The Meaning Of Influence

This entry was posted in Listener, Macroeconomics & Money on by .

Once more on monetary policy, the Reserve Bank and ‘control’.

Listener 21 May, 1994 This is the fourth of a sequence of four columns written in the early 1990s about monetary policy, which continue to be relevant today. They are
The Hole in the Reserve Bank
What the Reserve Bank Believes
Who Controls the Exchange Rate?
The Meaning of Influence

Keywords Macroeconomics & Money

In his April 16 reply to my Who Controls the Exchange Rate?, the Governor of the Reserve Bank tried to distinguish between “control” and “influence” of the exchange rate. Since I want to avoid arguments about words rather than things, I shall withdraw the use of the term “control”. (I was using it in the way systems engineers do.) So let me rephrase and simplify my argument.

The Reserve Bank tells us that its aim is to control inflation. Think about the economy as a yacht which is intended to go in a particular direction. There are many things which influence the direction of a yacht: the wind, the tide, the shape of the boat, the setting of the sails, and the helmsman. In our example the helmsman (the Reserve Bank), operates on the yacht by “influencing” the steering wheel, which “influences” the rudder, which “influences” the direction of the yacht, thereby enabling the yacht’s destination to be controlled.

Readers will recall from my column of 12 February, the Reserve Bank says that its primary influence (on the wheel) is on wholesale interest rates. It also says that these rates impact on the exchange rate – the rudder of the yacht in the analogy. The column went on to show how by “influencing” the rudder the Reserve Bank thinks it controls the direction of the ship.

So how can the Governor write that “we view it [trying to control the exchange rate] as inconsistent (except possibly by a fluke) with controlling inflation”? What I think he is trying to say is this. The Reserve Bank cannot control the exchange rate at one level, and the inflation rate at another except by coincidence. Once the course of the yacht is set, the Reserve Bank is committed to a particular setting of the rudder.

Now if I have got this right, the concern is evident. Exchange rate policy is now a part of anti-inflation policy. The macro-economic policy role of the exchange rate is to influence (or perhaps control) the level of inflation.

But the exchange rate has another major influence. It determines the profitably of exporting and import substituting (of the tradeable sector). If it is being “influenced” for the purposes of price stability, the profitability of those activities is being set for that purpose. So the level of activity of the tradeable sector is being set by the Reserve Bank. As the Governor wrote, it would be entirely coincidental if the target range of the exchange rate chosen for anti-inflation purposes was also the level which made the best contribution to economic growth and employment.

Indeed the suspicion is that the anti-inflation level for the exchange rate is too high as far as the real economy is concerned. In effect the rudder setting may drive the yacht onto a sandbank, so the economy would stagnate, as occurred in the second half of the 1980s. Perhaps a different inflation target – one closer to the world inflation rate – would enable the exchange rate to be set at a level which increased sustainable output and jobs.

The Reserve Bank is given the statutory task to maintain price stability. So it has no interest in considering whether its pursuit of this objective also damages the real economy. (There are those who think that zero inflation is the only thing that matters anyway.) If you read the Governor’s statement carefully you will see that his argument is informed by this sole obsession.

My position has never been that the Reserve Bank should be charged with being concerned with economic growth and employment. It does not have the competence to pursue such objectives. But I wish there was a government agency which showed the slightest interest in the real economy, which thought poverty and unemployment was a curse. It would have the simple task of advising that if the yacht is set on the course for a particular inflation target, the exchange rate rudder must be set on a particular course, which may run the real economy aground.

NOTE The Governor’s article included a graph. He commented on the flatness of the middle, red line (the real exchange rate) saying “in my view it is no coincidence”. It is no fluke, but in part a statistical artefact. The red line is constructed by dividing the green line (the nominal exchange rate) by the blue line (New Zealand consumer prices relative to foreign prices). Consumer prices in the blue line are influenced by the nominal change rate in the green line. It seems likley that 40 to 60 percent of the consumer price index is directly influenced by the nominal exchange rate. Thus flatness of the red line is in part a result of dividing a number by itself. It is what statisticians call “spurious correlation”.

INDUSTRIAL RELATIONS FOR ECONOMIC GROWTH

This entry was posted in Growth & Innovation, Labour Studies on by .

<>Address to the 1994 National Biennial Conference of the New Zealand Engineering Union, 13-15 May, Christchurch.

 

Keywords: Growth & Innovation; Labour Studies;

 

Today I want to discuss economic growth strategies, by looking at the vision which underpins the Employment Contracts Act (ECA), and the alternative. One of the central tenants of a good strategy is “know your enemy”. So let me make a case for the Employment Contracts Act. What sort of vision of the economy does it represent?

 

It would be easy to say it represents an unfair vision, with its claim that the employer and employee are free to bargain on equal terms. We know that is a nonsense. I am reminded of a car back window sticker I saw in Australia recently.

 

TOGETHER WE BARGAIN:

 

DIVIDED WE BEG

 

Nor is the message that the ECA depresses wages an especially original one. Indeed later I shall caution against assuming that it will always drive wage rates down. To do this, the ECA has to be in the context of high unemployment. As unemployment falls, and labour becomes scarce, then there is upward pressure on wages which the industrial relations configuration under the ECA will be quite unable to restrain.

 

The vision of the Employments Contract Act is not solely about reducing the power of workers relative to their employers, nor is it really about low wages. Rather it is a vision about a particular sort of workplace and labour market, and a particular sort of growth strategy.

 

It will be hard for most engineering workers to understand that vision, because it is so far away from their working experiences; as far – you might say – as the life experiences of those who conceived of the ECA. For what they were imposing on the New Zealand economy was a particular vision, one which in many ways was very class based, and which ultimately could divide the nation, as have many of the other policies the advocates of the ECA have promoted. I shall talk about that a little later, especially those in the social welfare area. But first what was their labour force vision?

 

The technical term for its central player is the detached worker, that is a worker who is not firmly attached to the firm for which he or she is currently working, for there is little loyalty between worker and employer, especially in the work process, in this strategy. The employer is not concerned for the worker’s welfare, because outside the factory gate there are other workers without jobs, and those unemployed will happily take over one when the time comes for the current worker to move on, or for the boss to sack her or him.

 

In such circumstances you do not need a very sophisticated relationship between the employer and the employed. The simplest arrangement the ECA allows will do. For the firm it works better if there is a pool of unemployed to maintain discipline over a recalcitrant worker. The firm need then only pay a minimum wage.

 

 

The advantage to the firm of such an arrangement is that the firm can take on as many workers at it  needs, paying them a rate which it can afford, and so it enables the firm to expand into the market, undercutting its competitors. Domestically this is not especially effective if all firms are doing it. But if the firm exports abroad then it can undercut other producers. Exports boom, and the economy experiences a rapid growth. Thus the ECA has behind it a vision which amounts to a growth strategy. It is a strategy which we associate with the successful East Asian tigers.

 

To work, the strategy requires two key elements. The first is unlimited supplies of labour. This is typically seen as a pool of unemployment, but as the economy expands the jobless are taken on, and the pool shrinks, unless there is more jobless labour streaming into it. In the third world this labour comes from refugees from the farm sector and from the informal sector.

 

In the first world, there are no such hidden labour reserves. Unless immigration from the third world is allowed, the pool of unemployed disappears, and the discipline on the detached worker relaxes. They begin to demand higher wages and better working conditions. At which point the growth strategy comes to a halt.

 

You can already see this happening in New Zealand, for even under our high levels of unemployment, all be they low by third world standards, wages are beginning to move up, and the Reserve Bank is beginning to restrain the growth of demand and hence of employment by higher interest rates. We may well be locked into a high unemployment economy – rather like that projected by the major forecasters when they advised the Prime Minister’s Task Force on Employment. They thought that by the end of the century unemployment might be back to the levels they were in 1990 when the Employment Contracts Act was announced, but closer analysis suggests the forecasters probably had in mind unemployment rates near 10 percent.

 

They projected ‘unemployment falling to between 7 and 8 percent of the workforce by the end of the five year period …’ Prime Ministerial Task Force On Employment, p.64.

 

However these forecasts assume labour productivity will rise only 1 percent a year. On page 60 the task force remarks that the average labour productivity growth has been 1½ percent a year. If this rate is continued, the unemployment rate will be nearer 10 percent at the end of the century.

 

As gloomy as that outlook is, there is an even more fundamental flaw to the strategy of the detached workers. As a rule detached workers are unskilled workers, and the jobs they do are low productivity ones. High productivity comes from specificity of labour skills, just as it comes from specificity of capital equipment.

 

It is a characteristics feature of a the most productive capital is that it has very limited uses. Contrast for instance, the great specificity of a Boeing 747 which has very few uses, and indeed can only land regularly on two airfields in New Zealand, with the generality of the $400 million in cash which a 747 costs. The money can be converted into an infinite range of products which can do an unimaginable range of things. It is what is called “fungible”. But the productivity of an economy comes from the non-fungible assets such as capital equipment, which the money can be converted into.

 

The same applies to workers – to human capital. High productivity comes from the acquisition of specific skills which cannot be easily converted into other labour for other purposes. Consider this economist. I have some very great skills, very valuable in the market thanks to the outrageous fees the government pays to ideologically approved consultants, but those skill would be almost useless in a 747, or in front of a lathe.

 

A skilled worker has a different relationship with the employer from that of the unattached worker. Many of the skills are firm specific, so that the employer and the employed have a mutual interest in preserving and promoting those skills, and of ensuring they are effectively utilised. It has to be an ongoing relationship: the worker needs an incentive to acquire the skills, while the cost to the firm of replacing a skilled worker is greater. Both need a mechanism by which they can upskill and benefit from that upskilling.

 

The Employment Contracts Act does not reflect the job reality of the attached worker, with specific skills. The very flexibility the ECA gives to the employer of the detached, unskilled worker makes it difficult for the employer and an attached worker. Now, of course, with goodwill many of the difficulties can be overcome, and the Engineering Union has a number of agreements with employers which reflect that goodwill. But unlike as promised by the proponents of the ECA, the better quality contracts in the new environment took more, not less, effort and time to negotiate as a result of the change in law.

 

Moreover, in this new environment where industrial relations is dominated by the ECA, despite four years of policy analysis to paralysis, the government has still not resolved the problem as how to provide sufficient upskilling in the economy. The skill shortages which are appearing, and which are both automatically via bottlenecks, and by monetary intervention causing higher interest rates, choking off growth, are a tribute to the failure of the ECA to be able to address the upskilling issue.

 

The high skill, high wage, high productivity, economy offers a different growth strategy to that of the third world one. It is of course that which has been pursued by the richest industrialised countries in the world. In time the Asian tigers will have to switch to it as their labour reserves run out: you can already observe this in Japan.

 

Workers may be able to chisel temporarily a slightly higher wage by depressing profits. Some workers may be able to increase their wages by depressing the real wages of other workers. But the only way in which an economy can sustain high and increasing wages for everyone, is if productivity is high and increasing. If we do not have a growth strategy aimed at high performance then we cannot have a strategy which delivers high wages.

 

The central notion of this high performance strategy is the production of technologically sophisticated and innovative products by a skilled labour force. There may even be a conscious strategy by a country to get out of the simple and crude products, by shifting them offshore, where they can be produced more cheaply by low technology means by a low paid labour force. That has been the source of a lot of the Asian tiger growth.

 

There is no merit for a country like us to pursue a Asian tiger growth strategy unless we are willing to accept their wage rates, and ultimately their standards of living. And if we do, many of our best people will go elsewhere, for a better way of life, at a decent material standard of living.

 

What I am arguing then, is that we still have a choice for our growth strategy, and that the industrial relations arrangements reflect that choice between a low technology, low skill, imitative strategy and a high technology, high skill, innovative strategy.

The difference between the two strategies is not only one of industrial relations, and vision. The fragmentation of the labour force, summarized in the term of the “detached worker”, also applies to the way the advocates see firms operate. In their vision each firm is an entity whose productivity and performance is independent of other firms, except by way of market contracts. That, like their view of industrial relations, is a gross simplification. Especially in the manufacturing sector, firms affect one another’s productivity indirectly. An effective manufacturing sector requires an industrial policy to ensure that these direct linkages are at their maximum effectiveness.

 

An obvious component of a successful industrial policy is an industry wide training and upskilling program. Because workers are mobile, the typical firm cannot afford to train its workers, and have some less responsible firm steal the trained worker. But industrial policy is not only about labour skills. A Comprehensive Industry Policy (CIP) needs to address the following:

– the establishment of a Ministry of Industry;

– a policy for the development and expansion of the physical infrastructure;

– a policy for the development and expansion of the technological infrastructure;

– small and infant industry assistance;

– regulatory and border policy;

– business taxation, especially one which encourages investment;

– a policy for worker training and upskilling;

– a process of involvement and consultation of all the active participants (including workers and their unions) in manufacturing.

 

The nation is some distance from such a policy. What is particularly unfortunate has been the calls for reductions in tariff levels, without any recognition that border protection is a crude industrial policy. In my view any reductions in the tariff must be accompanied by the development of a comprehensive industrial policy.

 

But even a CIP is insufficient by itself for sustainable economic growth. There is a euphoria about the current cyclical upswing. It is true that it is the strongest since rogernomics was introduced almost a decade ago, but the expansion is not exceptionally strong by post-war standards. In any case the strength is partly a rebound effect from the worst economic contraction in the post-war era, engendered by the silly economic analysis of 1990 which, among other things, resulted in the Employment Contract Act.

 

Unfortunately the euphoria obscures the pressures on  the economy, which means the upswing is unsustainable, and as I explained earlier is expected to leave us with high unemployment rates for the rest of the decade and even beyond. There is probably little we can do to enhance the current upswing, which appears to be weakening. What we can do is develop policies to minimize the downswing and provide a basis for a sustained expansion – one which will lead to a reduction in unemployment to levels comparable with that before rogernomics was introduced.

 

As well as tackling the supply-side through a comprehensive industry policy, there will need to be a macroeconomic policy less dependent upon monetary manipulation, which uses a wider range of policy instruments. One of those instruments is going to have to be management of the wage path. If we want to reduce unemployment to levels which are tolerable for those unemployed, we cannot rely upon high unemployment to discipline the worker, be they detached or otherwise from the labour market. But without discipline in the wage path the economy will become uncompetitive and growth will be stifled. A managed wage path in a low unemployment economy requires a different industrial relations system to that of the Employment Contract Act. Especially it requires restraint from workers.

 

This may seem some distance from current preoccupations, but it is well to warn that the current upswing will not be permanent, and that workers need to be cautious when setting their wage path even today. Unfortunately current policies encourage greed in the short term, to be offset by distress in the long term. Recall how buoyant were financial markets in 1987 just before the crash, how rapacious investors exposed themselves for short term gain, to be found naked when the markets collapsed. We are still recovering from their avarice.

 

Now workers can do exactly the same thing, when they hike their wages during a boom, above long run sustainable levels. It would not be so bad if they were willing to reduce wages when the boom came off, but the usual outcome is layoffs. It is very easy at the moment to demand, and even get, higher renumeration, but ask yourself whether the wage is sustainable in demand conditions similar to those of 1991. The cost of an overly high wage path is likely to be overly high unemployment at a later stage.

 

I am afraid that much of the current economic policies are about short term gain, for long term pain. Many of the employers who have taken advantage of workers using the Employment Contracts Act will rue that decision at a later stage, if they are still around.

But the workers will be around, and their union will be around. Unlike market speculators they need long term strategies, which is what I have focused on I this paper. So let me finish by summarizing the growth options:

 

The economy can grow with an emphasis on low skilled cheap labour (supplementing the export of simply transformed commodities);

– firms will be technologically unsophisticated and imitative;

– their workers will be low skilled, poorly paid;

– there will not be a strong attachment of workers to firms;

– there will have to be substantial unemployment to restrain wages;

– there is no need for a comprehensive industry policy;

– the Employment Contract Act is a part of that growth strategy.

or

The economy can grow with an emphasis on high paid high productivity labour (transforming the primary commodities into sophisticated quality products);

– firms will be technologically sophisticated and innovative;

– the workers will be highly skilled, well paid, and there will be ongoing upgrading of skills;

– workers with their unions and the management will be working together to enhance productivity and the resulting improvements of pay and working conditions;

– unemployment will be low. Instead wage restraint will come from a managed wage path between unions and employers;

– there will need to be a comprehensive industry policy;

– the industrial relations legislation will recognize the realities of such a growth strategy.

 

While New Zealand is currently following the first strategy, I hope for all our sakes, and the sakes of our children and grand-children we will soon turn to the second.

The Legacy Of a Poet: Milton! Thou Should Be Living in This Hour.

This entry was posted in Listener, Literature and Culture on by .

Listener: 7 May, 1994.

Keywords: Literature and Culture;

Economists were once thought to be among the liberal and progressive sections of the intelligentsia. Today they are thought of as curmudgeonly philistines. As a mild protest I thought I should write about the poet and pamphleteer John Milton, who lived in the 17th century, more than 100 years before the word economy gained the meaning it has today. England then had about the same population as New Zealand today, but it was more rural, with London, the largest city, about half the size of Christchurch.

They were turbulent times. Milton lived through the Civil War and the Restoration. The turmoil was seemingly about religion, but the prosperity of the preceding Tudor times had created new economically powerful social classes, who demanded political representation. Meanwhile, the invention of printing made the Bible available, in the English vernacular, to every literate man and many women (those of ranking below gentlewomen were at times forbidden to read it). This heady mixture of a new social structure and a new ideology was inflamed by a weaker economic performance. The King’s “think big” military excursions into the Continent did not help. There was erratic and illegal taxation, borrowing and inflation.

Milton’s father was a scrivener, almost a primitive form of merchant banker. Milton had a good education, including Cambridge University. In those days the government was trying to bring the universities under tighter control. The universities themselves were failing to keep pace with intellectual developments, and the greater control from on top tended to make for conformity, playing safe, careerism and idleness. Milton was a superb Latin scholar and later became Latin secretary to Parliament.

But he is most remembered as a poet, the : greatest modern epic poet, for his Paradise Lost. Paradise Regained and Samson Agonistes. Yet his poetry came in two periods separated by two decades in which he wrote hardly any at all. In those days censorship was rife, even though England was thought more liberal than most of. the Continent. In 1632 a man was imprisoned for importing Geneva Bibles. (Archbishop Laud had the temerity to explain that this was in the interests of English printers.) Oppression was widespread. When a close friend of Milton’s toasted the assassination of the much-hated chief adviser to Charles I, he lost his ministry post and degrees, was fined the princely sum of £2000, pilloried, imprisoned for more than two years and sentenced to lose both ears (although the mutilation was remitted).

The allusiveness of his poetry enabled the discussion of public issues, without being so clear as to lead to a prosecution. Obscurity and ambiguity were essential if one had anything to say.

However, when the censorship laws were repealed in 1640, Milton turned to prose. He still got into trouble, as with his pamphlet on divorce, which argued that romantic attachment should be the basis of marriage.

His best remembered work of this period was Areopagitica which is even today quoted as a defence of freedom of the press.

“As good almost kill a man as a book: who kills a man kills a reasonable creature, God’s image; but he who destroys a good book, kills reason itself, kills the image of God, as it were in the eye.”

He also argued, practically, that freedom would ensure the ultimate triumph of truth.

Milton was most hated for his support of the regicide of Charles I in 1649. He was (literally) a republican. Faithful to his beliefs, he was still publishing his argument at Restoration in 1660. It was a reckless thing to do, and he went into hiding. Less fortunate associates were hanged, drawn and quartered.

Censorship was reimposed and Milton returned to poetry, to give us those wonderful, if solemn epics. For many years they were thought to be very orthodox accounts of Christianity, such is their ambiguity. But a religious tract that he wrote at about the same time, Of Christian Doctrine, was so heretical that its publication was suppressed, despite it being in Latin. (It was first published 151 years after Milton’s death.)

Milton was not an original thinker, but he was an independent one, developing his own synthesis of others’ ideas. As one of the great masters of the English language, he expressed his ideas with force and fluency, and – near enough – for eternity. The subtitle to this column is from Wordsworth. More recently, our Rex Mason described a lineage of English poets “Shakespeare; Milton, Keats are dead  …” concluding, “Boldly bring I up the rear.”

But as marvellous a writer Milton was, I honour him most for his integrity under difficult life-threatening circumstances. He said what he had to say, as well as those circumstances permitted.

Events and persons from a third of a millennium ago may seem irrelevant today. Yet the 1689 Bill of Rights is part of New Zealand law. Milton, and contemporaries such Bunyan, Hobbes, Locke, Newton, and Winstanley, are still read. On the shoulders of these giants we see so much further. They are a part of this country’s heritage.

The column finished with: “The Milton books in the Heritage Collection of Wellington’s Alexander Turnbull Library are one of the best corpora of his works in the world and are soon to be displayed in the exhibition That Serpent Milton, which opens on August 5.” What most readers did not know was at the time there was a Treasury paper which advocated the selling off of the Library’s collection which was not New Zealand or Pacific on the basis that it – including the Milton collection – was not a part of the country’s heritage. As a result of the column, the paper was leaked to The Listener and the resulting article by Anthony Hubbard generated a political reaction which promptly put a stop to that philistinism. The story is detailed here.

Friends in High Places: Rogernomic Policies Have Powerful Allies in Australia

This entry was posted in Growth & Innovation, Listener on by .

Listener 23 April, 1994.

Keywords: Growth & Innovation;

Australian Michael Pusey triggered a national debate with his book Economic Rationalism in Canberra: A Nation-Building State Changes Its Mind. In it the sociology professor at the University of New South Wales argues that senior federal public servants now favour the New Right approach called economic rationalism (Australian for Rogernomics) and have abandoned the values and objectives that traditionally dominated the public service. Although economic rationalism has been around for some time, the book caused a storm.

The debate has not always been enlightening. As in New Zealand, there have been difficulties of definition, misunderstandings and cheap shots. But Australian economic rationalism differs from its New Zealand form in that there is a more open debate, with university academics seriously participating. The quality of economic rationalism is higher than here. Moreover, although, as Pusey shows, this approach dominates the upper echelons of the Australian public service (as it does here), the politicians have to some extent held them in check.

This probably reflects the more complex constitutional arrangements in Australia. In the mid-1980s, the Hawke-Keating government was as mesmerised by the economic rationalists as was the Lange-Palmer one, but the Australians had less power to carry out their preferred policies unilaterally. Perhaps because their policies were less extreme, or more competent, the Australian economy performed much better between 1985 and 1992 (the latest available date for comparisons) than did New Zealand. (See table.) It had greater GDP and job growth, while the higher balance of payments deficit was covered by the superior growth and greater investment.

Admittedly the Australian economy stagnated in the early 1990s. But recall that National precipitated the sharpest economic contraction in our postwar history in 1991. Australia’s seems to have been more the result of stagnation of the world economy compounded by a terms-of-trade decline. The Australian economy was slower to recover. It seems to be expanding faster than ours at the moment, although it is unwise to put too great an emphasis on a single year’s figures.

(Incidentally. the New Zealand data are being subject to downward revision. so the more hysterical commentators may have to tone down. But the changes will not markedly alter the sober assessments that the economy has been in a long but slow upswing. See my column of March 12, 1994.)

The Australian stagnation put extremist economic rationalism squarely on the political agenda. with the leader of the opposition, John Hewson. advocating that policy during the 1993 election. With all the political conditions in his favour, he lost, surprisingly. The apparent reason was his proposal to introduce a GST, but that was a mere focus for a distrust of the full range of economic rationalist policies he advocated. The opposition has now backed away from its extreme positions, and it is widely expected that Hewson will be toppled from the leadership sometime this year.

Yet there remains Pusey’s concern about a senior public service with an ideology that is markedly out of line with both the country’s historical traditions and the populace. As Nugget Coombs, the doyen of the older tradition said, ‘The intellectual and moral basis of Australian society is being corrupted. The driving force behind this [is a] view of the economy as a machine independent of social purposes.’

Pusey describes economic rationalism as a ‘doctrine that says that markets and prices are the only reliable means of setting a [public] value on anything, and that markets and money can always, at least in principle, deliver better outcomes than states and bureaucracies’. He argues for a balanced approach between the market and the state, describing himself as a ‘middle-of-the-road Western European social democrat’. The geographical identifier suggests that he is not solely dependent on English speaking countries, overwhelmed by Thatchernomics and Reaganomics, but recognises Europe’s other intellectual directions. (Pusey has written a notable study of German critical theorist Jurgen Habemas,)

The task for Pusey and his ilk in Australia, and for the more sober critics of Rogernomics here, is not merely rescuing the traditions that they uphold, but reinterpreting them in the light of evolving economic conditions, When Hawke and Keating (or Lange and Palmer) went on their ideological walk-about, they were responding to social changes in their countries that they barely understood. The economic rationalists seized the opportunity to grab power, with their new ideological preferences disguised as (faulty) economics. Australia’ s institutions resisted better than New Zealand’s. But there is not yet a coherent alternative.

Economic Performance: 1985-1992

Period

New Zealand Australia

Inflation (private consumption deflator) % p.a.

1985 12.9 8.7
1992 1.0 1.7
Average 85-92 7.4 6.0

Unemployment (% of Labour Force)

1986 4.0 8.0
1992 10.3 10.7
Average 86-92 8.2 8.1

Employment growth (%)

Total 85-92 -5.6 14.6

Current account deficit (% GDP)

Average 86-92 3.3 4.5

GDP per head (OECD = 100)

1985 Level 90 98
1992 Level 76 91

GDP growth (%)

Total 85-92 -1.0 16.8

Labour productivity growth (% p.a.)

Average 85-92 0.7 0.3

Data sourced from OECD Economic Outlook, June 1993.

Contract, Covenant, Compact: the Social Foundations Of New Zealand Governance

This entry was posted in Governance, History of Ideas, Methodology, Philosophy, Maori on by .

WHAKAPAPA: This is an April 1994 revision of an address to the Spring Lecture Series on Political Integrity, for the St Andrew’s Trust for the Study of Religion and Society, Thursday 4th of October, 1990. It contains material from a presentation to Forum North, a celebration of the Treaty of Waitangi, held at Whangarei, 10 November, 1990. The original address is available on Replay Radio, following its broadcast on National Radio, October 23, 1990. The almost full text of the original address was published in Socialist Politics 90/3,4, and an extract was published in The Dominion, 15 October,1990.)

Keywords: Governance; History of Ideas, Methodology & Philosophy; Maori;

The moral authority of governance in New Zealand is based on a social contract, perhaps moreso than any other country. The “Social Contract” rests on the proposition that mankind is both an individual and a social animal. This creates a tension, for living in a society involves some alienation of one’s individuality. Yet to live outside society involves a loss of one’s full potential. There is no perfect solution to the tension, although many have been proffered.

The most obvious is the theocratic state, in which rule in the name of God is thought to provide the harmony. The enlightened dictator is another suggested solution. So is majoritarianism, the doctrine that the majority unlimited power to impose its will on the community, a doctrine which is frequently implicitly invoked in New Zealand. But each involves assumptions about perfection of mankind which have proved to be unrealistic.

The approach of the social contract is to recognise the tension, but to see an -albeit imperfect -solution in a contract between the individuals in a society and its governors. In the contract the individuals give up some rights and powers in order to make society governable. In return, the governors of the society agree to respect the rights which are retained and govern subject to them.

Many important political philosophers have contributed to the theorisation of the contract. John Locke’s writings in the seventeenth century are well known, arising out of the political turmoil of the ‘Glorious Revolution’ of 1688, when the old governors had been replaced. They had failed to keep their part of the social contract, and the community had the right to rebel against their rule, and replace the unjust government. However it was Jean Jacque Rousseau, writing in the middle of the eighteenth century , who popularised the “social contract” phrase. Rousseau described the “noble savage” , entering into a contract which established the governance of their society as a means of overcoming social turmoil.

The integrity of the theory of the social contract has been bedeviled by the question of its existence. Is it a philosophers’ fiction, to get a theory underway? Or was it an actual creation in the long forgotten past, when we became human? Or is it has an intangible presence, reaffirmed at regular intervals, perhaps when we vote?

The New Zealand answer is quite different. A hundred and fifty years ago at the Waitangi Marae the noble savages of New Zealand endorsed such a social contract. The broad historical details leading to the signing of the Treaty of Waitangi are well known, but rehearsing some of the salient ones is useful.

Before 1830 British legislation had specifically recorded on three occasions that New Zealand was outside the British domain. In 1835 Britain had recognised the Maori Declaration of Independence, which specifically reserved mana, or in this context sovereignty, to the Maori.

Nevertheless, the increasing settlement of the islands by British subjects, and concern for the welfare of the natives, forced the British government to send Hobson to treat with the Maori. The outcome was the Treaty of Waitangi

It was the Maori language version of the Treaty which was signed on the sixth of February 1840. But we have the original drafts in English which were discussed, modified, and then translated, undergoing a further modification. Had there not been that signing of that English version at the Waikato Heads, in March or April 1840, it would have no final standing, merely being a draft on the way to the Tiriti o Waitangi, written in Maori and signed throughout New Zealand. This is in addition to the principle in international law , that where two versions of a treaty were jointly signed, the native language version has the most standing.

In a sense there is no “Treaty of Waitangi”.There is a Treaty of Waikato Heads. There is a Tiriti of Waitangi, and there are translations of that Treaty. But no English document was agreed to at Waitangi, merely some of the early drafts in English.

At the time, none of those drafts in English had much standing. For instance, James Clendon, the United States Consul at the Bay of Islands wrote to Secretary of State on 20th February1840, “I have also forwarded a copy of the Treaty entered into with the Chiefs with a translation attached thereto. ” He did not send the English and Maori versions of the Treaty, but a Treaty and its translation, further described an” unofficial translation”.

Clendon was not alone in making this distinction. In the early 1840s there were a number of English translations of the Tiriti, some of which survive to this day. Apparently they were used for land dealings between the settlers and the Maori. Why were they necessary if there had been an English version of the Treaty with the same status as that which the Maori signed? The answer must be that the settlers did not-think there was an equal status English version, just like Clendon.

The drafts are important, because they give us the thinking behind the final version. The crossings out, the extensions, and the rewritings indicate the anxiety and care with which they were written, and the responsiveness to the native concerns.

The first draft in Hobson’s hand is merely the preamble.

It was followed by a second draft which contained a revised preamble and two articles. The third draft is almost exactly the English version at the Waikato Heads signing, except there is a long and rather obsequious section heading the part where the chiefs were meant to sign. After the submissive section is the shorter section, familiar in the English version of the Treaty, in which the chiefs merely state they understand what they are doing and append their signature.

The main changes in the English versions are between the second and third drafts. One major difference is that the second draft implies that there were only United Tribes in New Zealand, who had the authority to cede all the country.The third draft recognises the political heterogeneity, by including “the separate and independent chiefs”

Except for this the first article of the second draft is largely as we know it today, ceding to the British Crown “absolutely and without reservation the rights and powers of sovereignty”. In the signed Maori version of the Treaty, a translation and modification of the third draft, possibly after consultation with the Maori, the phrase was diluted to the transfer of “kawanatanga”, or “governance”. It is clearly not meant to be “sovereignty”, for then the word “mana” would have been used.

One translator was Henry Williams, who had earlier translated the 1835 Declaration of Independence which was in Maori. He must have known that mana (sovereignty) had been reserved to the Maori, and understood precisely that the different term in the Tiriti meant that it was not transferred to the Crown.

That the missionaries understood what was happening may be inferred from the Reverend Richard Davis, also on the Waitangi Marae, whose memoirs included a translation unlike that of the third English draft. His translation refers to “cede to the Queen of England for ever the government of their lands”.

There is no third article in the second draft. But in the preamble appear the words in the third article of the final English version, imparting to the Maori “the rights and privileges of the British subjects”.

It is the second article which is most different. In the second draft it merely says “The United Chiefs of New Zealand yield to Her Majesty the Queen of England the exclusive right of presumption over such waste lands as the tribes may feel disposed to alienate”. Not only do we have here the misunderstanding of Maori unity, but also that there were waste lands. For the Maori, uncultivated land was not waste, but had other -often very important -functions, including a spiritual significance.

This earlier form is also interesting in what it does not say. By implication all other land was the chiefs’ and was not to be alienated. Moreover it fair to assume that the rights in the preamble included property rights. No doubt that is why their mention preceded the two articles in that draft.

The third draft of the Treaty has a much more explicit second article, ensuring the Maori “their full, exclusive, and undisturbed possession of their lands and estates, forests and fisheries”, again with a provision to permit Crown alienation with consent. In the signed Maori version of the Treaty the expression appears as “tino rangatiratanga o o ratou whenua o ratou kainga me o ratou taonga katoa”. Davis’s translation says that “the Queen of England acknowledges and guarantees to the Chiefs of the Tribes, and all the people of New Zealand, the entire supremacy of their lands, their settlements, and of all their personal property”.

There may well have been a fourth draft in English, but no physical trace of it exists. Then the final English draft was translated by Henry Williams, and his son Edward, into Maori. Almost certainly, following discussions with the chiefs, this Maori version was redrafted, but we can only conjecture on what were the alterations.

I describe these changes for two reasons. First, it is well to remind ourselves that the Treaty of Waitangi was written and rewritten in response to perceived or articulated Maori requirements. That the preamble was hardly altered from Hobson’s original draft tells us that it is not as important as the articles. The changes tell us the importance the Maori placed on the transfer of kawanatanga rather than mana, and the emphasis placed on the recognition of their tino rangatiratanga. These are significant pointers to how we should adopt the moral obligations of the Treaty.

The second reason for this review of its origins is that we can see the drafters of the Treaty had some overarching concept -the concept of the social contract.

Structurally the Treaty is in two parts. The first identifies an agency who is empowered with the governance of the country.The second identifies the wide range of rights which the individuals retain. That is exactly what one would expect in the social contract of Rousseau’s noble savage.

The notion was probably in the back of the minds of the Europeans -Hobson, Busby, and Williams -who drafted the various versions. I am not saying that any had read Rousseau, I have no evidence that they had. But the ideas of a social contract were in the air at the time. For instance in 1821 Richard Whatley, who was to become Archbishop of Dublin, preached from a pulpit, a sermon centred on the social contract. We know about that because the sermon was published in 1823. What we do not know is how many other sermons and general discussions in the first part of the nineteenth century also mentioned the social contract.

Whatley’s sermon introduces another dimension to the origin of the social contract. In political theory it is usually taught around such people as Hobbes, Pufendorf, Locke and Rousseau, but there was an intertwining development, based on the Old Testament covenants, from theologians. While those Europeans on the Waitangi Marae may not have had much knowledge of the great political thinkers, they would have been bathed in theology, as would by that time many Maori. Those key words in the Treaty, “kawanatanga” and “rangatiratanga”, are not part of the traditional Maori lexicon, but were first introduced in the Maori bible. (“Rangatiratanga” appears in the Lord’s Prayer as the word for “kingdom”.) The chief translator from the English to the Maori version was Henry Williams, a missionary. It is no accident that even to this day the Maori describes the Treaty as a “solemn covenant” harking to its biblical ancestry.

Do these intellectual origins matter? The answer depends on whether the Treaty itself still matters. And the answer to that depends on the attitudes of the people of the day. Surely the celebrations of 1990 are evidence that the Treaty matters to a wide majority of New Zealanders, although they may be well pushed as to explain why it matters to them. It is a part of our hearts, not our intellect

It matters in other ways. The Crown itself traces its powers back to the Treaty quoting in its Principles for Crown Action on the Treaty of Waitangi. The first principle states The First Article of the Treaty gives expression to the right of the Crown to make laws and its obligations to govern with accordance with constitutional process.

So the moral authority of the Crown, from which its claim to govern, arises from the Treaty of Waitangi. There is a comforting point here. The authority is not based on conquest or gun boat diplomacy, nor on the pretence that there was no-one before the European settlers. The authority comes from a mutual consent -the consent of a social contract.

In New Zealand we do not need to worry about any intangible existence of our social contract. We have it physically -water marked and rat chewed though it is -in the Treaty of Waitangi. Not only is the New Zealand constitution based on a social contract, but the contract appears in other aspects of our social life.

In late 1990 an ” Agreement for Growth” was announced. Such agreements have been an integral part of our political and economic life in the post war era, except in the latter half of the 1980s. What they involve is the various actors in the economy -in this case the unions, the Reserve Bank, and the Government -agreeing to forgo some of the selfish use of their economic powers in pursuit of their own goals, and instead to co-operate to attain a better economic outcome.

The limiting of the pursuit of individual ends to achieve a better social end is of course an integral notion of a social contract. Such economic strategies are not peculiar to New Zealand, and are often pursued in successful small open economies. They are sometimes called “compacts”, echoing Locke’s term for the social contract. Rousseau, Whatley and other earlier contractarians did not conceive their social contract in such economic terms, because they lived in a very different economy. The philosophy of the social contract has been an evolving one too, responding to changing social and economic circumstances.

A recent exciting development has been that of John Rawles who published his Theory of Justice in 1972. Rawles recognises that a social contract does not in itself set down all the principles for governance. He derives one for social justice by suggesting that we should organise a society on the basis of the choice we would make if we did not know what would be our station in the ensuing society.

For instance I am a reasonably intelligent, reasonably lucky , reasonably healthy, Pakeha, male – touch wood – well rewarded for such attributes. But I might have turned out to be a less well endowed Maori woman. From behind the Rawlesian veil of ignorance I would support a society which is based on her needs, and not those of the more fortunate. Rawles goes on to argue that we should organise society round the principle which gave the most marginal the best deal possible. This defines social justice in the social contract.

In the same year, 1972, the Royal Commission on Social Security reported on the principles which underpinned the New Zealand welfare state. The objectives were
(i) First, to enable everyone to sustain life and health;
(ii) Second, to ensure, within limitations which may be imposed by physical or other disability, that everyone is able to enjoy a standard of living much like the rest of the community, and is thus able to feel a sense of participation in and belonging to the community;
(iii) Third, where income maintenance alone is not sufficient, … to improve by other means the quality of life available.

It is unlikely that the Royal Commission knew of Rawles’ work, but their account of our social objectives is an elaboration of his concept of social justice. Thus the welfare state is another example of the social contract. The universalism we expect in our social security, health, and education arises because the contract involves a tradeoff between everyone contributing to the support of the welfare state, and thereby receiving reciprocal benefits when they are in need.

So, in its political foundations, in its economic foundations, and its welfare foundations New Zealand has been based on a social contract, placing limits on what we may pursue as individuals, but not on our individual rights, in exchange for a government who respects those rights and attempts to govern in the best interests of society.

I will not labour the point, but recent years have seen a major breach in national policy with many aspects of contractarian thinking. For instance the Treasury 1987 post election briefing, Government Management, one of the most ambitious attempts to write an alternative approach to the governance of New Zealand, rejects a social contract as the underpinning principle. It is a shallow rejection, without any real attempt to grasp the issues. Admittedly the Treasury is attempting to reject populist majoritarianism. But it does so, by striking out in a direction alien to our history and culture, and explicitly repudiating the social contract.

More recently the government of New Zealand, unilaterally without mandate, revoked the central provisions of our social security system, while its economic policies depend upon a less social management of the economy that New Zealanders have grown use to, or apparently want.

It is this repudiation which has led to the alienation of the ordinary New Zealander from with the political process, which was the background unrest to the adoption of MMP by referendum. This potentially represents a major change to our constitutional arrangements. But while reform of our electoral procedures is vital, it is not enough. We need to renew the covenant, the compact, and the contract.

Fortunately we have the Treaty of Waitangi as a base for that renewal. We need to build it into our governing institutions, making it more explicit in our thinking, thereby reaffirming the social contract.

In recent years lawyers have taught us much about the Treaty, and the legal system has made some marvellous decisions respecting it. The Court of Appeal decision on the State Owned Enterprise Act is well known, where they elaborated the significance of the Treaty in governance. More recently, Justice Heron has sagaciously ruled that the principles of the Treaty must inform government actions in the administration of statute law. This is another significant extension of the role of the Treaty in law.

And yet lawyers are fundamentally mislead. For they ask how is the Treaty to fit into law? The issue is how is the law to fit in with the Treaty?

The answer is that our statute law derives from the first article, and British common law was imported by the third article. This means that any statute which fundamentally betrays the principles of the Treaty of Waitangi is invalid, because it contradicts the basis on which the law is founded. Without the Treaty, the law is a simple nullity. Chief Justice Prendegast, who declared the Treaty a simple nullity in law, got it exactly the wrong way round.

In extreme instances a statute in conflict with the Treaty should be struck down by the courts. Doing so would be totally in keeping with the principles of the social contract. Recall Locke’s concern to justify the rebellion against the king in the seventeenth century because the government failed to keep its part of the bargain. Similarly the Maori in the nineteenth century was not rebelling against the Treaty. Their direct action was against the majoritarian abuse of the terms of governance set down in the Treaty. Resisting abrogation of the principles of the social contract is a sacred duty on every citizen, and no less an obligation exists for the courts. For them to connive in the breaching of the Treaty of Waitangi, even by an act of neglect, is to undermine the courts’ own integrity.

The attempts to attach the Treaty of Waitangi to a Bill of Rights were also the wrong way around. The Treaty is the Bill of Rights. It says so twice. Article two affirms the Maori rights, and article three adds the British rights. All a statutory Bill of Rights can do is elaborate those rights in law. It does not establish them, and it certainly cannot supersede or incorporate the Treaty. The Waitangi Tribunal could actually carry out the functions of the Human Rights Commission, enforcing the rights through the maintaining of the integrity of the second and third articles.

There is a consequence here which may at first distress some Maori. Rights in a social contract cannot be allocated to a subset of the population. That would amount to apartheid.

Thus the existing rangatiratanga rights affirmed in the second article of the Treaty must also apply to non-Maori. How?

For the initial property rights this interpretation has little effect. The Maori had a range of property rights on the fifth of February 1840. Those property rights were there two days later. Any non-Maori who had property rights in New Zealand then should have had them carried forward by the Treaty too.

However Rangatiratanga is much wider than property rights. It encompasses cultural concerns, such as the language. It encompasses social responsibilities, such as for the environment, and future and past generations. And it encompasses the mana of the individual; what in English we call personal integrity and dignity.

The Treaty of Waitangi is a minimalist social contract. That is it transfers the minimum of powers to the government, as is evident by the use of “kawanatanga” rather than “mana” in the first article, and the preservation of tino rangatiratanga in the second. The consequence is that only the minimum of necessary powers should be retained by the government, and the rest should be devolved. I say to the Maori who seeks rangatiratanga in the devolution of existing powers to Maori groups, ‘go to it, and blaze the path for Pakeha and other cultural groups to have a more devolved governance too’.

Such devolution is one of the bulwarks against majoritarianism, which accumulates unnecessary power to the state. The Maori seeking of devolution is partly a response to the overwhelming majoritarianism, which threatens their existence as a tangata. Equally it threatens each of us, for every one of us is a minority.

Suppose that there were no descendants of the 1840 Maori left in New Zealand. We would be a poorer nation for it, with less vitality and less sense of identity as a Pacific community. But even so, the Treaty of Waitangi would not be historic relic. It would continue to play an active part in our nationhood, still being the founding document from which the moral authority of our governance derives. By cherishing the principles of the Treaty, the integrity of the political system would be maintained and strengthened.

Fortunately we have both the Treaty and the Maori. We prosper from both. One provides the social foundation for the nation: the other our most prominent minority and, by their example guardians, for all our minorities. When the Maori makes a claim under the Treaty to right some past injustice, or to preserve their rangatiratanga, do not ask for whom the bell tolls. It tolls for thee.

Alan Danks: Economics Teacher

This entry was posted in History of Ideas, Methodology, Philosophy on by .

Prepared in March 1994 shortly after Alan’s death in December 1993. He was 79.

Keywords: History of Ideas, Methodology & Philosophy;

I last met Alan Danks in the Wellington Public Library, standing there among the book stacks, with an enormous pile of novels for the week’s reading. He talked of how he never considered himself an economist, but only an economics teacher, for when he was young there was not an economics profession in the public service and business. This exceptionally tall man always looked down on me, seemingly ending his sentences with an unspoken “boy”. Yet it was a modest remark. “Only” an economics teacher: he was a great economics teacher, the best I had.

I used to joke he never taught anything. In the first half of each lecture he would tell us what the previous lecture was about; in the second half it was what the next lecture would be about. And so we were elegantly led through the details and delights of economics into a world of pattern and purpose.

In those days the majority of students were not greatly interested in economics: accountants required to take the subject as a leavening to an otherwise narrow training. Professor Danks managed superbly the challenge of keeping them interested, using contemporary illustrative material, with a genial humour and a great sense of theatre. (Did he ever participate in amateur drama? Perhaps his size ruled that out, and his lecture theatre functioned as a a stage.)

Consumer theory was enhanced by references to homely jam, and to the latest fashion. (Did it included hula hoops, or has my memory confused a student fantasy discussion on the feasibility of the – in those days none-to-slim – pedagogue performing with one?) In welfare economics up popped the proposition that even if the recently installed parking meters generated no net revenue to the local council, there could still be a net benefit from introducing them. The effects of barriers to entry on competition was contrasted with a one-man businesses everyone round town was setting up in old warehouses, and where rents were falling. There were illustrations from the novels he was reading. To mention fiction in today’s economic climate would be far from politically correct. Economics for Danks was, like works of imagination, an insight to life. I am so glad my last memory of him is with that pile of reading.

Not that he lacked system and rigour in his teaching. I recall how he took us through, step by step, the derivation of the consumer maximizing condition (that was where the jam came in). It took two whole lectures. By coincidence, my mathematical lectures at the same time covered in a couple of lines the mathematical technique (the lagrangian) for the same result. I made the obvious calculation that at a line of mathematics a lecture, a mathematician could clean out economics pretty quickly. It was only with maturity that I realised how the Dank’s exposition covered many more ideas with much greater subtlety than the crude mathematics: that 200 odd lines of mathematics was not a degree in economics.

And of course the mathematician has to learn to write. I was in Dank’s first year tutorial – in those years professors taught just about everything, and all the time. Distressed by my mark for my first essay (as a science student I had not written anything much for two years), I took it to him, who said the analysis was fine but the presentation wanting. Learning to write was ‘like making love. No one could teach you [was there a ‘boy’ at this point?]. You had to learn with practice.’ (One is still practising.)

Alan Danks never claimed to be a mathematical economist, but through natural ability – and probably from having to teach school maths to 3F – he had a grasp of the essentials which left many more professing economists behind. Compatible with his style and humour plus neat illustrations cloaking deep analysis, was William Baumol’s wonderful Economic Theory and Operational Analysis which he used in his third-year course. It purported to be a simple text, but work your way through it and you had mastered a lot of economics that life as an economic professional needed.

That is what I meant by his modesty. To say Alan Danks was only an economics teacher implies all economists are not teachers. One could, of course, say that Alan was acting as a full economist in his pamphlet on Social Credit, and his work in the administration of the Canterbury Hospital Board and the University Grants Committee, and to that seminal report of the 1972 Royal Commission on Social Security, on each of which he sat.

But that demeans the man’s achievements as teacher. Perhaps the only true member of the economics profession is the teacher concerned with explaining the world rather than pursuing an agenda of her or his own or sponsor. In which case Danks was a very successful economist.

My third year class of the early 1960s, who so much enjoyed Baumol’s text and its presenter, included a future secretary of the Treasury and two future directors of the NZ. Institute of Economic Research, some of whom were diverted from a planned career in accountancy. Danks gave up teaching shortly after to become a Wellington administrator – a ‘proper’ economist. Soon after New Zealand economics turned away from erudition, explanation, and (let us be honest) entertainment. Losing teacher Alan Danks symbolised that change.

Growth Prospects: Is Our Current Growth Rate Sustainable?

This entry was posted in Growth & Innovation, Listener on by .

Listener 12 March, 1994.

Keywords: Growth & Innovation;

The available indicators suggest that the New Zealand economy was growing quickly at the end of 1993, at around four percent a year. For some this is the triumphant proof of the long promised benefits of the Rogernomic economic strategy. For others the indicators are misleading (certainly, not everyone or all parts of the economy are benefiting from the growth). For myself, the new data provide a chance to re-examine the underlying state of the economy.

The upswing, which began in late 1991, has been unusually long. That is good news, because it implies that there is underlying economic growth. However, much of the 1992 growth was a rebound from the economic collapse in early 1991 that followed the inept measures introduced after the 1990 election, and was fuelled by an excessive government deficit. So, perhaps the true upswing has lasted only four or five quarters. Moreover, although unemployment was below eight percent of the labour force before the 1990 election, today it is above nine percent, despite recent falls.

To what extent is this rapid expansion sustainable, and to what extent is it temporary? Probably the best way to think about the long term is to look at export growth. The official and unofficial forecasts I have looked at suggest that the trend rate of export volume growth is about three percent a year. Also, the share of imports in expenditure is tending to rise. A long-term export growth rate of three percent a year translates into an underlying annual GDP growth rate of somewhere between one and two percent. That suggests that the current economic expansion is unsustainable.

In the past an unsustainable expansion has come to an end when imports flooded into the economy, and the balance of payments turned sour. The indications are that imports are rising rapidly, although we must wait some months to learn what the current account deficit for the March 1994 year will be. (It was around $1500 million, or two percent of GDP, for the March 1993 year.)

The forecasters recognise this threat, but some argue that, since a major source of the additional imports is investment goods overseas, investors will treat the deterioration as benign. Moreover, some see the balance of payments improving, despite the high economic growth. One optimistic way of forecasting this is to assume that export prices will improve markedly. We have been assuming this for 20 years.

Another threat to growth is labour shortages leading to inflationary pressures. Although unemployment is high, there are growing shortages of skilled labour -stemming from the collapse of the upskilling programmes over the past decade. The Employment Contracts Act depresses wages when there is a labour surplus, but boosts them when there is a shortage. So, we cannot rule out an inflationary burst, should demand for labour increase, checked by the Reserve Bank hiking interest rates and the exchange rate (which would compound any balance of payments difficulty).

So we might expect to see some reduction in the recent rapid economic growth over the next year. Which leaves the government with an interesting political problem. The expansion at about the time of the election probably enhanced its vote. But the economy could look quite stagnant by the end of 1995. This could be another pressure for a mid-1995 snap election, as soon as the MMP rolls allow.

In suggesting that growth will slow down, I recognise that there are many other events which will also be influential. (Perhaps the terms of trade will boom.) My point is that it would be foolish to assume that the current expansion will continue indefinitely. There could even be a return to stagnation or contraction if the balance of payments deteriorates.

But, suppose the economy expands at an underlying rate of, say, three percent a year. Would that justify the Rogernomic policies? I think not. First, in the period from 1950 to 1966, when the terms of trade were flat to slightly falling, the average annual volume (ie, real) GDP growth rate was 4.3 percent. That is the sort of sustained growth rate we need in the future, especially if we want to reduce unemployment to tractable levels by the end of the decade.

A second doubt is that the first seven years of the Rogernomics regime were disastrous, as the accompanying table shows. Economic and productivity growth was poor, unemployment rose. Only the inflation figure is creditable, and that was after high rates through most of the period. When the policies were commenced New Zealand per capita output was 90 percent of the OECD average, by 1992 we were 76 percent. So poorly did we perform. that. if in the future New Zealand grew one percent a year faster than the OECD, we would not be back to the 1985 relativity until the year 2010. We have a lot of catching up to do.

Economic Performance: 1985-1992

Period

New Zealand OECD

Inflation (private consumption deflator) % p.a.

1985 12.9 2.9
1992 1.0 3.6
Average 85-92 7.4 3.9

Unemployment (% of Labour Force)

1986 4.0 7.7
1992 10.3 7.5
Average 86-92 8.2 6.9

Current account deficit (% GDP)

Average 86-92 3.3 n/a

GDP per head (OECD = 100)

1985 90 100
1992 76 100

GDP growth (%)

Total 85-92 -1.0 19.7

Labour productivity growth (% p.a.)

Average 85-92 0.7 1.4

Data sourced from OECD Economic Outlook, June 1993.

Who Controls the Exchange Rate?

This entry was posted in Listener, Macroeconomics & Money on by .

The Reserve Bank says its influence is overrated.

Listener 26 February 1994 This is the third of a sequence of four columns written in the early 1990s about monetary policy, which continue to be significant today. They are
The Hole in the Reserve Bank
What the Reserve Bank Believes
Who Controls the Exchange Rate?
The Meaning of Influence

Keywords Macroeconomics & Money

In my last column I remarked that the Reserve Bank sometimes makes confusing and contradictory statements. In this I want to give an example.

Just over a year ago the Bank’s Governor gave a speech to the Auckland Manufacturers, Association, subsequently published in the Reserve Bank Bulletin. It made six points. Here we look at three, the remainder being less contentious.

Point five was that monetary policy cannot “sustainably influence” the real exchange rate (the relativity between domestic and international prices). The paper does not argue the point of the lack of Reserve Bank influence. It merely states it with an unconvincing illustration, as if that were sufficient to make it true. Perhaps manufacturers dont need explanations.

But they must have been puzzled when they recalled point three: “It is indeed quite likely that, in the long term, there will be a tendency for the New Zealand dollar to appreciate against the currencies of our trading partners to the extent that inflation in New Zealand runs at a rate below that of our trading partners.” In effect, the Governor was saying, the real exchange rate will be constant in the long run. When our inflation is lower, which would improve the real exchange rate, the nominal exchange rate will appreciate, cancelling the gain.

Now the Reserve Bank controls two of the three components which make up the real exchange rate. Its objective – in statute and by government direction – is to control the domestic price level. Increasingly it is admitting to targetting on the nominal exchange rate (the price of the New Zealand dollar compared with other currencies), as a main means of controlling the price level. Only the world price level is outside the Reserve Bank’s control.
So although reluctant to admit it, the Bank is controlling the real exchange rate in the short run, which seems to make a mockery of the sixth point: “the Reserve Bank cannot engineer a sustainable improvement in the economy’s competitiveness, collectively you [the audience of manufacturers] can.” Indeed the speech’s message is that if exporters collectively improved their competitiveness by keeping prices down, the Bank would engineer an offsetting nominal exchange rate appreciation.

There are various ways to get out of this muddle, but there is little guidance from the Reserve Bank’s writings, even interpreting their ambiguity as generously as possible. For instance if exporters determine competitiveness in the long run, they must also be determining the nation’s long run price level. In which case the Bank cannot be controlling the long run price level, nor the rate of inflation. If true, what we are seeing from the Bank is short term posturing and bullying. I doubt it would agree to this resolution of the confusion. But the alternatives involve using economic terms in creative ways, or confusing levels and changes (analogous to distances and speed), something which the Bank’s writings do far too frequently.

Part of the trouble arises because the Reserve Bank Act has no underpinning theory. There is Milton Friedman’s slogan all “inflation is always and everywhere a monetary phenomenon”. However in a recent book the master seems to have backed down from its universal application writing (using the italics of the original) “substantial inflation is always and everywhere a monetary phenomenon“. Statements about “substantial” inflation tell us nothing about our current low levels of inflation.

Is the more general slogan true? The theories that purport to demonstrate its veracity are not very compelling, and their empirical support usually assumes the truth rather than investigates it. More seriously for our case, they describe closed economies, not those open to the outside world with exports, imports, and capital flows.

Even were we able to prove the truth of the slogan, yet another step is necessary to get to the Reserve Bank’s conclusion. Perhaps monetary phenomena also affect the real economy: investment, exports, production, employment. The usual explanations use a neat mathematical twist to deny the possibility, but the real world is not always so kind.

In any case, the theories assume that the path to the long run does not affect the ultimate outcome. But the Reserve Bank’s own econometric model demonstrates path dependent effects, where the final state of the economy is consequential on the route taken over time. Which is not surprising. A monetary squeeze may mean less investment in physical capital, in human capital (i.e. education and training), in research and development, and in international market development. One would expect output to be lower in the long run. The monetarist models overlook this because they usually assume a static economy, which leave these elements out of their analysis. It is perhaps not surprising that their policies seem to generate stagnation.

By locking us into a particular level of competitiveness, the Reserve Bank threatens slow growth (business cycle upswings aside). If international competitiveness is too low, the export sector’s development is inhibited, as are import substituters. The smaller tradeable sector would mean smaller output, less investment, and more unemployment.

It is no good the Reserve Bank just denying all this with another public relations handout. As a first step to really defend their position the Bank needs to offer an explanation of the determinants of the economy’s competitiveness, which are independent of monetary policy. They will find no such conclusion in their own econometric model.

Suppose the Bank made no more pronouncements until it has plausibly demonstrated money has no long run influence on the real economy. We would be in for a long period of silence.

Taxing Alcohol

This entry was posted in Health, Regulation & Taxation, Social Policy on by .

Presentation to “Perspectives for Change”, a conference convened by the Alcohol Advisory Council of New Zealand at Ohinemutu Marae, Rotorua, 20-23 February, 1994.

Keywords: Health; Regulation & Taxation; Social Policy

Given the brevity of the time available, this paper simply states a series of propositions about using taxation as a means of regulating alcohol use. The presenter has long been an advocate of an appropriate level of tax on alcohol to limit abuse and to pay the social costs of the abuse. While reaffirming this position, the paper is directed to the thesis that taxation for this purpose is a limited policy instrument, and that other instruments will have to be increasingly used if we want to obtain the socially optimal level of alcohol consumption. This presentation summarizes a series of papers on the economic regulation of licit drugs, which are listed in the appendix. This work draws on the parallel literature on the use and abuse of tobacco, where the similarities and differences are instructive.

(Two issues not discussed in any depth in this paper is the economics of addiction, and the question of different excise duty rates for different sorts of alcohol.)

There is no question that, all other things being equal, the higher the price of alcohol the lower household consumption. However the competitive market system has the effect of keeping the price of alcohol low , as firms compete for market share (of both the market for spending on alcohol and for total consumer spending) .An excise tax on alcohol raises the price of alcohol above the level set in the competitive market, reducing consumption.

1. Raising the excise tax on alcohol increases the price of alcohol, and reduces consumption.

However, alcohol consumption is “price inelastic ” , that is a rise in the price does not markedly reduce overall alcohol consumption. There would appear to be. at least two groups who are more sensitive to price changes than the population as a whole:
– Adolescents: According to (limited) empirical studies the young are more likely to reduce their alcohol consumption than average, if there is a rise in the price of alcohol. The parallel (and better demonstrated) phenomenon for tobacco means that we can discourage the young from tobacco by keeping tobacco prices high. However alcohol policy may have the different objective of developing sensible attitudes to drink among the young.
– Heavy drinkers who are not (yet) addicted: Raising prices cuts an individuals’ real income. The size of this cut is related to the total outlays. Thus heavy drinkers experience larger income cuts than light drinkers, which is likely to discourage their drinking in greater proportion. This is an a priori argument, which I have not seen empirically verified. The policy implication is that higher taxes may discourage heavy drinking, which may be a step to addiction. (The policy parallel is raising the price of tobacco to discourage addiction among adolescents.)

2. Higher prices for alcohol from higher excise duties do not necessarily reduce alcohol consumption markedly. (Demand tends to be price inelastic.) Exceptions may be adolescent and heavy drinking.

While higher excise duties do not substantially discourage alcohol consumption, they do contribute to government revenue. There are equity and efficiency arguments which say that the excise duty should cover the social costs to the nation of alcohol abuse. The social costs are the public costs which drinking generates that would not be incurred by the drinker if they paid the private cost of producing the beverage (i.e. before the duty was levied). I shall not go through here the economic arguments. More relevant is
– we have little idea of the social costs of alcohol abuse (most of the guestimates confuse social and private costs);
– strictly the excise duty should vary from incident to incident, since some drinking has low social costs (i.e. a glass of wine with a meal) while others may have high ones (drinking oneself rotten and then driving home). There is an important distinction between alcohol and tobacco in this respect, because the social costs of smoking tobacco do not vary as much between each incident as do those from drinking alcohol. (It is argued that there may even be social benefits from moderate drinking, although they are often exaggerated.)

3. The revenue from the duty on alcohol can be justified by the existence of the social costs (above private costs and benefits to the drinker) which the drinking generates.

In principle raising excise duty reduces social costs, as individuals reduce abusive drinking. This means there is a fiscal benefit from reduce public expenditures as well as increased revenues. We have seen that any reductions in drinking may not be great from higher taxation, so most of the fiscal benefits are probably on the revenue side.

An additional consideration is that the expenditure reductions may not be immediate. For tobacco -which admittedly has different social costs -the main expenditure gains occur some ten years after the giving up of the smoking, and so the immediate expenditure reductions are small, and the fiscal significance of the reductions is likely to be discounted.

The fiscal advantage, then, of “sin” taxes is they are a means of raising revenue, which has a degree of public support. Thus the anti-alcohol (abuse) lobby and the fiscal lobby tend to have a common policy solution. However there comes a point when the revenue increase from higher excise duties is zero or negative, while the consequential rise in prices remains. (I do not go through the details of this argument.) While excise duty on alcohol may not have yet reached this point (although excise duty on tobacco may well have), it is well to remember that the common interests of the anti-drink lobby and the fiscal prudence lobby diverge as excise duties rise. (In this context the previous paragraph is important, for while it might be argued that the tax should be raised because it will reduce public expenditure, the fiscal lobby is likely to reject this argument because any gains are only in the long run.)

4. There is a common interest at low levels of excise duty between those who want to limit alcohol consumption and those who want to relieve fiscal stress. This alliance tends to break down at high levels of duty, when increases in levels do not (markedly) increase tax revenue

Thus far the analysis has been primarily in terms of trying to reduce overall alcohol consumption -the traditional objective of the temperance movement. In recent years the campaign has enlarged its compass to cover those who recognise that some drinking may be abusive but believe much is not. The policy focus is to move away from reducing alcohol drinking, to eliminate that which is socially damaging while not affecting (or encouraging) that which is social beneficial (or neutral).

Before sketching the fiscal consequences of this argument it is worthwhile contrasting the situation with tobacco usage, where there is no scientific case (as far as I know) that any tobacco usage is a net social benefit. (The argument that tobacco consumption is beneficial to tobacco growers and processors is true but is not a net social benefit one, since the resources deployed there could be transferred to some other usefully beneficial activity, such as alternative horticulture. )

The difference with alcohol is that there is much drinking which is privately beneficial but which is not socially damaging (and which may even be socially beneficial, although that is not crucial for the argument). To see the problem consider the impact of raising excise duty on alcohol and using the increased revenue to reduce income tax:
– the teetotaller is better off, since their income tax burden goes down (and they may suffer less from the consequences of alcohol abuse by others);
-the heavy drinker is worse off, since they are paying more for their liquor, which is not being offset by the reduction in income tax (nor by any reduction in alcohol abuse by others).

Somewhere between these two extremes is the moderate drinker. Those at the more teetotal end will be better off (for reasons similar to -but of lower magnitude than -the teetotaller). Those at the higher end of moderation will be worse off (for reasons similar to -but of lower magnitude than -the heavy drinker).

There is both political and efficiency issues here. The political issue is that as tax rates rise moderate drinkers increasingly join the anti-tax lobby, so the broad coalition of interest groups get narrowed. In efficiency terms, some of the drinking the higher taxation is discouraging is beneficial.

5. Higher taxation on alcohol reduces the welfare ofboth the socially abusive drinker, and for some moderate drinkers. As a consequence the political coalition suppol1ing higher taxation is fragmented, while there can be severe welfare losses among the moderate drinkers, which more than offset any gains from reduced alcohol abuse.

The point is that the tax is a rather blunt policy instrument for alcohol regulation. Like rain it falleth equally on the just and the unjust. This is not to say there is no case for further raising excise duty on alcohol. That is a question of policy judgement, dependent on facts which this short paper cannot canvass.

6. This paper does not prove the case for or against raising excise duty on alcohol in current circumstances. What it says is there is a pragmatic limit to the level to which the duty can be raised.

What is being argued here is another example of the shift in social policy from a focus on pathological behaviour to one concerned with the totality of behaviour, of which pathological behaviour is but one aspect. If our only concern was excessive drinking (or all drinking) then higher taxation would have a much more vigorous role to play than where we recognise that moderate drinking is not a social bad, and that moderate drinkers have rights and interests.

What the analysis tells an economist is that we need policy instruments which discriminate between socially detrimental and non-detrimental drinking. There would be some interest in differential taxation for different drinking circumstances, reflecting the degree of abuse which arises, but it is not evident how such differentials can be effectively implemented. The general conclusion is to move way from too heavy a reliance on taxes to regulate to instruments which discriminate between different drinking situations.

There is not space here to review these alternatives. Instead I want to conclude by contrasting the implications for the differences in policy between alcohol and tobacco regulation (and no doubt the control of illicit drugs which I do not explore here). Tobacco policy is relatively straight forward. How to reduce consumption; how to prevent addiction. We may look around for a variety of policy instruments to do this, but basically they are all targeted on the same ultimate goal of less consumption.

Alcohol policy has a more sophisticated goal of eliminating certain sorts of drinking, while maintaining and even encouraging other sorts of drinking. This requires a variety of policy instruments which may be targeted on different objectives. While tobacco and alcohol are both drugs it would be foolish to attempt to manage them in the same way. Similarly it does not make sense to group alcohol and illicit drugs into the same general policy organization. There may however, be for specific issues which generate efficiencies and synergies. (Treatment of addicts is an obvious area of mutual co-operation.) But one common policy instrument or concern does not create an overall commonality with other drugs with otherwise different characteristics, any more than we should depend on a single policy instrument to attain the complex objectives of alcohol policy.

7. Because only some alcohol consumption is socially damaging, its overall economic regulation is not the same as for other licit (and illicit) drugs. Taxation is a blunt policy instrument for regulating the abuse of alcohol, since it is also likely to impact any privately and socially beneficial consumption.

Bibliography
Easton, B.H. (1967) “Alcoholic Beverages and Tobacco”, Consumption in New Zealand 1954/5 to 1964/5, NZIER Research Paper 10, 1967, p.23-5.
Easton, B.H. (1978) “The Lost Fortnight”, New Zealand Listener, 11 March, 1978, reprinted in B.H. Easton Economicsfor Social Democrats, Mclndoe. 1981, p.131-2.
Easton, B.H. (1979) “Fiscal Drag”, New Zealand Listener, 26 May, 1979, reprinted in B.H. Easton Economicsfor Social Democrats, Mclndoe. 1981, p.95-6.
Easton, B.H. & L.B. Kay (1982) The Impact on Alcohol Consumption, ALAC Research Report No 1.
Kay, L.B. & B.H. Easton (1982) “The Impact of Taxation on Alcohol Consumption: the Problems of Statistical Analysis”, New Zealand Statistician vol 17 (Nov 1982) p.18-23.
Easton, B.H., N. Hunn, & P. Pryke (1985) A Review of the Fiscal Options for the Regulation of Alcohol Consumption, NZIER Working Paper 85/36.
Easton, B.H. (1988) Economic Liberalisation and Social Intervention, opening address to Symposium 88: Whanau, Family and Early Intervention, Waikanae, October 47, 1988.
Easton, B.H. (1991) Offsetting the Effects of Tobacco Sponsorship, a Report for the Coalition Against Tobacco Advertising and Promotion.
Easton, B.H. (1991) Economic Instruments for the Regulation of Licit Drugs, Paper to Perspective for Change conference, November 1991.
Easton, B.H. (1992) “Economy Column”, New Zealand Listener, July 6, p.38.
Easton, B.H. (1992) “The Economic Regulation of Adolescent Use of Licit Drugs”, Proceedings of the 1991 Conference of the New Zealand Association for Adolescent Health and Development, p.119-120.
Easton, B.H. (1992) “How the Economy Impacts on Health and Welfare”, Investing in Health: The Economics of Health Promotion, Health Promotion Forum of New Zealand, Auckland.

What the Reserve Bank Believes

This entry was posted in Listener, Macroeconomics & Money on by .

Listener 12 February 1994 This is the second of a sequence of four columns written in the early 1990s about monetary policy, which continue to be significant today. They are
The Hole in the Reserve Bank
What the Reserve Bank Believes
Who Controls the Exchange Rate?
The Meaning of Influence

Keywords Macroeconomics & Money

Do the monetary policies of the Reserve Bank (RBNZ) cause unemployment? The RBNZ economists have little doubt that there is some sort of connection. I am not referring to the RBNZ’s public statements, which I find confusing and even contradictory, but to what their economists write. Monetary Policy and the New Zealand Financial System, published in 1992 (after the 1990 Reserve Bank Act), has two separate diagrams in chapters written by different economists which show linkages. A simplified summary accompanies this column.

From Monetary Policy To Inflation

At the top are the.Wholesale Interest Rates on which the monetary policy operates. Suppose they rise. Then the RBNZ thinks that the Exchange Rate and Retail Interest Rates will rise. They are shown moving in the same direction by being reverse black. As a result External Demand (for exports) and Domestic Demand (for local goods and services) get depressed. Since the movement is in the opposite direction to interest rates, they are shown in black on white. The depressed demand in turns depresses Real Economic Activity, which depresses Profit Margins and raises Unemployment. The RBNZ economists think that higher unemployment depresses Wages, while the higher exchange rate also depresses Export and Import Prices. Each of the last three then depresses Inflation.

You may not believe the diagram. What is important is that many Reserve Bankers do. It is their beliefs which determine how monetary policy is operated. A main concern is which of the sets of linkages (the channels) is the most powerful.

The year began with Peter Harris of the Council for Trade Unions arguing that the strongest channel was the one on the right, through real economic activity to unemployment and wages. Essentially this explanation is based on the `Phillips Curve’ which says you can keep down wages (and hence inflation) by keeping up unemployment. Perhaps Harris was aware that as some labour markets tighten in the economic upswing, some wage settlements are higher this year than last. He thinks that if the RBNZ judges the wage path to be a threat to its inflation objectives it will attempt to restrain wages by raising unemployment.

The RBNZ has offered several replies, the most interesting of which is that if workers break the unemployment-wage link, and do not take advantage of falling unemployment to lift their wages, then the RBNZ wont have to use unemployment to hold down inflation. This amounts to an incomes policy solution, based on threats from a centralised bully rather than the cooperative approach which is usually advocated.

The Reserve Bank’s seems to think the channel on the left is the more powerful. (The profit margin channel is probably the weakest of the three.) It goes down through the exchange rate, to export and import prices and directly to inflation. Even were that true, a side effect is the depression on external demand, real economic activity, and ultimately unemployment. If that is the main channel of influence, the RBNZ could say that it was not targeting unemployment. Nevertheless unemployment is an unfortunate side effect. Moreover the external sector is the driver for sustainable economic growth, so another disastrous side effect of the RBNZ’s-anti-inflation policy is to inhibit economic growth. (Some Australian economists call these sorts of policies “restrictionist”.)

The RBNZ economists add some further loops to the diagram, such as one involving inflationary expectations. But what is undeniable, is they think monetary policy either impacts on inflation through the real economy (i.e. output, employment, and growth), or that a side effect of the impact is on the real economy.

This has led to the argument that this should be explicitly recognised in the Reserve Bank Act (RBA). As I explained in an earlier column the RBA was passed by parliament without any background economic analysis. It appears that the government and its advisers were so drunk with the ideology of monetarism, they saw no need to argue the economics of their case. Perhaps parliament would not have been quite so keen to have passed the RBA in its current form, if they had had the RBNZ diagram with its explicit recognition that monetary policy influenced the real economy.

One proposed reform is the RBA should be amended so that the RBNZ’s objectives include job creation as well as price stability. There is some truth in the orthodoxy that bankers are not capable of chewing gum and walking a straight line simultaneously. The RBNZ should not be given multiple objectives.

My preference is to have in the RBA the requirement that the RBNZ should pursue price stability without compromising employment, output, or the balance of payments in the long run. Such an amendment would be acceptable to ideological monetarists because they do not think good monetary policy has any influence on the real economy. Thus the amendment need not throw the financial sector into hyper-hysteria. Yet the more pragmatic economists within the RBNZ would recognise that they could not run monetary policy in its present manner. This could force a revision of the approach to monetary policy by the RBNZ. Ultimately it could lead to less restrictionist economic management, favourable to less unemployment and more growth.

The Maori Electoral Enrolment Option Campaign

This entry was posted in Governance, Maori on by .

Evidence to the Waitangi Tribunal. subsequently attached as evidence to the High Court. (February 1994) The additional evidence to the High Court was primarily rebuttal evidence. (August 1994) Extracts from it are appended to this report.

Keywords: Governance; Maori; Statistics;

1. I am a research economist and social statistician, and I work as a consultant.

2. I have been asked by the Maori Congress to assist the Waitangi Tribunal by presenting and reviewing some statistics on various expenditures by the Crown on matters similar to the that of informing and enabling Maori to enrol on the Maori roll.

3. The data I shall present comes from various – usually, ultimately, official sources. In no case do I believe the data I am presenting is so inaccurate that it of no use to the Tribunal, or that it makes my interpretation of it invalid.

4. When comparing the data with the situation under dispute -the amount necessary to inform and properly enrol the Maori under the Maori Enrolment Option (MEO) differences between these circumstances and those for the exemplar data should be taken into account. There are six general ones:

4.1 The complexity of the task: Usually enrolment involves going to a population with a long history and commitment to the electoral franchise, and who are receptive to being enrolled. In the case under consideration, the task involves a group who are already (usually) enrolled, explaining that under the new circumstances of MMP, and the associated changes to the treatment of Maori electorates, that they need to review their old practice (of enrolling on the general list), and consider a new one (of enrolling on the Maori list). I have attached as an appendix a note I prepared on this matter.
I would draw attention to the information kit, Maori Option 1994: Your Choice, dated 23 December 1993, with an introductory letter from the Ministers of Justice and Maori Affairs. It manifestly fails to draw attention to the situation whereby many of (albeit negative) reasons for a Maori enrolling in a general roll under the old (FPP) system no longer apply, whereas there are now new (positive) reasons for the Maori enrolling on the Maori roll under the reformed {MMP) system.

4.2 The urgency of the task: Only two months has been allocated for carrying out the enrolment task, a very short time given its complexity {see the previous paragraph).

4.3 The momentous nature of the task: The enrolment is for a new electoral system. The first occasion will set a pattern for future ones. Getting the system as right as possible on the first occasion is vital, to minimise the subsequent impact of errors, anc to reduce the need for further change.
In effect the decisions that the Maori will make when they make their enrollinJ decision will shape Maori and Maori/Non-Maori politics for the rest of the decade anc beyond (given the inertia in an established system). In such circumstances informec decisions are imperative.

4.4 The size of the target population: While it is natural to think about funding o the campaign in per capita terms, it is relatively more expensive to cover a smaller population relative to a larger one. For instance a campaign to inform and contact 1 million people might cost $10 per head, a campaign of equal effectiveness to ½ million people might cost $14 per head. In simple terms, electoral enrolment like many other population management issues, experiences economies of scale (i.e. falling average costs with increased size) so that larger populations can be contacted more cheaply on a per capita basis.
Subsequently I use the square root rule to adjust for these economies of scale. It is one of the simplest assumptions, which says total costs go up at the square root of the population increase. Thus if the population doubles, the total costs only increases 41 percent (square root of 2 = 1.41), so the cost per capita falls 30 percent (1/1.41 = .70).

4.5 The location of the target population: The costs of a marketing program depend upon the characteristics of the target population. For instance it is more expensive to deal with a geographically dispersed population than a compact one. While the Maori population is not dispersed as evenly through the country as the population as a whole (e.g. the much smaller proportion in the South Island, they are still more rural than the total population (20.9 percent of Maori live in rural areas in 1991 compared to 15.0 percent for the population as a whole[#]), and many of those rural populations are more isolated (Northland, East Cape, Central North Island, South West Taranaki). This adds to contact costs.
[# The Government Statistician defines rural, as living outside cities and towns of more than 1000 people.]

4.6 The nature of the target population: Maori is an oral culture.[#] This rules out some publicity methods even though they are cheaper, especially where the message is complex . A letter plus brochure might be sufficient for a university which wished to enrol its graduates into an alumni association, but would hardly be appropriate in the case of a population which was less dependent on text for information.
[# The Waitangi Tribunal’s adaption of its hearing protocols is witness to the proposition.]

5. In summary, we would expect the per capita cost of a campaign to enable Maori to decide whether to enrol or not on the Maori roll to be more expensive than the larger and simpler exemplar campaigns we have described here, if it is of equal effectiveness.

6. We need some means of comparing campaigns over different populations. Even though there are economies of scale, I propose to use a per capita basis. but this still requires some definition of the reference population. Here I describe what I have done for the target population for the campaign.

6.1 There are a number of potential population groups, including:
– the Maori enrolled on the general roll;
– the Maori enrolled on either the general or Maori roll (since there may be reason for some of those currently on the Maori roll to switch to the general roll;[#]
– all adult Maori, including those not currently enrolled, since the unrolled still have the option of enrolling and expressing their preference under the legislation. Indeed there may be good reasons for some who chose not to enrol under the old system to enrol under the new one.[##]
[# For instance they may feel the general MMP system by itself will offer the Maori the political benefits they require, even without Maori seats (or their enrolment in them). Many would deny this, but the legislation provides that every Maori has the right to reconsider their enrolment.]
[## For instance, one option for those in a safe seat under an FPP system is not to bother enrolling, since one’s vote does not matter. This is not true under a MMP system.]

6.2 In the circumstances it seems to me sensible to take the intention of the legislation and the campaign is for as large a reference population as possible, so I shall work with the entire population of adult (over 18 years of age) New Zealanders who report some Maori ancestry (i.e. the definition in the statute).
Statistics New Zealand (the Department of Statistics) reports that, according to the 1991 Census, 287,250 New Zealanders over the age of 18 said they had Maori ancestry .I have projected this figure, using known demographic trends, to March 1994 as 308,000.

7.0 A point of contention is the government has provided $150,000 (inclusive of GST) to run an education program for the Maori to assist them in deciding whether to use the Maori role option. Thus the government provision amounts to 49 cents an adult Maori.
In addition the government will spend resources on its own behalf to assist the enrolment. (The information kit Maori Option 1994: Your Choice has already been mentioned, and I understand that the intention is to mail out material to every known enrolled Maori.) I have not been able to find an expenditure figure for this.

8.0 In order to assess whether this amount is reasonable, I have examined a number of other similar campaigns, although alas there are no exact parallels.

8.1. Maintenance and Update of Electoral Rolls: According to information obtained from the Justice Department, the government has spent in the three years to 1993/94 (i.e. one electoral cycle) a total of $47 million for the purposes of the maintenance and updating of the electoral rolls. That amounts to an average of $18.80 on an adult population of about 2.5 million.
The usefulness of this comparison is moderated by the figure covering activities other than education, which may have been a low component of the total expenditure, because enrolment is much simpler than choosing between two different rolls. In addition the educational expenditure itself would be targeted into the small proportion of the total population (especially those who were coming of the age eligible to vote).

8.2 The Electoral Referendum Campaign: The Electoral Referendum Commission provided $320,000 for the purpose of educating the Maori on the implications of the choice between FPP and MMP .This is slightly more than twice the figure proposed for this campaign. However, in addition there was a further general expenditure of $4,366,000, directed at the population as a whole. On a pro rata basis the Maori could be allocated around $540,000 of the general campaign fund. In total, over 5 times as much was spent on the Maori for the referendum education than is proposed to be spent on the MEO campaign. In per capita terms it is $2.79 an adult Maori, and $1.99 per person for the adult population, including Maori.
It could be argued that the referendum campaign involved more complex issues than the options campaign. On the other hand the economies of scale effect means that a much larger amount than $860,000 would have had to be spent to attain the same understanding by the Maori if there had been no synergies between the general referendum campaign and the Maori one.
Moreover the government funded campaign was complemented by very active media discover plus two public lobby groups. The total spending on publicity of all kinds was certainly double, and possibly quadruple, the government funded element.

8.3 The Maori Voter Enrolment Campaign. A special grant was made to INCO Services to fund a program to increase Maori enrolment. They reported expenditure of around $100,000 for a recruitment of 12,310 (including some non-Maori), at an estimated cost of $8.12 per enrolment. This figure does not include the contribution from a background national campaign.

8.4 Population Census Publicity and Public Relations Campaign. Statistics New Zealand kindly supplied me with their figure for their publicity and public relations campaign for the 1991 Population Census. In total this was $996,000, excluding the statutory advertisements and 0800 phone lines. The total is equivalent to $0.41 per adult.
In addition many of the activities of the enumerators were a form of publicity, especially at the person-to-person level. Total expenditure on enumerators was $6.0 million, which is $2.46 per adult.
In 1991 the Department had a small program oriented towards the special requirements of the Maori, but there are no separate costings for this. I understand there is the intention to have a larger publicity program aimed at the Maori in 1996.

8.5 Health Reforms Publicity .There are various estimates of the costs of the 1993 health reforms publicity. A figure supplied by the Ministry of Health for television and press advertising, an information brochure, and communications and quantitative research (but excluding the 0800 service), came to $2,870,000, or $1.15 per adult.

9.0 A summary of the per capita costs of the publicity campaigns I have examined is shown in the attached table. As well as the per capita figure for each campaign I have also given the cost for a similar campaign which was targeted on 308,000 people, adjusting for economies of scale by the inverse square rule (para 4.4).

Campaign Cost
$/head		 Omissions Extras Cost for
Campaign
of 309,000
$000
MEO
Proposed		 .41 Governemt
Campaign?		 None 150
Electoral
Enrolment
(National)		 18.80 Enrolment
Process		 16,500
Electoral
Enrolment
(Maori)		 8.12 National
Campaign		 Enrolment
Process		 NA
Electoral
Referendum
(national)		 1.99 Media,
lobby
groups		 None 1,740
Electoral
Referendum
(Maori)		 2.79 National
Campaign		 None 2,450
Population
Census
(narrow
costing)		 .41 0800 line,
Statutory
advertising,
enumerators		 None 360
Population
Census
(wide
costing)		 2.87 0800 line,
Statutory
advertising,
enumerators		 enumeration
survey		 2,520
Health
Reforms		 1.15 0800 line None 1,010

10. Before coming to a general conclusion there are three matters I need to tidy up.

10.1 I have not tried to calculate a sum based upon the individual costs of an itemised education program. Such programs can be gold plated or simple. I have not the expertise to judge the effectiveness of the various possibilities. Neither has the government, which explains the practice of contracting a group (e.g. INCO Services) with a set of objectives rather than a specific program. (This is the method legislated in the Public Finance Act between government and its departmental agencies.) However I would make the point that this campaign is likely to be more expensive than some of the previous Maori education ones insofar as the target population widens from the Maori on the electoral roll, to all Maori because informing those on the general roll is likely to be more expensive.
Nor have I been able to obtain the costs other government agencies are proposing to spend on the activity. I know that they are proposing a mail out, and there is the information kit. To what extent they are funding a free phone calling service or broadcasting and other advertising I do not know.[#]
[# The information kit mentions an 0800 service, but apparently only for obtai a parliamentary enrolment card.]

10.2 One side effect of a high profile MEO campaign will be a non-Maori interest Almost certainly the campaigning Maori will be involved with the media dealing with non-Maori queries which while having a low effect on the objectives of the Maori campaign, while use resources. This may have a positive nation-wide benefit insofar as it encourages non-Maori enrolment and improves non-Maori understanding of Maori (and of Maori politics). This suggests that the contract between the Crown and INCO Services (or whomever) should make specific provision for these activities, and an allowance in the resourcing of the MEO campaign.
This may be especially important if television is used. It is a medium with a powerful but imprecise reach. So while communicating with the relevant Maori, it will also be informing non-Maori viewers too.

10.3 The question of whether the MEO should include a enrolment campaign of Maori on to the rolls involves constitutional issues outside my expertise. However the following remarks may assist by providing a background.
(i) Insofar as there is an enrolment campaign in association with the Maori campaign, it will reduce the costs of future enrolment campaigns, the cost of the campaign should be discounted.
(ii) The statute in effect requires the unenrolled Maori to be treated as if they decided between the Maori and general rolls in the same proportion as those who are unenrolled. However while in the 1993 election only 40 percent (roughly) of the Maori chose to go on the Maori roll, of those who were recruited by the enrolment campaign over 70 percent chose to go onto the Maori roll. While it is difficult to think of a better assumption for legislative purposes, it may well be that the assumption in the statistics biases the proportion on the Maori roll downward, compared to that if there was complete enrolment.
(iii) I was asked to provide a separate estimate of the numbers of Maori who are not registered on the electoral roll. As mentioned earlier I estimated the total number of adult Maori (based on census responses) in March 1994 would be 308,000. The number of Maori registered on the electoral roll at the time of the 1993 election was about 248,000. {The number would be a little less – perhaps 600 – because of mortality since that date.) The gap of 60,000 might be taken as the number of Maori who are unenrolled.
However there may be those who report Maori ancestry for Census purposes but do not do so when they enrol on the electoral rolls. (and vice versa). If this was at all significant then the figure of 60,000 unenrolled Maori would be too high.[#]
[# The Population Census suggests there are around 50,000 adults of Maori ancestory who do not think of themselves having Maori ethnicity.]

11. The purpose of this affidavit is to provide factual material of use to the Tribunal in assessing the claim, together with some interpretative caveats. However I think it within my expertise to make some judgement of the material.
On the basis of the evidence I have been able to collect, and unless there is provision for a major campaign by another government agency, it would seem that a sum of $150,000 (inclusive of GST) is a small amount for a serious Maori Enrolment Option Campaign.

APPENDIX: NOTES ON ENROLLING ON THE MAORI REGISTER

This note draws attention to some of the traditional reasons why Maori voters did not register for the Maori electorates. These reasons are no longer valid under the revised MMP electoral law. They make a strong case why the 150,000 New Zealanders who describe themselves as Maori but are enroled in the general roll should consider transferring their allegiance to the new roll.

The reasons are not simple, nor easy to convey. The weaknesses of the old system means that many Maori, if they remain uninformed, will stay on the general role because of inertia. It is unfortunate that there is only two months for the Maori to become informed, and to transfer their allegiance, a misfortune compounded by the implicit assumption in the legislation that the ‘default’ option is the general roll (otherwise non-Maori would also have to enrol at the same time under the same conditions). Since the next general election will set the pattern for Maori politics for some years -even decades -to come it is imperative that the Maori make informed decisions about their voting allegiance.

Behind this are the revolutionary implications of MMP. It is no longer true that if a vote fails to elect a local member, it is wasted. Because each voter has a list seat vote, each will have the same influence on the overall pattern of parliament whether their local member is their choice or not; whether they are in a safe or marginal seat.

Reasons for changing to a Maori seat

The old Maori seat system was not a good one for the Maori, so many chose to register on the general roll. The new system abolishes some of the worst anomalies, providing positive reasons for all Maori to enrol on the Maori roll.

The old system produced single party seats. Those who supported parties which would not be elected had an incentive to switch to a general seat because their vote would be more effective. Under MMP all votes are equally effective, irrespective who wins the seat. It will no longer matter whether a Maori did or did not support the dominant Maori political party. (until 1990 it was Labour). Under MMP the effectiveness of the Maori voter will not be handicapped by being in a Maori seat.

The old system produced safe seats. Those who supported parties the dominant party (i.e. Labour) but were in marginal general electorates had an incentive to switch to a general seat because their vote would be more effective. Under MMP all votes are equally effective , irrespective of whether a seat is safe or marginal. Thus Maori who supported the dominant Maori political party but registered in a general seat for tactical reasons no longer have that reason. Under MMP the effectiveness of the Maori voter will not be handicapped by being in a Maori seat.

The old system produced large seats: the four largest covering the whole country .Because more Maori win register for Maori seats there could be more seats. If so they will be smaller, with Maori MP better able to service the constituents and more constituents with in easy reach of their MP. More seats, means smaller seats, means better Maori representation.

The old system produced no incentive to register for Maori seats. Irrespective of the number registered there would be only four Maori seats. Now every 22,000 registered is another electoral seat. Moreover the more electorate seats, the more Maori there will be on the party lists. If there are only four seats, most parties are likely to allocate one place in every 15 on their list to a Maori. If there are eight seats, it is likely to be one in every seven or eight seats. The more who register, the more Maori seats, and the more Maori in parliament representing Maori perspectives in every party.

In summary many of the structural disincentive for the Maori to enrol in Maori seats have been removed. The task is to make sure every Maori understands this, and recognises that by registering in a Maori seat their vote will count equally with the non-Maori, so that Maori influence win more properly reflect the size and significance of the Maori in New Zealand.

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

EVIDENCE TO HIGH Court (excerpts)

2. I was asked by the Maori Congress to assist the Waitangi Tribunal by presenting and reviewing some statistics on various expenditures by the Crown on matters similar to the that of informing and enabling Maori to enrol on the Maori roll. My evidence to the Tribunal is attached as Exhibit A.

5. In addition I review some of the evidence already sworn to the Court.

Crown Expenditure on the Maori Option Enrolment Campaign

11. When I prepared my evidence to the Waitangi Tribunal I understood that the amount allocated by the Crown for the enrolment campaign was $150,000, as mentioned in the previous paragraph. The Tribunal in its report provided a higher estimate of $220,663 plus $100,000 for “salaries already committed” by Te Puni Kokiri (para 4.5). The figure is higher than that I used because it includes the costs of an information booklet ($23,663) and personal and services by Te Puni Kokiri ($47,000).

12. In his affidavit of 5 August 1994, Richard Carrington Wheeler provides an estimate of actual expenditure (para 8). For comparative purposes it is appropriate to look only at the items for 1994 directly associated with the Maori Enrolment Option Campaign. These are items G, H, and I of Mr Wheeler’s list, and sum to $340,663. According to the evidence of Holden Brent Hohia, sworn on 5 August, this includes “approximate costs of salaries” of $100,000 incurred by Te Puni Kokiri (para 36.1). The main difference between Mr Wheeler’s figure and that of the Waitangi Tribunal is $20,000 for the costs to Te Puni Kokiri for informational pamphlets and posters, commercials, newspaper advertisement and photocopying reported by Mr Hohia (para 36.4).

13. Had I know at the time of my evidence to the Waitangi Tribunal that the true amount of expenditure was going to be $340,663 (or $240,663 if the $100,000 of salary costs are omitted), I would have still concluded on the basis of the evidence before me that the amount was too small..
14. Thus nothing that has occurred since I prepared my evidence to the Waitangi Tribunal which would change my mind on the opinions I presented to it.

Unenrolled Maori

15. I was also asked to provide a separate estimate of the numbers of Maori who are not registered on the electoral roll. As mentioned earlier I estimated the total number of adult Maori (based on census responses) in March 1994 would be 308,000. The number of Maori registered on the electoral roll at the time of the 1993 election was about 248,000. (The number would be a little less – perhaps 600 – because of mortality since that date.) The gap of 60,000 might be taken as the number of Maori who are unenrolled.

16. My conclusion was broadly supported by Mr Hunt of the NZ Post Electoral Enrolment Centre who appeared at the invitation of the Crown, and from Statistics New Zealand. Such differences appear to arise from my willingness to make an attempt to estimate for those factors which Mr Hunt mentioned but did not include.

17. I did mention in my evidence that there may be those who report Maori ancestry for Census purposes, but do not do so when they enrol on the electoral rolls. (and vice versa). If this was at all significant then the figure of 60,000 unenrolled Maori could be too high.

18. The Tribunal came to the conclusion
“that the precise number of eligible Maori voters who are not enroled is not known but it is reasonable to assume the number is not less than 50,000 and may be between 50,000 and 60,000.” (p.37)

Curiouser and Curiouser

This entry was posted in Growth & Innovation, History of Ideas, Methodology, Philosophy, Listener on by .

Listener 29 January 1994.

Keywords: Growth & Innovation; History of Ideas, Methodology & Philosophy;

Economics is a profession where 40-year-olds usually give up serious research,proclaiming platitudes instead. But Bryan Philpott is still an active researcher, six years after retirement, His greatest love, which goes back to the 1950s when he worked for the Meat and Wool Economic Service, is the determinants of economic growth. The farm accounts series from the 1920s, which he and associates derived in the 1920s, which he and associates derived in the 1960s, is still definitive. Even more valuable is the economy-wide comprehensive database from the 1950s, filling in gaps in the official series. More recently, students under Philpott’s supervision have been extending his unique capital series back to the last century.

In the 1960s, when he was the first professor of agricultural economics at Lincoln College, he began modelling the New Zealand economy, From modelling farm economic behaviour, the work evolved into his Research Project of Economic Policy (RPEP), with its suite of economy-wide models, The first, Victoria, was named after the university, and he subsequently kept to women’s names: Joanna, Julianne, Emily, Joani. Philpott treats them like daughters. When I once suggested that Victoria was obsolete, he fiercely defended her relevance, No chiId of his could be superfluous.
These economic models are computer-based characterisations of the economy, inwhich economic behaviour issummarised in mathematical equations. Different assumplions for the equations give different models. The RPEP suite is mainly concerned with medium-termbehaviour and growth of theeconomy.

It takes energy to develop, maintain, and extend a model. New Zealand economics is littered with half-baked attempts to start up economic models. But Philpott keeps on keeping on. Unfortunately, he has not been in a country committed to publishing in academic journals, so a lot of his results have not been readily accessible. Yet early in the 1980s he had an international reputation as an innovator. Once, following a rather poor presentation at an overseas seminar, I explained the parallel work at the RPEP, to be told by Philpott’s equivalent there that it was a new and interesting approach and that he greatly admired the RPEP, which was more poorly funded than his unit.

Yet, in the mid-1980s, Treasury cut its funding to the RPEP, severely limiting its subsequent development, In most democratic nations, a profession would react to such cuts by finding alternative sources of funding for a valued research project (and worker). New Zealanders are more cautious.

Why economic research is feared in New Zealand can be illustrated by an earlier incident in Philpott’s life. Farmers used to tell me he had betrayed them when, in 1970, he moved from his professorship at Lincoln to Wellington, especially when he came out supporting protection. In fact, his modelling in the late 1960s suggested there would be a growing gap between the labour force and the numbers the economy employed. Protection of industries that absorbed labour and conserved foreign exchange proved to be an effective means of dealing with unemployment, Was Philpott to adopt the conventional wisdom or was he to remain loyal to his research? For a researcher it is no contest. To reject research because you disagree with its conclusions is to abandon it altogether. Yet ours is a culture that prizes political correctness before research quality, We want our prejudices confinned, not challenged.

Research is driven by curiosity: belief that there are patterns but that they have to be found; astonishment at finding unexpected new patterns; delight at overturning conventional wisdom with a more common-sense account of the world, Such research is not welcomed by those who think they already know the truth, They are like the drunk who uses a lamppost for support, rather than to shed light.

An illustration of this is a Business Roundtable report quoting some RPEP research that said unskilled wages needed to be cut by 30 percent to eliminate unemployment. (You work out why the BRT supported huge wage cuts.) In its anxiety to use the conclusion, the BRT neglected to understand what the research was saying, The model runs were based on unskilled unemployment of around 25,000. At the time of the BRT report, the level was well over 100,000, A moment’s thought would have suggested that the wage cuts would have had to far exceed the percent the BRT enthusiastically quoted, Nor did the BRT mention related RPEP research that suggested alternative policies.

The vicious attack on economic research in the mid-1980s terrified many economists, who decided not to state publicly their private misgivings over economic policy. It also inhibited good research and the development of good policy. For instance, RPEP models do not have an explicit fiscal sector linking the government policy stance with the overall economic configuration. There is an implicit sector in the model that Philpott can talk about fluently: he knows what needs to be done, but does not have the resources to do it. The government won’t fund the work, for, while it would improve our understanding of the contribution of fiscal policy to economic growth, if is likely to tell us the government’s policy settings are wrong, Economic management has suffered from an ideologically correct fiscal stance that has damaged the economic growth performance,

Philpott has struggled on despite the resource limitations, Retirement from teaching has simply meant more time for research. If you walk along the lonely corridor to his office you may hear a happy humming sound emanating from his room. It means that the data he is working on is coming together; the problem is beginning to make sense. But what, the researcher is wondering, will be the new discovery?

A Wolf in Lion’s Clothing

This entry was posted in History of Ideas, Methodology, Philosophy on by .

Listener 15 January 1994.

Keywords: Globalisation & Trade; Macroeconomics & Money;

I knew Wolfgang Rosenberg before I wanted to enter economics. I sort of blame him for my becoming an economist. At a student camp, he talked on .’The Dangers of Being an Economist’. Such camps are notorious for long nights and late mornings. My concentration slipped during the lecture. It sounded fun, .For Wolf, it has been dangerous. He came here as a 22-year-old German refugee, arriving on a day he now celebrates as if it was a birthday. Perhaps because of the dreadful events of Nazi Germany, Wolf cares passionately about economic issues, which is dangerous, and has been outspoken on them, which is even more dangerous. He has been publicly abused in Parliament and, no doubt, on many less formal occasions.

After gaining a degree in economics part-time (he says because fees were so cheap), Wolf took up a position at the University of Canterbury , In a more tolerant society, less concerned with being politically correct and more with commitment, innovation, enthusiasm and output, his record would have given him a professorship. He rose to the rank of university reader, retiring in 1980 to practise law, but still writing on economics.

His first book, in 1960, was Full Employment: Can the New Zealand Economic Miracle Last? They were halcyon days, in which it was said that the minister of labour knew all the unemployed by name – both of them. The book emphasised the marvel of the local situation, warning that we had to strive to preserve it. Alas, we have not. Wolf has tirelessly written pamphlet after pamphlet arguing for an alternative economic policy that will return us to, and preserve, full employment.

I have valued the many discussions with him over the years: first as a student, then as a colleague, now as a friend. Wolf’s distinctive view, coupled with a courteous patience, reflecting his old-world, gentlemanly manner, probes into one’s own explanations. We may not end up agreeing, but I understand his, and my, economics better

The insights can be old, or new, or both, Recently, he took a copy of Adam Smith’s Wealth of Nalions from the bookshelf in his living room, insisting I read a section on the international mobility of capital. It argues, he points out, the need for trade and exchange controls. (How many economists have a copy of Adam Smith kept in their living room, or even read it?)

Wolf has, of course, despaired over recent economic policy. In 1986, he wrote The Magic Square: What Every New Zealander Should Know About Rogernomics and the Alternatives, with an introduction by Jim Anderton. (An earlier study had one by Bill Sutch.) The sides of the ‘magic square’ are labelled ‘full employment’, ‘economic growth’, ‘price stability’ and ‘external balance’. The dilemma is to obtain success on all four sides, Uncontrolled market economies do not have a good record. The book argues that is inevitable, There is a need for intervention. as occurred in the 1950s. Wolf is especially strong on the need for import controls,

His latest book is New Zealand Can Be Different and Better. (This time Anderton’s introduction is commented by a tribute on the back cover from Bill Rowling,) It is a wonderfully eclectic collection of facts and quotations. (Not only is there Adam Smith, but John Donne’s sonorous ‘No man is an island entirely of himself …’) Throughout runs Wolf’s basic thesis:

* Economic policies must be formulated within the nation. Internationalism is desirable, It is co-operation between healthy nations, Transnationalism ignores national sovereignty and renders economic policies, which look towards the welfare of a nation. impossible.

* Without being able to pay its way internationally, a nation’s independent existence becomes threatened.

* There is no automatic mechanism that keeps a nation’s imports within the limits of its exchange earning capacity,

* For that reason. without foreign trade and exchange controls, a nation cannot maintain external balance and full employment simultaneously.

* Protection and import controls are a necessary but not sufficient condition for the success of full employment policies.

* Planned policies of using internal resources for investment and qualitative improvement of the people and resources of New Zealand can only be successful if they do not cause foreign exchange crises. Import substitution, export promotion, social improvement of health and education, greater Maori self-determination and nature’s conservation and enhancement are essential conditions for full employment.

* What is needed for full employment in an environment of pervasive high-tech developments is a two-tier economy. On one tier, there must be support of advanced techniques for export production through government-supported and intensified research and development, plus an expanding basis of universally accessible education. On the other tier, there must be the availability of low-tech employment. Examples are developments such as scenic walkways, road maintenance and improvement, expansion of residential and public building programmes, educational and health developments.

There is not room to detail where I disagree, The most significant point is that I consider macroeconomic policy far more important than protection and foreign exchange control for guarding the external balance. Wolf’s notion of a dual (two-tier) economy is a characteristic catalyst: worth pondering on, but perhaps leading to a different policy conclusion.

No doubt shortly after this column appears there will be another friendly letter: polite and patient, reaffirming the Rosenberg vision, making a new, stimulating point.

This month is his real birthday, As Wolfgang enters his 80th year, let me salute him for fleeing to the dangers of being an economist in New Zealand, and so making it a better country.

New Zealand Can Be Different and Better, by Wolfgang Rosenberg

This entry was posted in Globalisation & Trade, Growth & Innovation, Macroeconomics & Money on by .

Review published in , Vol 3, No 3, (Issue 11) Summer 1993, p.5-6.

Keywords:Globalisation & Trade; Growth & Innovation; Macroeconomics & Money;

Those who wish to challenge Wolfgang Rosenberg’s policy prescriptions must confront the outstanding performance of the New Zealand economy in the first part of the postwar era. In the three decades from the mid-1930s, following the recovery from the depths of the interwar depression: the economy grew as fast as – or faster than – the rest of the OECD; the rate of inflation was slightly below the average; the overseas debt was not compromising; and there was full employment, (Rosenberg puts the break point in 1975, although the last decade was not as good as the period up to 1966.)

Rosenberg explains this nirvana by the economic policies pursued at the time They involved a commitment to policy goals such as full employment, an expansionary fiscal stance, a high level or government intervention in markers and – most notably – border protection by import controls. He argues that as we have moved away from this policy mix. the economic performance has deteriorated The further we have moved. the worst the outcome.

There is a danger of post hoc ergo propter hoc but Rosenberg tries to fill in causal steps. Even were the argument fallacious there would still be the task of providing an alternative account of what happened.

The conventional wisdom ignores this task, offering instead an incomplete and incoherent analysis of our economic past For instance, suppose it was true that we had the world’s third highest per capita GDP in 1950 (It is not true– being more like sixth or seventh, and towards the bottom of the OECD countries not ravaged by war. It would be the pheph fallacy to argue that interventions damaged the subsequent performance. Moreover, one has to explain the high ranking in !950, when during the previous 15 years the interventions by governments were even more onerous.

It is not this reviews’ task to bash the misconceived accounts of the economy which led to Rogernomics. Ruthanasia and economic stagnation, which Rosenberg does well enough, What has to be done is to respond to the task which Rosenberg implicitly sets us. Can we give an account of the economy which explains the good and subsequently deteriorating performance, but offers a different policy interpretation?

We might begin with the perhaps controversial point that the interventionist policies of the three decades after the election of the first Labour Government did not markedly harm the economy, Rosenberg’s case that they were positively beneficial is not unconvincing and there has been no serious analysis arguing the contrary.

However, one period’s prescrlption may be another period’s poison, By the late 1960s the New Zealand economy was changing and the policies less effective, The most notable precipitant was the fall in the terms of trade (price of exports relative to imports) in the late 1960s, Except during the 1972 commodity boom they have been markedly below the earlier level ever since.

Pastoral farming became less profitable. The economy diversified out of its emphasis on sheep and cattle 10 a more varied export base of horticulture, trees, fish, tourists, mineral/energy and general manufactures The outcome was a more subtle – more fundamental – change.

High prices for pastoral farming generate high land rents (using the term in the sense which David Ricardo – and Henry George – would recognise). The return from the rents was not left with the farm owners, but shared through the entire community, by border protection and by other interventions.

It would have been more efficient, for distributional purposes, if the land had been owned by the state and the rents accrued into general revenue, Bul that was not an option, nor is it obvious that public ownership would be more efficient than owner farming for productive purposes, Instead, farmers were forced through internal and external protection to pay more for their goods and services (including the cost of after-farm processing). The additional payments went to workers and domestic capitalists. Thus. the land rents were shared throughout the community

There are limits to the ability to do this without severely damaging the productive capacity of the economy. (Argentina exceeded the limits.) Only rents may be redistributed without adverse effects. The fall in the terms of trade reduced the true land rents and the redistributive role of the interventions was undermined, It did not happen overnight. The protective structure or the economy steadily crumbled, not because of the wickedness of am alternative economic policy, but because the material base of the economy was changing.

Export diversification rescued us. Were New Zealand as dependent upon pastoral farming as it was a quarter of a century ago, the economy would be in an even sorrier slate. Now economic management has to respond to the new circumstances, No longer could export supply be driven by biology and technology, as had happened for pastoral farming, while import controls guarded the domestic sector The external and domestic sectors became more integrated – as evidenced by the tensions within the manufacturing lobbies as exporting became more important. ‘More-market’ policies prompted by diversification of the external sector percolated through the whole or the domestic economy, The beneficiaries of the old regime – most notably workers were squeezed,

A further longterm structural change needs to be added before we consider the policy implications, Rising affluence, coupled with technological change, created a diversification of another sort – lifestyles. There is not the space here to discuss the evolving class structure in New Zealand, but the diversity in consumption also had an important impact on economic policy, For instance, rising expenditure on foreign travel meant that import controls could not restrict foreign exchange outlays on the single largest item of overseas spending (excluding debt servicing). The travellers came home asking why things could not be done here as they were elsewhere (for example, shopping on Saturdays and Sundays),

So while the interventionist policy regime may have served New Zealand well in the first two decades or the postwar era, it became increasingly antiquated as the economic structure changed. What was the alternative?

The conventional wisdom says as little intervention as possible, leaving as much possible to the commercial market. The evidence that such policies have not been especially effective. Indeed the slightest review of recent history shows the economic performance (except inflation) has been disastrous. Most of the critics of the Rosenberg thesis threw the baby out with the bathwater It may well be that the past government policies will not work today. That does not mean all active government policies will not work, that all interventions are a failure.

What might a modernised form of the old policy regime look like? Superficially very different, although there remains the same commitment to unfashionable social objectives – full employment, support for the poor and social justice – as well as sustainable, efficient growth However, its interventions are ‘more-market’ using a pragmatic (rather than ideological) test which favours the market mechanism unless there is a good contrary reason. There are many places where the market mechanism does not work well: distributing income, building up human capital, research and development, the labour market, health services … But even here the approach is to use the market where possible.

Thus. this approach prefers tariffs to import controls. Rosenberg passionately and lengthily argues that high border protection (especially import controls) are fundamental to any full employment policy. I happen to think there may be structural reasons for sorne border protection Peter Elkan’s 1976 study, The Meaning of Protection provides some insight into how technological conditions in one sector (manufacturing) may justify sectoral protection. (Other technical conditions in one sector, such as monopoly export supply, may also be relevant.) These suggest a case for moderate rates of protection

But Rosenberg is concerned with macroeconomic reasons for border protection, arguing they are necessary to maintain full employment.

The standard economic models on which those passionately opposed to Rosenberg’s diagnosis depend. are of no help because they assume the labour force is automatically fully employed – exactly the issue which Rosenberg is denying. It maybe protection lowers productivity, but if the number employed increase sufficiently the outcome can be a net economic benefit

When I try to write down a formal model to characterise Rosenberg’s argument I cannot demonstrate import controls to be the best option Instead, the model favours managing the exchange rate aggressively (after allowing for structural protection/industry assistance). I can report that the conditions in my model where high protection is most likely to work are where export supply and demand are insensitive to price changes. This may reflect reasonably well the pre-1966 situation in the medium term. In such circumstances protection can transfer income to domestic producers, that is, workers, at a small loss of productivity

My model does not inclulde the effect of import controls decreasing the uncertainty which manufacturers face. This is likely to encourage (or force) investment in the manufacturing sector (rather than disinvestment and supply from overseas). With a guaranteed domestic market (to some extent) the domestic manufacturer is less subject to various shocks, especially those from overseas competitors and international price swings

The objectors’ response is that reducing risk to import substituters, increases the exposure to shocks of exporters who find it more costly to deal with the risk Again the caveat of ‘in a fully employed economy’ applies. It is not obvious the economy wide cost of risk management would be more if the protection increases output and employment, My intuition is that, compared with import controls, a policy based on exchange rate management and market industria! assistance would increase risk to domestic-oriemed manufacturers But there would be an overall reduction in the cost or risk management. However, I acknowledge that the effects are complex and It is possible my intuition is wrong, So might Rosenberg’s be.

Perhaps this analysis puts me at the Rogergnome rather than the Rosennome end of the spectrum, although my distance is great from either extreme. Yet the macroeconomic approach is perhaps closer to Rosenberg, because it recognises that the government must actively manage aggregate demand instead of relying on monetarist mumbo-jumbo, The practicalities of management are quite different from Rosenberg’s,

Because we no longer can rely on supply driven pastoral expons and limiting foreign exchange outlays by import controls, we cannot simply absorb unemploymem by using a Bodget deficit to expand the economy. This was Rob Muldoon’s misunderstanding in the late 1970s,

First, the increased domestic activity blows out through increased imports, while export responses are sluggish. (Hence, the increasing export incentives and subsidies of the Muldoon era.) Second, especially given the high world interest rates since 1980, the additional borrowing leads to additional government debt servicing, which is ultimately unsustainable, Third, the large internal (Budget) deficit blows Out into a large external (balance of payments deficit) as imports hugely exceed exports. This pre”sure cannot be avoided in the long run by import controls because the economy will inflate

So instead of the Muldoon strategy of domestic expansion or the Sir Roger Douglas strategy of ignoring the issue and letting unemployment rise, the alternative strategy uses an aggressive (managed) exchange rate to expand through increased exporting, buttressed by selective government assistance and a tight fiscal stance, This is different from the Rosenberg proposal. In common is acceptance the government must manage aggregate demand (with social objectives in mind), The disagreement is about the policy measures, reflecting different accounts of the workings of the economy,

There can be little disagreement with Rosenberg’s main thesis; New Zealand can do better. Indeed, one wonders whether it could have done much worse over the last decade. Many of his criticism” of current management are justified.

But can we go back to the old approach which Rosenberg advocates? It was not abandoned because it was wrong or that new generations were overcome by a corrupt alternative. It was abandoned because the economic structure changed dramatically, This does not mean we need to abandon the objectives of economic policy, only the ways we pursue them.

Suffer the Children

This entry was posted in Distributional Economics, Social Policy on by .

Listener 27 November, 1993.

Keywords Distributional Economics; Social Policy;

Some months ago I was invited to speak to a seminar on ‘Family Issues’ – I willingly accepted (the seminar, held last month, was a joint effort by Barnardo’ s and Birthright,reflecting the increasing co-operation between the two organisations concerned about different aspects of child needs). Although there has been a lot of amateurish work on quantitative aspects of family poverty in recent years, there are important things to be said, When I prepared my paper I found that the conclusions I had reached warranted my triple-checking the double check. Two of them were spectacular.

The numbers in poverty increased from 360,000 in the March year 1990 to 510,000 in the March year 1992 – an increase of about 40 percent. In New Zealand most of the poor are in families with children. I used the 1972 Royal Commission on Social Security poverty line here, but any reasonable definition of poverty would still generate an increase of around 40 percent.

In my paper I consider the reasons for the increase, and isolate two main factors. The first was the increase in unemployment ( using the official figures) from 7.1 percent to 10.6 percent over the two years, which hit family market incomes. Additionally, benefit levels were cut in April 1991, often by more than 10 percent in real terms.

The Household Income and Expenditure Survey confirms that the incomes of households with children fell substantially over the two years, especially for the poorest. For instance, the household one-fifth from the bottom of all those with dependent children had experienced a 11.9 percent fall in real terms, while those one-fifth from the top had a 4.7 percent fall.

The poverty data finishes with the March 1992 year, so I turned to assessing the changes since, using the recently published Treasury economic and fiscal forecasts. Out of that rose the second spectacular finding. Even if those forecasts are achieved, the inequality generated since 1990 will not be reversed in the next three years: unemployment is expected to remain high, in the 9-to-10-percent range; wage rates of the low skilled are not expected to rise much in real terms; the real level of welfare benefits is not being increased; other assistance, such as housing and accident compensation, is being cut; the nominal level of family support is not rising; user pays will increase because real spending on education and health is being cut; many families face powerful poverty traps, including near-100-percent effective marginal tax rates, that discourage them from taking initiatives to better themselves.

Because Treasury projects modest growth, and because the pattern of growth favours the rich, the outcome is that poverty (on the standard measure) would still claim nearly half a million people, and perhaps more, in three years time. There is no significant trickle-down effect. If we want to reduce poverty we have to take specific action to redistribute some of the increase in national production towards poor families.

On the day I presented my paper, a Unicef study, Child Neglect in Rich Nations, was released. New Zealanders have a special interest in the United Nations Children’s Fund. The efforts of a New Zealander, Bill Sutch, were a major factor in preventing the fund’s closure in 1950. Dr Sutch came back to a distinguished career in New Zealand, and his 1971 essay ‘Our Children, Our Future’ has been seminal in social policy thinking..

The Unicef report argues that there are two family-policy strategies among rich countries: the Anglo-American approach of neglect by the state, and the European one of support. There is but one paragraph on New Zealand:

“The small country of New Zealand offers a cautionary tale. Its recent history provides sobering evidence of the American mode1’s ability to wreak havoc in both the economic and social spheres. Long regarded as one of the world’s most enlightened social democracies, New Zealand has, since 1984, demolished a cradle-to-grave social welfare system in the name of economic efficiency. Nevertheless, untrammelled markets have not produced vigorous growth. On the contrary, eight years of stringent monetarist policies have produced massive unemployment, rising crime rates, a widening gap between the rich and the poor, and a declining GDP. Between 1985 and 1990, New Zealand’s GNP fell by 0,7 percent, the worst record of any industrialised country, while unemployment more than doubled. The deterioration in living standards has been particularly severe among families with children, with predictable results. New Zealand now has the highest youth suicide rate among industrialised countries, and reported cases of child abuse have doubled since 1985.”

There are some obvious misconceptions here, but the basic message is sound.

After I received my seminar invitation, the Prime Minister set the election date – for seven days after the seminar. I gave the paper as if the election was months away, remarking, ‘I propose to treat politicians in the same way they treat families: they are very important, but we ignore their interests for all practical purposes.’

Child poverty was not on the election agenda. Children do not vote, and their parents are far too busy to be politically active. Our politicians hardly care about the issue. (The last to do so, I recall, was Anne Hercus.)

They do not care because the public does not care. except for a small minority, including organisations such as Barnardo’s and Birthright. What happens to the children next door, or in the next suburb, or the next town, because of economic pressures on the family is not a major preoccupation, But we are concerned ahout the country’s lack of skills and the incidences of unemployment, ill health, suicide, marriage breakup, crime and violence, all of which can be reduced by giving those involved a better deal when they are children. Funny that.

Why We Need Business Histories

This entry was posted in Business & Finance, Political Economy & History on by .

Archifacts October 1993, p.32-43.

Keywords: Business & Finance; Political Economy & History;

When invited to give an outsider’s, or even user’s, view of the role of business history in the wider intellectual community, I responded with some diffidence. When pressed I agreed to give a personal account, from someone who has been working in economics and related social sciences for a number of years, and who is not without a sympathy to history.

What I shall do is first relate some of my experiences with business histories, to give you some idea of how at least one outsider uses the product, and to identify some features which I have valued in contemporary business history.

As will become apparent, I do not have any narrow definition of what constitutes a business history. Users have needs, and cannot afford to be too concerned about the academic niceties of official scope. Indeed, given the shortage of good business histories although there are some very good ones – none of us can be too precious about what constitutes a business history. Although as a rule the illustrations in this paper are from what constitutes traditional business history, the generalisations come from a wider range, including union history, the history of public organisations, and the histories, and some weaknesses I have cursed. After bringing these themes together I will make some remarks about the future of business histories.

Using Business History: A Canterbury Student

I first met business histories of New Zealand while taking my economics course at the University of Canterbury. In those days some quarter of the introductory course was devoted to New Zealand economic history, which was taught by Graham Miller, a man who will probably be best remembered by his students as he did not publish a great deal.

The two things that struck me about Graham were his compendious memory and his kind manner. He was an old-fashioned historian a little out of place in the Canterbury Economics Department of the 1970s, with its emphasis on quantitative analysis. Instead Graham accumulated facts and anecdotes, both in his mind and in his room, which was piled high with papers, books, and records. I seem to remember some of these being kept in sacks; certainly he stored the station records he collected in sacks.

Although the room seemed shambolic, I do not think it was “muddled, at least as far as Graham was concerned. It was a bit like his dress: a formal suit which hung around him comfortably rather than smartly. In the middle of a conversation he would introduce some anecdote, and start shuffling through one of his piles of paper to illustrate it. Both he and his audience were frequently distracted by anecdotes.

I experienced this as a student because a couple of us – John Patterson, now a philosopher at Massey, was the other – had a clash between our third-year maths course and Graham’s lectures. A special tutorial was arranged for the two of us. Each week we would have the privilege – we were first-year students – of an hour with Graham in the room which was once the headmaster’s study in the stone building which had been the first Christchurch Boys’ High School, with a secret inner circular stairway which crept up to the staff room.

This was as close as I ever got to an Oxbridge-type tutorial in my time as a student – although I did not have the pain of having to write a weekly essay. Graham treated us most generously in a sort of lecture anecdote format, which focused on the rise of the South Island (European) economy. I was sufficiently enthused to get through most of his reading list.

In those days there was no good general New Zealand economic history – there still is not. We did have Bill Sutch ‘s two books, although his works are not pure economic history. J.B. Condliffe just never turned me on, and Colin Simkin ‘s invaluable Instability of a Dependent Economy was more of a macro study than the development economics with which Graham was concerned. I must have read Keith Sinclair’s and Bill Oliver’s general histories, which were also just out, but they are both like the typical novel, in which one has no sense of the underlying economics which make possible the events being described.

I also read a number of business histories. The ones 1 remember were the bank histories which, with one exception, were just awful. One was so awful that it remains memorably so, though courtesy makes it also unmentionable.

Looking back, I think I learned one fundamental lesson from Graham ‘s course and that reading, plus – of course – a lot of anecdotes, and a bit of my nation’s economic history. Graham had started off as a clerk before he did his degrees in economics and history, and anyway he was a Canterbury lad. This engendered a certain scepticism that economic history was about what governments did. Instead, the focus was on the history and, indeed, the economics of about what happens on the farms and in the firms and households of New Zealand. This is one of my major disagreements with the Victoria tradition in economics, which concentrates almost obsessively on the governmental process, while looking down on – when not ignoring all together – what happens to people in places and through time. It is not appropriate to pursue this contrast here, except to say that the stance is not a peculiarity of Wellington’s university, but pervades the capital, to the detriment of good government.

This focus on firms was very much reinforced while I was at the New Zealand Institute of Economic Research, with Conrad Blyth, and at the University of Sussex, with its strong industrial economics base. My Sussex economics history teacher was Barry Supple, who was then writing his history of Guardian Royal Insurance. Barry used this business history to examine attitudes to prudence and thrift in the nineteenth century, and the policy debate that took place over life insurance. I shall come back to the notion of using a business history to provide a perspective on a wider issue. I mention it here because Barry’s GRI study is the first place I recall seeing the practice.

The Business Cycle and Depression

Returning to New Zealand in the early 1970s, I began working on a series of seemingly disparate topics, all concerned with some contemporary economic and social problems which were puzzling me. In hindsight I realise that they were tightly linked around the process of development and structural change, and so they had a strong historical perspective. But that was not how I saw it at the time.

Fortunately I tend to be an omnivorous reader, so I was dipping into a range of history books, more out of curiosity than because of a focus. But inevitably when tackling some contemporary problem I began to see parallels with what had gone before.

This came to a head when I got interested in the relationship between asset prices and product prices, which seemed to be so important in the post-war farm economy. You did not need much sense of economic history to identify that this was also one of the central features of earlier farm history. While I had some data series from Bryan Philpott’s Lincoln team going back to the 1920s, and also some work by Condliffe and Rodwell covering an earlier period, most useful were two nineteenth~century business histories.

There is no prize for guessing that one was Russell Stone’s Makers of Fortune, an outstanding work which should be compulsory reading for anyone doing a business or history degree in New Zealand. Russell is, of course, not an economist, and I had to pull the economics of his story out. But it is well enough written to do that. The same underlying economic processes also appear in H.J. Hanham’s ‘New Zealand Promoters and British Investors, 1860-1895’, in the essays in honour of Willis Airey, Studies of a Small Democracy.

At this point I went back to Keith Sinclair and W.F. Mandle’s Open Account, which I had read as a first~year economics student. It has a couple of useful chapters on the Great Depression. This is an example of the strategy I learned from Supple: a good business history can be remembered and valued because it uses the story of the firm to illustrate some wider issue.

Being totally eclectic, I also raided Frank Anthony’s Gus Tomlins for a useful, if fictitious, account of the business of farming in the 1920s. Perhaps here ‘eclectic’ is a euphemism for the more down-to-earth scavenger.

Stock and Station Agents

As I shall report, the study of the depressions of’ the late nineteenth century and the inter war period, and some analogous behaviour in the post~war era, prepared me well for a later economic trauma, but before that another project caused me to use business histories again.

I had moved on from the University of Canterbury to the Institute of Economic Research. There I became involved as an expert witness in a case before the Commerce Commission over whether Wrightson NMA should merge with Crown Dalgety.

The economics of the case are not important here, but pertinent to it was the question of why there were stock and station agents at all. In particular I was puzzled about what bound together the various services they provided, and why they were losing some of these services to specialist providers.

I do not need to tell a conference of historians that looking back through history can often give clues to contemporary problems. So I began reading histories of stock and station agents. I can report that many of them are about as successful as the average bank history. But as a result of my persistence I learned that this process of horizontal disintegration was not new and, for instance, that the agents had once provided liquor and groceries to their customers. It was all done on credit, and there is the account of a worried agent writing to a farmer in the 1930s, advising that given the state of the farm’s finances he should cut back on his drinking of tea.

Most people will say that it was credit which bound the stock and station agency’s operations together. That is only part of the story, for it does not explain why stock and station agents only appear in pastoral farming in the Southern Hemisphere. My conclusion was that it was not the credit per se, but the cost of monitoring the assets on which the credit was secured. Advancing money on the basis of livestock which could wander off, die from poor management, or even be miscounted, required a close familiarity with the farm and the farmer. It was this familiarity which the stock and station agent had, and this was why he had a competitive advantage over the trading banks. Of course none of the business histories told such an explicit story, but it could be inferred from a well-written history.

The 1987 Crash

As the published record shows, I was not surprised by the 1987 share-market crash. There was the work on previous asset price realignments, a central feature of any depression process, and while at the Institute I had been associated with a study of the share market in the 1970s by Des O’Dea and Anne Horsfield. There had been a major crash in the mid-1970s which this work nicely traces. So I knew a little about how asset prices could get out of alignment, and the inevitable consequences.

Nevertheless, on the weekend immediately after the October crash I curled up with every book on every previous financial crash I could lay my hands on. There were some old favourites, like J.K. Galbraith’s The Great Crash, and some new ones. I do not think I had previously read about the boom and bust in the Dutch tulip industry in the sixteenth century, or other such arcane examples. Once more a recourse to history was shedding light on a contemporary issue. A lesson I learned from this reading, which is still being proven, is that the recovery from such crashes takes years, perhaps a decade, or even a generation.

It is a pity more of our financiers did not have a sense of financial history, a point made by commentators in other countries that went through milder crashes thanks to the excesses of the ‘short-pants brigade’. The theory is that a new generation of financial whiz-kids who were in short pants during the last boom think in their ignorance they are not subject to the underlying economic, financial, and historical processes. Any fool can make money during a financial boom, but that money neither buys nor indicates wisdom. The lesson for the investor is to get your money out of a speculating market as soon as it becomes dominated by those who were still in short pants during the previous crash.

Even so, our commerce faculties and business schools have some responsibility to ensure that their graduates acquire the sense of financial history which is so evidently lacking. We need good business histories to underpin these courses. The firm which has a good business history available to its better entrant staff will inculcate its history into its culture.

One of the useful outcomes of the crash has been a couple of instant histories about New Zealand businesses. Bruce Ross’s The Ariadne Story and John McManamy’s Crash! are both good reads in their own right, and they are underpinned by a lot of economics. One special merit is that they are stories about the business failures. Too often business histories record the triumphs of successful firms. Add to these Allan Hawkins and Gordon Mclauchlan’s The Hawk, and Yvonne van Dongen’s Brierley – both biographies offering insights into the business world – and Bruce Jesson’s The Fletcher Challenge and Behind the Mirror Glass. These six are probably the best set of business histories available for any period, although purists may object to their being classified in this way.

Some Lessons

Why have some business histories been more valuable to me than others? It will be clear that to this scrounger of ideas and anecdotes, relevance has not been important. Nor do I need to reiterate the standard requirements that they be well-written and well-presented. Let me start off with some of the common features of bad histories.

The worst is hagiography and its close ally, vanity publishing. One of the first things a newly independent colony in Africa did was to create an army, despite being under no threat from its neighbours and having secure natural borders. When asked why, the new president replied that ‘a gentleman needs a tie’.

Similarly, many well-established firms see a need for a business history of themselves, and have no clearer idea than that as to the purpose of the commission. The outcome is a book which celebrates the firm, its triumphs, and its great men ( women do not appear centrally in business history as yet), presented in a lavish publication with stunning pictures (or not -because often by the time the book has been finished the board of directors has lost interest, and publication is expensive). The result is a totally boring book which ends up sitting on the shelves of employees and scholarly libraries gathering dust. In my view, the firm would be better to spend its money on a leather binding with the company’s name embossed in gold, and blank pages inside. Or perhaps there should be a standard text on computer to which a few details about the firm and its great employers can be added. They can do this for children, so why not for some of the childish attempts to record a firm’s history?

Closely related to the hagiographic is the unprofessional writer. Very often they come from the firm itself, I assume as a form of early retirement on full pay for some much-loved or well-related but ineffectual employee. Knowing a lot about the business of the firm – and for all I know, these people were once experts – or being a good raconteur, is not enough to do a professional job of writing a history.

The Last Two Chapters

Professional writers do not always do well either. Sometimes it is under funding or time constraints that damage them. But one issue that seems unresolved, even when there are no resource limitations, is the problem of the last two chapters of a commissioned work.

By the time the writer gets to the events described in the last two chapters, there are persons living who were involved. Business can be a dirty activity, people make faulty judgements, and sometimes the key to understanding is some personal failure at senior level, such as alcoholism. What is the writer to do about such things? There is a certain point in a business history of a contemporary firm by a good writer at which the alert reader realises that we have reached the era whose actors are still living or have powerful children. You identify it by a lack of vigour in the account and a tippy-toeing around the edges of interest. Even a well-written book loses its thrust.

There is a paper to be written entitled ‘Writing the Last Two Chapters of a Business History’, which would set out the various strategies and give successful illustrations. Alas, I am not the one to give it. My reading strategy is to skip the last two chapters if I am in a hurry, and to fall asleep reading them if I am not.

One Damned Thing After Another

Another contribution to somnolence is the ‘one damned thing after another’ approach. This medication is not confined to business histories, but they face a special problem. The writer stumbles on a rich source of data, reports, or even diaries, from some obscure part of the firm, and suddenly this section has a significance in the firm’s history that it never had in the firm.

A good writer can use this sort of material to give a flavour of the industry. Even if the reader is familiar with the industry today, practices in the past may have been quite different. Sometimes he or she gets little feel for the way that technology is shaping the firm’s destiny. How is today’s student to make sense of the banking practices of the nineteenth century? As the child said about the reconstructed bank in the museum, ‘where is the automatic teller?’

A diary or a good set of records from a branch can be used to describe a fictitious day in the life of the firm, especially that of an ordinary worker or in a typical branch. Very often the writer has steadfastly stuck to the facts and given every detail, without imagination but with a commendable concern for the insomniac.

Another valued strategy is to place some aspect of the firm in a wider context. Supple’s GRI and Sinclair and Mandle’s Bank of New South Wales histories illustrate this approach. A goodly number of studies could have been improved if the writer had begun by asking why any general reader would want to read about this firm, and if the answer was that they would not, how the story of the firm could be used to entice the reader to tackle the book. The result would be a better book which would actually be read, much to the pleasure of the commissioning firm. It would also add to our knowledge, and enrich both the nation’s understanding of its history and the writer’s professional and academic reputation.

If the history is to avoid the one-damned-thing-after-another syndrome, should it be written with a strong theoretical perspective? Resolving that dispute is a swamp for all historians, which I shall skirt around.

But I will say this: the issue is not whether the writer has theories or writes without a theoretical basis, but which theories are used, and whether they are good or bad ones. We can be reasonably sure that those who claim to have no theories merely have bad theories that they do not understand. Moreover, readers also have theories. I do not think the writer can allow for all the idiosyncracies of every potential reader, but it is worth recognising that good business histories will be read by business people and commerce students, with intellectual frameworks from economics and related disciplines. Thus it is an advantage if the writer has some knowledge of economic, accounting, and business theories.

On the other hand, the authors of some of the books I have most valued show no evidence of familiarity with any of these theories. But the story is well enough told for the reader to make use of their own analytic frame to gain some new insights. There is probably no substitute for writing well.

The Role of Economic History

Adding tables of random numbers to an account is no substitute for analysis. Some writers seem to think that a tabulation or two in an appendix adds to their academic credibility. On more than one occasion I have looked at a table proudly displayed in a text, and wondered what on earth it was meant to be telling me, other than that the writer was a numerical neophyte.

Undoubtedly writers often include such tabulations in the hope that someone else will interpret them. Usually these are senseless even to a professional statistician. Part of the problem is that our economic history has no sound quantitative basis. I know that quite a bit of work has been done, albeit much of it in universities where there is more concern with input than output. But the material which does exist is not readily accessible to even the professional quantitative social scientist and historian.

The historical data base reflects a more fundamental problem, and one which causes me a little embarrassment. Having asked business historians to be aware of the needs of economists, I know we have very little to offer you.

What a lot of the histories – general as well as business ones – require is a reliable schematic account of the economic environment in which their firm existed. Sometimes reading a text one has the impression that at no point in the narrative is the writer sure whether the economy is in boom or in slump; or whether the importance of the firm’s sector and/or region is increasing or diminishing.

Sadly, there is no passable economic history of New Zealand which a business historian could use to provide such a macro-economic framework, and there is no master account of our general economic history, as there has been for general history since at least the late 1950s. I would have thought that a decent economic history reference text was a priority at this stage of the history profession’s development. But perhaps as an economist I over-emphasise the role of the economy in the development of a nation.

Promoting Business History

There is no easy remedy to the lack of a reliable economic history. But in a second problem area I can think of a way to make progress. Earlier I mentioned the lack of professionalism in a lot of business histories, particularly commissioned ones. We are not going to be able to prevent some managing directors retiring their dipsomaniac uncles on full pay as the firm’s official historians. But ve can improve the public’s understanding of the standards of professional business historians by publicising those standards.

I am not merely concerned with having a standard contract, operational guidelines, and indicative fees for commissioned business histories. What I would like to see is the honouring of the best with some prize or award. I shall leave the mechanics of organisation and funding aside, and concentrate on the public spectacle.

Once the awards were known, it would percolate into the business consciousness that there were standards, and they would become keener to commission professional histories in the hope of that of their firm obtaining a merit award. Even showing them those studies acknowledged as meritorious would help the firm understand what was achievable. Of course not all the merit successes would be commissioned works, just as not all business and organisational history is commissioned. But a process which recognised excellence would, I believe, do much for this genre of literature.

Indeed business history is hardly recognised as a genre. With the possible exception of Russell Stone’s studies of John Logan Campbell, which are treated as biography, I do not think there is a single reference to a business history in Peter Gibbons’ chapter on non-fiction in The Oxford History of New Zealand Literature. One should not get paranoic about this: there are hardly any references to social science or natural science literature either, apart from some on Maori studies. You find the same absences in the non-fiction book awards. The literary establishment may well -for all I know -consider such scientific writing as fiction, or perhaps they think the works are written in Swahili.

Yet, as we have seen even in this superficial review, there is a body of business history, patchy in scope but ranging in quality from the awful to the excellent. For at least one person, the best of these works have been useful as well as interesting and enjoyable reading. They have not only filled in gaps in general economic history, but assisted in the study of industry and monetary economics.

More fundamentally, they provide an antidote to the idea that economies revolve around the clever actions of Prime Ministers and Ministers of Finance. Rather they are about households, firms, and other organisations and the people in them, all facing a constantly changing and bewildering economic environment.

This paper from an outsider is a way of expressing thanks for what business historians have done in the past, and of strengthening your resolve to extend your contribution to the nation’s understanding and welfare in the future.

The Maori Geothermal Claim: a Pakeha Economist’s Perspective

This entry was posted in Environment & Resources, Maori, Political Economy & History on by .

Paper to be presented to the Waitangi Tribunal to assist an inquiry into various Maori claims concerning geothermal resources (Wai 153). September 1993?

Keywords: Environment & Resources; Maori; Political Economy & History;

1. Introduction and Disclaimer

1.1 As the title emphasises, this paper is no more than an attempt by a Pakeha economist to canvas some issues associated with the Maori claim to geothermal resources.

1.2 The paper follows in the spirit of an earlier paper to the Waitangi Tribunal concerned with the Maori claim to Broadcasting (Wai 150). That paper stated that I had some reluctance in preparing this work, because it might seem that I was somehow preempting the Maori claim. But, as I said there, while the Maori is perfectly capable of making their own claim, in their own terms, it might be helpful to ‘translate’ their claim into an account which a Pakeha can understand, and in terms more familiar to the Pakeha dialogue.

1.3 In the case of the broadcasting claim I had the privilege of working closely with the New Zealand Maori Council and Nga Kaiwhakapumau, which enabled me to obtain a good working knowledge of their claim. Unfortunately I have not had as extensive an opportunity in the case of their geothermal claim, and the much greater documentation I have had access to (including from the files of the Waitangi Tribunal) is only a partial compensation. So even more than in the broadcasting claim I have to warn the reader I may unintentionally misrepresent the Maori.

1.4 I also warned that the approach adopted in the broadcasting claim involved more disciplines than I could claim competence, and that also I was dissatisfied with the amount of time available to me to master all the scholarly details of the issue. These caveats apply in this paper also.

1.5 Nevertheless I hope that the challenge I have taken up, to explain the relevance of economic approach to the Maori geothermal claim, justifies the paper.

1.6 Throughout this paper I have used my experiences with the Maori claim to the broadcasting spectrum to inform the claim to the claim to the geothermal resource. In some respects the spectrum claim is a more difficult one, because the phenomenon is less tangible I have been told some scientists would dispute whether the electromagnetic spectrum even exists. Yet the broadcasting spectrum claim well illustrated the general principles of economics and law which assist those in the Western tradition to understand the Maori claim to resources.

1.7 The Waitangi Tribunal found that the spectrum was a taonga, although in some respects it was unlike “other taonga, especially ‘taonga tuku iho i nga tupuna’ (taonga handed down from the ancestors”. (1990:41) In another place J: would want to comment their deliberations. But for the purposes of this inquiry, the characteristics peculiar to the spectrum do not pertain to the geothermal resource, and it has the characteristics of general taonga.

1.8 The paper was commissioned by Te Arawa (FOMA) for presentation to the Waitangi Tribunal. Neither they, nor any Maori group, are responsible for the views expressed here.

2. The Tiriti o Waitangi and the Maori Claim[#]
[# The term “Tiriti o Waitangi” is used to observe the priority of the Maori text signed at the Waitangi Marae on 6 February 1840. The Waitangi Tribunal Act 1975 gives equal status to the English draft (or translation). For the distinction see my Contract, Covenant, Compact.Where the effects of two versions differ over the matters covered in this paper, the difference will be explored.]

2.1 The Maori claim to the geothermal resource may be briefly summarised that article two of the Tiriti o Waitangi guaranteed them all their resources and other taonga. Those resources included the geothermal resources. Where the Maori has not voluntarily alienated the resource – and I understand that it is only on very rare occasions that they have done so they still possess that geothermal resource and are entitled to develop it. Where the geothermal resource has been involuntarily alienated from the Maori, the resource should be returned or, if that is not possible, a sizable compensation should be made for its alienation.

2.2 This paper treats the geothermal resource as widely as is possible. It thus covers the thermal energy which is potential in the underground steam, but it also includes the resulting water, the tourist and scenic properties, any minerals involved in the geothermal system, any health or curative potential, and indeed possibilities yet unknown to us. I explain below how the last item is covered by the Tiriti.

2.3 I do not propose here to carry out a general analysis of the Tiriti o Waitangi, although it central to the discussion. However it may be helpful to state here that in my view the Tiriti is the founding document of the constitution of modern New Zealand, and that we should be most hesitant to over ride it in favour of some other constitutional principle.

2.4 There are a number of interesting reports on the legal background to geothermal rights, and to the claim. (Bennion 1991; Boast 1990; Boast & Edmunds 1992; Edmunds & Boast 1993; Gunn 1991; Love 1992) I have not taken a legal perspective. Rather, the economic perspective sees law as a superstructure built upon the underlying material and social relations. It is an important part of the structure, indeed vital for a market economy. but the economic perspective is that the existing legal system cannot define the basic reality, nor can it by itself establish the just and efficient solution to resource issues.

3. Property (and Resources) and Taonga

3.1 At a superficial level the notion of property appears to be well established as a Western concept. This is because it appears to be founded on such a tangible matter as land. However in recent years economists, among others, have become increasingly aware that there exist phenomena which has appear to have the characteristics of property but are far from tangible.[#]
[# The expression “Western” is intended to contrast with Maori. However the Western intellectual tradition is wide, as are the legal foundations. Where there is ambiguity the mainstream English part of that Western tradition is being used.]

3.2 As a result economists tend to focus on ‘property rights’ rather than property. Thus there exists intellectual property rights, as for example embodied in copyright. By analogy there exists ‘intellectual property’ despite it being much less tangible than land.

3.3 But property rights associated with land may also be far from tangible. For instance under town planning ordinances the owner of a piece of land may be able to sell the airspace above it, forgoing the full use of the planning entitlements to the land by selling the unused entitlements to the developer of another piece of land. The Land Transfer Act 1972 defines land to include “messuages, tenements, and hereditaments, corporeal and incorporeal, of every kind and description. …”.My dictionary gives a legal meaning for ‘incorporeal’ as ‘having no material existence’ and ‘intangible’.

3.4 As is evident from the above examples in the Western environment property rights are based on common and statute law. There may well be phenomena which appear to be like other property, but because there is no law there is no way of enforcing property rights. For example while there is a copyright on this paper, were it to contain any original ideas its author would have no claim to them as property, and could not charge others for their use.

3.5 The economics literature sometimes uses the expression ‘resource’ to mean something for which there is a potential property right. While there may be no law which determines the property rights of the resource, or of all aspects of the resource, never-the-less one might conceive of the enactment of such a law which would formalise the property rights. We follow that terminology.[#]
[# Posner (1986) mentions the distinction between de facto or informal property rights and de jure or formal property rights. The sum of the two are economists property rights, but he confines (as we do) the term ‘property rights’ to the latter use only. (p 41)]

3.6 This distinction between property and resource nicely solves the question as to whether there was any property on 5 February 1840. Because there was no legal framework, in the Western concept, it could be said that there was no property in the legal sense. But there were resources, and indeed there were well ~efined procedures by the Maori to settle issues of usage and ownership. Clearly a relevant concept for interpreting the Treaty’s use of the term “taonga” in a Western framework is resource. It is also clear that a crucial process in the post 1840 history has been the conversion of resources into property.

3.7 But the Maori notion of taonga is broader than resource, or property as exhibited by the existence of property rights. It is not that taonga may be intangible, for we have seen that this is true for property in the Western system. However taonga, which is usually translated as “treasured possessions”, may include matters for which there can exist no legal property rights.

3.8 This insight was stunningly illustrated by the Waitangi Tribunal when it ruled that the taonga mentioned in the Treaty included the Maori language, a position which is now also adopted by the Crown. It is not just that there can be few things more intangible than a spoken language (and more concrete in human terms). But there is no obvious way it can be converted into a bundle of property rights, in the usual sense of the terms. No body, be it a collective or an individual, can claim exclusive use to the spoken language, control its form or substance, or transfer the rights through sale.[# ] To do so would be to limit the very things which make it a tonga.
[# These are the three characteristics of property rights. see paragraph 4.1.]

3.9 Thus the Maori notion of taonga encompasses the Western notion of property, because it includes all property, and some items which cannot properly be designated as property.

4. The Rangatiratanga of Property Rights

4.1 Economists characterise any resource by a series of property rights. As a general rule property rights cover the following:
(i) the right to use the resource;
(ii) the right to transform the resource, to change its form and substance;
(iii) the right to alienate the resource to some other party.

4.2 Where these exist in a relatively unfettered form the individual or collective which possessed these rights would be described as ‘ownership’.There will almost always be some restrictions on the rights, and even where they are onerous the term ownership may apply. For instance the owner of a building with a premier historic buildings classification may not possess the right to change the building’s form or substance, but the term ‘owner’ would still be used. However the owner retains the right to sell the building, and that third right – of transferability -is usually the crucial characteristic of ownership.

4.3 Note that the owner may be an individual or a collective. This is important in the Maori context, because as the English language version of the second article of the Treaty of Waitangi states, collective ownership was common, certainly dominant, and possibly universal (excluding personal items) in traditional Maori culture.

4.4 It should be recorded that much of the land legislation of the last 150 years has been to convert Maori collective ownership into individual title. But the second article of the Treaty recognises that collective ownership was legitimate, and guaranteed its continuance over existing Maori possessions -wenua, kainga, and taonga -following the signing. That the notion of ownership was clear is indicated by the second sentence of the article which discusses the circumstances in which the owners may choose to alienate their land.

4.5 A third point is that the property rights of the same tangible (or intangible) asset may be possessed by different persons or collectives. This is a very important issue in the geothermal resource and explored in a later section.

4.6 However the notion of ‘rangatiratanga’ is wider than merely of ‘ownership’. The word itself despite appearing in the second article of the Treaty -is not in the pre-contact Maori lexicon but was constructed for the biblical purposes. It is derived from the indigenous Maori word “rangatira”, who was “a person of high rank, a chief” (Biggs 1989).

4.7 There have been a number of attempts to untangle what the signatories had in mind by using this word. Kawharu translates “tino rangatiratanga” as “unqualified exercise of their chieftainship”.[#] The official English text uses the phrase “full exclusive and undisturbed possession”.Significantl y it does not use the term” ownership” , suggesting the drafters had a more comprehensive notion in mind.
[# Among the nineteenth century translations I have access to are
-“entire supremacy” : Richard Davis translation in Coleman (1865);
-” full chieftainship” with an explanatory note” exercise of the power of chiefs” : Clendon papers [I: 1] (although attributed to Clendon this does not appear to be in his handwriting) ;
-“the head chiefs to all their rights”: Clendon papers [1:8] (attributed to Gordon Browne).]

4.8 The Waitangi Tribunal has pondered on the issue (e.g. 1987 part III), although as far as I know is yet to make a full finding.

4.9 For a final source I turned to Raymond Firth’s seminal Economics of the New Zealand Maori. Although it is packed with information about the economic behaviour and custom of the Maori, it does not link together rangatira and ownership. Never-the-less it is from that source I hesitantly offer the following conjecture.

4.10 I suspect the rangatira claimed authority over that which they did not actually own. The ‘legal’ owners would require some agreement from the relevant rangatira if they were to markedly change its usage, form, or owners. The rules for the exercise of this agreement I can only guess, but we know from accounts of the events which precipitated the Taranaki Wars that a major change of the ownership of land involved the agreement of the highest Ariki. It also seems likely that such changes would involve not only the recognition of the mana of the rangatira, but perhaps a koha (gift), for reciprocity (utu) was central to Maori society. If so it would be virtually impossible to alienate the rangatiratanga from a possession, for each change would require approval from the rangatira.

4.11 This approach may not be as alien to Western experience as might at first appear.In particular, English law maintains that in some sense the land is the Crown’s possession, and those who are said to own it actually hold it only in fee simple. While they have considerable freedom to use and dispose of the land as they wish, the Crown reserves considerable powers over its use. Examples include town planning, and historic places legislation, while the owner may be restricted from selling the land to foreigners. What is important is that in each case the Crown may vary the requirements and restrictions, but the owner in fee simple has no redress or right to compensation. It does not seem to me to be a travesty of the concept to state the English Crown has rangatiratanga over English land.

4.12 But rangatiratanga was more than this. Another aspect was custodianship for people in the past and the future, and on behalf of all that is created. The parallel today would be the sentiments expressed by many environmentalists

4.13 In summary, and to capture a complex issue briefly the Tiriti term “rangatiratanga” better captures the Maori notion, for the rights of the chief were largely the responsibilities of trustees or stewards for their people or the iwi or greater iwi, present, past, and future.

4.14 I have also found that the notion of rangatiratanga avoids the problem as to whether one can actually “own” a resource. This was an acute problem in the case of the radio frequency spectrum, since it is unclear in what sense anybody can own the spectrum. Nevertheless the Maori could claim rangatiratanga deriving, they explained, from the spectrum was a part of creation, and they had been given rangatiratanga over the entirety of creation.

4.15 The Maori creation story might be thought of as the Maori way of stating a set of principles which have been summarised in Western terms as
“(i) A reverence for the whole of creation;
(ii) A sense of kinship with fellow beings;
(iii) A sacred regard for the whole of nature and its resources as being gifts from the gods;
(iv) A sense of responsibility for these gifts as the appointed stewards, guardians, and rangatira;
(v) A distinctive economic ethic of reciprocity;
(vi) A sense of commitment to safeguard all of nature’s resources (taonga) for the future generations. “[#]
[# Quoted in Waitangi Tribunal (1988: 179).]

4.16 In regard to the broadcasting debate the Maori was saying -I think -that the traditional Maori view was that all things created are taonga, and that while the 1840 Maori may not have had a concept of an electromagnetic spectrum, there was a certainly a place in their universe for it. The geothermal is more tangible, and the claim applies equally forcefully to that.

4.17 The Western account is more prosaic. Irrespective of whether the spectrum exists in some sense, there were property rights which were associated with the spectrum, and which in New Zealand are legislated in the 1990 Radio Communications Act. These property rights cover enough of the characteristics in paragraph 4.1, for it to be said that they are owned. Thus the Western approach is to focus on the rights rather than the property -corporeal or incorporeal -itself.

5 The Kawanatanga of Property Rights

5.1 There are also at least two explanations for the status of the property right, one deriving from the Tiriti o Waitangi, and the other from the English draft or “translation” , which is given equal status in the Act which establishes the Waitangi Tribunal.

5.2 Article 1 of the Tiriti refers to the transfer of “kawanatanga” to the Crown. Today that term is today translated as “governance”.1 I take this to mean, in regard of resources, that the Crown was responsible for a framework to manage the resources and their implicit property rights. It has done so via the legal processes and statutes which regulate them today.

5.3 There is no implication that the establishment of its kawanatanga gave any entitlement of the Crown to resources. It is instructive there is no reference in the Tiriti to the transfer of resources such as land to enable Governor Hobson to govern. He had to purchase such resources from the Maori. But even more compelling is that article 2 of the Tiriti states that the rangatiratanga of resources is reserved for the Maori. As we have already explained that encompasses the notion of ownership of property rights.

5.4 In such a framework the Crown cannot obtain possession or ownership of resources except following compensation.2 The requirements of the Tiriti are even more limited in that it demands voluntary consent by the rangatira. A purist might well hold to this view. Mine is moderated by the consideration that in exceptional circumstances where governance requires Crown possession, the Crown may have the right to compulsory acquisition, where all other practical means of acquisition are exhausted, and where fair compensation is paid to the owners. This is a very minimalist provision. In most cases of expropriation of Maori resources the terms were exceeded. A common situation has been the failure to pay fair compensation, although frequently the criteria of necessity, exhaustion of practical alternatives, and minimum expropriation have not been kept to either.

5.5 The statutory basis for ownership for a major component of the geothermal resource appears to be the Geothermal Energy Act 1953. To what extent there was a necessity, exhaustion of alternatives, and minimum of expropriation, is something historians must consider. I note here that there was no compensation to the Maori for the nationalisation of their property rights in the geothermal resource.

5.6 The Crown seems to have treated the geothermal resource it required for energy as a ‘wasteland’ and claimed it under some territorium nullius approach. The Crown has been hesitant to make such a claim in regard to the South Island during the Ngai Tahu hearings before the Waitangi Tribunal, even though Governor Hobson did.

5.7 In any case, where in the Treaty is such a right agreed to? It is not obvious that it is encompassed by the kawanatanga provision of the Treaty of Waitangi. Significantly perhaps, the notion of a wasteland appears in the second draft of the Treaty, which was under the direction of Hobson. In the third draft, in which Busby who was more familiar with Maori custom was closely involved, references to wastelands were dropped, presumably because it was thought there was none. Insofar as the second draft sheds any light on the status of wasteland it implies that they were nevertheless the responsibility of the chief. The exact words are
“The United Chiefs of New Zealand yield1 to Her Majesty the Queen of England the exclusive right of Presumption over such waste lands as the Tribes may feel disposed to alienate.”
It is hard to see that there is merit in the wasteland thesis.

5.8 It has to be acknowledged that traditional Maori practice involved regular usage in order to maintain possession. “I ka tonu taku ahi i runga i toku whenua – my fire has ever been kept alight on my land” (Firth 1959:385). There was a procedure by which after three generations of abandonment a hapu or whanau lost its rights to some land (5.13). Three generations – say 75 years – is a long period of non-usage before ownership is extinguished. However in the case of the geothermal resource it is relatively simple to demonstrate continuous Maori use since 1840. (Boast 1992a,b)

5.9 It could be argued that the uses in the 1953 Act were quite different from those past and current Maori practices. This may well be contentious, since the geothermal energy was being used by the Maori for cooking. But even if the difference could be established, it would be irrelevant. The Waitangi Tribunal (1988) had enunciated the principle of indigenous people to develop, and that presumably includes new uses of their resources. However without wanting to belittle the case for the right to develop by indigenous people, there is a simpler and more basic right involved here.

5.10 Earlier I mentioned that property rights included the right to transform, to change the form and substance. That clearly covers the situation where a new use is found for the resource. The Tiriti is explicit when it states “tino rangatiratanga” and that all encompassing “tino” must include the right to transform. Thus there is no case for the Crown to say that because geothermal energy to electricity was not a use in 1840, or between 1840 and 1953, the Crown had some entitlement to the resource for that purpose independent of any claim by the Maori

5.11 Similarly this approach would argue the Crown was wrong when as a part of the settlement with Ohinemutu village over their use of the geothermal resource it restricted the usage to non-commercial purposes, unless this was a temporary restriction, or if it makes compensation to the Maori for the restriction.

5.12 The Maori account of their possession of the geothermal resource may be simply summarised. It was a resource on the 5 February 1840, over which they exercised rangatiratanga by the fact that it was a part of creation and usage. Resources were guaranteed to the Maori under the Treaty signed on the 6 February 1840. No resources or property rights were transferred by the Treaty. Ergo on the 7 February 1840 the Maori still exercised rangatiratanga and ownership. At no stage have they voluntarily transferred – with some possible minor exceptions – these rights. Therefore today
eitherthe Maori retain their rangatiratanga and ownership of the geothermal resource;
or it has been expropriated without compensation.

5.13 Thus far the argument has been in terms of the Tiriti. What modifications are necessary in terms of the English text which the Tribunal is to take into consideration?

5.14 The English text uses the term Crown “sovereignty” in article one, but this sovereignty is limited by article two and article three. Instructively, in the Busby draft, the third article which introduces “all the Rights and Privileges of British Subjects” to New Zealand appears in the preamble, suggesting that it was intended to be higher in the hierarchy of constitutional changes or more fundamental than its place as today’s third article might suggest. That would certainly be true, were the Treaty intended to be some sort of social contract, as I argued in Contract, Covenant, Compact.[#]
[# That also argues that article two and article three in some respects cover the same ground, but that in addition article two also establishes the possession of the property rights at the time of the signing.]

5.15 If the Crown was given sovereignty in New Zealand while that sovereignty involves wider powers than governance, it is still limited by the terms of the Treaty, including those of article three. Indeed there is a strong theme in British constitutional thought that if a government fails to respect the rights of the population, then the population is entitled to overthrow it.[#] Among those rights are those to hold property secure from arbitrary government seizure.
[# John Locke’s 1690 treatise on Civil Government is perhaps the best known exposition from this perspective, responding to the 1688 ‘Glorious Revolution’ and the Bill of Rights.]

5.16 Since article two of the English text of the Treaty states the Crown confirms and guarantees…the full exclusive and undisturbed possession of their Lands and Estates Forests Fisheries and other properties” , and then sets down a procedure by which the chiefs may alienate them “at such prices as may be agreed upon”, there can be no doubt that both article two and article three secure the property rights of the Maori from arbitrary Crown seizure.

5.17 Does the Treaty cover property rights of the geothermal resource? I propose not to answer this in detail because it seems to me very obvious that it did, and would have explicitly if the issue had been raised.[#]
[# See Waitangi Tribunal (1990:41) for an example of the use of this test.]

5.18 More contentious is the question of whether the Treaty would have intended to cover all property rights, including those at the time unknown to the signatories, Crown and Maori, such as the use of the resource to produce electricity or minerals (of which little was known at the time) or even tourist services.

5.19 I note that article two of the Treaty states “full exclusive” which might suggest the intention was all property rights were confirmed and guaranteed, including the rights to transforms in ways not then imaginable.

5.20 Moreover, I am unable to think of a situation where the Crown having yielded total ownership of a resource could claim to some development opportunity for the resource, other than after paying fair compensation for that opportunity.[#]
[# Where the legal discussion on water rights and minerals differ is that it is not clear that in these cases the total ownership of the entire resource was ever confirmed and guaranteed by the Crown.]

5.21 Thus while it may have been a matter of the interests of state in 1953 to pass the Geothermal Energy Act, that did not relieve the Crown of paying a fair compensation for the resource. Whether it did is a matter of investigation. But whatever were the circumstances in 1953 the situation has since changed and their can no longer be these matters of state justifying the Act. In particular the corporatisation and privatisation process of the last few years means that the Crown no longer is directly in the field of the production of energy. The Treasury paper of 19 May 1987 is a clear statement of this position, and the proposal to sell the Crown’s geothermal interest confirms this account. (Treasury 1987)

5.22 In summary, under the sovereignty interpretation of the Treaty, whatever the rights the government had to pass the Geothermal Energy Act 1953, it should not have alienated the property rights in the geothermal resource from the Maori without fair compensation, and it should return those involuntarily alienated rights now that any justification for their seizure is redundant.

6. The Tiriti and the Resource Management Act 1991

6.1 I need to say a little about the effect of the Resource Management Act 1991. In a recent paper Richard Boast (1990) applies the ‘hierarchy of interests’ principle developed in North America to the geothermal issue and suggests that sustainability may be treated as superior to the common law rights of indigenous people. In this section I want to suggest that while this may be true in a situation of sovereignty, it need not be true where it is a matter of governance, and that there is an alternative interpretation of the Resource Management Act which may well be consistent with the Tiriti.

6.2 A major problem in any economy which is regulated by market forces is how the interests of future generations may be incorporated. Since the unborn cannot express a demand in the market, the market by itself cannot reflect their interests.[#] We assume here that the interests of future generations should be taken into account, a premise which I return to in the case of the Maori, but which also seems to apply in non-Maori culture too.
[# Economic theory sometimes overcomes this dilemma by assuming that the economic actors are immortal, or that they take into full account their assessments of the interests of all their descendants. Neither assumption is entirely realistic.]

6.3 I want to suggest that the Resource Management Act 1991 is a means by which future generation’s interests are taken into account, via the notion of sustainability. I do not need to ague here that this is the most efficient way of taking the interests into account. Rather that it is an honest attempt to do so.

6.4 If so the Act is not in conflict in principle with the notion of rangatiratanga of the second article of the Tiriti. As explained in section 4 rangatiratanga was not simply ownership or stewardship on behalf of an iwi today. It also involved a responsibility for those of the past and the future.[#]
[# The issue of the rights of the future are discussed in the section on the Resource Management Act. I do not discuss the rights of the past, which while not totally alien in the Western approach is by no means simple.]

6.5 The responsibility to generations in the future is nicely illustrated by the rules of forfeiture of rights. Smith (1936) wrote “If a Native left his tribe and went to live in another district either through marriage or otherwise, and he and his descendants remained away for three generations, they would forfeit all rights to the land so abandoned”. (p.57) The implication that such was the custodial responsibilities of the rangatira that he could not unilaterally abandon land for which he was accountable. The abandonment had to be confirmed by, not one but, two further generations, including people who were almost certainly not alive when the initial decision was made.

6.6 I suggest then, that if the governance of the Tiriti is the appropriate interpretation of the role of the Crown in the New Zealand constitution, that the Resource Management Act is a part of that governance: a mechanism by which the interests of future generations may be incorporated into economic decision making. As such in principle it involves no superiority of the law to rangatiratanga but offers a mechanism by which the stewardship of the rangatira on behalf of future generations may be expressed.

6.7 In tentatively offering this suggestion I am not arguing that the Resource Management Act is a perfect solution to this problem, or that it is in total harmony with the second article of the Tiriti. What I am suggesting is that it is possible to interpret the Act consistent with the Tiriti, and indeed section 8 of the Act, requires that be done.

6.8 A more complex issue might be the provisions in the Act giving the power to a Regional Authority to award a water right. In need not mean that the Maori forgo all or part of the rangatiratanga over water which is guaranteed to it by the Tiriti. Rather it might be interpreted that this water ‘right’ is a mechanism for moving the Maori rights into the effective economic/commercial domain. This approach has to be explored, and it almost certainly requires additional law to confirm the guarantees to the Maori in the legal system.

6.9 More generally, while I am anxious that we should let the provisions and procedures of the Resource Management Act bed in, the indications of the various legal opinion I have looked at (Bennion 1991; Boast 1990; Boast & Edmunds 1992; Edmunds & Boast 1993; Gunn 1991; Love 1992) suggest that there is sufficient ambiguity in the law over the geothermal resource to require some supplementary legislation. The principle is already recognised in that mining is not covered by the Act.

6.10 In particular, the Act appears to operate by treating the geothermal resource in terms of a water right. The geothermal resource is more than a water right, just as it is more than a source of energy. Even if we focus only on the energy element of the geothermal resource, the water is a vehicle by which the energy is carried, not the energy itself. No doubt the legal process could, by a series of judicial decisions, eventually find its way through the complex task of converting the statutory provisions into a realistic regulatory framework for the entire geothermal resource. But it will take time, involve delays, and there will be unnecessary mistakes, which together will be damaging to the environment and to economic development. It would be wiser to enact legislation which will make clear the intentions of parliament.

7. The Separation of Property Rights

7.1 One of the outcomes of the property rights approach is that a single resource may have a numerous separate property rights, which may be possessed by different economic agents. A crucial regulatory issue is how to enable the separation of the possession, which may result in greater economic efficiency.

7.2 For instance the Torrens type registration system of the radio frequency system was to enable both the simplification of the ease of transfer but also to allow the possibility of the separating of the use of a frequency. The frequency might be used for talkback during the day, jazz at night, and religious broadcasting on Sunday, each program being run by an economically separate entity.

7.3 The Maori is no stranger to this separation of property rights. A stretch of river might involve different whanau or hapu having different fishing rights -by type or season, while others might have transit rights of the river, and others have different rights for access for water. Some of these rights would be close to private -only a particular whanau might be permitted to set up an eel trap at a particular point -others would be collective within a regulatory framework -as when anybody in the iwi may travel along the river with, perhaps, some rules about right of ways for canoes. The framework would have had procedures for solving dispute over or conflicts between property rights. There would be parallels to today’s procedures: informal procedures (two hapu resolving between themselves, perhaps with a mediator), formal procedures involving a judicial element (perhaps a tohunga interpreting the meaning of a rahui), and formal procedures involving a legislative element (perhaps a (high) rangatira reallocating or redefining property rights). The Maori separation of powers would perhaps have been less distinct than they are today.

7.4 I am of the view that we should assume, unless there is evidence to the contrary, that in traditional Maori economic activities (implicit) property rights were efficiently allocated and resolution procedures worked reasonably effectively. Two exceptions would be if the property rights were being newly allocated (e.g. after a conquest), or if the property rights involve some new innovation (for it would be idle to argue that the Maori had fully allocated property rights over the use of river gravel for concrete). The assumption arises from a model in which experience would have led the Maori to have improved their rights allocation and procedures over time. I think it most unwise -even arrogant -to assume, as I am afraid some of the more pro-private enterprise property rights literature on occasions does, that allocations (especially collectivist ones) in pre-capitalist societies were inefficient.

7.5 Recognising that I have made an assumption that property rights framework of the traditional Maori was efficient, and acknowledging that this assumption may be tested by examination of Maori lore and practice, I want to use the assumption to explore the likely configuration of geothermal property rights in traditional Maori society. I am using the evidence of pre 1840 Maori land rights.

7.6 It is evident that individual kainga, whanau, and hapu had entitlements to individual sites for cooking, bathing, and medicinal purposes among others (Boast 1992a,b). However it is unlikely that these use rights gave their holders unlimited alienation rights. These were almost certainly held by the iwi, or some greater entity, and the rangatira, as stewards, would be responsible for decisions.

7.7 If land practices are any indication, alienation of the rights from an iwi would be rare, and arise only in very special circumstances. As a general rule the Maori did not alienate land which had a significant geothermal source, even in European times.

7.8 It the rangatira would have claimed stewardship over significant alienation of rightsl on behalf of the iwi, I think it likely, had the occasion arisen, the rangatira would have claimed the property rights for transformation of the resource on behalf of the iwi.
[# Even insignificant alienation, such as the voluntary transfer between whanau of the same hapu, may have required some rangatira acknowledgement (in some respects a registration of the change).]

7.9 In effect this is what happened with the Ohinemutu settlement, where the hapu were allowed to retain their traditional use rights, albeit with some modification, but the Crown acting as if it held the rangatiratanga, taking the transformation rights to itself. It is, of course, unclear on what fundamental authority the Crown could make such a claim.

7.10 Since ultimately transformation rights become use rights, the subsequent discussion is on those use rights, but observing that the rangatira would have ultimate authority via the stewardship for which they were responsible.

7.11 A central problem arises where one use impinges on the other. For instance the drawoff of geothermal steam may reduce the effectiveness of a site for cooking, bathing, and tourism. At a simpler level that one group of people are bathing in a hot pool may prevent others from doing the same. The short response to the simpler example is that a system of property rights allocates the use between people (in Pakeha culture it is usually the informal rule of first come first served).However a more complex case is when an innovation does not result in proper allocation of property rights, perhaps because the full implications of the change are not foreseen. The outcome is that the incomplete allocation of property rights are likely to lead to inefficient use of the resource.

7.12 Here are some practical examples of potential conflict in the geothermal resource use:
-a site may be used as a tourist attraction or to mine some valuable mineral (sulphur has been such a mineral in the past, but it may be that there are also rare and very valuable minerals);
-a site may be used as a tourist attraction or to produce commercial energy such as electricity;
-a site may be wahi tapu, and yet be commercially promising;
-a geothermal resource may lie below two properties in which case the drawoff from either devalues the resource for the other. (It is recorded that this can happen to sites up to seven kilometres apart);
-a geothermal resource may lie below the territories of two or more iwi.
There are even more lethal combinations of the above. For instance I am aware of a potential conflict where one iwi wants its share of a geothermal resource for commercial energy, while the other wants it to use its share as a tourist attraction.

7.13 Perhaps the first thing to be said is there is no ready solution to these conflicts. However economists argue that a step towards resolution is to allocate all the property rights under one agent. This one agent then allocates the resource to gain the maximum return for the agent. Insofar as complete property rights includes the right to alienate, it will be often in the interests of the agent, to alienate (typically by sale) some part of the rights to another agent. The deed of sale, enforced in a civil court, thereby allocates the property rights between the two. Sometimes there will be recourse by the parties involved to courts.[#] Some economists argue that this is always more effective than a system of state legislated rights. That for me is an empirical question, but I am sure that where legislation leaves an ambiguity about scope and possession of property rights -as it seems to with the geothermal resource the outcome will be inefficient.
[# Or some other procedure agreed upon, such as mediation or arbitration.]

7.14 Other features of this argument appear in the Treasury (1987) paper on geothermal energy resources (although it is written before the Resource Management Act, and its argument should be adjusted for that). Although it ignores the non energy uses of the geothermal resource the argument is that
“..if rights to use the field are held more than one person, potentially profitable large scale developments are unlikely to go ahead.” (para 6)
The paper then introduces a non-sequitur
“Accordingly, geothermal resources should remain vested in the Crown, as they are under the existing Geothermal Energy Act, so it is possible for only one user to obtain rights to develop a field.” (para 6)
It would be equally logical to vest the rights in the relevant iwi or (coalition of iwi). A point the paper promptly acknowledges by favouring the selling of the rights to private enterprise.

7.15 A related issue is the need to distinguish the hole drilled in the ground (and the attendant equipment) from the geothermal resource from which the well is drawing. One can easily imagine a situation where the resource owner allowed a totally different agent to drill a well in order to draw off the steam (perhaps reinjecting the cooled water), in return for a royalty. The well owner would be able to sell their interest in the well, and probably sell their drawoff right, but nonetheless would not own the geothermal resource itself.

7.16 I am hesitant to be too detailed as to whom would be the appropriate Maori agent to vest a field in. What is crucial for economic efficiency is that the there should be only one agent to exercise rangatiratanga over the field. Sometimes this may be an iwi geothermal trust, sometimes it may have to be a joint iwi geothermal trust. I assume the decision of who have entitlements in each trust would be the responsibility of the Maori Land Court, and they would try to simulate the sort of process which would have gone on within the traditional Maori when they faced a similar problem. Perhaps it would involve finding a common ancestor to the iwi. If so the aim would be to identify the most recent ancestor whose lines encompasses all the legitimate claimants.

7.17 The difficulty with this approach is that typically there will already be some uses of the particular resource. For instance an iwi might be using one area within the field as a tourist attraction, various property owners above the field may have thermal bore, and there may be hapu may be using other sites for cooking and bathing.

7.18 The ‘grandfather’ rights issue could be solved by the vesting process including subsidiary contracts between current users and the agent in whom is the primary vesting, which precisely state the rights of the current user. Typically the Crown, who allowed these situations, would pay the primary agent for the loss of those rights (although this might be inappropriate where the current rights were held by a subsidiary of the primary agent -e,g, a iwi, hapu, whanau). Alternatively the Crown might buyout the current users rights, or it could even terminate them without compensation (although in my view such an option should be pursued in special circumstances only). As a rule related rights would not be included. For instance the ownership of the well might remain with their present owners (although the Crown might transfer its wells to the Maori as a part compensation for past wrongs or in part compensation for not being able to return grandfathered rights outside the iwi).

7.19 It would be wrong, on efficiency and Treaty grounds, to vest the geothermal resource in the landowner above it. It would inefficient because the boundaries of a field rarely correspond to the surface boundaries, and so the property rights would be ambiguously shared between various land owners, with the outcome of an excessive drawoff as has occurred around Rotorua city. And while the Maori may have (voluntarily or involuntarily) disposed of the property rights in land, it would have not been their intention to have voluntarily disposed of the geothermal resource under it, unless there was a source on the surface.

7.20 However I think it would be appropriate for the Maori Land Court (or whomever) to use traditional Maori notions of land entitlements to allocate the property rights, as discussed in paragraph 7.16.

7.21 It must be emphasised that vesting the property rights of the resource in a suitable Maori group does not solve the conflict of resources. What it offers is, providing the property rights are fully allocated, a process by which the conflicts will be settled reasonably efficiently.[#]
[# To give but one illustration of how imperfect or ambiguous allocation can be inefficient, consider the legal and other expenses that such an allocation would generate.]

7.22 Vesting fields in a geothermal trust would still leave the Crown with the following kawanatanga or general third article property rights:
– the right (and duty) to provide a regulatory framework;
– the right to levy to fund the regulatory framework;
– the right to charge for the benefits of the research on geothermal resource provided by Crown Research Institutes and their predecessors;
-the property rights to such capital that the Crown has invested in the development of the geothermal resource (e.g. wells and well head dynamics).

8. Geothennal Resource as a Development Opportunity

8.1 Most of the major known development opportunities for the geothermal resource have been canvassed. They include:
– a source of energy for electricity;
– a source of energy for hot water and steam;
– a tourist attraction;
– a source of some minerals.

8.2 Typically, the various opportunities are in conflict, and similarly in conflict with traditional uses.

8.3 I have explained how the property rights framework enables the making of reasonably efficient use of the resources. I draw attention to the very real danger that the development opportunities will be set back by the current regulatory regime. Most of my points have been already been explained, but it is useful to summarise them as follows:
– the legislation regulating the geothermal resource is incomplete and ambiguous in places;
– the property rights associated with the resource are not fully allocated, and especially are not vested in a single authority.

8.4 In addition, there is the complication of the Maori claim to the geothermal resource. As long as this is unresolved, it will inhibit the development of the resource, since potential developers will be unable to obtain a secure title over the resource.

8.5 There exists the real possibility that if the government relies on a resolution process overly dependent upon the courts the opportunities for development will be delayed and, insofar as a sustainable resource is involved, lost.

8.6 This delay and loss means that there will be less energy provided by the geothermal resource, some of which will be made up by more expensive sources, some of which will not be made up at all. And there will be less jobs in energy production and tourism. If there turns out to be other currently unexpected uses of the resource (e.g. mineral extraction) that economic potential will be lost also. Instead human energy will be diverted to the process of resolution, rather than of utiliation.

8.7 Fortunately government has the opportunity of cutting through this gordian knot, by enacting legislation which remedy the deficiencies and ambiguities of the current statutory system. In particular it would:
– administer the entire geothermal resource via a single act (i.e. kawanatanga role);
– vest the property rights of each geothermal field in a single entity (preserving the rangatiratanga of the Maori).

8.8 The entity in which the vestment should be made is a duly appointed Maori geothermal trust, the ownership of which would be determined by an agency such as the Maori Land Court, based on traditional Maori notions of the possession of property rights.

8.9 Use rights currently held (by Pakeha and Maori) would be acknowledged, and dealt with along the lines discussed in paragraph 7.18.

8.10 Regulation (especially environmental regulation) of the resource would remain in the context set by the Resource Management Act.

8.11 The Crown would keep for itself rights such as those mentioned in paragraph 7.22, although it may wish to transfer some items as a part of the reparations for past grievances associated with geothermal wrongs of the past, or in lieu of the grandfather rights for present users mentioned in paragraph 8.9. It might also wish to sell its interests to the relevant geothermal trust, or to some agent who has obtained property rights from the trust.

8.12 From one point of view this may seem expensive to the Crown. There has been mention of it obtaining between $10 million and $30 million from the selling of its rights and interests. However this is a small amount beside the revenue it would gain in taxation and reduced dependence on social security outlays), from the geothermal developments that this strategy could unlock.

8.13 In any case, the approach proposed here would remedy past grievances and wrongs arising from the neglecting of the Tiriti. The Crown would benefit then in two ways: from the early development of the potential of the resource, and from the righting of past wrongs.

8.14 In summary in my view the Waitangi Tribunal should find that -the Maori has rangatiratanga over the geothermal resource, arlsmg from its traditional practices, and as guaranteed by the Tiriti;
– the Crown has kawanatanga over the geothermal resource, arising from article one of the Tiriti;
– these principles should be enacted in statute;
– that those with manwhenua over a field should have their rangatiratanga recognised;
and
– the Tiriti partners should work together to enable, as soon as is feasible, the unlocking of the potential of the geothermal resource for the development of the nation.

References
Bennion, T. (1991) New Zealand Law and the Geothermal Resource, Report to the Waitangi Tribunal (Doc #A60, Wai 153), Wellington.
Biggs, B. (1989) “Humpty-Dumpty and the Treaty of Waitangi”, in Kawharu (1989).
Boast, R.P. (1990) The Treaty of Waitangi and Natural Resources: A Case Study, Paper presented at the Whakahokia Te Mauri Conference, Massey University, May 30 June 1,1990.
Boast, R.P. (1992a) The Hot Lakes: Maori Use and Management of Geothermal Areas from the Evidence of European Visitors, A Report to the Waitangi Tribunal, December 1992.
Boast, R.P. (1992b) Maori Customary Use and the Management of Geothermal Resources, A report to Te Puni Kokiri on behalf of FOMA Te Arawa, November 1992.
Boast, R.P. & D.A.Edmunds (1992) The Resource Management Act and the Geothermal Resource, mimeo, Wellington.
Coleman, J.N. (1865) A Memoir of Rev. Richard Davis, London.
Clendon, I: Papers</> held in Auckland Public Library, APL NZ MS 705.
Easton, B.H. (1990) <i.Contract, Covenant, Compact: The Social Foundations of New Zealand, address to Spring Lecture Series of St Andrews Trust for the Study of Religion and Society, published in Socialist Politics, Issue 90/3,4.
Easton, B.H. (1990) A Pakeha Economist’s Perspective on the Maori Broadcasting Claim, Commissioned by the New Zealand Maori Council and presented to the Waitangi Tribunal (Wai-150), Wellington.
Edmunds, D.A. & R.P.Boast (1993?) Geothermal Resource Management: Ownership and Management Issues, A report to Te Arawa Federation of Maori Authorities Inc. , Commissioned by the Ministry of Maori Development.
Gunn, C. (1991) “Geothermal Resource Management Under the Resource Management Act 1991”, Proc 1Jth New Zealand Geothermal Workshop, 1991, p.45-49.
Firth, R. (1973) Economics of the New Zealand Maori, Government Printer, Wellington. (Reprint of Second Edition)
Kawharu, I.H. (ed) (1989) Waitangi: Maori and Pakeha Perspectives on the Treaty of Waitangi, Oxford University Press, Auckland.
Love, M. Te W. (1992) Assessing the Management and Control of Natural and Physical Resources, Paper for the Institute of International Research Conference, “The Commercial Implications of the Treaty of Waitangi”, September 1992.
Posner, R.A. (1986) Economic Analysis of Law, Little Brown & Co, Boston. (Third Edition)
Smith, N. (1936) Native Law and Custom, Maori Purposes Fund Board, Wellington.
Treasury, The (1987) Management of Geothermal Energy Resources, Letter to the Minister of Finance, 19 May 1987, signed R.D.Judge, typing initials JW:RE.
Waitangi Tribunal (1987) Report on the Orakei Claim, (Wai-9), Wellington.
Waitangi Tribunal (1988) Muriwhenua Fishing Report, (Wai-22), Wellington.
Waitangi Tribunal (1990) Report on Broadcasting Frequencies Claim, (Wai-150), Wellington.

Fishing and the Chatham Islands

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AFFIDAVIT in the High Court of New Zealand BETWEEN Te Iwi Moriori Trust Board (First Plaintiff) Moriori Tchakat Henu Association of Rekohu Incorporated (Second Plaintiff) and The Treaty of Waitangi Fisheries Commission (Defendant) (September 1993)

Keywords: Business & Finance; Environment & Resources; Maori; Statistics;

I, Brian Henry Easton, economist and social statistician of Wellington do swear

1. Following the obtaining of degrees in mathematics and economics I have practised for over 25 years in universities in New Zealand and overseas, in research institutions, and latterly as a private researcher and consultant. A copy of my short C. V. is attached. I have taught, researched, and written in many areas related to this case, including the economics of development.

2. I have been asked by the plaintiffs to assess the significance of the fishing industry to the Chatham Islands (Rekohu).

3. My basic conclusion is that the future of the Chatham Islands is vitally dependent upon its fishing industry, more so than any other region. I also indicate how a population based rule is especially against the interests of a region as dependent upon fishing as these islands.

Data Sources

4. This affidavit uses two main sources.
(i) Review of the Chatham Islands Economy (a.k.a. The Taylor-Baines report) was prepared in September 1989 by Taylor Baines And Associates and Lincoln International for the Department of Internal affairs on behalf of the Ministerial Committee of the Chatham Islands.
(ii) Regional Summary is a publication of Statistics New Zealand (Department of Statistics) based on the 1991 Population Census, which identifies the Chatham Islands County separately. The tabulations are not detailed, and the reported population of 759 on Census Night (5 March 1991) included 156 people who described themselves as not normally resident in the area. This proportion (20.6 percent) is unusually high. In comparison the average nationally was 7.0 percent. In addition Chatham Islanders temporarily away from the island that night, are not included in the data. Because the population of the Chathams are small, these temporary shifts In population are relatively large, and the figures have to be used with care.

5. More generally, the data from each (or indeed any) report is subject to error and interpretation difficulties. My assessment allows for these, and reports only those conclusions which are robust to potential data difficulties.

Economic Activity in the Chatham Islands

6. Economists usually measure economic activity in a nation by Gross Domestic Product (GDP), which measures the net output of all the (market) activities in the territory (whether they be the activity of residents or of those who normally reside out the area), measured at market prices. A similar concept applies for a region.

7. There are no official regional estimates of GDP for the Chatham Islands. However the Taylor-Baines report provides two estimates of the local GDP for the 1988 year.

8. Table 3.1 (page 25) is headed “Chatham Islands economic production 1988. Value Added Basis (NZ$m)”.Its data is

Sector Value Added
Agriculture $5.1m
Fishing $21.1m
Service (Pvte/Govt) $0.7m
Wholesale/Retail $0.7m
Other $3.0m
Total $31.1m

9. The figures are valued in dollars of the day. It is well known that for many products a dollar buys less in the Chatham Islands than on the Mainland, mainly because of the additional costs of transport. A tabulation in the Taylor-Baines report compares the price of 18 groceries in the Chathams and Christchurch (p.D2). The price excess range between 24 and 227 percent, with a median of 67.2 percent. At the time of the report electricity sold for 42.6 c/kWH compared to Mainland rates of 5 to 15 c/kWH (p.81), petrol sold for $1.18 to $1.22 c/l compared to Mainland rates of 86 to 94 c/l (p.87). These price excesses are no doubt some of the more extreme, which is why they are being addressed in the report. Other locally produced prices may be closer to those of the average for the nation. Nevertheless comparisons between values in the Chathams and the rest of New Zealand, should allow for the overall higher level of prices in the Islands.

10. Not all the income from the production goes to the Islanders. In particular nonresidents (e.g. non-resident fishermen) and profits and other payments owing to investors outside the Islands are included in the figure.

11. The item fishing is footnoted “includes all forms of fishing by residents, but only output of non-residents through island-based fish processing/packing facilities.” Thus it excludes the economic activity of catching fish in the territorial waters of the Islands, but the catch of which is not processed locally. This omission means that the Chatham Island’s true GDP is greater than that recorded in the Taylor-Baines report, and the significance of fishing is even greater.

12. Even though fishing as an economic activity is underestimated in the figure it still makes up 67.8 percent of the total, with the next largest sector, Agriculture, contributing only 16.4 percent. I now of no other region of New Zealand where fishing is so important, and indeed the figure is likely to be large by even the standards of most small sub-regions, although there is not data available for them.

13. The GDP table in the Taylor-Baines report is sourced to appendix C, where there is another set of data in the form of an input-output account for 1988 (Table C.l, page C10). GDP can be directly derived from such an account subtracting imports from primary inputs to the various sectors (since imports do not add value). I have been unable to reconcile the two tabulations, so I present here the figures derived from the input-output table.

Sector Value
Added
($1000)		 % of Total
Farm & Forestry 1244 8.0
Fishing 8321 53.6
Mining & Quarrying 261 1.7
Food Processing 491 3.2
Building & Construction 793 5.1
Electricity etc 140 0.9
Wholesale & Retail Trade 773 5.0
Services 1207 7.8
Ownership of Property 326 2.1
Non-profit services 1023 6.6
Households 845 5.4
Total 15523 100.0

14. Unfortunately the aggregate figure from the input-output table is half the quoted figure from Table 3.1 of the same report. As we are here concerned with sectoral shares, the issue is not acute.

15. In order to validate the two estimates, and to provide more information on the Islanders, I used the 1991 Census to estimate the average adult resident incomes. The Census reported figure for males over the age of 15 was $28,000 for the 1990/1 year, and for females it was $14,300. In comparison the figures for the whole of New Zealand was $23,900 for males and $14,300 for females, which suggests that the average Chatham Islander male has a higher income and the female about the same. The total income of Islanders would seem to be about $12.4m in 1990/1, perhaps $llm in 1988. the input-output table reports a total of $6.5m of wages and salaries, and there will be additional self employed and investment income, and from social security benefits, I am inclined to the veracity of the input-output table rather than Table 3.1 of the Taylor-Baines report.

16. That the average Chatham Island adult has an income comparable to the Mainlander may be surprising. The judgement must be modified by the following three factors: -consumption prices are higher in the Chathams;
– the Island’s age structure is skewed towards the higher income earning years. When I adjusted for this I found that Islander male incomes averaged only 6 percent more than the national average, and females 6 percent less;
– the Islands are relatively deficient in low income people such as students and unemployment beneficiaries, because for various reasons these people shift to the Mainland. This is evident in the data because only 23.0 percent of the Chathams residents over 15 years of age report themselves as not working, whereas the figure is 39.6 percent of the New Zealand population .

17. The total GDP of $15.5m derived from the input-output table might be compared with New Zealand GDP for the 1988/9 year of $6,403m, or .24 percent. In comparison, the resident population on the 1991 Census night was .019 percent. In terms of land the Islands are 963 square kilometres, or .36 percent of the national total. The Chatham Islands would appear to be a very productive part of New Zealand, mainly because of the bounty of the seas around them.

18. The tabulation from the input-output table shows that 53.6 percent of valued added (measured at market prices including taxes and subsidies) comes from the catching of fish by residents and by non-residents who have the fish processed on the Islands.

19. In addition the fishing generates fish processing and related servicing of the two industries. Because the food processing sector includes both the meatworks and the fish processing factories resident one the island, and wholesale and retail trade sector includes the Fisherman’s Co-operative, it is not possible to separate out the exact contribution from fish processing. Including the share of fishing and fish processing in the Islands’ GDP would give a figure closer to the 67 percent of the earlier tabulation.

20. Because they are on a value added basis, these estimates do not include the inputs from industries which supply the fishing industry , nor the consequential contributions from downstream effects including the supply of goods and services to the workers in the fishing industry .If there was no fishing industry in the Chathams, the Islands would lose this activity and employment as well.

21. So the fishing industry produces around two thirds of the GDP of the Chatham Islands, even if we exclude the catch by non-residents in territorial waters which is processed elsewhere. In addition the industry generates other economic activity upstream and downstream.

The Importance of Fishing to the Chatham Islands

22. While all these statistics point to the fishing industry being an unusually large part of the Chatham Island economy, they in fact underestimate its contribution, because they ignore the upstream and downstream activities which arise from the fishing. Suppose there was no fishing. The Island economy GDP would not just be reduced by around two thirds. A whole range of ancillary activities would disappear as well. There would be fewer traders provendoring the ships, fewer shop-keepers selling to households, and fewer teachers because there would be fewer children, as workers left the Islands.

23. All that would be left on the Chathams would be a few farmers (probably less than today because costs would be even higher than today), just conceivably the rump of a tourist industry, and the odd government official, plus the unemployed.

24. Conversely if there was more fishing activity, the economic activity on the Island would be greater. The proportional increase in total economic activity would be far greater for the Chathams than it would be for a the same (proportional) increase in fishing activities for any other region.

The Implications of the Maori Fishing Quota Allocation on the Prosperity of the Islands

25. The allocation of the Maori fishing quota does not merely distribute the income implicit in the tradeable rights between iwi. It also affects the location of economic activity. It will not affect where the fish is caught, but it will affect where ships are provendored and where the caught fish are processed. The more quota allocated to an area, the more economic activity in that area.

26. This is true for every area. What is unusual about the Chatham Islands is that its prosperity is more sensitive to the allocation of quota than any of the other designated areas.

27. To see this consider the small fishing village, we shall call Ikakainga, which has exactly the same characteristics of the Chathams Islands, except it is on the Mainland, and is a part of a much large rohe for quota allocation purposes. Ikakainga will have access to the onshore related activities from the quota on behalf of its population, and of the much greater population of many people who have little connection with the fishing industry who live elsewhere in the district.

28. Ikakainga may not exist, for I am unaware of any comparable area which is as dependent upon fishing as are the Chatham Islands. What Ikakainga illustrates is the unique situation of the Chatham Islands, whose prosperity will depend on the quota allocation rule in a way no other region will be affected.

Te Whakapakari Paapori, Ohanga O Muriwhenua

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TOWARDS AN IWI DEVELOPMENT PLAN FOR THE MURIWHENUA
Submission to the Waitangi Tribunal on behalf of the Ruunanga o Muriwhenua. The views expressed are my own, and should not be taken to reflect those of the Ruunanga, the Muriwhenua Iwi, the Maori, the Tribunal, or the Crown.) Revised 22 June 1993

Keywords: Growth & Innovation; Maori;

Introduction

1.1 This report has been commissioned to assist the Waitangi Tribunal in its deliberations on the claims of the Ruunanga o Muriwhenua, on behalf of the Muriwhenua Iwi of the Far North of New Zealand, as a part of the settlement for long standing grievances.

1.2 The report reflects the views of its author. While he has consulted as widely as time and resources will allow, the assessments may not, and probably do not reflect in total, the views of the Ruunanga o Muriwhenua, the Muriwhenua Iwi, or the Maori generally, or those of the Tribunal or the Crown.

1.3 Without wishing to preempt the decision of the Waitangi Tribunal, I shall take it that many of the grievances of the Muriwhenua iwi are justified, and that the Crown is obligated to provide remedies, as best as it is able and is possible. I shall treat the remedy issue in two parts. The first involves physical assets – typically land – which will be returned to the relevant iwi or hapu or, where that is not possible, cash or kind is returned instead. I shall have something to say about the conditions under which such returns should be made.

1.4 However the return of these assets cannot be the full reparations since over the years the dispossessed Maori has suffered from not receiving income from the asset. This suffering has not only reduced their wealth, but also reduced their general welfare. (This process is elaborated in Appendix I.) A key feature of the process of economic development is the way in which assets generate beneficial outcomes in other ways, a matter elaborated in section 5.

1.5 Thus reparations which merely return assets wrongfully taken in the past would be to ignore all the injustices which flowed on thereafter. Nor is it a matter of simply calculating the loss of income, and compounding it over the years for loss of interest on that income. Cash cannot fully represent the damage done to Maori society as a result of the past wrongs, nor can any reasonable cash transfer represent a fair compensation, although obviously cash and its close equivalents – has a role in a just reparation package.

1.6 It is evident both from general studies, and from the evidence already presented to the Tribunal of the experience of the Muriwhenua Iwi, that the detriment from the dispossession of the assets went to the very foundations of Maori society. There has been a loss of the tribal independence and autonomy, both collectively and individually, a poorer attainment of the iwi on most welfare measures involving education, employment, health, housing, wealth and general prosperity. In addition, the lands of the Muriwhenua have been unable to sustain all the iwi, and while some may have left anyway, many live outside the Muriwhenua rohe but wish to return in order to take a greater role in the life of their iwi. It is not obvious how any cash sum could simply remedy these outcomes.

1.7 Instead it has been suggested that the reparations for grievances from the past should include an Iwi Development Plan (Te Whakapakari Ohanga, Paapori), in which Crown and Maori in partnership develop the iwi to a social and economic level which would bring them closer to that which would have occurred if the wrongs of the past had not been imposed.

1.8 Because there has been anxiety among some Maori over the interaction between the return of assets and iwi development planning, I need to state at the beginning some salient principles in regard to asset reparations:
– an Iwi Development Plan is not a substitute for the return of the assets. That should happen anyway. Rather the Plan complements the asset return, providing substitutes for that cannot be returned .
-the assets should be returned to appropriate Maori groups such as Trust Boards or hapu, on the same basis as they have in the past. There is no intention that they be returned to some other agency. That would merely continue old wrongs.
– there is no requirement that any of the legal owners of the returned assets need participate in the Iwi Development Plan. The planning provides no threat to their autonomy. However, they may voluntarily choose to participate in the program, if they judge it to be in their best interests. I believe the majority of existing institutions will come to such a conclusion.

1.9 Another group who have expressed some anxiety about Iwi Development Planning is the Pakeha. May I say to those in the region that the plan that is likely to be adopted will have spinoffs to all the region, and so all the people of the region can benefit. A successful Iwi Development Plan will also benefit the nation, in that it will shift people from a dependence on the government, to contributing to the prosperity of the nation as it increases the overall level of social and economic performance.

2. What is an Iwi Development Plan?

2.1 There are a variety of planning which exist in western type economies including asset management plans, business (corporate) plans, sectoral plans, regional plans, and national plans. A separate section deals with the relevance of asset management plans and business plans to the return of assets. Iwi development plans draw more upon regional, and to a lesser extent sectoral and national plans.

2.2 All plans should have some standard features including:
– an overall set of goals ( section 3) ;
– specific targets which reflect those goal (section 4);
– a theory of how the targets may be attained (section 5);
– a strategy to attain the targets, based on the theory (section 6);
– a series of measures to implement the strategy (section 7);
– an account of the sources of resources and finance for the implementation (section 8);
– an institutional framework for the implementation (section 9).
Typically these are summarised in a single document – or set of documents – but that only summarises the spirit and content of the plan. The true significance is in the actions and commitments which arise out of it.

2.3 It is not possible for this report to provide all the details of a plan. Neither it is desirable, for an Iwi Development Plan should involve much more consultation than has been possible here. The task of this report is to show the relevance of the approach to remedying past grievances, and the steps that might initially be undertaken to develop the approach as a part of the settlement.

2.4 While the report is formally to the Waitangi Tribunal it is also addressed to the iwi. Some Maori have said to me that they are not familiar with these European approaches. Others have said that the Maori are quite capable of planning by themselves. And others have said that they do not want to be involved in any European approach.

2.5 There is less conflict between these remarks than at first may appear. Maori have a long history of planning – be it siting a kaianga, building a marae, planting a kumera field, going out on a fishing expedition, preserving a sacred taonga, or planning a toa. There a number of words in Maori about planning including
– “tikanga” (n.) rule, plan, method; (This meaning is given the first place in H. W .Williams’ Dictionary of the Maori Language.)
– “whakatakoto tikanga” (v.) to plan.
– “whakakaupapa” (v.) to plan (abstract)
– “whakamahere” (v .) to plan (tangible)
– “whakahiato” (v.) to plan (policy).
As one Maori scholar said to me “tikanga is tika”.

2.6 Today’s Maori has two needs with their tikanga or whakamahere. First there is a need to develop to their current needs, for the technical issues they face today are rather different from that of two centuries ago. And second they will have to korero with the pakeha, sharing the two approaches. This latter need is especially important in the case of Iwi Development Plans which arise out of the reparations process, since the Crown – who will use European terminology and approaches – will be involved.

2.7 It is not my intention to impose any European framework on the Maori. Rather this is a few faltering ideas – not unlike the first words of a pakeha attempting to speak Maori which I hope will contribute to the dialogue.

3. The Objectives of the Plan

3.1 I suspect all Iwi Development Plans in the context of the reparations will have two major objectives:
– to enhance Te Mana o Te Iwi;
– to provide a durable settlement redressing the wrongs of the past.

3.2 It is not accidental that there are two major objectives, for they symbolise the two partners to the Tiriti o Waitangi. That one objective is in Maori and one is in English does not mean that they should be assigned to each partner. Each has an interest in both. A strong viable independent iwi means less pressure on the government, while it is in the interest of both partners that the settlement be durable, because that means it has to be fair. I have not used here the term “rangatiratanga ” because this is not just a matter of article two of the Tiriti but the treaty in its entirety, which was concerned with the maintenance of the mana of both partners.

3.3 Under the major objectives will be more specific ones. It will be for the Muriwhenua iwi to articulate them, but among those matters to which they wish to give priority, some Maori have mentioned to me:
– the preservation of their land;
– the protection of the special (environmental) and sacred places of their land;
– the restoration of their marae and taonga;
– the protection and promotion of te reo;
– the bringing of their mokopuna back to their turangawaewae, while improving the access of those who have to stay away;
– the giving their mokopuna the same opportunities as others have – opportunities in education, health, housing, and jobs, together with the independence and confidence which goes with those.

3.4 There are many supplementary objectives. It is for the iwi to articulate them. No doubt it will have to give some indication of each’s priority, because all cannot be resolved at once.

3.5 One particular issue which considerable attention will have to be given is the treatment of those of the Muriwhenua iwi who no longer live in or near the tribal lands. They will of course retain their interests in any land they have now, or will be returned. But it will be much more difficult to deliver to them other development benefits.

4. The Specified Targets

4.1 The stage will be to identify specific targets. This cannot be unilaterally done by the iwi, since the targets will be constrained by what is feasible. Moreover it is not possible to give more than an indication of what they may be, and what is involved.

4.2 One target might be to increase the proportion of the iwi who can live in their traditional lands from X to Y percent.

4.3 A second related target might be that of those who live in their tribal lands the unemployment rate will be comparable to the national (Maori and non-Maori) average.

4.4 The effect of these two targets is that a major consideration of the development plan would be the creation of sustainable quality jobs in the region for the Muriwhenua people (although it may be difficult to target any job creation program in a region to one race or tribe exclusively). The jobs need to be sustainable, and not dependent upon the state. The jobs need to be quality in order that the quality human capital in the iwi will be attracted to staying in the region.

4.5 A third group of targets might involve the children of the iwi in terms of specified standard of health and education. e.g.
– that when 12 years old they would have attained a certain competence in the use of the Maori language and kawa;
– that the Maori students leaving school have an achievement which corresponds in attainment to those of the non-Maori from similar locations;
– that at specified ages or stages (perhaps 5, 12, during pregnancy, and at retirement) the standard of health of the Maori corresponds to that of the non-Maori in the same location.

4.6 In addition to such targets, it will be necessary to specify the target population (it would be difficult to meet some targets for those outside the Far North, except as a part of a package aimed at all Maori, and probably impossible for those of the Iwi who live outside New Zealand). One effect of narrowing the target population to tribal lands would be to give an incentive for iwi to return there. Even professional couples may be willing to come home, for the promise of a better deal for their children.

4.7 It will also be necessary to specify a target date. They may often be some distance out, perhaps over generations, reflecting the reality that it will not be possible to remedy overnight the destruction and neglect of 150 years.

4.8 One effect of this is the target needs to be set in terms of the ongoing standards at the target date. Thus the educational standards would be set in terms of the average for non-Maoris at the target date, not those at 1992. Thus as non-Maori standards rose, so would the target. As a consequence it will be in the Maori interest to lift the Pakeha performance, since that will mean more effort will have to be put into their mokopuna.

4.9 The Crown may be a little reluctant to be involved in target dates too far out. It will rightly argue enhancing te Mana o te Iwi involves decreasing dependence of the iwi on Crown initiatives. However while the cash flows and asset returns may occur in a relatively short period, assistance in kind – in education, health, and research and development – is likely to be over a much longer period.

5 Towards a Theory of Development

5.1 This is not a treatise on social and economic development (te whakapakari paapori, ohanga). What is presented here is a framework which the Iwi Development Plan (te Mahere Whakapakari Iwi) can use to guide its strategy.

5.2 The theory involves a resource based approach, but natural resources are not enough. Natural resources provide only the opportunity for development, not the development itself. Moreover, while human resources are key, they do not guarantee development in a particular location, since those with high quality human capital may choose to migrate if there is no local activity and employment to attract them.

5.3 Thus the development of a region such as the Far North involves using the opportunity that the resources create to generate jobs in the region. Thus the issue is not to what extent can any piece of land, say, generate output, but what opportunities there are from the land which adds values and hence jobs. Today the New Zealand farm sector generates more jobs off the farm than it does onfarm. This includes providing inputs for the farm, but also the further processing of the outputs. Because the processing has to generate high incomes the production and processing tends to be technologically specialised.

5.4 Thus a development plan will seek options based on natural resources which are high value and technologically sophisticated. They may be uses which are not obvious and not yet developed. The products which are important.

5.5 The locals of the Far North region may well ask where has been the scientific research effort which precedes this development. The record is that it has not been done. One of the consequences of the deprivation of the land alienation, was that when past governments made decisions about allocating research effort the region was ignored.

5.6 The research effort has to be coupled with marketing development. There is no point in providing products which are not desired by potential purchasers, or at prices which do not generate a fair profit to the producers.

5.7 And totality must recognise that there will be associated structures and investments. Some will be supplied by private business. An example might be the transport to ship the product out. But some -notably infrastructure – will involve public initiatives. An example might be the road network on which the goods are shipped.

5.8 The iwi of Muriwhenua will recognise these issues from their own experiences. In the 1920s they were embarked on a program of dairy farming with little evaluation of suitability of the land for that purpose. On one occasion they planted and harvested potatoes without having evaluated the market prospects for the crop. The local development was restricted by the transport difficulties the farmers faced. Research and Development, Marketing, and Infrastructure are ~ven more crucial in the 1990s than they were in the 1920s and 1930s.

5.9 There are further fundamental lessons which come out of the 1920s and 1930s, captured well in Claudia Geiringer’s Historical Background to the Muriwhenua Land Claim, 1865-1950. There was no systematic planning, and financing in particular was not thought through. Instead it depended on annual injections from the state. Because the state had no comprehensive plan either, it was restrictive on the decisions which were made. The result was those who had the local expertise and were most affected by the decisions had insufficient involvement in the determination of the outcomes. Bad decisions were made because made planning structures were in place. Planning, Financing, and Good Administrative and Decision Structures will be as crucial in the 1990s as they were in the 1920s and 1930s.

5.10 Thus far there has been no mention of the labour force and the human capital, (tangata aa rawa). A quality labour force is crucial for social and economic development, and yet it is no guarantee of that process. Supposing an iwi had a healthy, well educated, highly trained, experienced, and se1f-disciplined labour force, but no local resources on which to base their prospects. There would be no opportunities for it in the region, and the unemployed but able workers would drift off elsewhere, to Whangarei, to Auckland, to Sydney. The paradox of quality labour is that it is internationally mobile, and so the Iwi cannot claim it for its own regional purposes. That is why the resource base of the region must be used as a development base to attract and maintain the tangata aa rawa.

5.11 However, once the resource phase development prospects are there the quality labour becomes crucial, for it will be the labour which will convert crude resources into sophisticated value added products. Some of this will be in the direct processing itself, typically involving complex technologies and workskills on the production floor. But there will also be the ‘staff component, managing the research and development, the marketing, the planning, the financing, the administration, and the labour force. This applies in the wider community as well as in the business firm, in the Iwi ‘s own management structure, in the local authority, in the firms which service the production firms, in the education, health, and social services, in the home, on the Marae, and in voluntary agencies. Iwi development thus involves both upgrading the existing labour force, and developing those of the next generation

5.12 In summary the development process involves
– The potential of resources;
– Means of adding value to those resources;
– A quality labour force.

6. The Development Strategy as a part of the Reparations

6.1 In the following I assume that the Tribunal has identified various specific grievances plus a general one that as a result of events associated with the specific grievances plus general neglect the Iwi o Muriwhenua have experienced a lower standard of social and economic development than was promised by Te Tiriti o Waitangi. At this point I do not discuss the institutional steps to remedy these grievances, but describe the overall outcomes.

6.2 The issues dealt with here cover
(i) Return of specific assets – section 6.3-6.6;
(ii) Activity Development Plans – sections 6.7-6.12;
(iii) Human Capital Development Plans – sections 6.13-6.20;
(iv) Employment Issues – sections 6.21-6.29;
(v) Other – sections 6.30-6.32.
In appendix II, I examine the implications of a specific proposal for the settlement: the establishment of a educational institution committed to the preservation and enhancement of a living Maori language.

6.3 Return to Rightful Owners of Public Assets for which Specific Grievances are Identified There will be a set of assets – typically – land, which will be identified as in public hands as the result of a specific grievance, and which should be returned to the appropriate Maori group as follows.
– Formal ownership (or in the case of (non-commercial) environmental assets) should be returned promptly;
– in addition as soon as possible with each asset there should be developed an appropriate management plan;
– the plan would, where appropriate, identify the immediate measures needed to upgrade the asset, where necessary , to a top quality level. Usually the Crown stewardship has been good, but in some cases the asset has been run down, and actions need to be taken to remedy these. Since there could be some disagreement as to what is a ‘top level’ a rough rule might be that of the top quartile of similar assets in the region. (Practically this might mean that the Crown returning a farm would have to bring the fences, building, pastures, and herds up to a reasonable standard. I appreciate the ‘top quartile’ level is arbitrary. However it is less arbitrary than trying to assess what would be the present standard of resource management had the resource been left in Maori hands.)
– the management plan should also usually include a staff development plan.
– the time horizon and Crown involvement in the plan will depend upon the features of similar assets in the region. (Practically this might mean that the Crown returning a farm would have to bring the fences, building, pastures, and herds up to a reasonable standard. I appreciate the ‘top quartile’ level is arbitrary. However it is less arbitrary than trying to assess what would be the present standard of resource management had the resource been left in Maori hands.)
– the management plan should also usually include a staff development plan.
– the time horizon and Crown involvement in the plan will depend upon the features of the assets. In some cases it could be very long. For instance, return of lands in forestry projects may be two rotations away. The Crown may have to accept some responsibilities when those lands are returned for a management plan at that time, or it may pay a lump sum now in lieu of that future task. What it cannot do is deny that decisions it has already taken place a responsibility on the Crown at the time when the land is returned to develop the land.

6.4 The situation will be broadly the same for non-commercial environmental assets, but in addition – the management plan may include some involvement with the Department of conservation or some other public agency;
– where there has been severe environmental depletion under Crown management (e.g. the shellfish of Te Oneroa-o-Tohe (Ninety Mile Beach) the Crown may be committed to a long term research program which would lead ultimately to an environmental plan;
– while in both these cases their could well be a joint sharing of management of the resource, the agreement might involve a labour and training program for members of the Iwi.

6.5 Return to Alternative Assets for Specific Identified Grievances. This option covers situations where the Crown may not be able to return the specific asset but may offer an alternative, either from elsewhere among the public properties, or by purchase from private interests. The treatment of these transfers will broadly conform to that described in sections 6.3 and 6.4.

6.6 Reparation for Assets which a Transfer is Not Possible. For some assets it will not be possible to return or provide an equivalent transfer. In such cases a cash grant to the relevant iwi, hapu, trust board, or ruunanga may be appropriate, or perhaps some other transfer in kind (e.g. assistance with a currently owned property). Note that this is quite separate from the remedies discussed below which are generally delivered on a general iwi, rather than to specific individuals or groups of individuals.

6.7 Cash Compensation. The return of assets associated with specific grievances is a necessary but not sufficient part of the reparations. As Appendix I explains in general terms the people of Muriwhenua have suffered major losses of income and wealth through a vicious circle precipitated by the past alienation of the assets in the past, and the following neglect of their region by central governments. It is not easy to envisage an appropriate compensation for these event, especially as te Tiriti o Waitangi guarantees the much broader notion of rangatiratanga, and not just ownership, or narrow property rights. A cash reparation would not be a remedy for the loss of all these broader rights, even were it to be sufficiently large. While probably some cash should be included as a part of the compensation, additional involvement by the Crown will be necessary as explained in the rest of this section.

6.8 The Development of Regional Industry Plans. In order to increase the employment and value added of the resources of the Muriwhenua people, as part compensation for the grievances, they and the Crown should develop for the region industry plans in the following activities:
-farm land use, including diversification possibilities and opportunities for further processing;
-forestry and forest processing;
– tourism opportunities;
– small business;
– transport and communications;
– fishing and fish processing, if that is a part of this reparation;
– education and training (section 6.13-6.19);
– an overall employment plan (parts of which are discussed in section 6.23-6.24);
– the environment (discussed in section 6. ).

6.9 Here is the scope of what would be in the farm sector plan, indicative of what might be in the others.
Farm land provides an opportunity for development, by creating jobs on the farm, in farm servicing, and in farm processing. But the land itself is only an opportunity for development. To use that opportunity to create jobs the iwi need to look at the alternatives, including possibilities (such as horticulture) which have not been investigated because the government has failed to commission the research. Possible uses need to be considered, relevant research commissioned, bottlenecks (such as advice services) identified. This also includes processing and marketing. At the end of the day each farm will make its own decision, but they will have better information, and they may co-operate together to exploit new opportunities.
For example, suppose the investigation suggested that the Far North’ s seasonal pattern , climate, and soils made attractive certain sort of cut flower growing to be marketed in Auckland and overseas (this example is entirely hypothetical). It might also show there was a need for a distribution channel and better transport links. The skills and experience might not be available. So a group of farmers might form a co-operative to market their flowers. The local poly tech might train up the skills needed. The collective might arrange better transport arrangement, and so on. The government will have funded the original investigation, and contributed towards the farm advisory service. And so on. the result would be a new industry for the region, more jobs, since the crop is labour intensive relative to current land uses.

6.10 Note that it is unlikely that the benefits of the regional plan will be confined solely to Maori. Indeed it might unwise to draw a line, since some of the beneficiaries would be members of the iwi who were working independently (e.g farming on their own). In any case, the government has neglected everybody in the region and not just the Maori. It may be sensible for the Crown and the Muriwhenua to invite the local authority to participate in the regional industry planning.

6.11 The local government has an important role in regional development, especially where it is involved with infrastructure, and facilitation of industry development. Other agencies have a role to playas well. In many cases the Crown can switch its emphasis or direction of its agencies from their present priorities to those of the Iwi. For instance the business development program could be strengthened in the Far North, with a particular remit to assist those Maori starting up businesses.

6.12 One of the more complicated ones is those government businesses which have been corporatized and later perhaps privatised. Before then they were directed by government to support various regional programs, which sometimes left the most distant regions untouched. Corporatization is not an excuse for the government refusing to compensate for past neglect. Again an example might help.
In the past the DSIR and other government research agencies put their commercial effort into products, processes, and services which benefited some regions and not others. The Far North was not one of the benefited regions. The government cannot say it is tough that the Far North’s turn has come after the corporatization of research (which converted its agencies into Crown Research Institutes). In this case it has the means, either by direct funding or by directing the Foundation on Research Science and Technology, to provide the region with the research it needs and to which it is entitled. (This research would cover environmental concerns such as the shellfish depletion on Te Oneroa-o-Tohe, as well as commercial investigations of land development.)

6.13 The Human Resource Development Program would be different again. With the possible exception of the forestry programs, it will have the longest time horizon of involvement by government. It is simply not possible to remedy overnight the impact of 150 plus years of injustice and neglect on the human resources of the iwi. Perhaps even two generations will be insufficient. Because it takes so long it should be started as early as possible.

6.14 Upgrading human resources usually involve interventions at key points in the life cycle. Most obviously the existence of a comprehensive and compulsory education system makes interventions aimed at school children attractive. These could be aimed at both educational and health attainment (supplemental programs which identify weaknesses and remedy them). Another (regrettably) key intervention point is when young people are on unemployment (benefit) registers. This offers the chance for them to remedy educational inadequacies, and obtain new work skills. A third intervention point is at pregnancy when both the mother and the child come before health specialists. After that point the opportunities for systematic intervention are less obvious, although there remains the possibility of regional wide health campaigns. For instance Maori leaders have expressed increasing concern about such issues as smoking and poor nutrition. If the Muriwhenua Iwi see instances of such health problems, then they may well want to organise (with the assistance of the government) regional wide educational and improvement programs.

6.15 The first step would be for the Iwi and the government to develop educational and health plans not unlike those already developed by Tainui, but at greater detail. The targets of the plan were discussed in section 4. There will need to be some sort of census of the target population to set the base lines and identify the size of the educational and health deficits. The strategy for eliminating these deficits must be primarily from the people, with assistance form experts.

6.16 The resources for the plan will come from the Crown, mainly by redirecting its spending priorities. It will not just be a matter of ensuring that the iwi have the same access to educational and health resources as the national average. The case is that the national average should be supplemented as a means of removing the deficits arising from the past wrongs.

6.17 The Muriwhenua Iwi may be willing for its Crown supported education and health plans to be carefully monitored and evaluated by professional researchers (who of course would do so in co-operation with the iwi, as is required by current research ethic protocols). Theirs would be the first of a number of such Iwi-Crown programs, and the crown and other Maori would benefit if the first could be treated as experimental in order to improve the effectiveness of the later programs. In return the Crown resource commitment and the quality of the interventions would likely to be higher if a major monitoring and evaluation research component was included.

6.18 The human resource development program will probably be targeted on those iwi in the region. It is difficult to see how it could be targeted effectively on those outside the region, other than as a part of a total Maori rawa-a-tangata strategy (its own effectiveness enhanced by the research that could be a part of the Muriwhenua program).

6.19 It will also not be possible to confine the benefits to the Muriwhenua people in the Far North. If an anti-smoking program also affected non-Muriwhenua Maori and Pakeha in the region, that would be a benefit which would make the Crown more able to fund it. Programs targeted at school children are more difficult. Usually education and health ethics would not allow discrimination between children with a similar deficit but different ethnic or tribal origins, if they were to be identified in the same study (e.g. they were at the same school). Perhaps the Muriwhenua iwi will welcome improvements in the education and welfare of the manuhiri, especially as the target set is to bring the tangata whenua up to their attainment.

6.20 One further health issue is the quality of the housing of the iwi. Overcrowding may also disadvantage children’s educational attainment. It is gener:ally thought that Maori housing is inferior to average, and they are more likely to suffer from overcrowding. This may well be true for the Muriwhenua iwi. It would seem sensible to carry out a census of Maori housing in the region, and if it proves to be seriously deficient relative to the average, to take measures to improve the iwi housing. We do not have enough information at this stage to do other than observe there will probably be a need for housing plan of some sort.

6.21 The measures thus far discussed will increase employment opportunities in the region, many of which will be directly taken by members of the Iwi, others for which they and other people will have opportunities to seize, with the iwi having less disadvantage than in the past because of the improvements in their health and education.

6.22 Among those employment opportunities are those arising out of
– land and other resource return and ownership;
– the processing and related opportunities which arise from the resource development;
– tourism;
– additional jobs in education, health, research, and environmental management;
– the additional jobs, typically in the service sector, which arise from increasing prosperity.

6.23 There are two complications to this story:
– the jobs and formal training opportunities will not come on stream immediately, so there could be a period of continuing high unemployment (section 6.24-6.25);
– there is probably a long run tendency for the region to lose jobs, because of higher productivity growth relative and the concentration of service work in cities outside the region (section 6.26-6.29).

6.24 Rather than waiting for employment opportunities in the regional economy to pick up, there should be a conscious program of creating temporary , but useful, jobs. ‘Useful ‘ includes where they contribute to social development such as marae refurbishment, environmental and recreational facilities, and housing, and/or where they contribute to economic development by the adding of infrastructure (transport, communications) or via long-term resource development (e.g. tourist attractions, noxious weeds/pest control, forest planting). At the same time such jobs will provide on hands-on work experiences and skills, and often should be integrated with formal training.

6.25 Obviously such a program needs a plan, identifying opportunities, priorities, and costs. It then needs government funding, the costs of which will not be great since it will reduce the costs of work-schemes, and add to government revenue. The exact form off the program needs to be worked out between iwi and government, but what is proposed here is merely extending a number of existing government schemes into a more comprehensive and directed package. The schemes is that they should be expected to phase out, in order that the workers can be absorbed into commercial work as that expands.

6.26 While it would be wrong to force business in the region to take on workers who were not profitable, for that merely decreases productivity, one might ask to what extent some of the service job losses are necessary .The tendency to concentrate such jobs in the cities may be at the convenience of the city dwellers rather than for productivity reasons. Government departments especially tend to over centralise, taking taxation from a region but not providing comparable jobs in it. As a part of the reparations each government department should be invited to think widely to the extent it can assist the Muriwhenua region by shifting more of its expenditure into the region, especially in terms of placing some of its workers there.

6.27 Two examples from one department – Justice – might illustrate the possibilities. The first might be to ask whether it would be possible to leave more low level judicial decision making in the region. For instance, would it be possible to have some cases settled on the marae presided over by kaumatua and kuia? I leave the details to those more expert than I to work through, but I am mindful that already the small claims court and proceedings under the Children and Young Person and their Families Act make greater use of ‘lay’ people. Moreover there is a tradition in Anglo-saxon law, parallel to that of the Maori, in which three justices of the peace sat as a lower court. Of course the Justice Department would fund such proceedings, but they are likely to prove cheaper and more effective than a full court. It may well be that exploring of such an option in the Muriwhenua region would be an experimental, and beneficial for other iwi. The intention would be that only low level offenses would be settled in these proceedings, and they would be subject to some oversight by a national tribunal.

6.28 A second example which the Justice Department might want to consider is whether its penal policies could be broadened so that mokopuna of the Muriwhenua who have been jailed, could serve part (or all) of their time in their iwi region. This is not a proposal to build a jail in the region. It might be no more than a form of early probation, in which the released would be placed under the control of the marae (who would be paid for that supervision). Again I suggest this in only the broadest outline, and present it as no more than an incremental development in present penal thinking, which could be tested in a region such as that of the Muriwhenua.

6.29 These two examples of how the Justice Department may be able to make a small increase in regional employment via tax revenues retained in the region, can no doubt be multiplied through all the other government agencies. The additional employment need not even go to members of the Iwi. Every additional job adds to the prosperity of the region. And additional jobs which c~nnot be located within the Muriwhenua rohe, but can be located to the near south (e.g. in Kaikohe) can also have some spinover effects on the farthest north. On the other hand the Far North District Council has the same obligation as central government to ensure that it decentralises its activities as much as is practical.

6.30 The above suggestions touch upon issues which while not in the competence of this economist must be mentioned. Economic reparation is a necessary , indeed a central part, of the total package. But there may be non-economic parts which are as important in fulfilling the total spirit of a just settlement which enhances te Mana o te Muriwhenua Iwi.

6.31 Among those non-economic, and perhaps wider, issues are the public symbols of te Mana o te Iwi, including the upgrading of the marae. There may also be a case for a major extension to the Kaitaia Museum to display some of the cherished taonga the Iwi has (and some of the wonderful work that its members are still producing) .The purpose of marae redevelopment and such a museum extension must be as a part of mana enhancement, but it will also create jobs in the short term, and develop skills and tourist attractions in the long.

6.32 A second example is that devolution is related to the wider than economic issues of tino rangatiratanga. It is not for me to comment here further on what undoubtedly is a major issue with which the nation of New Zealand will be struggling, except to say that devolution can enhance local responsiveness and hence contribute to development, and that where that devolution is associated with reduced taxation revenue going outside the region, or it being returned back to the region, that also adds to social and economic development.

7 Implementing the Strategy

7.1 It may be helpful to explain briefly how such a strategy could be implemented. I assume that the Tribunal finds grievances which are of such magnitude that the return of all the assets (even were it possible) will be an insufficient remedy. I also note, but do not detail, that parallel to the process here, but over a shorter time, the Crown will be returning assets to appropriate groups within the Muriwhenua Iwi. There may well be some interaction between these returns and the overall plan as when the upgrading of depleted assets is done as a part of the employment component of the plan.

7.2 I shall assume that the Crown acknowledges the general tenor of the wider nonspecific grievances and accepts that some sort of economic enhancement is an appropriate remedy. It will set up some joint working party (JWP) with the Muriwhenua Iwi to implement the process. The JWP might include officials from key government departments (Justice, Te Puni Kokiri, Labour, the regional development division of the Ministry of Commerce, the Prime Ministers’ Office). There will also be attached those from other relevant departments (e.g. Agriculture & Fisheries, Conservation, Education, Environment, Forestry , Health, Housing, Internal Affairs, Science, Social Welfare, Statistics, Tourism, Transport, Treasury, Women’s Affairs, Youth Affairs). It is unfortunate there is no government agencies with responsibility for a comprehensive oversight of social and/or economic development. To put all the relevant departments on the inner JWP would make it unwieldy. I would also suggest that the District and Regional Councils be invited to contribute to the JWP .

7.3 At an early stage the Iwi will have to appoint consultants to assist it in the JWP .It would be pointless for the Iwi representatives to be all voluntary , while working with full time officials. It is also important that there be much scope for consultation: between the Iwi representative on the JWP and the iwi, and also hui which involves the entire JWP. It has to be stressed, that without adequate consultation there will be many misunderstandings, which could compromise the durability of the settlement. In addition the consultation will enable the better identification of the specifics of te Mana o te Iwi.

7.4 The JWP will then identify the various components of the reparation program and commission reports on each under an umbrella of an overall plan (to ensure the various components fit together). There will be a sequencing of the reports. Earliest will be the overview framework, followed by commissioning a census of the iwi.[#] In all reports there will be a maximum of involvement of iwi at a consultative and paid levels, in order to empower the iwi, and increase their skills and training. (Thus the census of marae, identifying the work needed for redevelopment, may be carried primarily by iwi members.)
[#]The shortly to be released reports on individual iwi based on the 1991 Population Census will be a useful beginning.

7.5 Each component plan (e.g. education, employment, forestry, health, tourism, transport) will identify the need, measures to assess the need, target measures to be attained, a program to meet them, and possible funding options. It would include an implementation schedule, plus intermediate targets to assess progress. The various component plans will have different time horizons both in concept and implementation. For instance the tourist plan may look ten years out, but be primarily concerned with measures over the next five years, while the education plan will look two generations out and contain a program with government involvement over that entire period.

7.6 After a period the government may consciously withdraw from some planning activities, for both Crown and the Maori are anxious that the settlement should reduce the dependence of the iwi on government support. However the Iwi may continue to plan. Thus the government involvement in the tourism plan may be only for the first three years, but the Maori may later want to have a second five year plan.

7.7. It should be stressed that especially in sectoral planning, the approach would typically be indicative and strategic, rather than detailed. For instance the tourism plan would identify the strengths and weaknesses of the region, and the opportunities and threats, and it would contain indicative forecasts. It might contain a regional promotion budget, but it would not contain, say, specific proposals for accommodation, which would be left to private initiatives.

7.8 In may be appropriate here to mention that in my experience the Muriwhenua iwi are already under-resourced for the administrative tasks which they face. Undoubtedly there is considerable voluntarism and goodwill, but they face a very real need for a permanent administrating body. I draw attention to this for two reasons. First, the lack of administrative infrastructure is one of the consequences of the past alienation of the tribal resource base. Second, unless it is remedied at an early stage, both the Iwi and the Crown will experience considerable frustration setting up any process of reparation. In my view the establishment of a properly resourced administration to act on behalf of the Muriwhenua iwi must be one of the immediate priorities. In making this point I am not in any way criticising the work of the Ruunanga or the people who have carried the administrative burden in the past. Rather it is a recognition of the great difficulties with which they had to cope.

8. Resources and Finance

8.1 This topic can only be dealt with briefly .

8.2 In my view the part of the plan which involves the settlement should be funded by the Crown. That means that the Crown may be funding the human resources development program for a couple of generations, while much of the other sectors may be over in only ten or five years. (Environmental recovery may also involve a long recuperation time.) Never-the-less the Iwi would remained entitled to Crown funding after the period on the same basis as any other corporate (or where applicable) Maori body. Thus while there may be a short term boost in work scheme funds into the region (say for ten or five years), there will still be an entitlement to such funds (in the likely event they will still be in existent).

8.3 In the long run, and increasingly, the Iwi will have to depend upon its own funds for its own development. That is a part of maintaining its tino rangatiratanga. At this stage I leave that question unresolved.

9 Structure for Planning

9.1. At the moment the Muriwhenua are five separate iwi. There is a Ruunanga o Muriwhenua, but that has the sole function of pursuing claims related to grievances. There is no overarching representative of the Muriwhenua iwi.

9.2 If the claim was only concerned with the return of individual assets, there would be no need for a plan, although the Crown might find it easier to negotiate with all claimant groups together on some matters in order to avoid repetition and ensure consistency.

9.3 However it would be virtually impossible for the Crown to deliver reparations for the wider grievances on an iwi by iwi (or hapu by hapu) basis. Consequently there is a need for some wider group representing all the iwi o Muriwhenua. It is not for me to describe how this group should be constituted. It might be a federation of the iwi/ruunanga, the hapu, or whanau, or the iwi individually. I think, however, I can say a little about the organisation of this ‘ruunanganui’.

9.4 Because of the complexity of the task there will have to be a structure with different levels and responsibilities. My guess is that they will correspond to the hierarchy of planning identified in section 2.2.
– the kaumatua and kuia will be responsible for the overall set of goals, for te Mana o te Iwi. As is the Maori way they will consult with their people. (section 3)
– there will be a council of some sort which will take the goals of the elders and identify them into specific targets. (section 4) The council will formally be the members of the Joint Working Party with the government, but they will delegate practical operation to
– a committee of the council, which will consist of those concerned with operationalizing the specific targets, that is the planning stage. Probably each member of this committee will be responsible for one component of the plan, and perhaps be involved in one or two others. (e.g. the ‘health’ person is likely to be also involved with education and housing also. ) (section 5)
– each specific component will have its own iwi working group, who will be concerned with articulating and implementing the plan, and whose chairperson will be on the committee of the council. (sections 6 & 7)
– in addition there will be a separate subcommittee of the committee concerned with finance and administration. (sections 8 & 9).

9.5 There will need to be a set of protocols developed for this structure, which is only elaborate because the task is great. It simply attempts to divide the administration of the task into their components and levels. However first there needs to be a commitment by the Iwi o Muriwhenua to a ruunanganui.

9.6 It would be sensible to include a program for training the Maori involved in the complexities of administration Gust as the officials receive as a part of their career development) .

10 Conclusion

10.1 Despite the length of this submission I am acutely aware that it lacks sufficient detail. There are two reasons. Already mentioned is the question of length. In addition there needs to be more consultation with the iwi.

10.2 Never-the-less I think there is an overall conclusion which I summarise as follows.

When recommending reparations for grievances the Tribunal should observe that return or individual assets, even under the conditions proposed in sections 6.3-6.6 (that is at an appropriate performance standard and with a management plan), would be insufficient to remedy all the grievances that arise. Consequently the Tribunal should consider recommending as a part of the reparations for the wider grievances, a social and economic development program which would aim to restore te Mana o te Iwi, and provide a durable settlement. The scope of the plan the Tribunal may want to advocate could cover the issues discussed here, including resource and regional development, the creation of employment opportunities, and the upgrading or the human capital of the iwi. As a rough guide it should aim to raise over a period the social and economic standards of the Muriwhenua to a level not unlike that of the comparable non-Maori, while preserving and enhancing those things integral to their Maoritanga such as language, culture, and taonga. The measures should aim to reduce the dependence or the iwi on the government in the long-term, thus enhancing to the social, economic, and political rangatiratanga of the Muriwhenua.

Endnote

The presenter of this evidence is not a Maori speaker, but this work is for an iwi who are among the greatest speakers of Maori in New Zealand, something which the writer respects and indeed thinks should be cherished. However there is a problem about the use of Maori in this evidence. My general approach has been to write in English incorporating standard Maori words which have entered the New Zealand/English language in a natural way. This word-processing package which was used to prepared this evidence does not have a macron, and I have spelt the word as would appear in a standard English dictionary .I have also consulted He Korero Waea-Whakaahua (The Maori Language Commission) for the technical economic terms which I used. By doing this, I hope that the Maori speakers of Muriwhenua will be able to use the proper term in their korero. For such words I have used the double letter (e.g. aa) in place of the a-macron. The contents of this endnote may not be acceptable to every (indeed to any Maori) but I hope they will at least be accept that the report is written by Pakeha who celebrates that the Maori language is still a part of the heritage of aIl New Zealanders, and that we should enhance and cherish the taonga.

Appendix I: The Loss of Land, and the Vicious Cycle
Why Returning the Land is not Enough

This is merely a note, substituting for a bigger paper – which perhaps should be commissioned by the Government or Tribunal. It addresses the question as why return of the land would be insufficient to compensate for past grievances concerning that land.

Suppose a piece of land had been unjustly taken, without any compensation, many years ago. Each year the iwi would have received income from that land, and that would be foregone, as far as they were concerned. (The possessor of the land would have received the income instead.) It is quite hard to calculate what that return on the land should have been. One approach might be to assume that the unjustly seized land was paid for at a fair market price, and the principle was invested in some very safe financial bond, with the interest compounding. Thus the loss of the land could be represented by the amount in that imaginary account. This still involves calculating
– the assumed sale price of the land at the time of its seizure;
– a rate of return on the investment.

Because of the long period involved, even small values at the time of unjust alienation would appear as large amounts many years later. For example, suppose a piece of land was taken 100 years ago for the sum of £100, and the interest return over the century averaged 3 per cent p.a. above the rate of inflation. The amount in the account today, including the original investment of £100 plus the retained interest, would amount to around $167,000. On the other hand the unimproved value of the land might be around $8700 today, if land values have increased with inflation.

I do not want to defend these figures, or even this precise method of calculation. But it illustrates that the value of the loss to the iwi of unjustly alienated land is likely to exceed the unimproved value of the land, perhaps by a factor of around 20 (for a 3 percent p.a. return). Restoring the land to the iwi will not cover its loss of income during the time it was taken.

There is a further point to be made here. The calculation of a fair compensation is littered with contestable assumptions. It is not necessary here to explain why I chose 3 percent p.a. for illustrative purposes,[#] but had I chosen 2 percent p.a., the amount in the imaginary account would be only around $63,000, while if it had been 4 percent p.a. the loss would ,have been $440,000. Less fair minded people might argue that if the land had been properly alienated the proceeds from the sale would have been wasted, and so the return should be zero.
[# A first long run approximation to the real interest rate is the real GDP growth rate.]

On the other hand the Maori might argue that if the land had been properly alienated, they would have got a much higher return than a safe financial bond. The alternative they would have in mind is that the money could have been invested in human capital, which seems to have a very high real rate of return, perhaps of around 20 per cent p.a. While all that return would not be saved, the outcome over the years would be a healthier, more employed, and higher earning population (and possibly a larger one, since mortality rates would have been lower – although so too might have been fertility rates).

We have reached an almost intractable point. Calculating a fair compensation this way leads to assumptions so debatable as to leave very wide ranges of uncertainty, to the point that the calculations are interesting but otherwise of little value.

An alternative approach might be to compare the state of the Maori today with the state of the non-Maori. Individual iwi will shortly be provided with material based on the 1991 Population Census which will give a detailed account of much of their socio-economic status. It is likely to show Maori figures substantially below the national averages – spectacularly so for some including, probably, for the Muriwhenua iwi. I shall not be surprised if some of the most deprived iwi are experiencing unemployment rates in excess of 50 percent, and incomes which are below 50 percent of the national average (even if social security benefits are included in income).

Since up to the middle of the nineteenth century , Maori standards of living were similar to the European,[#] we are confronted with the problem as to why Maori economic performance has been so much poorer than the European. There are a number of explanations, some more plausible than others. In all likelihood no single factor explains all the poor performance. However undoubtedly the most single important explanation, probably contributing to more than half the divergence, is the alienation of loss of the resource base which the Maori experienced.
[# As best we can judge.]

To see this consider that while in the middle of the nineteenth century Maori and European settler incomes were (say) numerically equal their derivation was quite different. Essentially the Maori wealth was human capital plus their resources, while the European wealth came from human capital and (imported) physical and technology. The transfer of the resources from the Maori to the European, usually by an unfair means, plus the depletion of other resources (e.g. the fishing resource in the Muriwhenua seas) often as a consequence of the loss of political authority and/or from poverty, lead to the current divergence of economic welfare between the two peoples.

I do not propose to detail this historical process here, although in my view much could be done – and should be done – to describe the process in systematic quantitative terms. However it is useful to summarize the analytics of the process.

The economist’s term is “cumulative causation”, or more popularly “a vicious circle”. That is the loss of some of the economic base led to the loss of further parts of the economic base, and a reduced ability to enhance it. Some mechanisms have already been alluded to. The loss of land meant a loss of income from land. The loss of income limited the acquisition of the education and occupational skills which enhance human capital (as well as contributing to poor health), which in turn meant more joblessness and less income, and so less ability to acquire physical and financial capital. This cycle was then repeated for the next generation. Thus the divergence from the original alienation increased.

In an interesting technical sense, implicit in the early discussion, the poor face high potential returns on their investments (including in human capital) but do not have the resources to invest. This divergence is not only central to the vicious circle, but it is the reason why if the earlier opportunity cost approach is used, high rates of return for lost opportunities should be incorporated in the analysis.

Recognizing that the loss to the Maori from the unjustified alienation was not only land, and consequential financial and physical assets, but also a severe loss of human capital suggests an alternative compensation strategy. As well as returning the land or its equivalent, and making some financial compensation[#] or in kind,[##] the Crown could take up a commitment to take measures to raise the human capital of the Maori to a comparable level equivalent with the non-Maori over a period in the future roughly comparable to that since the unjust alienation occurred (since a significant enhancement of human capital is not a simple matter , and takes generations). The main paper discusses a framework with which this could be pursued in the case of the Muriwhenua.
[# Perhaps based on a low real interest rate (say 1 per cent p.a.) for the number of years since the alienation.]
[## E.g. the improvements on the land being given as a part of the compensation.]

While there is a certain logic to this strategy, it also reflects a basic reality that it is most unlikely that the Crown will be able to afford in a practical sense a fair compensation for past grievances of the Maori if it is in financial terms only. To obtain some idea of the magnitude, the total value of unimproved land in New Zealand is currently around $90 billion. Suppose that only 5 per cent by value were unjustly alienated, for an average of 100 years, and that 3 per cent p.a. was judged to be a real return on the investment over the period. Then the total value of compensation (including any returned land) would also be around $90 billion. By comparison the total value of all government assets (measured in gross terms, ignoring liabilities) is around $50 billion.

Yet that $90 billion of assets which the thought experiment involves transferring to the Maori, amounts to about $200,000 a Maori. This may seem a large sum. Suppose each Maori invested $30,000 in housing,[# ]and invested the rest at 4 per cent p.a. (after benefit abatement). Their annual cash income would be about $7,000 a Maori higher. This would just be enough to bring the average Maori income up from $9000 a year to the non-Maori average of $16,000 ( figures from the 1991 Population Census) .This suggests the Maori needs a $90 billion transfer, which would bankrupt the New Zealand government, to provide (on the above assumptions probably a conservative) compensation for land claims, and yet it which just take Maori incomes up to the non-Maori average.[##]
[# i.e. paying off the mortgage and/or acquiring a better house.]
[## The figures in this paragraph are obviously “order-of-magnitude” ones, but robustly illustrate the enormity of the Maori income deficit.]

The fallacy in the previous paragraph is not the inaccuracy of the data (see the previous footnote) but the focus on financial wealth only, and the ignoring of human wealth. Unless the compensation addresses the enhancement of human capital it will be inadequate or unaffordable, or both.

‘his appendix has been concerned only with economic injustices. Tino rangatiratanga involves much wider issues than just economic ones, and probably involves quite different means of redress the grievances.

APPENDIX II: PRESERVING THE MAORI LANGUAGE – THE ECONOMIC BENEFITS

The Muriwhenua iwi are proud

THE NEW INTERVENTIONISM

This entry was posted in Growth & Innovation, Listener on by .

Listener. March 20, 1993

Back in the 1960s, different disciplines at the University of Sussex made a commitment to work together. The more advanced social statistics course was taught to all social scientists, psychology tutorials were taken by an economist and economics students were taught by a psychometrician, To this multidisciplinary environment came a young New Zealand economics graduate who wanted to study anthropology. Afterwards Robert Wade joined the Institute of Development Studies (IDS) on the Sussex campus as an economist; he has been there since with occasional secondments to other research institutions, and field work in Italy, India, South Korea and Taiwan.

His anthropological training means Wade spends considerable time on site, rather than – as many economists do – imposing prejudices following a quick survey. In recent years his focus has been the experience of the East Asian ‘dragons’, those newly industrialising countries (NICs) with outstanding growth records. The outcome, Governing the Market is making a major contribution to the debate on industrialization strategies. is a major contribution Here is a list of 10 prescriptions from analysing the practical experiences of successful NICs.

1. Use national policies to promote industrial investment into industries whose growth is important for the economy’s future growth.

2. Use protection to help create internationally competitive industries.

3. If the wider strategy calls for heavy reliance on trade, give the high priority to export-promotion policies.

4. Welcome multinational companies, but direct them towards exports.

5. Promote bank-based financial system under close government control.

6. Carry out trade and financial liberalisation gradually, step by step.

7. Establish a ‘pilot agency’ or ‘economic general staff’ within the central bureaucracy whose policy heartland is the industrial and trade profile of the economy and its future growth.

8. Develop effective institutions of political authority before the system is democratised.

9. Develop corporatist institutions before the system is democratised.

10. Make piecemeal reforms so as to create an institutional configuration better able to support a modest industrial policy.

Perhaps the last three are not relevant to us, but in recent years our economic policy has ben largely opposed to the first seven.

Wade’s is not just another economist’s opinion. The book has been written in the context of the robust multidisciplinary debate of places like the IDS, which cannot impose any ideological line. He has had to confront alternative analyses – especially from the advocates of the ‘free market’ – and the book constitutes a dialogue.

The author favours the ‘governed market’ – one where the government consciously uses the market to attain strategic ends. The market becomes an instrument of economic policy, not the policy itself. Instead of asking – as New Zealand has in recent years – how to make the market competitive with the assumption (or hope) that the resulting outcome will be beneficial, the approach of market governance is to ask whether this of that market arrangement can assist the wider strategy. ‘Wider strategy’? Is that not picking winners? Wade says the NICs have, and their economies have succeeded as a result.

Free-market accounts of successful NICs tend to ignore their widespread interventions, which make Rob Muldoon appear an economic liberal. In which case why did Muldoon’s New Zealand do so badly? One answer is that our interventions were inward-looking, more concerned with protection than exports. That is partly true, but increasingly the effort was going into exports.

A second answer is that New Zealand was adapting to a fall in the terms of trade (the relative price of exports) so that a successful industrialisation strategy was obscured by problems in the pastoral sector. There is certainly some truth in this. New Zealand’s relatively high income in the past was partly because of the favourable export prices we received. When they collapsed in 1966, the economy had to go through an enormous adjustment.

A third answer is that from the late 1970s to 1985 the New Zealand economy was growing faster than the OECD. That is right, our growth record was above average, until the Rogernomic policies were implemented. Moreover the evidence suggests that part of the reason for the success was the expansion of industrial exports. This my be contrary to the conventional wisdom but it is more consistent with the facts.

Wade’s book is not an isolated challenge to the free market. There is a wide-ranging international debate about the role of industrial policy – with market governance sometimes called the ‘new interventionism’. However some of its advocates are simply old-style interventionists trying to justify protection for self-interred. This is particularly so in the United States.

But this bandwagon-hopping should not stop us from learning from the debate. Otherwise will continue with a poorly performing economy unable to cope with the challenges the world poses, because we are unwilling to learn from the lessons the world presents.