1918 New Zealand was still at war and the infrastructure dilapidated. Even so, although the Hurricanes are not what they claim, one doubts a tent would have lasted long in the Wellington wind. The delivery room must have been a makeshift building, although given the way we run our hospitals it probably lasted half a century.

He was named after an uncle who died in Flanders. A few here know him as “Harold”, the name he was christened with. Some as “Dad” or “Grandad”. Mostly he was known as “Harry”. I’ll call him Dad, because that is who he is to me.

Dad was the first of seven children, in a family which was not well off, except for love. Their plight was worsened in the 1930s, by the depression, by their taking in Dad’s invalid grandfather, and by the deteriorating health of his father, Henry, from a blood disease thought to have been caught while on war service in Papua New Guinea. He died in 1940. Shortly after Dad married Thelma – Mum. For five decades Dad had a base for his family life, which enabled him and his talents to flourish. Mum and Dad had three children – me, Keith, and Jean – and six grandchildren. The oldest three did know Dad’s mother, Doris, who died in 1977. Neither they, nor my generation, ever knew Dad’s father. But I saw him in his son, especially in his love for his family, and humankind in general, and practised in the relationships which gathered us here to remember Dad.

There were three major threads in Dad’s life. First he was clever. Not clever-clever but, as the dictionary says, “skilful, talented, ingenious, adroit, dextrous,” with his mind and with his hands. His family circumstances and the depression meant he had to go out to work early, drifting through a number of jobs – his marriage certificate shows him as an oxyacetylene welder. Eventually he became an electrician, specialising in rewiring the armatures of motors, a job which requires both hand skills and a lot of savvy given the complexity of the circuits. He did that in various firms, latterly at Dales and Doakes. He did it right up to his sixties part-time, for his was such a specialised skill, few others followed. In retirement Dad was to fix up people’s electrical equipment. One is tempted to ask “hands up those who have a Harry-repaired item in their home.”

His second attribute was his athleticism – good at sport, especially with excellent eye-hand coordination (and a good sport too). A tremendous enthusiast, he might in the same day play, umpire, and coach softball, and perhaps have laid out the diamonds in the dew of the morning. He played for Canterbury, and the South Island, as high as you could represent in his day. He was a softball administrator and, for a while, he and Mum ran schoolboys’ softball. There are not a few here who first met Dad that way. As young people they gained from the stability and direction it gave to their lives. The Canterbury Softball Association made him a life member.

But not only softball, Dad played whatever was going: cricket in his fifties, golf later. And when the emphysema cut back his lung capacity, so he could not walk for long, he watched sport.

It was softball which gave Dad the opportunity he had missed in adolescence. Forty years ago the Council did not allow sport on its grounds on Sundays. So Dad and the rest of the enthusiasts use to play out at Templeton Hospital instead. One of the nurses, Bill Harrington, asked if Dad had ever thought of psychopedic nursing, and gave him an application form. Bill had written an “A” for suitability on it, and Dad said he felt obliged to apply. The A was an underestimate: triple A plus would have been more appropriate. Halfway through his life then, Dad took to this new job of caring for those intellectually handicapped, and often lovable, men and women. He promptly passed his nursing exams and kept up with medical thinking thereafter. Not that he always supported the new developments. He opposed the closing down of the Templeton Hospital, for instance. Because of his loyalty to his colleagues and an unwillingness to dominate them, he was hesitant to accept promotion, becoming a charge nurse only reluctantly. At which point, he was given some of the most interesting and challenging villas to look after.

So Templeton brought out the third thread in his life: his sociability, liking people, getting on with them, helping them. He had done it before – for his family as his father’s sickness progressed, in sport, in many small instances remembered only by those involved. But his years at Templeton were the only time he got paid for doing what came naturally. And we the taxpayers got well rewarded. You see, Dad was a socialist. Not a doctrinaire one, but in the way he treated humankind and expected the institutions of society to treat them as decently too. He did get into union affairs for a while, but he was what may be called an expressive socialist. You lived its values in your life.

The way that the Canterbury public health system treated him was another such expression. Things became difficult about five years ago when the emphysema got bad, and he spent a lot of time in hospital then. Their care, and his robustness, gave him five extra years – to spend with us, to see his grandchildren move from childhood to adolescence or adolescence to adulthood, to see Canterbury win a few more competitions.

On behalf of the family – and Dad – I should like to thank those at the Christchurch Hospital. The staff there have been, as Dad was, first class professionals with a commitment to care and concern. The result was an easy death from a dissected aneurism. That care, plus his great heart which drove the body well past its due-by date, meant that everyone who could get to his bedside was there. We give thanks to the hospital staff. May you have as long and a rewarding life as Dad did.

Let me also take the opportunity to thank his friend and colleague, Ernie Hepplewaite, for presiding over this service of remembrance. And also to the funeral director, David Rossiter, who was one of the many young men and women who first knew Dad through softball. While reminiscing, Dave began chuckling over a colts trip Dad took to Dunedin. It wasnt wicked, but it was fun. There was a lot of fun in Dad’s life, despite the early hardship symbolised by that maternity hospital.

Writers sometime look for a word or phrase to describe an important event. In the case of Dad’s life and death, I began with “decent” – kind, generous obliging. It was not too bad a start but, while reading as we waited by his bedside, I was reminded of Hamlet. Asked about his father, Hamlet said, “He was a man.” Now Shakespeare pondered long on mankind, and the play “Hamlet” is torrent of wonderful sumptuous extravagant language, cascading into the most commonly quoted work in the English language, the Bible excepted. And yet, when Hamlet talked of his father, and by implication Shakespeare of his, he chose four of the simplest words in the English language: ‘he’, ‘was’, ‘a’, ‘man’. They said, this man was all you could reasonably expect a man ought to be.

Of Harry, of Harold, of Grandad, of Dad – my father, I can but say, “He was a man.”

Free V Fair

This entry was posted in Environment & Resources, Listener on by .

Listener: 29 April, 2000

Keywords: Globalisation & Trade;

The free trade versus fair trade dispute is an example of the way policy debates can be  dominated by extremism. Economists often pontificate on the topic with an authority that their theories do not justify. Non-economists take up ideological positions, relying on the economists’ claims.

What economic theory says rigorously about free trade is fairly limited. The well-established theory of comparative advantage argues that a country without tariffs, import controls, and so on is better off than one with them. The theory’s assumptions do not always apply. The market may not work – say, there are goods or bad. that are produced but not paid for. (Environmentalists are particularly sceptical of free trade.) Another (related) example is that sometimes the production process is different from that assumed in the theory. For instance, strong economies of scale (falling average costs with increased output) may justify protection. A third key assumption is that the resources, such as labour, capital and land, which become redundant from the abolition of protection, have to be redeployed in other industries, rather than remain unemployed.

The popular debate is more usually about the impact on the particular workers who suffer from globalisation. For, although the comparative advantage theory says the country is better off because income as a whole increases, it does not follow that every single person’s income is Workers from the closed-down industry are worse off Even if they get another job, their pay rate is likely to be lower, It is even possible that ell workers will be worse off, if the remove! of border protection lowers reel wages and raises profit and rents, (If a large share of the profits is owned by foreigners as a result of their investment, the country’s inhabitants may be actually worse Public trade policy disputes often amount to one side saying that free trade is a good thing, whereas the other says that canoot be true because some people are worse off, Neither side acknowledges the caveats to their arguments, (The inside government debate is sometimes no better in recent years, some government departments have supported free trade with all the subtlety of a struggling first-year economics student.)

Even so, I do not see that New Zealand has any real alterative to a relatively open international trading stance, that is, free trade in a moderated form, There are two positive reasons. First, we have a huge appetite for products we canoot possibly make in New Zealand. Those who protested at the World Trade Organisation in Seattle probably flew there in a Boeing (headquarters, Seattle), keep in contact with fellow protestors using Microsoft software (ditto), and buy books on globalisation from amazon.com (ditto).

Second, the evidence is that countries that run relatively open international trading stances bave grown faster than those that have discouraged importing and exporting, and foreign investment. We do not fully understand why. My guess is that those very production processes that invalidate the comparative advantage theory of the benefits of free trade are precisely the ones that give the economy’s growth sectors their dynamic thrust. Full benefit requires larger markets than are possible in the domestic economy, so key sectors have to export. But trade is both ways, so the country must open itself up to importing. Trade is a bit like marriage. You bave to give up some autonomy to get the benefits.

So, my conclusion is for cautious liberalisation. I do not support what has been called the ‘trading naked’ strategy. It is like taking all your clothes off at a picnic, in the belief that the beautiful people will follow. The good news is that, although trading naked seems to have been the strategy of the last 15 years, my impression is that the current government is much more divided. It has extremists of both varieties, moderates between, and some who are genuinely puzzled. With luck, the public will bave a richer, meaningful debate, too.

The Gulf Between East and West

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

Listener 15 April, 2000

Keywords Globalisation & Trade;

The Americans who first drilled for Arabian Gulf oil in the 1950s smoked tobacco. Despite an Islamic prohibition, the locals took up the habit, which steadily spread across the country. (Today lung cancer rates in the oil regions of Saudi Arabia are about double the national average, which is climbing.)

Thus modernization, the introduction of new technologies, was linked with westernization, the Western European and North American ways of doing things. Many non-Western countries (and the New Zealand Maori) struggle with the connection. Does modernization inevitably mean that one is committed to western modes of behavior and values, or is it possible to modernize and maintain a degree of cultural independence? Do we all end up as Disneyland?

Saudi Arabia, home of the two most holy Islamic shrines at Makkah and Madinah is one of the countries attempting to resist this convergence. While Western nations are typically secular states (often with nominal Christian links), the Saudis are keen to maintain an Islamic nation, intolerant of polytheism and atheism (and Marxism), and barely acknowledging the monotheistic Christians, Jews, and Zoroastrians.

Consequently, five times of the day, much of the secular life closes down while Moslems face Makkah and pray. (Even hotel rooms have an arrow pointing the direction.) Some of the mutawah, the Islamic fundamentalists, work with the civil police to enforce the Islamic laws. Public notices issued by the Society for the Promotion of Virtue and the Prevention of Vice state “women are obliged to be modest and wear Abaya [a long black gown] and head cover in shopping areas and public places.” A religious column in the English language newspaper solemnly intoned, “Nothing is more devastating to the fabric of a nation than wanton promiscuity.” (No mention of nuclear weapons, environmental implosion, or public dishonesty.) European type restaurants were raided on St Valentines Day, to check couples were married. (After all it celebrates a Christian erotic festival doesn’t it?) That morning they had confiscated all the red roses from florists, much to the annoyance of devout Islamic married women, who appreciated a little romance from their devout Islamic husbands.

Women are not allowed to drive cars. (It is said that the traffic police would not know how to speak to a woman with no male relative in attendance.) The result is that half a million immigrant workers act as drivers, while many male Saudi office workers go home at 2pm to pick up their children from school. (Yes, some women work and even pursue careers. But they face handicaps.)

It is the women, in their abayas, who are most obviously affected. One gets a sense of their situation from reading the fiction of Hannah al Shayk and Nine Parts Desire by Australian journalist, Geraldine Brook (The title refers to an Islamic statement: “Almighty God created sexual desire in ten parts. Then he gave nine parts to women and one part to men.”.) But it, and al-Shaykh’s novels did not prepare me for the sight of a ten year old girl walking athletically along the top of a parapet, not far from her almost immobile mother wearing the fully veiled dress which her daughter she would don in a few years.

Given the laws of thermodynamics, one may doubt whether “girls can do anything”, but celebrate that young New Zealand girls have almost the same opportunities as their brothers. It is rare for differences in social circumstances to mean an absolute superiority of one option over the other, so there may be some advantages in the Saudi arrangements. It is just that I was unable to talk to any veiled women to find out what they were. (The unveilled, with scarves, to whom I spoke, said the situation reflected Arab rather than Islamic values. Not all Islamic countries are so restrictive.)

A frequent conversation topic is the degree to which Saudi Arabia is socially and politically stable. Some fear an uprising by religious zealots, as occurred in Iran in 1979. Others worry about the sort of breakdown which has occurred in Russia. No doubt there are those who pine for the Marxist revolution. But the Kingdom has thus far proved remarkably stable, probably as a consequence of the Saudi royal family’s skillful management of the oil income and the mutawah, and the middle class’s fears of the alternatives.

But modernization involves change. An extremely cosmopolitan member of the Shouria (the privy council which advises the King) suggested the economic modernization was ahead of the social changes, but they will catch up. (A devout Moslem, he interrupted our meeting to pray.) My guess is that women will have a key role in the change. It is difficult to believe that today’s little girls are going to tolerate the lives their mothers lead. It is not even clear that their mothers will either.

Will the outcome be convergence (and the wanton promiscuity of the West the mutawah fear)? Or will the Saudis be able to forge a distinctive culture using the modern technologies of the West without having to adopt its values? I am intrigued at the possibility of a non-oppressive state based on spiritual principles. If the Saudis do not follow a fully Western path, they may resolve some of the great social questions in distinctive ways, from which the West can learn. My intuition though, is that they will fail. Thus far they have been unsuccessful in resisting tobacco.

A companion article is Postcard from Arabia

Postcard from Arabia

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

Listener 1 April, 2000

Keywords Globalisation & Trade;

Of Arrowtown, Denis Glover wrote there was “Gold in the ceilings/ gold in the floors”. He did not mean literally: rather gold mining has shaped the town. Saudi Arabia is shaped by oil. It holds more than a quarter of the world’s known oil reserves, and is finding more. Currently the kingdom supplies about an eighth of total production, and is flush with the revenue from its sales.

Arabia is a desert (the highest rainfall region gets about the same as Christchurch) but a huge gas driven desalination plant on the Arabian Gulf sends water 400kms across the desert to the capital Riyadh in the middle, to support the city’s rapidly growing 4 million population. At Jubail on the Gulf and Yanbu on the Red Sea there are enormous industrial complexes coverting oil into petrochemicals. (You aint seen a real “Think Big” until you have been to Saudi.) The population of 20 million includes 6 million imported service workers from as far afield as the Philippines for the low skilled, and New Zealand for high level professionals in medicine and computing. (There are also an enormous variety of imported goods including New Zealand lamb and dairy products, Watties vegetables, and Dick Hubbard’s honey puffs. Saudi is a market we are a long way from fully exploiting.)

There is a contrast between the extravagance of the human settlements and the austerity of the natural landscape. It would be easy to see deserts as god-forsaken places, but untouched by man (and woman) there is a beauty and grandeur which brings a deist nearer to God. Yet where man goes, the landscape is demeaned. A wall protecting the magnificent escarpment at Abha at the south end of the Red Sea (which is a rift valley between two tectonic plates, running down to Africa’s Great Rift Valley) is covered with blown plastic bags, like the fence of a rubbish dump. The vision seems to be that the environment is an unlimited space for the activities of mankind, be they stunning engineering (the roads down the escarpment have to be seen to be believed), or the discarded plastic and abandoned cars, residuals from the oil.

From my limited reading, it would not appear inherent in Islamic economics that the environment should be so disregarded. Rather Saudis are perhaps a generation behind us in our increasing respect for nature. They, like us until recently, seem to believe that man must dominate the natural world, rather than live with it. Yet earthquake, volcano, or hurricane (not to mention the grinding of tectonic plates) remind us just how ineffective we are up against the full forces of nature. A dry, almost-vegetationless landscape emphasizes that the mills of God may grind slow, but they grind exceedingly small.

Saudis rejoice in large families. Half the population is under 16, and the population growth is close to the demographic maximum, doubling in less than twenty years. Infrastructural needs and the inflow of the young into the labour market are great pressure on the environment and the economy. (Per capita GDP has been falling in recent years.)

Differences in attitude to the environment have international implications. Saudi Arabia is suspicious of the West’s attempts to conserve energy and reduce global warming, for it sees them as screwing their income from oil. One doubts that the families which littered their picnic rubbish over a Red Sea beach, have much understanding of New Zealanders who pick up other’s litter to deposit in the bins. And, excepting for the 3 million pilgrims on the hajj to Makkah and Madinah, there is hardly any tourism, so there is not even that pressure for cleaning up the environment and preserving the heritage sites.

Instead, Saudis celebrate the prosperity that comes from the oil, using the funds ostentatiously and extravagantly, and often inefficiently. A 1000 bed hospital in Riyadh built years ago has yet to be used, a suburb of apartment blocks in Jeddah was last used as temporary accommodation for Kuwaitis fleeing the Gulf War.

Yet there remain relics from the past in the modernization. The souk (Arab open market) is not only a tourist attraction, but enables Arabs to express a centuries old culture of trading. (US photographer Diane Arbus coined “I shop, therefore I am”. For the Arab it is “I bargain, therefore I am.”) The souk at the Hofuf oasis (the greatest source of the world’s dates) has blacksmiths sitting on the ground in front of open fires using the millenium old technology of heating and beating to shape iron. One hundred kilometers up the road, a giant factory at Jubail recycles iron and steel. Cobblers work in the street, not far from shops offering expensive Gucci shoes.

In sight of the Jubail complex, behind pipelines carrying the gas and oil which fire its industry, are the remains of a fourth century Christian church. As I scrambled over the inland sand, albeit of an ancient seashore with shells scattered around, I recalled Shelley’s poem of the remains of a statue in the desert.

My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing besides remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

A companion article is The Gulf Between East and West

Value Added

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

The Shift To A More Socially Responsible Economic Policy Is Also Supported by Public Opnion – With Real Political Implications.

Listener Cover Story: 25 March 2000

Keywords: Political Economy & History; Social Policy

The success of Rogernomics depended on New Zealanders changing their beliefs. Reforming economic and political institutions would not have been enough. People also had to think about governing the economy in quite different ways. The rhetoric of the reformers was that New Zealand had been a “nanny state” that did everything for its people. New circumstances and a poor economic performance (So they claimed) required a greater reliance on private enterprise and a major reduction in the range of activities of the state. New Zealanders had to reject their dependence on nanny and take greater responsibility for themselves.

There are some elements of truth here. From its beginning, the New Zealand state had been deeply involved in national development. Over the years, the involvement had been extended to numerous other activities encompassing private lives as well -health, education and retirement. Before 1984, many thoughtful people believed that it was necessary to reduce state involvement in some areas. (It seemed to me, as my Listener columns at the time tell, that the state was far too involved in the detailed regulation of business activities.) But, although some change may have been necessary, few envisaged such radical reforms as were to be implemented, and most expected that the traditional values of New Zealanders would set the limits for change. Instead. the Rogernomes used the peculiarities of the pre-MMP winner-takes-all political system to impose their extreme policies.

It is a matter of record that the reformers failed to attain their economic promises (the one exception has been inflation). But did they change our beliefs? Are New Zealanders now committed to the Rogernomes’ vision of a low-involved state? For more than a decade the New Zealand Study of Values (NZVS), based at Massey University, has been monitoring political and economic values, as well as spiritual and ethical ones. Its recent book, New Zealand Politics at the Turn of the Millennium; Attitudes and Values about Politics and Government*, shows that we have hardly changed the values that the reformers wanted to subvert. The study includes a host of tables – the 1998 survey of over 1200 people had more than 300 questions. A key table illustrates responses to the question: “What should be the responsibility of government?” The percentages supporting different responsibilities are shown in Table 1.

Percentages Who Think That The Government Should

Central Govt Local Govt
Provide a decent standard of living for the old 95% 67%
Impose strict laws to make industry do less damage to the environment 94% 89%
Provide industry with the help it needs to grow 91% 81%
Provide decent housing for those who can afford it 87% 70%
Keep prices under control 87% 54%
Provide a job for everyone that wants one 71% 51%
Reduce income differences between the rich and the poor 60% 36%

The vast majority of the public responded “yes’. to central government’s responsibilities, and a majority also saw major tasks for local government (except for income redistribution), even where it has no means of pursuing them.

On the question of redistribution of wealth, 45% of respondents in 1998 were in favour or strongly in favour, against 29% who were not. Nine years earlier, the figures were 42% and 34%, so the public had shifted towards favouring greater redistribution. Nor is there evidence that the younger generations markedly oppose redistribution more than their elders do. The Rogernomes have failed to capture the hearts and minds of the young, just as they failed to persuade the rest to change their views.

A similar commitment to government involvement is seen in the questions about whether the government should increase spending. (See Table 2.)

Proportions That Think Government Spending Should Be Increased For

1988 1998
The health services 83% 93%
The education system 79% 90%
Pensions 42% 70%
Job training & assistance for the employed 61% 63%
Protecting the environment 62% 54%
Spending on special sporting events like the Commonwealth Games* 23% 26%
The domestic purposes benefit* 13% 18%
The military, armaments, and defence* 15% 17%
Special assistance for Maori and Pacific Islanders* 13% 11%

* While there was no majority for increased spending, there was no majority for reduced spending either.

No one who followed the 1999 election will be surprised at the demand for increased spending on the core activities of the welfare state. What is intriguing is that demands rose over a nine year period. Although this might be explained by the savage expenditure reductions of the early 1990s and the squeeze that followed, the conclusion has to be that the weaning (“cold turkey” might be more apt) has done nothing to reduce our demand for the “nanny state”.

Moderate reformers can take heart from the responses to questions about the role of business. Some 60% thought that, “owners should run their businesses or appoint managers” (albeit the 1998 percentage was down a little from the 63% of 1989), although 34% of 1998 respondents wanted some employee involvement in the management of firms (up from 28%). Just half (50%) wanted to increase private ownership of business and industry, but only 31% favoured government owning more business. Lest business gets complacent, however. 53% of the 1998 survey favoured tighter government regulation of big business (a fraction down on the 55% of 1989), although 70% thought that, “this country was run by a few big interests looking out for themselves” (compared to an earlier 54%). Moreover, a key element of recent economic policy, the opening up of the economy to foreign competition, is opposed by a majority of the public: 61% said that, “there should be stricter limits on selling foreign goods to protect jobs”.

Only 19% of New Zealanders agreed that, “the government should take responsibility to ensure everyone is provided for.’. This places us in the middle of the five rich countries in the inter-national study -Sweden (6%), the US (12%), Australia (21%) and West Germany (23%)-and well below Taiwan (27%), Mexico (32%), Poland (33%), Brazil (34%), China (36%), Lithuania (41%), Japan (42%). South Africa (43%), Russia (50’Yo). East Germany (50%) and South Korea (65%). We seem to be sturdy individualists. who nevertheless expect the government to support us in our pursuits and protect us when things outside our control go wrong.

One of the strongest responses of the survey is that people feel politically marginalised. In 1998, 67% thought that central government was generally unresponsive to the public. They were willing to take direct political action: 97% would sign a petition. 67% would join a boycott, 67% would attend a lawful demonstration, 34% would join an unofficial strike, and 17% would occupy buildings. In each case, they were more willing to do so than in the past, and more in 1998 said that they had engaged in direct political activity than in earlier surveys. But 81% rejected violence as a means of pursuing political goals.

The NZVS results are in the public domain. We can be sure that there are a host of private surveys, many in the hands of political parties, which give broadly similar conclusions. Such surveys present the parties and policymakers with a challenge. Under the past winner-takes-all political system, a handful of bolsheviks (of the right or left) could seize power and impose their policies, even if the public hated them. Under MMP, coups are less likely.

We see Act responding in the contesting of its presidency. Whatever the personalities and the party issues, underlying them is the fact that Act economic policies based on Roger Douglas’s Unfinished Business are favoured by less than 10% of New Zealanders. The party’s destiny under MMP, if it keeps to these policies, may be to help form a government of the right, but it will never have a decisive role in political power because its policies are an anathema to the majority of the public. It is no accident that Act played down its economic policies in the 1999 election, focusing on social security entitlements and Treaty settlements, where the NZVS survey shows that it was much closer to the public’s desires.

Many of the Greens ‘ policies are articulated by other parties, too, although not necessarily with the same enthusiasm. But there are hints in the NZVS study that many New Zealanders want to be governed differently. The survey shows that we are committed democrats, but it may be that the unorthodox Green politics -dual leadership, a parliamentary musterer rather than a whip, a high level of grassroots consultation -represent a yearning for a more collectivist governance. at least among a significant minority. The Greens will also take heart that 39% of respondents favoured traditional technology over high technology. with only 35% taking the opposite view. But, maybe surprisingly. New Zealand was below nine other countries in the survey (Australia, China. Mexico, Russia, South Korea, Spain, Sweden, Taiwan, Turkey and the US} at giving priority to the environment over the economy.

The Alliance is another party discovering that some of its policies resonate with the public while others clearly don’t. Labour probably best positioned itself, according to the NZVS, in the 1999 election. However, a fifth of its caucus is Maori, although the public is broadly opposed to giving Maori any special treatment. The survey reports the public’s reluctance to spend more on Maori. Some 66% are against giving them special land and fishing rights, and 34% think that the Treaty of Waitangi should be abolished, together with another 29% Who think that there should be greater limits on Maori claims under the Treaty. Maori have worked the old political system, just like the Rogernomes, so neither they nor the government have really tried to sell their case to the public. That will be necessary under MMP.

Probably the biggest immediate gainer from studying such polls is the National Party. The majority of the populace did not like much of what its government did in the 1990s. Realising this, its leader Jim Bolger tried to restrain the party’s Rogernomes, seeking a new policy direction with a social cohesion to balance the economics. Although known as “potato-head” by the elite, of our last five prime ministers, Bolger was the most in touch with the electorate, and the shrewdest. His redirection attempts were thwarted because the top of his caucus was recruited during the gung-ho years of Rogernomics, to which they were sympathetic. In opposition, National has the opportunity to create a caucus that aligns better with the public’s desires.

Moderate reformers will be pleased that they have got the public’s values roughly right, and note that a large majority of respondents also think that “society must be changed slowly by the reforms”. Even so, just because the public wants something, it cannot always be delivered. There remains a role for leadership identifying and articulating opportunities. restraints and evolving trends. Surveys such as the NZVS tell us where to begin.

*The authors. Paul Perry and Alan Webster, supplied The Listener with a supplementary report.