A Tale Of Two Cities

Christchurch’s Economic Success is Associated with A Tradition of Civic Community. Wellington, Take Note.
Listener: 7 September, 1996.

Keywords: Governance;

The church hall was packed, and the audience angry. In a few days the Wellington city Council was going to decide what to do with its majority share in Capital Power, its local electricity supply authority (ESA). Everyone expected them to divest their control, despite the populace supporting the maintenance of the asset in public hands. A citizens’ jury had favoured public ownership, an opinion poll had supported them, everybody seemed against the divestment of control. Yet the decision seemed destined to go against the majority wishes. Just as a few years earlier the Council had agreed to sell a minority share to a private investor.

Various speakers argued against the proposed sell-off. I contributed too, pointing out that the promised financial and price gains came with the caveat that the consultants would not stand by the accuracy of their predictions. (Even so Councillors were happy to quote these figures when it suited them.) I also pointed out the main argument in favour of the amalgamation with the Power Direct the neighbouring ESA in the Hutt because of the fear of competition, was contradicted by the Commerce Commission. It approved the merger because it judged that the two ESAs were not able to compete effectively against one another.

The last speaker was David Close a Christchurch City Councillor, who had been flown in funded by donations from people concerned with the Wellington Council’s attitude. David is a small dark man, far from prepossessing, and by no means a great orator. But within a few electric sentences the audience went silent.

For the speaker was also the chairman of Christchurch City Holdings Ltd, a Christchurch City Council company which held substantial ownership in three major city assets: 65 percent of Port Lyttelton, 75 percent of Christchurch Airport, and 87 percent of Southpower, their equivalent of Capital Power. (The remaining shares reflect the interests of other local authorities.) Thus the local ESA is a public asset and, so David Close told us, that was the way it was going to remain. The trading enterprises are, he said, “efficient, socially responsible, and profitable,” a conclusion he supported with a table which showed that of the large urban ESAs, Southpower offered lowest residential charges, with the exception of the Dunedin ESA summer time rate, perhaps because it has own power station. (Energy Direct was near highest, and Capital Power in the middle.) The chairman of Southpower thinks their electricity prices would be 10 percent higher had the company been privatized.

Perhaps the audience was even more impressed by Close’s description of how Christchurch managed their assets. They had seen coming the sort of pressures Wellington was under, and planned an alternative. The trading enterprises operated commercially subject to a annual contract with the holding company which set down the financial, community, and energy conservation objectives it required. You could see the audience thinking “why, oh why, was Wellington not as far sighted?” (Some must have wondered why the central government had not made a similar arrangement in the 1980s when the state owned enterprises were corporatized. The explanation is that the central government corporatization was designed as a step to privatization, not as a means of retaining public ownership.)

My thoughts strayed to a book published a couple of years back, Making Democracy Work: Civic Traditions in Modern Italy (by Robert Putnam with Robert Leonardi and Raffaella Nanetti) which although hardly touching the New Zealand public policy debate thus far, is a major centre of attention elsewhere. It asks why some parts of Italy developed more successfully than others. The book concludes that economic success was associated with a long tradition of civic community. The careful argument explores other possible explanations but finds them to have insufficient explanatory power. Nor can successful economic performance explain the superior civic virtue. The patterns of social cooperation based on tolerance, trust, and widespread norms of active citizen participation go back to the 13th Century, preceding the economic development.

The implication is that, after allowing for differences in resources, those regions with greater civic virtue will perform better than those which have less. At which point one might wonder to what extent New Zealand once had a culture of civic community, and to what extent it has been undermined in the last decade. And one might also wonder about differences in civic virtue among the different New Zealand regions, and whether this affects economic performance.

The outcome of the meeting was that a few days later the citizens’ desires were over-ruled, and Capital Power was sold off. I was not surprised because the Wellington City Council, unlike its Christchurch counterpart, had no strategy of public ownership of key assets, such as local natural monopolies, and had been trapped into an invidious situation by the earlier sale of the minority holding.

A recent survey by Consumer found the Christchurch City Council the most popular of local authorities, and Wellington City Council the least popular. Robert Putnam can probably tell us why.

The Wild Bunch?: an Inquiry Is Needed to Restore Treasury’s Integrity

Listener: 24 August, 1996. (Published as Editorial)

Keywords: Governance;

The New Zealand public has just lost $328.4 million because of bad Treasury advice on the 1987 sale of New Zealand Steel to Equiticorp. The public lost that money because, during the sale process, the deal between the Crown and Equiticorp broke company law – section 62 of the Companies Act makes it illegal for a company to buy its own shares.

Justice Smellie ruled that the Crown, or, more precisely, some of those acting for the Crown, knew the law was being broken and that the Crown was benefiting from the illegality.

The judge found that five people, who were either agents for the Crown during the negotiation leading up to the sale, or Treasury officials, knew that the transaction was illegal. The list includes two people who held senior Treasury positions Doug Andrew, an economist, and Ivan Kwok, assistant solicitor, and who now hold even more scnior positions. Andrew is deputy secretary of Treasury and Kwok is Treasury solicitor.

The judge has exonerated Roger Douglas and David Caygill, the two former Labour Government ministers involved, because there was no evidence that they knew of any illegality. But the judge did not comment on the extraordinary constitutional implications of the case. To effect the ministers’ policy of selling NZ Steel, Treasury officials broke the law. They did not tell their ministers, and therefore surely they ignored established procedures? The officials did not personally benefit financially from the transgression, but the fact that no full communication occurred between them and their ministers on such an important transaction surely amounts to a corruption of the body politic.

The Wild West attitude that gripped much of the private sector in the 1980s seems to have overtaken a major department of State. Did some of the so-called sheriffs in this case join the rustlers? It raises the question of how widespread these cavalier attitudes were, even within the public service. Roger Douglas said in court that he was keen to get rid of New Zealand Steel to demonstrate to the Labour caucus that he was serious about privatisation. We must wonder whether the general tone of government encouraged other fast and loose transactions within the public sector – it isn’t hard to think of various infelicities that have been put down in the past to enthusiasm, incompetence, or procedural ambiguity.

In the case of NZ Steel, Equiticorp bid almost twice what the government thought the firm was worth, but, because it did not have the cash, offered to exchange NZ Steel shares for its shares, with a guarantee to convert to cash later. This arrangement led to the breach of section 62 of the Companies Act to which Treasury officials apparently closed their eyes. In the wake of the court decision, Treasury needs to demonstrate that this regrettable – and costly – mistake was an isolated instance, and not a characteristic behaviour of the time.

The court sat for 204 days before it yielded its judgment. While there may be questions of law to be considered by the Court of Appeal, and even the Privy Council, the facts seem well established by the court. It would be easy to ignore the consequences of these facts, by arguing that any investigation will paralyse the Crown’s chief economic and financial adviser. However, we may be sure that if one does not take place, next year a parliamentary select committee will make its own investigations, generating a chaos of allegation and counterallegation, much of which is unlikely to be resolvable.

In order to allay the suspicion that the Treasury was a law unto itself, the public needs to know how it dealt with the issues when they became evident, A Treasury in which such an improper procedure was an isolated instance, rather than a common occurrence, would have taken a series of routine actions once the problems had begun to surface. These would have included an investigation of the events by an officer from another division of Treasury, a comprehensive report with a set of recommendations to ensure such procedural break downs would not occur again, and a prompt implementation of those recommendations.

Although those actions would have been secret, the appalling story of the sale itself is now public, and that further story of the response within Treasury must now surely become public, too. The State Services Commission should appoint an independent investigator to report whether appropriate steps were taken. It is not just a matter of the additional $328.4 million burden on the taxpayer – the public’s confidence in the integrity of Treasury itself is at stake.

Philosopher-Kings and Public Intellectuals

Revised version of the Lecture to the 1996 Auckland University Winter Lecture Series, Still Fretful Sleepers: the Intellectual in New Zealand. 20 August, 1996.

Keywords: Political Economy & History;

Still fretful sleepers?(1) Has not New Zealand changed since Bill Pearson finished his “Sketch of New Zealand Behaviour and its Implication for the Artist” with that resounding call for the need to awaken New Zealanders from their fretful sleep?(2)

Of course things have changed in the five decades since Fretful Sleepers. We are rid of that rampant militarism captured in “if the National Party was more astute it would have a V[ictoria] C[ross] as its party leader”;(3) there is an active Council for Civil Liberties indicative of a greater public concern for human rights; many of those marginalized at the time of the original essay – women, homosexuals, Maori – have a more prominent and vigorous role in New Zealand society; the arts are flourishing beyond the wildest expectations of those who dreamed of a renaissance; the dictator-leader that Pearson feared is much less likely. So is New Zealand still the society of conformists which the essay portrayed? Surely today there is a diversity in New Zealand which is celebrated, rather than condemned.

However Fretful Sleepers does not present a static account of New Zealand society. It contains the following prediction: “[t]he breakdown of puritanism is the dissolution of one of the cementing elements of our society: when every man cooperates only as far as he has to earn money and in his leisure pursues his sensual pleasures, society is due to breakdown.”(4) So the puritanism and conformism held New Zealand together, and as it faded – replaced by a cash nexus – society would break down. That is not too bad a forecast – made 45 years ago – of New Zealand today. And yet I want to argue an account of how New Zealanders behave, which has parallels with Pearson’s, but which differs in some crucial ways.

Bill Pearson was writing about the 1940s when he was in his twenties. In particular, and as he has said of himself, “Fretful Sleepers is partly based on my close contacts with New Zealand troops between 1942 and 1946.”(5) This is a time when New Zealand males were heavily institutionalized in a military environment where conforming to authority was required. Yes, they were conformist in a general sense, in that they were reluctant to resist the direct pressures from authority. In a different sort of social environment, with different sort of pressures, New Zealanders behave differently. My account is more pessimist than that of Fretful Sleepers because it implies that New Zealanders have less foundation than even the conformist puritanism it describes. But my account is also more optimistic, because the different characterization is in some ways more attractive and more rebellious to the pressures which worried Pearson.

For there is a sturdy resistance to authority in the New Zealand makeup, illustrated by Bill Pearson himself. In the 1950s my father backed a trailer up to a beach and filled it with sand. I asked him whether it was legal – perhaps my childish eye had been caught by a notice prohibiting the removal of sand. Dad replied that what he was doing was not illegal, it was only illegal to be caught doing it. Today I know enough about the ecological role of sandhills to be a little embarrassed about the story, although I did have a lot of fun in the resulting sandpit. May I redeem the transgression by using it to illustrate two diametrically opposed accounts of the meaning of that event? It no doubt happened in some form to almost everyone else of my generation.

The first account is that we grew up with the belief that it was only wrong to get caught. It is an ethic (if we may give the attitude such a distinguished status) which led to the Wild West show of corporate greed and dishonesty in the 1980s evident, among other places, in some of the evidence to the Winebox Enquiry.

The second account treats authority at best as a guide, with each of us to judge the right or wrong of an action in terms of some higher standard than the law. Dad was not, after all, seeking his own personal gain from the theft of the sand – he was doing it for his children. Note how my adult embarrassment is not that we were breaking a law of man, but that we were interfering with nature. It is also the approach that many New Zealanders have taken over the Winebox affair – the issue is not just whether the corporations involved have broken the law; they are expected to perform to a higher standard of ethical behaviour than just to abide by the law.

Nevertheless, however attractive to internal authority or higher principle beyond the law is, the exercise of such ethics is complicated and dangerous, fraught with the possibility that as we each pursue our own ends there will be a breakdown of social harmony. There is an apparent answer to this in the theory that in a market in which only voluntary transactions occur, the “invisible hand” coordinates our individual decisions into some overall social good. That view has been central to the reforms of the last decade, especially in its New Right philosophy summarized in their notion of “liberty”. Thus the societal breakdown, of the foreshadowed replacement of puritanical conformism by hedonistic individualism, was to be resolved by the capitalist market.

While there are many strands which could be pursued here, time limitations confine us to but one. In keeping with the series topic I want to consider the role of the intellectual in this transformation, and the reforms which, while intended to resolve the potential breakdown, seem to have exacerbated it. The term “intellectual” is a complicated one, involving at least two distinct notions. The first use of “intellectual” covers anyone who works primarily with their brain rather than their muscle. It is a matter of record that the number of intellectuals in this sense has increased dramatically over the post war era. In 1951 professional, technical, and managerial workers were just 9 percent of the labour force. In 1991, they were 36 percent – four times as many by proportion and eight times as many in number.(6)

But all brainworkers are not intellectuals in the other sense. Edward Said describes “the intellectual’s role is to represent a message or view not only to but for a public and to do so as an outsider, someone who cannot be co-opted by a government or corporation.”(7) That immediately rules out most occupational-intellectuals, because they are insiders typically loyally working for the government or corporations. Said’s “public intellectuals” – as I shall call them – the critics and consciences of society, are outsiders.

Within the occupational-intellectuals there is a key group who provide its leadership. Although a few were politicians and businessmen, historically in New Zealand the key leaders have often been public servants. In 1952 they included Bernard Ashwin, Clarence Beeby, and Alistair McIntosh. During the revolution of the 1980s again the key leadership came from public servants, although most subsequently moved into the private sector. The best known are Rod Deane, Roger Kerr, Graham Scott.

As the title of this lecture indicates, this leadership group may be thought of as philosopher-kings. Recall how in Plato’s Republic they were the ones who broke their shackles in the cave, climbed outside to see a reality, and who returned to tell us – in the case of New Zealand’s most recent philosopher-kings – that the ideal was business. Ironically our philosopher-kings, being public servants, came to their conclusion without themselves having had much experience of the market, cosetted as they were in the highly protected public service bureaucracy. They looked at the public service system they ran, decided it was failing, and concluded that private business was better, even though they knew little about that which they idealized. As George Stigler said: having listened to the first singer in a competition, they awarded the prize to the second without even having heard her.

Being a philosopher-king involves having a high degree of certainty as to what the truth is: a certainty which enables their kind to sacrifice the lives of others – literally in many instances – in the undeviating pursuit of that truth, and to ignore any indication that the truth they seek may be wrong, or the costs they incur too high. Writing The Open Society and its Enemiesto condemn the regimes Bill Pearson fought against, Karl Popper characterized their fascist philosophical underpinnings by the writings of Plato.

The public intellectual in Plato’s writing is clearly Socrates. Although Plato’s portrait was intended to make Plato’s own ideas more acceptable, his Socrates is nevertheless a humble seeker of truth, one of society’s critics and consciences, who saw himself as a servant of that truth and of society. Socrates was not a philosopher-king, even if he vies for the title of king of philosophers.

Socrates would not have lasted long in Plato’s republic. Nor would have, and Plato is explicit about this, poets and associated artists. (Nor would have Said’s public intellectuals.) In Plato’s view poets tell lies. In the same sense so do public intellectuals because they are continually challenging the “truth” that philosopher-kings tell. Intellectual control becomes key in Plato’s republic, for there is only one truth, that held by the philosopher-kings. Any challenge to that truth is treachery.

Fortunately Plato’s republic has never dominated human society. There has been always one poet, one artist, one intellectual, who has challenged the philosopher-kings’ monopoly on the truth, and succeeded – albeit usually in the long run and often at great personal cost. So when the current regime of philosopher-kings came to power in the mid-1980s they were unable to immediately shoot the intellectuals, as Lenin advised after the revolution. Instead there has been a steady squeezing of the centres of intellectual dissent, usually justified by improving the accountability of those involved to the government.

My book, Commercialisation of New Zealandscribes this process in some detail – in broadcasting, science, the arts, health, heritage, and education. Let me give but one example. Suppose you had told Bill Pearson some decades ago about a university system organized as follows:
1. The appointment of the senior academic (the vice-chancellor) requires the approval by the cabinet or a cabinet committee;
2. The public funding of the teaching activities of each university is directly determined by the government;
3. The content of each university course is increasingly determined by a government-appointed agency;
4. Public policy does not distinguish between a liberal education and vocational training.
5. The research funding and content of each university is increasingly determined by a government agency;
6. The board of governance of each university consists predominantly of government appointed persons.

Given such a description, Pearson would have said then, I think, that these were the characteristics of a university in a fascist state. And yet in the 1990s in New Zealand those six features almost characterize the New Zealand university system.
1. Vice-chancellorial appointments have to be approved by a cabinet committee;
2. There is no University Grants Committee or equivalent intermediary between the government and the universities;
3. The government appointed Qualification Authority approves many tertiary courses;
4. The Hawke Report, on which the tertiary reforms were founded, specifically said there should be no distinction between education and vocational training.
5. Most research funding is controlled by the Foundation for Research Science and Technology, or other directly controlled government agencies;
6. At least one University Council seems to be advocating the removal of faculty and student representatives, giving greater weight to government appointees.

It is not enough to say that academic freedom in New Zealand is guaranteed by law. Totalitarian states have such laws. A statute does not protect the universities from authoritarian interference by a central government, nor does it guarantee that an institution will pursue its legislated goals.

In summary, the New Zealand university system has been increasingly coming under the direct control of the government. This is not to say the government of New Zealand is, or the individuals (politicians, advisers, acolytes) in it are, totalitarian. It would be easier to discuss these issues if they were. But if totalitarians were ever to take over the government, they would find it increasingly easy to impose their ideology in teaching and research, and to repress dissidents.

How has this happened? The current philosopher-kings have an extremely simplistic account of the ideal society. Only two forms of public organization are allowed in their ideal state. One is the business organized private corporation, the other is the government agency under direct ministerial control. All other organizations are to be converted into one or the other. Ideally they should be converted into business corporations. That is the underlying justification for corporatization and privatization. If a business form is not possible the institution is placed under the direct political control of the minister. Having resisted privatization, the universities have been systematically forced under political control.

This has interesting implications for Said’s public intellectual who is beholden neither to corporations or the government. In the old regime it was possible to exist in the miscellany of organizations which were neither purely private corporations nor purely government departments. These peculiarities of control created niches from which public intellectuals could function effectively. The scorching of this ground cover, and the herding of all into fortified villages, closely supervised by politicians or business people in the best traditions of military operations against guerilla forces. has exposed some intellectuals, cowed others.

I do not think that our philosopher-kings usually did this deliberately. But their vision of society led them to destroy all possible resistance centres to their utopian vision. A recent worrying example is Roger Kerr, chief executive of the Business Roundtable and recently appointed by the government to a university council, who stated “you cannot attribute any of [the extraordinary changes in New Zealand] to the intellectual community as represented by the university communities. The faculties have provided critics, but not opinion leaders. In Asia, it [is] people in universities that have pushed governments in free market directions. Here they have been resisting.”(8) Like many of Kerr’s statements this one is not wholly accurate, for there are university personnel who have publicly supported the changes (and no doubt are deeply disappointed that the Roundtable has not noticed them). Others have selectively done so, supporting a more market direction of economic regulation, but not the extremism Kerr expounds. But it is also true that the universities have provided critics of the changes, some uncritically hostile, some cerebrally thoughtful. Universities are charged to be such critics in their statute, which also requires them to be consciences of society. One has the uneasy impression that if Kerr were to have his way, that criticism would be eliminated.

What appears to especially irritate Kerr is that there has not been widespread support from the university economics departments for his political position. A 1990 survey found that within the economic profession, those based in universities were much more cautious about the reforms than those in government or the private sector.(9) (However there was general support for a more market direction of economic regulation.) Yet despite the main thrust of the central reforms being economic throughout the country there has been, with rare exceptions, little public criticism from university economists. Contrast for instance, the substantial number of books about the reforms written or edited by academics from this university from such subjects as accounting, education, geography, history, law, management studies, Maori studies, political studies, and sociology. Multiply Auckland University’s effort across all universities and however you measure it the economists cannot compete either in terms of criticism or support, even though economics was the central organizing principle behind the reforms.

The reason for the muted record of university economics needs to be discussed elsewhere, but there is an lesson to be learned from it. In contrast with the 1970s, university economists have been almost irrelevant in the public economic debate, as it has moved off-campus. Today if a journalist wants a comment, he or she is much more likely to go to an economist in the financial sector who frequently provides poor quality opinion representing his sector’s self interest, rather than independent and informed view. This change does not merely reflect the impotence of the university economists. It suggests, ominously, that once another centre of occupational-intellectuals starts up, the centre of the professional debate moves to them. Where the university has excelled in its role as a critic and conscience of society has been where there has been no competition from elsewhere in a profession. Where there has been an alternative centre the university professionals have lapsed into irrelevance.

One fears any significant discipline can be neutralized by the development of an off campus profession in exactly the same way, but it would be a centre which has no independence from its paymasters, and would bias the public debate in their favour. Even if the thrust to control universities through an increased share of ministerial appointments fails, there are other means of making them impotent, reducing them to mere vocational trainers of occupational-intellectuals. The prospect for New Zealand universities remains that described in the report of the 1925 (Reichel-Tate) Royal Commission on Universities which commented that New Zealand “offer[ed] unrivalled facilities for gaining university degrees but … [wa]s less successful in providing university education”.(10) Degrees are qualifications, often used for vocational enhancement. Education involves a wider achievement.

This is not just a New Zealand problem. In his 1995 Massey lecture, Canadian philosopher John Ralston Saul said:

“… we are faced by a crisis in language and communication. This crisis is being accentuated, not eased by the universities. … While the universities ought to be centres of active independent public criticism, they tend instead to sit prudently under the protected veils of their own corporations. We are faced by a crisis of memory, by the loss of our humanistic foundation. The universities, which ought to embody humanism, are instead obsessed by aligning themselves with specific market forces and continuing their pursuit of specialist definitions …” (11)

What might be added is that New Zealand universities have succumbed to the disease more than the overseas universities they admire and try to imitate.

An easy way, especially in the social sciences and humanities, to sterilize the university is to have a policy with the effect of appointing only people with foreign backgrounds. Of course a university must have a balance of those from overseas, those which are its own graduates (preferably with overseas experience), and those from other New Zealand universities. However a dominance of any one group is an indication that the department is not functioning well. Too many foreigners means that there will too many on the staff who have little connection with New Zealand, and unable to function as public intellectuals. Recall that Said specifically describes their role as “to represent a message or view not only to but for a public.” It is very difficult to do this if the academic has little connection with the public, especially if any research is not based in some New Zealand context. (Again I am not demanding that all research should be New Zealand oriented: it is a question of balance.)

The foreign imbalance often reflects a colonial cringe, the attitude that New Zealand intellectual endeavour is inferior to that overseas, and therefore any overseas work is necessarily superior to the domestic product. This is a question with which Fretful Sleepers wrestles, because Pearson was wrestling with it in his personal life. Peter Simpson suggested that the essay was the catharsis which led Pearson to conclude that despite all its faults, New Zealand was his home to which he must return. The message in the essay can be summarized as “New Zealand is awful, England is worse”.(12)

There has to be a tension between the rich active intellectual life in many countries and the thinner gruel here. Again it is too complex to explore in full in this lecture, but the cultural cringe permeates all New Zealand occupational-intellectuals, right through to the philosopher-kings. Perhaps they obtained their inferiority complex from their university teachers, perhaps from their overseas experience, perhaps it is the cross that all local intellectuals must bear, especially in small English speaking countries (which is a key reason why the Pakeha has drawn so much strength from Maori intellectuals).

What is clear is that the philosopher-kings decided to imitate some idealized model of an overseas economy, ignoring the characteristics of the local one. This is most evident in the publications of the Business Roundtable, which typically commissions studies of very ordinary overseas academics, selected for their conformity with a New Right ideology, but presented as though their scholarship is world class. I recall a Roundtable pamphlet on immigration policy by an Australian academic who did not even feature in a survey of the Australian scholarly debate on their immigration policy. Yet his conclusions were treated by the Roundtable and its acolytes as though they were the work of a leading expert.

Alas the problem has not been confined to the Roundtable. The Treasury has had a policy of importing foreign advisers, consultants, and staff, who are out of touch with New Zealand in all sorts of ways. I recall a paper on the local business cycle, presented by one who had been at the Treasury for a year, and which replicated work that had been done in New Zealand some years earlier. Neither the foreign presenter nor, apparently, his Treasury colleagues were aware of this local research, and the new material was no better in quality or insight than the old.

Another example is the health reforms where it seemed to be a matter of principle that the economists who were involved knew either nothing about New Zealand or nothing about health economics. No wonder the health reforms have collapsed into a shambles. Indeed it is no wonder the economic reforms in general have been so unsuccessful, for not only did the philosopher-kings ignore the aspirations of New Zealanders, but they failed to design a system for local conditions.

This uncritical acceptance was not confined to the philosopher-kings. For reasons I leave them to explain, academic economists failed lamentably to provide a research program on the reforms which would have been world class and internationally interesting. Their task need not have been to have provide a critique of what happened, but simply to provide an account of what happened. This is not an unreasonable demand. One only need contrast the alacrity with which political scientists are investigating the transformation from an FPP based to an MMP based electoral system. Although we have not yet had the first election under the new regime, there are two major university research teams, plus a number of other projects in the other universities, at work with already a substantial literature. In contrast, with the economic reforms now going back over a decade, there are a couple of significant university based books albeit with a substantial off campus contribution. Neither are particularly accessible to the general public, nor do they show the degree of integration mixed with the disagreement that comes from a strong research program and open debate. The one significant institutional research program about the reforms involved the N.Z. Institute of Economic Research, a research institution which the local university showed little interest in acquiring when discussions took place about a decade ago.

My point is not there has been no good quality economic research in the universities. There has been some – but that with rare exceptions the academic economists failed miserably to seize the opportunity to make a significant contribution to the world economic profession, when the golden opportunity of monitoring the reforms presented itself. One contrasts the vigorous role of the Australian economics academy in the world profession. It is insufficient to say this is because New Zealand is so much smaller than Australia. We do not accept our population size as an excuse for failure in international rugby, or even cricket. Why should we accept a lesser standard in intellectual life?

Of course there are areas in which New Zealanders are making an international contribution. I do not just mean those of exceptional talent who have worldwide acclaim: Allen Curnow, Colin McCahon, Keri Hume. There is now a solid artistic achievement of recent years which has international standing, so that New Zealand art, writing, film making is not judged as if from a provincial backwater. Although some is boringly imitative of international fashion, prominently displaying the cultural cringe, the best is a complex combination of indigenous experience in a wider cultural context. The Maori did this as the developed their indigenous roots, but many Pakeha have found the balance too.

Yet as much as we may take pride – and hope – in the achievement of New Zealand arts in recent years, there is a notable omission. Perhaps the artistic community has not carried the burden the Fretful Sleepers saw for it, for there is little art which addresses the social experiences arising out of the recent reforms, in contrast to the vigorous role it played in the preceding prime ministership of Robert Muldoon.(13) For instance in the novel there is only Maurice Gee’s Crime Story, and Fiona Kidman’s True Stars. In part this reflects the sheer difficulty of portraying economic and political events in a fictional form; in part the fact is that writers have been concerned with other issues. But I cannot help wondering whether the tacit understanding is that providing the intellectual community does not criticize the reforms, it may be left alone. Recall the menace in Roger Kerr’s “the faculty have provided critics, but not opinion leaders”. Not providing anything may well be acceptable. With the ground cover destroyed, with the only safe havens the fortified villages managed by the government and business, the remaining options are compliance by avoidance, and outright defiance.

As is appropriate in a university winter lecture, I have illustrated my thesis by reference to universities. But the same point applies to other institutions of intellectual life as they have been either moved into the private sector or put under greater direst political control, especially where public funding is involved: arts, broadcasting, literature, science. It is no accident that investigative reporting has all but disappeared in the last decade: the Wellington reader of the morning newspaper is painfully reminded of the dumbing down of intellectual life in the capital city. The nature of the public intellectual is that it cannot be subject to tight political control by the establishment. Instead public intellectual activity must be suppressed. The consequence of philosopher-kings is bad public philosophy and a general deterioration in the intellectual life of the nation, a conclusion which will surprise no reader of Plato for the best bits are where the original Socrates is involved, and the worst where he becomes a mouthpiece for Plato.

Ironically this lowering of the quality of public debate has rebounded back on the philosopher-kings. Roger Kerr has recently complained about what he called the “chattering classes”, referring – it would appear – to those on radio talkback.(14) Kerr’s complaint is that they criticize his business masters, but the way they do it is not very different from the way his own side argues: the conclusion is forgone and the argument is constructed to obtain the desired conclusion. In the end there is not a lot of difference between radio talk back and, say, a Dominion editorial. This is vividly illustrated by the Dominion’s editorial cartoonist, who cannot draw, is not funny, and clings to the editorial line. In general, cartoonists are the one group of public intellectuals who have continued to represent a message not only to but for a public, and from an outsider perspective. Their trade depends on them being critics and consciences of society – the limitations of the Dominion cartoonist shows what happens if such fundamentals or ignored.

The Dominion editorials themselves are often not greatly different from the Roundtable arguments. I am not referring to political content, although that is true enough too, but the quality of the argument, where a preordained conclusion is determined, and arguments are dug up to support it, while alternative views are ignored or misrepresented. It is too easy to present two over-simplified options for the nation, one of which is unacceptable, and the other of which is advocated. The reformers did that by suggesting the only economic courses were those of Robert Muldoon and Roger Douglas. It was analogous to the grossly absurd simplification of the Cold War: communism or capitalism – Muldoonism or Rogernomics. As the fear of Muldoonism receded, they sought other simplifications, disguised behind the shadows of offering “liberty” and “choice”, terms which have a somewhat different meaning from everyday usage. Our philosopher-kings have not been endowed with intellectual subtlety.

As one whose life has been dedicated to attempting to raise the quality of public argument – not with much success I regret to report – I find the Business Roundtable quality of argument as uncomfortable as that of the chattering classes. It is not redeemed by the footnotes. But can the so-called “chattering classes” be redeemed? They are a central concern of Fretful Sleepers, with their portrayal as conformist and subservient to authority. The picture in recognizable to this day. Consider “few of us have the guts, at the challenge, to uphold any moral principle (except in social conduct) when it is flouted by a party of greater number than ourselves.”(15) If we extend the statement to an unwillingness when faced by a party more powerful than ourselves – irrespective of the numbers – we have a simple explanation of why there was so little public resistance to the recent reforms.

And yet there is something in the New Zealander of stauncher quality than this – something attractive enough to make Bill Pearson want to go home to the intellectual desert he saw as New Zealand. If Fretful Sleepers was prescient in many aspects of the following five decades, it has little explanation for the civil disturbance in 1981 we label “The Tour”. It was not just as if the country wanted to reject the label of “passionless people”. Something happened when the population divided over a political issue, and literally fought in the streets to promote their point of view. Explaining that offers a more positive account of the character of New Zealanders, and a more hopeful one for the role of intellectuals.

The explanation starts a long time ago, when there was a public protest – mentioned in Fretful Sleepers – against the sending of a Maori-less rugby team to South Africa in 1949. Initially it was just a few people, who felt passionately about race relations. They probably did not expect to stop the 1949 tour, but the believed that it was necessary to witness publicly the grave injustice which they saw. Over the years that few steadily recruited more to their cause – from its beginning Pearson was a member of the Citizens Association for Racial Equality which confronted sporting relations with South Africa as well as domestic issues.

The point is not that these people were anti-racist; many other New Zealanders in their own way and in their day held similar views, even though they did not express them in public. What was important was that a few ordinary New Zealanders chose to flout the convention that one conformed, that one did not stand out in a crowd, that one’s principles were private not public matters. Their witness led others to join them, incrementally, till over the thirty odd years there were enough to lead to that extraordinary display of public protest which we know as “The Tour”. This is not a unique phenomenon in New Zealand: the peace movement, feminism, and the Maori renaissance are other outstanding examples. The history of New Zealand is littered with reform movements which started with a few outsider witnesses, but who built up a public support which gave a success beyond the instigators’ boldest hopes.

This suggests a more promising account of the New Zealand character. Sure it tends to be conformist. Sure it tends to be concerned with things practical rather than things of the mind. But it is not hopelessly subservient to authority. New Zealanders will strike out in a direction which does not conform with authority if the community environment is favourable. The function of the public intellectual is to provide the quality analysis which supports that environment.

Author of The Lucky Country Donald Horne has written “[t]he general idea of `public intellectual life’ is more useful than the `public intellectual’.” He goes on to describe how public intellectual life “provide[s] a kind of public acclimatization society for new ideas. All kinds of people may play a part in working up these ideas down in the subterranean passages of critics’ culture and others may take over the business of negotiating them in the public sphere.”(16)

To put this point another way, sometimes one may ponder as to who are the public intellectuals in New Zealand society – perhaps to admire them, perhaps to shoot them. But that is not a helpful approach. Rather we should ask what contribution is each person making to the totality of public intellectual life? (Better still, ask yourself “what contribution am I making to public intellectual life?”)

What can we say about public intellectual life in New Zealand? First it is thin, perhaps inevitably given the smallness of the country. Size also means it suffers from an excess of colonial inferiority, so that the overseas expert often has a status out of line with her or his competence. More generally we confuse public intellectual activity with occupational intellectual activity. This is most evident in Wellington, the centre of government, where a mediocrity’s intellectual status becomes enormously enhanced by patronage. (How often have you gone to hear the chairperson of this or that, and learned that he or she knows absolutely nothing about the subject?) Indeed there is a continual struggle by government and business to overwhelm public intellectuals by captured mental eunuchs: we do not always have the discernment to distinguish quality. Yet public intellectual life goes on in the way Edward Said describes: outsiders functioning in the margins of the society, and yet ultimately having an enormous impact on its central core. Even so public intellectual life was not robust enough in the 1980s to withstand the onslaught of Rogernomics. There were two reasons.

First, most of the niches in which public intellectual life occurred were the result of substantial public sector funding. When the new philosopher-kings scythed through the public sector, public intellectual life lost its base. Institutionally we had relied upon the public sector to protect genuine intellectual activity, as it largely did even under the worst excesses of the Muldoon era. The attack on the public sector ripped out the institutional structures.

Second, the attack came from an unexpected direction. Public intellectual life in New Zealand does not focus greatly on economic and social issues, its concerns have been foreign affairs, human rights, moral issues, the environment, and the arts. With a few exceptions there was little awareness of the changing political economy which provided the substratum to the revolution, nor the rise of the New Right overseas.(17) For we must acknowledge that whatever their failings the philosopher-kings were grappling with real economic and social issues, perhaps inevitably given that they were pressured by being in the centre of the government system. Most public intellectuals were concerned with issues far more peripheral to the revolution. So the attack was unexpected, the guns of defence were turned in the wrong direction, prepared for the wrong enemy.

For the reformers were bolsheviks of the right, a small group of men who succeeded by surprise and determination, seized power by unconstitutional means, and are now consolidating their position by eliminating centres of dissent, most by notably the destruction of public intellectual life. Meanwhile public intellectuals have been too busy regrouping, creating new institutions less dependent upon the public sector, to provide the leadership role that the public yearned from them.

Even so electoral reform has been one extraordinary success of public intellectual life. By the late 1970s there were a few outside witnesses – university political scientists, perhaps responding to the oddity of the 1978 election when Labour obtained more votes but less seats. They used their discipline plus overseas experience to propose another way of electing parliament. Their vision was probably realized much earlier than they might have expected, given the traditional reluctance by the public to innovate constitutionally. Yet despite the reluctance, the public voted for MMP in 1993. This was not a vote by a conformist people reluctant to challenge authority, which – it will be recalled – was almost unanimously opposed to electoral reform. Rather it was an angry people, infuriated by the way the economic reformers had ignored them. They had found a way to rebel.

One is left with a picture of New Zealanders less like Fretful Sleepers described, and more like Bill Pearson must have hoped for when he decided to return. As with the soldiers with which he fought, we may as a people be slow to wrath, but we are strong in battle. Given leadership, from artists and other public intellectuals, given a robust public intellectual life, New Zealanders will reject authority that they loathe, and chose alternative ways to those desired by the Establishment.

For with one caveat, the success of the philosopher-kings may be a short lived victory. They may have devastated the countryside, and corralled the populace in their fortified camps. But they have not won the hearts and the minds of the people. The 1996 election offered an opportunity for another peaceful revolt. Probably the only chance the philosopher-kings have of retaining such authority they have arises from the way in which – through their actions based upon a their colonial inferiority complex – they have handed more power over to outsiders than at any time in the last 60 years. It is not just symbolic that the Business Roundtable is dominated by foreign-owned companies, and its members are but satraps for multinationals. The room for manoeuvre – for the ability of New Zealanders to determine their own destiny – may remain very small if we are but a commercial colony of a distant imperium.

George Macaulay Treveylan remarked that it was still too early to form a final judgement on the French Revolution.(18) New Zealand’s reforms are but a decade old. It took the Soviet Union three generations to throw off their bolsheviks. It remains the task of public intellectual life to take a lead in awakening New Zealanders from their fretful sleep.

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Endnotes
1. I am grateful for comments by Professor Bob Chapman, who also chaired the presentation.
2. Page references are to W.H. Pearson, Fretful Sleepers and Other Essays , Heinemann Educational Books, Auckland, 1974.
3. op. cit. p.4. That one has for a contemporary audience to expand “VC” into Victoria Cross to distinguish from Vice Chancellor (or Viet Cong) is an indication of how far things have changed.
4. op. cit. p.27
5. pers. com.
6. Using a slightly different classification. Data from the Population Censuses.
7. E. Said, Representations of the Intellectual , Vintage, London, 1994.
8. Sunday Star-Times , July 14, 1996, p.C1.
9. W. Coleman, “Concord and Discord Amongst New Zealand Economists: The Results of an Opinion Survey”, NZEP , vol 26(1), June 1992, p.47-82.
10. Reported in R. Butterworth, & N. Tarling, A Shakeup Anyway: Government and the Universities in New Zealand in a Decade of Reform , AUP, Auckland, 1994.
11. J.R. Saul, The Unconscious Civilization , Anasi Press, Ontario, 1955, p.73.
12. After the lecture, Bill Pearson expressed a concern that the essay might be taken to imply that he was anti-British, an accusation made by others. He suggested it would be better to have said “If New Zealand might be unattractive, England is worse.” I have kept the phrase of the original lecture, not only because it presents better, but because it captures better, I think, the high spirit of the young man who wrote the essay. But it would be wrong to think that man, then or now, was anti-British. He was simply forming a view of English society and concluding that he preferred his own, for all its faults.
13. B.H. Easton, “Piggy in the Middle”, Metro , August 1996, p.82-87. (It may be of historical interest that working on this essay precipitated the idea of the lecture series.)
14. Dominion , August 3, 1996, p.2.
15. op. cit . p.9.
16. Australian Book Review , July 1996, p.19.
17. This is elaborated in B.H. Easton, In Stormy Seas: The Post-War New Zealand Economy , University of Otago Press, Dunedin, 1997.
18. Speech, National Book League, 30 May 1945.

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For Whom the Deal Tolls: (of Dogma and Dealers)

Political Review July/August 1996., p.24-29. Also published in a symposium on The New Zealand Experiment: A World Model for Structural Adjustment by Jane Kelsey , published in the Electronic Journal of Radical Organization Theory (EJROT), (http://www.mngt.waikato.ac.nz/leader/journal/ejrot.htm).

Keywords: Business & Finance;

It is sometimes hard to recognize the New Zealand which the enthusiasts for the recent economic reforms described by Kelsey portray.

They do not mention that the unemployment rate is today over half higher than when they started (under four percent to over six percent) with the expectation that it will not remain at this high level (for New Zealand) for the rest of this century. Nor do they mention that labour force participation rates are depressed by depressed economic conditions, so that there is substantial disguised unemployment.

– They do not mention that New Zealand had during the reforms the worst economic growth rate of all OECD countries, choosing to highlight a couple of good years. And as they still celebrate these good years, which occurred over two years ago, they do not mention that the economy is now stumbling a long at a 2.0 to 2.5 percent growth rate, with the more optimistic forecasters expecting it to get back to the (3.0 percent) average growth rate of the rest of the OECD (the rate New Zealand grew before the reforms took place).

– Their acolytes claim that there have been big productivity gains as a result of the reforms. The reality is that the increase has been low: only a 5 percent rise in average labour productivity over the last seven years, about half the long run average for the economy.

– Nor do they mention that the reason that they are personally more prosperous is that the tax, benefit, and government spending regime has been deliberately changed to increase the advocates’ spending power while reducing that of the poor or those on middle incomes. The vast majority of the population (somewhere between 70 and 80 percent) are still worse off than they were when the reforms began a decade ago. As the Rountree Report on Income and Wealth concluded “income inequality has been growing more rapidly in the UK than any other country [from a total of 20] except New Zealand”. (Rountree Foundation 1995) Since their data series ended New Zealanders have experienced major cuts to benefit levels and reduction of benefit entitlements which would reinforce their conclusion.

– The collapse of the New Zealand sharemarket in 1987 involves another memory lapse by the reform advocates. It was the largest percentage fall among rich economies, and nine years later, the market still has not recovered. Understandably there is no mention of the two members of the Business Roundtable (BRT), that powerful and well financed lobby group of big businessmen who advocated the reforms, who were incarcerated for fraud. There is little mention of the “Wine-box Enquiry” which involves a number of shady (and possibly fraudulent) dealings of various New Zealand companies using the Cook Islands as a tax haven. (Wishart 1995) The best guess is that further jailing of businessmen will be avoided by the ingenuity of a well remunerated law profession.

– While their enthusiasm for reforms to particular sectors is frequently mentioned, the disastrous outcomes are not. Proposals to partially privatize the public health system have been put in place in order, we were told, to obtain greater efficiencies. The reforms failed. Waiting lists rose. The government has begun throwing money at the health sector, and still the waiting lists rise.

– Or what about the tragic death of fourteen young people, as the result of a badly constructed platform overlooking a scenic site – badly constructed because of an under funded and demoralized department of state. The Judge of the enquiry concluded “Standing back and viewing the evidence objectively, I am left with the overwhelming impression that the many people affected were let down by faults of governmental department reforms.” Fourteen young people dead are a lot of New Zealanders. But the reformers ignore them – pressing on – endangering the lives of another three and a half million people.

Except for the last story, which came out after the book was published, you will find the above and many more in Jane Kelsey’s New Zealand Experiment. Why won’t you find them prominently in the media? Why are the issues not being addressed by the reformers, who instead describe a South Pacific economic paradise which has little connection with the reality ordinary New Zealanders experience?

The answer to this central question is instructive, if somewhat disturbing. Initially the reformers argued that their theory was correct. Therefore prosperity would happen. When it did not they said it would, eventually. Every indicator was interpreted to support the theory. Those that could not be constructed favourably were ignored. The basic rule has been the theory is right, the reforms are right, only indicators which support the theory and reforms, are relevant, reality is wrong. If the reformers were ordinary members of society they would be subject to attention from a psychiatrist. Instead the reformers are remunerated and honoured.

A second reason for their strange perception was that the advocates of the reforms have done very well out of them. They said that if top income tax rates were reduced, and government spending and social security benefits were cut, the additional incentives would result in better economic performance. It has not, but what has happened is the advocates are better off. Most have 25 percent higher income after tax, have more influence, and more status. Meanwhile, the average standard of living has fallen. (Easton 1995) Thus there is a practical basis for their perception that everything is going well – but only for them. It is just that the rest of the population is paying for their prosperity. Moreover if they were to admit the reality of the effect of their policies, they would be faced with the possibility that some of the policies would be reversed, especially the ones which have made them well off at the expense of the rest of the nation. Better to pretend otherwise.

Third, the reforms were a revolution in the sense of there being an overthrow of the elite, an intergenerational coup within the establishment. The executive director of the BRT was quite explicit about this when he said “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) One is reminded of the leadership of Stalinist Russia desperately hanging on to power by pretending that the misery of the people was a figment of dissidents’ imaginations.

But the most complex reasons is instructive in the context of the wider political economy, and the way that the world is changing. The orthodox account of the creation of wealth involves a process in which factors of production (labour and capital) are ultimately consumed (or invested). Each factor is paid a reward for its contribution to output. It is not necessary here to discuss whether those rewards are justified. But in passing we note the traditional account is that the ownership of capital is more concentrated into the hands of a few than the ownership of labour. That higher concentration plus the way that the management of the production process is organized (typically by the owners of capital in corporations) favours the rich.

What the traditional model overlooks is that increasingly in today’s world economy there are many activities which have the most tangential connection with production of commodities for consumption. Those activities might be called “dealing”, although a more technical description is they are the financial transactions industry. Dealing involves transfers of financial paper such as money, debt instruments, foreign exchange, property titles, shares, forward market entitlements and the like. The most recent development are syntheses of financial paper called derivatives, which have an even more tenuous connection with reality. That the dealers have become so enthralled with them, tells something about their mind state.

Karl Marx described how in the nineteenth century the pattern of economic exchange had changed from
C(ommodity) -> M(oney) -> Commodity
to
M -> C -> M’.

In the twentieth century the rather messy business of producing commodities has been short circuited altogether, and nowadays there is a huge industry whose raison d’etre is
M -> F(inancial) P(aper) -> M’.

This is not to argue that dealing is a totally useless activity. But it is a far less useful one than making something like a car. Dealing would be unimportant in the world economy if the dealers stuck to their financial roundabout, but they also want to consume commodities like cars (BMWs actually). Thus the dealer economy has to toll the producer economy in order to share in the latter’s output for consumption. The toll rate is not usually high, but the number of transactions in the dealer economy are so enormous that marginal charges generate substantial profits.

This account of the world has two important differences from the traditional story. It is not at all obvious that dealing adds much to the world’s net wealth (i.e. availability of commodities). Formal economic theory (known as the Arrow-Debreu general equilibrium model or “value” theory) can be used to treat commodities and financial paper as equivalents, and therefore equally beneficial. However a major weakness of the model is that it does not have money rigorously incorporated into it, so it fails to include the most central feature of the dealer economy. To put it simply, no-one holds financial paper for its own sake (in contrast to owning a BMW), but primarily because it is a means of making money (which enables one to purchase the BMW). It must be emphasized that this phenomenon is not an integral part of the value theory model which is being used to give credibility to the notion that dealing is as important in wealth, and welfare terms, as producing.

Moreover the traditional view is also wrong when it sees the interests of the dealers and the owners of wealth as being aligned. Certainly they have formed coalitions for political purposes, and dealers are a growing proportion of the rich. But there is an antagonism between the two groups’ objectives. The dealers have to toll the transactions of the wealth owners in order to obtain a share of the producer economy. (Later the wealth owners may push part of the toll charges onto the owners of labour.)

A good example of this antagonism between dealers and the wealth owners occurred in the mid 1980s in New Zealand (and Australia, and indeed throughout the world). The dealers collected together the savings of New Zealanders (for a fee), which they invested (for a fee), and paid interest and dividends to the savers (for a fee). The chain letter miracle of M->FP->M’, evident in the share market and property price boom, inevitably collapsed because it was not producing any extra products, even though the dealers and the savers were consuming them. (Firms found the disruption of constant changes of ownership, as their shares whirled around financial markets, actually reduced their productive effectiveness.)

Eventually the house of cards/financial paper collapsed, and the investors found their profits came from the consumption of their own capital (further reduced by dealers having consumed a part). Following the 1987 world share market crash, one might have thought the dealers would have been humiliated, but such is their arrogance they barely understood these events. Admittedly some lost all their paper wealth, others were found to be acting fraudulently, but the rest kept on with their dealing.

The share market crash meant there were not too many New Zealanders willing to trust them (even those with any capital left). So the dealers turned to a different sort of dealing – the privatization of public assets. Essentially this involves the government paying dealers to alienate its assets. The amounts involved can be huge. It has been estimated the government spent, one way and another, $100 million to privatize the state owned telecommunications company. Most of that went to dealers. (In addition the bidding corporations may have spent as much on their dealers.) On world terms the $100 million may not seem much, but that represented around $30 per New Zealander. The recipients of the largesse were few in number, even as much as a 1000 would be $100,000 each. This amount is not financial paper, but real money which can purchase commodities for consumption by the dealers. It was paid for by the lower return to the state, and higher prices by consumers.

The dealers will tell you that privatization increases the nation’s welfare by increasing economic efficiency. However there is no unequivocal evidence that privatization always increases efficiency and in certain cases it can decrease it (if the firm is a monopoly for instance). Moreover there has been no reputable study which has demonstrated that any of the New Zealand privatizations have improved efficiency. Dealers do not need such studies. They know “the truth”, even if it is an extremely rarefied version of reality.

There is an irony in all this. Dealers are insistent that no industry or firm should receive a government subsidy or other form of assistance. But when their own industry collapsed in the chaos that followed the 1987 sharemarket collapse, they rushed to government for hand-outs in the form of privatization fees. This is not the only assistance they get. There is no capital gains tax in New Zealand, creating anomalies which can be exploited by dealers. And the indirect tax GST (goods and services tax) is almost comprehensively levied on every market transaction, with the major exception of financial transactions. (Of course, there is no pressure from the New Zealand dealer community to correct these anomalies.)

The greatest weakness of privatization from the point of view of dealer is that eventually the state runs out of saleable assets. New Zealand is practically near that stage today (although dealers and their acolytes have indicated they would be willing to assist in the sales of public hospitals, schools, and the conversation estate. There was even an interest in selling off the building in which parliament sat). Of course privatization does add stock to the share market, a useful source of deals, especially as many of the high flying companies of the 1980s went into liquidation and are no longer traded. Over half the top companies on the New Zealand share market are either ex-state companies or have been major buyers of state assets.

So where are the transactions which are the dealer’s lifeblood to come from? By the mid 1990s money was pouring in from overseas. Nominally it was to invest in New Zealand, but actually it covers the widening external deficit because the poor economic performance means that exports are growing faster than imports. Every time money comes through the foreign exchange market, at least one dealer makes a toll. Every time that money is invested in New Zealand, at least one dealer makes a toll. Every time the investment is flicked on to another investor, at least two dealers make a toll, and when the money is transferred back into foreign currencies, there is at least one further toll.

So how to convince foreign owners of capital to invest in New Zealand. The reality of the poor performance of the New Zealand economy would put any prudent investor off, so an unreality is presented. That is why there has to be a constant outpouring of propaganda about the success of the reforms. As German poet Hans Magnus Enzenberger wrote “the reader of the Financial Times shouldn’t be deprived of what the reader of Der Bild gets. Everybody has a right to a daily horoscope.” (Enzenberger 1995) We need to add that the horoscope writer will invariably craft favourable messages for the reader. Upon such promises the reader comes back for more. But note that the dealer and the investor interests are quite divergent. The wealth owner is looking for a safe and profitable investment, the wealth transactor wants a deal and a fee. It is fundamentally a repeat of the pre-1987 financial boom. Ultimately foreign investors will be robbed of their savings just as the domestic investors were. No doubt then the dealers will move onto new clients.

How long before the reality of the New Zealand economy comes home to the foreign investor? Perhaps sooner than the dealers hope. The macroeconomic indicators have been deteriorating for some time: the external deficit is rapidly opening up (“due to the investment boom”, say the dealers); economic growth is slowing down (“but it will recover”, say the dealers); the rate of inflation is outside the target range (“temporarily”, say the dealers); interest rates are rising (“an opportunity for investors”, say the dealers); and while exports are relatively stagnating the exchange rate is rising (“shows what a sound currency we have”, say the dealers). Yet the unease is there. There is talk of a forthcoming balance of payments crisis, in terms of when, not if. The worries are beginning to sneak in commentaries among the more sober financial journalists. At the beginning of May the junior partner of the government coalition called for an early election to avoid going to the polls as the economy is clearly deteriorating.

The 1996 election may be a watershed, not just because it is on a new electoral system (mixed-member-proportional representation, similar to the German system). The dealers are beside themselves with anxiety. Why should they be? If the economy is doing so well would not people be flocking to their cause? Thus far the party most associated with the dealers, heavily backed by their donations, is having trouble exceeding the margin of error of the opinion polls. Every other party is distancing itself from the dealers as well as they can. (Although National, the majority party in the government coalition, and Labour which when in government began the reforms, require amnesia to hide their past relationships with dealers. National has announced it will not accept any donations from corporations involved in the Wine-box deals. It was not so fastidious in the past.)

The underlying message is not only does the electorate not think as well of the state of the economy as the dealers portray it, but the changes were forced down its throat without consultation and without agreement. Had the reforms been successful and made the population better off they may have reluctantly accepted them, even though the reform’s philosophical underpinning is inconsistent with most New Zealander’s beliefs. But the economic performance has not been successful, and so instead, in wrath over the way that the changes were imposed without their consent, in 1993 the electorate voted for a new electoral regime in order order to prevent the sort of unilateral impositions of the past.

In 1996 it looks as though they will vote for economic policies rather different from those of the reforms. No wonder the dealers are hysterical about the election, although it has to be muted in case the foreign investors think there are problems in New Zealand. The dealers will blame the next economic crisis on the elections, which will be small comfort to the foreign investors. As the Brazilian colonel is said to have remarked after adopting policies only half as extreme as those that New Zealand has adopted: “It is funny, for you tell me the economy is doing well but the people are not.”

This essay has had to be broad brush. Jane Kelsey’s book fills in the detail. It is invaluable for the overseas reader, who is concerned about such policies being implemented in her or his country. Dealers are not peculiar to New Zealand.

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References
Easton, B. H. (1995). “Poverty in New Zealand: 1981-1993”, New Zealand Sociology, Vol 10, No 2. November 1995, p.182-213.
Enzenberger. H. M. (1995). Political Crumbs, (translated by M. Chalmers) Verso, London.
Joseph Rountree Foundation. (1995). Inquiry into Income and Wealth. Joseph Rountree Foundation, York.
Spicer. B, Bowan. R, Emanuel. D, and Hunt. A . (1992). The Power to Manage. Oxford University Press.
Wishart, I. (1995). The Paradise Conspiracy. Howling at the Moon Productions, Auckland.
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Different Strokes: Superannuation Schemes Are Being Designed by Successful Men

Listener 10 August, 1996.

Keywords Distributional Economics; Social Policy

Various government imposed contributory superannuation schemes will be offered to the electorate this year by the political parties. …

… Some involve topping up the state provided flat rate universal New Zealand Superannuation. Others plan to replace it altogether eventually. Some propose a voluntary scheme, others a compulsory scheme. All sorts of intricate opt-in and opt-out options are offered. Each scheme will be dressed up to appear the most favourable. A good way to cheat is to postulate very high returns of the funds, failing to mention that if interest rates are high for savers, they will be even higher for the house mortgage. Another trick is not to mention various government subsidies involved. No doubt the din will lead many thoughtful people to say a plague on all your houses, and vote on some other basis.

This column looks at an especially misleading element of various presentations – the use of the average wage as the basis of the calculation of how much will be saved and invested in a fund (which determines the annuity after retirement). Note that although the amount (currently around $620 a week) is described as the average wage, it is in fact average employee labour earnings, including wages and salaries. Even more importantly, a lot of people earn less than the average. When a proponent is using average earnings to justify their scheme never forget that most people are below this figure, so most people will be worse off than what is being promised.

“Most” people? Just how many? We do not know. The first problem is that the distribution of earnings is “skewed” (to the right), with some people getting enormous payments. The Chief Executive of Telecom gets around $1.2 million a year (over $23,000 a week), so there has to be many people below the average to offset his earnings. If that were the only problem we could use another measure – say the “median” or midpoint, which has as many people below it as above it. But labour earnings refers only to those people with a job. What about those who are not employed, or are employed only part of the year, or part of their working life? When proponents of a scheme use the average earnings they are assuming that the typical person earns that amount every year for forty odd years. Few people do. Some take time off for education or vocational training or for leisure; some because they are sick; some because they are unemployed; some because they are looking after children or a relative in need; some retire early (perhaps they have no option).

The 1991 population census gives some idea of the size of the gap. In the 1990/91 year average labour earnings amounted to around $28,800. Of those in the 20 to 60 age group, 61 percent of men and 86 percent of women reported that their incomes had been below $28,800. Thus almost three out of four of the working age population have incomes less than average earnings in any year. Using the average wage as an indicator of what would happen to the typical New Zealander is woefully misleading. The median income for the age group in 1990/1 was $18,800, or only 65 percent of so-called average earnings. It would be more meaningful to illustrate any contributory superannuation scheme using 65 percent of “average” earnings. Assessed this way, contributory schemes tend to look a lot less attractive.

It is not surprising that there are many more women than men in low income ranges, and so they will receive less much lower annuities from an earnings related superannuation scheme than men. The proponents fail to mention this, perhaps because those who design and advocate such schemes are successful men, or (occasionally) successful women with male-like career paths. They overlook that many men and most women are less successful financially than they are (even though that lack of financial success may be the consequence of doing something as socially useful such as caring for children and invalids).

Much of our social policy is screwed up because it is designed by the successful men and women in their image. The opposite approach is more fruitful. We should be designing state intervention in retirement policy for the average woman, who gets paid less than a man, who workers fewer hours a week and weeks a year than a man, and who works fewer years than a man. If we get the public policy for an average woman’s retirement right, it will be a good strategy for men, and for the successful too. (After all, the well-off can always top up with a voluntary private scheme.)

From such a women’s perspective a flat rate universal state provided scheme like New Zealand superannuation is almost certainly the best option. There is a place for contributory schemes as a top up. Whether they should be compulsory or voluntary is a matter I leave to public discussion. But hopefully the voice of women will be more prominent in such debates in the future.

BOOKSHOPS AND POLITICAL SHOPS

Paper for the Conference of Booksellers New Zealand, Auckland, July 30, 1996.

Inner Wellington where I live is littered with bookshops. To start mid-city at Manners Mall, where Eileen’s Bookshop sells magazines, greeting cards, lotto tickets, but no books. A little way along is Unity, which sells only books except for a very few specialist magazines. Unity prides itself in this specialization, many of their books are imported from overseas, based on their buyers’ judgement. Their workers are expected to know their books. One Sunday in the local library, I met one of the Unity staff who told me a new writer’s work had just come in, and she was looking for the author’s earlier novels to read. But Unity is not unique. Just across the street is Pathfinder, a new age bookshop, whose staff will be just as knowledgeable about their specialist areas.

A little way north of Unity and you come to BAM which – as it names says –  sells books (again quality and carefully chosen), art (original works, art postcards, art books), and music (CDs), as well as a lot of specialist magazines. BAM must surely claim the Wellington City motto “supreme in site”, opening onto a coffee shop, above the City Library, and next door to the City Art Gallery. A little further on, in the mall under the BNZ tower, is Ahradsen’s, which again provides the quality selected books, but also sells some discounted books. In an alcove in the back of the shop may be the largest Penguin selection in town, but Ahradsen’s trick is its main displays are out on the covered pavement of the mall, so you walk past them and look.

Just above Ahradsen’s is Stewart Dawson’s corner, where a Dymocks bookshop, which is a franchise chain, is to be installed. I dont know what it will be like, but there is already a Dymocks at Queens Wharf, only a hundred metres off the route we are traversing. That is devoted almost entirely to books, but of a more mass market kind, including imported specials and discounts which I dont see elsewhere. Oddly to this outsider, the new Dymocks is very close to the city’s Whitcoulls, which is right next to a London Bookshops. Dymocks illustrates the principle which enabled the Commerce Commission to approve the merger of Whitcoulls with London Bookshops. Aside from the capital outlay, there do not seem to be any major barriers to entry to start up your own bookshop.

But why are Dymocks, Whitcoulls, and London books so close? I am told that shoppers are attracted to places where there are a number of bookshops, and they can browse. So the competition generates turnover. Whitcoulls and London Books go for the mass market – perhaps there is a slight difference on whom they focus. Three big floors of Whitcoulls also provide general magazines and newspapers, office and home stationery, textbooks, and videos. London Books is more specialized. Oddly there is another London Books less than a hundred metres away, in Kirkaldies and Stains, Wellington’s last posh department store. The books its sells are also at the posher range compared to those in its namesake on Lambton Quay.

There are more bookshops as we walk up Lambton Quay past a myriad of magazine and newspaper shops, some of which sell also other small items such as sweets and cards. Tucked inside the ground floor of the Lambton Quay Arcade there is a Paper Plus, which sells mainly books, in contrast to its associate on Manners Street where there are more paper products and stationery. Across the road in Waring Taylor Street is Capital Books, the main seller of technical books in Wellington, but also with other specialities such as military books. It is run by Tim Skinner, who use to run a Bennetts on Featherstone Street. That site, a little off our path, is now Storehouse, one of a half a dozen religious bookshops, scattered around the inner city reflecting the continuing sectarian difference of religious life.

Move a little further north and there is Parsons. Once it seemed the only serious bookshop in Wellington. I still meet people there, browsing in the bookshop before going up to the coffee shop in the mezzanine above. Their CDs are more recent, and they also sell videos, and tapes of book readings. Further north you are walking up to Bennetts Government Bookshop, and there is John Quilter’s second hand bookshop on a prime shopping site. There are lots of secondhand book shops in inner Wellington, mainly on Cuba Street and Courteny Place, where the rents are cheaper, but the customers perhaps further away. And so we reach Bennetts under the Bowen Building which still houses parliamentary offices. It sells up-market books too, but of course it is the centre where you get your government reports and where, I suspect, the turnover of political books and memoirs is highest. For now we are in the Government Centre. There are other bookshops there – though more like Eileen’s than like Unity, and Statistics New Zealand on Molesworth Street where you obtain their weighty and numerate publications.

That is not all the bookshops in inner Wellington. I have already mentioned the secondhand and religious book shops scattered around the southern and eastern end; there is a socialist book shop on Majoribanks Street, probably other specialist ones I am unaware of because they are outside my interests, London and Whitcoulls shops side by side on Cuba Street, Victoria University Book Centre up on the hill. Let us not forget book clubs, and direct wholesaling, and I have not even mentioned the various suburban bookshops, or that special genre – the airport bookseller. There are other specialist bookshops – Butterworths for law, and Medical Books, in Newtown near the hospital. There is however no Pacific Island bookshop, that would be out at Porirua, but curiously there is no women’s or environmentalist’s bookshops either, as there is in Auckland and Christchurch. That suggests that the commercial bookshops are doing a good job.

You might say that Wellington is unusual with its large readership concentrated in a small area. But that is not the issue this economist wants to consider.

First note the variety of bookshops, each seeking its own specialist niche. They are not like butcher shops with each selling much the same. They are more like clothing shops, ranging from the department store to the boutique, each with their own distinctive offering. Today the butcher shop is almost entirely absorbed by the supermarket, book and clothing shops are not.

There is a continuing jostling for niche markets. One bookseller told me how when a specialist started over the road they abandoned that subject, and used the additional space to strengthen another specialty. In smaller towns you may not be able to service them all. I have a friend in Palmerston North, who calls into Unity for its American music books.

But what is a bookshop? There would be little doubt that Unity or Capital Books are, because they sell almost only books. But what about BAM or Parsons which sell music, or Bennetts which sells reports? You may want to classify book clubs and wholesalers as kinds of bookshops, but how about magazine shops like Eileen’s? Is Whitcoulls a bookshop or is it a department store which specializes in books and related activities? Statisticians care, because they have to count bookshops. A booksellers’ association needs an eligibility rule. Practically the Commerce Commission had to define the book market. Every economist knows that market definition is one of the most difficult tasks in competitions policy (and because we disagree, and there are fees for expert witnesses, one of our most lucrative). We can spend hours – for a suitable fee – discussing what is a book and whether tapes of books, videos of books, and music CDs are “books”.

Outside the witness box, the economist takes a postmodernist stance, and simply notes that there must be some kind of connection with books, because Parsons sells the lot. Similarly they do not draw a line between books and magazines: if Eileen’s and others want to call themselves bookshops, so what?

I mention this because it is possible that the book industry is about to undergo another massive revolution because of information technology, especially the internet. I am not one who goes hysterical every time a new technology appears, but I am reasonably confident that the net will transform the book business. Publishers are already using it for communications, and booksellers are following. More speculatively it may change the nature of books. We are teetering on the edge of self publication where the committed – if untalented – poet puts the latest collection on a file, and the reader can download, without ever having to make a hardcopy or approach a bookseller to take a few copies. No doubt booksellers will be glad to avoid this particular pressure, but what if more standard books begin to be produced this way? There are major technical and commercial issues to be resolved. Let me give you an example of the pressures. I happen to be interested in the recent High Court decision on New Zealand Steel. It is 600 odd pages, available, at a cost of $54 on a computer disk from which I read onscreen and download the bits that interest me. There are other books which I might prefer to acquire this way. The CD ROM is another major threat to that which we know as the conventional book. Are we facing a transformation as great as that of printing? Perhaps not, but it may be almost of comparable magnitude. How is the book trade going to meet that challenge?

There is a crucial economic principle here. There are no barriers to entry to the bookselling business other than capital. That is a reason why we have so many bookshops in Wellington. It also means that if the existing bookshops do not seize the new opportunities, someone else will provide the new service or product. It also means that those whose market niche disappears and who cannot adapt, will go out of the market.

That leads me to my third point. The book trade has undergone an extraordinary change over the years, adapting to new technological innovations and changes in customer tastes. Forty years ago there were far fewer bookshops, and less variety. They sold different sorts of books, perhaps a few magazines, and – if you were Whitcombe and Tombs – stationery. The subsequent evolution has been largely continuous, despite some massive shocks – such as the arrival of television, which has dramatically changed reading habits – together with the changing society, especially its increasing diversity, which is so well illustrated by the variety of bookshops seeking the market niches that the heterogeneous society generates.

One of the reasons why the evolution has been relatively smooth, is that there were hardly any special government interventions in the book trade. There were no import licences, no licenses required to set up shop, no special tax regime, no subsidies with the offset of intervention. (There were, and are, subsidies in the production of books – not enough in my opinion – but that is for another day.) Other industries were not so fortunate because they suffered these interventions, which stifled their development, and led to a revolutionary change when they were removed in the 1980s. That is part of the story is traced in my book to be published later in the year by the University of Otago Press. In Stormy Seas: The Postwar Economy describes how the pressures of economic and social change were pent up behind the barrier of Robert Muldoon’s reluctance to permit social change. He used the enormous range of government interventions to stop it. The succeeding Labour government broke the barriers, and the flood of revolution followed.

This deluge is still working its way through our society. Some institutions tried to protect themselves from the reforms, but few succeeded. Eventually even parliament succumbed, but protestingly, as the public imposed a new form of voting, the implications of which we are still struggling with. I explain it this way.

 

Suppose the government had rigged the market allowing only two bookshops. Rather than seeking to fill in market niches each would attempt to cover the entire business. Because they were located a little differently in the town – say one to the north, one to the south – they would present slightly different market images, and attempt to attract slightly different custom. But basically they would cover the market – probably Whitcoulls is the closest we have to the sort of departmental stores that would exist, but a illustration might be the old Whitcombe and Tombs with quality and specialist books sections, but not always well run ones.

Now suppose the rule that these may be the only two bookshops in town is revoked. There would be a flood of new entrants, who would focus on different niche markets that they considered the existing sellers were not covering well. In the turmoil that followed the liberalization, many of the new bookshops would go bust perhaps because they overestimated the market, perhaps because they were not competent, perhaps because another bookshop dealt with their target market better. The two established department store bookshops would also undergo a change. Reluctantly they would have to give up some of their departments, where the new shops out competed them. They would have to sharpen up their service to other customers. They might split their activities into different stores, some of their staff might start up in competition against them. The department stores’ market share would fall.

That is not what happened to the book trade, because there were few artificial interventions, so the evolution was much smoother. But think of the political parties as bookshops, where until recently the FPP electoral system meant that in practice each electorate had at most only two parties seriously contending for office, and this transmitted into a parliament dominated by two parties which had all the characteristics of those monopolistic departmental bookshops.

Along comes MMP and suddenly the electoral restraint which had given the two political parties such a cosy market dominance is shattered. What happened was predictable. A number of new political shops sprang up, while the previously marginalized established ones increased their market share. The new ones include a Christian party and various green ones. My guess is like the religious bookshops, the Christian Coalition will be with us for some time in some form or other. Similarly there will be at least one fundamentalist socialist party, even though it wins no seats. But specialist parties, like women’s and environmentalists’, are likely to be short lived, if other parties will serve their clients well. ACT emerged with a similar fundamentalist enthusiasm, announced it expected to gain over 50 percent of the political market, and found it was struggling to obtain even 5 percent. But the party backers are wealthy and committed, so just as for a bookshop which overestimated its original market, they are redefining their product and seeking new custom.

The Alliance and New Zealand First were political shops whose sales were limited by FPP, even though there was a considerable potential custom. Under MMP both are flourishing, in that their parliamentary representation will be much larger next year than this, which will give each the chance of properly bedding in a political structure – of developing a decent shop.

What are about the old department stores? As you would expect without its FPP endowed monopoly, Labour is fragmenting and losing customers. It is torn between the traditional strategy of trying to provide for everyone, and the practical strategy of redefining its market, even if that means fewer potential customers. Many people walk past Labour because they see the old department store in a run down condition, still pretending to provide something for everyone, and so not servicing anybody. By being too ambitious, too poorly defined in the market, Labour is losing custom.

The National store has the current advantage of an almost exclusive monopoly to supply the government. That runs out in October. With the government contract, National still looks attractive to many of its shop assistants and past customers. I am less sure they will be so impressed after October, if National is not a part of the new government. In which case we are likely to see National fragment as is happening to Labour. There is obviously an extreme right wing party lurking in there which might set up shop with ACT if the latter survives. But the major split is likely to be between the urban liberals and the rural conservatives. Interestingly United has tried to generate that split by setting itself up as an urban liberal party. It has not succeeded, perhaps because it is seen as too opportunistic, perhaps because the party is charisma challenged, but most likely because National still has the contract to supply government. After the election who knows? United may be devastated by the polls, but still be the future foundation for National’s urban liberals.

It would be foolish to offer any firm predictions for the election. Because the book trade has evolved I can make a reasonable forecast of each shop’s market share in October. But with political markets in turmoil, who can predict election outcomes? However there are some political things we might predict by thinking about the book market.

First predicting who is going to be the next prime minister is not especially fruitful. It does not matter whether it is Tilly, Neil, Beatrice, or Tim. The book trade survives despite personalities, even though it is the richer because of those personalities. Moreover a good bookshop creates custom, by the shrewdness of its judgement, just as a political party can offer leadership on issues too.

Perhaps too few do in New Zealand. In the shorter term we can look at the overall pattern of sales to predict future custom. The indications from political surveys are that most of the political shop customers want what may be described as a “kinder, gentler, society”, some sort of welfare state which gives them a basic security, but which allows a degree of personal initiative. Getting this balance is difficult, but it is this balance sought by the vast majority of the customers of the political shops.

Admittedly they are a bit baffled about all the high flowing economic jargon, and the unwillingness (or inability) of the various financial experts to communicate with them. They know however they have suffered economically over the last decade, despite the selective use of data by the jargon ridden. But they are convinced that these people are not addressing their lives but some ideological fantasy, or perhaps the jargon ridden are those who have done well out of the reforms while everyone else suffered. The central factor of the last decade has been they who have governed us have done so with policies the public disliked, and with policies which have failed to deliver on their sales person’s promises. (It is a pity that party manifestos are not subject to the Fair Trading Act.) The peculiarities of the FPP system – of only two parties being allowed to compete for custom – resulted in the monopoly sellers offering what they wanted to the public, not what the customers wanted. There is an irony, is there not, that those who wanted to have competition in economic processes, were the stoutest resisters of the principle being applied to the political process?

In the end, as everyone in this room knows, competitive book shops sell the books the public want. If they want to sell different books, they have to create the market (and they may not always get it right). The same rules apply to the competitive political market, even if many commentators and lobbyists – and even some politicians – have not yet woken up to that fact. Policy under MMP will reflect more the public’s immediate demands, as is always happening in the book trade. If one wants different demands in the long run, then those demands have to be created, not artificially imposed by rigging the market.

The future for the book trade will not be greatly affected by the election outcome, but there is a great market in books about the economy, about politics, and about society. I hope In Stormy Seas contributes to the market.

Productivity Puzzle

Everyone Assumed That Productivity Growth Would Increase with the Employments Contracts Act. But Check the Data: No Significant Change.

Listener: 27 July, 1996.

Keywords: Growth & Innovation; Labour Studies;

The non-ideological economist would have made three confident predictions about the effects of the Employment Contracts Act (ECA) introduced in May 1991. First, it would weaken the unions. True. Second, it would depress wages of low pay workers (because of the mass of unemployed with similar skills). True. Third, it would generate productivity increases (at least in the short term). False.

How can it be false? Everybody says there have been productivity gains from the ECA. Ruth Richardson said so in her book; Wolfgang Kasper said so in his book (Free to Work); the Business Roundtablers say it; the Employers Federation say it; even a survey had employers saying it. But note that none of them report measures of productivity. They all rely on anecdote (sigh).

Since March year 1991, average labour productivity (measured by output per worker) has risen by just 2.5 percent in five years, or .5 percent a year. But can we attribute the productivity rise to the ECA? In the previous five years, productivity had risen 4.0 percent or .8 percent a year. Thus productivity seems to have grown more slowly since the ECA than before it. I have said “seems” because the data is subject to error. What however is undeniable is there has been no significant increase in productivity growth since the ECA was enacted in May 1991.

I am astonished too. I keep going back and checking the numbers, fiddling with definitions. But the same general result always comes out: no significant change in the productivity trend. Coming to think about it, recall all the excitement about the ability of the New Zealand economy to generate jobs in recent years. Economic growth has been modest, so the job creation has occurred because of the small gains in productivity. If we had had the Australian productivity growth record, we would have had lower employment growth, and higher unemployment. Those who praise the improvement in out labour market cannot also praise our productivity growth (unless they do not know what they are talking about).

What I had assumed – what everyone had assumed – was workers had imposed work practices in the old industrial relations system which reduced output. There are anecdotes to support this, and the generalization seemed safe. Since the ECA would give mangers greater power to manage, it seemed likely they would use this power to eliminate these inefficient work practices, generating higher productivity. Again there are anecdotes. But, apparently, insufficient to affect overall productivity significantly.

Perhaps insofar there were worker controlled work practices they did not affect productivity. On reflection that it is not so surprising. Workers have an interest in higher productivity because they can extract higher pay. Perhaps there were only few occasions when they restricted efficiency in a way that reduced their pay. That is the best hypothesis that I can offer. If it is true, the gains to employers from the ECA have been lower pay and greater freedom to manage, not in higher output per worker.

Moreover there is another puzzle for which I have even less of an explanation. Look at the productivity growth over the last decade, averaging just over .6 percent a year. For most of the post-war era the rule of thumb was that labour productivity grew at just under 1.5 percent a year (even under Muldoon). For the last ten years it has grown at half that. Why? It would be easy to say it was a measurement problem, but nobody has actually found the defects in the data. Another possibility is a change in the structure of production, but nobody can explain how such a change would halve of the productivity growth rate.

Many people will say this is all a result of Rogernomics. I use to think so too. Economic stagnation would tend to discourage innovation, investment, and expansion. That would appear as poorer productivity growth. I am still inclined to think this the best explanation, but the low growth rate has been so persistent (even in the upswing of a couple of years ago), that I am beginning to wonder if something else is going on – or going on as well.

There is a body of economic literature which suggests that some time in the mid 1970s the productivity growth rate for most OECD countries slowed down. The technical term for this is “climacteric”. There is considerable dispute as to why the climacteric happened, which is not surprising given that it requires decades of solid data to untangle what is happening to long term growth rates.

New Zealand’s productivity growth rate seemed to continue on the pre 1970s trend until the mid 1980s. (Nobody knows why.) But now like the rest of the OECD we seem to have gone through a climacteric too – a decade later.

You may be surprised that economists – some economists anyway – occasionally admit that there are things we do not know. Others will assure you that there will soon be substantial productivity gains, because the right policies have been put in place. They have been promising that for ten years.

Elitism and the Election

Just How Out of Synch Are the Interests of the Political Party Elite with Those of the Voters?
Listener: 13 July, 1996.

Keywords: Political Economy & History;

Once upon a time voting for a party for many people was a marriage for life. Nowadays it is more like a one night stand, consummated once every three years. This loss of loyalty leads to considerable anxiety by parties about their image, and the potential clients’ beliefs. Some insight is thrown on the inconsistency in the book Towards Consensus, by a group of university political scientists, Jack Vowles, Peter Aimer, Helena Catt, Jim Lamare and Raymond Miller. Their research is based on a sample of nearly 3000 New Zealanders who responded to a lengthy questionnaire at the time of the 1993 election. The book is rich with fascinating insights about political behaviour, but here we look at only voter and party elite attitudes to welfare and economic issues.

Usually there considerable consistency between voters and the activists. Some 75 percent of voters said they supported free health care for all, while so did 81 percent of candidates of the four main parties. Similarly 71 percent of voters said supported free education from preschool to tertiary, and 80 percent of the candidates.

There was one major party inconsistency. National voters support free health and free education at a rate of 58 percent and 57 percent respectively. Presumably the proportion was even higher in 1990, for three years later National lost a quarter of its 1990 voters, in many cases because they were disgusted with the introduced policies. However only 23 percent of National’s 1993 candidates supported free health, and only 15 percent supported free education. No other party showed such an enormous mismatch.

There was greater diversity on economic policies. Labour candidates and delegates tended to be 15 percentage points more favourably disposed toward their unions than their voters. Alliance elites were at least 10 percentage points more anti-privatization, pro-welfare, and pro-unions that their voters. National’s elites were also more than 10 percentage points out of kilter with their voters, being more pro-privatization, pro-regulation, anti-welfare, and anti-union. Only New Zealand First voters and elites matched one another at all well.

In this context the strategy of United makes a lot of sense. It appears to be trying to place itself where the National voter is, driving a wedge between them and the National caucus. Alas they are charisma challenged. Jim Bolger may suffer the same problem, but he has used his position as prime minister sensibly (his sacking of Ruth Richardson makes a lot of sense in terms of the revelations of the book), and has been shifting the governments policies towards his voting core, not always with the whole hearted endorsement of his cabinet colleagues.

On the other hand it is difficult to find a place in the voter spectrum for ACT. While they have scaled down Roger Douglas’ claim that over half of voters would support his party, their target remains much higher than the base which this book, or its predecessor study, suggests. A revealing analysis in the latter, Voters’ Vengeance (by Vowles and Aimer), suggests the New Right core was about 6 percent at most. Recent opinion polls confirm that their policies attract only a small group of New Zealanders.

Can they make up for this handicap by their spending? (It is said their war chest is $2m.) Recent data on political advertising during the 1993 election released by the Advertising Decision Support provides some background. Between them National and Labour spent $1.25m, equivalent to 97 cents a vote. The Alliance got a return of one vote for every 74 cents it spent on advertising (and Christian Heritage had to spend $2.16 for each vote). On the other hand New Zealand First spent 2 cents a vote, which suggests that the war chest works best when the population is with you. This is even more evident in the referendum where the Campaign for Good Government poured $1.13m into advertising, almost as much as National and Labour combined. Each vote cost it $1.27, whereas the poverty stricken Electoral Reform Coalition, spent only $53,000. Each of their votes cost 5 cents.

What is worrying is that the nation’s ruling elite, who generally do not belong to political parties, are somewhat to the right of the voter. The Governor of the Reserve Bank’s policy proposals on privatization and welfare, made to the London based right-wing think tank, the Institute for Economic Affairs, puts him with ACT, rather than the populace. In this respect he is little different from many of the current key formal and informal advisers and business people. The likelihood is the next parliament will consist of members who more accurately reflect the nation as a whole, while that no party has an absolute majority means that probably the government will better reflect the voters too. (At least that is what the voters were hoping when the chose MMP.) The hysteria of the political elite towards the parties of Jim Anderton and Winston Peters suggests that the elite is willing to cling to its own interests even where they contradict the wishes of the democracy. Unless the elite is willing to accommodate itself shortly after the election, the country may get into a most uncomfortable mess.

Panic-mongers

Politically Naive Dealers Could Cause Frenzy and Hysteria in the Financial Markets
Listener: 29 June, 1996.

Keywords: Business & Finance;

There is a real danger the financial dealers in our money markets will precipitate a serious financial crisis. Not all dealers, of course. The culprits are those who are comment in an uninformed and hysterical manner on political issues who are causing the increased market uncertainty. As I write they are frenzied about the possibility that Winston Peters may become prime minister, drawing parallels with Rob Muldoon.

It is true that a younger Muldoon in politics today would be drawing a substantial popular vote – not least because he would be addressing issues with which people are concerned (rather than what the dealers think they should be concerned). But if this Muldoon were to become prime minister after the 1996 election, he would face very different circumstances to those of 1975. There would be no majority of the MPs in the one party. It would either have to form a coalition, or would rule as a minority government, dependent upon the goodwill of other parties. Moreover it is likely that the prime minister and the minister of finance will be from different parties if there is a coalition government of near equal parties (as seems likely).

But even if there was a single party government, the range of economic instruments available to it would be very different from those that Muldoon had in 1975. It would require major legislative change to give a government the ability to control the economy directly again. Muldoon mainly used the existing legislation to intervene, rather than created new legislation. Those statutory powers are no longer on the books.

However the dealers are not only naive about politics. They are not thinking carefully about their own circumstances. Their hysteria could kill the very activities their livelihood depends upon.

I do not want to assess here to what extent dealers perform useful activities, or whether the rewards they receive reflect their usefulness. Financial dealing has been an integral part of the modern economy. The simplest form is the banker who takes your and my savings, invests it, pays us a return from that investment, and takes a share of (a toll on) the return for the services provided. We dont have to use a banker, but generally they intermediate between lender and borrower more effectively than the individual could.

It is not these prudent bankers making all the noise. Rather it is the high flyers in the financial markets who deal in much more complicated financial paper/transactions, which they also toll. Their importance is a relatively recent phenomenon, reflecting changes in the global financial markets, and financial market liberalization in New Zealand.

At first the dealers made their money mainly from the financial boom of the mid 1980s. It was meant to reflect an improvement in the New Zealand economic performance. When the sharemarket crashed in 1987 it became clear that much of the financial paper they dealt with was valueless. The tolls the dealers made were funded by the destruction of the savings which they had been handling.

Local investors have not since trusted the high fliers. Fortunately the government came to the aid of the dealers with its privatization program, which generated substantial fees for those involved, mainly paid by the taxpayers. Today the government is running out of things to privatize, although there is still a bit of action in local government assets such as electricity supply (and perhaps water supply). Some dealers have not ruled out fees from hospital and even university privatization.

But the dealers have been fortunate. If local New Zealanders are not willing to use them, and the government is less willing to employ them, there has been the overseas investors. It is true that the public overseas debt is rapidly decreasing, but the total (public and private) New Zealand debt is increasing, as foreigners buy financial and real assets. A recent OECD survey concluded that New Zealand has the largest net foreign total debt of any developed country, measured as a proportion of GDP. The normally sober London Economist, termed the level “massive”, comparing the New Zealand ratio at 80 percent with debt ridden Mexico’s at 60 percent. It concluded “New Zealand’s heavy debt burden leaves it vulnerable to external shocks.”

While the debt ratio may be bad news for New Zealand, it is good news for the dealers, since they can toll the foreign investor, just as they tolled the local investor in the mid 1980s and the taxpayer thereafter. However to ensure dealers have an adequate income, the foreigners have to have confidence in the economy. If they end up with a similar view of the dealers as the average New Zealand investor, then the high flying dealers will be grounded. Those who beat up hysteria over the possibility of a different economic leadership after the election, risk being listened to by their foreign clients, with a resulting reduction in confidence and financial transactions shortly. By inadvertently generating a panic, the dealers could, like Samson, pull the entire (financial) temple down on themselves – and the rest of us.

Waiting for the Doctor

Emphasis on Finance and Waiting Lists Helps Obscure the Real Problems in the Health System
Listener: 15 June, 1996.

Keywords: Health;

Bill English, just appointed Minister of Crown Health Enterprises (CHEs) commented “when we ask people what they mean by health reforms they say waiting lists. If we can limit the debate to waiting lists then we have essentially won the argument about the health reforms.” The minister seems to have meant that if the government can avoid having to defend its structural changes – such as the top heavy administration and requiring each CHE to be run for profit, then the government could pour money in to reduce waiting lists, and obtain political kudos.

Time will tell whether there will be enough money, although I am sceptical. For instance cardiologists recommend that anyone with a points score of need in excess of 24 should be given cardiac surgery. The government’s scheme only allows those above 34 to be put on a waiting list.

But it is the public’s perception with which this column is concerned, insofar as the minister is correct. The numbers on waiting lists are easily quantified, becoming the centre of public debate. But the significant outputs of the health system are not so easily quantified. It is not waiting list numbers, but the inconvenience to those who are waiting, be they in the queue or not. We do not even have a measure of psychiatric patients or the elderly who have been turfed out of hospitals with inadequate domestic support, or doctors short of the necessary resources taking calculated risks. Most expenditures in the health system are not about activities which can be summarized by waiting list numbers. As the public concentrate on this measure the health system becomes distorted, the significance of the non-quantifiable activities gets diminished, and the government raids resources from them to reduce its waiting lists.

One of the central problems of the health reforms is they encourage concentration on the quantifiable at the expense of overall health. The most quantifiable of all, with the possible exception of death, are the financial flows. We are spending a fortune on the accounting and (as the minister implicitly acknowledges) nobody cares except the accountants (who should, because it is their job). Everyone else is concerned which the health care and treatment, at best tangentially related to the accounts.

The focus on the financially quantifiable at the expense of what really matters occurs throughout the state sector, a confusion arising out of the 1989 Public Finance Act. Each minister “purchases” various services from the department. The level of aggregation of the purchase is at such a level that really the minister just hands over a dollop of cash to the department and becomes relieved of responsibility for what happens. There appears no routine way that politicians or the public can assess whether there is enough money. Instead we rely on some crisis to draw our attention to any inadequacy. It might be rising waiting lists in the health system; or poorly constructed platforms in the heritage estate; or demoralized and overworked public servants going on strike; or the border quarantine procedures becoming so overwhelmed that a billion dollar export trade is threatened.

There are two key conclusions to be drawn. First, all these events are manifestations of the same phenomenon of squeezing public sector resources. Second they are the tip of the iceberg. One massive failure is a signal that there are numerous minor failures – failures not big enough to get the front page but hurting someone, somewhere. Like patients who suffer early discharge from hospital, which puts additional pressure onto them and their family, while compromising their health to the point that they had to be readmitted. It is not just those deaths at Cave Creek which are disturbing, but that shortly after a whole raft of structures were promptly closed down following inspection. It is not until the boat sinks from hitting the iceberg do we observe the greater ice mass below the waterline.

Living in Wellington one is perhaps more aware of it than elsewhere, because of the informal talk of worries about the consequences of underfunding. Yet the talk is only about what is known. No one mentioned to me about the border quarantine service until after the flies were found (although the minister was warned in the 1993 post-election briefing).

Perhaps the most worrying is the depletion of the people in the public service. The teacher shortage is not to be seen as a quantity, but a return to the experiences of the 1950s when some students experienced a dozen teachers in a year. We seem to be promising their grandchildren the same unsatisfactory education.

The strategy of the Public Finance Act was ingenious. Overtly it was that reducing real public sector funding would squeeze out inefficiencies; covertly that by providing poor and lower quality service, people would be forced to provide for themselves using the private sector. As the waiting lists got longer it was hoped more would avail themselves of private surgery. The strategy does not seem to have worked – at least not very well. So what will be the next strategy?

from Welfare State to Civil Society: (review)

Towards Welfare that Works in New Zealand by David Green.
First published in New Zealand Books Issue 23, June 1996, as “The Bankruptcy of the New Fundamentalism”. Republished in Under Review: A Selection from New Zealand Books 1991-1996 (ed Lauris Edmond, Harry Ricketts & Bill Sewell) p.179-184.

Keywords: Social Policy;

In Making a Difference, Ruth Richardson says that she was “more likely than Jim [Bolger] to talk about the [1991] benefit cuts in moralistic terms.” Leaving aside the fragging of her prime minister, which seems to be one of the main purposes of her auto-hagiography, there is an interest in what the ex-minister of finance meant by “moralistic terms”. I think she means, for Richardson finds it easier to claim the high ground than to climb it, that dependency on the state is wrong, although the fog descends as we try to unravel what she thinks is right. In practice she was not so much on a hilltop, but on a wharf surrounded by people struggling in the water almost afloat by state owned lifebuoys. Her strategy is to withdraw the public buoyancy. She seems delighted to see a handful of the survivors learning to swim, while the sinking rest are ignored. This morality, which costs the moralist nothing, is complicated by policies which make it more difficult to climb onto the wharf: fearsomely high effective marginal tax rates on the poor (which the moralist’s policies raised), and rising unemployment (for there were 10 percent more unemployed when she left office than when she began it, plus higher disguised unemployment).

However we would be wrong to dismiss this morality issue because of the unsatisfactory effort that Richardson has made. The unanswered question is what is the underlying ethical underpinnings of the welfare state she was so happy in redesigning. It is a problem that faces the Business Roundtable too, especially given that they have had ex-members jailed, and some current members deeply involved in the wine-box enquiry. The NZBR seemed to conclude that there was no-one in New Zealand that could help them at the philosophical level (although there is no lack of local lawyers willing to assist them at the judicial level), so they went overseas for guidance, commissioning David Green of the London Institute of Economic Affairs.

When Green visited last April, there was considerable concern as to his status, worries were not helped by the typographical confusion which constitutes the book cover prominently featuring “Dr David G. Green”. Usually the emphasis of a qualification on a book cover implies the contents are not quite orthodox: advocacy of weightloss strategies, cancer cures, astrology, perpetual motion machines, funny money, get rich quick schemes, nutty economic theories, and the like.

Views of Green’s status were not further helped by Roger Kerr, the NZBR executive director, has described those who use the term New Right as one which “any genuine academic concerned with precision of thought rather than polemic would stoop to use”. Green had written a few years earlier, The New Right: The Counter-Revolution in Political, Economic and Social Thought. Despite its Hayekian overtones it is not a seminal work (for instance neither it nor Dr Green are mentioned in Richard Cockett’s Thinking the Unthinkable). However Green has a credible academic record with a Newcastle doctorate, which led to his first book, Power and Party in an English City, and a number of subsequent book, although the majority are published by the lobby groups for which he works. On the basis of his record he could be short listed for a position of senior lecturer in an English political studies department.

Nevertheless, Green faced a severe problem in the NZBR commission, because he has little knowledge of New Zealand. The usual approach for an academic who has not got time to visit a country thoroughly, is to go down to a library and read everything that is even marginally relevant. I can only conclude the IEA library material on New Zealand consists of Richardson’s book, Roger Douglas’s Unfinished Business, David Thompson’s Selfish Generations, and a few government publications. The enormously rich literature on the welfare state in New Zealand is completely avoided. Astonishingly, the central document on the modern welfare state, the report of the 1972 Royal Commission on Social Security is not cited, and the one mumbled mention to it suggests Green had not read it. The result is a book with the most tenuous connection with New Zealand.

There is also little reference to the flourishing international literature on welfare states, contributed to by left, centre, right, and muddled. It is not simply he fails to refer to key names like Gosta Espinger-Anderson or Frank Castles. Green seems quite unaware of the debate which surrounds them, especially the issue of how to integrate the welfare state with the rest of the economy. There is, for instance, no significant discussion on the labour market, despite it being a central part of the traditional delivery of welfare in the Australasian welfare state. What is a reviewer to do? Accept Green’s narrow frame? The reader is owed a more comprehensive account than this.

Given his antiquated vision, it is not surprising that Green equates the New Zealand welfare state with the US one, a position often also taken by the New Zealand New Right. In part it is they are so mesmerized by the American model, they cannot envision the different one; in part they want to convert New Zealand into their idealized version of the US model; and in part because they have read US New Right theorist, Charles Murray, like what he has to say, and want to apply it uncritically to New Zealand.

Green likes much of Murray, and cannot help uncritically applying Murray to here. For instance he makes the crude equation of Murray’s portrayal of the US blacks with the Maori. It would be enlightening to have a systematic comparison of the culture and society of imported slaves with that of the tangata whenua. Instead Green makes a half hearted parallel, and then compounds it by a casual flick through the figures.

Quoting Murray that “the definitive proof that an underclass has arrived is that a large number of young healthy, low income males choose not to take jobs,” Green attempts to demonstrate this by noting that “[f]or Maori men aged 15 to 19 [labour force] participation fell from about 65 percent in 1981 to 44.8 percent in 1991.” I cannot reproduce Green’s 1981 figure from the Population Census, and the 1991 is slightly different. However that is not the point here. Rather if we look at all New Zealand males aged 15 to 19 we find that their participation rate fell too, from 62.7 percent in 1981 to 49.4 percent in 1991. (That this is not quite as fast as the Maori rate may be due to age structure effects.) Having equated Maori with low income males Green fails the most elementary test to see whether the phenomenon is happening to other groups.

This is an approach where any data which supports one’s theory is acceptable. and no attempt is made to test alternative hypotheses or to look at other data. It is what Chicago economics professor Melvin Reder describes as a “tight prior”, where “correct answers must conform to definite criteria. … answers that violate any maintained hypothesis of a paradigm are penalized.”

Before leaving the inadequate attempt to impose a Murray analysis on New Zealand, let me express my anger that Green has failed to notice that we have not used the expression “illegitimate” to describe children for almost a quarter of a century. A child born ex-nuptially does not need to be further saddled with the notion they are not authorized by law. Green may come from a country where children are still treated in Dickensian terms, but he should know that many New Zealander’s ancestors fled the uncompromising harshness of the Victorian poor law for a better way of doing things.

This lack of historical perspective is another major defect of Green’s work. Perhaps it is inevitable if one has to rely on Richardson, Douglas, and Thompson’s Selfish Generations. I have described in detail the inadequacy of the latter study in New Zealand Sociology (May 1992), but briefly Thompson’s study consists of a series of hypotheses, none of which are demonstrated logically or empirically, but which pander to some prejudices. Thompson’s knowledge of the issues was so narrow that he is not even aware of New Zealand research that could have supported his case (let alone that which did not). Noting that Thompson is writing a pamphlet for the NZBR, one hopes that it will be more substantial, and less emotional, than his last effort.

Green makes numerous errors as a result of his historical ignorance. He says there was no welfare state before 1938. Wrong, there was one as early as 1898, albeit of a primitive form. Later he says New Zealand had social security in 1898. Anachronistically wrong, since the term is not coined until the 1930s.

The problem is deeper, for welfare states are organic institutions which evolve in response to historical events. It is true that many of our ancestors came to escape hardship in the originating country (true even for many of the Maori canoe traditions), but nevertheless poverty was a problem in the nineteenth century. The story of responding to this state of affairs is captured by a number of authors, none more vividly than Margaret Tennant in her Paupers and Providers. The welfare state evolved as a response to this hardship. By the end of the nineteenth century various institutions were in place – most prominently free primary education, the old age pension, and the industrial conciliation and arbitration system – to deal with the social difficulties. Further changes were added throughout the first third of the twentieth century, but the institutions failed to cope with the depths of the interwar depression. (New Right references to the Great Depression are as common as NZBR publications referencing the 1987 crash.) From the late 1930s there were further changes. As late as the 1970s the welfare state was progressing in scope, as new pressures arose.

The basic lesson from this, the one that Green missed because he did not bother to understand the New Zealand experience, is that the private sector has regularly proved incapable of providing the support for the poor that New Zealanders desired (and, according to opinion polls, continue to desire). The pragmatist acknowledges that there may come a time when the private sector (the voluntary and/or the business sectors) can play a more central role, and the state provision will be wound back. Personally I have no great problem with such a scenario, providing the private provision is sufficient.

However, Green seems to be unaware that when Richardson and her friends began redesigning the welfare state, they put a substantial pressure on the private sector. It proved unable to meet the new demands placed on it, as food queues lengthened, shelter became crowded, and family stress rose. The outburst against the measures we had from the church leaders after 1991 was not a group of ethereal clerics looking down from above, but a upwelling from those on the ground running the various church’s charitable institutions. They found they simply could not cope with the pressures from the benefit levels and entitlement cuts, the reductions in housing assistance, and the sharp rise in unemployment as a result of Richardson’s ill thought out fiscal policy. Cardinal Tom William’s exasperated “the man’s crazy”, to an article by Green arguing for a greater responsibility from the private sector, is perfectly understandable when the Cardinal goes on “[d]oesn’t he know how much the churches and voluntary organizations are doing, and how stretched they are?”

Well, of course, Green did not, or if he did he gave no sign in the book. This ignorance of what was really going on, not only avoids being confronted with unpalatable facts, but means that he missed what the debate was actually about. It is easy for Green to say we should all be more moral, and that we should organize a society based on our being moral, and then fly away with the sermon ringing in our ears. Application of the sermon is much more difficult for those left.

Green may be astonished to know there has just been a major reorganization of the New Zealand economy based on the principle that we could not be relied on to be moral. At least that is how the influential 1987 Treasury Post Election Briefing Government Management reads. It acknowledged moral behaviour and altruism but said it could not be trusted for public policy purposes. That is why, for instance, we had to privatize government owned businesses, because the politicians who run the country cannot be relied to act on behalf of the people. A central organizing theory in the reforms has been the “principle agent relationship” which says that a person cannot be sure that an agent will act on the person’s behalf, so we have to build in market mechanisms to ensure they will.

The major beneficiaries of this narrow (and, in the extreme, nasty) account of human behaviour were those who bought (or were involved in the selling transaction of) the privatized businesses. Almost all of them are on the Business Roundtable. The irony is then is that as beneficiaries of this account of amoral man, they now seek a morality. A practical example may explain their dilemma.

Suppose a failure by the Treasury to get its incentives together, results an offshore tax haven evolving, whereby corporations can avoid paying tax, using means which seem to the normal voter to be far from moral. Should they take up the option? Under the Treasury vision, the answer is yes providing they do not break the law. But law is not morality. Are there any moral restraints on the corporations? The only hint Green gives to the answer is that the rich “have a special duty to assist the poor.” I could not discern from this, whether Green would be happy if a corporation avoids tax, but gives to charitable works a proportion of the proceeds (how big is the proportion?). The book is remarkably thin on corporations altogether, which may have been a great disappointment to the Roundtablers, most of whose training in ethics amounts to sunday school and a pass in a course on auditing.

More generally there is an odd disjunction in the book, between theory and applications. Green sets out a vision of moral civil society which was praised by Archbishop Brian Davis, who wants a society in which morality and spirituality play a central role. The Cardinal would be equally supportive of the goal, although because Catholic social thought is so much more sophisticated than Anglican, I would expect any full response of his to be considerably more subtle). However when praising the book, Davis does not mention it’s practical policy prescriptions, which seem to be more a mix of the standard Douglas/NZBR line than to evolve organically out of Green’s analysis.

I chose as my example the section on health, which Green claims as an area of expertise. It is instructive that Green adapts one of eminent health economist Bob Evans’ inherent characteristics of the health system as “asymmetry of doctor and patient”, to “uncertainty about which doctors to trust”. Those familiar with the debate will recognize that Evans is using the principle-agent theory that the Treasury was using, but that Green has either missed the point, or is avoiding it. Perhaps Green’s naivety is not so surprising then, when he says in the health services “competition is what protects consumers against manipulation [by doctors]”. The reader may be even more confused by Green’s definition of competition a few lines later. It is “freedom of initiative within a legally competitive domain.” Far too much of the New Right rhetoric is a humpty-dumpty of giving new meanings to words, and then using them as if they have their ordinary meaning. No wonder a reader can get confused.

As a result of Green not grasping, or does not wishing to grasp, principle-agent theory, the chapter is a series of misrepresentation of the health debate. One is not surprised that the end that it comes out for what amounts to the privatized system which was presaged in the NZBR Danzon report and the Green and White Paper Your Health and the Public Health, neither of which appear to be in the IEA library.

The lack of reference to the New Zealand health reforms suggests that Green is not interested in how his theory actually work. After all, as Reder suggests, facts can get in the way of theory. An even odder discussion occurs in the section of the income distribution where there are a number of pages devoted to a British debate, but nothing on the New Zealand one. One might accuse him of ignoring the New Zealand evidence because it is so embarrassing to the NZBR case, demonstrating that income inequality has increased markedly as a result of the reforms they support. A simpler explanation is that he is not interested, did not look at the New Zealand experience, and does not care. In the end much of the book seems to be a British writer, writing about British preoccupations, but as he is being paid for by a New Zealand institution (albeit increasingly owned overseas) there are a few miscellaneous inserts about New Zealand. The value of this book, if any, is in the articulation of the New Right theory, not in its application.

Early on Green states “I will follow the philosopher Michael Oakeshott in contending that modern European [sic] states can be best understood as torn between two contradictory methods of association.” He follows the Oakeshott in calling the first “civil association”, but calls the second “corporate association”, which does not refer to corporations but to nation-states. No wonder the casual reader gets confused over the idiosyncratic terminology. An index would have been helpful, because it could have been used by the reader to check whether Green had humpty-dumptied yet another word. While I am complaining about terminology, it may be pointless for women to read the book, because Green does not address them, except if they are solo mothers. For instance Green says “no person should exempt himself from the law as he pursues his own goals”?

Accepting the need for simplification, I do not find Oakeshott’s two categories uncomfortable (although it seems to me that the most interesting – and characteristic – associations are those which have elements of both in them). However having established this abstraction, Green labours to make the first option totally superior to the second. Since facts may get in the way to the believer, the argument proceeds by a series of logical assertions, based on premises which are taken for granted but to the non-believer may well seem contentious. The argument requires a constant ignoring of logical weaknesses and inconsistencies. Instead authorities are quoted (and misquoted) to support the argument.

What is one to make of “the claim that free-marketeers foster selfishness finds no support in the writings of the leading classical-liberal thinkers”? It is a statement so typical of the tendentious nature of Green’s argument it deserves a little reflection. Who ultimately cares whether “free-marketeers [whatever that means] foster selfishness”. Green may be fascinated by the details of their personal lives, although how the dead “thinkers” he quotes have an intimate knowledge of the private activities of, say, the members of the NZBR, is puzzling. Perhaps Green meant that free-markets, whatever they are, do not foster selfishness. That is an empirical question. As for the views of the “thinkers” (irrespective of how Green has distorted them), who cares? Some of the “thinkers” which Green cites for support (at other points) thought the earth was flat. Opinion does not make it flat.

Or is he saying that those who advocated “free markets” (by which he means the “thinkers” he is citing) did not justify them in terms of selfishness. In Mandy Rice Davies immortal expression, “well, they would woundn’t they?” But are we so sure that these thinkers – such as Adam Smith – advocate “free markets” in the way that their followers claim. Smith became a customs collector after he wrote Wealth of Nations. Accusing him of hypocrisy is not adequate. I suggest his vision of the world was considerably more subtle than it is portrayed. (In contemporary terms he favoured “more-market”, but was not a Rogernome.) In the end the sentence is either a piece of muddled thinking, or a near tautology, like much of the book.

Green’s approach has a naivety to it, which grows out of the simplification. He is determined to demonstrate his choice of civil association is superior in every way to the simplified alternative. This means that any possible defect of his preferred option is ignored or stated to be irrelevant. Every possible defect of the alternative is magnified.

We saw this in the health discussion, where Green ignores and/or misrepresents each criticism of his preferred outcome. It would be perfectly reasonable to present all the major strengths and weaknesses of the different ways of organizing a health system, to conclude that none is superior on every criteria relative to the others, and yet to conclude that one’s personal preference is, say, the option Green advocates. Others, equally reasonably, might disagree, but engage in a debate. However it is more difficult to engage with unreasonable extremists such as Green.

This seems to have been what happened to the Archbishop, who was understandably anxious to state “[t]he moral and spiritual foundations of a nation are much more important than political decisions about the size of the holes in the safety net, or how soft or tough our welfare loving should be – though obviously such decisions are necessary and must be made with care.” I invite the reader to reflect on that sentence, and ask how much is it, and indeed the whole text, is a total agreement with Green’s argument, and how much is it a plea to reconsider the underpinnings of our nation (a corporatist association which, it will be recalled, Green is rejecting), and promoting a particular vision, consistent with his Church’s heritage (I assume that in Green’s categorization the Church of England is a corporatist association in England, and possibly New Zealand although the text is too vague to judge). By not adopting any of Green’s policies, the Archbishop is indicating he wants these to be debated with the likelihood that different conclusions will be reached.

However the Archbishop’s statement of moderation has been seized on by the NZBR to be interpreted as a wholesale support for Green. It is a characteristic feature of Green and the NZBR publicity machines to quote selectively those who apparently support them, and ignore anyone who disagrees or has not made statements which can be twisted into support. I do not expect the NZBR to ask the Cardinal for a commentary, nor are they likely to promulgate it so vociferously if it were supplied.

My Anglicans friends, reasonable moderates to a man, woman, and minister, have expressed dismay at this development. As one said “he [the archbishop] should know to sup with the devil with a long spoon.” The Cardinal’s exasperation, although probably spontaneous, was perhaps the better strategy. Because it is older and has operated in more countries, the Cardinal’s tradition has had more experience supping with the devil. The result is that in sophistication and subtlety of social policy, Catholic thought far exceeds that of most other Christian theologians.

Ultimately Green is a fundamentalist, who exists in a bifurcated world of good and bad, virtue and vice, Christian and infidel, capitalism and communism. It is the world of sunday school and adolescence, where all is simply categorized and easily judged. It is a world riddled by Peter Pans, who have never grown up to face the brutal reality that despite the easy issues there are not easy solutions. If there had, they would have been adopted. Recall the 1991 health system proposals which have proved on implementation to be an almost total disaster. Any reasonable person with a little knowledge could have predicted the reforms were not going to work, but extremists like Richardson and her friends drove them on, relying on their ignorance of the issues to insulate themselves from commonsense.

The fundamentalism is sometimes justified in the words of Barry Goldwater as “extremism in the pursuit of liberty is no vice”. In fact he actually said “extremism in the defence of liberty is no vice, … moderation in the pursuit of justice is no virtue.” Goldwater was not humpty-dumptying the notion of liberty (it would have been odd in the context of a republican convention to do so), and there is a substantial difference between defending and pursuing liberty. (The second part of the statement exhorting the pursuit of justice is less commonly stated, although it could be used by oppressed minorities, women, and many others to justify actions which might be thought excessive.)

Would that the world, and the great social questions that face us, were as easy as Green claims. But is not. If you have any doubts, read the book from the perspective of a member of the Roundtable. Certainly you will get the impression, as one of the richest men in the country running some of the greatest corporations, you should contribute more to charity. Certainly one would welcome a more generous response from that quarter. But if they were to run their businesses in the way that Green runs his argument, based on tenuous logic buttressed by conveniently selected quotations (and sometimes misquotations), and a disregard to the facts or the circumstances, Roundtablers would not be rich men, their corporations would be bankrupt.

Go to top

Future Vision

The Government’s Plans for Our Future Are Well-meant, But Contain Some Glaring Omissions.
Listener: 1 June 1996.

Keywords: Governance;

At the foot of this column are the government’s “Strategic Result Areas”. They may not seem important to the public, but they are certainly prominent in the mind of the government advisers, who are likely to pop the acronym SRA into their conversations. SRAs aim to “bring a more coherent strategic approach to managing government”, and “build an understanding of what the Government intends to accomplish, and how it plans to go about using its agencies.” They set out “the contribution that the public sector will make to achieving the Government’s strategic vision for New Zealand.” Practically a public servant concerned with a policy development checks to see whether a proposal is within the SRAs. If not, the government is likely to look unfavourably on the policy. No wonder officials anxiously discuss SRAs.

These are not just platitudes like those the Planning Council use to churn out. They affect the behaviour of the public servants, and the development of policy. Nor are they secret. The prime minister’s office will readily send you Strategic Result Areas for the Public Sector, and invite you to comment. The SRAs are being reviewed this July, to set a revised agenda for next year (although a new government may choose different ones). If this were the late 1960s or the early 1970s the government might even have invited everyone to form a group and write their own set. (If you get enthusiastic keep your alternative below, say, 350 words. Remember it is about what the public sector can do, not an entire national plan.)

I am not going to offer an alternative, but let me draw your attention to a couple of the SRAs, and a missing one. First look at number 5. Is all we want from our communities is that they be secure? The picture that comes to mind is a rich neighbourhood in the third world, where all the houses are surrounded by fortified walls.

Second, in regard to number 4, do we want the public education system to focus only on training? How is a preschool or primary school to respond to the SRAs? I hope our secondary schools are also concerned with teaching courtesy, citizenship, curiosity, respect, knowledge, ethics: all those notions we include in education.

That leads to the extraordinary omission. Apparently the government places no obligation on the public sector to pursue culture, heritage, matters of the intellect, recreation and leisure. Among the services we expect from the public sector are libraries, museums and art galleries, sporting facilities, recreation and leisure facilities, historical preservation and research, the promotion of literature, the arts, and sport, the cultivation of ethnic diversity and so on. How does the Office of the Race Relations Commissioner, or the Hillary Commission, the Symphony Orchestra, or New Zealand on Air justify their activities in terms of the SRAs? Are you surprised that the Orwellian named Creative New Zealand cut back on its poetry grants last year? No wonder government is distorted. The country seems to be run by uneducated philistines who live in forts.

The current SRAs were a first attempt. Let us hope that next year’s do not recall Hobbes description of the life of man without proper government as being “solitary, poor nasty, brutish and short.”

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

STRATEGIC RESULTS AREAS
1. Maintaining and accelerating economic growth.
Creating and maintaining a stable secure and resilient overall economic environment which will engender greater confidence amongst: individuals and families to work, save and invest in skills; business to invest, export and create employment; overseas investors to invest in New Zealand.
2. Enterprise and innovation. Reinforcing a successful enterprise economy through maintaining and progressing an open trade environment that: is conducive to the fair and efficient conduct of business; is conducive to the efficient operation of markets; rewards work, enterprise and innovation; and enhances investor confidence.
3. External linkages.

Enhancing New Zealand’s position as a successful and secure trading nation by strengthening economic linkages with international markets and countries and enhancing New Zealand’s overall security.
4. Education and training.
Progress towards higher and more appropriate skill development to support the achievement of stronger employment and income growth,
5. Community security.
Enhanced community security through the development of policies with a greater emphasis on partnerships between government agencies and the community that will better protect individuals and their communities, reduce the incidence of family violence and reduce pressures on the criminal justice system.
6. Social assistance.

Developing programmes that address multiple disadvantage and enable individuals to progressively improve their ability to participate in society.
7. Health and disability services.
Introduction of services to improve the availability and the effectiveness of health and disability services.
8. Treaty claims settlement.

Significant progress towards the negotiation of fair and affordable settlements to well founded grievances arising under the Treaty of Waitangi.
9. Protecting and enhancing the environment.

Protecting and enhancing our environment in a manner consistent with maintaining environmental values in a growing market economy. Environmental outcomes will be achieved through means that impose least cost on the economy and the environment.

Psst, Have You Heard?

The Rich: A New Zealand History by Stevan Eldred-Grigg (Penguin, $34.95)
Listener: 25 May, 1996.

Keywords: Distributional Economics; Political Economy & History;

Is this book anything more than tattle-tale? Significantly it ends with the words”What, above all, would I have done with Felicity Ferret?” Admittedly The Rich does not descend to assisting the semi-literate by putting names in bold: the better schooled may dip into the index of around one thousand names.

Some of the rich will be glad – or annoyed – to be omitted, for the book can make no claim to be comprehensive. Rather Stevan Eldred-Grigg has drawn extensively on a wide range of sources – including the unreliable, the fictitious, and the plain wrong – to give snippets about the doings of the wealthy. The fiction includes a quotation from one of his own novel’s The Shining City used, as if it were fact, for a passionate attack on private schools.

Without references the reader must take this all on trust – or distrust. Those who like high society gossip will appreciate some dammed good stories, but are they true? Ms Ferret is disciplined by the laws of defamation. The dead have no such protection.

To make matters worse, he paragraphs lurch backwards and forwards between decades as though the tale was timeless. There is little distinction between those who became rich through luck, through inheritance, or through talent (including of a criminal kind). Generations of wealthy families are mentioned, as are rich individuals of whose descendants we hear of no more, but there is but no real discussion whether money descends through, or is extinguished in, a couple of generations. The book tries to trace through how sources of wealth change over time, but it is a slight effort.

The study touches on new and old rich, key to understanding Ms Ferret’s voyeurism, but there is no systematic analysis. How does one shift from becoming rich to becoming respectable? There is much sneering at the nouveau riche behind their backs by those who were nouveau riche only a generation earlier. The book could have been a source for such investigations, but reference-less it is of little use.

Especially disappointing is the lack of serious exploration of wealth and political power, of how the rich have influenced, and are influencing, policy out of proportion to their numbers. The flirtation of the gossip columnist is not a substitute for sober analysis.

Instead the book reports the foibles of the rich, especially sexual peccadillos which Eldred-Grigg highlights although the rich are probably no more prone than anyone else. Curiously the study does not give the prominence to conspicuous consumption one might expect, especially the Auckland rich flaunting their affluence is slowly percolating through the country. We have not reached the US excesses described by John Kenneth Galbraith, perhaps only because our rich do not read him.

The book describes a “Great Gatsby” party in which participants dressed in the style. The novel’s author, Scott Fitzgerald once commented “the rich are very different from you and me” to which Earnest Hemmingway replied “yes, they have more money.” That money allows them to demonstrate amply the veniality of all humanity. As Eldred-Grigg reminds us, the rich may be able to avoid taxation, but they cannot escape death, although in a weird way the book gives them a certain immortality, even if it emphasizes it without the first “t”.

THE ECONOMIC AND SOCIAL IMPACT ON NGATI IRAPUAIA OF THE RAUPATU.

Report prepared for Te Rununga o Ngati Irapuaia.[1]

1, Introduction

1.1 Ngati Irapuaia, also know as Ngati Ira, is a hapu of Whakatohea, in the Eastern Bay of Plenty. Along with many other hapu and iwi, Ngati Ira suffered grievous and wrongful confiscation of their land and other assets in the 1860s (the “Raupatu”). While it is now realized that the actions of the Crown were unjust, there has still been negligible compensation for those losses.

1.2 This paper attempts to assess and quantify those losses in financial terms. It must be emphasized that this is only one component of the totality of the losses from the unjust raupatu. However the report assists the hapu in its case for compensation by the Crown for the losses. The calculation focuses upon the financial and related economic losses, and ignores what the Crown believes it can, or should, afford. It is only by obtaining a estimate of the true magnitude of the costs of the raupatu that the hapu can firmly establish its case for just compensation.

1.3 As will be explained, the task of quantification is not an easy one. The exercise of quantifying involves large margins of error, and numerous assumptions. It is therefore especially important that when drawing conclusions from this paper, its various caveats be kept in mind.

1.4 Ngati Ira have made a number of claims about the confiscation of their lands, and the consequences. While I have read their material, I claim no expertise in judging its validity. That is a matter I leave to others. However in order to make progress, I have to make some assumptions. Accordingly I shall assume that the claims of the Ngati Ira are fully justified. If the claims are not fully justified, then the magnitudes may have to reduce my quantitative estimates in some proportion. Similarly I have no expertise to assess cross claims between hapu and iwi. The issues of reducing the quantified magnitude apply to them insofar as they are justified.

1.5 Ngati Ira have identified the following specific economic losses in regard to the raupatu, which I quantify separately:

– the confiscation of approximately 66,873 hectares of land within the Ngati Ira rohe;

– the death of men of the Ngati Ira hapu, killed in the hostilities of 1865 and 1866;

– the destruction of a flour mill, on the Waioeka River, as a result of the hostilities of 1865;

– the loss of the schooner, “Hira”, confiscated during the hostilities, and subsequently wrecked.

1.6 However, before quantifying these individual losses, I need to describe the general issues of the losses that were consequent on the Raupatu. Although Ngati Ira is a hapu of the Whakatohea, I have elaborated the consequences to include those loses to the iwi. This avoids the drawing the difficult line between the property rights, responsibilities, and powers of a iwi and those of its hapu.

1.7 Throughout this paper, unless explicitly stated otherwise, “iwi” refers to iwi whanui, that is the confederation of hapu. The iwi of Ngati Irapuaia is Whakatohea.

 

  1. The Consequences of the Raupatu

2.1 Raupatu involved a loss of Te Tino Rangatiratanga to the iwi and hapu involved. Most affect economic aspects of rangatiratanga in the meaning of the Tiriti. Here is a brief summary of some of the ways in which Ngati Ira and the Whakatohea suffered from the Raupatu. (Some phenomenon repeat, because they apply to more than one of the categories.)

2.1.1 The Loss of Capital and Other Productive Resources

(1)       Loss of their lands, mountains, forests, rivers, swamps and lakes.

(2)       Loss of sources of food and building materials.

(3)       Loss of water rights, riparian rights, and mineral rights.

(4)       A reduction in the population of the hapu and iwi, both directly from death during hostilities, and from subsequent impoverished economic and social development.

(5)       Loss of a flour mill, a schooner, and other capital assets.

(6)       Pollution of the air and waters of the rohe and consequent loss or deterioration of those resources.

2.1.2 Loss of the Ability to Regulate the Use of the Resources, the Welfare of the Community, and the Region

(1)       Loss of the mana of iwi and hapu.

(2)       Loss of leaders.

(3)       Damage and destruction of the social structure and organisation of whanau, hapu and lwi.

(4)       Loss of the mana of iwi and hapu leaders through their loss of control of their lands and resources, loss of authority and denial of Te Tino Rangatiratanga and as a consequence the breakdown of the iwi and hapu leadership system.

(5)       Loss of political influence.

(6)       Lack of appropriate participation in major projects in the rohe.

2.13 Loss of the Ability to Organize the Use of the Resources Efficiently

(1)       Loss of the mana of hapu and lwi.

(2)       Loss of leaders.

(3)       Damage and destruction of the social structure and organisation of whanau, hapu and lwi.

(4)       Destruction of the traditional system of ownership (customary title) and possession of land and resources.

(5)       The forced dislocation of hapu and the scattering of the people.

(6)       Loss of the mana of iwi and hapu leaders through their loss of control of their lands and resources, loss of authority and denial of Te Tino Rangatiratanga and as a consequence the breakdown of the iwi and hapu leadership system.

2.1.4 The Loss in the Quality of Life by other than Material Changes

(1)       Loss of the mana of hapu and lwi.

(2)       Loss of economic independence and prosperity.

(3)       The forced dislocation of hapu and the scattering of the people.

(4)       Loss of the mana of iwi and hapu leaders through their loss of control of their lands and resources, loss of authority and denial of Te Tino Rangatiratanga and as a consequence the breakdown of the iwi and hapu leadership system.

(5)       A reduction in the population of the hapu and iwi.

(6)       Loss of significant sacred and cultural sites and features.

(7)       As a result the imposing of stress, anxiety and trouble upon the people of the hapu and iwi.

2.2 The above subcategories reflect an economist’s way of thinking about these issues. The Maori might present the conceptual framework a little differently, but the underlying situation is the same. Here I use the subcategories, with the understanding that they are referring to specific grievance of the Maori. The next paragraphs examine each subcategory in turn, especially from the position of the ability of an economist to quantify any loss.

 

  1. The Loss of Capital and Other Productive Resources

3.1 Perhaps the most vivid statement by a New Zealand economist on this topic has been made by Paul Dalziel in a survey of economists’ accounts of the Maori economic experiences.

“The most obvious weakness in the analysis is the common use by economists of psychological factors as an explanation of the Maori economic decline after 1870 and the recovery after 1920. Surely there are more powerful tools of analysis than that? In particular, between the signing of the Treaty of Waitangi in 1840 and the appointment of Gordon Coates as Native Minister in 1921, the amount of land in Maori title diminished from 66.4 million acres to under 4.8 million acres, a reduction of more than 90 percent. Imagine for a moment that the asset base of Fletcher Challenge or Electricorp were reduced by nine-tenths, with no compensation for large amounts of the asset-stripping. Analysts would not have to resort to exploring the psychological mood of the managers or the shareholders to explain why the company’s economic performances would be decimated. Similarly, economists should be able to explain the impact on Maori tribes of uncompensated land confiscations, dishonourable land dealings and unfulfilled land-sale promises, much better than they have managed so far.” [2]

3.2 And yet even this analogy does not fully capture the impact of the confiscations. Shareholders have a portfolio of shares, so the loss of one company is not the same as the loss of their entire wealth, housing included. Nor would the collapse of a company be as disastrous to all its employees, as would that of the collectivity of an iwi. (Moreover the employees are not typically the main shareholders of the company.) Nevertheless Dalziel is right to draw the parallel, as it provides some comprehension to the modern mind of the consequences to the Maori of the loss of their resource base.

3.3 It is not easy to quantify the consequential losses from the resource base. Many of the items do not even today have a ready market value. For instance, because the problem of defining and valuing the property rights of water (and parallel environmental resources) have yet to be resolved, any losses of those rights should be acknowledged, but it is inappropriate to put a quantitative on value them at this juncture. The quantification of the loss of population is so conjectural that it is difficult to imagine how they might be valued under any conceivable theory. This issue is, however, further considered in Section 8.

3.4 However we can, and will measure the loss from the alienation of the land. This is presented below as a part of the direct estimate, and the loss of two commercial assets, the flour mill and the schooner.

3.5 It should be noted that in commercial terms a capital value (say of land) is a discounted sum of a flow of income. The conversion of this income stream into a lump sum is called “capitalization”, and requires an explicit discount rate. Economists switch between capital and income through this discounting/capitalization procedure easily, sometimes to the confusion of the public.

 

  1. Loss of the Ability to Regulate the Use of the Resources, the Welfare of the Community, and the Region

4.1 However rangatiratanga is not merely a matter of ownership of capital and other resources. It also includes the regulation of those resources. In a modern economy regulation is typically the responsibility of government, today usually through the law (including market relations underpinned by law). In classical Maori society regulation was carried through Maori tikanga (customary ways) based upon the mana of the iwi. Here are a few examples pertinent to the issue under consideration, which describe what happens when mana is diminished, and hence regulation through tikanga becomes no longer practised.

4.2 Maori tikanga regulated the environment (rather than as we do today through such legislation as the Resource Management Act). The best documented example which I know of is fish in the Muriwhenua rohe.[3] Many other iwi will have similar examples, although they may not be as well documented. It is evident from the historical (including oral and archaeological) record that in the times of the classical Maori the seas around the Aupouri peninsular were abundant with fish, while the beaches were rich with shellfish. Moreover the iwi had a series of tikanga which conserved the stocks to a sustainable level. Today those stocks are seriously depleted. The best explanation for the depletion is that with the diminution of mana of the local iwi, the practice of the customary tikanga diminished, and non-sustainable fishing took over.

4.3 Almost certainly the same thing happened to the resources of the Ngati Ira.

4.4 The Crown could perhaps have justified the reduction in this regulatory rangatiratanga, by arguing it was taking over the regulatory powers under its kawanatanga powers of Article 1 of the Tiriti. In my view the appropriate line between kawanatanga powers and rangatiratanga powers for environmental regulation is not easy to draw. For instance I could be persuaded that today the Resource Management Act (1991) is a more appropriate form of environmental regulation than one based on local regimes. However the historical record is that the Crown did not replace local regulation by iwi and hapu by a national regime administered mainly by the central government. The effects of its actions were to destroy the local regulatory regime, but little was put in its place. Insofar as this occurred the Crown failed in its commitments under Article 1 of the Tiriti.

4.5 The result was a reduction in the management of sustainable environmental resources, which reduced the welfare of the iwi and hapu dependent upon them.

4.6 A second example is that traditionally the iwi regulated relations between hapu. Loss of mana led to a reduction in the ability to regulate these relations, and a resulting fractiousness between hapu, to the detriment of the iwi, the hapu, and the people involved.

4.7 A third example is that the iwi and hapu also lost the ability to promote the economic development of the region. Again this was a role taken over by the government, and again they did this poorly in the rohe o te iwi. Even in the fifty years from 1935 to 1985 when the government ran an active regional development policy, districts on the fringes of New Zealand, like Opotiki, were poorly supported in comparison to the more central districts. Often a high proportion of those living in these marginalised districts in the North Island were Maori. There has been a loss of political authority. Thus the iwi had neither the local authority to run their own economic development program, nor the national political authority to persuade the government to take a sufficiently active involvement in the economic development of the region.

4.8 It may seem that these three regulatory activity authorities are sufficiently different to be treated separately. Space has precluded such a treatment, but in any case the Maori approach was so holistic that separation is not as practically easy.

4.9 What we have to remember is that for most of the Opotiki area’s time of human settlement there was an effective and efficient government based on the iwi. The effect of the Raupatu was to destroy that local government, and to replace it with a government based on Wellington, which was only partially as effective. An equivalent contemporary parallel would be if parliament were to abolish, over a very short period, the Bay of Plenty Regional Council, the Opotiki District Council, and some other locally based agencies (such as the police, the local courts, and the fire brigade), but to provide little to replace those institutions. The quality of the life and the economic prosperity of the area would quickly collapse. Thus it was after the Raupatu, except that in those days the majority of the inhabitants were Maori, and such alternate forms of government the central government made available tended to favour the European.

4.10 The thought experiment of abolishing the local government of an area described in the previous paragraph leads us also to conclude that it is well nigh impossible to quantify directly the impact of the parallel abolition which occurred as a result of the Raupatu.

 

  1. Loss of the Ability to Organize the Use of the Resources Efficiently

5.1 As well as being an owner of resources and its regulation of economic activities, the iwi and its hapu was also a manager of resources. The quality of their management would determine the efficiency of the use of those resources, which in turn would affect the consumption resources available to the stakeholders in the economic activities – the iwi members. An obvious impact of the Raupatu, as chronicled in the evidence to the Tribunal, is that there was a loss of leadership and overall demoralization, which must have reduced the efficiency of management, and the material welfare of iwi members.

5.2 Again it is difficult to see how the effects of this loss of efficiency could be estimated directly, although they will be again incorporated in the indirect estimates.

 

  1. The Loss in the Quality of Life by other than Material Changes

6.1 This section is to remind us that the costs to iwi members were not only a loss of material wellbeing. Economists sometimes call these non-material losses “intangible”: the Maori refer to them as “spiritual”. They are difficult to measure, but no less important when we assess loss.

6.2 While the courts and the Crown have to on occasions make judgements on the value of some of these intangibles, economic analysis has only a marginal role. Nevertheless I shall attempt to quantify the loss due to deaths during hostilities.

6.3 In the circumstances I think it pointless to even try to provide a quantitative estimate – even an indirect one – but by mentioning it here this economist is emphasizing that these non-material losses in the quality of life are very real, and should not be ignored.

  1. Estimating the Losses Due to the Raupatu and its Consequences

7.1 The above evidence has emphasized that the social and economic impact of Raupatu was not merely a loss of land and other capital goods, but a loss of rangatiratanga which includes a much wider range of economic and non-economic phenomenon. The analysis has also concluded that it is difficult to estimate directly the losses, in all but some very specific cases.

7.2 First I say something about the loss of population (section 8). Then in section 9, I estimate a value for the economic loss of the confiscated land and two other capital assets directly.

7.3 It needs to be emphasized to non-economists that economists measure costs by “opportunity costs”, that is in relation to an alternative (opportunity). The alternative needs to be very carefully and transparently defined. Typically economists call this alternative a “counterfactual scenario” when it happens in real time. These scenarios will be explained as they are required.

7.4 Inevitably it is necessary to make assumptions. Often the outcomes of the counterfactual scenarios are sensitive to the assumptions. The text draws attention to specific examples of this with sensitivity analyses. Regrettably not all assumptions lead to robust estimates. Nevertheless no matter how the figures are calculated, the conclusion is the costs of the Raupatu to the Ngati Ira have been very large.

7.5 I am aware that others may challenge the specific counterfactual scenarios and assumptions. I could provide estimates based upon alternatives if it was so wished.

 

  1. Compensation for the Loss of Men in Hostilities

8.1 There appears to be no demographic history of the Ngati Ira people, nor of their Whakatohea Iwi. On the basis of other studies we can say with confidence that a consequence of the Raupatu was that the Maori population grew more slowly than had there not been this disruption. This would apply to the Whakatohea population, including those in the Ngati Ira hapu. However it is not possible at this stage to estimate the loss of population relative to some counterfactual scenario, nor as a result to value that loss.

8.2 Ngati Ira are anxious to recall the loss of their men during hostilities, which they number at 45. It is not easy to value this loss of people.

8.3 Suppose the 45 men had died as the result of an accident in 1995. Under the Accident Compensation and Rehabilitation Act, each man has the following entitlements (slightly simplified):

– a funeral grant of $1900 (section 55);

– a grant of $4000 for his widow (section 56);

– a grant of $2000 for each child under the age of 18 (section 56);

– up to 80% of earnings to the widow and children for either five years or until (usually) the youngest child turns 18.

8.4 Suppose on average each man left a widow and two children, the youngest of whom was aged 7. In this case they would receive a lump sum grant of $9900. Then if their annual earnings was the male average of (about) $37,000, [4] the family would receive for an average of 11 years (11 X 37000 X .8) = $325,600. This figure has to be reduced for it not being given as a lump sum but over 11 years. Using a real discount rate of 5 percent the total is reduced to $256,100 (i.e. by 22.3 percent), which with the lump sum included comes to $266,000.

8.5 This is the compensation the family of a man in the given circumstances is entitled to, if he dies from an accident in 1995. In my opinion (and probably in law) it is an appropriate compensation for one who dies from hostilities, with the exception that there may well be exemplary damages. There is no obvious way to calculate exemplary damages for the Raupatu and related hostilities. In any case it would be only one component of any exemplary damages.

 

8.6 The figure applies for 1995. What would be a comparable figure for 1865? Unfortunately there are no comparable wage rate measure for that time, and the best systematic series we have only goes back to 1873 when carpenters received 64s 4d a week and farm labourers received 24s 2d a week plus board (and perhaps 50s a week without board).[5] Suppose we take as a fair wage (including their subsistence earnings) for a Maori at this time of 57 shillings a week, or $296.4 a year. Moreover wages appear to be reasonably steady in this period, so we take this rate to reflect that of 1865. Scaling the calculated lump sum for 1995 by relative wages to 1865 reduces it to $2130 per man, or $95,850 for the 45 men.

8.7 The $95,850 (or £47,925) is the figure which would have been paid in compensation in 1865. It was not. Consumer prices have risen about 29.6 times between 1865 and 1996, so £47,925 in today’s consumer prices would be worth $2.8m.[6]  Moreover the figure of $2.8m is misleading, insofar as it makes no allowance for the fact that Ngati Ira have not been able to use that money over the period.

8.8 To calculate a realistic value for the inability to use that compensation , we need a suitable counterfactual scenario. Suppose £47,925 had been paid in compensation in 1865, and had placed the money in a trust account where it had been wisely invested over the years, the return accruing to the trust. What would be the value of the trust in 1995?

8.9 The calculation is a straight forward one of compounding interest. However it requires an estimate of the average return a prudent trustee would have obtained over the 131 years. I know of no authoritative estimate of that figure. I shall have to derive a return.

8.10 In my evidence to the Waitangi Tribunal in regard to the compensation that Ngati Awa should receive in regard to their losses from Raupatu, I concluded a fair return on any trust account over the period would be 6.7 percent p.a. (An extract from the report is in an appendix.)

8.11 Applying that rate to the £47,925, that is assuming the money had been invested in a trust account compounding at 6.7 percent p.a., the value of the Trust Account would be worth $468m today.

8.12 This 1996 value of the hypothetical trust is very sensitive to the assumed level of interest: an inevitable consequence of the long period involved. For instance if the rate of return had been a half a percentage point lower at 6.2 percent p.a., the value would have been $253m; if it had been the same amount higher at 7.2 percent p.a., the capital sum would have been $865m.

8.13 What the number shows is that although the initial amount was small (even after being adjusted for inflation), a prudent investment policy would have resulted in the sum being very large some 131 years later.

 

9 Compensation for the Confiscation of Land.

9.1 Ngati Ira claim that 66,872 hectares (165,244 acres) of the land confiscated by the Crown Council was in the Ngati Ira rohe.[7] I do not have a record of how much was subsequently returned. The following calculations should be scaled down in proportion to the land returned, but subject to the caveats discussed below. In particular some of this returned land was alienated again without full and voluntary agreement of the iwi, while some land outside the raupatu rohe was similarly alienated. How should we value this confiscated land?

9.2 Mr Graham Hill, a registered valuer, estimates the unimproved value of the land in the Ngati Ira Rohe to be worth $33.832m in late 1995.[8]  (I shall assume that there has not been a marked change in land prices since.) This figure excludes improvements and so is not the capital value, but includes the effects of improvements following investment. (Examples include better transport access, drainage of a swamp, reduced risk of erosion and flooding through works, increased fertility as the result of long term pasture management.)

 

9.3 In any case the figure does not properly reflect the total loss to Ngati Ira because it does not allow for the accumulated return on the land over the years. Nevertheless it gives a benchmark order of magnitude. If the Ngati Ira had been able to hold on to their land, instead of it being confiscated, their holdings would appear to be valued in excess of $33m.

9.4 What was the value of the 165,244 acres at the time of the Raupatu? Doing a similar calculation for a submission to the Waitangi Tribunal on the Ngati Awa Raupatu, I argued a reasonable price for the sale of their land would average 5 shillings an acre. This price was consistent with the price promulgated by Governor Grey’s Land Regulations of 1853, when he set a price of 5 shillings an acre for land with pastoral potential.

9.5 However the land held by Ngati Ira does not have the same potential as the land confiscated from Ngati Awa. The more northerly part of the river plains is of similar value to the river plains of Whakatane, but the southern part is much more hilly. (The comparable northern land in the Ngati Awa region was not confiscated.) This is evident in the different current values of the land, with the rural land in the Whakatane area worth about $1470 a hectare today, whereas the Ngati Ira land averages only $506 a hectare. This suggests a fair price in 1865 for the confiscated land would have been 1s 9d an acre, which gives a value for the Ngati Ira land of £14,460 in 1866.

9.6 If the Ngati Ira were to have voluntarily sold (at 1s 9d a acre) all the 168,000 acres that were confiscated they would have received £14,460. Consumer prices have risen about 28.3 times between 1866 and 1995, so £14,460 in today’s consumer prices would be worth $846,000.[9] This is substantially lower than the current value of the land, partly because land prices tend to rise faster than general prices, but also because the current values include the effects of improvements. Nevertheless, one is left with an impression that 1s 9d an acre was cheap relative to the future value of the land, since it represents a price of about $12.6 a hectare in today’s prices, in contrast to an actual average price of $506 a hectare.

9.7 Moreover the figure of $846,000 is misleading, if it were to imply an account in which the Crown used the land for 126 years, and then bought it at the past price, albeit adjusted for inflation, but paid nothing for the 126 years of use.

9.8 To calculate a realistic value for the use of the seized land, we need a suitable counterfactual scenario. Among those I have rejected are trying to write an account of the outcome if the Ngati Ira had been paid the £14,460 in 1866, and secondly an account in which the Crown had paid a fair market rental on the land to the Ngati Ira each year. Both involve great difficulties of measurement, the first horrendously so.

9.9 Instead, I propose the following counterfactual scenario. Suppose the Crown had paid £14,460 for the land in 1866, and had placed the money in a trust account where it had been wisely invested over the years, the return accruing to the trust.[10] What would be the value of the trust in 1995?

9.10 The calculation is a straight forward one of compounding interest. However it requires an estimate of the average return a prudent trustee would have obtained over the 130 years. I have used the rate of 6.7 percent p.a. which I derived for a Waitangi Tribunal submission.

9.11 Suppose the average return on the trust account was 6.7 percent p.a. If £14,460 had been deposited in 1866, today it would be worth $132m.

9.12 This 1996 value of the hypothetical trust is very sensitive to the assumed level of interest: an inevitable consequence of the long period involved. For instance if the rate of return had been a half a percentage point lower at 6.2 percent p.a., the value would have been $72m; if it had been the same amount higher at 7.2 percent p.a., the capital sum would have been $244m.

9.13 What the number shows is that although the initial amount was small (even after being adjusted for inflation), a prudent investment policy would have resulted in the sum being very large some 130 years later.

9.14 This estimate applies only to the loss of land from the Raupatu (and not subsequent losses from subsequent breaches of the Tiriti, either within or outside the Raupatu rohe), but does not allow for any returned land. It does not apply to the losses of other resources (such as water property rights), nor of the other consequences from the loss of rangatiratanga. It has not been possible to make an estimate for this, as I did for the Ngati Awa claim, because the demographic data is not available.

9.15 The valuation on the loss of land is only about 40 percent of the valuation of the loss of the 45 men. We should not be surprised. The value of the human capital of a group usually exceeds the value of its physical assets.

 

10, Compensation for the Loss of the Flour Mill

10.1 In the course of the 1865 hostilities, a flour mill owned by Ngati Ira was burnt down. The mill had been completed in 1860 at a cost of £800.[11] It was burnt down in 1865, apparently in the hostilities. Ngati Ira are asking for compensation for the loss of the mill.

10.2 It is appropriate to depreciate the mill for the five years use after 1865. I have done so at a rate of 10 percent p.a. Thus the value of the mill in 1865 would be £470, which I take to be the amount that the government would have been obliged to compensate Ngati Ira for the loss of their mill during hostilities, had the Crown accepted responsibility. Again this figure does not include exemplary damages.

10.3 Using the same counterfactual scenario of a trust account for the previous two examples (men and land) the value for compensation in 1996 for the loss of the mill would be $4.6m.[12]

 

  1. Compensation for the Loss of the Schooner

11.1 In the course of the 1865 hostilities, a schooner “Hira” owned by Ngati Ira was confiscated by the government troops. It had been built in the Bay of Plenty by Heziakh Hunt and was registered at the port of Auckland. The schooner as not returned to its owners and wrecked with a total loss at Opotiki on 7, July, 1867.[13] Ngati Ira are asking for compensation for the loss of the schooner.

11.2 I have been unable to obtain a direct valuation for the schooner. After having consulted Paul Monin and Brad Patterson, historians familiar with the period, and having examined the documentary evidence they knew of, I have taken the value of the Hira, to be £600, or about £17 a ton. [14]

11.3 Using the same counterfactual scenario of a trust account for the previous examples, the value for compensation in 1996 for the confiscation and subsequent loss of the mill would be $5.9m.[15]

 

  1. Conclusion

12.1 I have not tried to assess the intangible (on non-material, or spiritual) losses of the Ngati Ira, no have I been able to assess the consequential losses from the loss of Rangatiratanga by the Hapu. It has also not been possible to suggest appropriate exemplary damages, if any. They are mentioned here because it would not be appropriate to ignore them totally.

12.2 Those items for which the Ngati Ira claim compensation, are valued as follows:

 

In 1865/6 Terms:

 

£

Men killed in hostilities (45)                                               47,925

Land confiscated (165,244 acres)                                       14,460

Flour mill destroyed                                                                 470

Schooner seized                                                                        600

 

TOTAL                                                                               63,455

 

 

12.3 If these amounts are treated as being invested in a trust account at a return of 6.5 percent p.a. they accumulate over the years to:

 

In 1995/6 Terms:

 

$m

Men killed in hostilities (45)                                                    468

Land confiscated (165,244 acres)                                            132

Flour mill destroyed                                                                  4.6

Schooner seized                                                                         5.9

 

TOTAL                                                                                 610.5

 

12.4     In summary, and allowing for a degree of rounding (given the inherent inaccuracy of the estimating procedures), Ngati Irapuaia would heave been entitled, under the assumptions described above, to compensation of around £63,500 for their losses from the Raupatu hostilities and subsequent confiscations. Compounded at 6.7 percent p.a., our best estimate of a fair rate of interest, this is equivalent to a sum of $610 million today.

12.5 These estimates are subject to wide margins of error, and to numerous assumptions and caveats including the omissions mentioned above. Nonetheless they demonstrate that insofar as the Ngati Irapuaia claims are justified, the hapu is entitled to a substantial degree of compensation.

 

 

Appendix: Extract From “Evidence of the Social Impact of the Raupatu”

See Paragraphs 9.11-17 of

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The Economic and Social Impact Of the Raupatu

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Footnotes

[1]  The iwi name is strictly spelt with a macron above the o, but there is no facility for this in my word processor.

[2]  Dalziel, P. (1991) “Economists’ Analysis of Maori Economic Experience: 1959-1989”, 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.212-3.

[3]  Reported to the Waitangi Tribunal in Wai 45.

[4]  Because we will be scaling the estimate (see paragraph 8.6) that the average Maori does not earn the average wage is not crucial.

[5]  M.A. Arnold, Wage Rates, 1873-1911, VUW Department of Economics Discussion Paper No.12, April 1982.

[6]  Calculated from  M.A. Arnold, A Long Run Consumer’s Price Index for New Zealand for March years 1862 to 1983, VUW Department of Economics, 1983(?), and official data since 1983.

[7]  See letter of Graham Hill to John Kameta, 22 December 1995.

[8]  op. cit.

[9]  See Section 8.5 for the explanation and source for this calculation, noting however the confiscation took place a year later than the hostilities.

[10]  We are implicitly assuming that the iwi were not told of this trust, so that their behaviour in the counterfactual was no different than what it was in actuality.

[11]  My main documentary source is an undated affidavit by H.G.D. White.

[12]  If the rate of return had been 6.2 percent p.a. (or 7.2 percent p.a.) the amount in the hypothetical trust account would be $2.5m (or $8.5m).

[13]  Source of information comes from the Watts Index A-I VM15, Whakatane Museum, page 247.

[14]  The documentary evidence is available on request. I am grateful to the two scholars for their assistance.

[15]  If the rate of return had been 6.2 percent p.a. (or 7.2 percent p.a.) the amount in the hypothetical trust account would be $3.2m (or $10.9m).

 

An Outstanding Journalist

<>Diane Dekker wrote an article in “The Evening Post” of 11 May 1996 on Mike Hosking, who was then one of the frontmen on “Morning Report”. Many people wrote in criticising him. My response, printed on 22 May,  was more indirect.

 

Keywords: Miscellaneous; Portraits;

 

Diana Dekker writes that broadcaster Geoff Robinson asks the “questions he believes listeners would ask” Wrong. He asks the questions that we listeners would ask if we were as fully informed as Mr Robinson is. I am constantly amazed at his ability to eschew the obvious question – the one which is in the listener’s mind – and ask a better one. That is why Geoff Robinson is one of the country’s outstanding journalists.

 

BRIAN EASTON

Ex-Fortex

Newspaper commentators failed to reveal that the former company of the year was in dire straights.
Listener 18 May, 1996.

Keywords: Business & Finance; Macroeconomics & Money;

The Fortex Group, a South Island meat company went into receivership in March 1994. Two years later its managing director, Graham Thompson, was jailed for six and a half years. General manager Michael Mullin had been jailed for four years. The newspaper files which record how the company became the darling of meat industry commentators, give little hint that the company was in trouble, until right at the end. (Unsourced quotations come from journalists, who would prefer not to be remembered.)

1985: Cattle Services, Fort Export, and Canterbury Venison merged to form Fortex, which owned a small processing plant in Seafield, Ashburton.

August 1988: “Financially, Fortex has yet to prove its approach works.” (Rebecca McFie)

1988: First of a series of loans booked as income. (Convictions for fraudulent accounting only went back to 1991.)

December 1988: Awarded Public Relations Institute’s Gloombreaker’s award.

1988, 1989: Pioneering agreements with workers which enabled the plant to run 22 hours a day, six days a week. Thompson member of New Zealand Business Roundtable.

June 1990: “Fortex lists on the Stock Exchange this month and should be in the top 30 companies by the end of the year.”

November 1990: Fortex wins Company of the Year award made by Deloitte accountants and Management magazine. Thompson runner up Chief Executive of the Year. One judge said “Fortex did its homework. It floated off a company when no one else could raise money in that sector.” Treasury Post-Election Briefing cites Fortex for its labour relations.

December 1990: Minister of Agriculture likens Fortex to Watties when opening the newly built Silverstream (Dunedin) plant (planned cost $35m, actual cost $50m). “Speaking as a farmer, I wish they would get into the North Island.”

1991 New Years Honours List : Thompson awarded OBE.

April 1991: Fortex frequently commended by supporters of the Employments Contract Bill in parliament as an example of successful labour relations.

July 1991: Chief economist of Buttle Wilson, described as “New Zealand’s leading investment banker and brokerage firm” in an article in the international magazine Institutional Investor, describes Fortex shares as “undervalued”.
November 1991: “Fortex Group has shown strains of its rapid expansion in the past year, with a negative cash flow.” (James Weir) This and the 1988 McFie quotation were the only clippings I found which had any cautions. Immediately after the collapse, Canterbury University accountant, Alan Robb, showed the pre-crash accounts reported cumulative operating cash flow (after interest and dividends) had sunk $40m between 1989 and 1993 which should have been an early warning to anyone who had cared to do the sums.

1991: $2.9m profit reported (actually a $4.4m loss).

May 1992: “Inefficient given protection says Fortex chief”. (In 1996 it was admitted Fortex’s “accounting section calculated its costs were `significantly’ higher than its competitors.” So much for the superior labour relations?)

1992: TVNZ Best Corporate Company Strategy. $9.2m profit reported (actual loss $5000)

January 1993: “A gamble by the meat industry’s biggest innovator appears to have paid off. Farmers flock to Fortex pay plan.”

November 1993: While Fortex had its first setback in its fifteen year history last season, the company is still in a strong financial position.”

1993: Tradenz exporting award. TVNZ Marketing award. “Finance Minister Ruth Richardson mentioned the company at every opportunity.” $4.8m loss reported (actual loss $10.4m)

March 1994: Receiver called in. (It would appear that there are $90m of assets and $160m of liabilities). 1800 workers lose their jobs. “Fortex deserves to be given whatever reasonable chance it may have to trade its way out of misfortune.” Dominion editorial.

March 1996: Thompson found guilty on 12 fraud charges, involving misleading accounting (but not misappropriation of funds). Their effect was to understate the company deficit, rather than add to it, keeping the company in business for longer than was financially justified. Farmers, workers, contractors and investors lost money committed when it was not viable.

It is a sad story, given that Fortex was committed to value added processing of the meat. While it “added value” to 90 plus percent of its carcasses, the conventional companies treated only 30 percent. Yet the high foreign exchange rate penalized it against more other companies, reducing the domestic return to the value-added processor, encouraging the raw commodity trader.

Fortex’s enthusiasm for innovation and value-adding overrode the financial discipline of the market. If an unfavourable exchange rate signals against value-added exporting, and high interest rates signal against expanding, then a business must respect the signals. If it does not, eventually and inevitably the company will be bankrupted. The fraud at Fortex obscured and prolonged the dire state the company was in, rather than caused it. Value added exporting is not viable when the macroeconomic settings are hostile.

Not a single one of the clippings I looked at discussed this. Perhaps we should be more cautious about applauding companies and business people puffed on our financial pages. As German poet and essayist Hans Magnus Enzenberger (who was here for the recent Arts Festival) wrote “The reader of the Financial Times shouldn’t be deprived of what the reader of a popular newspaper gets. Everybody has a right to a daily horoscope.”

BIOGRAPHY OF A PUBLIC HISTORIAN: BRIAN EASTON

Phanzine (May 1996, vol 2, no 1: p.6-8) by David Grant.

Brian Easton: Wellington economist, historian, media commentator

Brian Henry Easton was born in Christchurch on 28 March 1943. His father Harold, born in Wellington (his father was from the West Coast), worked as an armature winder for half of his adult working life and a psychopaedic nurse for the other half. His mother, Dorothy, an infant immigrant from English, worked as a clerk and later was a long-serving librarian at Hillmorten High School; the library was later named after her. Brian was the eldest of three children. Brother Keith is now a teacher and sister Jean, a solo mother. Both live in Christchurch.

He was schooled at Somerfield Primary, Christchurch South Intermediate and Christchurch Boys’ High School where he thrived in a top-stream academic environment. Considering a teaching career, he enrolled at Canterbury University in 1963, later graduating with an honours degree in mathematics. The faculty was stimulating. In particular, he acknowledges his mentors Professor Derek Lawden and Walter W Sawyer (when he was at primary and secondary school) for their fine teaching and rigorous scholarship.

During this time an interest in economics was fostered, heightened by a summer school at Curious Cove to which left-wing economists Bill Sutch and Wolfgang Rosenberg contributed. This led to academic study in the subject at Canterbury followed by a research assistant’s post at the N. Z. Institute of Economic Research while graduating from Victoria University in economics in 1966. Philosophy became important at this time, particularly epistemological questions as to how to understand what is truth, a credo that has since become a primary determinant in how he approaches his research in a wide range of interests.

He then headed to Britain, as an assistant lecturer at the University of Sussex, where he was influenced by economic historian Professor Barry Supple who taught him the linkage between data-based economic theory and practical solutions in a historical context. Back in New Zealand in 1970 he lectured in economics and econometrics at Canterbury University until 1981, directed

the Institute for Economic Research until 1986, before branching out on his own as an independent researcher and consultant.

Today, Brian Easton’s professional activities traverse a wide and eclectic mix of interests. Firstly, he works as a consultant – to Māori claimants in Waitangi Tribunal hearings, to trade unions, companies and institutions in the public sector. These encompass macroeconomic forecasting and advice, competition and commercial policy litigation, public policy analysis and project evaluation. He has been used as an ‘expert’ witness on a mix of commissions, committees, tribunals and courts covering issues ranging from taxation to maternity benefits, broadcasting and casinos.

He has taught a variety of courses at Auckland University’s political studies department, Victoria University and the Wellington School of Medicine’s Department of Community Health. These courses cover industrial relations, labour economics, health economics and political economy. Treasury has ensured, he considers, that consultancy rates for economists are generous enabling him to spend the rest of his time pursuing less profitable pursuits but ones closer to his heart.

He has a high public profile as a journalist, reviewer and occasional radio and television commentator on economic and related issues. He has edited the New Zealand Monthly Review and Quarterly Predictions and since 1978 has been the economic columnist for the Listener. He also is on the Editorial Advisory Board of New Zealand Books.

Some in the community, including many other economists, consider Brian Easton a ‘maverick’. On the other hand, supporters point to the conjuncture of diligence. scholarship and humanity in his research. His unorthodoxy was clearly evidenced in a recent paper he called ‘Myths of the lnterwar Economy’ presented in a seminar to the Dictionary of New Zealand Biography where he dismisses the conventional wisdom that New Zealand experienced general hardship in the 1930s depression mainly through the incompetence of the Forbes coalition to manage the economy, that the 1920s economy was largely dormant and the Labour Government in 1935 introduced policies that led to a better economic performance and prosperity.

His revisionist argument indicates that the external shock of the early 1920s was as severe as that of the early 1930s, that the 1920s as a whole was a period of stagnation, and that while there was substantial hardship in the early 1930s, New Zealanders were not the worst hit in the world. Further, he argues that economic management during this period while not perfect, was better than has been credited for and introduced policies and made changes which benefited New Zealand in the long run. He is not, it must be quickly added, being contrary for the sake of it. The argument is cogently presented based on available evidence and statistical data.

Brian Easton disavows the term maverick although he keeps his own counsel, ‘walking down his own path’ as he describes it. That said, he does not work in isolation. A wide range of colleagues read and comment on or criticise his drafts. But he firmly believes New Zealand is a conformist society. lnnovation most easily emerges from those who live and work at its margins. He does consider himself an outsider. He strongly adheres to the words of Columbian University academic Edward W Said who decreed that it was the intellectual’s role to represent a message or view not only to, but for the public and to do so as an outsider not co-opted by government or corporations.

He regards an understanding of history as essential to his work as an economist. Knowledge of the development of economic and social processes in the past helps us to understand current issues and gives us the wherewithal to argue with passion and conviction. He belongs to PHANZA because it is an organisation of professional historians and is happy to be regarded as such.

Some of his publications have emerged from tangential research. In 1989, working with Maori claims in regard to broadcasting reforms and in order to understand the entitlements to the property rights of the radio frequency spectrum by the Maori and the Crown, led to an investigation of the origins of the Tiriti o Waitangi. This led eventually to ‘Was There Treaty of Waitangi?: Was It a Social Contract?’ which he presented as a paper to the Here and Now History Conference in Wellington in February of this year.

In it, he argued that there was, in a particular sense, no Treaty of Waitangi, that is, there was no document in English which could purport to be a treaty agreed to at Waitangi on 6 February 1840. The Tiriti o Waitangi that was consented to was different in important ways from the drafts in English out of which the Tiriti developed. The closest document we have to a true Treaty, he suggests, is a fair translation of the Tiriti – probably made by one of the Williams about a week after the signing – and sent by James Clendon the United States consul in the Bay of Islands, to his Government. He further argues that to be in part a social contract.

Currently, his major project is his forthcoming book, In Stormy Seas: The Post War New Zealand Economy, a substantial work that he has been working on for many years, to be published by Otago University Press, towards the end or the year.

Brian lives in Kelburn. His biologist wife Jenny works in Nelson as a pollution control officer for the Tasman District Council. Daughter Anita, 24, is a post-graduate linguistics student at Victoria University and son Tama, 22, works at Mud Cycles. a mountain bike shop in Karori.

Some matters of fact have been corrected. It has not been updated.

Risky Retirement

What You Get Out is What You Put in is A Worrying Principle for A Retiement Scheme.
Listener: 4 May, 1996.

Keywords: Social Policy;

When I began preparing this column the political party ACT had a well established policy, based on principles with which if one did not agree, at least one could understand. They have since changed their leader who has announced that parts of the policy would be changed to make them electorally attractive. Thus far their policy on retirement has not been altered, but it may be. However I am more interested in the principles. Because the ACT proposal is (or was) the most extreme scheme, it nicely illustrates key issues.

Once upon a time the world’s state retirement schemes were categorized into funded and pay-as-you-go. Since 1898 the New Zealand has been Paygo. Each year the government pays out of general revenue New Zealand Superannuation. However overseas schemes often depend on the retirees having contributed to a fund, which was invested, and their state retirement benefit was the proceedings from this fund. In principle ACT wants to phase out the Paygo scheme and replace it with a funded scheme in which individuals would contribute 7 or more percent of their income. It is invested in private market securities, with the contributions and investment returns rates determining (on an actuarial basis) the retirement income.

However the distinction between Paygo and funded is not as crucial as at first appeared. Many of the funded schemes in Europe are potentially “bankrupt”, because they have insufficient assets to pay the superannuation to which they are committed. They rely on the additional revenue from current workers to cover the deficit (hoping the day will never come when that is insufficient). These funded schemes are really Paygo.

The important distinction is between “benefit determined” and “contribution determined” schemes. New Zealand has always had benefit determined state schemes, where the level of the benefit is set and tax is raised to pay those benefits. The near bankrupt European schemes are also benefit determined schemes, although instead of a flat rate benefit like New Zealand, each individual’s benefit entitlement is related to her or his individual past earnings (say a certain percentage of the average of the best ten years). The financial problems of the scheme arise because when the retirees were earning they were not contributing enough to fund the benefits they were promised.

The ACT scheme tries to be exactly the opposite. Its benefits are contribution determined: what you get out is what you put in (Wygiswyp). The contributions of individuals, increased by the returns on the investment, determine the retirement benefit. Most private retirement schemes in New Zealand are Wygiswyp, inevitably so because they cannot guaranteed a final benefit level. Many New Zealanders like a private retirement scheme because they have the guarantee of a state benefit, and their private scheme and/or other savings (including their house) gives them a top up. It is a bit of a gamble. While they can usually rely on their fund managers to invest prudently (although Robert Maxwell’s plundering of his employees’ funds warns that does not always happen), the managers cannot ensure a return, and hence a particular payment level in retirement.

It is this aspect of the ACT presentation which is worrying. Everyone should know that under a Wygiswyp scheme the rich get higher pensions than the poor. (I will discuss women and retirement later in the year.) Since ACT appears to be aiming for the rich vote (it is unfortunate that their leaders ran policies in the 1980s which impoverished so many of its potential voters), we can allow for that. However ACT is not saying enough that they cannot guarantee the returns they promise. Their calculations may prove wildly wrong. (There has been a dispute about the high rates of return that the ACT scheme needs to obtain the levels the politicians claim. Perhaps they are right, but if so, they are promising penalizing high mortgage interest rates as well.)

Moreover, since by the time their scheme comes to maturity the ACT politicians will gone on to the great debating chamber in the sky, the public will have no comeback at all if the promises are not kept. This is particularly strange for a party which advertised that “you have to use your party vote to keep the government honest” (above a picture of Roger Douglas). They have not been explicit explaining their retirement scheme, and the risks and possibilities it offers.

This would be less worrying if retirement policy was stable, that once it began going down a particular track it would not fall off. But recall how the 1975 contribution determined scheme precipitated the Muldoon scheme whose fiscal impact probably stressed the economy more than any other single action by Muldoon. There is now a fragile agreement that we should have a first tier benefit determined state scheme. Even that is under threat from proposals such as ACT’s. If the state provided retirement depends solely upon a Wygiswyp scheme like ACT’s it may well fail to deliver as the politicians’ promise, and convert into a Paygo one.

500 Years Late: the Effects Of a Decision by a Chinese Emperor in 1432

Listener April 20, 1996

Keywords: Political Economy & History

The most important single date in New Zealand’s history is 1432, when Emperor Xuan De of China forbade the building of ships greater than 30 metres in length. A few years earlier a fleet commanded by Zheng He, with much bigger ships, had explored as far as Madagascar. The prohibition to build such ships prevented the Chinese exploration of Australasia, and their settlement of South East Asia to New Zealand. When Captain Cook arrived here 337 years later the population he met had brown rather than yellow faces. Today, 227 years after Cook, New Zealand is primarily a settlement of peoples of Polynesian and European descent.

A handful of Chinese, Indians, and other Asians arrived in the nineteenth century, sometimes to outbursts of hysteria. There was legislation which discriminated against them on the books as late as 1952. By 1991 almost 100,000 New Zealand residents (including those temporarily here studying or on work permits) described their ethnicity as solely or partly Asian. Thus slightly less than 3 percent of the population is of Asian origin. (By themselves the Chinese make up 1.1 percent and the Indians .8 percent of the population.) Since then Asians have been arriving at a rate of around 10,000 to 12,000 a year, so the 1996 Census is likely to report that just over 4 percent of the New Zealand population have some Asian ethnicity. (Statistics New Zealand have published useful Asian New Zealanders in their “New Zealand Now” series. There is, interestingly, no good history of Asians (or even Chinese) in New Zealand, although there are some excellent particular studies.)

Given these trends are likely to continue, some census next century may well report 10 percent or even 15 percent of the population of Asian descent (including those with a mixed Asian and European or Polynesian heritage). Xuan De only delayed their arrival by 500 years.

We have been struggling with the notion of a bicultural nation of Pakeha and Maori, knowing that we will soon have to attend to the Pacific Island heritage too (they were about 4 percent of the population in 1991). We have yet another task of incorporating the Asians into the nation, with the additional complication that they are a very diverse collection of peoples who hardly ever group themselves as “Asians”, for the categorization is a European perception.

Can we avoid the challenge by keeping them out? The first point is that we have a large number here already, some of whom are third and fourth generations New Zealanders. We could try to keep others Asians out, but as long as we have migration to New Zealand the procedures to discriminate against Asians would be as bizarre and racist as they were in the past. And the Asians still arrived then. The logic of history and geography is that the Asians will continue to arrive.

Yet all is not well with the Asian migration. One reason is that it seems to be concentrated to Auckland whose infrastructure is under great pressure. While there has been worries about a property boom, this visitor is struck that Aucklanders seem to be absolutely committed to creating traffic gridlock as soon as possible. That is not a problem caused by Asian migrants: any extra population adds to the traffic delays. Currently an immigrant has to accumulate a certain of number of points in order to be allowed in. Perhaps points should be deducted if they are planning to settle in Auckland (or any over-crowded centre).

However it is not merely a matter of physical infrastructure. The bigger problem is that many New Zealanders find it difficult to cope with the high proportions of Asians visible in central Auckland and some of the suburbs. For some it is ignorance but, frankly, for many it is sheer racism.

Our official attitude to Asia exacerbates such attitudes. Too often we define New Zealand’s relationship with Asians as a commercial one. Certainly about 30 percent of our exports today go to East Asia, and the proportion is likely to climb – to double – to the 60 percent of Australia exports which currently go there. (Ironically, and despite the rhetoric, economic studies have found it very difficult to demonstrate there are substantial net benefits, or substantial net costs in the long run, from immigration.) But to define the New Zealand-Asian connection this way is to confuse the richness of human relationships with a commerce-only transaction like prostitution.

We need to tackle the ignorance and racism head on. Not by saying we must be nice to Asians because they are our trading partners, but because there is much to gain from a good relationship. Just as the Maori has enriched the lives of Pakeha, and vice versa (and the Pacific Islanders are contributing too), the Asians will also add to the depth and vibrancy of the unique culture developing in this corner of the world. New Zealanders need to improve their understanding of Asians, with a conscious program of Asian Studies in schools, and the media supporting those who have left school. The courses would do well to begin with the implications of Xuan De’s decision in 1432.

In the Balance

There Has Not Been A Balance of Payments Crisis for Over A Decade. Will Our Luck Run Out?
Listener: 6 April, 1996.

Keywords: Macroeconomics & Money;

It is that time in the economic cycle when the more experienced economists begin muttering “balance of payments crisis”, albeit with a question mark. Such crises occur when the current revenue the country obtains overseas (mainly from exports) is much less than the current payments the country makes (for imports and foreign debt servicing) to the extent that foreigners are no longer willing to lend sufficient capital to cover the deficit.

A balance of payments crisis is not the same as the currency crisis which occurred in July 1984, when the Reserve Bank almost ran out of foreign currency while defending a fixed exchange rate. Nowadays the currency is not pegged to any given rate, and the Bank is not required to buy and sell foreign exchange, so we cannot have a currency crisis. But foreign lenders can become reluctant to cover the nation’s overspending.

Because balance of payment’s crises involve confidence of those foreign lenders, they cannot be readily predicted. However the fundamentals which underpin them can. We can look at the value of exports, imports and debt servicing. The data jump around because of irregular effects but the recent figures suggest the trend deficit is deteriorating. Exports are not rising as fast as imports, while debt servicing continues to rise (since total debt is rising).

Forecasts are more problematic, since assessments have to be made of such things as the future export prices, and the ability of exporters to increase their sales. The forecasters may be little on the optimistic side. Even so their projections suggest that the current account deficit – the measure of our over-spending – is going to remain above the 3 percent of GDP level, which is sometimes considered to be sustainable in the long run. Foreign lenders may accept a higher deficit in the short run if they think it will come down. But that does not seem likely in the near future.

It is true that we have had no balance of payments crisis for over a decade, but this partly reflects luck. Various investments which took place before 1984 – forest and horticultural planting, the major energy projects – increased export revenue or reduced import spending after 1984. We also had an export boomlet from meat sales when we ran down the sheep and beef herds in the 1980s, while second hand equipment from closed factories was sold overseas. The economic stagnation of the first eight years of rogernomics reduced the flow of imports. Altogether the balance of payments looked reasonable in the 1980s.

In the 1990s there was the manufacturing export boom to Australia, and a terms of trade hike of our export prices relative to import prices. These were sufficient to cover the rise in imports as the economy began to expand.

What of the future? Will the Australian economy continue to suck in New Zealand exports, or will it stagnate and reduce its demand for our products? Will primary product prices remain high (some are already weakening)? Will the boost to the economy from the mid-year tax cuts also increase imports? Will exporters continue to increase sales, or does the high exchange rate discourage them, while deterring firms from investing in additional capacity for production? Will the high exchange rate (which reduces import prices) encourage New Zealanders to buy foreign, and turn away from New Zealand alternatives? In summary: will our luck run out?

An increasing deficit need not immediately lead to a crisis, if foreign lenders are happy to continue to make up the difference. When might enough of them change their minds? The balance of payments may well be looking much worse at the end of the year. The cynic observes that they always look worse just after an election than during the campaign. In the interim we may see domestic interest rates rise in order to attract foreign investors. (At the same time the exchange rate may even rise, for markets can be perverse in the short run.)

The most likely scenario is that there will be increasing signs through the year of some external problem. Some foreign investors will get increasingly uneasy. Market signals will become mixed, undermining confidence. And as investors try to pull their money out of New Zealand, the exchange rate could fall quickly – “collapse”. Whether this will lead to a one off increase in the price level, or ongoing inflation will depend on how well the economy is managed. If the inflationary boom can be avoided, the additional profitability in the external sector should generate sustainable growth.

Business commentators will ignore the deterioration of the fundamentals and blame it on the election and MMP. But elections in other MMP countries do not cause balance of payments crises. There is an abundance of political innocence in the financial community. Perhaps the Electoral Commission should be targeting them, for their ignorance is a major threat to economic stability. There is a real danger we shall interpret the next balance of payments crisis as a political problem, ignoring that the fundamentals have been (and are) deteriorating.