Chapter 5 of The Commercialisation of New Zealand

Keywords: Political Economy & History;

In principle the Minister of Finance is just another cabinet minister, but in practice he or she can be as powerful as the Prime Minister. That power comes from the importance of economic and financial issues in the politics of the country, where no other portfolio is comparable, together with the size and the scope (and the competence) of Treasury, which services the minister. While the Prime Minister has the constitutional power, including that of appointing and dismissing a Minister of Finance, in most policy matters the latter has more effect. A rough measure can be seen from the size of the respective offices which service the two positions. In 1995/6, the central activities of the office of the prime minister and cabinet were voted $4m, while Treasury was voted $59m for its advice role. The imbalance was even greater in earlier years, before the advisory arm of the prime minister’s office was built up.

This feature of New Zealand politics was obscured in the 1975 to 1984 period when the prime minister, Robert Muldoon, also held the finance portfolio. Even so there was the acknowledgement when it was said that he was too powerful as a result, and that the premier should never be minister of finance. The practical equality of the premiership and finance portfolios is moderated by the personalities of the ministers involved. The period of 1984 to 1988 was characterized by a weak prime minster and an exceptionally strong finance team.

Lange and the Ministers of Finance

David Lange’s greatest strength was his handling of the government’s relations with the New Zealand public, where he had no peer. He was also an able crisis manager, perhaps with the flaw of precipitating unnecessary crises. However his internal management of the government was much less successful, most evidently when he was in conflict with the ministers of finance.

On the other hand over most of the period of Lange’s premiership there were three ministers of finance, each an effective politician. The finance team of 1984 – sometimes called the `Troika’ – was a unique innovation. In the past there had been a junior minister assistant to the minister of finance. This was partly to share an increasingly onerous workload, together with the practicalities of the office. The appointment of a second minister became standard with Robert Muldoon. On occasions he even had two associate ministers, but they were junior in ranking, and very much under his direction.

Instead Lange appointed three extremely able politicians, Roger Douglas, Richard Prebble, and David Caygill, ranked 4th, 5th, and 7th in cabinet, and who in addition held major portfolios of Transport and Trade and Industry. The three ministers (with the parliamentary under-secretary for finance, Trevor de Cleene), had offices on the same floor of the Beehive which increased their degree of integration. There was both an institutional and physical integration of the three ministers.

In contrast the prime minister was isolated at the top of the Beehive without any really close associate. Neither Lange, nor Deputy (and later) Prime Minister, Geoffrey Palmer had any competence in economics. (Indeed, that they and two of the Troika – Caygill and Prebble – were lawyers, seemed to give them a stance of representing their client’s views – in this case Treasury’s – rather than having independent views of their own.)

The economic direction had started out badly, with little agreement in the direction of economic policy in opposition. The 1984 manifesto papered over the differences, relying on what became a characteristic feature of the Labour government, of language that was so vague it often had two meanings. Once it was agreed to, the commercialisers, who in government had the power of implementation, interpreted the text in their way, or if necessary ignored the agreed text when they could not.

Initially Lange also was part of their team too, supporting the Troika’s policies. The policy process went like this. The Troika would come to some policy conclusion based on Treasury advice, persuade Lange and Palmer of its correctness. The tight five would then take a proposal to a cabinet committee.[1] The recommendations would then go to cabinet, and then on to caucus. At each step in this decision tier, there was already a majority in agreement. This most obviously applied at the caucus level. The 1984 cabinet plus the six undersecretaries amounted to 26 (of the caucus total of 55) who usually supported the cabinet decision under the principle of collective responsibility. Allowing for a few other functionaries (whips, chairperson of committees, caucus secretary), and few loyalists, the cabinet (which might have been split when it made its decision) had a natural majority in the caucus. (Often the caucus would not even be consulted, because the cabinet knew it could rely on retrospective acquiesence.) The same process of majoritarian loyalism gave the government majority in parliament. Thus the Troika, obtaining the support of Lange and Palmer and a few loyalists in cabinet, could impose their policies on a house of 90 plus MPs, and so the country. This was a formidable degree of leverage by a few politicians over the entire country.

Adding to the effectiveness of the Troika was there was usually no coherent alternative economic policy. While Treasury marked (in the sporting sense, and sometimes in the academic sense too) virtually every other department to some extent (formally because they had to approve its expenditure), there were major areas of economic policy where the only expertise within the government was within Treasury. Yet when Treasury clashed with another government department on the latter’s patch it could rarely win, because there was now within cabinet a minister who was as well briefed as the Troika. (Chapter 8)

The Troika

Thus the ministerial structure that Lange chose gave considerable power to the Troika. It could be said to be more dispersed than under Muldoon when so much power was held by one man, but given the compliance of the prime minister with a large parliamentary majority who were also unable to resist policies that they doubted, given the unity of purpose of the three, given the consistency of that purpose with that of the most powerful economic department in the land (whereas Muldoon had been in conflict with his advisers), one could argue the Troika was more powerful than Muldoon.

The broad direction of the Troika’s policies was that there should be greater use of the market in the regulation of the economy, and an economy which was more open to the outside world. To what extent they were initially committed to full commercialization of the economy is less clear. It seems likely that the ministers started down the more-market road, and found it leading to the advisers’ commercialization strategy they had not foreseen.

Roger Douglas had been highly interventionist as a minister in the Third Labour Government from 1972 to 1975. His 1981 There’s Got to be a Better Way is a confused document. For every sentence that can be read as a precursor of Rogernomics, there is another which shows him still a keen interventionist. His scheme for carpet factories across the country made him one of the greatest of think-biggers, although mercifully it was launched while he was in opposition. It is not until 1983 that he seems to be more directly moving towards the economic policies which today we call Rogernomics, under the tutelage of a Treasury official attached to the Labour opposition.[2] When he came to office in 1984 he supported an uncontrolled float of the dollar, but he favoured a retail sales tax and had to be persuaded by Treasury into a GST.

His 1987 autobiography, Towards Prosperity, suggests Douglas’s main characteristics is that he is an activist, liking to do things. but was rather casual about what exactly they were. In a different economic regime, as occurred in 1972 to 1975, he was happy to be an active interventionist. Douglas was trained an accountant with little economics. His writing has consistently shown a lack of interest in the welfare state. Instead there is a belief that giving people cash income will resolve such issues as the distribution of health and education. Thus his support for a minimum guaranteed income, and the policies in his Unfinished Business are a continuation of what appears to be a long held belief.

Richard Prebble was the most ideologically right wing of the three on economic policy. Treasury officials quickly identified him as the economic dry and `monetarist’ in macroeconomic policy: today he is leader of ACT, the most right wing of the parliamentary parties.[3] Yet in opposition he had campaigned for a public (and intervened) transport sector. One guesses that trained as a lawyer Prebble has little knowledge of the economist’s market theory and its underlying notion of the role of efficiency that drove the reforms. Rather, he is inclined to grab simple economic ideas – bumper slogans he called them – often based on anecdotes, which he waved about with a ferocious intensity. Prebble was the most political animal of the three, a determined negotiator, a good political tactician, a superb grasp of parliamentary procedure, and a first class bovver boy. Muldoon loathed Prebble – it was like looking in his mirror.

David Caygill was the most unassuming of the three, but was as crucial to the Troika’s success, not least because of his reasonableness. When he became Minister of Finance, after Douglas in 1989, the tone of Treasury changed. Caygill was willing to look for compromises. When the funding for the cervical smear campaign was raised he asked Treasury officials to look around for a source within the budget. When the green element in the caucus wanted something done about lead free petrol, he put a differential in the petrol tax. Unlike the other two, Caygill majored in economics (and political science), although he then went onto a law degree. The course imbued him with a neoclassical market oriented microeconomics, and was more monetarist than keynesian. (He was the minister responsible for the Reserve Bank Act). He had a distaste for political lobbying of the self-seeking kind. Whereas his predecessors in the Trade and Industry portfolio, had their ministerial anteroom filled with those who wanted some handout, Caygill’s soon became empty because he refused to offer lobbyists any special concessions, other than to ease the transition to the government’s ultimate goal. Caygill was a superb negotiator. Douglas couldn’t, and Prebble wouldn’t, but Caygill would compromise on detail, providing the fundamental principles of the policy were not endangered.

This is well illustrated in his border policy, which is unique because it is the one substantial part of what we call Rogernomics which was signalled – in detail – in the 1984 Labour Party manifesto. It was a remarkable feat that a party which had been protectionist for over half a century should have promised in its 1984 manifesto substantial reductions in protection. Not that all the caucus agreed with the policy (and it was in part to be offset by the promise of a major investment fund). But in a cobbled together policy which was designed to hide the deep differences within the opposition caucus between the Douglasites and the interventionists, the border protection policy was a rare exception indicating that Caygill had persuaded enough of his colleagues to make it acceptable.

When they took office the key economics portfolios were given to Douglasites, and out of that grew Rogernomics. However it is noteworthy that there was a general acceptance of a less intervened economy among a much wider spectrum than the Troika and their acolytes. Minister of Labour, Stan Rogers, who was only a Rogernome in the wildest of rhetoric, became `Sideline Stan’ as he resolutely refused to get involved in industrial disputes, arguing that good industrial relations had been compromised by Muldoon’s willingness to intervene early and to intervene often, so that the disputants never had reason to settle between themselves, since they knew that ministerial intervention would be the ultimate resolution, perhaps with some government subsidy or concession thrown in as a sweetener.

After the 1987 election Lange tried to break up the Troika. Douglas would not give up the finance portfolio, but he was given Michael Cullen, who at that time was considered an anti-Rogernome, as an associate Minister of Finance. (Cullen was also given the social welfare portfolio). Prebble was also taken out of the associate finance portfolio, and given a group of portfolios which amounted to minister of the just corporatized state owned trading enterprises. However the portfolios were subject to Treasury advice, so in effect Prebble remained a Treasury minister (and the Troika remained on floor six of the Beehive).

Caygill also lost associate finance, retained trade and industry, and was given the ministry of health. It was a portfolio he handled with exceptional acumen by announcing he knew nothing about the area and would take a year to master it, so nothing would be done in the period. While little was publicly done loudly, there much was in preparation and announced quietly. Caygill’s successor Helen Clark got the kudos. Caygill seems to have diverged quite markedly from the other two in the Troika, in that he made no attempt to commercialize the health area. It would appear that Caygill (like Lange) believed that it was possible to make the business sector more-market, while maintaining a public social service sector. Douglas and Prebble vehemently disagree.

At some stage he began to have private doubts about the drift of economic policy. Some of his closest advisers were expressing such doubts by mid 1985. But having decided he did not like the direction the commercialisers were going, Lange failed to evolve a either a coalition of supporters within cabinet or within caucus or one in the country. There was a `kitchen cabinet’, but it seems to have nobody of the technical competence to challenge the Troika. Lange built up his prime ministerial office, but the advisers dealt mainly with fires, and there does not seem to have been a long term strategy element in it. The Royal Commission on Social Policy was established but proved ineffective. (Chapter 8) There was a Cabinet Committee on Social Equity, as an ineffectual attempt to resist the push for efficiency, which too often papered over the differences, in the tradition of the 1984 manifesto, rather than resolving them. A set of advisory committees established on social policy established in December 1987, not only cut across the Royal Commission, but in some cases was captured by commercialisers.

Lange used his power of patronage poorly. The Labour government had said that unlike the Muldoon government it would not put its supporters into the wide range of positions to which it held the power of appointment, but would put the best man or woman for the job. Of course it did not follow this in practice with any purity, but in the economic area it was ignored to appoint anti-commercializers to positions of influence, no matter how competent they were. Instead the government appointed businessmen with little loyalty to Labour (as they proved in 1990). Economists soon learned that public dissent against the current economic policies was not a pathway to opportunity, whereas uncritical loyalty had enhanced one’s career. When Lange needed economic support for his resistance to economics there was no one in a position of significance who could (or would) support him.

Thus a weak or compliant prime minister, posed against a formidable trio of cabinet ministers with economic portfolios, led the Labour government down a commercialization path. Resistance was difficult from elsewhere in cabinet and caucus because there were few alternative sources of economic advice. Those which might have been were repressed.

The Blitzkrieg Approach to Policy Making

The Troika’s ability to implement policy came not only from its ability to control parliament through the already described process of institutional leverage, but a policy approach with similarities to the blitzkrieg in warfare. In each case the `lightening strike’ involved a policy goal radically different from the existing configuration, to be attained in a short period, following a surprise announcement and a very rapid implementation. While each blitzkrieg was different in detail, at each’s heart was the aim to transform profoundly some substantial aspect of the economic and social framework. Policy blitzkriegs were nothing if not audacious.

They were a response to the perceived policy sclerosis which occurred under the previous Prime Minister. The master of the overnight raid, Robert Muldoon rarely ventured into any policy development which involved much time between announcement and implementation. Leaving aside Muldoon’s own personal style, a major reason was that the consultative process seemed to give almost every major interest group an effective veto. The blitzkrieg was expressly designed to move so rapidly that the interest groups were unable to provide an effective resistance, so the public’s immediate wishes had to be discounted, for fear they could be manipulated by the pressure groups.

Like other successful generals, Douglas has written down his strategy.

* If a solution makes sense in the medium term, go for it without qualification or hesitation. Nothing else delivers a result which will truly satisfy the public.

* Consensus among interest groups on quality decisions rarely, if ever, arises before they are made and implemented. It develops, after they are taken, as the decisions deliver satisfactory results to the public.

* Do not try to advance a step at a time. Define your objectives clearly and move towards them in quantum leaps.

* Vested interests continuously underestimate their own ability to adjust successfully in an environment where the government is rapidly removing privilege across a wide front.

* It is uncertainty, not speed, that endangers the success of structural reform programmes. Speed is an essential ingredient in keeping uncertainty down to the lowest possible level.

* Once the programme begins to be implemented, dont stop until you have completed it. The fire of opponents is much less accurate if they have to shoot at a rapidly moving target.

* The abolition of privilege is the essence of structural reform.[4]

Douglas’s formulation shows no introspection as to how one might decide that a policy solution is right. Given uncertainty of purpose is the greatest threat, the approach requires that all opposition to the reforms must come from `privilege’, or vested interests. There is no room for reflection or an alternative analysis. Once the commitment is made, speed and quantum leaps are essential: anything less is vulnerable to resistance from the vested interests. Under urgency there cannot be consultation, but Douglas thinks the public will support the reforms as it sees the benefits, including the ending of privilege.

This recipe is all the more ironic for being expounded at a meeting of the Mont Pelerin Society, founded by Friedrich von Hayek and honouring Karl Popper, whose social engineering was essentially incrementalist. In contrast the blitzkrieg is `Plato’s dream like the Leninist actuality … of an elite political order guided in the exercise of absolute political power by its supposed insight into essential reality.'[5]

The classic policy blitzkrieg was the introduction of GST, a success in contrast to the consequence the Australian experience. Chapter 1 described the successful blitzkrieg of corporatization of state trading activities followed by their privatization. Chapter 9 analyses the health reforms as a failed blitzkrieg.

After the Troika

The inherent political tensions between the policies of Douglas and Prebble and the Labour movement eventually led to the collapse of the Troika’s hegemony, and a little later the termination of the fourth Labour government.

The incoming National Government continued both the extreme commercialization policies, and their implementation by blitzkrieg. In December 1991 there was the Economic and Social Initiative which aimed to `redesign’ the welfare state, and announced the measure which became the Employment Contracts Act which redesigned industrial relations law. In July 1991 the process continued with the budget announcements which included redesigning the accident compensation scheme, the health system, the provision of public housing, and social security. This was the final great thrust of the reformers. Within weeks the government was backing down, and it found it self in constant administrative and political turmoil on all these fronts, experiencing the same cut in its electoral share in the 1993 election as Labour had done in 1990. Only the peculiarities of the First-Past-the-Post (FPP) electoral system gave it a bare majority in parliament.

What seems to have happened is that from their election in 1990, once more the `other prime minister’ took charge of policy. The new Minister of Finance, Ruth Richardson, was as enthusiastic for change as Douglas. This time the Prime Minister, Jim Bolger, a far more effective politician than Lange, steadily limited her ability to make unilateral policy, especially as the policies led to one political and/or administrative disaster after another. In this he was helped by having close friend and able administrator, Bill Birch, at number three in cabinet. (Bolger was older and more experienced than Richardson, whereas Lange was younger and less experienced than Douglas.) Various cabinet committees were put in place, chaired by Bolger with Birch as a deputy, which weakened Richardson. By the end of 1991 Richardson’s power was crumbling. Following the 1993 election Bolger was able to demote her, offering her the position of Minister of Agriculture. She resigned from cabinet instead, and shortly after left parliament.

By then blitzkriegs were extinct. Bolger had neither the mandate in the house nor the personal inclination to continue them. The new parliamentary regime, a consequence of the Mixed-Member-Proportional (MMP) electoral system, implemented by referendum in 1993, will veto future blitzkriegs. Since no party would hold a majority of seats, the ability for a few politicians to get leverage over the whole house becomes severely limited. Undoubtedly pressures for further commercialization will remain, but in the future the outcome is likely to be settled by administrative infighting, parliamentary scrutiny, and even public consultation. That is what the voters were instinctively voting for when they chose MMP over FPP.

Outcomes

Nevertheless the record of the Troika and later the National Government led by Richardson in achieving change is impressive. Appendix 3.1 provides a summary list of the changes. They are astonishing in their breadth, although in less quality and only mixed in success. Often the successful more-market reforms has been obscured by a macroeconomic policy involving a high real exchange rate, which inhibited the tradeable sector and so was antagonistic to economic growth. Other reforms are still in the balance, some are abject failures. As this study proceeds we shall see that the application of commercialization principles to non-commercial activities tend to belong to the latter group. A dictionary definition of `reform’ is `form again’. That need not lead to an improvement.

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Endnotes

[1]  A curious echo of the tight five appears in Lange’s belief in 1996 that `[w]e have still 20 or 24 cabinet ministers, and you could run the show on four or five.’ Reported in The Dominion, 16 October 1996.

[2]  Oliver (1989).

[3]  Prebble (1996).

[4]  Douglas (1993:215-238).

[5]  Flew (1989:17).

APPENDIX 3.1

EXAMPLES OF REFORMS OF SINCE 1984

Restoring the Market Mechanism

Liberalization of entry licensing into industry.

Partial liberalization of occupational licensing.

Removal of other operating barriers to industry.

Removal of price control.

Removal of import licensing.

Significant decrease in import tariffs.

Establishment of Closer Economic Relations (CER) with Australia.

Removal of financial controls.

Liberalisation of foreign exchange controls.

Floating the exchange rate.

Revision of corporate, personal, and indirect taxation.

Removal of monopoly rights on state trading.

Corporatisation of state trading activities.

Corporatisation of some local authority trading activities.

Review of competition regulation.

Liberalization of the transport sector.

Liberalization of financial services sector.

Liberalization of ports and waterfront work.

Partial liberalization of energy sector.

Removal of concessions for favoured investment.

Removal concessions for favoured sectors.

Removal of shop trading hours restrictions.

Revision of town and country planning.

Commercialization of broadcasting.

Commercialization of science research.

Reforming Core Government Activities

New relations between minister and ministries.

Introduction of accrual-based and balance sheet accounting for entire public sector.

Changes in appointment procedures of chief executive officers of government agencies.

Public sector industrial relations put on a similar base to private sector industrial relations.

Resource management law reform.

Revision of role of producer boards.

Abolition of many quangos and quasi-government organisations.

Program of asset sales.

Reorganisation of core government departments.

Reform of local government.

Reserve Bank given operational independence.

Redesign of Welfare State

Reform of delivery of social welfare provision.

Reform of provision of accident compensation scheme.

Reform of provision of compulsory education.

Reform of provision of health system.

Reform of provision of public housing provision.

Reform of provision of tertiary education provision.

Labour market reform.

Major reductions in relative benefit levels and entitlements

Revised version of lecture in the Stout Centre Seminar series “After the Revolution?”, 26 March, 1997, New Zealand Studies, July 1997, p.30-36.

Keywords: Political Economy & History;

It is over twelve years since the beginning of the revolution of the “commercialisation of New Zealand”.[1] Twelve years after the fall of the Bastille the French revolution was over, and Napoleon ruled. Twelve years after the October Revolution of 1917, the Russian revolution was over and Stalin had expelled Trotsky and Buhkarin. Neither country returned to a period of some sort of normality, but nor was there the view that the revolution was incomplete, and needed to be progressed.

Yet twelve years after rogernomics, key revolutionaries continue to call for further reforms. The terms of reference given to Alan Schick by the State Services Commission and Treasury talk about further “improvements” and “future progress”.[2] Just two weeks ago the Chairman of the Business Roundtable demanded further economic restructuring.[3] We may wonder why after twelve years the reformers have still not got it right. Pessimists might wonder whether the revolutionaries are punchdrunk Maoists, committed to a permanent revolution for its own sake, planning a cultural revolution sometime in the future.

The events of the last twelve years were first described as “the quiet revolution” in a book of that name written by Colin James in 1986.[4] More recently, there has been a television program called “Revolution”.[5] Neither defines what they mean by “revolution”, a task which has challenged political theorists and historians. To understand the New Zealand experience, we might well go to Ralf Dahrendorf who identified

two quite different versions of dramatic change. One is deep change, the transformation of core structures of a society which in the nature of the case takes time; the other is quick change, notably the circulation of those at the top within days or months by highly visible, often violent action. The first might be called social revolution, the second political revolution. The Industrial Revolution was in this sense social, the French Revolution was political.[6]

While the events of the last twelve years are presented as a political revolution – a change of the elite and the way it manages the country – the political change reflected long term social change more akin to the industrial revolution. Moreover while some features of that social change were universal among all rich countries, there were distinctive features in the New Zealand experience, which exacerbated the intensity of the political change.

The early post-war period had been one of considerable stability. The economy was a “monoculture”, with an external sector dependent upon a single product – grass which had been processed into wool, meat, butter and cheese – sold largely to the single market of the United Kingdom.[7] That external economic structure had been in place since the end of the nineteenth century, and the politics, society, and internal economic structure had evolved in response to it. In particular from the late 1930s, a system of interventions and protections transferred the foreign exchange earned by the pastoral sector, to the thriving domestic economy which needed them to pay for imports. Because the export sector was sufficiently narrow, the interventions could be managed without damaging its performance.

This idyll came to an end in the mid 1960s, when the price of wool – the most important export – collapsed, a disaster reinforced by downward pressures on meat and dairy export prices (relative to import prices). The pastoral sector – the farmers and the processors – were in difficulty, but so was the whole economy. No longer could foreign exchange be earned with the ease it had in the first two decades of the post-war era, so it became increasingly difficult to support the protected industries which had depended upon the success of the pastoral exporter for their foreign exchange.

Fortunately the New Zealand economy responded by diversifying into a much less concentrated export structure. King of the foreign exchange earners was wool has been replaced by tourism. Today wool is also behind fishing, forestry, general manufacturing and horticultural exporting (as well as meat and dairy). Britain, which as recently as 1965 took two thirds of all exports, is today behind Australia, Japan, the United State, Greater China, and Korea as a trading partner.

The export diversification of the 1970s was a magnificent achievement, but the generation of new sources of foreign exchange undermined the arrangements for the domestic economy, politics, and society. The interventions could no longer function properly, because exporting was now so pervasive, and involved so many different sectors it was no longer possible to target interventions without damaging exporters.

This diversification was greater than, and more rapid than, any other OECD country.[8] The New Zealand political revolution was in part a response. As a result the New Zealand changes were distinctive (and more extreme) compared to transitions going on in other rich countries. But they were changing too. Economically the world has been going through a process of globalization involving an integration of its industrial production (and to a lesser extent the service industries), and of its financial markets.

There was also a social revolution in the aspirations and consumption patterns of individuals including the increasing role of women and greater affluence enabling greater social diversity. These were not peculiar to New Zealand, but reinforced the need for major structural change. (Unique to post-war New Zealand was the urbanization of the Maori, a far greater shift than that experienced by the Pakeha, which generated an invigorating and challenging dynamic in Maori culture. This Maori story cuts across, and complicates the story of the commercialisation revolution. Because of its complexity I leave it aside.)

The international trends of increased social heterogeneity, plus the external diversification that the New Zealand economy experienced in an increasing globalized world, diminished the ability to manage New Zealand in the detailed interventionist way which had evolved between the late 1930s and late 1960s. Throughout the 1970s and the early 1980s there were attempts to change that regime to one which made more use of the market mechanism, together with some liberalization of the laws which governed social relationships. But the changes were reluctant and incremental, and certainly not great enough to accommodate all the pressures.

It is usual to blame the failure to respond effectively on the dominant politician of the period, Robert Muldoon, but that overplays the importance of the individual, and underplays the institutional rigidity that was inherent in the detailed interventionist political process which had developed. One of the central issues facing any organism is how to evolve and adapt to new situations and circumstances. A fundamental difference between capitalism and communism in the twentieth century is that the communist regimes were less able to adapt, and so less able survive. The New Zealand was also at the inflexible end of the spectrum.

Thus Labour was elected in 1984 to govern a country which had been under an economic and social revolution for almost two decades, but where political and policy adaptation had not kept pace. But while the New Zealand political institutions were inflexible and discouraged change, they depended on an acceptance of a series of conventions – on a consensus – rather than any deeply imbedded structure. This is evident in a comparison between the experience of the Australian Labor and the New Zealand Labour governments of the 1980s. Both had a predilection for commercialisation, but in the case of Australia, a variety of formal constitutional arrangements and informal institutions moderate the pressures for extremism.[9] It is not accidental that Australian Labor was more successful, both politically and in terms of economic performance.

There is an irony here. Muldoon could not get the change he desired – the country desired – because he played the game according to the conventions. His successors cut that gordian knot, and unleashed the political revolution. But the Labour government had no deep analysis of the need for a transformation in the political and economic mechanisms consequent upon the social revolution. Not only were their economic policies often at odds with the electoral promises, but Labour found it difficult to explain or justify them, other than in bumper sticker slogans of a crude ideology very different from the party’s traditional one.

The policies were developed by the Treasury, which recognized some of the profound social revolution which had been occurring, but not always with the understanding we have from hindsight, or even in terms of the best understanding at the time. Undoubtedly there had to be market and social liberalization. But the measures taken were much more extreme than was necessary or justified. The pressure on the government from their advisers was to take the most ideologically extreme option. Typically the government succumbed. But did the government know what it was doing?

Consider corporatization of state owned enterprises. It was evident from the beginning that the new business structure was designed to facilitate their privatization. The published Treasury papers showed this preference. A preponderance of those sympathetic to privatization were appointed to the new corporations’ boards. Treasury officials even explained to insider audiences that corporatization was a step on the way to privatization. Yet at some time almost every senior minister in the Labour Government stated that the government did not favour privatization, and would not privatize state assets. Some even stated that corporatization would eliminate the need for privatization.

While we await memoirs from the politicians which explain what they thought they were doing, it is possible to say something about what was happening outside parliament. Among the conventions which Muldoon acknowledged and Labour attacked was that a democracy involves a widespread debate, in which different viewpoints are presented and listened to. Although Muldoon appeared to repress dissent, the economic debate was never destroyed.

For example, about the time I became director of the Institute of Economic Research in late 1981, Muldoon brutally castigated a couple of economists for advocating devaluation of the currency. This put me in a quandary, because it was – and is – impossible to be a serious commentator about the state of a small open economy such as New Zealand without referring to the exchange rate. So I continued to talk about the exchange rate, and while I never advocated the need for an immediate and substantial devaluation, that was the clear import of my analysis. (One radio journalist use to regularly interview me on the issue, and would always end up asking whether I was advocating the immediate devaluation of the dollar. I would reply the best time to devalue was “yesterday”, an answer sufficiently cryptic that it was never broadcast.) Muldoon never publicly objected to my commentary, and I was comfortable with discussing the policy context without advocating a specific policy change. If I had been a policy advocate, I should have become a politician instead. Thus within a certain context, Muldoon allowed a considerable economic debate.

Imagine my astonishment at the stronger pressures against dissenting economic commentary when Labour came to power. I suppose I had been warned. Before the election I had written a Listener column which directly confronted Muldoon’s economic management style by arguing that intervention should be limited, and that in many circumstances it was better to leave matters to the market mechanism. However the column also acknowledged that there were occasions in which interventions were appropriate and effective. At least one Treasury official found that latter sentiment unacceptable, and the message was fed back to me that the Institute would never get any further Treasury contracts (a threat that, in the event, was effected as long as I was the Institute director).

The Institute was not alone in being treated this way. Other consultants who deviated from the tight new right ideological line of the Treasury soon found themselves also cut out of government consultancies (and they suffered petty harassments too), while the more compliant were favoured with contracts and appointments. Within the Treasury, dissenters were repressed, found their careers blocked, and eventually left.

So the new government was more repressive and less tolerant of intellectual dissent than the old. What seems to have happened is that the ideological extremists needed the moderates when they were facing Muldoon, but once they came to power, they would brook no challenge. As Lenin is alleged to have said, “the first thing to do after the revolution is to shoot the intellectuals”.

This repression of open discussion has not ceased, as is evident from the dumbing down of New Zealand, observable in the lowering intellectual quality of newspapers and broadcasting. Universities find only sufficient resources for teaching, reducing the rest of their academic and intellectual activity. Some departments, especially in commerce faculties, teach only the commercialisation approach, repressing alternatives. The direction of science research is more under the control of the minister. Jane Kelsey’s The New Zealand Revolution lists the “democratic deficit”. Jim Traue in this series pointed out the commercialization of information is repressive, and anti-intellectual. Tony Simpson described the undermining of the independent public service. The Schick report on the public sector reforms remarked there was “more pressure for conformity and group think” in the public service. A consultant’s report during the health reforms said “do not shelter non-committed employees”: more simply – dissenters should be sacked.

New Zealand has never been a society which has honoured intellectual effort or dissent, preferring instead to praise the practical. At the turn of the century the French observer Andre Siegfried wrote of New Zealanders:

The colonials, moreover, are generally men of mingled strength and simplicity. Their strength makes them unconscious of obstacles, and they attack the most delicate questions much as one opens a path through the forest with an axe. Their outlook, not too carefully reasoned, and no doubtful scornful of scientific thought, makes them incapable of self distrust. Like almost all men of action they have a contempt for theories: yet they are often captured by the first theory that turns up, if it is demonstrated to them with an appearance of logic sufficient to impose upon them. In most cases they do not seem to see difficulties, and they propose simple solutions for the most complex problems with astonishing audacity. At heart they are probably convinced that politics are not as complicated as they have been made out to be, and that a little courage and decision are all that is required to accomplish reforms of which Europe is so afraid.[10]

He was not the first to observe this phenomenon. Forty years earlier, Samuel Butler wrote

It will be seen … that the Erewhonians are a meek and long-suffering people, easily led by the nose, and quick to offer up common sense … when a philosopher arises among them …

Interestingly this quotation appears on the imprint page of Karl Popper’s The Open Society and Its Enemies, a book written in New Zealand which criticised both platonists and hegelians, with their grand vision intolerant of opposition.

These sentiments are echoed in Keynes’ famous remark that practical men and women are but slaves of some defunct theorist. He had the fascist dictators of 1930s in mind, but he could equally have been talking about many New Zealanders.

In this tradition, the New Zealand commercialisers were contemptuous of genuine intellectual activity, and yet were readily captured by defunct philosophers and economists. My Commercialisation of New Zealand explains they were platonists, although such practical people are quite unaware of their mentor philosophers. In economic terms they pursued a methodology called the “tight prior”, which is not, alas, a jolly rotund fellow singing bibulously songs of a tenuous moral content, but an approach in which the facts of a situation are ignored or altered in order to preserve the theory.

A non-economic example of the methodology is Jean-Paul Satre’s whose “wonderfully ingenious brain could always think up an escape clause to save the ideal at the expense of reality. The parallel with acceptance of revealed religion is obvious.” The notion of revealed religion nicely describes the commercialist fundamentalists’ approach. They are obsessive, unreasonable, and intolerant, and so a threat to liberal democracy. Those who do not belong to their sect are to be treated to the twentieth century equivalent of the intolerance of the inquisition or jihad.

And so New Zealanders complied with the commercialisers, by ignoring the attack on dissenters, and joining the sect. It was a short term strategy as Otto Neimöller reminds us:

In Germany, the Nazis came for the Communists and I didn’t speak up because I was not a Communists. Then they came for the Jews and I didn’t speak up because I was not a Jew. Then they came for the trade unionists and I didn’t speak up because I was not a trade unionist. Then they came for the Catholics and I was a Protestant so I didn’t speak up. Then they came for me … By that time there was no one to speak up for anyone.

I am always amused by those who tell me how at first they supported the commercialist reforms, but changed their mind at a certain point. The point at which, although they do not say this, is almost invariably where their own interests were affected. As the Neimöller quote reminds us, at some stage in such reforms “you are next”.

However there is a fundamental weakness in policy driven by the tight prior, by religious zealotry, which will not brook dissent nor countenance the possibility that it is wrong. Consider the blitzkrieg principles – the political strategy of the commercialisers – set down by Roger Douglas at the New Right Mont Pelerin Society meeting in Christchurch in 1990:

– If a solution makes sense in the medium term, go for it without qualification or hesitation. Nothing else delivers a result which will truly satisfy the public.
– Consensus among interest groups on quality decisions rarely, if ever, arises before they are made and implemented. It develops, after they are taken, as the decisions deliver satisfactory results to the public.
– Do not try to advance a step at a time. Define your objectives clearly and move towards them in quantum leaps.
– Vested interests continuously underestimate their own ability to adjust successfully in an environment where the government is rapidly removing privilege across a wide front.
– It is uncertainty, not speed, that endangers the success of structural reform programmes. Speed is an essential ingredient in keeping uncertainty down to the lowest possible level.
– Once the programme begins to be implemented, dont stop until you have completed it. The fire of opponents is much less accurate if they have to shoot at a rapidly moving target.
– The abolition of privilege is the essence of structural reform.[11]

This is not only an anti-democratic recipe for reform, but the formulation shows no introspection as to how one might decide that a policy solution is right. Given uncertainty of purpose is the greatest threat, the approach requires that all opposition to the reforms must come from “privilege”, or vested interests. Resistance can never occur as a result of a valid criticism. There is no room for reflection or an alternative analysis. Once the commitment is made, speed and quantum leaps are essential; anything less is vulnerable to resistance from the vested interests. Under urgency there cannot be consultation, it is after that the public will see its benefits.

This blitzkrieg approach was all the more ironic for being expounded at a meeting honouring Karl Popper, whose social engineering was essentially incrementalist. He would have loathed Douglas’ paper, which he would have seen as “Plato’s dream like the Leninist actuality … of an elite political order guided in the exercise of absolute political power by its supposed insight into essential reality.”[12] If the message is not quite, `follow the fuhrer, for he knows what is best for you’, it is a `unquestioningly follow the message, for our ideas are best’.

We can see now the need to destroy dissent, for it challenges the certainty required for the success. Moreover the approach has built in it the explanation for dissent. It is not because there is an alternative way. Rather dissenters only reflect vested interests.

Why did the commercializers insisted theirs was the only strategy. They did not say “TINA – there is no alternative, but they did argue there was only one alternative – the existing state of affairs, frequently called “Muldoonism”. Recently I was discussing the broadcasting policy reforms with an ex-Treasury official. His response was to my criticisms was “you were not in favour of the [then existing] BCNZ, were you?”. That is how such issues were approached – the choice was between the status quo and their solution. That is the sense in which they allowed no alternative.

But suppose, just suppose, the chosen policy was wrong: wrong not in the sense of there being a better policy option as the case of corporatization, but wrong in the sense that the policy was ill conceived, as it was in the case of the health reforms. Once the blitzkrieg strategy was embarked upon, there was absolutely no mechanism to abort it or even to transform the reform into a viable option. Moreover, since anyone with the slightest expertise is going to point out the reform is misconceived, they will be treated as dissenters. Conversely policy advisers ignorant of the issues may be loyal to the reforms. Given a willingness by these practical people to jump aboard wherever the action is – or wherever the fees are – there will be a mass of uninformed cheering the revolution on, as occurred with the health reforms.

It is not today’s remit to review the mistaken direction of the health reforms, although observe that while there has been a considerable backing down, there is still no admission of the failure. People have died because of the reformer’s incompetence. In a minor way it parallels the deaths that occurred under the revolutions in France, Russia, China or the fascist revolution in Germany. People were expendable in the interests of the pursuit of the essential reality of the true religion.

The trouble with the fundamentalists’ predictions keep going wrong, despite being made with the utmost confidence in the truths on which they are based. Reality keeps pressing in, so they have to keep reinterpreting their story, but never at the expense of the fundamentalist’s ideology which is cannot be contradicted by facts. Escape clause follows upon escape clause, and history is rewritten or forgotten. Most of the unbelievers, who say the emperor has no clothes, are attacked, typically by misrepresentation and almost always without addressing the issues being raised.

Perhaps the economic reforms have been a bigger failure than the health reforms. There has been some economic successes, most notably the reduction in the rate of inflation. But the economic growth record has been disappointing, the worst in the rich OECD, while there is no evidence of significant increases in productivity. Recall how we were promised such gains, how the 1986-1987 share market boom was seen as evidence of its success, as was the 1994-1995 cyclical upswing. What we have today is an economy in a cyclical downswing, with the optimistic prospect of long term economic growth rate similar to the rest of the rich OECD, but at a much lower level. Most New Zealanders are at a lower material standard of living than they were when the reforms began. That was not what the reformers promised.

Yet the zealots continue to press for reforms. I recall a seminar on agricultural policy just before the 1984 election. One Treasury official argued that limited proposals for changes in a more market direction would not give much benefit. Subsequently we joked that it was the “dog licence” problem. As long as there was any single intervention was left – even dog licences – the agricultural sector could not prosper. That joke became a grim reality, as the zealots argue the reason for so little success of their reforms is because we have not gone far enough. There are still dog licences. Apparently one gets no significant gains from introducing 90 percent of their policies; the gains only occur at full implementation. The zealots ignore the possibility that their extremism destroyed any gains from moderate policies, and that is why they have so few successes.

The existence of such zealots should not surprise us. In a liberal democracy we should treat them with a tolerance they have not shown those who disagreed with them. What puzzles me is their political strength. Even if we add in the punchdrunk who keep climbing back into the ring long after their cause is lost, and the main chancers who see financial benefit and status from their participation in the implementation of further reforms, there is still insufficient numbers to explain the vigour of the permanent revolutionaries.

There are two key factors which give them this unjustified significance. First, in suppressing dissent, the commercialisers destroyed the capacity to create any paradigm that could be the basis for alternative policies. Such policies exist, but they are not a central part of the public debate. Unlike the commercialist blitzkrieg, the alternatives are likely to be democratic, to require an understanding by the public and some agreement of their general thrust. By repressing dissent, the commercialisers destroyed any early adoption of an alternative. Theirs was a scorched earth policy. We adopt their policies – or nothing.

This lacuna is compounded by the understandable, but atavistic, preference of the public to return to the old ways. They have suffered, and are suffering from the reforms. The past seems so attractive. Because they think of the reforms as a political revolution and have not understood the underlying long term social revolution, the impossibility of not being able to go back is ignored. Of course it is a truism we cannot go back, but the commercialisers are anxious to suggest the choice is only between their prescriptions and those of the distant past. So we are locked into a policy stasis in which the commercialisers claim to have the only viable policy, although on the evidence, it is a failed one.

The second reason why the permanent revolutionaries remain so important, is because of the nature of the power change in the revolution. From a distance it appears that the same elite ruled before and after the revolution, but in fact there was a intergenerational coup. Roger Kerr, chief executive of the Business Roundtable, nicely captured the change with `[t]he average age of chief executives of major companies has dropped ten years … A generation of human capital has been obliterated.'[13] The effect of the revolution was to replace prematurely one generation of business men with a younger cohort, to replace the fathers with their sons.

Patricide is one of the most heinous of crimes, to be justified only by some greater purpose. In New Zealand the coup could not be justified – as happens in the third world – by an external threat, by corruption, or by communal tensions. So the new coup leaders used an ideological justification for their seizure of power. Conveniently the Treasury and the New Right offered such a dogma, which involved – as is usual in coups – the exaggeration of the sins of the predecessors. Especially distorted was the claim of New Zealand’s poor economic performance before 1984.

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

Thus the business leaders seized upon the commercialist ideology, flattering to them as it is, without much understanding of its significance. It promised them power and influence. Which it delivered, enabling them to replace the older generation. It promised them riches, which it delivered. Earlier I mentioned that the economy had been so stagnant that most people were worse off than before the reforms. But the massive tax cuts on the rich, lifting their incomes by a quarter, had to paid for by tax hikes and public expenditure cuts on middle income people and the poor. Thus the elite and the rest of the nation have quite different perceptions about the outcomes from commercialisation. The elite may be better off, but who is paying for it?

Paul Samuelson characterized the market as a voting system, in which each dollar has the weight of one vote. Contrast it with the political system in which each person has one vote. As the balance of influence over our destiny shifts from the political system to the market system, as it has done under commercialisation, those who hold more dollars increase their influence over those with less. The majority of New Zealanders, who have less than average incomes, have less control over their lives under the commercialisation revolution, while the business elite have more (and so they used their power to increase their share of income – of market votes – even further).

Note how the reforms thwarted some of the democratic pressures which had been evolving in the 1970s and early 1980s. The greater weight of women’s issues in political life, has been diminished by the reduced significance of the political system. One is not surprised there are no women on the Business Roundtable. The opening up of government by such changes as the Official Information Act has been frustrated by legislative changes, and the reduced significance of non-commercial decision making. The commercialisation of information inhibits democracy.

But if the reforms delivered power, influence, and riches, to the new elite it did not deliver them economic success. From one perspective the elite do not recognize this. Since they have done well out of the reforms,they want to assume the rest of the public has too. It is much harder to acknowledge that their income gains have been at the expense of everyone else. But except in the financial sector, the business elite must be aware that their businesses are not prospering as was promised. What then to do?

There are two difficulties here. First, as for the rest of the population, the alternative is not evident. And second, to acknowledge the failure of the ideology would be to leave those in power open to the charge of patricide: that all their objective was to replace one elite with another. all there is to show for it is the new elite’s power and income. Rather than admit failure to attain wider objectives, they cling to the ideology that has got them to where they are. Recall Douglas’s advice “the fire of opponents is much less accurate if they have to shoot at a rapidly moving target”. The permanent revolution is necessary to protect the gains already made, by keeping the target moving. Certainly this revolution is consolidating in power. But it is not consolidating its authority.

The elite has paid a price for this strategy. In their hearts, many must find the new right libertarian philosophy it is based upon profoundly disturbing. And if they have gained a freedom from the impositions of the New Zealand government, they are now increasingly controlled by overseas interests. The Business Roundtable is dominated by chief executives whose corporations are foreign owned.

And yet the danger of the permanent revolution is that another group of revolutionaries – a gang of four perhaps – will foster another coup. Revolutionaries always face fundamental policy instability. On the one side there are the commercialisers in effective power, on the other the vast majority of the public who await the benefits they were promised, and demand an alternative strategy, albeit one they are only vaguely aware of.

This was acknowledged in the three ministerial briefings on the health reforms. Each plaintively pointed out that the public was not committed to the new health system structures. That generates policy instability and the likelihood that within the planning horizon there would be a major unpredictable policy change. The caution applies to most policy areas – not just the health system. The zealots, by advocating further revolution, exacerbate the instability. The danger is they may pull the whole temple down on top of themselves as well.

Prime minister Bolger, who presided over the peak of the commercialisation triumph in 1991, soon realized they were unpopular, and has since fostered policy moderation, trying to consolidate the reforms, without the destabilization which comes from progressing them. But the zealots’ demand for further change ensures the issues are not settled, the reforms have not succeeded, that policy is still open to debate and redirection. The blitzkriegers try to force further reforms, but given increasing public resistance, the counterattack may occur. Keeping the bike moving forward in this sort of terrain may result in the rider falling off too. Perhaps wiser heads would recommend dismounting.

The polls have constantly shown the public has at best only reluctantly supported the political revolution, and in many policy areas bitterly oppose what has happened. It may be that the population is now so heterogenous, that with the best will, there can be no majority agreement on many issues. Nevertheless I think a broad framework can be sketched, at least in the economic area:

* Because of the social revolution (together with the pressures from globalization) there can be no going back to the past strategy of centralist economic regulation;

* The more decentralized society will be achieved by more local autonomy, a liberal social regime, and by using of the market mechanism more than was done a couple of decades ago.

* But the market mechanism will be overridden by other procedures, either because the nation has other social objectives, or to moderate the market, including restraining
– monopolies;
– gross disparities in income and wealth;
– severe hardship from sharp economic transitions;
– the focus on self interest which the market engenders.

* The social objectives will include a high material standard of living moderated by
– a quality of life characterized by recognition of the contribution of non-material considerations, including morality, spirituality, human rights, culture, and the pursuits of the intellect (none of which are dealt with well by a commercialist approach);
– tolerance of dissent, and the celebration of differences within the community;
– social responsibility for hardship arising from community or external shocks;
– an element of control over one’s national, local, and personal destiny;
– environmental and social sustainability;

In summary we need to rebalance the political and market mechanisms for regulating our lives. The market mechanism (and its various commercialist relations) is a means to a higher end, not the end itself.

It is easier to state such objectives, than to implement them, especially if one has no grand plan like the commercialisers, but sees sound reform as a process of step by step social engineering, involving public participation and agreement. This is not just a matter of the difficulty of unscrambling an egg – of getting the toothpaste back into the tube. In that the political revolution was a response to a social revolution, and in that the world outside New Zealand is increasingly globalized, we cannot go back to any golden era, no matter how attractive it may seem.

What I would like to predict is that the next change will be more carefully thought through, more coherent, than the commercialisation revolution. But the reality is that New Zealanders are a meek and long-suffering people, easily led by the nose, and quick to offer up common sense when a defunct philosopher arises among them.

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Endnotes
[1] B.H. Easton, The Commercialisation of New Zealand, Auckland University Press, 1997.
[2] A. Schick, The Spirit of Reform: Managing the New Zealand State Sector in a Time of Change, State Services Commission, Wellington, 1996.
[3] The Independent, 14 March, 1997.
[4] C. James, The Quiet Revolution, Allen & Unwin, Wellington, 1986.
[5] M. Russell, Revolution, Hodder Moa Becket, Auckland, 1996.
[6] R. Dahrendorf, The Modern Social Conflict: An Essay on the Politics of Liberty, Weidenfeld & Nicholson, London, 1988.
[7] The next few paragraphs are elaborated in B.H. Easton, Towards a Political Economy of New Zealand, Hocken Library. Dunedin, 1996, and In Stormy Seas: The Post-War New Zealand Economy, Otago University Press, Dunedin, 1997.
[8] J. Gould, The Muldoon Years, An Essay on New Zealand’s Recent Economic Growth Record (Hodder & Stoughton, Auckland, 1985).
[9] See B.H. Easton, & R. Gerritsen “Economic Reform: Parallels and Divergences” in F.G. Castles, R. Gerritsen, and J. Vowles (ed) The Great Experiment: Labour Parties and Public Policy Transformation, (AUP, 1995) p.22-47, summarized in B.H. Easton, The Commercialisation of New Zealand, (AUP, 1997) p.142-147.
[10] Siegfried, A. (1904) Democracy in New Zealand. This edition translated from the french by E.V.Burns, Victoria University of Wellington with Price Milburn, Wellington, 1982. p.53.
[11] R.O Douglas, R.O. Unfinished Business (Random House, Auckland, 1993) p.215-238.
[12] A. Flew, An Introduction to Western Philosophy: Ideas and Argument from Plato to Popper, revised ed., (Thames & Hudson, London, 1989) p.17.
[13] B. Spicer, R. Bowan, D. Emanuel, & A. Hunt, The Power to Manage, Oxford University Press, Auckland, 1992, p.74.

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