A Pantheon Of Seven ….

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

Listener: 18March, 2000.

Keywords: History of Ideas, Methodology & Philosophy

Of course there were economists before Adam Smith (1723-1790) but he was the first to offer a reasonably comprehensive account of economic behaviour, founding the “classical” school of economics with its concern of how economies grow. His Wealth of Nations, published in 1776 on the eve of the American Revolution (which he supported), is a book which people quote rather than read, so its richness, its humanity and its subtlety tends to be lost. Smith, a professor of moral philosophy, later customs collector (and not as endeared to free trade as one might think), was a close friend of David Hume (1711-1776) who was also a Scottish philosopher and economist.

David Ricardo (1772-1823), a London Jew, is in the list not just because of his key theories of land rent, trade, labour value and money, but because he begins the formal modelling the economy. He was a wealthy stock broker, a member of parliament (for a rotten borough), wrote Principles of Political Economy and Taxation, and was influential in the policy debates of his day.

The German independent scholar Karl Marx (1818-1883) has an honoured place in economics, even if many of his disciples have not. He was the last great “classical” economist, perhaps more a synthesizer of past economics theories, but enriching them with philosophy, history and sociology. Marxism has suffered enormously from Marx predating the neo-classical revolution, although it is clear from Marx’s own writing that he was fascinated by new ideas, and would have seized upon neo-classical economics, had he been a generation younger. He is best known for Das Kapital, although I prefer his younger socially oriented writings.

Many economists contributed to neoclassical economics, with its concern of how markets work, adding the demand side of the economy to the supply (or production) side of classical economics. The greatest was English Cambridge professor, Alfred Marshall (1842-1924), a mathematician who hid his mathematics behind prose, a theorist who assiduously collected facts, visiting factories and walking the streets of London (with poverty investigator Charles Booth). His Principles of Economics, published in 1890, remains a masterpiece of microeconomic exposition of market behaviour. (It was recommended reading to my student generation 70 years later.) He is my personal favourite from this list ….

… but I would have been mesmerised by the charisma of Marshall’s prize pupil John Maynard Keynes (1883-1946), the “maynard” to distinguish him from his father John Neville Keynes. Even Keynes’ detractors are keynesians, for they use his macroeconomic framework for the study of business fluctuations and unemployment. (Was Keynes a keynesian – or Marx a marxian?) Keynes was a Cambridge academic but also advised the British government, and contributed to the creation of the post-war economic institutions although dying before the began to function. Probably the best writer among economists, his General Theory of Employment, Interest and Money was also one of my textbooks.

The last of the pantheon was also a Cambridge professor, but this time at the Massachussets Institute of Technology, at US Cambridge. Paul Samuelson (1915-) led the development of rigorous mathematical modelling of the economy, something which Marshall and Keynes, also good mathematicians, avoided. In some ways the mathematization of economics has been its curse, yet it cannot be ignored. Moreover Samuelson has a humanity, humour, and intuitive insight that distinguishes him from his corrupted followers. His Principles of Economics, my first year economics textbook, is still a pleasure to read.

…. AND SOME ALMOSTS

I have avoided the common practice of stacking a list with recents. American professor, Milton Friedman (1912-), is not there because I am not sure his monetarism is anything more than an ideology attractive to businessmen. His methodology would struggle to get a pass in a first year philosophy class. Regrettably it has been adopted by too many pedestrian economists.

I have hopes that Joseph Schumpeter (1883-1950) may yet join the pantheon. An Austrian, and a short time Minister of Finance, he ended up teaching at Harvard in the US, to be eclipsed by Keynes. His breadth of vision, encompassing history and sociology, would be a welcome return within the economics profession. In recent years, I have found myself turning to Schumpeter’s approach, to explain economic growth, financial crashes and the role of social institutions.

American Ken Arrow (1921-) might be a possible addition for a number of brilliant insights into how markets work and risk, including the Arrow-Debreu general equilibrium model, which he developed with French economist Gerard Debreu (1921-), but was started by French-Swiss economist Leon Walras (1834-1910). Arrow is best known for his voting paradox, in which communities are unable to make consistent decisions. Incidentally, he and Samuelson are uncles of Larry Summers, the secretary of the US Treasury.

My punt for the next to join is Ronald Coase (1910-), an Englishman based at the University of Chicago. His insights into transaction costs and the role of property (which generated a new inter-discipline of Law and Economics) are so revolutionary that my generation of economists are still struggling to come to terms with them.

Eliminating the Tobacco Epidemic the New Zealand Experience

This entry was posted in Health, Regulation & Taxation on by .

Paper to a Seminar at the Department of Oncology, King Faisal Specialist Hospital, Riyadh, on Tuesday 10 Dhu Al Qadah (15 February 2000).

Keywords Health, Regulation & Taxation

Introduction (1)

There is a huge body of evidence that the smoking of tobacco shortens life expectancy and damages health before that. Many western nations, including New Zealand, have therefore taken measures to reduce and eliminate smoking. They have been largely successfully both in terms of reducing the quantity of tobacco consumed and tobacco induced morbidity and mortality, although there is a considerable lag between the reduction in consumption and the reduction in disease. In another group of countries, typically the poorer ones, tobacco consumption levels are low in most social groups. However there are fears that with increases in discretionary incomes and more persuasive marketing by the international tobacco companies smoking will increase to levels as high as the peaks that occurred recently in Western nations a generation ago. Between these two groups of nations are those whose smoking has already reached peak Western levels, but have not yet taken measures to reduce them. They are, in effect, a generation behind the Western nations in terms of when they began smoking and also when the smoking induced disease becomes evident. The best documented is Japan, but some Middle East countries may belong to this category.

The differences between the West and Japan arise from smoking becoming widespread in the West in the 1930s and 1940s (moreso among men than women), whereas the Japanese smoking uptake has been a post-war phenomenon.(2) Figure 1 illustrates the difference between Japan and Western Nations. British lung cancer mortality rates among males peaked in the early 1970s, and now are about half the level of that peak, the Japanese male mortality rate has been increasing steadily since the 1950s, and now surpasses the British rate. The expectation is that in 2015 it will still be increasing and is expected to be about four times that of the forecast British rate.

Note that while lung cancer is the best indicator of the smoking disease, smoking exacerbates heart conditions, and rates of cardiac mortality from smoking often exceed that of lung cancer. This medical phenomenon has that policy consequence that while often the most vigorous medical lobby for eliminating tobacco smoking is oncologists (supported by public health specialists), cardiac physicians have a real interest in the policy too. For instance, in New Zealand one of the earliest, feistiest and most effective opponents of smoking was a cardiac physician, Sir David Hay.(3) A key element in the success of the anti-tobacco campaign policy in New Zealand has been that it has been based on broad-based coalitions and interest groups.

Some New Zealand Evidence

It is not proposed to go through the impressive evidence linking smoking to morbidity and mortality, since it is well known. In summary, it is estimated that smoking one cigarette shortens the smoker’s life by 5.5 minutes.(4) However New Zealand has some evidence which is not well known internationally, and so is reported here.

The New Zealand Census may well be unique in that it has asked questions on the prevalence of smoking. Those over 15 are asked whether they were ever a regular smoker, and if they were, whether they still smoke. Because this is asked of the entire population, it is possible to look at prevalence in any sub-population.

Figure 2M shows the proportion of males who said they had been regular smokers by five-year periods of birth. It shows a steady decline through the generations (with the possibility that the decline has accelerated for the most recent cohort). However, the graph is misleading for it only reports the living. If we allow for the differential mortality for smokers we find that the proportion of regular smokers among those born in a particular period, as distinct for those alive in a later one, was much higher, and the decline sharper. The same story applies for females. (Figure 2F). According to the census the proportion of women who have been regular smokers has been rising. In fact about 50 percent of each cohort have smoked. The apparent rise is a consequence of the higher mortality of smokers. (Note that ever-smoking prevalence is higher among women than men in recent cohorts).

(The ever-smoking prevalences give little indication of current-smoking prevalences. In 1996 24.8 per cent of adult males and 22.7 per cent of women were still smoking. This gives a quit rate for all adults of just under 50 percent. For older still living adults the quit rate is over 75 percent for those over 65 years, and actual smoking prevalences are close to 10 percent.)

Knowing someone (or generation) is, or has been, a regular smoker says nothing about the levels of consumption. In New Zealand they are only available in aggregate for long time periods. Figure 3 shows the pattern of adult tobacco consumption in cigarette equivalents from 1920 to the 1990s. There is a big rise in the late 1930s and 1940s, with increasing affluence and more successful marketing of cigarettes (especially among women), plus the impact of the war, when cigarettes were cheap to the troops, and conditions conducive to smoking. (In fact consumption in the war era may be underestimated, as this only reflects domestic consumption and excludes smoking by the armed forces overseas.) Per capita consumption levels then stabilized from the 1950s to the 1980s, since when they have begun to fall and are now about half their peak and lower than at any time in the last 80 years.

Figure 4 shows the lung cancer mortality rate, which peaks for men in 1965 after a dramatic seven-fold increase in 30 years. Again there is a plateau (perhaps slightly declining over time) but it is not until 1985 that male rates begin to fall markedly. The female lung cancer rates follow a different pattern, reflecting female cohorts taking up smoking later than male ones. They peak as late as 1975 (again after a more than seven fold increase albeit from a much lower base), but it is not evident that they have yet gone into the decline stage that males have.

A comparison between Figures 3 and 4 suggests there is a two plus decade lag between the rise, plateauing or fall in tobacco consumption and the rise, plateauing or fall in the incidence of lung cancer. The implications for Japan, as we saw in Figure 1, and for other countries which took up heavy smoking in the post-war era is that the main impact of lung cancer is still to come.

This must be rather depressing for oncologists working in those countries, because measure taken now to reduce tobacco consumption will not give immediate reduction in lung cancer. Nevertheless it is worth repeating the standard advice for those considering abandoning smoking.

“After a year, mortality from heart disease drops halfway back to that of a smoker; by five years, it drops to the rate on non-smokers. A person’s risk of lung cancer is cut in half in five years; by ten years, it drops almost to the rate on non-smokers. Such gains are reaped only if smokers quit in time, before they show any signs of tobacco’s lethal affects.”(5)

Thus cardiac physicians have a considerable interest in stopping smoking.

To give an order of magnitude of the problem I have calculated the social costs of tobacco use in New Zealand in 1990, came to a 1.7 percent loss of material GDP with a 3.2 percent loss of the total value of life (covering mortality and morbidity costs). A summary of the conclusions appears in Figure 5.(6)

The Anti-Tobacco Campaign in New Zealand

Each country has to develop its own anti-tobacco campaign, reflecting its constitutional and cultural circumstances. For instance the US campaign is quite different from the New Zealand’s because the US constitutional arrangements do not give a federal mandate for health care, because of the greater practice of litigation, and because the US is a major exporter of tobacco products. Nevertheless there are some general principles and policy instruments, which can be illustrated by a stylised account of the New Zealand experience.

Tobacco arrived in New Zealand with the European at the end of the eighteenth century and was taken up with alacrity by the Maori, who still smoke more heavily and suffer greater mortality from smoking than the non-Maori. A desultory anti-tobacco campaign began in the late nineteenth century. Little was scientifically known of the health effects of tobacco. Instead the campaign was largely driven by a religious puritanism (paralleled by a more pervasive temperance (anti-alcohol) campaign), and supported by similar movements overseas. Although the following is a description of the attitude of a Methodist (protestant Christians) of the 1920s, it well captures the earlier view. tobacco. Instead the campaign was largely driven by a religious puritanism (paralleled by a more pervasive temperance (anti-alcohol) campaign), and supported by similar movements overseas. Although the following is a description of the attitude of a Methodist (protestant Christians) of the 1920s, it well captures the earlier view.

“Now I don’t smoke or drink or swear …this is not just a behaviour[al] sort of thing. This is respect for the human body and this is what we were taught [in Methodism]. The human body was a temple for us to respect.” (7)

One success was the Juvenile Smoking Offending Act of 1903, which prohibited the sale of tobacco products to under sixteen-year-olds. This was a response to the arrival of cigarettes (which a youth could more easily hide than the paraphernalia of a pipe) and concerns about delinquency. A common theme of parliamentarians was that they smoked and while it did not damage to them, it was bad for growing boys. (Women were never mentioned in the debate.)(8)

, which paralleled the more pervasive temperance campaign of these times, including from overseas. The antagonism to tobacco was more a matter of puritanism than the health effects which were not scientifically known at the time. One success was the Juvenile Smoking Offending Act of 1903, which prohibited the sale of tobacco products to juveniles. This was a response to the arrival of cigarettes (which a youth could more easily hide than the paraphernalia of a pipe) and concerns about delinquency. A common theme of parliamentarians was that they smoked and while it did not damage to them, it was bad for growing boys (Women were never mentioned in the debate).

In the first part of the century the anti-tobacco movement was a feeble offshoot of the largely religiously driven temperance movement. We might call this movement incipient rather than effective, although it did discourage some people from taking up smoking.

Smoking increased throughout the first half of the twentieth century. Male regular-smoking prevalence was then over 80 percent, and female prevalence rose from about a quarter for those born before the new century to the half which has been standard for most of this century .While male smoking typically began in teenage years, women’s prevalence probably rose in the 1930s when cigarette companies consciously targeted women, and adult women took up smoking. (Today smoking is being taken up by both sexes in teenage years, at increasingly younger ages.) Earlier it was suggested that smoking prevalence peaked for adolescent males during the Second World War, and declined for those who entered teenage their years after it. Before then, increasing prevalence was associated with increasing consumption per person. Throughout this time there was as switch from pipe tobacco to cigarettes (imports and manufacture of tobacco for oral and nasal consumption was banned in the nineteenth century).

The New Zealand story is not very different from the smoking story of other Western nations (except for timing) because of globalisation of the mass media and the application of marketing strategies by the international tobacco companies. Fashion has been important.

Per (adult) capita tobacco smoking peaked in the 1950s, at a saturation level not very different from most other Western nations, but lower than the US. Per capita consumption did not really decline until the 1970s. Nevertheless it is interesting that the plateau began before the publications by British and US epidemiologists from the 1950s, which convincingly proved there was a connection between smoking and mortality.

The anti-smoking campaign of the 1960s was reinforced by the increasing numbers of quitters, who were often vigorous objectors to smoking. There was no formal anti-tobacco organization. The big transformation was that the doctors, alerted by the growing body of evidence of the disease inducing effects of tobacco and vigorously led by a few spokesmen and women, began to give up smoking themselves, and advised their patients to do so too. Of course, not all doctors did, but the medical profession gave the anti-smoking forces an organizational base. This expert dominated movement led voluntary health oriented groups -such as the Cancer Society and the Heart and Asthma Foundations -to take up public education. Today there can be few New Zealand adults who do not know that smoking kills -even if they have only a vague idea of the totality of the evidence.

The campaign also reflected an important shift in medical policy thinking at that time. The dominant view, up to the 1970s say, was that medicine could cure all illness (or they were incurable). However, there developed a realisation that many illnesses were better treated by prevention, which was cheaper, more effective, and less invasive of privacy. (There may be no better illustration of this principle than preventing cancer and heart disease by eliminating smoking. A recent paper by the New Zealand Ministry of Health nominates smoking as a significant preventable risk factor in five of the nine top causes of death in New Zealand.(9)) Emphasis on prevention and the public health paradigm steadily involved government agencies, including the Ministry of Health, who again led by their medical experts, became advocates of public education and anti-smoking policies.

And so a minority movement dominated by experts, evolved into a public movement in which experts gave leadership but the momentum came form the public. A separate anti-smoking organization was developed. (Its name, ASH, indicates the international dimension of the movement.) Civil groups without any formal health purpose joined in, for instance banning smoking at committee meetings. (That it was possible to get majorities to do so was indicative of the growing numbers and the increasing persuasive vigour of the anti-smokers). A key step was the systematic identification of the health effects of passive smoking. These are small in comparison to the impacts on smokers, but it was now plausible to argue that smokers largely knew the health risks they were exposing themselves to. Passive smoking meant that those risks were being passed onto others, without their consent. It shifted the debate. Many anti-smokers had been irritated mentally by smoking litter and the discourtesy of smokers (for until recently they did not ask whether they might smoke in one’s presence), and physically by the smoke itself. But the irritation was exacerbated by the knowledge that passive smoking also kills, adding to the crusading zeal of the anti-tobacco lobby, and to the concerns of the population

When there is a strong enough mass movement, politicians take it up. In New Zealand’s case the key politician was Helen Clark, currently prime minister, but in the late 1980s, Minister of Health, who introduced legislative which restricted smoking in the Smoke Free Environments Act (1989), which was in part based on Canadian legislation.

It is well to note that while the political phase in the anti-smoking campaign developed late out of the mass movement, there had long been a political pro-tobacco campaign, led by the tobacco companies and also the tobacco growers and processors. (The latter were eliminated by the elimination of border protection in the 1980s.) Even though the companies remain a strong lobby in New Zealand, and have the support of up to 25 percent of the population who still smoke (albeit, in the case of many addicts, reluctantly), their campaign is in retreat.

While the ambitious smoking reduction targets the government sets up as a part of its public health campaign may not be met on time, it seems likely that there will continue to be long terms reduction in the prevalence and intensity of smoking among adults. (Juvenile smoking is a more complicated issue. For a number of reasons, including adolescence rebellion, it may be impossible to stop teenagers smoking completely. The strategy may be to ensure they dont become addicted, and give up easily on reaching the maturity of adulthood.)

The history of New Zealand smoking is summarised in figure 6. The penultimate column shows a pattern of the anti-tobacco campaign of incipient expert public political movements. It is a common one in New Zealand. However it must not be assumed that there was some broad strategic overview. Rather, opportunities were seized as they occurred. (And not always the best ones. For instance the anti-tobacco campaign never aligned itself with the anti-protection campaign to eliminate the tobacco growing and processing industry.) However each mini-campaign must be seen in the context of a growing body of knowledge about the damaging effects of smoking, and a widening awareness of this knowledge among the public. Public education comes first.

Fiscal Policy and Tobacco (10)

Undoubtedly the single most effective policy instrument to reduce smoking, other than education, is raising the price of tobacco by imposing excise duties.

Because the consumption of tobacco is insensitive to changes in price (as occurs when an excise duty is increased) it is a good substance to tax (whatever the health and equity considerations). Moreover, that the consumption activity is considered problematic by a significant and vocal proportion of the population makes higher tax rates politically feasible.

Initially the fiscal pragmatism was combined with the view that consumption of tobacco was indulgent if not downright sinful. But the Minister of Finance stated in the 1970 budget “it is clear that cigarettes and tobacco can be subjected to additional tax without harming in any way the general welfare of the community .In fact it is increasingly argued that discouraging the consumption of these commodities is likely to make a positive contribution to our general health.” By the 1977 budget the view had moved to “the adverse effects on health of smoking and drinking have been well publicised.” The notion that excises on tobacco consumption for health purposes is now an integral part of the justification for the duty .But at what level of duty?

The narrowest view is that the duty should be sufficient to cover the cost to the state of treating tobacco-induced diseases. But these do not cover all the private costs, such as the loss of life. So there is no logical necessity that revenue from excise duty on tobacco should cover just the fiscal costs of tobacco consumption. Whether through health and social cost arguments, or through modern variations of the purity argument (in modern economic parlance presenting tobacco as a “demerit good”), the anti-smoking pressure groups have lobbied vigorously for higher taxation on tobacco. They had marked success in the late 1980s and early 1990s, for the government under fiscal stress found it convenient to respond positively to the lobbyists’ demand.

In evaluating the impact of excise duty , we need to think of at least three groups of smokers with differing behaviour, although little is known about their proportions, other than anecdotally.

(1) The addicted, typically older, smoker who has already resisted a range of economic and non-economic incentives to give up smoking. For most, a hike in excise duty reduces their real income, rather than their tobacco consumption.

(2) Occasional, light, and non-addictive (adult) smokers whose consumption may be price elastic/sensitive to price increases. This group may not be a high policy priority except to discourage their joining the first group.

(3) New and potential smokers, who in New Zealand are almost entirely teenagers, since few begin smoking after the age of 18. Higher prices do affect their consumption levels. The effects of higher excise duty may discourage adolescents becoming heavy and addictive smokers (joining the first group).

A tax hike will impact on these different groups in different ways. In particular it may not be particularly effective on the first group, but may be effective on the long term smoking behaviour of the third. Nowadays, a central theme of the anti-tobacco lobby’s call for higher tobacco duties is that higher excise duties prevent adolescence addictive smoking.

Non-fiscal Regulation

As reported in the historical section, legal prohibition on juveniles from being supplied with tobacco products, or smoking in public places, were imposed at the turn of the century. Other prohibitions began to be imposed in the late 1980s. The main ones can be summarised as follows:

(1) Restrictions on commercial access to tobacco by the young (currently under 18).

(2) Prohibitions on advertising, sponsorship, (with a few exceptions, typically concerned with international events), display, and compulsory labelling including health warnings.

(3) Creation and extension of smoke free environments. (The rules have been supported by many businesses – most evidently airlines – happy to comply in their own interests while attributing the restrictions to the government.)

(4) There is a little subsidization of quit programs, although the general approach of the New Zealand government is that these are the responsibility of the individual, and so should be the funding.

For completeness it is mentioned that there are also private restrictions on smoking. For instance the Maori, having taken over responsibility for their (typically government funded) own anti-smoking campaigns, have applied smoking prohibitions to their marae (meeting areas and halls).

I will not discuss here the policy issues and instruments which currently face New Zealand, with one exception. There is an increasing need for international coordination among the Western Nations of anti-tobacco policy because of border issues. These include smuggling, duty free allowances and cross-national advertising and sponsorship. Undoubtedly the measures will impact on other countries.

Developing an Anti-Tobacco Policy in Another Country

Every country is politically and culturally different from another, so while each can learn from the experiences of others, its campaign will be unique. But the New Zealand experience suggest some general principles. The first is that when the campaign is in the expert phase led by concerned health professionals, the next likely next stage is going to be a public phase, which develops out of a program of increasing public education. Probably it will work most effectively when there are some other factors changing the public’s view, indicated by a slowing down in the increase in tobacco consumption or a plateauing. Quitting will become more common, especially among the elite or those who set public opinion.

It will be a long campaign. David Hay’s return to New Zealand in the mid 1960s is a marker for the beginning of the expert phase of the New Zealand anti-tobacco campaign. We observe that there were little observable gains in terms of aggregate tobacco consumption for the next two decades, and for reductions in male lung disease for three. (The situation for women is more problematic. But it seems likely that without the campaign, their consumption levels would have rise, and quitting have been less common. So their gains may be the plateauing rather than rising of the female lung cancer rate).

Yet if each country’s campaign is unique, it is also greatly influenced by the success and failure of campaigns of like-minded countries. New Zealand has been greatly influenced by UK and US research on the dangers of smoking, and by Norwegian and Canadian legislation to ban advertising. Australian was followed on health sponsorship and California on smoke-free legislation. In taxation New Zealand has created been a world leader. It is perhaps to be regretted that the US campaign has not got the traction of the rest of the West, because of its different circumstances, given how trend setting the US tends to be.

One would predict therefore that the anti-tobacco campaigns in those countries which took up smoking from the fifties will have parallels with the earlier Western campaigns, but also have differences, but some of those differences will be common across those countries moving into the expert phase, and beyond.

Figures Not included on website.

1. British vs Japanese Lung Cancer Mortality.

2M: Ever-smokers: Entire Cohort & Live cohort (Male)

2F: Ever-smokers: Entire Cohort & Live cohort (Female)

3: Per Capita Tobacco Consumption: 1921-1991

4: Ling Cancer Mortality Rate: 1940-1995

5: Social Cost of Tobacco Use in NZ (1990)

6: A History of the NZ Anti-Anti-Tobacco Campaign.

Endnotes

1. I am grateful to Drs Alan Gary and Murray Laugeson for useful comments on an earlier draft of this paper.

2. An interesting consequence is the Japanese have mainly filtered cigarettes. The sdmoke particles have thus penetrated deeper into their lungs, and so their pattern of lung disease may differ.

3. His services in the anti-tobacco campaign were a major contributor to the justification for the knighthood.

4. C.E. Bartecchi, T.D. MacKenzie & R.W. Schier (1995) “The Global Tobacco Epidemic”, Scientific American, May 1995, p 44-51.

5. Office of Smoking and Health (1990) The Benefits of Smoking Cessation, A Report of the Surgeon General, U.S. Department of Health and Human Services.

6. B.H. Easton, The Social Costs of Tobacco Use and Alcohol Misuse, Public Health Monograph, Department of Public Health, Wellington School of Medicine, 1997.

7. The quotation comes from a a radio interview of a well-known New Zealander, Dr W.B. Sutch, in 1971, recalling his adolesence in the 1920s.

8. S. Thompson (1992) Evils of ‘The Fragrant Weed’: A History of the 1903 Juvenile smoking Suppression Act, Essay in partial fulfilment of M.A. degree, University of Auckland.

9. Heart disease (1), stroke (2), chronic lung disease (3). Asthma (6), lung cancer (8=). Other risk activities were physical inactivity, obesity, and diet.

10. This section is based on B.H. Easton, “The Economic Regulation of Tobacco Consumption in New Zealand”, in I. Abedian, R. van der Merwe, N. Wilkins & P. Jha, The Economics of Tobacco Control: Towards an Optimal Policy Mix, Applied Fiscal Research Centre, University of Cape Town (1998) p.293-305.

Bookmarking the Century

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

Landfall, No 199, March 2000, p.54-55.

Keywords: Political Economy & History;

The editor of Landfall invited submissions of 500 words to identify the most important event to influence (in this case) the New Zealand economy in the twentieth century.

The twentieth century New Zealand economy was shaped by its ability to ship refrigerated products to Britain. Its beginnings might be symbolised by the Dunedin leaving Port Chalmers on 15 February 1882 with the first cargo of frozen meat for London. Barriers to trading at a distance were significantly reduced. New Zealand was no longer confined to a low-density population on extensive sheep stations – a Falklands of the South Pacific – as the depletables which sustained the nineteenth century economy – seals, whales, native timber, gold, other minerals – were exhausted. Now there was the possibility of a sustainable settlement based on family-owned farms of crossbred sheep or dairy cattle, supporting towns and, later, cities.

The direction of trade switched from Australia (and so New Zealand missed federation in 1901) to Britain, through which the shocks of the world economy were transmitted. The Great Transformation which ended the stable nineteenth century economy turned into a stagnant 1920s and the hardship of the Great Depression of the 19305. As Britain and the World recovered so did New Zealand, which tried to insulate itself from a further world depression by a heavily controlled economy, a welfare state, and industrial policy which protected people and business. However, exports continued to be but a handful of products (wool, meat, butter and cheese made up 90 per cent of exports, until the second half of the century ), sold in a few markets (65 per cent to Britain as late as the mid 1960s). Relative prices for the exports weakened from the early 1950s, as the demand for food grew slowly, and new producers entered world markets. In late 1966 the price of king wool, then a third of total export revenue, collapsed by 40 per cent, never to recover relative to import prices – except briefly in 1972. The sheep industry contracted, and the external economy broadened into energy, fish, general manufacturing, horticulture, tourism, and wood exports.

It was an extraordinary diversification, the greatest in the OECD in the 19705 – a difficult task further complicated by the diminishing significance of the British markets. By the 1990s Australia, China, Korea, Japan and the US were all larger export markets. But the internal economy remained in a straitjacket of controls, for the politicians were unwilling to challenge a political structure dominated by the pastoral industry and other vested interests (including finance and protected manufacturing industries).

Governments elected after 1984 took radical (and often misguided) measures but even so, the economy and political processes had not fully adjusted to post-pastoralism, with trade strategy in dispute during the 1999 election (at the same time as the Seattle-based world trade negotiations tried to begin). The reverberations of the pastoral political economy, initiated in 1882, lasted through the whole of the twentieth century.

It may be the most important event which shapes New Zealand in the twenty-first century happened in the twentieth: possibly the commercial use of the micro-processor, which brought New Zealand even closer to the rest of the world, further opening it up to both the prospects and perils of globalisation.

Funding Public Health Care: How and How Much?

This entry was posted in Health, Listener on by .

Health Issues, No 62, March 2000, p.27-30.

Keywords: Health;

We may be approaching a time in which we can have an honest discussion on how to fund the health system. The public discussion has been rarely so in the last decade, because too often there is a hidden ideological agenda advocating private funding – of privatisation.

Even today’s public policy could lead to a surreptitious privatisation of public health care. The process is detailed in my recently published book The Whimpering of the State, but I sketch it here. The centralised Health Funding Authority is handing personal health funding over to agencies such as independent practitioners association. One could see how, in the long run, everyone belong to such a primary care agency, who would purchase all personal health care for their patients, including secondary and tertiary care in hospitals. There are a number of reasons why this arrangement will not work, but for the last decade considerations of practicality and efficiency have not loomed large in the government’s thinking about health care provision. Suppose we get to the stage where all our public post-primary health care funding is channelled through primary care organizations. A feature of these organizations is that they also charge their patients. All the government has to do is to squeeze the amount of public funding that goes to the primary care organization, which will respond by increasing private charges to the patients. Thus the balance between private and public funding can be steadily switched away from public responsibility. Ultimately there would be no guaranteed core of public funding for personal health care – instead everyone could end up paying private medical insurance arranged by one’s general practitioner.

I go through this scenario, not only to warn of the looming threat of further privatisation of public health care on the funding side (and there are also pressures to reduce the significance of public provision), but because I want to discuss how those committed to a substantially publicly funded (and publicly provided) health care system, for equity and efficiency reasons, increasingly face challenges about the role of private funding.

Historically, effective health care was characterised by a limited number of procedures which typically prevented death or substantial reductions in health care. In the last fifty years the number of potential procedures has increased dramatically, many of them may – or may not – be effective or applied in situations where there efficacy is not known. But even more significantly, effective ones – especially expensive effective procedures – may improve the quality of life, but by small rather than large amounts. This shift from medicine’s past role of increasing the quantity of life to also improving the quality life has crept up upon us, and we are still struggling with its implications.

Now we have always accepted that some health care should be funded privately. I doubt anyone would argue that the supply of aspirins to soothe a headache – say as the result of excessive imbibing the night before – should be paid by the state. On the other hand, all but the most extremist ideologues are likely to argue that some personal treatment – say brain surgery – is probably going to have to be publicly funded. At issue is what is to be done between the extremes: are most of the (effective) treatments to be funded by the state, or should an increasing proportion be funded by patient or by private medical insurance?

What has been happening in recent years is the government has been shifting the balance. In 1980 some 88.0 percent of the nation’s spending on health care was provided by the government. Today, the ratio is down to 77.4 percent. Spending on private health care has been increasing annually 4.5 percent faster than public spending.

How much, then, should the government spend on health care? There is no scientific answer to such a question, for it depends upon what sort of society one wants. But given the sort of society that most New Zealanders want, the answer has to be “more”.

There are various indicators which suggest that more spending on health is needed. Almost every day there is some article in the local newspaper, the import of which is that some key area or other is insufficiently funded. Other stories are not told. Earlier this year I was working for the Multiple Sclerosis Society evaluating a new drug which can spectacularly improve the quality of life of some multiple sclerosis sufferers. However there is not enough funds for Pharmac to subsidize the drug. More generally, there is no interest at government level of identifying the size of the deficit in spending on health care. That would be too costly. But if we dont know, if we dont think about the issue systematically, we will continue to make arbitrary decisions.

Another way of assessing the adequacy of the provision for public health care is to look at the international evidence. The following table shows the OECD countries which spend more per capita on health care than New Zealand. (The amounts in brackets are their per capita spending as a percentage of New Zealand per capita spending in the same prices [1]). Thus we are 18th in the OECD. more importantly for our purposes, with the exception of the United States, none of these countries are noticeably inefficient in their health care spending. New Zealand could spend considerably more on health care and get useful returns on its spending.

TOTAL HEALTH CARE SPENDING
Per Capita, 1997 : NZ = 100 (Same prices)

United States 198
Japan 186
Luxembourg 177
France 173
Switzerland 156
Germany 155
Belgium 148
Canada 136
Netherlands 136
Norway 136
Austria 135
Iceland 132
Sweden 124
Denmark 121
Italy 118
Australia 116
United Kingdom 113
Average of Above 144
New Zealand 100

These figures include both public and private spending on health. Here are the figures for just public spending:

PUBLIC HEALTH CARE SPENDING
Per Capita 1997: NZ = 100 (Same prices)

Luxembourg 210
Japan 186
Belgium 167
France 167
Germany 155
Norway 144
Iceland 142
Switzerland 141
Sweden 134
Austria 126
Netherlands 126
United Kingdom 123
Canada 120
United States 120
Italy 106
Australia 103
Denmark 101
Average of Above 138
New Zealand 100

Again New Zealand is 18th, and again we can conclude that New Zealand could spend considerably more on public health care for useful returns. For instance, were New Zealand to spend up to the average of the 17, that would be a 38 percent increase, that would represent around another $2.4 billion a year of public monies.

Can we afford this sort of spending? Let us acknowledge that those who gave us the disaster of the health reforms also messed up the growth of the New Zealand economy, and New Zealand is poorer than any of the other 17 countries. Here is there spending on public health care as a proportion of GDP:

PUBLIC HEALTH CARE SPENDING
(1997) % of GDP

Germany 8.1
France 7.4
Sweden 7.1
Switzerland 6.9
Belgium 6.7
Iceland 6.7
Luxembourg 6.5
United States 6.5
Canada 6.4
Netherlands 6.1
Norway 6.1
Australia 5.7
Austria 5.7
Japan 5.7
United Kingdom 5.7
Italy 5.3
Denmark 5.0
Average of Above 6.3
New Zealand 5.8

Now New Zealand is no longer bottom, although before we get too proud, note some other of the poorer OECD countries are also above us. On the other hand, observe that the government of the US which has the most privatised of health care among the rich countries, spends more as a proportion of GDP than does New Zealand. Even this is misleading, for there is an implicit system of public taxation and expenditure, insofar as firms are forced to provide their workers with health care – in effect it is a tax on production. Those who support the privatisation of the health system might like to reflect on the US one not only being expensive, inefficient, and inequitable, but the much burden not carried by the poor and the sick is carried by business.

What is significant about this table is that New Zealand is below the average of 6.3 percent of GDP spent on public health care. If it were to spend at this average, we would spend another $400 million a year. That would make a not insubstantial reduction to some of those newspaper headlines reporting funding shortages.

The point about this $400m of additional public expenditure on health care a year, is that it simply takes us up to the average GDP ratio of the 17 countries. It does not take us up to their average expenditure per patient which, you recall, would be about a 38 percent increase (rather than this 8.6 percent increase proposed here). By international standards, New Zealand health spending could be increased substantially. An extra $400m a year is but a minimal increase. Because we have a backlog of health problems from insufficient expenditure in the past, not all of which has been resolved by private funding or early death, there is a need for a temporary boost in funding above this $400m. The figure is conservative.

Can we afford the extra $400m a year? The short answer is the majority of these OECD countries can, but to do so requires us, as it has them, to pay more tax. That is the trade off. If we are committed to a public health system then we have to be prepared to pay for it. Those who promise us lower taxes, are in fact promising less publicly provided health and other services.

There are some other potential resource gains. First we seem to have an exceptionally inefficient organization of the public health system, with its multiple layers – such as the expensive Health Funding Authority – and the requirement of commercial discipline by the Hospital and Health Services.[2] There are gains to be made by developing a cheaper more effective system of public organization, although any reorganization needs to minimize the impact on those at the clinical service delivery.

Second, we must continue to press clinicians to provide effective health care – care where there is significant health gains for the resources used. The resources released from ineffective treatment can be then transferred to where they can be effective. That gives the nation a health gain. This is a worldwide problem, of course, but it needs to be addressed in New Zealand too.

But no matter how many resources we pour into the health system, there will remain an unrequited demand for care which gives some increase in the quality of life, but insufficient to justify public funding. If some of that is funded privately, then so be it – people are entitled to spend their disposable income on what they wish, including ineffective or only marginally effective health care. Thus even in a society in which there is a strong commitment to public health care, there is a place for private health care. This private margin is going to be an increasingly pressing policy concern. It will be good to address it in a context of a government with a commitment to a commitment to a vigorous public health system, rather than in an environment where any discussion on the private margin becomes an excuse for privatisation.

In summary there is considerable evidence that the New Zealand health system is not providing all the effective means of health care currently available. That evidence is based on
– anecdotes;
– reports on specific health areas;
– international comparisons.

If New Zealand were to spend as much as the average of the top 17 OECD countries, total health spending would be 44 percent greater, and public health spending would be 38 percent greater.

Even if we accept that New Zealand’s lower standard of living constrained its ability to fund at these rates, there is a strong case for increasing funding by a further $400 million a year to take it up to the average of these 17 OECD countries in terms of public expenditure as a proportion of GDP.

There is also a need to improve the efficiency of the current health spending by
– a simpler less expensive organization;
– eliminating ineffective health care procedures.

In the longer run we must recognize that health care is increasingly about quality of life, with the possibility of unlimited resources demanded to do this. We will have to address the existence of private funding in a community strongly committed to a public health service.

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Notes
(1) These are from Health Expenditure Trends in New Zealand 1980-1998 (Ministry of Health 1999), adjusted for relative health sector prices using the data reported in Purchasing Power Parities and Real Expenditures (OECD 1992). This is favourable to New Zealand, compared to the officially provided data.
(2) I doubt that any other country levies on its health care as comprehensive an indirect tax as GST, which inflates the New Zealand spending level relative to the rest.

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Science and Anti-science

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

Listener 4 March, 2000

Keywords: Education; History of Ideas, Methodology & Philosophy;

Last year, some of the media gave extensive coverage to claims that Lyprinol would cure cancer, even though the drug had never been tested on humans. How could some journalists, trained to be sceptical of outrageous claims and miracles, have let themselves be so mislead? Perhaps it reflects that far too many New Zealanders are fundamentally anti-science. As the post-election briefing of the Ministry of Research Science and Technology reported, we are interested in scientific discoveries and new technologies (of which our uptake seems to be among the world’s fastest). But we have no understanding of the scientific method, of how science comes to its conclusions.

Perhaps it is because we see scientific knowledge as a series of facts, justified by someone with authority. We dont seem to appreciate that the real authority is not the expert, but a complicated process of substantiation according to particular scientific rules. Of course, it is impossible to know all the testing that has gone on before. Consider the statement that hydrogen is the first element in the periodic table, something we can learn by rote and regurgitate in an exam. That was probably the way we were taught. Did we also grasp the theory of the periodic table, or the research program that justifies it?

How do we discriminate between a ‘fact’ that a spin-doctor announces with authority (like ‘Lyprinol will cure cancer’), and a real fact (like the scientist who said it might, but more testing was needed)? To do so, we need to understand how the scientist came to his conclusion, and how the spin doctor used a quite different method. But once we use authority rather than the testing process as the criteria, the “fact” quickly becomes a part of the conventional wisdom, repeated by politicians, editorials, or whomever wants to believe it.

Where do our scientific beliefs come from? Those on high incomes may believe the ‘fact’ that high taxes are a disincentive to effort, but how do they know? Introspection? They want to believe the ‘fact’, and lack the imagination to think of alternatives. (The systematic research evidence is quite equivocal, so one can always select evidence to support one’s prejudices, providing the rest is ignored.) No wonder we are so vulnerable to quack cures – in cancer and in public policy.

For yes, the anti-science applies to our economics too. It is even more difficult here, because we are more ignorant than for the natural sciences about the true state of affairs. (Economics is a really hard science.) But who wants to be told that we are not sure of the truth? We would rather believe a partial truth which suits our preconceptions, ignoring evidence to the contrary. People commonly quote ‘statistics’ which conform to their beliefs, even though a little thought would suggest there was no feasible way of collecting the figures. Anti-science is against such thought and curiosity which involves testing propositions we firmly believe.

In 1993 I gave a paper to a group of Australian economists. Out of curiosity I did a comparison of the economic performances of the two countries between 1985 and 1992 (the latest figures then available). It showed very clearly that Australia had outperformed New Zealand. I wrote this up as a column (April 23, 1994), so long-time Listener readers have been aware of the inferior performance of the New Zealand economy for almost six years. Only a small group of economists discussed the data. The rest ignored the evidence, for they did not fit the theory. (I welcomed discussion. There are some aspects of the data I still find puzzling.) I kept coming back to the comparison, updating the data in three books and learned articles.

Last year, more than five years after the discovery, it was suddenly noticed by the conventional wisdom that the New Zealand economy was performing worse than the Australian one. Learned papers were written (but they did not acknowledge earlier work). There was public discussion. The Chief Executive of the Business Roundtable claimed that the deterioration in relative performance only happened after 1993 which, given that it had been identified before then, give the status of prophet to the handful who recognized the gap. (Perhaps the Roundtable should hire them, rather than the soothsayers they depend upon.)

The poor performance is now officially conventional wisdom, with the Reserve Bank post-election briefing highlighting the consistently poor performance of the New Zealand economy relative to Australia (except, as was pointed out from the beginning, for price stability). It has taken over five years to get this far, and the conventional wisdom still has not decided why our performance is poor. (It is clear enough in the data. Look at export performance.)

Scientific ineptitude – in medicine, in economics and public policy, in many other places – seems endemic among commentators and the general public. Following announcements by experts, politicians, and spin-doctors, last year’s fashion was to proclaim the New Zealand’s future was the ‘knowledge economy’. But can we expect to have one if we are so ignorant of the scientific method?

The Cult Of the Manager: Those Who Can, Do; Those Who Cant, Become Managers.

This entry was posted in Governance, Listener on by .

Listener: 26 February, 2000.

Keywords: Governance;

In the past the Victoria of University of Wellington produced a useful one cardboard page calender, which set out clearly by colour coding the year’s teaching and nonteaching days, which is at the heart of the university year. The 2000 calendar is larger – so it does not fit over the archaeological layers of old calendars on the pinboard above the desk. Yet it contains less useful information. In particular the teaching/non-teaching split is not evident. Someone in management decided the old calendar was not sufficiently attractive, and got in a designer to revise it. One assumes they did not consult any academics, and isolated there in management they had no sense of what is important in a university. (The fashion for non-functional calendars seems widespread. Even Creative New Zealand succumbed.)

Perhaps they illustrate the transformation which is going on in so many of our public organizations. Once upon a time the organization had a purpose, and the function of a management was to assist with that purpose. Nowadays, those on the sharp end – the teachers, the researchers, the health and other professionals, the suppliers of services – increasingly feel that their task is to generate funds to support an enlarging and isolated management structure which seems to have objectives of its own, independent of the apparent purpose of the institution.

I do not think the shift can be explained exclusively on the policies of the last fifteen years. The growth of the cult of the manager seems to be worldwide, although it is perhaps more powerful here. With the economy performing badly and without the resources to provide the services the public demanded, some “genius” decided – without any evidence – that there would be big productivity gains from managing the public service “properly”.

They have not appeared. There are plenty of anecdotes about occasional gains, but most would have happened anyway, and were happening before the new managers stepped in. The failure of the New Zealand economy to produce significant increases in productivity growth – if anything there has been a slowdown since the reforms – is one of the great puzzles of recent economic development. In the case of the public sector it may be that the new management styles are inimical to improved performance. The tendency to increase the management layer at the expense of front line delivery seems be widespread. Among the reasons may be:
– new managers require high quality (and expensive) working environments. (Recall those $1000 chairs that the HFA needed, while in the hospital clinics they were meant to be funding, waiting patients sit on run-down chairs.)
– remuneration rates for the new managers are high, at levels which often seem out of line with what the sharp end is being paid. Apparently a prerogative of management is they must be paid more than those they manage.
– generic managers know little about the services their institutions provide, so they insulate themselves and reorganize instead. As one local authority employee, having been subject to three restructuring within a year, said “why dont they do something about the roads, the parks, and the libraries instead?”
– “re-disorganizations” not only divert the institution from its real purpose, but disrupt productivity and are costly in redundancy packages. (Who can understand the need for such redundancies in WINZ, which has only just been created?)
– the new management style requires greater controls in the name of “accountability”, abandoned the principle of personal responsibility. This requires more administrators and more processing. While no doubt some took personal advantages in the old system, the costs of their abuse may be less than the cost of the controls to prevent it. In the name of free markets we strengthened bureaucracy.
– the surge in demand for managers means many are simply not experienced or competent.

Even more managers have to be appointed to cover for their deficiencies of others. To misquote Bernard Shaw “those who can do: those who cant, become managers.”

A recent government review reported hospital managers were doing well. Their main problem was their health professionals treating the patients would not conform to the managers’ requirements. The view was offered without any sense of irony. After all, the presenters were managers. But the public wants managers who have emblazoned on their heart (not to mention in their personal development files) “my job is to assist the health professionals to help their patients.” Apparently for modern management practice it is not.

I have not been asked to go on strike at my university yet. My professional responsibility – an old fashioned notion I know, but I truly believe in it – is that I will not compromise my students, nor my research. My industrial action will be to withdraw cooperation in the corporate planning process. That should bring the registry to a grinding halt, while benefiting students and research.

In the interim I keep a copy of the new calendar above my desk, above the functional one I use. It is to remind me who is in charge, and who I am there to serve.

Review Of The Pound: A Biography David Sinclair (century 1999).

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

New Zealand Herald February 2000.

Keywords: Macroeconomics & Money; Political Economy & History;

I wanted this to be a good book. It was a super idea to have a “biography” of the British pound which has been around for a thousand years and was once the world’s most important currency. There is so much mystery about money, that a good book would improve public understanding and reduce the mysticism.

For instance our $2 coin has a material value of 2 cents, and costs about 10 cents to produce. (A $100 note costs about the same.) Why do we treat the $2 coin as worth ten to a hundred times more than it is worth? It is because it acts as a medium of exchange. People have confidence in the currency doing that job, while the issuer of the currency (the government) accepts it as legal tender in its financial settlements (such as the payment of taxes). We dont need the coins to be worth their intrinsic value, and it would be a terrible waste of resources if they did. (The profit, or “seigniorage”, on issuing token money goes to the government, reducing taxes.) But token money is not a real store of value in the way intrinsic money is. If barbarians are about to take over the country, dont bury a jar of $100 notes in the garden. The treasure trove will be valueless when the currency is changed. Better bury gold coins (or transfer the money overseas).

You need to know the previous paragraph, and a bit more, if you want to understand the history of money. Unfortunately David Sinclair, the writer of The Pound: A Biography, makes no attempt to explain those or other basic issues, such as the gold standard. Instead the text confuses money with such fundamentally different notions as currency, cash, income, wealth, investment and just about anything else which has a pound sign attached to it. The writer, who has written biographies on Edgar Allen Poe and two King Georges, has only a tenuous grasp of the economic history of England, and may well be unaware of classic studies such as David Fischer’s history of inflation and deflation, The Great Wave.

Apparently Sinclair has been executive editor of the Financial Mail on Sunday, from which one may conclude just how little understanding of economics and finance one needs to do that job. He expresses the most extraordinary opinions, including that Sir Francis Drake’s piracy was a forerunner of the modern overseas investor. Henry VII is compared with Margaret Thatcher – with no sense that prosperity boomed for Henry because at last England was at peace, and for Thatcher as it exhausted the North Sea oil reserves. (Sinclair says that towards the end of his life Henry became “paranoid, uncommunicative and excessively mean.” There may be parallels.)

Sadly, this is not a book to be recommended. The best read I know on the general topic remains J.K. Galbraith’s Money.

Six Pack: A Brief Review Of Treasury’s Briefing

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

Listener 12 Feb 2000

Keywords Growth & Innovation; Macroeconomics & Money; Social Policy

Once upon a time Treasury’s briefing to the incoming government was notorious for thick volumes which set down economic prescriptions for the government with an arrogance offset by errors. However its 1999 briefing, Towards Higher Standards for New Zealanders, is more modest. Early on it states that economists’ “understanding of what generates (economic) growth is far from complete.”

It defines higher living standards as including: “goods, services and intangibles (such as a greater sense of security) … This bundle may include our enjoyment of our physical environment, pride in New Zealand’s stance on a foreign policy issue or pride in New Zealand culture and achievements. And it may also include a degree of altruism – we may value making provision for other groups of New Zealanders, or for future generations, that we will not directly share in.”

But “higher” need not be “greater”. The government seems to be seeking better quality of output as well as more quantity. It is changing the balance between public and private provision, getting more involved in managing the environment, and placing quotas on broadcasting content. That the prime minister has taken the arts, culture and heritage portfolio is a strong signal the government believes it can change the mix of outputs to give a better outcome than just leaving things to the market. Is Treasury is grappling with these thorny issues?

The briefing gives six key messages for better economic performance:

1. Openness and International Linkages

A high standard of living in a small economy depends upon exporting, because of its demand for imports. The research suggests that the motor of a small open economy is the tradeable sector which exports and competes against imports.

2. Macroeconomic Stability

The message emphasizes the successes in the last decade of bringing down inflation and lowering public debt levels, to which should be added fiscal control. But there is little discussion about how macroeconomic policy relates to the tradeable sector – how this second message connects with the first. The biggest macroeconomic challenge we face remains how to run a macroeconomic policy which powers the open economy.

3. A Competitive Private Sector

This message is that the government has to provide an environment which gives firms the freedom and the incentive to seek productivity increases and customers. It acknowledges there may be a need for regulation for other purposes (greenhouse gas emissions is its example), but insists interventions need to be stable, consistent, appropriate and flexible. (Sometimes the Treasury – like this columnist – ends up with platitudinous adjectives to summarize complicated notions).

4. Increasing Skills and Participation

The importance of a skilled adaptable labour force is almost universally accepted, but economists are generally not sure how to generate one.

5. Social Cohesion and Inclusion

In the early 1990s Jim Bolger, realising that the policies of Roger Douglas and Ruth Richardson were socially destructive, asked for the development of a social framework for policy. Treasury drew on notions of social cohesion and social capital. Unfortunately the intellectual leadership came from economists who had an investment in the previous economic policies. The bias is evident in: “Not only is [social cohesion] valuable in its own right – something that helps define our identity and can enhance our living standards – but social cohesion is also a part of the oil that facilitates the smooth functioning of relationships and transactions. In this way, it links to a country’s economic performance and to the ability of Governments to win popular consent for, and successfully implement, their policies. People are, for example, far more likely to invest, to pay their taxes, to perform jury service, to vote or to meet work testing requirements when they feel they can trust the framework or the institutions governing those activities, and when they feel those frameworks are working well and treating people fairly.”

The cart is before the horse. While social cohesion (or whatever) may contribute to economic performance, but the real issue is whether the economy is contributing to social performance. In many ways the current economics approach is anti-social. Almost certainly this government will try to do better, especially given its number four is Steve Maharey is professional sociologist. The danger is that having over-emphasised the economic concerns in the past, we will lurch to the other extreme, denying the relevance of economics.

6. Effective and Innovative Public Sector

Well yes, but for what? While accepting there is room for improvement, the Treasury (and the State Service Commission) seem broadly satisfied with the changes made in the late 1980s. Hardly anyone else is, including the outgoing government which was battered through 1999 by one failure after another. The briefings of other departments often show considerable doubts about the success of the reforms. The system is due for a major overhaul. The challenge facing Treasury will be how to retain fiscal control, without loss of efficiency and flexibility, while the rest of us get a more responsive and competent public service.

So while the Treasury briefing still carries much of the baggage from the past, it also shows a willingness to grapple with some of the issues which concern the public.

Keywords: Growth & Innovation; Macroeconomics and Money; Social Policy

Growth Rings: New Zealander Of the Millennium: Tane Mahuta

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

Listener 29 January, 2000

Keywords: Environment; Political Economy & History;

Perhaps our best image of a millennium is the polished cross-segment of one of those great kauri trees in many of our museums. At its centre is some date over a thousand years ago. The various growth rings around it are marked – the arrival of the Maori, the arrival of Tasman, and so on. The last ring is the year the tree was cut down, typically in the time of my grandfather.

I was reminded of the image when visiting the new visitors’ centre at Wellington’s Otari Wilton’s Bush and Plant Museum on New Years Day. Along side it are some recently planted juvenile kauri trees. The building is likely to be replaced a dozen times in the lifetime of those trees. Those who planted them have a commitment to a millennium that sees much further than the fireworks of New Years Eve.

Local councils put in a bit of money for the spectacle (and also the enhancement of Wilton Bush or its equivalent in your locality). Nothing wrong with encouraging of public partying, if that what the ratepayers wanted. The disappointment was the central government Millennium Fund which may, or may not, have contributed to your party. (The Fund’s website strikes one as portentously ineffective. The slogan “first to the future” was especially pathetic. Is that all New Zealand has to offer to the world?) The new government must be very pleased with the Millennium Fund team. Any reasonably well-run organization would have been scattering funds around to assist the previous government’s chances of being re-elected (as occurred for the 1990 and 1993 celebrations). Instead they got carried away with the commercial opportunity to put New Zealand on the tourist map, found this not especially effective (how many tourists do you think it has generated?), and ended up lamely subsidizing local initiatives.

What a post-modern choice: an opportunity for subsidizing someone making a dollar or an excuse for a party. Is that all we are capable of in this new millennium? Our media struggled too. Something was happening – actually little more than a natural clock ticking past an arbitrary point of time – and we wanted to make something of it. But we knew not what.

Although I never saw it mentioned in any millennium review, a thousand years ago almost all the North Island and the sub-alpine South Island was covered in natural bush. Its subsequent destruction, adding far more to the greenhouse effect than our consumption of fossil fuels, transformed the New Zealand landscape. Little of those mighty forests are left – the 75 hectare Wilton Bush is but a remnant with some secondary growth.

This economist loves the settled productivity of those New Zealand farming landscape, just as this environmentalist loves what is left of the wild mysterious natural habitant. At issue is whether we have the balance right. No, I dont mean “balance”: I mean vision. How can we tear out the natural coverage and hardly notice? To be fair, the new government has preserved some West Coast forests from commercial cutting. (Of course those who were going to benefit from the commercial exploitation are worse off, but Coasters need not be, if the government offset package is big and effective enough.)

Is that one preservation of the natural habitant enough? This is not a question economists can answer, but we can pose it. Should we be not just preserving what is left of the native cover, but regenerating some new bush? I would have had more respect for a millennium celebration in which each local authority, having fired off the ephemera of the fireworks, then announced they were going to extend the natural environment in their region by regenerating bush – a sort of millennium grove. (I can hear ecologists muttering, “dont forget the wetlands, Brian, we are losing those too, and they are as important”.)

Some local authorities are taking initiatives. Wellington has recently set aside an old reservoir for a 252 hectare Karori Wildlife Sanctuary. (It is no surprise that the Sanctuary and Plant Museum have far superior websites to the Millennium Fund.) Perhaps more should do so. Of course it would be on the rates (and perhaps the central government could kick in some tax money). But there is also considerable voluntary effort involved. Would there also be a willingness for individuals to, say, “fund a tree for posterity”? (If they had asked me to donate one of the kauris at Wilton, I could not have said no.)

Making up “person of the millennium lists” is a silly game but, thinking outside the square, perhaps it is Tane Mahuta – and the thousands of followers who have preserved and promoted the environment. Thinking from this perspective faces us with the question of what is our relationship to the land and water, and thence to who we are, what we are, and where we are going. Proper questions, I would have thought, for the turn of a millennium. Instead, we just went out to earn a dollar and have a good party.

*****

DIANA BALHAM wrote in the Listener’s ‘Any Question’ (22 November 2003)

Boo! Bloody Aussies. Always gotta be the biggest.

This is my response to the wild tree chase I have been on for Brian Easton of Wellington, who asks what are New Zealand’s oldest, tallest and largest trees?

Jim Holdaway, an 86-year-old part-time farmer of Dairy Flat, north of Auckland, and our man from the Tree Council, has been invaluable here. He tells me that an Australian mountain ash (Eucalyptus regnans) at Waitati near Dunedin is probably our tallest tree, at 69.1m. Boo! Hiss! Bloody Aussies, etc. However, Jan Simmons from the Waikato DOC office says that second place could well go to a majestic kahikatea in the Pirongia Forest Park, which is a stunning 66.5m. Yay! Go Kiwis, etc.

On to largeness. Desiree Wikaira from the Waipoua Visitors Centre and Jim agree that Tane Mahuta, in the Waipoua Forest in the Far North has the greatest volume of timber, with 244.5 cubic metres. Another Waipoua kauri, Te Matua Ngahere, has a greater girth: 16.41m, to Tane’s 13.77m, but its timber volume is only 208.1 cubic metres. Te Mahuta is a short, fat fellow at only 29.9m tall, while Tane measures 51.2m in height.

As for age, as Jim points out, it’s hard to age your tree without killing your golden goose. You can count the rings, but then you are left with a glorious stump! Taking a core sample may not work, as very old trees are often hollow inside. But Tane Mahuta probably takes the prize. This anecdote from Jim: “Many years ago – 30 or more – the Forest Service placed a sign at the base of Tane Mahuta which read ‘Age estimated at 500 years.’ This seemed to me to be patently absurd. I was subsequently at a meeting in Wellington where Priestley Thompson, Director-General of Forests, was present. I said to him, ‘Priestley, if that tree is not 2000 years old, I will eat my bloody hat!’ The next time I visited Waipoua, the sign had been changed to read: ‘Probably a sapling at the time of Christ.’ I think you might find that sign still there.”

The Centre Swings: Policies to Win 2002

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

Listener 15 January, 2000.

Keywords: Political Economy & History;

While there appeared to be a big swing to the left in the 1999 election, the actual swing was only a little more than 2 percentage points. But the parties in the political centre between Labour and National, which won about 19 percent of the vote in 1996, won only 9 percent in 1999. The change of government reflects a massive shift of votes from these centre parties, notably New Zealand First, to Labour. The voters have got their desire 1996 election outcome, thwarted by the New Zealand First-National coalition, of a Labour-led government. But instead of it being pulled towards the centre by New Zealand First, the 1999 government is more pulled to the left by its Alliance and Green wings.

So Labour faces the same dilemma as National in its last two years of office. The internal political pressure are towards its flank, the external ones are towards its centre. The failure of National to pick up the centre vote in 1999 is a salutary warning for Labour. It is easy for a governing party to think it now has a mandate to do whatever it likes, although there are more parliamentary checks on this absolutism than when Labour’s Roger Douglas and National’s Ruth Richardson got carried away with their own self-importance. Under MMP, Helen Clark and Jim Anderton know that winning the 2002 election means responding to the political centre. The gains from a small political swing are minor compared to the fifth of voters in the centre for the taking. The voters which marched into their camp in 1999 could as easily march out in 2002.

Some issues which concern that centre do not belong to this column. (We will be intrigued watching the new government’s social liberals responding to the signal from the law and order referendum. The question may have been confused, but the public response is clear enough.) Other 1999 issues, such as cannabis decriminalisation, may be resolved by the next election, and will be soon forgotten. Voters do not seem retrospectfully grateful, so much as prospectively demanding. The same applies for other changes the government may make. Nationbuilding and cultural renaissance may be valued, as may a more effective and larger public sector delivering services in education, the environment, health, justice, leisure and welfare (together with the ending of the mania for privatisation). But they are only electorally significant if the government can convince the voters that the opposition has no similar commitment.

The centre can live with – indeed welcome – the likely change in the direction of economic policy. But the failures of the last two decades will not be overcome in a triennium. (Neither can 160 years of Maori policy. The Maori MPs need to set achievable goals for 2002 – and over-achieve them.) There should be some economic benefits but increased difficulties at funding the external deficit (say, if the US share market crashes) is likely to obscure any gains. (As Treasurer I’d have a team of officials examining this scenario, devising measures to reduce its inevitable impact.)

An issue this column will have to address is trade policy. The “free trade” versus “fair trade” debate involves meaningless four-letter words, but is no less the fierce for them. Fudging may enable the government to tie the political centre into the left, but could also cause policy snarls. (One possibility for success of a centre-left government is that the political right could tear itself apart on an issue such as trade policy, just as the British Conservatives are doing over the European Union, and the Tories did on the Irish Question. But if it is easy for a government to fudge an issue, it is easier for the loyal opposition.)

Another issue will be “equity”, or “fairness”, or “social justice” (“social exclusion” is the Third Way label). This goal has been ignored for fifteen years, superseded by a sole focus on efficiency. Equity is an extremely complex and subtle concept (in contrast to efficiency), open to a number of confusing interpretations (the most common popular one being “support my needy clients, and to hell with everyone else”). There is almost no capacity among official advisers to provide a rigorous account of the notion and incorporate it systematically into policy. Yet that is what voters want.

Arguably the Greens are best placed for the 2002 election, for their seven MPs may be able to sell the public a coherent green vision. But Act failed a similar opportunity in 1996. Moreover it is easy – as we shall see for beech logging, genetically modified organisms, and cannabis – for other parties to takeover many of their policies, if not the Greens’ spirit.

Should the centre-left be pessimistic about its prospects in 2002? But equally so could be the centre-right, except it expects the political centre to drift back to it, as the government makes mistakes and become disliked by the populace. Well, yes. That seems to be the explanation for the outcome of the 1999 election. My conclusion is that the centre-left cannot drift to another win (if the right behaves itself). It needs to think how it will keep the centre loyal.

Shakespeare As Economist

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The Merchant of Venice is About the Meaning of Value as Well as Justice.

Listener: 1 January 2000

Keywords: History of Ideas, Methodology & Philosophy; Literature and Culture;

Just as a successful television series for in one channel will generate an emulation series by a competing one, Elizabethan playwrights would take up another’s theme. Thus Christopher Marlowe’s popular The Jew of Malta elicited Shakespeare’s The Merchant of Venice. But the master transcended Marlowe, as a barbaric tale becomes a meditation on the meaning of economic and social value. The reflection appears in all sorts of places: the lead casket, Bassino’s choice which gives him Portia’s hand, requires a commitment of a considerable investment: “who chooseth me must give and hazard all he hath,” (not to mention Shylock’s ducats and Antonio’s bond). Their courting includes playful allusions to commerce (Bassino courts “by note”, a bill of exchange), as do other dialogues. The contrast in the trial scene between law and mercy might usefully be explored by those into the new subject of the relationship between economics and law. In the title role, Antonio the merchant, is contrasted with Shylock, the money-lender. Antonio makes his income from advances for risky merchant trading voyages where he gains a share of the profits or loses the advance. Shylock’s income derives from interest on loans.

The role of interest, popularly called “the return on money”, has long been a puzzle. Alfred Marshall suggested it had to be thought of as the reward for “waiting”. We would all like to spend more than to which we are entitled. In order to contain spending to that which is available, the impatient are penalised by being charged a premium for the opportunity to consume early, while the patient are rewarded for their waiting by being able to consume more later. The penalty to one, the compensation to the other, is the interest. Thus interest has a useful economic purpose, although many may still doubt that.

The doubts led the medieval Church to ban Christians charging interest, a prohibition against usury which many Moslems accept to this day. Christians could venture capital, as Antonio did, but only if they took the full risk of failure. Jews were also restricted from entering professions. Thus there was a market need for the money-lender, while the restriction on their opportunities left Jews filling that niche. The irony of associating banking with Jewishness is that it was Christian restrictions that put them there. It was a stroke of genius then, for Shakespeare to transform the Jew-baiting of Marlowe into a contrast of the two ways of investing, to illustrate value in another way.

It is doubtful that Shakespeare knew any Jews other than “conversios” (converted to Christianity), for they had been effectively banned from England in 1290. (Oliver Cromwell lifted the ban well after Shakespeare’s death.) So we cannot take Shylock as a representative Jew any more than we can take Marlowe’s Barabas. Over the years there has been considerable dispute among scholars as to Shakespeare’s intention – was a Shylock to be a hero-victim or a murderous villain? But it is a part of Shakespeare’s genius is that he portrayed very complex characters with conflicting characteristics (rather like ourselves). Even though we may not forgive the demand for the pound of flesh Shylock is not wholly sinning. Antonio would spit at him when passing in the street, and there are other anti-Semitic references in the play. Meanwhile, Shylock is angry with Antonio because he lends money without charging interest, thus undercutting the market. (Although being the title role, Antonio is an unconvincing businessman. The first rule is not to invest all one’s fortune in risky projects, as did Antonio when he put all of his fortune into shipping ventures. But had he been prudent, there would have been no play.) Despite the Marlovian progenitor, it is arguable that Shylock’s Jewishness is not central to the play, but consequential on the need to portray the clash between merchant-venturer and money-lender.

Shakespeare died a moderately wealthy man. He was one of the shareholders in the company of actors, and also a shareholder in the Globe theatre (putting him closely in touch with market demand, as his plays’ topics and plots imply). As Shakespeare prospered he bought investment properties which provided rental income, one of the ways around interest from lending.

It is sometimes demanded the play should not be performed because of its anti-Semitism. Such censorship would be our loss, not only because The Merchant of Venice is a good play; not only because we would miss out on the wonderful anti-racist speech which includes “if you prick us, do we not bleed?”; not only for the phrases which have entered the language (including “the devil can cite scripture”); but also because we would lose Shakespeare’s longest cerebration on the meaning of value.

His answer? Far be it for me to summarise its complexity, but I think he is saying that just as justice is about mercy rather than law, personal relations – love – are more valuable than money. But it is clear from the plot that the two can sometimes get inextricably mixed up.

Fin De Siecle?: Is the Economy at the End Of an Era?

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

Listener 19 December 1999.

Keywords: Macroeconomics & Money;

There will be frequent reference next year, to repeating the “fin de siecle”, a movement of decadence at the end of the nineteenth century. However the economic end of an era may be this year. If so, it will be identified with the Russian financial crisis of August 1998. This is not because of the size of the economy, but rather numerous financial institutions were heavily exposed to Russian debt. Some were highly “leveraged”, with a high debt to equity ratio, and are very vulnerable. One hedge fund had a liquidity crisis, others have taken a terrible financial pounding.

Interesting, the conventional wisdom (outside the region) is that the East Asian financial crisis which began in 1997 could be quarantined from the rest of the world economy. That may not be the judgement of hindsight. However the more recent difficulties have focused thinking upon the decadence of the speculative financial markets.

In his Auckland University lectures, Paul Krugman observed that when things were going well, economists had no special claims to insight. Anyone can project a continuation of the current situation. It is when the turn around occurs that economists come into their own, although Krugman modestly remarked that their analysis can prove helpful even if it was probably wrong. We seem to be at one of those turning points. The unsayable – even the unthinkable – can now be said. Increasingly people, who the conventional wisdom respected, are wondering out loud whether it is in the best interests of the world economy for the international financial sector to be uncontrolled. (The harder question is how to control it.) Economic analyses, previously unmentionable in the financial pages, are now appearing. Even “Keynes” is there, sometimes followed by the explanation that monetarism applied to inflation: keynesianism to depression. The implication is the world economy is in a long run depression phase.

This misrepresents economics. Among professionals Keynesianism never went out of fashion, with an enormous effort put into making its foundations more rigorous. The Reserve Bank was monetarist in the rigorous sense for less than 12 months if at all, and had ventured down that path after it had been abandoned by most of the world’s major reserve banks. Instead they used a bastard version of Keynesian, which the public called “monetarism”.

All very confusing. My point is that what was (and is) going on among serious economists is frequently misrepresented by media pundits who, with financial analysts, latched onto monetarism because it was so easy to expound, rather than because it was right.

So any apparent Keynesian revival is a media event, rather than an academic turning point. But it reflects a growing lack of confidence in the financial sector. This is where New Zealand ought to have led the world, for the world financial crisis has strong parallel with the mess we got ourselves into in 1987. (Except that the world does not have a bigger economy to coddle it through.) We even had “dragon slaying”, a Chinese expression for technically brilliant skills which had have little practical use. It was easy to claim usefulness for the high powered mathematics that some financial institutions sold to investors when things were going well. Back in 1987 a well known then (now long forgotten) firm offered investment advice based on sophisticated mathematical models, and obtained consultancy contracts as a tie-in (much to the chagrin of its competitors). The firm crashed with the rest of them. Its investment advice was not much help to itself.

We have claimed to lead the world, but too frequently New Zealand has been behind the fashion. Which is why it is so important to scrutinize worldly fashions: they will soon be here too. As the world lost confidence in the economic nostrums of the last twenty years, we follow and suddenly there is the realisation – evident to the dispassionate observer for a decade – that the local economy has been doing dreadfully. Now even the conventional wisdom is beginning to say it. That represents an end of an era

Orthodoxy Rules: OK

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Cullen, Anderton, English and Bradford Would Make A Great Team

Listener18 December, 1999.

Keywords: Political Economy & History;

Right to the last day before the election, business commentators presented their own self-interest disguised as ideology disguised as analysis, in a vain attempt to affect political outcomes. They symbolised the end of an era: out of touch with the polity, out of touch with the economy, arguing a case that was known to have failed, as if it is impossible to learn from experience.

In fact the new government’s promised economics are mainline, reflecting a policy framework typical of those in the rich world. Even Alliance leader Jim Anderton, now in triumvirate with Helen Clark and Michael Cullen, is far more economically orthodox then he is demonised. (Some of his caucus colleagues are not.) Were a grand coalition of the main parties necessary, Cullen and Anderton with Bill English and Max Bradford would make a great economics team. There would be policy differences of course, but there is a commonality in their economic vision of a market economy with cautious interventions to make it work better. As in the case of the first Liberal government (elected in 1890), the First Labour government (1935), and the Third Labour government (1984), there will be considerable continuity of policy before and after, despite our liking to present each as a break from the past.

English is a Bolger man, on the centre right and enormously influenced by Catholic social teaching. His time as Minister of Health taught him that commercialisation solved little. He learned that if we want a better public health system, we are going to have to spend more on it. He faced up to the tension between higher public spending and lower taxes by trying to build into party policy the principle of a dollar extra for each. English’s youth – he is 38 – means he has still has much to learn and develop. One hopes he gets the chance.

Bradford, older at 57, has a reputation for extremism. He will not repudiate his commitment to the Employment Contracts Act, and some of his early ministerial pronouncements were pro-commercialist. But he came up with orthodox (and interventionist) responses to microeconomic failure in energy and the knowledge economy. He was a Treasury official from 1966 to 1978 (with a stint in Washington), which makes him one of “Henry Lang’s Babies.” Lang, Secretary of the Treasury at the time, was analytic, empirical, and pragmatic. After he retired, Treasury drifted into the excesses of Rogernomics. Bradford has returned to his roots.

National’s English/Bradford vision of economic management got lost in the election. Jenny Shipley had been made prime minister to shift National to the right, from Jim Bolger’s seeking the middle ground. But the rightwards lurch left the centre open to Labour, and through most of 1999 the party’s economic policy, led by English and Bradford, crept back. National abandoned the strategy during the election, and went head on with Act, fighting for the heart of the right, leaving the centre deserted.

Meanwhile, the Labour-Alliance non-aggression pact worked brilliantly. Labour focused on the centre, while Alliance covered the left. Although he died almost a year earlier, Labour Party president Michael Hirshfeld contributed as much as anyone to the centre-left victory when he saw the absolute necessity of some agreement, despite the two parties’ stand-off when he took over.

Carrying over the pact into government will be much harder. Of course there will be personal tensions, but Cullen and Anderton ought to be able to work together. However, Anderton will be pulled towards more radical policies by his caucus, the bulk of whom lie to his economic left. To keep the relationship effective, Labour will have to make concessions (and there is a minority within the Labour caucus who will be happy to do so).

The big challenge will be to get equity considerations into policy in a consistent way. For fifteen years they have been ignored, with an almost exclusive policy focus on efficiency. I still see officials’ papers which are almost totally devoid of any notions of fairness. The new government will want a more thoughtful approach.

The underlying tensions within the new government are no different from those under the single party government, when the leadership was sensitive to democracy. Without that sensitivity – as occurred under Muldoon, the subsequent Labour governments, and the early Bolger government – there was a repression of dissent. That wont work in a multi-party government. The two caucuses will lead to a public debate, which at first may be bewildering to the public, especially if anti-democrats present this as failure, rather than as a part of the consultative process. In time the public may learn that economics is not the clean cut subject leading to pure policy which some commentators propose, especially when they want to present their self interest as the only alternative.

Hopefully, in the post-1999 political environment, the media will lift the bans they placed on some commentators in the early 1990s because they criticized the government’s policies. The result has been a lop-sided presentation of economic orthodoxy, with a widespread misunderstanding of both the economic debate and the incoming government’s policies.

Has New Zealand an Economic History?

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

Paper to the Annual Conference of the New Zealand Historical Association, Hamilton, 7 December 1999.

Keywords: Political Economy & History;

The question of whether New Zealand has an economic history could be thought of as rhetorical, with an obvious answer of yes. But if we take it as a question about the state of current New Zealand historiography – asking whether historians include the economy in the stories which they tell about New Zealand – the answer is less obvious. If we look at many of the accounts of our history, be it the grand overview or a monograph or essay, we find them bereft of any conscious portrayal of the economy interacting with society and having some influence on the path which New Zealand takes. This is a very sweeping statement and there are exceptions – notably some of the work of John Gould, Brad Patterson and Russell Stone. Nevertheless this paper could take some standard histories and illustrate the broad proposition, including suggesting various insights the writers missed because they ignored an economic context.

Now I am not arguing that historians never mention the economy. Depending on the context there may be references to unemployment, business, taxes and debt, prosperity and depression and so on. However what strikes this economist is any references tend to be superficial, rather than an integral part of the account (and of course this judgement is less true for some rather than others). The general impression though, may be likened to there being a set of relevant manuscripts in a foreign language. Some historians ignore them altogether, some acknowledge them, but very few try to translate and read the texts. Thus there is a potentially wonderful resource whose use (and often even acknowledgement) is absent from the core of the discipline

It could be argued that there is insufficient quality economic history for the historian to draw upon. While there is an element of truth in that proposition, well established good quality economic history – such as Colin Simkin’s Instability of a Dependent Economy – is usually ignored. Moreover there is new work being done by economic historians, which does not seem to interest to conventional historians, for there is hardly any engagement between the two professions. That was not always true. Forty years ago, economic historians such as J.B Condliffe, W.B. Sutch, and Simkin were a part of the total historical discourse to the mutual benefit of New Zealand history.

As an encouragement to a return to that discourse, this paper suggests economic history offers some new and useful insights into the nineteenth century European settlement. It draws upon my Hocken lecture, Towards a Political Economy of New Zealand, elaborated in my In Stormy Seas (especially Chapter 4). However some of the material presented today reflects work which has since become available.

There is insufficient space to deal adequately with the Maori economy. The topic is so large it has to be left to the next millennium. Even so, we should never forget that it would appear that for much of the nineteenth century European settlement was vitally dependent upon the Maori economy for food, labour, and services such as internal transport (as well as contributing to exports). Additionally, the control of land, and its alienation from the Maori was a central economic issue. One day the enormous resource that the Waitangi Tribunal and other research has developed will generate a fresh economic perspective of the land alienation.

The issue which this paper focuses on is that the European economy was unsustainable for much of the nineteenth century. Had the economy continued upon that path, there would have been destitution and outward migration. By the twentieth century New Zealand would have looked rather like the Falkland Islands – a scattered and low population dependant on extensive sheep farming. What diverted New Zealand from this path was the invention and application of refrigeration, but that does not happen until the end of the nineteenth century. Until then there were three activities which sustained the non-Maori economy in the short run, but each was unsustainable in the long run.

The first was the extractive industries which began with the first settlers in the late eighteenth century. It was the political economy of the quarry – of the unsustainable society. Various natural resources were hunted or quarried to extinction: seals, whales, fish, native timber, kauri gum, gold, other minerals. One could extend this notion to even the natural fertility of the soil, which was exploited for short-term gain at the cost of long term degradation. Suppose there had been no refrigeration. What would New Zealand have produced in the twentieth century, which would have been exchanged for imports to maintain an adequate standard of living for the population? By that stage all there would have been for export would have been wool produced on large estates, together with tallow and tinned meat. There would have been no significant dairy industry, no crossbred sheep farming. Exotic plantation forestry would have possibly developed earlier (and the native forests cut faster). Some of the gap might have been filled by selling fresh vegetables and fruit to Australia. We will return to the trans-Tasman dimension.

The second unsustainable activity was warfare. Brendan Thompson’s estimates of the non-Maori workforce suggest that in the 1850s and 1860s around 10 percent of workers were soldiers. In some areas – especially North Island towns – the proportion would have been considerably greater. The soldiers were funded by the British government, and would have had a considerable impact on the local economies which provisioned and entertained them. While there are numerous accounts of the soldier’s military activities, there is little on their economic impact (other than infrastructural investment, such as roads undertaken for military purposes), which would have been substantial for at least a decade. Auckland must have been a garrison town for part of its early life. When Britain decided to stop funding those military activities, leaving it to the settlers, the war strategy changed. Was the peace that broadly occurred from the late 1860s the result of the unwillingness of the settlers to prosecute war for which they now had to pay, rather than as a result of a successful subjection of the Maori?

The third unsustainable activity was foreign borrowing, most of which was for investment purposes, although there was some leakage into consumption. There was a supplementation by investment from domestic sources and from migrants’ funds (including the tools of migrating craftsmen). But foreign borrowing was probably the main source of investment. Borrowing sustained and accelerated economic activity in the short run – Vogelism is an example – but eventually any foreign debt has to be serviced and repaid. Ultimately those payments would require receipts from export sales. Without a sustainable export base commensurate with the debt servicing, the borrowing inflow would eventual cease and the investment, and general economic activity it engendered tail off. That is the story of the depressed 1880s. So foreign borrowing is not sustainable unless the underlying economy is. When it is not, borrowing contributes to unsustainability.

(There may be a viable economic strategy based on exploiting natural resources supplemented by borrowing. If the resources are sufficiently large – Australian’s mineral resources may be – the proceeds from their export sale may be used to transform the economy – with migrants, infrastructure, and businesses – to one which is large enough to be broadly self-sustaining. The jury is still out on whether this strategy will work for Australia, but it has probably not worked for most oil producers. Naru is another example, except it’s sustainable economy – if it has one – has had to be offshore, because of the island’s tiny size. New Zealand’s depletable per capita resource base is far smaller than Australia’s. Even had it been larger, New Zealand is probably too small to ever have a domestic economy which is largely self sustainable. Exports will always be important.)

Did the unsustainable economy affect New Zealand society? One might argue that it was unrecognized by the settlers, whose optimism glossed over the reality. Even so, settler society reflected the underlying depletion. Almost all depletables involve settlements which become abandoned, some to be almost forgotten. This is not just the gold and other mining towns, the failed settlements whose colonists moved on, sometimes to another country, and the abandoned soldier settlements. For instance whaling stations once involved substantial communities.

Some of the settlements that depended on depletables transmuted into today’s cities – Dunedin and Christchurch gold, Wellington whaling, Auckland a garrison. The “refined” society of the towns in the nineteenth century was largely parasitic on quarries, which once exhausted would have dispersed the society too (unless another economic base was found). I suspect those societies were much less stable than the way they were idealised. That many nineteenth century politicians retired to England, suggests they saw local society as transitory.

If there was a refined society, or one that attempted to be, there was also a coarser one, probably best remembered from the goldfields. The male dominated larrikin society is celebrated somewhat more in Australia than in New Zealand, partly because it began earlier and ended later there, and because the quarry economy on which it is based is still a substantial part of the Australian experience. Even so, remnants of the vulgarity may be found in twentieth century New Zealand. The treatment of liquor is a way to trace it. Until 1989 liquor legislation assumed that the larrikin element would dominate if it was not suppressed.

In summary: for the first four fifths of the nineteenth century the New Zealand political economy consisted of a Maori economy, a quarry which was rapidly exhausting depletable resources (which included some military activity), a small sustainable sector, and a mainly urban society parasitic on the other three. Additionally, foreign borrowing temporarily magnified the size of the some of the activities and locations. Because the sustainable sector was small, and liable to be crowded out by the Maori economy, the prospects for the twentieth century, as the depletables became exhausted, were not favourable. The sweating industries of the 1880s arose because the population exceeded that which could be employed by the small sustainable base and the exhausting resource one. The prospect was the labour which supplied them would leave the country.

What changed was the arrival of refrigeration (and other associated technologies such as better shipping) in the last fifth of the century. It created a large sustainable foreign exchange earning sector based on the pastoral production of crossbred wool, lamb and dairy products, which dominated the export sector for the first two thirds of the twentieth century.(1) It also changed the nature of the production process improving the relative profitability of the family farm compared to the large estate. Large farms could be broken up, and viable small family farms placed on them. The success of the Cheviot settlement, the symbol of the breaking up of the large stations, was because prosperity gave the Liberals government the funds to purchase it, and the same forces enabled the family farms to prosper. Those farms needed local supplies, so the servicing towns were strengthened, and so on up the hierarchy of urban sites.

We might reinterpret some of the other social changes characteristic of the end of the nineteenth century as responses to this increasingly sustainable society. Is it merely an accident that New Zealand’s first stable political party – the Liberals – starts up then? Can we interpret the struggle over liquor regulation as the new society founded on a sustainable family farm economy trying to control or eliminate the larrikin society of the quarry? Does the rising importance of women in social life – illustrated by the first feminist movement – reflect a sustainable society where stable family life is both possible and necessary if it is to reproduce itself? Recall that even Seddon desired a more civilised society than the West Coast he represented, and saw women as a key agent of that refining.

The structural transformation diminished the significance of Australia. While it had been the main export destination until the 1880s, for the next nine decades exports went mainly to Britain, and New Zealand remained preoccupied with the mother country. This change of focus plus the burst of prosperity which the improving export prices and the growing pastoral sector engender in the 1890s were almost certainly the underlying reason that New Zealand did not join the Australian Federation in 1901, despite this seeming to be inevitable a decade earlier.

The conventional wisdom readily accepts that the rise of a pastoral industry based on refrigerated exports to Britain was a central feature of the New Zealand economy for most of the twentieth century. Its importance is implicit in most histories of the period, so much so that we have still failed to explore the implications of its relative decline in the last third of the century. But the perspective has distorted our understanding of nineteenth century New Zealand. We interpret it as a largely sustainable economy and society, dismissing the quarry as transitory, which it was, without recognizing it was central to nineteenth century settler society, including the transition to the more sustainable form which occurred at the end.

The neglect partly reflects other historiographic concerns, especially that of Maori-settler relations, although even here there is more to the economic story that a simple wealth transfer, for the Maori and European organised their economic activities in quite different ways. But the neglect of the central role of the quarry also reflects perceptions about the origins of New Zealand. Its foundations may have included those noble ambitions to create a new society which we like to recall. But if so, they were based on misunderstandings and misjudgments. More realistic, and at first far more important, was those who came with the vulgar intention of exploiting a temporary opportunity and moving on when they had exhausted it – an exploitation which involved Maori land for some, and natural resources for most of the rest. On this fragile, temporary, and opportunistic foundation Pakeha and modern New Zealand was founded.

7 December 1999

Endnotes
1. The sustainability was dependent on depletion of reserves of oil and minerals (especially phosphate) offshore. In that sense pastoral farming is no more sustainable than any other major industry in the world economy. However that unsustainability is not so fleeting as the rapid depletion of its resources that New Zealand experienced in the nineteenth century.

Road to Damascus: What Is the Third Way? And What Were the First Two?

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

Listener 4 December, 1999.

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

At the University of Sussex, where I taught in the 1960s, we talked about “the social control of industry, rather than social ownership.” This was a response to an ongoing debate in the British Labour Party, which had nationalised various industries in the 1940s, was nationalising more in the 1960s, and still had Clause Four in its objectives: “the social ownership of the means of production, distribution, and finance.” The point of the Sussex phrase was that ownership is a means to an end, and that there are other ways of pursuing it. In many industries, market competition will give society the outcomes it wants, far better than nationalisation and monopoly.

Another thing I learned at Sussex, if I had not already done so in New Zealand, was the differences within the political Left. We had a dozen marxist parties on campus alone (each claiming to be holier than the others). That applies to the political Right too. Sometimes the only commonality of the New Right (in all its variants) and the traditional Conservative Right is their pursuit of power. (Left factions will often ignore power, favouring holiness.)

These stirrings of the 1960s have considerable relevance for the development of the “Third Way” popularly espoused by Bill Clinton of the US, Tony Blair of Britain, and other European “socialists”. Apparently the phrase goes back to nineteenth century Pope Leo XIII who wanted a “third way between socialism and capitalism”. Today’s socialism and today’s capitalism are very different from that of a century ago. Indeed many of Pius’s ambitions have been attained as each has adopted elements of the other. But the terms are treacherous. When I mentioned “socialism” did you think I was referring to the “communism” of the Soviet Union (or China or North Korea) or did you think of democratic socialism, which “owes more to Methodism than Marxism”?

Much of the Left got stuck in a rut in the 1980s and the 1990s where the means of the past became the ends. Under the onslaught of the New Right, the Left found itself defending institutions and ideas of its past, rather than evaluating the ongoing transformation of economy and society. The Labour Government elected in 1984 found itself torn between its radical traditions and its now conservative leftish ones, and lurched into a set of New Right policies, which the advocates have still not been able to explain in left wing terms. The problem is “modernization”. How does one maintain fundemental values, in the face of new circumstances? Presumably the superstructure of policies must change. But are the values the same or are they changing? Between the values and policies there is an analysis, a theory of society and the economy. How does that change? The same principles applied differently, or new principles?

The chief spokesperson for the Third Way is the director of the London School of Economics, Anthony Giddens, who seems to have Blair’s ear. I first came across Giddens as a “critical analysis” sociologist, much influenced by Marxism (but not Leninism and all). His 1973 book The Class Structure of the Advanced Societies refers to Marx or Marxism on about half of its pages. Yet his 1998 The Third Way has only a handful of references to Marxism or class. I do not know his road to Damascus, although I suspect it involves a lot of latent Methodism – non-conformist Christianity. But a key factor has been the changing class structures and other social and international conditions. He writes that the “class relations that use to underlie voting and political affiliation have shifted dramatically, owing to the steep decline of the blue-collar working class [and] the entry of women into the workforce.” My impression is that New Zealand classes have always been more politically fluid than the British ones, but a similar situation applies here, although the best single indicator of voting behaviour remains income adjusted for the life-cycle.

So in order to support his government, Blair has had to create a coalition rather different from the traditional Labour classes (who feel miffed they are no longer as predominant as they were once). Of course the drover’s dog could have won the last British election providing it was anti-Tory, but Blair is concerned with the future elections. (He wants to ensure no future PM ever has the overwhelming power of Margaret Thatcher. To understand a new government, see what they saw while they were in opposition.) Giddens characterizes the new vision by: equality as inclusion; limited meritocracy; renewal of public space/civic liberalism; the beyond work society; positive welfare; and the social investment state. (I am surprised he does not also include cultural pluralism, which he also discusses). We may well expect these issues to appear in the New Zealand political debate too: with what effect is another matter.

In a slick phrase typical of his style, Blair describes the Third Way as being between the Old Left and the New Right. That overlooks the fact that there was never only two ways.

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

Footnote for Listener 18 July 1998

THE GIDDENS’ “THIRD” WAY

There has always been ways of organizing nations other than the extremes of the raw capitalism of the US and the suffocating communism of the USSR. But “third ways” are very much in vogue at the moment. They usually reflect democratic socialist aspirations grappling with the new world of a globalized economy and the collapse of communism. They need not be solely economic but address wider issues as in this list proposed by sociologist Anthony Giddens, director of the London School of Economics, and adviser to the British prime minister Tony Blair. Giddens’ “third way”.

1. has politics based on new coalitions, which cannot be easily categorized as classes of the left or right.

2. seeks to restructure government at all levels, to promote subsidiarity and address the “democratic deficit”, including constitutional reform, greater democracy, and more local democracy.

3. values civil society and human rights, but sees the state as having a valid role in promoting them.

4. endorses a “cosmopolitan nation”. While recognizing that nations are still important, it also appreciated the complexity of the modern nation and the distinction between the nation and the state, embracing “fuzzy nationalism” and “multiple sovereignty”.

5. favours a “new mixed economy” where the emphasis is not on ownership but on competition and regulation.

6. aims to reform the welfare state into a “social investment state” which shifts spending from money on benefits towards investment in human capital.

7. recognizes that we no longer live in a bi-polar world, and realises that states no longer face enemies, only dangers.

Metrology and the Economy (Report)

This entry was posted in Business & Finance on by .

Paper commissioned by the Ministry of Consumer Affairs and available on their website. (December 1999)

Keywords Business & Finance

The purpose of the study is to:
– provide the Ministry with a resource to highlight the importance measurements are to the New Zealand economy and to the social wellbeing of New Zealanders (this is seen as key to providing effective advice to Government and government agencies)
– provide industry with advice on the importance of measurements to their business
– establish the risks associated with poor measurements, which need to be considered for individual companies and to New Zealand’s international and domestic trade.

See also Metrology and the Economy Paper to the National Measurement Conference, 14 July, 2000.

Development As Freedom: a Great Book by a Great Indian Economist

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

Listener 20 November 2000

Keywords Growth & Innovation; History of Ideas, Methodology & Philosophy; Social Policy

Nineteenth century economists tended to focus on material output, assessing how well off someone was by the amount they could consume. That notion dominates today’s economics. Pushed, an economist might say it is better to have more material goods than less or, perhaps more humbly, that economics was only good at analyzing materialism, so all the other things which make up human happiness are assumed as given, or that they correlate with material consumption. To acknowledge so would, of course, downgrade the importance of economics, and of economists, which might be no bad thing.

An uneasy consequence of this emphasis on material output, is that authoritarian regimes justify their repression of personal liberties on the basis that they can maximize economic growth. It turns out that the claim is not true. Certainly some dictatorships have had impressive growth records, but others have had stagnant or declining ones. The same is true of democracies.

Would people be better off if an authoritarian regime significantly raised their material standard of living? No, says Nobel prize-winner Amartya Sen, whose just published Development as Freedom, based on a lecture series to the World Bank, provides an exceptionally accessible account of one of economics’ most sophisticated thinkers. The book ranges over a wide range of issues – many women will be delighted by the sensitivity Sen shows towards their role in development. Its core notion, which his treatment of women well illustrates, is not what you consume (“opulence” as Sen calls it) but the choices (or “capabilities”) the individual has.

One might think that Sen aligns himself with the New Right which argues that minimizing the state gives freedom (and material prosperity too). However Sen has more subtlety in a little finger that a room full of revivalist Rogernomes. He is an admirer of the market and sees it as an integral part of a liberal democracy. But he sees an active role for the state. Overall freedom, he argues, arise from the contributions of five instrumental freedoms:
(1) Political freedoms: “the opportunities that people have to determine who should govern, and on what principles, and also include the possibility to scrutinize and criticize authorities, to have freedom of political expression and an uncensored press, to enjoy the freedom to choose between different political parties, and so on.”
(2) Economic facilities: “the opportunities that individuals enjoy to utilize economic resources for the purpose of consumption or production or exchange.”
(3) Social opportunities: “the arrangements that society makes for education, health care and so on.”
(4) Transparency guarantees: “the need for openness that people can expect: the freedom to deal with one another under guarantees of disclosure and lucidity.”
(5) Protective security: “needed to provide a social safety net for preventing the population from being reduced to abject misery, and in some cases even starvation and death. Its domain includes fixed institutional arrangements such as unemployment benefits and statutory income supplements to the indigent as well as ad hoc arrangements such as famine relief or emergency public employment to generate income for destitute.”

Sen is a citizen of the world, continually illustrating his themes from India, where he was born, and China, as well as America and Britain where he has held prestigious academic positions. His illustrations continually evoke surprises. Kerala, one of the poorest states of India, nonetheless has a life expectancy of over 73 years, not too different from the New Zealand expectancy of 76.9 years. In contrast, African Americans, living in some of the richest cities in the world, have a shorter life expectancy than those in Kerala. Despite its material limitations, Kerala has organized itself – including its education and health systems – to give its residents substantial freedoms, including that of longevity.

He is also a master of the classics, not just great economists like Adam Smith and John Stuart Mill, but also ancient Indian, Chinese, and Islamic writers. He uses them to ridicule the notion that the Asian values need be despotic. Indeed some ancient Asian writers appear to have been considerably more politically enlightened than Westerners writing at the same time.

I have read a lot of Sen, much of which is painfully dense as he pursues the logic of a closely reasoned case. This book is instead, very readable, with delightful flashes of humour, often deployed to deflate Western pretensions. Writing on the nineteenth century Irish famine, he cites a head of the British Treasury who wrote, “there is scarcely a woman of peasant class in Western Ireland whose culinary art exceeds the boiling of a potato.” Sen adds dryly, “the remark is of interest not just because it is rare for an Englishman to find a suitable occasion for making international criticism of culinary art.” (His substantive point is that the writer has misunderstood the nature of famines, instead blaming the victims. While Ireland starved, it exported food to England.)

I leave Sen’s contributions to economic ethics for a later column. Meanwhile, Development as Freedom is a wonderful book, worth reading, and rereading.

Beyond the Utilitarian University

This entry was posted in Education on by .

Paper to Forum on the Future of Universities, University of Canterbury, 17 November 1999.

Keywords: Education;

“They measure knowledge by bulk, as it lies in a rude block, without symmetry, without design.”(1)

The Idea of a University(2)

If this independent scholar may begin with a quotation from another independent scholar, albeit a much more eminent one. John Stuart Mill wrote in his Utilitarianism:

“It is better to be Socrates dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question. The other party to the comparisons knows both sides.”(3)

This is a profoundly subversive passage, not only because Mill was challenging the utilitarianism of his father James Mill and his mentor Jeremy Bentham by suggesting there was a hierarchy of utilities, but because it also provides a critique of today’s economic policies. As last year’s Nobel Prize winner in economics Amartya Sen writes

“Utilitarianism has been the dominant ethical theory – and, inter alia, the most influential theory of justice – for much over a century. The traditional economics of welfare and public policy was for a very long time dominated by this approach, initiated in its modern form by Jeremy Bentham.”(4)

It would be wrong to interpret Sen to imply that utilitarianism is no longer so important in public policy. Rather he is arguing for an alternative approach, in which the possibility of choice – of opportunities – is given a separate role from what he (and Adam Smith) called “opulence” – the abundance of material things. The pig or the fool may be happy because they are sated but in their satisfaction they have no choice, no knowledge of the possibilities that lie beyond their current state.

Nevertheless, a utilitarianism which focuses on material production and consumption continues to dominate much of New Zealand public policy, including that to the tertiary sector. The 1988 Report on Post Compulsory Education and Training in New Zealand nicely captured the focus when it said that ‘distinctions between education and training should be avoided’.(5) We may leave philosophers to ponder on the “should”, and turn to the consequence of collapsing the concepts of education and training together. In effect, the sole function tertiary institutions becomes the development of vocational skills for the accumulation of wealth to satisfy pigs and fools. Any educational role becomes subservient, and may all but be eliminated.

This issue is not a new one. One hundred and fifty years ago John Henry (Cardinal) Newman in his great advocacy of liberal education in The Idea of a University, poured scorn upon advocates of the utilitarian university:

“[T]hey insist that Education should be confined to some particular and narrow end, and issue some definite work, which can be weighed and measured. They argue as if everything, as well as every person, had its price; and that where there has been great outlay, they have a right to expect a return in kind. This they call making Education and Instruction `useful’, and `Utility’ becomes their watchword. With a fundamental principle of this nature, they very naturally go on to ask, what there is to show for the expense of a University; what is the real worth in the market of the article called `Liberal Education,’ on the supposition that it does not teach us definitely how to advance our manufactures, or improve our lands, or to better our civil economy; or again, if it does not at once make this man a lawyer, that an engineer, and that a surgeon, or at least if it does not lead to discoveries in chemistry, astronomy, geology, magnetism, and science of every kind.”(6)

With a few minor changes this could well summarize public policy today, in which the function of universities is to provide the skills and the technologies for economic growth. It follows that given this objective, and given today’s conventional wisdom of how economic growth occurs, the policy framework for universities is that they are business enterprises responding to the vocational and consumption aspirations of paying students in a competitive market environment.

However, Newman had a broader objective for universities: that of cultivating the intellect, which is another way of describing Mill’s concern for philosophers over pigs, and Sen’s concern for real choice. Now this does not mean that universities should have nothing to do with economic growth. To the contrary, there are a number of principled and practical reasons it should:

First, as Sen makes very clear, while opulence is not the same thing as choice, greater opulence can in some circumstances give greater choice. He advocates a strategy of developing material wealth and choice, not an either or.

Second, universities are enormous users of the material output of the economy, and they cannot idly stand by consuming such quantities without contributing to its production.

Third, universities can contribute to increased material prosperity, as well as to opportunity and the intellect. If they do not, some other institutions will take over that role, and the universities will be diminished and unable to pursue their other objectives very well either.

Fourth, the economy is one of the central features of the human condition, and inevitably the universities will want to be involved with it in all its various manifestations.

Newman believed in liberal education, but the university he tried to develop was to have faculties of engineering, law and medicine as well as arts and science. We need to avoid the bizarre situation of a Department of Sanskrit, say, justifying itself solely by its contribution to economic well being. Yet the current policy framework forces it to do so, or to be eliminated as its funding is cut. My school motto was ‘Altiora Peto’ – I seek higher things. If that is good enough for a secondary school, it is good enough for universities.

I could spend the remainder of this presentation discussing how we might fine-tune the tertiary sector to pursue better material prosperity. Instead, I shall take up the challenge that Mill, Sen and Newman – and just about every other major thinker – present, and ask how we might change the public policy framework to enable universities to seek higher things, without compromising their contribution to opulence. As is appropriate for an economist, I shall look at the demand side – the objectives of a university – and the supply side – the production process by which a university meets those objectives.

The Objectives of a University

It is fundamental to a liberal society that there is no simple objective for a university or, indeed, for many other social institutions. The notion that a university’s performance can be characterised by a financial bottom line, or the state of its balance sheet, is flawed. This was taken to the absurd limit by the Scott-Smelt report, which seemed to think each university was a property company owned by the central government. Certainly the physical assets of a university are substantial, valuable in market terms, and evident. But as I report in The Commercialisation of New Zealand, they are only a small part of the totality of the assets which make up a university, and the market value of the faculty and student interests far exceeding any property interest. It may be that universities should separate out their property interests into a separate property company, but that would be to quarantine an obsession with physical assets from the central activities of a university.

The single notion which might best summarise a university’s performance may be ‘reputation’, its standing in the world of international scholarship, of the community in which it serves, among its alumni their friends and employers. Reputation is intangible but as Cassio says to Iago:

“Reputation! O, I have lost my reputation! I have lost the immortal part of myself, and what remains is bestial.” (Othello: II, iii)

Assessing reputation is not easy, but public policy might usefully ask itself whether a particular action enhances or diminishes the reputation of the nation’s universities, and among whom.

Who are the trustees, the guardians of a university’s reputation? In the first instance it has to be the faculty, with the authority embodied in an academic body such as a professorial board or senate. In addition there has to be some Council to represent the wider interests of the University. The Scott-Smelt report, with its obsession of universities as property companies, advocated a Council consisting of business people appointed by the government. That could not have more greatly misrepresented a university, not only because it gave oppressive authoritarian powers to the central government, but also because it fails to recognize the diversity of the university objectives. The typical Council with its representatives of staff and students, the Court of Convocation, the local community and secondary schools, economic sectoral interest, is a sensible attempt to reflect the diversity. The Maori has to be included. I suspect a special effort needs to be added to reflect the growing creative activities of a our institutions: the chamber orchestra and not just the School of Music, the writer in residence and not just the Department of English, the art collection and not just the School of Fine Arts, and so on. Should other tertiary institutions be represented? Perhaps where there are close alliances. Should there be a conscious effort to include the growing number of independent scholars? Probably. The ability of Council to add appointees to cover gaps in expertise and interests seems prudent. I have deliberately cast the net widely, to suggest that Councils should not be small. The emphasis should be on representativeness of all the diverse interest universities have. But practically they should delegate decision making to small specialist and expert executive committees. The exception to the current pattern is appointees by the Minister of Education which is problematic in a liberal democracy.

The funding of each university also needs to be as diverse as possible, although given that New Zealand has not a tradition of private foundations and charities, the majority will come from public sources. Even so the development of university foundations and alumni contributions is to be welcomed, especially as individual donations can add the idiosyncrasy of the institution. (I was at a university which was given a valuable stamp collection.) Business and sectoral contributions should not be ignored, providing the university does not become too dependent upon them. That is a caveat for any funding source.

Public funding needs to be diverse and cushioned from direct political interference. The abolition of the University Grants Committee was an unfortunate step away from the liberal democratic state, since it exposes the universities to a direct relationship with the Minister and government. If I had more time I would also discuss the increasing centralisation of the government research funding, whereas diversity of judgement is necessary. New Zealand governance arrangements have put considerable powers of intervention in the hands of government ministers in the name of accountability. The tacit assumption is that they will not use their totalitarian powers. However the past record is that politicians have intervened excessively and I see no guarantee they may not in the future. Better to develop constitutional arrangements which prevent that possibility.

One of the major funding sources of a utilitarian university is fees from students. They are justified because their courses are seen a primarily vocational, with no benefit other than the higher income the student will eventually end up with as a result of the course. We can dispute over what part of the total costs of a university are for teaching, and just what proportion students should pay – all very utilitarian. However, I want to ask a more fundamental question. If the utilitarian model has no distinction between education and training, why should they not also pay for their secondary school education, or their primary school education, or even pre-school education? This was not a question the PCET committee addressed, but I take it their answer would have been that it was all a matter of time and political strategy. After tertiary student fees have been ramped up as high as possible, compulsory secondary school fees would be introduced and increased.

I want to challenge this by a quite different conception of education in a liberal democracy. There is surely the principle that New Zealand children have an educational entitlement (which encompasses a vocational element too). It is best articulated in Peter Fraser’s famous statement:

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

Or from a different perspective, but with the same underlying idea, we have R.H. Tawney’s

“To serve educational needs, without regard to the vulgar irrelevancies of class and income is a part of a teacher’s honour.”

This entitlement – (broadly) free access to educational opportunity – is a feature of all liberal democracies, and is a part of a package which includes a reasonable standard of living, health care, access to a safe and sustainable physical and social environment, and so on, in addition to civil rights. The extent of these economic entitlements reflects the overall national circumstances. They will be less extensive in a poorer country than a rich one. A very poor country might only be able to supply an entitlement of primary education, a rich country will include tertiary education in its entitlement. Where does New Zealand fit on this spectrum? From the 1960s – the Parry Report is the marker – the tertiary educational entitlement was broaden as more students – notably women and from minorities – came up to university and as polytechs became more available. However since the early 1990s that entitlement is being steadily diminished. Are we no longer a rich country and can only offer educational entitlements up to the end of secondary school?

I would like to see a systematic review of the notion of educational entitlement, preferably by a committee not stacked with utilitarians. My inclination is that all New Zealand citizens should be eligible for a tertiary entitlement of three years of post secondary school education and vocational training. After that I would be willing to countenance full cost charging, because by that stage most courses are getting vocational. There would be some exceptions. Assistance may be necessary to ensure there is an adequate proportion of cultural minorities in some programs where culture matters – medicine is an obvious example. Government agencies may want to subsidise the fees for some programs to ensure there is an adequate supply – that was long accepted in teacher training.

I would also provide for an fourth year’s educational entitlement for an extra year of liberal education – essentially it would enable a student to do an honours year in arts or pure science. This raises a very important principle. There has been a tendency to treat all tertiary courses as equally meritorious. It is easy to see how a utilitarian might come to that conclusion, while the government has been hesitant to “pick winners” as the jargon goes. If picking winners means detailed choice – choosing between Sanskrit and Sociology – then it is well for the government to stay well away. But governments can, and should, contribute to the making of broad choices. This paper has insisted that the government should have a commitment to liberal democracy over totalitarianism. That is picking a winner. And a liberal democrat has no difficulty giving some preference to a liberal education.

Admittedly, there will be problems about identifying what is “liberal” education but the gains from making the distinction will outweigh the costs of the occasional mistake or ambiguity. To take another example, it is not necessary to link the same research allowance to every course grant. Some courses are more involved in research than others.

The Production Process in a University

Thus far I have looked at the demand side of the tertiary sector, emphasizing in a liberal democracy there is a need for a diversity of decisions. How is the supply side to respond?

As already foreshadowed, universities are not business and should not be run as businesses. Certainly they should use the resources available to them as efficiently as possible, and should invest prudently. But unlike a conventional business that is a means to an end, not the end itself. The approach since 1989 of trying to force universities into a business mode of operation is ultimately flawed – unless the objective is utilitarian.

This has an important implication for vice-chancellors, who under the 1989 legislation were set up as chief executives of quasi-businesses. Whatever the law says, the practice has to be of the Vice Chancellor as primus inter pares – the first among the equals. Recall that reputation is the simplest way of thinking about a university’s objectives, and that reputation rests with the faculty – the college of academics. The Vice Chancellor heads the college, in a collegial relationship of respect for leadership.

On the other hand, individual faculty members are going to have to take more responsibility for the resources they utilize. This is not a problem unique to the universities – for instance in the medical profession is increasingly facing the challenge of being resource managers. It is partly a question of efficiency, but it is also one of autonomy for if the medics do not take resources into consideration when the make clinical decisions, they will find non-medics increasingly taking the medical decisions for them. The same applies to academics.

This devolution of resource management closer to academic units has been going on over the last few years. Sadly it has not reflecting an academic philosophy so much as the desperation of the central university administration to cope with the declining resources. Even more sadly, most academics have not understood what is going on. Even were the devolution not occurring they would still be under pressure from the resource decreases. It is not a happy situation, and there is little that I can offer – I have spent a quarter of a century working with the medical profession to get them to understand the same problem, and still there is resistance. However I do think that a frank discussion between the central administration and departments would be useful.

That discussion is likely to identify a major weakness of the current policy framework. It is captured by the remark in the white paper, Tertiary Education in New Zealand, that ‘funding for up to three years may be allocated to encourage strategically-focused research portfolios rather than short-term projects.’ Three years for a research project is short term. Similarly, teaching is having to operate on a shorter cycle as its resource allocation becomes increasingly at the whim of students. What this could mean is that eventually the teaching process becomes very flexible, with only temporary teachers hired for six or twelve months a time, with the only permanent university staff being the administration. This will do little for research, scholarship or reputation. The alternative possibility is that there will be increased restriction of entry into course, so that the teaching process is stable, but students have no guarantees of activating their entitlements.

I shall not be surprised if the tertiary system evolves to a mix of the two approaches. Students would start off with open entry into general courses where it is possible to vary scale without compromising teaching standards and for which there is little concomitant scholarship or research. Further on there would be restricted entry for advanced courses, access being dependent upon attainment in the open entry courses. We already familiar with the case to intermediates to professional courses, but it may become more widespread. We may even have universities designating colleges – perhaps polytechs – to teach the open entry courses, because the culture of the different teaching may become so divergent.

Another weakness in the current system is the competitive pressures, which not only aggravate the instability of student demand, but seem to have lead to a deterioration of the efficacy of the supply side. Was the abandoning of the arrangements which gave an Architecture and Design School and a Conservatorium of Music between Victoria University of Wellington and the Wellington Polytechnic really necessary? The current policy framework which encourages competition rather than co-operation between tertiary institutions did not help. There are a number of areas where co-operation may be appropriate. One is the encouragement of specialisation of fields by department at post-graduate level, and the encouraging of graduates to go to the program which best covers their needs.

Another consequence of the competition for students is the deterioration of quality – quality in teaching, quality in content, quality in standards, quality and quantity in associated research and scholarship. There has always been a problem of quality attainment in every university, everywhere in the world. In my experience some of the officials who are passionate defenders of the past reforms are likely to start complaining about some of the bad courses and teachers they had. (They must have been badly taught, given their willingness to use personal anecdote as an alternative to analysis.) The competition and the resource pressures are threatening educational quality, for it is so easy to cut in the short term under stress.

There is no simple answer to maintaining quality standards. A less destructive environment and less resource pressures would be a beginning. The indications are that we are moving down a path which involves benchmarking. In the case of universities that benchmarking will typically be done against overseas universities or departments. (Polytechs may use New Zealand universities as their benchmarks, which will put a different sort of quality pressure on the universities.) This benchmarking is going to have to be done with some sensitivity. For instance, where courses and research areas are New Zealand directed. It would be easy to imitate US standards, say, as have a lot our economics departments, and end up providing the student with little knowledge of a very different New Zealand. While there may be universal principles, the content of the arts, the social sciences, and the environmental sciences do not have the universalism of the physical sciences.

My final observation about the academic production process is that in comparison to the overseas, New Zealand universities have a singular shortage of research centres of international excellence. Too often a local centre amounts to a room, a part-time faculty appointment (with part-time secretarial assistance), a letter head, and little more. Funding has been the constraint, and it is to be hoped that such public sources as Marsden funding, coupled with private monies, will lead to quality centres. Another source of such centres might be to form alliances with relevant Crown Research Institutes, perhaps ultimately leading to a beneficial merger.

Epilogue

There has always been a tendency for New Zealand universities to be utilitarian reflecting the practicality of New Zealand life and a lack of prominence of the intellectual. However, at no time since the Parry report has there been so much pressure to make New Zealand’s sole utilitarian vocational trainers.

At is issue is not merely resisting these pressures, but offering an alternative idea of the university which centres on tertiary education rather than training. From that idea there will arise a different policy framework – perhaps like the one I have explored here – one which does not treat a university as a business, and which recognizes the diversity of objectives which the ideal desires.

Because the modern mass university cannot isolate itself from the international, national, and local society in which it exists, any change to the policy framework – a reduction in its utilitarianism – will be of benefit to the wider society too, not least in its promotion of liberal democracy, of choice and opportunity, and of the value of the intellect.

Endnotes
1. J.H. Newman, The Idea of a University (1853) This edition Oxford, 1976, edited with introduction and notes by I.T. Kerr. p.125.
2. Much Most of the broad analysis in this presentation is developed in my two recent books: The Commercialisation of New Zealand (Auckland University Press, 1997), and The Whimpering of the State: Policy After MMP (Auckland University Press, 1999).
3. J.S. Mill (1863) ‘Utilitarianism’, page 260 of M. Warnock, (ed.) Utilitarianism, Collins, London, Fontana Library Edition, 1962.
4. A. Sen (1999) Development as Freedom, Knopf, New York, p.58.
5. G.R. Hawke, Report on Post Compulsory Education and Training in New Zealand, Government Printer, Wellington, 1981.
6. Op. cit. p.135.

Desperate for Funds: Are We Spending Enough on Health?

This entry was posted in Health, Listener on by .

Listener 6 November 1999.

Keywords Health

Most of us are aware of Multiple Sclerosis victims in wheelchairs or with walking sticks. In fact the disease may have affected the sufferer up to two decades earlier, initially with a loss of muscular coordination – perhaps at first vision, then isolated numbness, to a progressing weakness in the legs. It does not much affect life expectation, nor does it affect intellect. The sufferers know that they will experience an increasing loss of muscular control.

The causes and pathogenesis of MS are “unknown” poorly understood. It is an inflammatory disease of the central nervous system, which affects the sheath around the nerve fibres. It appears to be partly hereditary – the Maori is less likely to suffer from it. It is also environmental, apparently related to temperature – the incidence is about double in the Bluff relative to Kaitaia. Women are about twice as likely to experience MS as men. Perhaps one in a thousand people are likely to suffer from MS.

Although the symptoms can be ameliorated, there is no cure. Recently some drugs have appeared which may slow down the progress of the disease. We cannot be sure because they have not been around long enough for their long term effects to be evaluated. But for some people the medication appears to mitigate substantially the side effects of the disease in its early stages. A particular form of early stage MS involves episodic “relapses” of up to a fortnight in which the sufferers lose muscular control. (Such acute attacks usually resolve themselves over the next month or so, but it appears the more attacks the faster the deterioration.)

The effect of the new drug – it goes by a number of names but I’ll call it interferon-beta – can be remarkable. Marie, a 39 year old mother of two, told a seminar I was at how her life was disrupted by these attacks. “As far as the quality of life goes, I literally wiped out that entire year. Friends were always coming around and helping out, as I wasn’t functioning. I was in and out the hospital all the time.” Her children had to be fostered. She went onto interferon-beta. The relapses stopped. After a month of treatment she was back at work and contributing to her family again. Today she runs a business from her home. Ken, in his early 20s, is back at work too, after a year of regular hospitalisation and a miserable quality of life.

Great news for both of them, except interferon-beta is not publicly provided for the New Zealand health service, so they have to pay for it privately. Since it costs around $20,000 a year, they are at an enormous financial handicap. Presumably others who could benefit are missing out because they cannot find the $400 a week.

The Multiple Sclerosis Society of New Zealand asked me to look at the economics of the drug. My conclusion, based on overseas case studies is that the overall benefits from the drug are insufficient to justify the substantial expenditure. Pharmac, the government agency responsible for paying for free-to-patient pharmaceuticals, has come to a similar conclusion. The detailed analysis is larger than this column can accommodate, (1) but the issue is quite general. One complication is that not enough is known to target only the Maries and Kens, so that much of the use of the interferon-beta will be wasted. But the basic problem is the drug is very expensive. If Pharmac was to fund this drug (it could cost them up to $10m a year), it would have to cut its funding for other drugs (or the Health Funding Authority cutting other services). These drugs are more cost effective than interferon-beta although, of course, they are for other diseases.

It is an uncomfortable story is it not? Here is a drug which can substantially increase some people’s quality of life, and it is a drug which is free in most other countries (Marie initially got her supply free from Australia).

It is not merely a matter of handing over the $10m (or less) to Pharmac and directing them to provide the interferon-beta free, for they will tell you there are others suffering other diseases who are also missing out on treatment which is more cost-effective than interferon. Other health areas are desperate for funds too. (Mental health has just made a plea for $188m over the next three years; alcohol and drug treatment is short by at least $29m a year.) In the long run the cost of interferon-beta will come down, and doctors will learn how to target more precisely. But a lot of MS sufferers will be worse off in that interim.

True, there is an unlimited demand for health care services if the government provides them free. The government is going to have to place some limitations on what it can supply. More public health spending means higher taxes. Looking at Marie and Ken, one cannot but ask “are we spending enough?”

Endnotes
1. A version of the technical paper Who Should Be Treated? Interferon-β for Multiple Sclerosis is also on this website.

The State in New Zealand 1840-1984: Socialism Without Doctrines? (review)

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by Michael Bassett Archifacts, Oct 1999, p.60-65.

Keywords: Political Economy & History;

According to the author “[t]his book originated in a chance conversation I had in 1993 with Roger Kerr, Executive Director of the New Zealand Business Roundtable. In response to a question about my writing, I told him that I intended to recount the story of the Fourth Labour Government after 1984, but that I first had to understand how it was that New Zealand had come to the stage where drastic restructuring had become a matter of urgency. Roger Kerr suggested that I might undertake that initial study; the Business Roundtable would pay some of the expenses involved in the researching such a big project.”

Bassett’s archival searches have been assiduous. At issue is what he did with what he found. He appears to espouse the methodology which Karl Popper describes as the “bucket”: Pour all the available information into a bucket, leave it to ferment, and then distil some compelling theory. In contrast is the “searchlight”, where a hypothesis directs a beam into some murky corner of our understanding, and the resulting observation modifies the hypothesis and its underlying theory. For instance, in his recently published Only Their Purpose is Mad, Bruce Jesson suggests that “New Zealand was a state-created society in that the state did not emerge from some already-existing social order, some civil society, but instead created it.” (Let me not tease the reader by stopping there and failing to allow a fuller exploration of Jesson’s thinking, but continue the quote, although it is not germane to this review. “The state was responsible for creating the infrastructure of the country – a social infrastructure, as well as an economic infrastructure. And while this was unavoidable, it meant New Zealand was a society without texture. New Zealand might without exaggeration be thought of as a hollow society.” ) The point is that Jesson offers an analytical frame. He may be wrong (or, more likely, oversimple and incomplete), but the fields his hypothesis leads us through will undoubtedly be fertile.

Bassett’s approach is like that of a jackdaw collecting for its nest. All sorts of pretty baubles and curios are assembled, but the jackdaw has no sense of what is valuable or potentially interesting. This nest is hardly arranged at all – Bassett’s chapters follow a chronology, broken into periods which reflect parliamentary terms rather than political economy, but within each chapter the focus lurches around. Because the jackdaw has no judgement, important issues are overlooked. Given the apparent focus of the book, on why the state became so powerful, numerous clues are missed. Throughout the nineteenth century the state kept supporting private enterprise, which might fail even with that state subsidy. For instance, the Midland line, between Christchurch and the West Coast, was initially a private enterprise activity, though cosetted by the state. It failed, and so the state took it over. But Bassett devotes only a paragraph to this story. The story repeats itself. Bassett has a long section on the founding in the early 1950s of the Tasman Pulp and Paper Mill (based on an excellent thesis by Morris Guest), but fails to draw any conclusion from private capital’s inability to fund it. Nor does he note the significance of it having to be a major exporter from day one. The same with the “Think Big” projects, although the author sheds no light on why they needed so much government support. (He does acknowledge their fatal flaw was the substantial fall in the oil price in the mid 1980s.) It was repeated again in a reverse sort of way after 1984, for when the government withdrew its support, business largely stopped investing in the export and import substituting sectors. As the book, perhaps unintentionally, shows, for most of New Zealand’s history the state has stepped in because private enterprise failed.

Other key elements get completely ignored when they fail to attract the jackdaw’s eye. For instance the book correctly points out that both world wars resulted in the New Zealand government accumulating power, but the political impact of the nineteenth century New Zealand wars on the state are ignored. Another lacuna is that the book nowhere gives no sense that the policies that New Zealand was introducing for most of the period, were paralleled elsewhere. (Hence the possibility of Pember Reeves writing State Experiments in Australia and New Zealand.)

Although this book is nominally about the state and the economy (there is little on other roles of the state, such as social control), there is an uncomfortable feeling that the writer has little grasp of the economic issues. For instance, Basset reports that “[w]hile the country’s total population grew by approximately 64 percent during their [the Liberal’s] years of office, the GNP rose 126 percent over the same period. Buoyant export markets meant that for all but 8 of the their 21 years in office the Liberals witnessed real economic growth.” Among the problems with this statement are that he appears to be using a total population excluding Maori (although given the infrequent reference to the Maori in this book , it is perhaps appropriate); he does not explain whether the GNP is nominal or real (it is real); and that the real economic growth refers to per capita GNP growth (not total GNP growth, which occurred in 17 of the 21 years).

Basset also has a penchant for using out of date statistics, He refers to data provided by the 1950 ministerial committee on taxation, not reporting they are explicitly stated as estimates, and has long been superseded by Brent Lineham’s work. He uses a graph from Colin Simkin’s 1951 classic, The Instability of a Dependent Economy, apparently unaware it has been splendidly superseded in the 1990 New Zealand Official Yearbook.

Indeed the book contains a number of graphs from odd sources. Their function seems to be illustrative, like the photos of the various political and public service actors, rather than to progress an argument. The jackdaw seems content to collect facts. However, the economic historian is interested in the relationship between them. Recall the above reference to the buoyant export prices (presumably relative to import prices, that is the terms of trade) in the 1890s and 1900s. The implication in the text is that they drove the economic growth. Their importance in this period suggests that the terms of trade should have been monitored throughout the book. Instead there are but odd asides. The reader has no sense of what Bassett thinks generates economic growth or stagnation.

Curiously for a book about the role of the state in the economy, there is little about fiscal stress. By 1841 the Crown was facing an overestimate of revenue, an underestimate of spending, and was privatising assets and issuing illegal bonds to cover the gap – a portent for the future. Indeed it might be argued that the economic governance of New Zealand could be summarised by the budget being in fiscal stress, severe fiscal stress, or intolerable fiscal stress ever since. (That includes the Fourth Labour Government.) To give but one example, the reason why Harry Atkinson has been undervalued by subsequent generations is that for most of his premiership-treasurership fiscal stress was severe, limiting his creativity as a politician.

As Bassett modestly acknowledges in his introduction, there are many mistakes in the study. I will not provide a list, although I protest at: “Sinclair described Walter Nash’s concept of socialism as being `applied christianity,’ a term that was used occasionally in the late 1930s by Savage.” The term appears to have been coined by the mayor of Kaiapoi, the Rev. W.H.A. Vickery. Not every great insight comes from historians and politicians. Savage used it “on many occasions” according to Barry Gustafson.

Probably there are even more errors of interpretation. For instance, the book fails to mention how erratically interventionist and anti-interventionist the proposals actually were in Roger Douglas’s 1980 There’s Got to be a Better Way. Pertinent to the theme of the book, Douglas wrote (in the year in which the “Think Big” debate) began “[p]utting Government money into Tasman Pulp and Paper Company and New Zealand Steel was right. New industries were started that might not have been, because the private sector would not, or could not, do it.” The book does recall Douglas’s 1978 proposal for the extending the carpet industry, although it glides over the intended state involvement.

Another endemic problem, is the author’s employment of hindsight. Consider his description of the 1940s Secretary of Industries and Commerce, L.J. Schmitt “whose enthusiasm for the certainties which planning guaranteed to manufacturers would not have been out of place in a Soviet five-year planning exercise.” Leaving aside whether the Soviet planners were so enthusiastic, or even whether Schmitt was (there is reason to believe he was not), the statement is objectionable because it fails to acknowledge the widespread contemporary commitment to planning, by left and right. This reviewer, for instance, has had to struggle with the issue working on Bernard Ashwin, the long serving secretary of the Treasury of the same period. Ashwin was undoubtedly a political conservative, but he was deeply involved in planning and micro-intervention. It would be as foolish to associate him with Soviet planning, as it is for Schmitt. Rather the dominant economic paradigm of the day – in the United States and Britain – favoured economic planning. The neo-classical paradigm which replaced it did not become dominant overnight. Indeed the book seems bewildered at the persistence of the planning paradigm in economic policy so, for instance, the Planning Council went on for most of the term of the Fourth Labour Government.

This is a pitfall the author should have been aware of. For instance, in his 1972 Budget speech, new MP Bassett advocated higher top income tax rates, supported additional government spending, and defended the principle of monopoly provision of telephone services “enthusiastically”. A few months earlier, according to his book Third Labour Government, Bassett stated “[f]rankly, being wise after the event, I think we should have taken drastic measures to control land prices and building prices as soon as elected.” All of us are potential hostages to our younger views. Bassett is entitled to say that they were his sincerely held views, reflecting the conventional wisdom of the times, and that he changed his mind with experience, or as fashions changed. However, he needs to be just as generous and understanding to Schmitt, Ashwin, and others.

An account of how he changed his mind would have been fascinating. The last two chapters of the book cover the period after 1975, but they are essentially a politician’s narrative of the events of the day, and offer little insight. In any case, Bassett may not know. The admission in the statement with which this review opens is extraordinary. Almost a decade after he participated in the radical restructuring of the New Zealand economy, a senior cabinet minister concedes he still lacked an understanding of why the policies he supported were necessary. The inevitable impression is that the writer was operating in a political and economic environment without much understanding of the forces shaping it. Whether he is now clearer about why he supported the economic policies of the Fourth Labour Government may be demonstrated in his next book.

A useful starting point may be the inflation which confronted Muldoon through most of his tenure. National was elected in 1975 on the basis that the debauching of the currency, to quote Lenin, would destroy capitalism. Muldoon chose to tackle inflation with the sort of controls that the young Basset favoured, mindful that the alternative of a rigorous monetary and fiscal squeeze would cause economic stagnation, rising unemployment, greater inequality, and social distress. Basset’s report on post 1984 may shed light on whether the Labour cabinet was unaware of this possibility (and the analysis it was based on, which has proven to be a correct), or whether the government was aware, but willing to accept the consequences.

As the book’s subtitle “Socialism without Doctrines?” indicates, and the introduction states explicitly, a second objective was to explore the ideas that drove the New Zealand state. The problem has been that we have tended to judge New Zealand by overseas – European or American – standards (the subtitle alludes to Frenchman André Métin’s judgement of 1901). Because New Zealand political economy is so different, these foreign doctrines do not necessarily characterize the local experience very well. There is in fact a substantial sociological and political literature on the role and ideology of the state in New Zealand, although Bassett shows no awareness of it. Much policy was, as I argued in my Social Security in the Seventies, a pragmatic response to practical issues, with some – often growth oriented or egalitarian – social objectives in mind. It will be interesting to see whether Bassett concludes that the Fourth Labour government broke from this tradition and applied “capitalism with doctrines”. Certainly they and their National successor (in its first few years) were more doctrinaire than any government portrayed in this book.

The difficulty we all face is that economic history and the history of ideas are probably the two most underdeveloped elements of the history discipline in New Zealand. Even had he been better equipped for the journey, Bassett would have been brave to have ventured this book. Writing an account of the state is a very different exercise from writing a biography. It is perhaps useful that he has raised the challenge of an historical account of the role of the state, to complement the extant sociological and political economic studies. Many scholars will, no doubt, use the copious endnotes of the book as a source to many useful archives (although I would recommend they check the originals, for the book’s interpretation is not always reliable). To reiterate, the book is no more than a jackdaw’s nest of interesting items from archival and other sources, with no underlying account to pull it together. If the reader is not looking for one, the book certainly reads well. As Frank Sargeson wrote “there is no talent so deceiving and dangerous as fluency.”

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