Chapter 14 of The Nationbuilders

Keywords: Political Economy & History;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Chapter 3 of The Nationbuilders

Keywords: Political Economy & History;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

attendance’. [8]

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

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

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

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

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

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

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

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

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

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

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

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

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

loans account, and the dreadfully imbalanced fiscal stance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

health benefits.

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

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

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

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

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

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

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

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

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

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

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

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

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

a free enterpriser.

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

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

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

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

Endnotes

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

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

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

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

5 Schmitt (1997), p.63.

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

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

8 Ashwin memoir, p.7.

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

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

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

12 Sinclair (1976), pp.170–89.

13 Ashwin diary, 8 October 1939.

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

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

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

17 Ashwin diary, 8 October 1939.

18 Henderson (1970), p.7.

19 Henderson (1970), pp.13–14.

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

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

22 Martin (1991), p.217.

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

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

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

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

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

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

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

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

31 Op cit. pp.40–3.

32 Ashwin memoirs.

BIBLIOGRAPHY

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

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

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

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

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

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

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

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

Keywords: Political Economy & History;

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

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

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

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

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

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

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

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

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

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

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

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