Chapter 15 of In Stormy Seas: The Post-War New Zealand Economy, p.211-231. (This is a draft which enables the search engine. Please go to source for quotes.)

Keywords: Political Economy & History;

Their outlook, not too carefully reasoned, and no doubtful scornful of scientific thought, makes them incapable of self distrust. Like almost all men of action they have a contempt for theories: yet they are often captured by the first theory that turns up, if it is demonstrated to them with an appearance of logic sufficient to impose upon them. In most cases they do not seem to see difficulties, and they propose simple solutions for the most complex problems with astonishing audacity.[1]

Introduction

The dramatic change in New Zealand’s post-war economic structure took place between the mid 1960s and the beginning of the 1980s. All the earlier great structural changes had taken much longer: the arrival of the first Polynesians, the transition from the archaic to the classical Maori, the arrival of the first Europeans, and the rise of a pastoralism based on shipping refrigerated produce. A country’s economic structure affects the social and political configuration of its society. A rapid change could not but put the greatest stress on the society. Success required a rapid transformation of the vision of New Zealand. It required a renewal of the national leadership – of the Establishment.

The expression `the Establishment’ is used here to cover the group of men (and latterly some women) who are most closely involved in the governing of New Zealand. It includes key politicians, businessmen, and public servants who are influential in decision making, have a commonality of vision and a networking of relations. To say there is an establishment in New Zealand is neither paranoiac nor conspiratorial. Overseas political analysts discuss the notion endlessly, recognising that there is an ambiguity in the term and a number of meanings. Here we use the term to cover the `ill defined amalgam of institutions, social classes, and forces which represent authority legitimacy, tradition and the status quo’ (Stallybrass 1988:248) or `established power’ (Scruton 1982:155).

Neither does an establishment mean a country is not democratic, for the group may be responsive – and ultimately subject – to the wishes of the majority. However every establishment tends to look after its own interests and to reflect the viewpoint of its members. The New Zealand Establishment is typically male, older, white, wealthy, middle class and of middle class origin, living in Wellington or visiting Wellington regularly. It is relatively cohesive, because it is small, although there is always ambiguity as to who are on its fringes, who is joining, and who is left out.

Possibly its most powerful single mechanism of governance is that of patronage that is the appointing of members of the network to positions within the public and quasi-public sector. For the appointee the reward is status, additional income, stronger membership of the network, and possibly a little influence. For the Establishment there is loyalty and coherence plus further leverage over the resources of governance. Observing this is not to argue the appointees are necessarily inappropriate. But not always the best candidate for the appointment is selected – a point frequently made by feminists. The omission is usually explained in terms of the candidate not being `sound’. On the other hand, major defects could be overlooked in an Establishment appointee who is `sound’.

There is not a lot of writing about the Establishment in New Zealand, other than from a far left hysterical/conspiratorial perspective. The sober social scientist risks being thus identified, rather than recognised as trying to describe honestly a central phenomenon of the governance of the country. Instead the conventional wisdom prefer accounts of the deeds of `great men’ and vague political histories in which networking never appears.

In the 1970s and 1980s the New Zealand Establishment faced adaption to the new economic, social, and political circumstances which were opening up. The speed of change was such they did not. Instead there was the catharsis of the `Rogernomics’.[2]

The (Muldoon) Old Establishment

Rob Muldoon presided over the great structural transition. He became Minister of Finance in March 1967, less than three months after the wool price collapsed, holding that office until electoral defeat in July 1984, except for three years in Opposition (December 1972 to 1975), when he was their spokesman on finance. For the last half of the 17 years he was also Prime Minister. Allowing for variations in family backgrounds. Muldoon’s personal history of the depression in the 1930s, the war in the 1940s, and moderate success in the 1950s was little different from that of the others who belonged to the network which ruled New Zealand from the 1960s to the early 1980s.

The New Zealand they had grown up in had settled down to the pastoral export specialisation. Many of the men of Muldoon’s generation grew up on a farm, many were farmers or depended upon the farm sector – processing, servicing, supply, or finance. There was a minority who were from manufacturing but it was an inward looking, highly protected activity, whose prestige came from the jobs it created rather than the foreign exchange it earned. Like Muldoon the other members of the Old Establishment around him were better educated than average for their generation, and had travelled overseas more than average, although much less so than subsequent generations.

Except for the most fortunate and insulated, the 1930s must have been a horrible experience for Muldoon’s generation, and they lost comrades during the Second World War. But the following two decades were ones of progress and stability. Ironically, as the generation came to power the experience of their formative years – late adolescence and early adulthood – was exactly the opposite to that over which they would govern. They were unready for the challenge the post 1966 economic structure posed.

There were various reasons for this inability to identify the evolving political economy. Pervading them was nostalgia for the past – for the golden weather. The pre-1967 world had been so much easier: grow some grass, minimally process it, ship it to the markets of Britain, and live on the proceeds. Family life was simpler when wives stayed at home, race relations simpler when the Maori knew their place was in the pa. The world outside New Zealand was scary, but safe with a protector such as the United States, while sentiment kept them close to Britain. But that was not the New Zealand they were to govern.

The nostalgia was reinforced by the power of the farm lobby. In the 1950s and 1960s no one could challenge the significance of pastoral farming to the economy, while an area-based first-past-the-post electoral system gave farmers a high degree of parliamentary representation and political leverage. It was not merely the farmers by themselves. The industries associated with farming were a part of the lobby, since their prosperity was dependent upon farming. Even key militant unionists – freezing workers and wharfies – depended on the farm sector.

The hegemony of the farm lobby was reinforced by the apparent lack of viable alternative strategies. If New Zealand did not export pastoral products, what would the economy do? Import substituting industrialisation was a poor alternative – at best a supplement. Very few in the 1960s had any confidence in export oriented manufacturing except at the margin.

This failure of national vision was partly a consequence of the way the Old Establishment approached concepts. Perhaps the leaders of a power elite cannot be expected to be intellectually creative, but New Zealand’s sometimes seems to be closed to new ideas, and frightened about anything but the most superficial and well established notions – the conventional wisdom.

This is well illustrated by New Zealand at the Turning Point, a report commissioned by Muldoon’s incoming government in 1976. Its main recommendation was the creation of the New Zealand Planning Council. Its opening paragraph states that after consultation the writers were left with `a sense of concern about recent trends in many aspects of our social life’. The next sentence announces `[t]he concern is accompanied by a general feeling that the adverse trends could be more readily reversed if governments were willing to take a longer view in their programmes, and if they could secure greater co-operation among different groups ….’. The rest of the report wanders along in this vein, continually expressing concerns about recent trends and vaguely promising that `planning’ – largely undefined – will contribute to the solutions. There is no rigorous attempt to give an account of where New Zealand was at the time, or to distil the concerns into some vision. It is littered with seductive platitudes, but there is an almost complete lack of analysis. Today this is not a report one puts down with a feeling that the writers were grappling with the structural change which had already been underway for a decade.

On the foundation of this report, the New Zealand Planning Council was born. Inevitably, given the substantial resources made available to it, some of the work in its fifteen year life was useful, and is quoted in this study. More is reminiscent of the Victorian view of sex: platitudinous, passionless, and pious.

Why did an institution set up to give the Old Establishment the guidance it required in a period of rapid change so manifestly fail? One answer, especially popular among those who became the New Right, was that those involved lacked the necessary analytical skills. This may well be true, but that begs the question why more skilled people were not involved, and why those few that were, as often as not, left shortly after in frustration.

A new vision of where New Zealand was and was going would have been subversive to the Old Establishment’s conventional wisdom. The Planning Council operated on the basis that it would not challenge the existing self characterisation of the nation, but defend it. In doing so it could not contribute to self evaluation or renewal. It is easy to pin the unwillingness to allow intellectual speculation on Muldoon himself. There is no doubt that he discouraged such challenges, often impatiently and brutally. But it has been a more fundamental feature than the predilections of just one man. The repression of dissent against the conventional wisdom continued after Muldoon had gone.

But if the Old Establishment was unwilling to countenance a revision from within, there were pressures from outside. In areas such as women’s rights, the environment, Maori policy, civil rights, and international affairs there evolved strong, often intellectually coherent, if sometimes politically fragmented, movements within New Zealand. The economic story is quite different because the impetus seems to have come from overseas, and was primarily channelled through government agencies.

New Economic Theories

Chapter 2 has already described the phenomenon of Radical Monetarism in New Zealand. It partly arose out of exasperation with the Traditional Monetarism being espoused by the existing Establishment. Muldoon’s highly interventionist policies, culminating in the price freeze from June 1982 to March 1984, were seen to be a reflection (or even logical continuation) of the Traditional Monetarists. In any case the latter were seen to be too closely associated with the Traditional Keynesians. In the circumstances it is not surprising that a different style of monetarism evolved in New Zealand.

Its origins were overseas. By the late 1970s monetarism had evolved into `rational expectations’, where economic agents make full use of the information available to them, and on average forecast accurately. This had the effect of wiping out even a short term trade-off between unemployment and inflation.

In an alas too simple illustration, consider a increase in government spending aimed to increase employment.
– In the early monetarist models (without expectations), there would be an increase in employment, but there would be a rising level of inflation;
– In the model with adaptive expectations (introduced by Friedman in 1968), the agents would observe the rising inflation, and cut back on the people they were planning to employ (in order to avoid the increasing wage bills). As they learned more about the higher inflation they would reduce their workforce further. Ultimately the economy would be left with the same size workforce, but a higher price level. So the additional spending would ultimately `blow out’ in higher prices, rather than in the higher employment that was intended. Note, however, there would be job gains in the short run, and the government might well be tempted to have another spending injection to obtain short run gain for a second, and third, and so on, time.
– From the mid 1970s the rational expectations version generalized other economic actors, as smart as the government, observing this repeated strategy, and recognising the spending boosts leads to price rises, incorporate the government strategy into their behaviour directly. So their prices would increase immediately, and there would be no job gains.

In intellectual terms, rational expectations theory, which evolved into a broader theory described as `New Classical’ Economics, has considerable elegance, eliminating some of the most intractable components of the mathematics of the short term. Its policy message is also attractive to those of a monetarist ideological bent, for it suggests that fiscal management is ineffective in terms of employment and output, but can impact on the price level. If earlier monetarism had said keynesian economic management was effective only in the short run at reducing unemployment (but with an inflationary cost), `New Classical’ monetarism – which was incorporated into New Zealand’s Radical Monetarism – said keynesianism would not work even in the short run (but there would still be the inflationary cost). If it were true.

But is it true? Basically rational expectations is an exceptionally strong hypothesis about human behaviour. It replaces Abraham Lincoln’s classic adage with `you can’t fool any of the people any of the time’, or perhaps `you can only fool so few people at any time it hardly matters’. That is an empirical question. But despite the lack of empirical verification, the theory was latched onto with alacrity in some quarters. Any success of rational expectations theory among some groups might be evidence for `you can fool a substantial minority of the people a substantial amount of the time’. In the end the new theory has not overwhelmed the economics profession.

It is true that some – but certainly not all – markets behave very nearly like the efficient market hypothesis predicts: most notably short term financial markets. A good example would be that when the government announces a financial stock tender, or the outcome of a tender, it is rare for the market to shudder. It has broadly the same information as the government, and providing the government is behaving systematically, the market has already predicted the outcome, and the event is no surprise. Financial markets had been becoming more strident since the 1970s. The theory that seemed true in the experience of those working in financial markets, supporting their ideological preference. there it was adopted with alacrity.

There had been a shift towards monetarism throughout the 1970s, for at least three reasons. First, the ideas of monetarism were developing quickly, and attracting new adherents, although in 1980 Milton and Rose Friedman were to say that while monetarists were no longer `a small beleaguered minority regarded as eccentrics’, they were `still far from the intellectual mainstream but now at least [were] respectable’. Second, for much of the troubled economic times of the 1970s, Keynesian advisers were influential throughout the world, and since their policies had appeared to have failed, the alternative appeared attractive. (The logic is not very different from awarding the prize to the second contestant having only seen the first.) Moreover monetarism said it addressed inflation, which was seen as the problem of the 1970s, whereas Keynesians’ main concern was unemployment, which at the time was not. Third, there is in economics, as elsewhere, inter-generational feuding. Monetarism was the flagship of the new generation.[3]

To varying degrees the policies of monetarists took over in the 1980s in Ronald Reagan’s United States and Margaret Thatcher’s Britain, but far less in those other rich countries which were less accessible to the rogernomes since their inhabitants did not speak English. For while the US and Britain pursued more market, perhaps not as obsessively as New Zealand, and redirected income to the better off, their macroeconomics was quite different.[4]

These new macroeconomic theories, and parallel microeconomic ones,[5] were discussed economics departments in the 1970s. But there were many other interesting ideas. While individual academics may have been attracted to any or all of them, and to have taught them as a part of their macroeconomics program, there appears to have been no dominant teaching of Radical Monetarism in New Zealand until well after it was adopted – in many universities there is still not. In terms of the Waimakariri image of economic debates (Chapter 2), there may have been a sudden rush of water down the Radical Monetarism channel on the right bank from the late 1970s, but it was by no means the largest `mainstream’ in the New Zealand universities. With odd exceptions, it was never at any time in the 1980s either, and is not likely to be in the 1990s.

A couple of surveys of economists’ opinions in 1980 and 1990 indicate just how diverse the profession was (Coleman 1992, O’Dea 1981). Since both questionnaires involved 44 questions, and there was only a partial overlap, it is difficult to summarise the individual responses. Here a few interesting items:
– When asked whether `tariffs and import quotas reduce general economic welfare’ only 39 per cent of the 1980 respondents and 51 per cent of the 1990 respondents agreed, with 40 and 35 per cent respectively agreeing with reservations. We do not know what reservations the respondents had in mind, but whatever they were, even in 1990, the around half who agreed with reservations or disagreed, must have had some doubts about the wholesale stripping out of protection which occurred in the 1980s. Nevertheless the majority of responses were `more market’, and there was a shift in that direction over the decade.
– In 1980 15 per cent agreed without, and 34 per cent agreed with, reservations that `inflation is primarily a monetary phenomenon’. That is not quite a majority for even a mild form of the creed of monetarists.[6] By 1990 the proportions had shifted to 29 and 35 per cent respectively, so now there was a majority for the mild form. Again there was a shift towards the propositions which underpinned the reformist strategy. But there was still a substantial rump of dissent.
– And there was an inconsistency with the standard monetarist model. When in 1990 asked whether `the quantity of money had no long-run influence on any real variable’, 49 per cent disagreed, that is, they thought the stock of money influenced the real economy, whereas only 35 per cent agreed with or without reservations. Coleman writes `the general tenor of our respondents cannot be characterised as either `monetarist’ or `anti-monetarist’.’ (1992:52) The profession was still deeply divided on macroeconomics.
– Asked who was `the modern economist who had made the greatest contribution’ 10.6 per cent of the respondents said John Maynard Keynes, 9.2 per cent said Paul Samuelson who is generally credited with the neoclassical synthesis, combining Keynesian macroeconomics with neoclassical microeconomics, and 7.4 per cent said Milton Friedman with just about everyone else nowhere.[7] This response, consistent with the assessments of the certainly does not suggest that monetarism was a totally dominant paradigm here, nor was it in the United States, where graduates of five of the six top American economics departments – the exception being the University of Chicago – made similar assessments (Kalmer & Collander 1990:42, Coleman 1992:80).
– 50 per cent of male economists but only 19 per cent of female economists disagreed with the proposition `the free market underpays woman workers’.
– 51 per cent of all respondents disagreed with the proposition that `economists agree on the fundamentals’.
– More respondents disagreed than agreed (including with reservations) with the proposition `the economic power of trade unions should be curtailed’. (This was before the Employment Contracts Act.)

And yet, when the 1990 group were asked whether `the basic ideas behind `Rogernomics’ were sound’, 47 per cent agreed and 35 per cent agreed with reservations. I remember puzzling over this one when I filled in my questionnaire. What was meant by `Rogernomics’? If it meant the microeconomic ideas – essentially `more market’ ones – I agreed with reservations. If it meant the macroeconomic ideas, I disagreed. Or perhaps `the basic ideas behind Rogernomics’ were that we needed a change in economic policy from which had gone before. I could agree to that. No definition was offered, and it seems likely that different respondents though they were answering different questions.

What exactly is meant by `Rogernomics’ is a bit of a problem to the commentator too. The policies are close enough to the `Radical Monetarism’ of chapter 2 to be used interchangeably. More specifically it is an extreme form of `more market’ in microeconomic issues, and macroeconomic analysis which focused on monetary policy and microeconomic reform. The latter feature will become more evident in the next chapter, but a little more needs to be said about the microeconomics.

Being more market in the late 1970s encompassed a wide range of positions, so strongly was the thrust of economic policy anti-market. Moderates saw the use of the market as often more efficient in attaining social goals than more bureaucratic interventions. At the extreme there were those who saw the market mechanism as almost always offering a superior outcome, and indeed might even define a superior outcome as that which the market gives. Typically the more extreme, the more likely the economist is to agree or disagree to the sort of propositions that the surveys were exploring, without any reservations. There are numerous examples (Easton 1989b), while an uncritical commitment to privatisation was a good test of a rogernomic stance (Easton 1989a,e).

The surveys do not indicate this extreme commitment to the market mechanism, and/or monetary regulation without coordinated macroeconomic policies, was a widely held view. Certainly most economists were `more market’ in 1980, and more so in 1990, but most of these were not market extremists. There was much less unanimity on macroeconomics. There is little evidence that the majority of economists were supporting the full gamut of rogernomics policies in 1980. While there had been a shift towards them in the following decade, there was still no unanimity, and many had serious reservations. On some issues the majority view appeared to be the opposite.

In conclusion, while economists supported more market before the economic reforms of the 1980s, there was no overwhelming demand in the economics profession for the extreme microeconomic policies that were introduced. The support for the macroeconomic reforms was even more lukewarm. Nevertheless a rogernome could claim that the surveys showed that even if they were not in the centre of any `mainstream’ and while there may have been few supporters in 1980, the rogernomes had increased their following over the decade.

Which means the shift which occurred in the profession over the 1980s followed rather than led the revolution. The rogernomics thrust did not come from across the entire economics profession but from a small group within it. Much of the group’s story can be traced.

The Economic Reformers

In the 1970s, the proportion of monetarist advice was rising to central government in a cerebral, hard fought, but by no means unconstructive, debate with the various Keynesians. Radical Monetarism did not appear publicly until the writing of Treasury’s 1984 post election briefing. But the group of Radical Monetarists who were to take power was evolving within the Treasury and the Reserve Bank, probably from the late 1970s and certainly by the early 1980s. A couple of canards need to be put down.

First, as already explained, it did not represent a `mainstream’. In fact a small group within Treasury and the Reserve Bank developed a set of ideas and analysis, which was then imposed on the rest of the government economists, and ultimately the nation. The imposition occurred without open debate, and there was no moderating influence from the university economists, who to this day are more sceptical than those in government and business.[8]

Second, neither were the policy prescriptions forced upon Treasury by some outside agency, such as the IMF (the most popular candidate of the conspiracy theorists). It is true that some of the prescriptions advocated in confidential papers by the IMF were also adopted by the Radical Monetarists, and undoubtedly their economists had an intellectual impact upon the group (as did the OECD economists).[9] I know of no evidence that in the early 1980s they were strong-arming the New Zealand government, although of course they were encouraging the government to take some particular courses of action.[10] It is true that the primary influences on the ideas of the reformers came from overseas, including the IMF, the OECD, and some American universities (Bollard 1989:9; Choat 1992). But their ideas were accepted voluntarily, if uncritically. At issue is not whether there was some insidious external subversion, but to what extent the importation should have been moderated by other New Zealanders (especially the university academics), and by empirical research (Easton 1989b).

The importiation of foreign ideas without a process of national intermediation could be explained by the anxiety of those involved not to have their ideology and ideas modified by others (or local content). They may have lacked confidence in their ability to create their own analysis; instead almost uncritically adopting what they thought they saw elsewhere.[11] Without intermediation, the importing of ideas can be very clumsy. One of the justifications for a research effort within a country is to ensure that the whole range of possible theories floating around overseas are sifted and evaluated, and adapted for local use. This did not happen in the case of rogernomics – those involved had little ongoing research experience – with the result that overseas ideas were taken without understanding their complexity or subtlety. One of the defences of the overseas monetarists against the mess their policies made of the New Zealand economy will be that their principles were applied badly.

Third, there is only a little evidence (almost all anecdotal) that rogernomes were initially beholden to some New Zealand pressure group. There appears to have been some links between individual Treasury officers and businessmen before 1984 (James 1992:145), but they were probably not significant in the development of ideas. In fact the reformers were credulous about the efficacy of the private sector.

One outsider, however, was crucial to their success: Roger Douglas, the Minister of Finance from July 1984 to December 1988. Douglas is a strange mixture. His 1987 autobiography shows him a high energy activist, who given a direction is able to drive through so nobody could stop him. But while he has pretensions to be cerebral he is not an intellectual. His record is one of adopting numerous ideas, not all of which are coherent, and some of which are contradictory. As a minister in the third Labour government from 1972 to 1975 he is associated with the income-related, compulsory, funded, New Zealand superannuation scheme, which was repealed in the first year of National but which he did nothing to reinstate during his second term in the 1980s.[12] He also presided over an inefficient broadcasting structure, and was on the key committee which recommended the ill-fated baby bonus (Bassett 1976). In 1980 he wrote There’s Got to be a Better Way, which is a collection of short paragraphs on single topics, intended to be an economic policy (Easton 1987). With hindsight it is possible to see the beginnings of Rogernomics in some of the slogans, but their general thrust was towards a level of intervention which would be an anathema to the rogernomes.

Perhaps as good an insight of the man as any comes from an affidavit arising out of insolvency proceedings of a pig farm which Douglas owned. It is sworn by Wayne Hoyle, the Sunshine Farms manager, described in Douglas’s own affidavit as `the best pig farmer in New Zealand’. According to Mr Hoyle `all the figures being given were what Roger reckoned could happen and would like to happen, but weren’t happening. The figures were based on assumptions rather than records.’ (Sunday Times 24 May 1992) Detail bored and confused Douglas. He saw himself as a grand strategist, not appreciating that detail is a check on coherence.[13] But once set on a direction Douglas showed a drive and tenacity which no other minister in the fourth Labour Government could match, plus a willingness to cut procedural corners which left some of his colleagues aghast and others outwitted. In this way he became the barely challenged driving force in the cabinet for economic policy change.

It is not obvious when Douglas became a rogernome. he was not one in 1980, but by 1983 he had begun shifting that way, at least partly under the influence of some young economists, one of whom was a Treasury official seconded to the office of the Leader of the Opposition (Oliver 1989). He was probably fully captured by the approach by the July 1984 election, although there would have been a filling out of the detail subsequently. Certainly he wanted to float the currency on the day he took office.

The issue of the extent to which rogernomics was a case of parallel evolution or of miscegenation between Douglas and some officials need not detain us. What is important is that Douglas’s appointment as Minister of Finance decisively swung the balance within the Treasury and the Reserve Bank in favour of the Radical Monetarists. Debates may have continued within the institutions but the published record is that the given advice was dominated by crude simplistic economic analysis (Easton 1989c). And any debate diminished, as the adherents of alternative economic accounts were driven out of power. This occurred within the Treasury, as dissenters departed to other government agencies and the private sector, and as those outside found themselves ignored, their funding cut, access to contracts cut, appointment opportunities denied, and subject to petty harassment (Jesson 1989:71).

For the rogernomes were as intolerant of opposition as Muldoon who had preceded them. But Muldoon was one man, and open about it. This was more subtle and on a much wider front.[14] There was resistance to rogernomics, even successful resistance, for Treasury rarely won against a well organised government agency defending its own areas of competence supported by an independent and articulate minister (Easton 1989a, Walsh 1989). But generally the tendency was to join ’em rather than fight ’em or, most of all, to run for cover.

This was nowhere more evident than in the universities. John Deeks, an academic himself, is perhaps extreme when he writes of `segments of academia, abandoning traditionally critical and sceptical positions as they discovered the dazzling excellence of Kiwi entrepreneurs’ (1992:16). The majority of university economists – with exceptions – got on with their teaching, dabbled with research,[15] and grumbled in the tearoom about the theories underpinning rogernomics. Challenged, they pointed to their rising teaching loads and perhaps vaguely mentioned that the university administrations disliked controversy. Ironically this prudence meant that economists were in no position to assist their universities when rogernomics policies began to be imposed on them (Butterworth & Tarling 1994).

And the vibrancy of the profession suffered, as was strikingly illustrated when comparing the economic literature of the 1930s while preparing the material on the inter-war period. In the 1930s the main academic forum was The Economic Record, published jointly with the Australians. A comparison between its New Zealand coverage in 1930 and that of the 1990 volume of New Zealand Economic Papers, its successor, is instructive. In 1930 there were a number of articles primarily about the New Zealand economy focusing on big issues. In 1990 the articles are primarily technical ones – notably displaying econometric method, with little indication that the New Zealand economy – if mentioned at all – was suffering great difficulties. One cannot easily find any reference to GDP or unemployment in the 1990 volume – it is as if the nation’s economics problems were abolished by ignoring them. Alan Fisher’s quotation in Chapter 3 comes from an article the 1931 Economic Record, which is followed by a response by the editor, Douglas Copeland, who indicates he considers the article a little robust, and offers an alternative view. But he did not censor it. Sixty years later controversial articles – even those which mildly disagreed with the conventional wisdom – were less likely to be published. The cost of this pussyfooting was intellectual impotence, evident in the increasing irrelevance of academic economists in the public debate.

The political success of the rogernomes was not then, due to some intellectual excellence, some ability to succeed under the rigorous critical and sceptical review that Deeks sees as traditional to the intellectual process. The reality was that a small group were in the right institutions and received the right political support. Either because of the temperament of the dissenters, or the structures they were in, few resisted them.

The Rise of a New Establishment

Initially the ideas group was different from the group evolving out of the new political economy of the restructured New Zealand. Certainly there would have been connections, but there is no evidence that before 1984 there was a coherence between the various components which formed the new regime in the late 1980s. Brian Roper (1993) is right to observe that many pressure groups were calling for more market from the 1970s, but this was a consequence of the structural change, and they certainly did not call for it in the extreme form it was implemented. Shortly after the 1984 election the incoming Labour government held an Economic Summit. Paul Dalziel’s review (1989) of its deliberations suggests there was no significant pressure there for what today we would call rogernomics. Indeed rogernomes privately viewed the conference with contempt. Yet within a couple of years the ideologues and big business were firmly ensconced together.

In his 1986 book, The Quiet Revolution, Colin James argued the revolutionaries had the commonality of cohort experience, calling them the `Vietnam generation’. It is far from clear what he meant. His most sustained paragraph is “That optimism marked out the Vietnam protests as different from the previous outbursts of street violence – the industrial clashes of 1913 and 1951 and the rampages of the unemployed in the 1930s. Those clashes were negative and hard, centred on individual need and greed. The underlying characteristic of the 1960s was a big optimism concerned often with the self in the sense of individual salvation but allied to the broader quest for the salvation of humankind, a belief in human perfectibility.” (1986:31)

The oral and written evidence from the disturbances of 1913, the 1930s, and 1951 suggests James is unfair to those involved when he says the earlier groups were `centred on individual need and greed’. It is equally doubtful whether his romantic contrast with the 1960s demonstrations is justified, for all these public events had both a mix of the social idealism and the narrower needs of the self. Most fundamentally however, James fails to demonstrate that any of the rogernomes were involved in the peace and political movements of the time, except perhaps in its later stages when it was chic to be so. To the contrary, a key feature of the New Zealand anti-Vietnam campaign was a stout call for independence from outside powers, which was not a characteristic of those involved with the rogernomics revolution.

More acutely James describes `critics’ complaining “that it was the `Spock generation’ (after a 1950s American authority on child upbringing) lacking discipline and order, demanding immediate gratification, `gimme’ on a world scale: the right world. everywhere. now to make me feel right. And it contained elements British journalist Auberon Waugh has recently called `babyish libertarian romanticism’.” (1986:31)

Whether Dr Spock actually encouraged these virtues belongs to another place. But the paragraph better identifies some key features of the rogernomes. The time horizon of public policy shortened under rogernomics towards the immediate future. In practical terms that is the effect of a hike in the real interest rates, while long term social planning was replaced by reliance on short term market initiatives. Public policy became more individually centred and less altruistic and less community oriented.

More recently James joins the `critics’ describing the rogernomes as the `gimme’ generation, without any reference to his earlier claim of their commitment to salvation and human perfectibility (1992:40). The confusion arises because James wants to lump everyone together, whereas the generation – like all others – was diverse consisting of some deeply committed to their own self interest, some as deeply committed to wider human values, and most in an uneasy mix of the two. It was the selfish – the gimmes – who formed the New Establishment.

The pursuit of self interest became the central ethical principle in public policy of the rogernomes, even to the extent of the 1987 Treasury post election briefing enshrining it at the centre of its social policy. It is an enormously attractive principle for what it says is `do what feels good for you and that’s good for society’. At a stroke most of the great ethical dilemmas were resolved: the hours that the real Vietnam generation spent talking into the night worrying over what was socially responsible had been wasted. The obvious answer, if only they had not been hung up on social concerns, was `gimme’.

But James’ revised account misses the point for he ignores the underlying changes to the economic structure driving political change. The ideology of selfishness was a part of the response consolidating the gimme generation, but it did not initiate the transformation.

Of course the selfishness sentiment had to be dressed up less crudely than James presented it, a task for which a number of agencies – international ones such as the Mont Pelerin Society, domestic ones such as the Centre for Independent Studies,[16] the Business Roundtable, the Treasury via its 1987 post election briefing – obliged. Such agencies, and those who supported them are often called the `New Right’, a term used in Britain, and to a lesser extent in the US, to distinguish its adherents from the old Right. It is a felicitous term in the New Zealand context, because it captures well the shift of power which occurred, as well as the shift of ideology.

The Fontana Dictionary of Modern Thought says “Components of New Right thought have shaped Reaganism and Thatcherism. Those include economic theories associated particularly with Friedman and von Hayek, often described as `neo-liberal’ which exalt capitalism not only for its productive capacity, but its claim to be uniquely conducive to the maintenance of political and social liberty. The New Right thus opposes a strongly interventionist or ownership role for the State in the economy.” (Reilly 1989)

This is not a bad description of the New Zealand New Right. They preferred individual to collective solutions, and exhibited a special dislike of inflation, unions, and the welfare state, with a much less concern for unemployment, big business, and inequality.

Figure 1 in Chapter 2, categorised various economic theories into four quadrants characterised by a Keynesian/monetarist horizontal axis and a moderniser-conservative vertical axis. If we replace the horizontal axis with left/right (which roughly correspond to the political positions of Keynesians and monetarists) and we treat the concepts of the vertical axis a little more loosely than the formal economic ideas we obtain Figure 1. It divides the area of political discourse into four separate groupings by the two dimensions left/right, and modernizer/traditionalist. The positions of the political elite are illustrated by various individuals and pressure groups.

Figure 1: Elites’ Ideological Positions

*Thinktank

The ideology of the populace is harder to characterise. A study of voting behaviour of the 1990 election enables the allocation of voters into the four quadrants, with an additional third dimension of social liberal/social conservative (Vowles & Aimer 1993). This is shown in Figure 2 with voter share as a percentage.[17]

Figure 2: Populace’s Ideological Positions

Social Conservatives/Social Liberals

The most important grouping has been the right traditionalists (in the south-east quadrant) who were almost half of the 1990 electorate, and from whence came the base of the Old Establishment. However they did not have a total control and formed a coalition with the left traditionalists (in the south-west quadrant) whose main power bases were the unions and various left wing groups, who provided more of the intellectual input, for the right traditionalists in New Zealand are there by feeling rather than by thinking. In any case by the late 1970s the pressures for modernisation tended to force the two groupings together, as the hegemony of the Old Establishment was threatened.

The left modernizers (north-west quadrant) have not been important in political leadership terms, at least on economic policy, although they form the second largest of the seven groups which Vowles/Aimer identify. They probably have been very influential on environmental, human rights, international relations, race, and women’s issues. On economic issues, there has been really only one significant institution, the Engineering Union, reflecting the modernization pressures which the manufacturing sector has experienced.

Instructively, the Engineering Union is one of the few unions that has had to compete against another in its sector: the smaller Manufacturing and Construction Workers Union one of the most left traditionalist unions in New Zealand. The internecine warfare that bedevils the left was probably the main inhibitor on the development of a strong leadership in the modernizing left position, but a nostalgic preference for an economy which was no longer existed reinforced the inertia. On the other hand, the Vowles/Aimer data suggests there is a latent group with left wing preferences who nevertheless support an economic approach different from the traditional one. Interestingly there does not seem to be a social conservative grouping among the modernizing left, although this may be an artefact of the statistical procedures used to identify the groupings.

The story on the right is different. An establishment always has a problem of renewal, but the issue is much more acute when the political economy is rapidly changing. The difficulties were perhaps compounded by Prime Minister Muldoon’s very centralist political and economic style, which ruthlessly eliminated any potential successors, and so gave no line of natural succession. Interestingly, Derek Quigley, who left Muldoon’s cabinet in 1982 over modernization/traditional policy disputes, has recently teamed up with Roger Douglas (who at the time was a member of the opposition) in ACT, the Association of Consumers and Taxpayers, a new right lobby group.

While this explains why the sharp shift in power from the traditional right to the modernizing right (north-east quadrant) has the characteristics of a coup, it does not explain why the New Establishment should have been such extreme economic rationalists. Part of the answer lies in the ineptitude of the left, plus its failure to develop a progressive tradition in economic policy. But the circumstances of the coup, and the institutional context in which it took place were probably more important.

The New Establishment did not come together overnight. Initially it was quite fragmented, united only in opposition to Muldoon, and indirectly to the Old Establishment. A key was Muldoon’s unwillingness to pass power to the younger generation; of not allowing his successors to take effective responsibility. The next political generation – those born a decade later – found themselves compromised by what happened if they stayed within the Old Establishment’s ambit, yet they had little influence.

Those younger still found themselves totally excluded. Most evidently, as the Treasury found itself increasingly less consulted in the early 1980s. Economics II – its thinktank – in particular began thinking about alternatives – alternatives which would inevitably be subversive to the Old Establishment. The arrival of a new Labour Government in 1984 allowed it to present that alternative of Radical Monetarism publicly in the 1984 Treasury post election briefing, and privately in its counsels. Douglas was quickly captured.

At the time the majority of the Labour caucus were emotionally Traditional Keynesians, and they had done very little thinking about economic alternatives to Muldoonism, being more concerned with civil liberties, the environment, international politics, Maori problems, and women’s issues. Faced with the determination of Douglas and a few like-minded within the caucus, with little to offer of their own, they were steadily overwhelmed. Some may have been attracted by the feeling that the new policies appeared to be almost the exact opposites of Muldoon’s, as if there was no other option. TINA – there is no alternative – was a very seductive lady.

While Labour had been connecting with big business while in opposition, for Muldoon had been alienating business interests too, the connection was not secure after the election. It seems likely that the crucial step was the corporatisation of the state owned enterprises, when the Labour government had to identify people to man (sic) the corporate boards and advisers and consultants to take part in the transition. By 1986 the ideologues of the New Right, who had started off in the Treasury and the Reserve Bank, had begun to disperse into the private sector, beginning to work with the business community. The corporatisation program of 1986 and 1987 was probably the critical point, as the Treasury looked for businessmen for the State Owned Enterprises, consummating the marriage of their New Right ideology with business political power.

The businesses which filled the vacuum were not the same as those which had supported Muldoon. At a simple level one generation replaced another. The ideology of the New Right was adopted by the new right which took over the political establishment. James was indirectly drawing attention to how Muldoon’s generation was replaced by that born in the 1940s, skipping over the generation born in the 1930s.

But there was a more fundamental change here than the crude vying for power between generations. As earlier chapters showed, the New Zealand economy had undergone a substantial structural change between the early 1960s and the early 1980s. The Muldoon generation reflected the old structure – pastoral farming, importing based on licensing, protected manufacturing and staid banking. Much of Muldoon’s activities were aimed at protecting that old political economy perhaps partly for nostalgic reasons, but also because he was its master and its servant. As the old structure was undermined, despite the subsidies and patronage being used to support it, Muldoon grew increasingly out of touch with the more market proponents and the evolving new political economy. The business component of the post-1984 political establishment reflected that new economic structure, especially the rising (entrepreneurial) financial sector.

The new generation – typically born in the 1940s – was more urban than its predecessors, and had not gone through the war experience which was distinctive to the Muldoon generation. Perhaps they were more urbane, more cosmopolitan, better trained too, but if so it was the result of a changing world environment and affluence, rather than any personal merit compared to the earlier generation. Characteristically, in a society that claimed to be egalitarian, these men came from the better schools and their fathers were middle class or better – farmers, professionals, self employed. In a sense the rogernomics revolution was the coup of one generation against its fathers. The network was not abolished, simply replaced by a younger one.

That business community belonged to the new political economy, arising from the structural changes of the 1970s. It was less dependent on farming, and more embedded in the financial sector, and in the new industries which had come to prominence in the previous decade. They were younger than the old business leaders, and very much more market in attitude, very often despising government intervention (although not unwilling to help themselves when the opportunity arose).[18]

Alan Hawkins nicely captures the inter-generational tensions when he describes the general manager of the Westpac Bank whose employment he left to set up his own corporation, the ill fated entrepreneurial finance company, Equiticorp. “He was a Creeping Jesus sort of guy, a doomcaster with a bald head presiding over an appropriately bleak face, … It seemed to me that apart from some dismal God, the only thing he believed in was the inevitability of a New Zealand-wide Australian-wide or worldwide economic recession. He could work up quite a frenzy about that.” (1989:21)

Allowing for the antipathy between the two men, we have here couple of archetypes: Hawkins, a member of the Business Roundtable, for the new financial generation, all brag and confidence but with a certain attractiveness of personality; the Westpac general manager from an older generation of financiers: cautious, prudent.[19] The ironic record is that the institution run by the younger man collapsed, whereas the New Zealand division of the Westpac Banking Corporation was one of the few financial institutions to survive the crash with less apparent pain than its competitors.

It was also ironic that while the businessmen despised government intervention, they were very dependent on the government for their success. Political patronage to a range of sinecures gave prestige, reinforced the new network, and provided additional sources of income. Consultants in the private sector benefitted from public sector contracts – especially from the Treasury – lavished on them. Opportunities for private profit were opened up by privatisation. And government policy favoured their interests, most notably in the lowering of the top marginal income tax rate.

It is true that the Old Establishment would have favoured most of these things too. But it found itself increasingly cut out of appointments, status, and opportunities. Privately the New Right was scathing about them, even those who thought they had been quietly opposing Muldoon. To this day some still have not realised how comprehensive the revolution was, still puzzling why they seem to be left out of the action.

Basically it was a coup within the establishment.[20] Rogerer Kerr, chief executive officer of the Business Roundtable from 1986, captures the inter-generational change with “The average age of chief executives of major companies has dropped ten years … A generation of human capital has been obliterated.” (Spicer et al 1992:74)

Patricide is one of the most heinous of crimes, to be justified only by some greater purpose. In New Zealand the coup could not be justified – as happens in the third world – by an external threat, corruption, or communal tensions, so the new coup leaders used an ideological justification for their seizure of power. Conveniently, the Treasury and the New Right offered such a dogma, which involved – as is usual in coups – the exaggeration of the sins of the predecessors. Especially distorted was the claim of New Zealand’s poor economic performance, and the policy prescriptions to deal with it.

Of course, the business community in New Zealand is not especially philosophically competent. Intellectual activity in any of its manifestations was rarely pursued in their university training,[21] and few showed much facility thereafter. Without genuine intellectual roots, the businessman was vulnerable to any political fashion, providing it allowed him to get on with business. Richard Hofstadter, writing of a society much less antagonistic to intellectual life than New Zealand, comments `I put business in the vanguard of anti-intellectualism in our [American] culture’ (1963:239), something with which Robert Lane concurs (1991).

The simplistic New Right philosophy, advocating the central role of self interest and restraining government involvement in the regulation of society was perfect for this purpose. The rising business community adopted it with alacrity, but without understanding.

The flagship of this business push/putsch was the Business Roundtable, a self selected lobby group of (about 40 of) the chief executives of New Zealand’s biggest businesses. It had begun quietly in the late 1970s but came to public prominence after 1986 following the appointment of a key rogernome from the Treasury thinktank as its chief executive officer. It began to take an active role in promoting policies in – as it said – the `public interest’.

This was only possible by the Business Roundtable ignoring those matters on which the New Right position would infringe their immediate interests. Thus they did not comment on tariff policy, research and development policy, accountancy reform, commercial law reform, or the issue of the substantial donations made by business (Roundtable businesses prominent among them) to political parties. When the government began running a large deficit policy in 1992, the Roundtable was silent on the issue, despite having advocated tight deficits before then. Instead it advocated privatisation, changes in educational, health arrangements and industrial relations in the direction which would favour private enterprise, and opposed electoral reform which threatened its dominance.

In general the claim that the Roundtable advocated policies in the public interest even where it conflicted with big businesses interests cannot be sustained. Like every pressure group they were careful not to offer any of their interests for sacrifice to a common good. Their ideologists avoided the tensions between the business and ideological wings of the New Right by scrupulously ignoring any contradictions.

By the late 1980s rogernomics was no longer the idea of a few officials and politicians. Dissenters within the public service were being driven out. The politicians had a headlock on the political process as far as central economic policy was concerned. Some of the rogernomes had moved out into business. The network was strengthened by the Treasury using consultants, typically ex-Treasury officials, to do some of its key thinking and publicity, while the Business Roundtable used the same consultants, sometimes for the same policy analysis. And big business was committed, both publicly and by secretly providing funds, for the Labour government to get reelected in 1987 and National to get elected in 1990.

Establishing the New Establishment

The post-1984 New Establishment would have inherited their position in the course of time anyway. The coup speeded that process up, perhaps by as much as a decade. But it was a Faustian deal, for the early power involved the adopting of an extremist ideology which may have suited the revolution, but in the long run is unsustainable.

Nowhere is that more obvious than in their macroeconomics, the failure of which is the central theme of the next chapter. But in a more fundamental way, by adopting an extremist position, the New Establishment left itself hostage to the next set of younger colonels, a threat vastly enhanced by the ineptitude of the economic performance they presided over. Perhaps their best defence is that of the satrap, the retainer for a foreign power, for such power the New Establishment has is increasingly beholden to the overseas investors, who filled the hole in the shortage of local savings, but at a price of subordination of the New Zealand economy. This combination of a mistrusted Establishment, overseas involvement, and public restlessness, makes the politics of the rest of the 1990s as uncertain as at any time in New Zealand’s past (expressed through the electoral reform), with the possible exception of the land wars. The deal which gave Faust his power, ultimately cost him his soul or – as we might say in a more secular world – his authority and dignity.

Behind this is the complicated issue of a revolution. Ralf Dahrendorf identifies “two quite different versions of dramatic change. One is deep change, the transformation of core structures of a society which in the nature of the case takes time; the other is quick change, notably the circulation of those at the top within days or months by highly visible, often violent action. The first might be called social revolution, the second political revolution. The Industrial Revolution was in this sense social, the French Revolution was political.” (1988:5)

New Zealand experienced both. The social revolution was the dramatic change in the economic structure from the mid 1960s, precipitated by the fall in the structural terms of trade then, and the seizing of new opportunities. Dahrendorf is cautioning us to expect further long term and – from today’s vantage point – unpredictable effects which are likely to echo through to the next century. On the back of the social revolution there was a political revolution in the mid 1980s, as a new elite seized power, although not violently.

This political revolution was exactly the sort of extremism that Karl Popper cautions against in his The Open Society and its Enemies written, ironically enough, in New Zealand. For the ideology abandons the incremental pragmatism which Popper advocated, for the vision of millenarians which he abhorred. The irony was compounded when in 1988 the Mont Pelerin Society held its (second Southern Hemisphere) conference in Christchurch to celebrate Popper’s contributions to intellectual thought. Rogernomes trooped along, like eighteen year olds to a debutante ball, celebrating virtues which their previous actions had corrupted.

On the imprint page of Popper’s book is a quotation from Samuel Butler’s Erewhon “It will be seen … that the Erewhonians are a meek and long-suffering people, easily led by the nose, and quick to offer up common sense … when a philosopher arises among them … “ André Siegfried’s observation which headed this chapter was not the first time this frailty of New Zealanders was noticed, nor will it be the last.

And yet, to see the New Establishment as failure would be to ignore both its members’ success at obtaining power, and that ultimately they reflected the new political economy, which had arisen out of the transformation of the economic structure after the mid 1960s. The Old Establishment has little to complain of, for it failed to respond to that transformation quickly enough. If the macroeconomic performance under the New Establishment had even been average by post-war New Zealand standards their leadership would be celebrated. In fact on almost every significant measure – except inflation – their performance was well below average.

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Endnotes
[1] A. Siegfried Democracy in New Zealand. I am grateful for David Choat drawing my attention to this quotation. He in turn got it from Jack Vowles.
[2] The expression comes from a portmanteau of `economics’ and `Roger’ (Douglas), the Minister of Finance from July 1984 to November 1988 by analogy with Reaganomics. Rogernomic supporters are sometimes called `rogernomes’, partly – one assumes – to draw some tenuous connection with the `Gnomes of Zurich’.
[3] Coleman (1992:56) in a survey reported below observes that younger New Zealand economists were more monetarist than older ones.
[4] Reagan in fact ran a large deficit – a sort of crude Keynesian. The British story has to be untangled from the benefits from the North Sea oil wells.
[5] For a review of many of the microeconomic theories see Easton (1989b).
[6] The strong form is Milton Friedman’s classic statement `Inflation is always and everywhere a monetary phenomenon’.
[7] Even here there is a problem, since some respondents may not have classified Keynes as `modern’ (no definition was given) because he was dead, and had been so for over 40 years. All other economists reported mentioned were alive at the time of the questionnaire.
[8] As a rule economists who were university teachers were more sceptical than average about a strong more market position and rogernomics generally (Coleman 1992:72-3).
[9] I met an IMF biennial delegation in early 1984, just before the exchange rate float, and gained the impression they were somewhat uneasy following their discussions with officials. They were very discreet, but my best guess at the time was that they thought the New Zealand approach was too extreme. (I asked them which country would it be most helpful to look at as a guide to New Zealand’s experience. They replied “Chile”.)
[10] I was once a spectator in a heated exchange over whether Treasury was directed by an outside agency such as the IMF. My tuppence worth was
You cannot hope to bribe or twist,
The Treasury economist.
But seeing what the man will do
Unbribed, there’s no occasion to.
[11] In a CBC Ideas programme, ‘The Remaking of New Zealand’ (first broadcast in October 1994), Phillida Bunkle said
“I actually did graduate work in the United States and I met a large number of them [incipient Rogernomes] in the United States. They’re baby boomers, and they returned to this country with a vision that was very much gained from graduate school in the United States. They came home with a cosmopolitan[‘s] view of New Zealand. They were going to transform this society. Now they thought they had 1960’s student values, but they actually were very impressed by North America and its consumerism and its choice and civil rights and all that. They came back with that liberalized kind of vision.
“But it was also I think that they had a kind of sense of embarrassment about what a hick little place they had come from. They were in Chicago, they were in New York, they were in Harvard, and they were very aware that they came from `Hicksville’. And part of it was their awareness that they were products of the welfare state because what the welfare state does in New Zealand is bring in social uniformity. It is deeply egalitarian. People end up having the same social services. They were not very sophisticated. and what they were going to do – they were going to bring us into the global village. They were going to bring MacDonalds and all these wonderful slick things and transform `Hicksville’ into a sort of social paradise

New Zealand Studies, November 1997, p.13-21. This article contains material which informed but is not reported in The Nationbuilders, although there is material in the book which I did not have when I wrote this. This essay was in preparation for an entry in The Dictionary of New Zealand Biography.

Keywords Political Economy & History

Bernard Carl Ashwin (1896-1975), founder on the modern Treasury, was one of New Zealand’s great civil servants, and perhaps the most influential from the 1930s to June 1955, when he retired from Secretary of the Treasury.[1] Keith Sinclair’s biography of Nash has only a handful of brief references, but one says revealingly, `Fraser ruled in very close consultation with the Federation of Labour. The other powers in the land were Walter Nash and Bernard Ashwin.'[2] The assessment is echoed by John Martin `[h]e was clearly one of a small group – Nash, Fraser, and Walsh being the others – who were at the centre of the decision making process.'[3] In Ashwin’s case that `central role’ continued into the early years of the National government.

There is a full biography of Nash and there will, in due course, be ones of Peter Fraser and F.P. Walsh. Will there ever be a full biography of Ashwin? It is perhaps inevitable that, with odd exceptions, public servants should be shadowy figures. Ashwin was neither flamboyant, nor on the whole did he leave memoirs. We do have a memoir which he wrote after he got married in 1926, and there is an intermittent diary of his first six months as Secretary).[4] After he retired he gave four recorded interviews on his experiences: on Gordon Coates,[5] on the Reserve Bank,[6] on the war effort,[7] and Nash.[8] There is also the transcript of the five days he appeared before the Royal Commission on Monetary, Banking and Credit Systems, in June 1955, which is revealing about his demeanour, his status, and his economic views, as well as a vast quantity of official papers which he signed. But while he told the Royal Commission he never signed a paper unless he agreed with its contents, it is what is left unsaid that is often the more important. In addition there are also various contemporary remarks and memoirs which fill out the picture. Some younger colleagues are alive today, and have kindly added to the record.

Enough to write a full biography? Possibly, although perhaps not enough to capture the whole of Ashwin. Although there is little material about his personal life – as perhaps as should for he was a public servant – some elements are apparent: a simple diction often using the common vernacular, even to the Royal Commission on Banking (which contrasts with the ornate language of his 1926 memoir), and a dry, sometimes irreverent, sense of humour. Ashwin’s remembered humour is often associated with a degree of self-deprecation, perhaps because the recaller was so aware of Ashwin’s power. Geoff Schmitt, personal assistant to Ashwin in the 1940s, tells a number of stories about Ashwin’s use of his position as Paymaster General, one of the titles that went with Secretary to the Treasury, to get around stiff formality. For instance `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.'[9] The story reminds us of Ashwin’s distaste for some of the more formal British he experienced in 1917, when he was there as a private in the New Zealand Expeditionary Force.[10] But the finance officer in the London High Commission and the New Zealand Chief of Staff were also put down with this title. Ashwin liked to recall that the highest he got to in his Signals Company was `acting lance corporal.'[11]

In 1956, thanking Alan Fisher, a New Zealand economist working at the IMF, who had congratulated him on the recently received knighthood, Ashwin wrote `I gather it will be a bit more expensive in drinks and subscriptions and I am wondering whether I have any special privileges; immunity from traffic cops would be useful, free drinks at the Club would be another, but as far as I gather I will have none of these.'[12]

While there may never be a biography, I am collecting together the available material. As a result Ashwin will loom larger in future histories, not only as an important part of any history of the Treasury, but he is central to accounts of the development of economic policy. We already have detailed accounts of his role in the Reserve Bank,[13] in social security,[14] and in the Tasman project.[15] John Martin’s work on the Economic Stabilisation Commission of the 1940s will add to the historical record.

Here, I want to look at Ashwin from a different perspective. He is one of a group of men who came together in the 1930s to use actively and consciously the instruments of the power of the state to build and shape the nation. Others included politicians Coates, Fraser, and Nash, public servants Clarence Beeby, Pat Entrican, Joe Heenan, Alistair McIntosh, and Bill Sutch, businessmen James Fletcher, his son Jim,[16] Wolf Fisher, and James Wattie, and Walsh from the unions. There are no women among this group, reflecting the times, although a broader definition of nation building would include Te Puea building the Tainui nation.

Nation building in New Zealand did not begin in the 1930s. Leaving aside the Maori, it probably began with the first settler who stepped ashore in the nineteenth century, and there were earlier outbursts, such as the Vogel years and the Liberal government of the late nineteenth century. The nation builders of the 1930s were drawing upon a long tradition.

For my generation that nation building tradition is represented by Bill Sutch (1908-1975), who worked with Ashwin, although he was 12 years younger. Sutch has been the preeminent modern writer on New Zealand economic nationalism, and the most influential advocate of nation building. The choice, he said, was between `colony or nation’.[17] However his approach tended to equated nationalism with a left political perspective, while equating colonialism with the right. This has led to a number of problems in the interpretation of New Zealand’s political development, not least when the Labour Party with its left heritage abandoned economic nationalism in the 1980s. Meanwhile politicians of the right – notably Rob Muldoon and Winston Peters – have been among our most prominent economic nationalists. This paper is not directly about such contemporary issues, although understanding the nation builders of the 1930s provides a foundation for interpreting current events.

Ashwin dominated economic policy in the period of the earlier nation builders. Yet his personal views were clearly of the right. He was a fiscal conservative, as one would expect of any senior Treasury official, for our fiscal arrangements involve numerous ministers and departments anxious to spend the government’s money on our behalf, and the lone Treasury and their ministers who have to raise the money from us. In the case of Ashwin his fiscal conservatism would have been reinforced by this experiences in the early 1930s, some of which I shall allude to shortly, when the government fiscal position was out of control.

However Ashwin was surely also a political conservative. Of course his official writings do not betray his political leanings, addressing the specific question with a narrow answer dependent on the context of the question, exactly as you would expect of a public servant.[18] Yet there are numerous clues that he was on the political right: his general economic approach, his friends, and his career after Treasury. To the 1955 Royal Commission he objected to aspects of the social security system. Perhaps as a clincher his son recalls him `dancing on the table’ when he learned that National was elected in 1949 (although he may have simply been happy to at last be relieved of the demanding Nash as his minister). Undoubtedly Ashwin was to the right of Sutch. Studying Ashwin as a nation builder gives a different perspective from the Sutchian one.

Ashwin was born in 1896, in Paeroa where his father was a storekeeper (probably supplying the Waihi gold miners). Later the family moved to Cambridge, where Ashwin went to school, including two years at the local District High School. But he was the oldest of seven, and `the limits of my father’s purse decreed work for me.’ There are a couple of indicators in the memoirs of future developments. The first is that Cambridge was rural, and he recalled the `roses and buttercups’ of the farm his father moved to, and a life by the Waikato river. It was a nostalgia for a rural life that led him even to consider 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.[19]

We scroll forward. The following is an edited extract from the memoirs that Schmitt, kindly wrote for me. It is late 1945 or early 1946, and New Zealand and the US are negotiating in Washington over the wind up of the lend lease deal.

“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) $US7m to 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.’”[20]

There are various aspects to this story, including the indication that Ashwin was a superb negotiator. For our purposes it reminds us of Ashwin’s origins: while one may take the boy out of the country, you can never 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 his 63 years in Wellington (or overseas).

The 30 year old economist also wrote 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.'[21] The memoir goes on to note that he could not afford to go to engineering school. Nevertheless, as we shall see, he worked successfully with engineers later in life, and interestingly his son, Barry, followed an engineering career path of which his father could only dream.

The memoir then mentions `a narrow escape from becoming a bank clerk’, ironically for a man who was to be closely involved in banking and financing, at a far more senior position than teller. So the path to becoming New Zealand’s most powerful public servant began in June 1912, when not quite 16, Ashwin went to Wellington to join the Education Department, one of three cadetships won in the public service entrance exams.

By his own report, the next few years were a time of sport rather endeavour, but in early 1917 he was in Europe as a sapper in the Signals Company. Seven months in Britain, where he used his leave to travel widely (including spending every available evening at the London theatre) was followed by a year in France where he twice diced with death. Returning after two years, he described himself as `older than his years as a result of my experiences’.[22] The boy from Cambridge was also a man of the world. And yet in the text of his memoir there is a quiet pride of being a New Zealander – the foundation for being a nation builder.

He decided he `wanted to be more than an ordinary clerk’ and began to study part time. Initially it was to qualify as a professional accountant `but accounting was becoming so popular … it was clearly advisable to go further’, to degrees in economics.[23] He was the Victoria University College’s first masters graduate in economics, in 1925.

Was Ashwin a senior economist who became a public servant, or was he an economist and a public servant? Unquestionably in the 1930s he was functioning as an economist, as we see in his role in founding the Reserve Bank. Schmitt takes the view that he was not such an economist in his last ten years at the Treasury,[24] although I am impressed by the grasp of monetary issues in his evidence to the 1956 Royal Commission on Money. Undoubtedly he was not completely in touch with the developments in economics in the years after he left university, especially outside monetary theory which seems to have been a special interest. As a student using Alfred Marshall’s textbook, Principles of Economics, he had developed a strong grasp of the positive theory of markets – how they work, but there is little evidence of a recognition of the normative theory of markets (which developed after Marshall), which is about welfare economics and how the market generates allocative efficiency. In one of the few quasi-academic papers he wrote, in this case in 1956 after he ceased to be Secretary to the Treasury, he showed a firm commitment to market interest rates for borrowing, but supported subsidizing local authorities.[25]

When Keith Holyoake became Minister of Marketing in 1949, he received some long memoranda from Ashwin advocating major reform and liberalization.[26] Thus it would be wrong to categorize Ashwin as an arch-interventionist, great interventionist though he was in the 1940s. Markets and interventions were for Ashwin, it would appear, a means to an end.

So was he an economist? Perhaps Geoff Schmitt and I could compromise on the great Marshall’s definition of a good economist, who had `less need of elaborate scientific methods, than a shrewd mother-wit, a sound sense of proportion, and a large experience of life.'[27] This is a near perfect description of Ashwin who, like Marshall, seems to have been an excellent mathematician.

Ashwin’s economics training would have emphasized the importance of physical investment in the growth process,[28] and we see this concern in his occasional writings, as when government spending to reduce unemployment was diverting it from capital formation.[29] (Marxists would readily categorize Ashwin’s activities as the state being used by capitalists as an instrument of capital accumulation. The full story is, of course, much more complex.)

There is not a lot of information about Ashwin in the 1920s. We know he began work in the Treasury in 1922, steadily working his way up, was married in 1926 and had three children -and most certainly played a lot of tennis. (Golf was his hobby after retirement.)

From 1930 he begins to appear regularly. He was promoted to Assistant Accountant in February 1930, and prepared a Treasury paper on currency policy, which was presented as a personal view to the Economic Society in June 1930. In November the paper was published in The Economic Record under his name, giving an attachment to Victoria University College, and not to the Treasury.[30] In November 1931 he is promoted to Second Assistant Secretary, a newly established position probably especially created for him.

He was not a member of Coates’ brains trust. A postscript in a letter by Coates in 1934 explains why. `I dont see how the Treasury could possibly spare Ashwin, though were it otherwise there is nobody whose services would be more acceptable to me.'[31] A story Ashwin related in his retirement shows how close he was to Coates.

“I recollect quite vividly one day my door in the Treasury opening. Coates came in and said `come on. Get your hat. We are going to take the Bank on.’ By that he meant the Bank of New Zealand, of which the government at the time owned about one third of the shares. … So we went to meet the Board of the Bank, which at that time was known as the `Kelly Gang’.’
Ashwin then describes Coates’ request that the trading banks should ease the monetary pressures on the New Zealand farmer, and goes on:

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

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

“`All right,’ he said, in his direct manner, `you see Downie Stewart in the morning and go to it.’”[32]

There are a number of elements to the story. Here I note two. The Reserve Bank was set up. Years later Justice Tyndall described Ashwin as `the father and mother and everything else of the [Reserve Bank] Act.’ (Ashwin demurred `that may be going a little too far.'[33])

But more important for a putative nation builder, was the humilation of the government by the action of the Bank of New Zealand, for here was a trading bank pushing it around. In 1938 Nash and Sutch were to be similarly humiliated by the British government in London, while Ashwin was receiving the cables in Wellington. These are the experience which create nation builders, committed to national independence, concerned about their country having the instruments to frustrate such bullying – a major purpose of the Reserve Bank.

There is not the space to go through every policy development that Ashwin was involved in. We have already noted his closeness to Coates and the Brains Trust, and his role in the founding of the Reserve Bank. In the 1930s such economic policy advice as there was tended to come from outside the ranks of the central public service. As well as the Brains Trust there was the 1932 Economic Committee, on which sat four professors of economics and the Secretary to the Treasury, A.D. Park, who wrote a dissent against the professors. Or did he? It is likely it was Ashwin’s, for he was `constantly in attendance’.[34] Ashwin was also the Treasury official involved in the development of social security.[35]

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. Reflecting in retirement, Dick Campbell, who was in Coates’ Brains Trust and later was head of the Public Service Commission, wrote `… if Ashwin had been there, instead of subordinate to Park and Rodda, at least there’d been an above-average intelligence at the top. There wasn’t.'[36] Nevertheless much of the criticism is excessive and misdirected, not taking into account the size of the external shock, nor the lack of economic instruments to deal with it. No doubt any thoughtful revision will have Ashwin playing a major and positive role in the development of the economic policy of the early 1930s which, if not completely successful, built a platform for the spectacular growth of the next decade.[37]

The deep depression of the early 1930s haunted the nation builders. In Ashwin’s case there would have been the lack of a reserve bank and other policy instruments, the mismanagement of the loans account, and the dreadfully imbalanced fiscal stance. We do not know the effect of the record unemployment on Ashwin, but we know he was anxious to promote New Zealand industry by active intervention.

When the history of Treasury is written Ashwin, who became its Secretary in February 1939, will be a major player. He was not just its longest serving Secretary (his sixteen years was coequal with James Heywood’s (1890 to 1906), one of its youngest (appointed at the age of 43, second only to the present incumbent), and the Treasury’s first graduate (although by the time Ashwin left Treasury there were 31 graduates in the main division alone). But despite Ashwin’s pleasure with such numbers, these statistics hardly represent his significance to Treasury. As Lipson commented in 1949 (note how Ashwin is referred to tangentially):

“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.[38]

Indeed, under Ashwin the Treasury extended its role as the keeper of the government finances to its becoming economic manager as well. Ashwin is the founder of the modern Treasury. There is a sense in which the Ashwin Treasury lasted into the late 1970s, well after he died.

Ashwin was also extremely popular among those who worked for him. Henry Lang described him as an `excellent manager of staff,’ and `very accessible.’ Schmitt uses the expression `worship’.[39] All of his staff and colleagues I have met uniformly express the greatest admiration for Ashwin. Among the terms used to me by Jim Fletcher were `approachable’ and `an outstanding public servant’. In contrast to most public servants he was a `visionary’.[40] His was vision of a nation builder.

The active promotion of industrialization was a part of such nation building, a strategy reinforced by the war. 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 `improvision 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.'[41] At the same time Ashwin was in charge of financing the war, and he was meeting every day James Fletcher, Commissioner of Defence Construction (later Commissioner for Works).[42]

Wellington was a small, intimate, and informal place for those inside. Ashwin had close relations with Fraser.

“I saw him almost every day during the war. For some reason he liked me and often asked me to call to see him. On my way home from work – usually around midnight – we would sit and talk through the early hours of the morning, He would give me some of his new proposals and seek my opinions of them. I always answered honestly; if I thought his plan crazy I would tell him so and I think Fraser respected me for this. I accompanied Fraser on most of his overseas trips.[43]

Ashwin’s relations with Nash were – as in the case of all public servants who worked with Nash – more of a trial, moderated by the time Nash spent overseas.

“ The 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.”[44]

In 1943 Ashwin was made chairman of the newly established Economic Stabilisation Commission. In Ashwin’s judgement `the most important and surprising thing about [it] was that it worked,’ insofar as it prevented inflation in a period of great demand and a shortage of supply.[45] Certainly its success contradicts today’s general assumption that interventions are necessarily unsuccessful. The following vignette might suggest why.

“’I was besieged by numerous deputations and developed quite an art in negotiating. I remember once my office was crowded with twenty pig producers all demanding payment. I immediately set out to provoke them and soon they were all shouting. Walsh then came into my office and gave them a very stern and moving lecture on public duty and sacrifice in wartime. Finally I took over and appeared to come to the pig producers’ rescue by pointing out that although their case was very reasonable we were sorry that under present circumstances we could not help them. This tactic worked well with other groups. … It boiled down to a careful strategy of negotiation and persuasion.”[46]

Ashwin was at the centre of economic policy. As John Martin describes it, `[a]t the official level the dominance of Sir Bernard Ashwin [was] extraordinary.'[47] 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, on the boards of the State Advances Corporation, the Defence Council, and the Reserve Bank of New Zealand. His resignation in 1955 left a vacuum in the Bank.[48]

As Treasury Secretary, Ashwin travelled overseas extensively, including being at Bretton Woods (for the founding of the IMF and World Bank), and negotiating with the British government for the meat and dairy prices. Jim Fletcher says that the deal would be settled by the two Treasuries on the first day, and then there would be more public negotiations by wider parties to come to the agreement.[49] There is a widely circulated story that on one occasion there was a gap of a farthing a pound, which was settled by a billiards game, in which Ashwin represented New Zealand. Although versions differ as to whether he won or lost, we may be sure that the outcome was judicious, and in New Zealand’s best 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),[50] 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.'[51] He was a director from 1946 to 1967. Significantly for our story, Fletcher reports that in 1957 Ashwin was angry when the National government sold its share to the parent company.[52] One takes it 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 favoured public ownership. He rejected the full nationalization of the Bank of New Zealand in 1945. There was no inconsistency here. The Reserve Bank controlled the trading bank so public ownership was unnecessary, but ownership of an oil company gave the New Zealand government information about world oil prices to reduce transfer pricing.[53] The full nationalization of the BNZ and the failure to join the IMF are among the few occasions where Ashwin’s views as Secretary of the Treasury did not prevail. (The social security system also had some elements to which he objected.) The social crediters in the Labour caucus were probably as much the bane of his life as was Nash.

Perhaps Ashwin’s greatest industry achievement, and nicely illustrating his pragmatism, was his involvement in the founding of the Tasman operation at Kawerau (originally called the `Murupara project’), based on processing into pulp and paper the vast Kaiangaroa Forest of pinus radiata, which was begun planting in the 1920s. His son says Ashwin thought the project so important that he talked of giving up the Treasury Secretary job early, so 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, for his was a more demanding 16 years than that of John Heywood at the turn of the century. Moreover the early retirement meant he could still enjoy a new career as a company director. While his power may have diminished, his networks and mana did not.[54]

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 (in 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.[55]

Tasman symbolizes Ashwin as a nation builder. The story, well documented by Morris Guest, involves the overcoming of the financing (and production) problems, with Ashwin in a central role,[56] although he was not alone, for he worked closely with Jim Fletcher, and Pat Entrican, head of the New Zealand Forest Service.

The first available record in 1941 has Ashwin `generally sympathetic with the proposal and … inclined to suggest for the government’s consideration that it might be adopted. … the scheme, if sound, should assist in the widening of the diversity of industry which is so desirable to a balanced economy.'[57] But profitability was a concern, as was the cost of government involvement. Not surprisingly then, in 1949 Ashwin sent a memorandum to the incoming government recommending against government funding of the Murupara project (and also of the Auckland Harbour Bridge).[58] This was not a question of desirability, but the worry of financing it, particularly the likely use of Reserve Bank credit.

By the standards of the day, Tasman was an unusual project, involving New Zealand’s largest industrial plant, exporting 70 percent of its output from day one. There was not a lot of government protection, although the infrastructure was government supplied and there was a substantial government financing element.[59] Ashwin’s role was significant. His recommendations for the financing of the Tasman project, set down in 1949 to Nash, were almost exactly that which emerged six years later.[60] Later he seems to have been crucial in persuading prime minister Holland.[61] We observe Ashwin was not adverse to the use of government finance, albeit in a company which was set up in the private sector.

Ashwin and Entrican were involved in a dispute about the nature of the government involvement in the Tasman enterprise. It was a lot more heated than reported here, not least because Entrican was a `man who was quick to state his own opinion,'[62] in contrast to Ashwin’s more taciturn approach. It can be usefully portrayed as an the 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 Jim Fletcher, more on the right. It was a dispute more about means and ends. (The most recent round for this debate was the corporatizations and privatizations since 1986: it would be Entrican who would be turning in his grave.)

It is noteworthy too that the government finance and support was provided by a National government led by Holland, who was at first suspicious of his public servants, but became respectful of Ashwin.[63] I have no indication of whether they liked one another. In the case of Savage and Fraser, Ashwin started off distancing himself, but became respectful of, and warm towards, them.[64] The Henderson and Sinclair interviews indicate a certain coolness to Nash, over two decades after they parted ways. The gossip has it that Ashwin was frustrated by Nash’s dithering (not to mention 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 ordering Nash to sign some documents over which he had been delaying.[65]

Tasman was not the last case of Ashwin as Secretary of the Treasury involved in the development of a particular industry. The secret, but abortive, negotiations between the British and New Zealand to convert geothermal steam into heavy water (but which led to the geothermal electricity generation program),[66] occurred in Ashwin’s office.[67]

The end was economic nationhood, a New Zealand trading internationally but with an independence and status of a nation and 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 M.Comm, and the shambles of public policy in the depths of the Great Depression, saw the need for nation rather than colony, as much as did the younger Sutch, with similar yet different experiences, and from a different political perspective.

Regrettably Ashwin did not use his retirement to his death in 1975 to write up more of his story. By the time Schmitt knew him from the 1940s, Ashwin was a `doer’.[68] The discretion of the public servant remained after he retired.

This lacuna is not peculiar to Ashwin. A central feature of the New Zealand conservative right is that it had no theorist – no polemicist – like Sutch, to articulate its political beliefs. And yet it was the political party of the left, of Sutch’s side, who in the 1980s began dismantling the nation building state that Ashwin and Sutch helped construct. However it was a response from the right, who without an indigenous conservative intellectual tradition, drew on foreign ideas, like the colonials that Sutch – and no doubt Ashwin – despised.

Before his distinguished career was to be evident, the 30 year old economist wrote 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.’ Instead Bernard Ashwin became a social engineer, and built the mid-century New Zealand economy.

Endnotes
1. I am grateful for assistance from the following people: Barry Ashwin, Alan Atkinson, Neill Atkinson, John Barr, Michael Basset, Rob Bowie, Bert Brownlie, Elizabeth Caffin, Ruth Edghill, Tony Endres, Sir James Fletcher, Bernard Forde, Rachel Forde (Ashwin’s granddaughter), Morris Guest, Gary Hawke, John Henderson, Henry Lang, Catherine Lawler, Noel Lough, Brent McClintock, John Martin, Claudia Orange, Elizabeth Orr, Jock Phillips, Ian St George, Geoff Schmitt, Keith Sinclair, the staffs of the Alexander Turnbull Library (including their Oral History Archive), the Evening Post Library, National Archives, and The Treasury, and those who attended the March 1997 seminar of the Historical Branch of the Department of Internal Affairs, at which this paper was first presented.
2. K. Sinclair, Walter Nash, AUP, 1976, p.208.
3. J. Martin, “Economic Policy Making in the Early Post-war Years”, Society and 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, p.245-272.
4. The originals are in Ashwin’s personal papers, currently held by his son Barry Ashwin. I have copies, which (with the other material I have collected) I intend to deposit in the Alexander Turnbull Library in due course with the agreement of the family.
5. From an interview by J.C. Barr, 4th? July 1969. A copy of the tape and transcript are in the Oral History Archive of the Alexander Turnbull Library.
6. In Gary Hawke’s personal papers.
7. Interview by John Henderson, March 1970. Henderson’s summary is in Ashwin’s personal papers.
8. Interview by Keith Sinclair, 18 Jan. 1971. The tape is in the Oral History Archive of The Alexander Turnbull Library.
9. From a memoir written by G. Schmitt in 1997. A copy is held by B.H. Easton.
10. From a memoir written by Ashwin between 1926 and 1929(?), held in personal papers.
11. Schmitt (1997:63-4).
12. Letter to A.G.B Fisher, 9 July, 1956, in the possession of the Fisher family.
13. G.R. Hawke, Between Government and Banks: A History of the Reserve Bank of New Zealand, Government Printer, Wellington, 1973.
14. E. Hansen, The Politics of Social Security, Auckland University Press/Oxford University Press, 1970.
15. M.W. Guest, The Murupara Project: The Tasman Pulp and Paper Company Ltd and Industrial development in New Zealand 1945-1963, M.A. thesis, Victoria University of Wellington, 1997.
16. To avoid confusion I have called Sir James Fletcher the elder, “James Fletcher”, and Sir James Fletcher the younger, “Jim Fletcher”.
17. W.B. Sutch, Colony or Nation, Sydney University Press, 1969.
18. Guest (1997:19).
19. Ashwin (1926).
20. Schmitt (1997:63).
21. Ashwin (1926).
22. Ashwin (1926).
23. Ashwin (1926).
24. Schmitt (1997).
25. B. C. Ashwin, “Financial Problems in Local Government”, in R.J. Polaschek (ed) Local Government in New Zealand, Studies in Public Administration, NZIPA, Wellington, 1956, p.57-69.
26. J. Martin, “Changing Governance: The State Services in the Holyoake Years”, in M. Clark (ed) Sir Keith Holyoake: Towards a Political Biography, Dunmore Press, Palmerston North, 1997, p.57-84.
27. A. Marshall, A. Principles of Economics, 8th edition, Macmillan, London, 1920, reset and reprinted 1949, p.642.
28. I owe this point to Tony Endres.
29. From intermittent diary notes written by Ashwin between February and October 1939, in personal papers.
30. B.C. Ashwin, “Banking and Currency in New Zealand”, Economic Record, November 1930, p.188-204.
31. Coates Papers MS 1785/188. I am grateful to Brent McClintock for this citation, and that of endnote 36.
32. Interview by J.C. Barr (1969), There is a dating problem here. The instance could not have occurred before September 1931, when Coates joined the coalition ministry. But according to Hawke the first Treasury paper (probably written by Ashwin) is dated 20 June 1930, and Otto Niemeyer had visited New Zealand in August and September 1930. (1973:26) Thus Ashwin’s story, which is told to illustrate Coates as a man of action, is one of a new minister being persuaded about an existing Treasury policy. This suggests it was shortly after September 1931. If so, the familiarity of Coates with Ashwin suggests they may have worked together during the Coates government of 1925-1928.
33. Proceedings of the Royal Commission on Monetary, Banking, and Credit Systems, Wellington, 1956.
34. Economic Committee, Report of the Economic Committee, Government Printer, 1932, p
35. Hansen (1980).
36. R.M Campbell Papers MS 1900/15 (letter to Sutch 30, Sept, 1971).
37. B.H. Easton, In Stormy Seas: The Post-War New Zealand Economy, Otago University Press, Dunedin, 1997, Chapter 4.
38. L. Lipson, The Politics of Equality: New Zealand’s Adventures in Democracy, University of Chicago Press, 1949, p.443.
39. Schmitt (1997).
40. Interview 13 February, 1997. Record held by B.H. Easton.
41. Henderson (1970).
42. According to his son, Barry Ashwin.
43. Henderson (1970:13-14).
44. Henderson (1970:13). Schmitt recalls that, of course, the budget was not written by Ashwin, but by various Treasury officials.
45. Henderson (1970:7-8).
46. Henderson (1970:10-11).
47. Martin (1991:217).
48. Hawke (1972:?).
49. Interview, 13 February, 1997.
50. Or, as it was then, the Anglo Iranian Oil Company (NZ).
51. Interview, 13 February 1997.
52. Interview, 13 February, 1997.
53. Noel Lough at the Public History Seminar, 4 March, 1997.
54. In 1957, Sutch asked for Ashwin’s support, in his application for the Secretary of the Industries and Commerce, according to G. Fraser, Both Eyes Open Now: A Memoir, John McIndoe, Dunedin, 1990.
55. Who’s Who in New Zealand (10th edition, 1971) reported Coulls Sommerville Wilkie, Dalgety and Co, Thomas Ballinger, Colonial Mutual Life, Holland & Hannen & Cubitts, and Reid Rubber. Newspaper obituaries also mentioned C.A. Odlins (e.g. Auckland Star, 13 Feb. 1975; Evening Post, 14 Feb. 1975, New Zealand Herald, 15 Feb. 1975).
56. Guest (1997). See also Schmitt (1997)and S. Parker, Made in New Zealand: The Story of Jim Fletcher, Hodder & Stoughton, Auckland, 1994.
57. Memo to Nash, reported in Guest (1997:36).
58. Guest (1997:40).
59. Interview with Fletcher 13 February, 1997, and Guest (1997).
60. Guest (1997:42-3).
61. e.g. Parker (1994:96).
62. Guest (1997:18).
63. See Martin (1997).
64. Ashwin (1939).
65. A major source is John Martin, but he is relating other’s stories.
66. J.E. Martin, (ed) (1992) People, Politics, and Power Stations: Electric Power Generation in New Zealand, 1880-1990, Bridget Williams Books/Electricity Corporation of New Zealand, Wellington, 1992, p.259-60.
67. Interview with A.D. Brownlie, who was his personal assistant in 1955. Record held by B.H. Easton.
68. Schmitt (1997).

by Jane Kelsey New Zealand Studies, July 1997, p.37-38

Keywords: Political Economy & History;

Early in The New Zealand Experiment, Jane Kelsey writes about a 1993 colloquium sponsored by the Washington-based Institute of International Economics (IIE). Its convenor, John Williamson, is reported as suggesting that societies have a natural tendency to become sclerotic and their flexibility declines, a reference to Mancur Olson’s The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities.

Kelsey continues Williamson’s analysis that “[w]hen a major crisis occurs within an existing system it creates new initiatives for actors who until then have been prevented from taking the initiative. Where a crisis does not occur `naturally’, it might make sense to provoke one to induce reform. The most effective time for the reform is to act in the honeymoon stage immediately after taking power, when the need for, and costs of, reform can be blamed on previous governments. … Structural adjustment is likely to be easier where the opposition can be discredited and disrupted, or repressed. Successful implementation … also requires a team of technocrats who have a common, coherent views of what needs to be done and who command the instruments of executive power. They need a leader with a vision of history who is unconcerned with the political or personal fallout from radical and popular reform, and who preferably will be a technopol.”

I have quoted Kelsey at length, because this is a brief summary of the thesis she is exploring: a group of technocrats (those “who advocate organization and management of the a country industrial resources by technical experts for the good (sic) of the community”) and technopols (“technocrats who have assumed a position of political responsibility”) seize an opportunity to implement a favoured program, broadly independent of the people’s wishes. Much of the book is a carefully documented account about how they did so in New Zealand politically and in terms of particular policies, plus an evaluation of the outcomes.

Kelsey does not discuss much the thesis that New Zealand society was sclerotic and inflexible. It is easy to argue that it was, although Olson’s argument is far from compelling. (Incidentally Olson was hardly mentioned in New Zealand before about 1986, even though as Kelsey and Williamson imply, he offers one of the best theoretical justifications for a revolution in 1984 reforms, although not necessarily for the way they evolved). The issue is not trivial, because we may wonder whether the current society is any less sclerotic. The inability of the system to grasp the failure of the 1991 health reforms, and provide an alternative, suggests an inflexibility parallel to that of the Muldoon years.

The IIE is likely to argue for a particular policy program, euphemistically called “structural reform” which at a minimum is the abandoning of border protection and assistance, and the following consequential polices. But this reduces the Williamson analysis to pleading for a particular policy. Parallel instances of communist, fascist, and anti-colonial revolutions, which the above long quote nicely covers (with only minor alterations) would be dismissed. No doubt the IIE wishes to distance itself from such regimes, just as Stalin wanted to distance himself from Hitler – and vice versa. But from a not too medium distance the authoritarian similarities are evident enough (as Kelsey underlines in her chapter on the democratic deficit).

It is worth recalling that Lenin, Franco, and Pol Pot – to name but a few revolutionary leaders – all honestly believed that they were acting for the good of the wider community. So were the technocrats and technopols of the New Zealand experiment. It is not sufficient to claim that what distinguishes Roger Douglas from Lenin or Ruth Richardson from Pol Pot or our technocrats from those who designed the concentration camps, is they had better intentions or better theories. How do we tell “better”?

If the test of better theories is better outcomes, Kelsey shows in her chapters on the economic, social, democratic, and cultural deficits, the reformers can hardly claim retrospectively theirs was better, other than by distorting the reality of both the statistics and the everyday lives of the people. They forget an ineluctable law of revolutions is that while the successful revolutionaries may prosper, that gives no indication whatsoever of the fortune of the populace.

The revolutionaries’ lacuna is they have no Jane Kelsey, no one to write a convincing account of what happened from their perspective. Roger Douglas’ last book looked as though it was designed by a drunk or dyslexic typesetter, Richard Prebble’s is littered with anecdotes he swears are true but which I have heard related with equally sincerity in many other countries, while David Lange’s writings suggest he was out of the country between 1984 and 1990. Everyone may be waiting for technopol Roger Kerr, but he is yet to prove he is capable of writing something more substantial than a speech to a receptive audience. His avoidance thus far of numerous critical issues – how to explain the 1987 sharemarket crash, how to explain members of the Business Roundtable were incarcerated for fraud, how to explain the poor economic performance, how to justify the anti-democratic elements of the reforms, and so on – suggests he is not unaware of the deep difficulties any comprehensive account from the reformer’s perspective.

Kelsey has kept detailed records of events over the years, although for my taste she is overly dependent upon newspaper sources rather than primary sources. This, her third, book contains a wealth of detail, which prompt or enhance the memory. The sequence of books has a further role of reminding us the experiment has moved on.

The latest emphasizes we are in a consolidation phase of the revolution. Many readers may find this the most novel notion of the book, for too many resisters still think the reforms are in their early stage. They are not: the experiment has now been underway for more than twelve years. Moreover, the reformers have been very successful in maintaining their hegemony and that of their policies. This is partly a consequence of the repression of alternative views and dissent, as recommended by the IIE. But it also suggests that there is some sort of validity in the reforms, at least in terms of that which they overthrew.

Certainly there has been a failure of the rhetoric and the promises, and the outcomes assessed in the way that Kelsey does (from the perspective of ordinary people, with a Rawlesian bias towards those on the margin). But that tells us something about the relevance to the political economy of those outcomes – about the relevance of ordinary people. Like so many other twentieth century revolutions, the New Zealand one seems to be more about power than prosperity. What is needed is a theory of the reforms and that which went before, which does not simply reject the reformers’ account but incorporates it into a comprehensive one. That is why the dissenters so desperately need a coherent defence of the reforms, rather than the inadequate ones which rely on authority rather than intellect.

Kelsey’s chapter on alternatives received the most criticism in the reviews of the first edition, and has not been changed in the second. The reviewers were, it would appear, disappointed because having read such stirring material for 347 pages they expected a equally stirring alternative in the last 24 pages (excluding the appendices where, incidentally, the clumsily named “manual for counter-technopols” is worth being read, photocopied, and put up on the noticeboard). Kelsey has another agenda. she is not a technocrat or technopol. even if she has the sort of skills to be one. Perhaps she has doubts about great schemes of reforms, perhaps she is less confident of knowing what is “good” for the people. In any case, her alternatives are about grass (and flax) roots strategies which build up from the actions of individual people to lead to the new society. (The second edition’s epilogue sees some of these activities evolving, although I am cautious as to whether this is the new growth of a genuine spring, rather than the same hardy plants of the winter.) It is inherent in such a strategy that no one can direct or predict it, only encourage and foster it.

However if, as Kelsey appears to believe, the state is an effective means of a society pursuing some of its social objectives, any alternative has to include the state playing a constructive role. The irony is that those who claim to be anti-state have used the power of the state to pursue their goals while, perhaps as a result, some dissenters favour only the voluntary collective actions which the reformers espouse.

One looks forward to Kelsey’s next book. The indications are that she has moved on, using the IIE model and the New Zealand experience to tell an international story. Hopefully, it will devote more space to effective alternative strategies.

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