I do not know which makes a man more conservative — to know nothing but the present, or nothing but the past. John Maynard Keynes.
Presentation to the Fabian Society, Wellington, 25 June 2020.
Not in Narrow Seas: The Economic History of Aotearoa New Zealand begins with Gondwanaland and finishes with the Ardern-Peters Government and climate change.
A hinge in history occurs where the past and present are connected but they are pointing in different directions. Big hinges are rare but crucial in the development of humankind.
Not in Narrow Seas identifies six hinges. This presentation focuses on whether we are at another hinge. Perhaps that is the last part of the book although the Covid Crisis occurred after the book went to the printer. We use its historical insights to understand the present.
The six previous New Zealand hinges were as follows. The first occurred 700 odd years ago with the arrival of the first Polynesians. A second occurred about 1840 with the mass arrival of Europeans. Refrigeration in the 1880s was another great hinge, redirecting New Zealand on a sustainable trajectory.
Curiously, the Great Depression was not a hinge, or rather did not become one until the Second World War impacted too. That direction came to an end with the collapse of wool prices in 1966, the fifth hinge. Eventually the new direction was found with the neoliberal Rogernomics revolution in the 1980s, the sixth hinge.
The Global Financial Crisis, which began in 2008, did not involve a new direction. Why this was not and why the Covid Crisis might be is what this presentation is about. But first we need to look at earlier hinges, starting with the third.
The Long Depression of the Nineteenth Century and Refrigeration
I shant say much about the Long Depression which lasted from about 1878 to 1895 and led to the progressive Liberal Government of John Ballance and Richard Seddon. While the world economy suffered severe weakness, New Zealand benefited from the advent of refrigeration in 1882.
The result was a new political economy based on the family farm. This pastoral political economy reigned for eight decades coming to an end with the wool price collapse in 1966, while the governance of New Zealand based on it continued for another two decades.
The Great Depression and the Second World War
While there were many other shocks in the postwar period, typically they were small and did not markedly reshape the economy or how it was governed. The exception was the Great Depression of the early 1930s and the Second World War of the early 1940s which, together, led to the transformation we associate with the First Labour Government.
I have coupled the two events. While the Great Depression shattered confidence in the economic and political orthodoxy, it did not really offer an alternative. Or rather, the alternative for many was implied by Marx’s Das Kapital published less than 70 years earlier, which predicted the collapse of capitalism. Many saw the Great Depression as evidence that Marx was right, that the world was entering capitalism’s final stage which was fascism, and that the Soviet Union was the only alternative. As more was learned about the USSR, it became increasingly less attractive.
When I began writing my history of New Zealand, I took the conventional view that the policies of the First Labour Government rescued us from the Great Depression. Two major facts contradict this view.
First, the depression recovery began before the election of the Labour Government. Indeed there was sufficient prosperity that the Coalition Government could have been returned in 1935 if the right-wing vote in a Front Runner/First-Past-the-Post election had not been split between two parties.
The second consideration is that had the peace continued, New Zealand would almost certainly have had a major financial crisis in 1940 or 1941. What saved the economy was the war. So it was the war economy which shaped economic policy for the four decades after it ended. Muldoon’s wage and price freeze of 1982 was the last gasp of the war economy’s anti-inflationary stance.
New Zealand’s management of the war economy, with its extraordinary degree of centralised intervention, was not very different from that of other Western nations. It was not just that there was manpower planning, which would be an anathema today, but even skirt heights were regulated (matrons were allowed lower hems) as was the length of men’s shirt-tails.
It required social solidarity and patriotism to get public compliance; there were tensions and some subversion – as there were during the Covid lockdown.
Meanwhile, the Labour Government extended the welfare state – in education, health, housing, social welfare and the arts. That, however, was not a hinge but a continuation of the policy developments from the Liberal Government of the 1890s. There are fewer precedents for the interventionist economy of the war economy.
After the war there had to be a winding down of the war-economy interventions as economic circumstances allowed. What was unusual about New Zealand was that the unwinding was slower than in the rest of the West. Not in Narrow Seas discusses the particular circumstances which made this possible. So centralised interventionism dominated economic management for four decades; many will recall it in the Muldoon era, but it was like that before him.
Not in Narrow Seas argues that the particularities which made the high degree of interventionism possible were being undermined by economic and social change. Rising affluence meant there was increasing diversity and choice; increasing technological sophistication had had a similar effect on the production side of the economy. This growing complexity made the centralised economic management increasingly ineffective. These challenges were not peculiar to New Zealand; they were there in the Soviet Empire and led to the collapse of Soviet economic management following the fall of the Berlin Wall and the independence of the Soviet satellites..
The Wool Price Crash of 1966
As if these challenges were not enough, at the end of 1966 the price of wool crashed 40 percent and, except for a spike in 1972, never recovered. At which point the processed-grass foundation of the economy of the previous eighty years was undermined.
At that time wool made up two-fifths of foreign exchange earnings, with sheep-meats generating another fifth. Most of the rest came mainly from beef and dairy so that the grass-fed pastoral industry dominated exporting, as it had since the second hinge of refrigeration. Abruptly, New Zealand experienced a reduction in its foreign-exchange earning power of a sixth.
Any economy, any business or household, which loses a sixth of its external revenue will struggle. But in New Zealand’s case there was a further complication. As explained in Not in Narrow Seas, while the pastoral sector generated the foreign exchange which New Zealand needed, it could not generate the jobs which New Zealanders needed.
There had been an awareness of this job problem as early as the 1930s. By the 1950s the farm sector had run out of new land to extend its production and further output came from land-intensive farming, which would not generate jobs. There followed the industrialisation debate which we think of as led by Bill Sutch, although he was not the first to argue the case. But it was Sutch who, as Secretary of Industries and Commerce, articulated the problem in public and led the designing and implementing of the response.
For the policies to generate jobs and prosperity for workers, it was necessary to transfer the foreign exchange earned by rents from farmland to the domestic sector. This involved all sorts of interventions – the most visible was import controls – the result of which was to reinforce the highly centralised interventionist regime. However, the collapse of the wool price eliminated the farmland rents so they could not be transferred to the domestic sector.
So the New Zealand economy faced three great challenges: it had to deal with the unprofitable wool industry, it had to find alternative foreign-exchange earners, and it had to wean the domestic sector off non-existent rent transfers.
This was a rather different problem from the conventional depression, in which the economy contracts roughly altogether and the task of policy is to expand the economy roughly altogether. The wool price crash meant the economy had to ‘twist’; that is, some sectors had to expand fast, some modestly and some sectors had to stagnate or even contract.
Standard economic models are not designed to deal with twisting. They are based on a representative firm making a representative product, whereas twisting involves different firms and products behaving differently. (The standard model also has a representative worker in a representative household which means it cannot deal with distributional economics.)
The economy twisted because the centralised interventions did not totally suppress market mechanisms and businesses sought more profitable activities. The most notable feature of the twist was export diversification. Whereas at the time of the 1966 crash New Zealand was one of the least externally diversified of the rich economies, exporting mainly pastoral product, mainly to Britain, only fifteen years later it was in the middle of the pack exporting a variety of products and services to a variety of countries. We do not sufficiently celebrate this extraordinary achievement.
The change in the external sector had a profound impact on the domestic economy. There are a number of illustrations in Not in Narrow Seas, but a brief account of three will suffice.
The New Zealand manufacturing system had grown up behind a shield of import controls and other protective interventions. It resisted having them unwound. But as manufacturers began to export, they found the protection was a handicap. One major factor was that in order to improve their access to foreign markets, New Zealand had to give up some of its protection in return. A second was that the exporters did not want protection and other controls on their inputs because it made them less competitive. Third, the inward-looking protected domestic industries held back the resources – labour and capital – that the expanding industries desired.
A second illustration, from the other end of the political spectrum, was the ramshackle structure of labour unions. It did not matter much in the domestic economy behind protective walls. Following export diversification, with firms supplying a variety of products to a diversity of markets, it became necessary to align the unions with firms – essentially to a single union per plant. The union movement did not get around to addressing the issue until 1988, and then only slowly, by which time it was too late; they were overwhelmed by the 1991 Employment Contracts Act.
The third illustration is that the 1972 Royal Commission on Social Security brilliantly codified the welfare state of the times. But as Not in Narrow Seas details, there was social change – in the labour market, from the rise in working women, and evolving household structures – which challenged the application of its principles. Even today, many of those who defend social security have not realised the significance of these changes and want to return to 1972.
The Politics of Response
Any restructuring was done reluctantly because the political system was based upon the pre-1966 political economy. For instance, during the next 18 years most cabinet ministers were farmers or from rural seats.
I think it likely that the man who presided over the economy for most of this period, Robert Muldoon, understood better than most that there was a need for a change of direction. However, he was bedevilled, like all policymakers, by Rabin’s law – that any policy change makes someone worse off – and by the Mancur Olsen analysis that incumbents can and will veto change against their interests.
Muldoon’s power base was the vested interests from the old political economy – the pastoral one, which had been there since at least the war economy; it was ‘traditional’ rather than ‘modernising’. So Muldoon found his discretion greatly limited, especially since he was surrounded by advisers who were traditionalists or, if modernisers, were insensitive to the political environment that limited Muldoon.
This is well illustrated by the Planning Council, which was established to assist finding a way through the morass. However appointees to the Council were largely politically-corrects and rarely looked at issues deeply. Despite all the Council’s resources, its legacy is long forgotten. (I hardly refer to it in my history, except for Ian McLean setting out the case for ‘more market’.)
In the early 1980s I gave a presentation on the impact on the economy of the collapse of the wool price in 1966, and afterwards the first chairman of the Planning Council said to me, ‘I didn’t know that’. I was not surprised. The Council’s reports indicate that they did not understand the issue. It is instructive that an agency established as a result of a great external shock did not understand what had happened. (A subsequent chairman published a history of the New Zealand economy which does not mention the wool price crash.)
Basically, the Planning Council illustrates right-traditionalists – people of goodwill who thought there were simple incremental changes which would resolve what in fact were deep structural problems. They seemed to think that New Zealand could go back to the pre-1966 economy; probably many thought they were fixing failures in the original Labour-wartime conception.
The left-traditionalists, focused on the Labour-wartime approach, differed from the right-traditionalists by arguing it was not a matter of incremental change but a need to go back to the original management of the economy As one 1984 Labour minister – he was not a Rogernome – said to me, he wanted a kinder gentler version of the Muldoon approach. The failure of the left to think through the consequences of the economic and social changes which had impacted on social security is another example.
The failure of the traditionalists culminated in the Royal Commission on Social Policy which sat in the nid-1980s. It was intended to provide an alternative to the neoliberal paradigm of Rogernomics which was pressing at the time. In fact it had no coherent account of what had happened to, or what was happening in, New Zealand’s society and economy and so it could not provide an alternative strategy. Today its deliberations are almost totally forgotten.
The neoliberals rightly concluded that the traditionalists had no answers to the challenges besetting New Zealand, and concluded that they were left with a carte blanche to pursue their own vision.
This dichotomy of the two political wings of traditionalism is, of course, a simplification which could be refined and elaborated. Here we contrast the traditionalists with the modernisers. Again there were two wings.
The left-modernisers, who were ignored by the Royal Commission on Social Policy and the Labour Government, saw the need for substantial change to the way the economy could be managed, In simple terms they were social democrats who thought that the market could be used for social ends. There are plenty of such left-modernisers overseas but they were in a small minority in New Zealand. Probably Bill Rowling was a left-moderniser, but he had the misfortune to win the 1978 and 1981 elections only in votes but not in seats. What would have happened if he had won both is a nice counterfactual.
The right-modernisers were what today are called ‘neo-liberals’ – their New Zealand name is ‘Rogernomes’. The story of how they seized power is in Not in Narrow Seas. The point to be made here is that they came into power because the traditionalists had failed to deal with the issues facing New Zealand from the wool price crash and the other changes which were transforming New Zealand.
Arguably Rogernomics did face up to the challenges; they certainly quelled inflation, introduced more-market and tidied up some of the organisational shambles. But their main promise had been to accelerate the growth of the economy. The record is that during the seven years of the neoliberal ascendancy the economy stagnated. When it began growing again it was at the same rate as in the past but at a lower level relative to the other rich economies.
The Rogernomes argued that there was no alternative; they meant that the traditionalist Muldoonist approach, which had incrementally evolved from the wartime economy, did not work. They denied that there was a modernising alternative. Modernising social democrats were suppressed. It was not just that they found their careers blocked and their funding cut, but their analyses were silenced and ignored.
That there was a modernising alternative is easily demonstrated. It was quite unnecessary to give the ginormous tax cuts to the rich, paid for by cutting the incomes of the rest, nor were all the scrambled privatisations necessary So there was a modernising alternative. (The Australian Labor Government is another example of an alternative left-modernising approach.)
To summarise, the sobering conclusion is that there had been a dramatic change to the political economy which the traditionalists failed to address, thereby paving the way for the neoliberal takeover. As Not in Narrow Seas explains, much of that political economy continues to this day. One is not surprised how often the Clark-Cullen and Ardern-Peters Governments lapse into neoliberal solutions, appointing neoliberals to positions of power and avoid transforming neoliberal institutions.
Two More Crises
The Global Financial Crisis of 2008 had similarities with the Great Depression, which Keynes described as the consequence of the monetary magneto (car’s alternator) being broken down. He thought it could be remedied and that the world economy could recover and continue to prosper. He proved largely right for the following three-quarters of a century.
The GFC proved pretty scary too, but those in charge had studied the lessons of the Great Depression and, following Keynes, did ’whatever it takes’ to get the engine running again. While the central banks of the world bailed out the private financial sector, the private bankers showed little shame, despite for years having insisted that the government should not regulate them and that taxes on them should be kept low.
So when countries got into financial difficulties following the GFC – Greece is the exemplar – their bankers insisted that the adjustment should fall on the poor and those on middle incomes rather than the rich. Raising top income taxes was not a part of their remedies. This neoliberal approach here is often called Austerian, a portmanteau word from ‘austerity’ and the Austrian School of Economics. It used the opportunity afforded by the crisis to shrink the state and increase the size and power of the private sector, especially that of the wealthiest, The approach is reminiscent of Rogernomics which protected the rich, leaving the rest of the population to carry the burden of adjustment from their policies.
It is surprising how little impact the GFC had on the political rhetoric of the elite. The result of Austerian policies has been the rise of populist leaders, most notably Donald Trump in the United States and Boris Johnson in the United Kingdom.
Perhaps there are parallels with the aftermath of the Great Depression; the GFC did not really lead to a change in the way we governed. It took the war to progress the social democratic revolution after the Great Depression.
Perhaps I am stretching the parallels, but the Covid Crisis is frequently referred to as a ‘war’ (against the virus). Might we get a parallel shift away from neoliberalism after it?
The World After Covid
Nobody knows what the world will be like after the Covid Crisis. I make some cautious forecasts; I shall probably be wrong.
It is easy to think the Covid Crisis is another GFC or even another Great Depression which has sharply contracted the world economy. But in addition to the contraction, and the substantial rise in government debt after the recovery, this one is is going to be more difficult.
A critical issue will be whether and when we get a vaccine which neutralises the virus and opens up the borders. It seems likely that we may not have a widely available vaccine for at least four years. That means we cannot have a proper economic recovery until 2025 or later. In any case the new normal of the post-pandemic world may be quite different from what we might have projected a year ago; that we are going through a hinge. In the interim the world economy will experience a lot of turbulence.
Let me try to guess some of the new features of the post-pandemic normalcy (I leave aside the possibility of more virulent viral pandemics; we have already had four of them – SARS, MERS, swine flu and now Covid-19 – in the last two decades, or that there may never be a satisfactory Covid vaccine.)
A key element is that while there is no vaccine and Covid-19 hangs around there will be strong restrictions on the movement of people across borders; they will have to be strongest for countries which eliminate the virus, as New Zealand hopes to.
This will impact on sectors like tourism (both inbound and outbound) and international educational services. .So the economy will not just contract and recover through a general expansion, as happened after the Great Depression and the GFC.
The twist in the economy will be a bit like the wool-price crash twist, with sectors growing at different rates – some will expand, some may contract, most notably those which depend upon the movement of people across international borders. Most affected will be the international tourism and educational services which generate about a sixth of our export revenue, a similar magnitude to the loss of international revenue from the wool price collapse in 1966.
Additionally there will be a major change in the way the labour market works. Throughout New Zealand’s market history – even in recent years – the cross-border flows have had a critical role, including being a source of skilled labour and seasonal workers and for adjusting to changes in the labour market cycle. For at least the next four or more years the labour market is going to function differently.
Another critical change to the labour market may be dramatic changes in work practices. Perhaps more of us will work at home, for at least part of our working week. That will mean changes in domestic arrangements, in commuting and traffic congestion and in the worksite and management. Some businesses which service workers – bars, cafés, shops – may have to move out to the suburbs. Perhaps, given the broadband rollout, the changes would have happened anyway and the lockdown has accelerated the transformation.
I want to focus on fundamental changes in direction. I have already mentioned the debt challenge, the economic twisting, the changing labour market. So I am not going to pay a lot of attention to a continuation of past trends. Sure, there is a lot of unfinished business – Not in Narrow Seas reminds us that the policy slogan over the last decade seemed to be mañana – never do anything today which can be left until tomorrow.
Even so, today’s greater social diversity must be mentioned. That makes social cohesion a greater challenge, although the public’s responses to the mosque massacres and to the Covid lockdown gives greater optimism that we can meet the challenge than we might have thought a decade back. But we have to keep working at it for there is a threat of a populism causing social divisiveness.
Earlier I mentioned Not in Narrow Seas’s attention to the consequences of affluence – what might be called growing ‘economic diversity’. That will continue too; but towards the end of Not in Narrow Seas I wonder if today’s affluent value additional material output less than they did in the past. One gets the impression that many – not just ‘greenies’ – are increasingly serious about making material sacrifices to preserve and restore the environment.
Additionally, it would appear that rising material demands are particularly for services which are poorly provided by the market: arts and culture, education, the environment and heritage, health care – perhaps even media services. One might conclude that there are going to be additional pressures for tax hikes, above those required to reduce the public debt incurred to deal with the Covid Crisis.
There is also the high level of inequality. I have been monitoring the topic for a half a century so there is quite a bit in Not in Narrow Seas about it. Most people react to the issue with moral judgements but high inequality may also threaten social coherence, while by damaging opportunity among the poor, it may also compromise economic prosperity.
Recall that economic inequality came to public attention about five years ago, and that there was much dismay. I am not sure whether the dismay is like that for sin – we express our dislike and then get on with our lives. But if we do take it seriously that is another pressure for raising taxes. This has been a failure well beyond mañana.
The Danger of Inertia
Earlier I pointed out that responses in the 1970s led to a failed adjustment to the wool price crash. Here is a contemporary example, or perhaps a description of what may be a future example.
We have already observed that industries driven by international toursim are going to contract. The expansion of domestic tourism will not compensate. Air New Zealand expects to be back at 70 percent of its pre-Covid capacity in a couple of years – that may be optimistic. The international tourist sector is very complex, ranging from travel agents to hospitality to training people to work in the sector. Presumably there is also going to be a surplus of accommodation – hotels, motels, B&Bs. They will also be struggling with the reduction in demand from international students. I thought part of the resolution might be to convert CBD hotels into offices, but increased working at home as a result of the Covid lockdown experience probably means there is going to be a surplus of office space too.
I could sketch more about how CBDs are going to change, but let’s look instead at regions with a higher dependence on tourism; Queenstown is the exemplar, but it is not alone. Presumably they are vulnerable to a population contraction, with higher unemployment and lower real estate prices – local authorities will be struggling with their rates base.
The natural reaction is to support those in trouble. We are already offering them subsidies – the issue is how long we should do this. The danger is that the subsidies slow down the necessary adjustment both by encouraging people to stay in past jobs and locations and discouraging them from seizing new opportunities. Moreover, the funding for that subsidy support is not available for the growth opportunities; the political energy supporting the past will divert effort from pursuing new industries.
We cant tell how big or prolonged the economic twist will be– certainly not a few months into it. The temptation is to be optimistic and see the support to contracting industries as a bridging operation to the old normality forgetting it slows the transition to the new normality.
(Another issue is to retain controls after they become obsolete. .This was well illustrated after the Second World War. Their wartime success left the Labour Government reluctant to unwind them. One of the reasons that it lost the 1949 election was that the nation was impatient with the procrastination. Presumably the Ardern-Peters Government is aware of the parallel.)
Inertia retards progress, and the twist takes too long, with the consequence, as occurred in the 1970s, of not only slower economic adaption but less progressive politics.
Mañana bedevils New Zealand politics. Kicking the cans down the road mean that eventually the road is blocked by cannots (or knots of cans).
So much for traditionalists; what about modernisers?. Are social democrat modernisers back and the neoliberals in retreat?
Are Neoliberals Shifting?
Often neoliberals have been in the front of the queue demanding government support. They did that during the GFC while reaffirming their neoliberal principles by clamping Austerian policies on the poor. However some recent demands have been more blatant.
The Taxpayers’ Union, a right-wing advocacy group concerned with promoting low government spending and low taxes, said they had accepted a $60,000-plus wage subsidy for their nine workers during the lockdown because donations had fallen off. They explained that ‘prior to COVID-19, we have stated on the record that we would never accept taxpayer funding’ but they reversed their position claiming ‘the welfare of our employees to be a more pressing immediate concern than ideological purity.’
‘Welfare is more important than ideological purity’ sounds like pragmatic social democracy not the voice of neoliberal lobbyists.
Not to be outdone, the chief economist of the NZ Initiative demanded even more spending on the public health system during the Covid Crisis. I agree with this assessment but his organisation is the successor of the NZ Business Roundtable which thirty years earlier advocated the privatisation of the health system. Not only would that have reduced government spending on health but it would have left a structure much less able to cope with the health emergency.
Or consider the National Party’s announcement of ‘giving businesses cash grants and low interest loans at a cost to the Government of $8 billion’, despite the party having been inching in a neoliberal direction since the 2017 election. (Now $8b is a lot of hooch; the poverty lobby would welcome half that amount to improve the wellbeing of children.) Its recently appointed finance spokesman, Paul Goldsmith, described as ‘free market’ and ‘dry’, must have been embarrassed eight billion times by the announcement.
These are but three New Zealand examples of neoliberals backing down during the Covid Crisis. There are numerous overseas examples too. No doubt the Austerians will be back, but it will be harder for them to claim ideological purity or that the government is of little value to a nation’s wellbeing.
happens overseas is important. We rarely admit that our thinking is dominated
by overseas fashions. Rather than adapt overseas insights to New Zealand
conditions, our colonial cringe mentality prefers imitation.
Will international neoliberalism remain as dominant as it did after the GFC? It seems probable that the rising international death toll will be politically unacceptable to swathes of the population. Will neoliberals and big business be blamed? Eighty years ago those very nasty political tensions it would generate caused fascism.
Renewing Social Democracy
Will social democrats seize the opportunity? Perhaps they will repeat the 1970s, in which people of goodwill projected the past and failed to address the real issues. Aspirations mixed with piety and platitudes are not enough to end the dominance of the neoliberal paradigm nor to address the challenges that New Zealand faces. If we want to return to a social democratic framework, it will not be by building some superstructures or decorations on top of a neoliberal structure.
The neoliberal foundation belief is that the role of the state should be minimised, that almost always the private sector does it better. In contrast, the social democrat sees a balance: sometimes the private sector does it better, sometimes the public sector does, mostly a judicious symbiosis of both. My inclination is that where they both do the job equally well – or badly – to leave the task to the decentralised private sector, because the centralised public sector has so much to do. For, yes, the public sector can do much to improve wellbeing markedly.
Private sector failure is nicely illustrated by the Covid-19 crisis. Sweden’s low interventionism was once a poster among right-wing bloggers advocating minimal government intervention, because of its laid-back approach to dealing with the virus . But when its case and death rates began climbing and the Swedish government became more interventionist, the blog references mysteriously disappeared. Currently, Sweden has the fifth highest Covid death rate among all countries – five times those of the surrounding Scandinavian countries and Germany.
As so often has occurred in the past, what contradicts an ideologist’s theory gets ignored.
The Covid Crisis provides a great challenge to neoliberal principles of the minimalist state. But it is not unique. Recall that the neoliberals tried to convert the New Zealand health system to a competitive market regime, despite the American health system being almost universally acknowledged as the worst in the rich world.
While the attack was repelled, neoliberal principles of management were never entirely eradicated. In principle, district health boards are to be run as businesses; fortunately for the health of the nation, their medical professionals put their patients’ wellbeing before ideological purity – like the Taxpayers’ Union. So the DHBs run financial deficits.
That we intend that DHBs to be run as businesses is illustrated by the appointments to the governing boards being composed almost entirely of businesspeople. Usually they are very competent but their commercial culture is quite different from the wellbeing culture we expect from our health system.
This has been nicely illustrated in the Covid Crisis. The previous Director General of Health was a generic manager. The lockdown would have been much less successful had it been fronted by an accountant.
Hospitals are not the only public institutions which have been given inappropriate commercial objectives. Commercialism runs in much of the education system – especially at the upper end. Following the Hawke Report which blunted tertiary academic objectives, the intensification of competition between them, the introduction of the PBRF which distorted the balance between teaching and research, and funding pressures which have forced them to sell courses to international students, universities have lost their way. But when the offshore market collapsed they demanded government subsidies. They should have done that years ago before abandoning their domestic educational focus.
The line between public and private supply is always shifting. The parlous state of the media from the collapse of advertising revenue compounded by platform convergences may mean that there will be a shift in the near future. What the government does to its public broadcasting may be an indication of what it really thinks. I was a little unnerved when I saw that the Minister had asked a private consultancy to report on what should be done. Like the business people on the DHBs, consultants do not generally have a culture of public service. Will they try to resolve the public broadcasting problems by a commercial solution? The simple choice may be between opening RNZ commercially making it more influenced by advertising, or isolating TV1 from the commercial pressures of advertising.
This illustrates a general issue when judging the government. The advisers it appoints shape its thinking. The current one’s record of appointing those with a commitment to social democracy is not impressive. Admittedly, the disease of people with a preference for commercial solutions – even if they are not hardline neoliberals – is far more prevalent than the Covid-19 virus. Yet neither this Labour Government, nor the previous Clark-Cullen one, saw it as particularly problematic, even if it has killed more New Zealanders than Covid. Social isolation of neoliberals has not occurred to them.
In the 2019 budget the Government announced that it would give a greater priority to the pursuit of personal wellbeing than to material output. A social democrat would not quarrel. But it has done nothing since to construct an institutional framework to pursue the rebalancing. Contrast the more savvy Key-English Government which, prompted by the neoliberal ACT party, established the Productivity Commission to improve the pursuit of economic material output – one of its members was an ACT party candidate. As far as I know, there is no group in the public sector – or outside – which is thinking in terms of the long-term issues this paper covers.
To avoid appearing too grumpy, I note the response to the Covid Crisis has been to prioritise public wellbeing over commercial profit. That has not been true everywhere in the world. What is surprising though, is that a government which a year earlier had an aspiration of promoting wellbeing has hardly mentioned the connection.
Admittedly, the slogan ‘be kind’ was brilliant, as was the earlier ‘they are us’ coined after the mosque massacres. Perhaps these slogans, more than anything, give a sense that we have a social-democrat oriented government. (On the other hand, decisions not to nurture the reading sector – some decisions have undermined it – leave one uncertain.)
The neoliberal commitment to a private sector continues to dog us. To be clear, this pragmatist has no problem with the use of competitive markets to regulate commercial sectors – between supermarkets, for instance – but there are many places where competitive regulation is inappropriate. I have noted here some – but only some – of them. A further big example is that to leave all the environment to the unregulated market would be disastrous for the environment.
The pragmatic view is that neither the public sector nor the private sector are perfect; that it is necessary to give careful attention to the design of the provision and funding of each activity to get the best, albeit still not perfect, balance.
The downside for honest social democrats is that a larger public sector requires more taxation. There is a very strong public rhetoric that taxation should be kept as low as possible, which means keeping the public sector as small as possible. The consequence, as we saw under the Key-English Government, is a starved public sector. One of the difficulties the Ardern-Peters Government has faced is that it took over a limping public sector, unable to do what the new government was voted to do.
Taxation regulates the balance between private and public expenditure. To call for increased public spending in one area, without acknowledging that it must be paid for by increased public revenue, amounts to rearranging public spending without increasing the overall public good. Social democrats have to sell the principle that taxation is the price of citizenship, and that higher tax rates are necessary for a civilised prospering society.
A Return to New New Zealand Social Democracy?
Institutions of society shape the way we behave. Thirty years ago, most public ones were changed from aligning with the public good to neoliberal principles of self-interest. The promise was that the change would result in higher material output and greater wellbeing; the outcome was that there were no discernible material output gains that would not have happened under the old regime, while many New Zealanders suffered a deterioration in their wellbeing. Instead, Rogernomics created a new elite with an ideology which has been used to maintain their power and wealth.
This was achieved by dumbing down the public debate. Thirty years ago the Rogernomes could not match the left moderniser critique against them, so they used their political and financial power to undermine those providing the critique and the rules of public debate. That pattern continues to this day. Expertise is not judged important, evidence-based discussion and policy is dismissed unless it bolsters the conventional wisdom. Better go for opinion and fake news.
It has been a bit like the treatment of universities in the Hawke Report which treated education as training. Now the dumbing down of anything goes conforms to the underlying commercial ideology. The country takes notice of celebrities without expertise and with uninformed opinions if it meets the truthiness text – it sounds true even if the evidence contradicts it.
What has been remarkable about the Covid Crisis is the public acceptance of expertise – not all countries and leaders have been so sensible. There have, of course, been motor-mouths and nutters, but generally they have been marginalised. Perhaps the celebrities have found the issues too complex. It has been a pleasure to watch a politician working so effectively with an expert.
The cult of celebrities was well-illustrated by the sports reporter who announced he could do a better job of being prime minister than the current incumbent. The point is not that he made such a stupid claim – clearly he has as little idea about the challenge of running a country – but it illustrates how we are in a media environment which allowed him to think he could publicly talk such nonsense.
Probably social democrats have had no better opportunity in the last three decades, but it remains a big ask. They have to begin their task by lifting the quality of public discussion. That means using evidenced-based arguments in public policy and public debate, it means respecting expertise while being careful to define experts, it means giving journalists enough time to be able to be more discriminating about the quality of public pronouncements, it means rejecting false news and truthiness and exposing claims to be promoting the public interest which are thinly disguised self-interest, it means our education system giving greater emphasis to the skill of constructive scepticism. We shall never eliminate all the bad arguments that swill round but we can improve the public’s ability to identify and counter them, to distinguish analysis from opinion.
Such a task is not easy, especially as many social democrats can be lazy about the issues raised in the previous paragraph when it suits them. But if they cannot raise the standards of the public debate, they will be overwhelmed by those with very low standards.
Is the Covid Crisis a Hinge?
Are we are at a ‘hinge’ in world history? You might have expected the Global Financial Crisis, which began in 2008, to be a hinge for the world and New Zealand but there was really no new direction. The social democrats fumbled it. Perhaps the Covid Crisis will lead to the new direction which the GFC seemed to presage.
Unquestionably the world faces a major fiscal challenge (which only ideologists can ignore) for the upward pressures on government spending are increasing. In addition it is facing a increase in liquidity from the government debt arising from the huge injections fiscal injections to bridge the malfunctioning economy during the Covid Crisis.
How this may be resolved, and what might be the new direction might be, is hard to tell. The post-wool-price transition tells us that there will be strong conservative forces trying to maintain the old direction. Resisting the change will have short-term advantages, but it will prolong the transition and perhaps redirect it in unacceptable ways.
Perhaps a new progressive direction will be summarised by the social democrat slogan, ‘wellbeing over ideological purity’. Yet, there is so much we can but guess at. Not in Narrow Seas reduces the guesswork.