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.

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.

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.