Sailing in a New Direction

Presentation to the Wellington South Rotary Club, November 4, 2020

I called my history of Aotearoa New Zealand Not in Narrow Seas, partly to recognise New Zealand’s greatest poet Allen Curnow but the book title is also apt. The phrase comes from the title of a collection of poems Curnow published in 1939, when he was pondering on the history of New Zealand, evoking our isolation and fragility. ‘In your atlas two islands not in narrow seas / Like a child’s kite anchored in the indifferent blue’.

But I also chose it, even before I began writing, because it captures foundational ideas in the study. The first was that it was not going to be simply an economic history. Its intellectual tradition is more that of the nineteenth century political economy in which the social sciences did not draw tight narrow boundaries between themselves but worked cooperatively together. It makes no sense for economics to ignore the political and social dimensions of society. Indeed the book draws as widely as anthropology to geology and, as the title suggests, draws on literary traditions too.

The second foundational idea was that any account of New Zealand could not confine itself to its shores but had to place it in an international context. This notion is at the centre of my history of the postwar economy, In Stormy Seas which argues that you have to look offshore to understand the New Zealand economy, not with a colonial cringe but conscious of the external impacts and constraints. In addition to this constant monitoring of what was happening elsewhere, the book has four (out of sixty) chapters about where we came from. Migrants bring a lot of baggage. The history of our migrant origins is a part of New Zealand’s history.

As I said, the title framed the journey I was about to undertake. However, at its end I found a 1941 poem by Curnow, which aptly described the main findings of the journey. ‘The Unhistoric Story’ concludes

And whatever islands may be

Under or over the sea,

It is something different, something

Nobody counted on.

Something nobody counted on. While I had inklings of much of the story I was to tell when I started out, some discoveries on the way surprised me.

It is part of the human condition that we project from the past into the future. Admittedly many do not know much of their past so their projections are based only on the very recent past – I hope my book will help cure some of this innocence. A longer perspective would show the trends they identify were repeatedly disrupted; that almost every point in our history a projection based on recent trends would be wrong.

Sometimes the disruptions were smallish, sometimes they were huge. One way of describing the big ones, is to use the metaphor of the ‘hinges of history’. There is continuity across a hinge but the two sides point in different directions – the trend changes.

Not in Narrow Seas identifies five major hinges and leaves us wondering about a sixth. The five are

            1. The arrival of Polynesians 700 years ago;

            2. The arrival of European settlers in the nineteenth century;

            3. The introduction of refrigeration in the 1880s, leading to an eight decade domination of the pastoral economy;

            4. The redirection of economic and political management in the 1930s and the 1940s;

            5. The collapse of the wool price and the end of the dominance of the pastoral economy in 1966 which led to Rogernomics.

The sixth is whether we are currently going through another hinge. I shall finish with a few cautious words on this but first, those we know about.

The Origins of New Zealand

New Zealand began, so geologists told us, about 650 million years ago, when erosion from the Gondwana craton washed into the sea to the east of what is now Australia.. About 75 million years ago the consolidating land separated off to form the world’s eighth continent of Zealandia, most of which is undersea.

Zealandia went though the normal, yet extraordinary, geological processes of uplifting and compacting which are still happening. The book remarks that sea levels around New Zealand have risen in the last hundred years by an average of about 20cms. Why ‘average’? Because the land itself is shifting up and down. Following the 2016 Kaikoura earthquake, Cape Campbell rose almost one metre as well as moving north-northeast by more than two metres. However, usually geological changes are so slow we do not notice them. Next time you are at a beach imagine what it looked like in your great-grandparents’ time when the seas were 20cms lower.

The First Hinge: The Arrival of Polynesians

While that geological and accompanying biological and ecological evolution has been going on for 650 million years, it was disrupted by the arrival of Polynesians about 700 years ago. It is clear that the proto-Maori were associated with environmental extinctions about that time, while the impact of the introduced species would change the nature of New Zealand dramatically The environment was being redirected.

I call the new arrivals ‘proto-Maori’, for Maori evolved here, just as Pakeha are evolving here today. On the whole, Maori evolution was slow. They seem to have developed a sustainable way of life – perhaps the Pakeha will do the same on day – but there is some evidence of population pressures by the eighteenth century.

The Second Hinge: The Arrival of European Settlers

Maori development was disrupted about two hundred years ago by the arrival of Europeans and what they brought with them. Some of the new technologies had disastrous effects. The Musket Wars wiped out perhaps a third of the population, although, as the book explains, the arrival of potatoes were key to making the warfare so destructive.

There has been a tendency to overplay the role of nineteenth-century warfare. Not nearly as heroic, but more devastating, were the epidemics from diseases which Europeans brought to an immunologically virgin population. The nineteenth century epidemics were more important for the population than the 1918 influenza epidemic or the current Covid Crisis.

The history also suggests that Maori recovered better after the New Zealand Wars than the conventional wisdom allows. Certainly land was confiscated but some was returned and a lot more was lost via other (some moral, many not overly moral) devices.

The outcome of the wars is often portrayed as a loss of sovereignty but even had the wars not happened, Maori would have been challenged to retain sovereignty. In 1840 there were about 80,000 Maori and 200 Europeans. By the end of the century Maori were about half their earlier numbers (just over 42,000), while those of European origin were closing in on a million.

Where Maori missed out was in economic development. The economic staple in the middle of the nineteenth century was wool. Unfortunately the vast majority of Maori were located north of Lake Taupo where sheep did not thrive. The reasons are instructive. Around 232CE, the super-volcano whose residual crater is Lake Taupo erupted with a much greater impact than any in our time. (The Kaharoa eruption of 1314CE followed.) Its ash, scattered north of the lake, lacked key trace elements, particularly cobalt, which resulted in bush sickness to grazing animals. The Waikato river was redirected into what is now the Waikato basin where it formed a vast swamp causing footrot in sheep when hundreds of years later they tried to pasture them. Thus the vast majority of Maori were not able to get into sheep farming. (Those to the south of Lake Taupo were more economically successful but there were far fewer.) It is sobering that what may have been the single most important event shaping late nineteenth century Maori economic and social development happened before there were any humans in New Zealand.

In fact, New Zealand did not have a sustainable economy in the middle of the nineteenth century. Initially it depended on quarries – seal, whale, and gold were the biggest – which would eventually deplete and the worker-quarriers would have to move on. There was also an injection from borrowing for war and development, neither of which was sustainable.

Even the wool economy was struggling. There was depletion of the fertility of the soil and the export price of wool was falling, so despite technological innovation farm profitability was falling. Increasingly, the wool industry was insufficient to sustain the burgeoning population especially as the flood of young woman immigrants of the 1870s meant that births were replacing immigration as the main driver of population growth. The short term solution was to continue the borrowing but eventually the patience of the foreign lenders would run out.

The brutal possibility was an outflow of migrants – it happened in the 1880s – or an economic and sovereignty collapse, like that which happened to Newfoundland in 1930s, when they went into a sort of receivership under Britain and were merged into Canada.

The Third Hinge: The Arrival of Refrigeration

Fortunately, and unexpectedly, for New Zealand, the arrival of export refrigeration of foodstuffs offered an alternative prospect. The new way of farming it made possible was transformational.

After the third great hinge, New Zealand had a sustainable economy based on land-intensive small family farms It was no longer destined to be the Falklands of the South Pacific.

But it was not just the economy that was transformed. So was society and politics. The land-extensive sheep stations would have increasingly generated a more hierarchical society. The stations themselves had a quasi-feudal structure while they were surrounded by small farms which were quasi-subsistence, earning some cash but largely self-sufficient and sharing within the community.

In the new post-refrigeration political economy, the core of farming was family farms based on sheep producing meat and wool and later with cows for dairying. (Until the middle of the twentieth century Maori farming remained largely subsistence.) Family farming dominated New Zealand society. (As late as the early 1920s, half of the New Zealand labour force worked on farms, serviced farmers or processed their output.) Farmers and their wives were independent and self-reliant and they set the tone for the whole of New Zealand society. Early immigrants had democrat aspirations; the new pastoral economy made them achievable.

So in the decades after refrigeration began, universal suffrage was introduced. It included women, for a sustainable economy and living here forever meant giving a place to the nurturers of future generations. The temperance movement was in part the shrugging off of the male-dominated quarries which would eventually exhaust themselves and the population move on. Formal political parties began to establish, replacing the shifting coalitions of the ruling oligarchy of the nineteenth century.

New Zealand had struggled with the Long Depression in the 1880s. The foreign borrowing on which economic prosperity depended had dried up – refrigeration was still just beginning. Despondent New Zealanders talked of joining a federation of Australian states. By the time the federation began in 1901, New Zealanders were sufficiently self-confident to tell the Aussies to take their ball elsewhere.

The pastoral political economy – sometimes described as a monoculture of processed grass – would dominate New Zealand for over eight decades. In the 1930s and 1940s there was a further hinge which did not replace it, but changed the direction of economic management.

The Fourth Hinge: The New Economic Management

As traumatic as it was, it was not the Great Depression which caused the hinge. After all, it came at the end of the Long Interwar Stagnation which began three decades earlier in 1908. Some of the policies of the Labour Government elected in 1935 were continuations of past developments. For instance, the 1938 Social Security Act can be seen as a continuation of public income support promoted from the end of the nineteenth century. The big change was how the economy was to be managed; that came about as a result of the Second World War.

There is not the space to detail the rise of central and detailed management of the economy; perhaps too, one can see it at earlier times. It becomes especially relevant after the next hinge, the end of the dominance of the pastoral political economy.

The Fifth Hinge: The Wool Price Collapse

In a way, the relative decline of the pastoral sector was inevitable. New Zealand had run out of new farmland in the 1950s. It moved to a more intensive farming but that reduced the number of workers on farms. It ran out of water, integral to the intensification, about a decade ago. However, rather than drifting away, the dominance ended with a bang in December 1966 when the price of wool collapsed 40 percent; it has never really recovered.

At the time the sheep industry which earned three fifths of New Zealand’s foreign exchange suffered a grievous and – as it turned out – permanent blow. For over a century, wool had been our single biggest foreign exchange earner, earning 40 percent and more. Today its contribution has dwindled to about half a percent.

You will have to go to Not in Narrow Seas for the details, but broadly when one of the most powerful drivers in the economy – in this case the sheep industry – lost its power – in this case over a quarter of its revenue – there had to be a massive adjustment.

Part of the economy adjusted well. There was a great export diversification. Before 1966 New Zealand had one of the most concentrated export sectors in the OECD measured by both the commodities exported and where they were sent. By 1980 it was in the middle of the OECD on both dimensions.

However the internal adjustment that the external diversification required was slow. Moreover, the fall in the external terms of trade – from the wool price collapse – required some reduction in domestic incomes. But nobody was willing to take a share of the fall, each hoping the income cuts would occur to someone else.

Basically, the new direction required some retrenchment to get underway. But the the economic management regime which had arisen during the Second World War was not designed for the part. It had served New Zealand reasonably well when wool prices were high, but that was a period of moderate but genial growing prosperity.

Yet the leadership failed miserably to realise we had gone through a hinge and persisted in thinking that the future was a continuation of business-as-usual requiring only minor adjustments. (The book describes other social changes, of social diversity and urbanisation which perhaps were coped with better than the fundamental economic one.) The simplest example of the failure can be seen in the Planning Council’s reports which seem irrelevant to what happened shortly after. But the Council only reflected a general unwillingness to think through what was happening.

Rogernomics Sets the Direction for the Fifth Hinge.

In the 1970s and early 1980s New Zealand had a political leadership protecting the past while the market economy was evolving in quite a different direction. Eventually the tensions became reconciled by arrival of Rogernomics. I am not saying it was a good response; the book goes to some length to explain the new regime’s failures. But at least it addressed the economic change needed to respond to the wool price collapse in a way that its predecessors had not.

In effect, the period from 1966 to 1995 was the same long hinge – the fifth – just as the second hinge – the arrival of European settlers – was a long one too. It ended up with Rogernomics setting New Zealand on a new direction. That is why you can still observe a neoliberal framework in much of public policy, protestations to the contrary and the various attempts to roll neoliberalism back in some areas.

Generally historical judgement struggles to understand events of recent decades. This is true for Not in Narrow Seas. An indication of the difficulties is that the chapter (55) which assesses the Rogernomics revolution offers three distinct perspectives: a neoliberal one, one from the centre right and one from the traditional left. Readers of the manuscript complained that they wanted a single authorial conclusion; perhaps there is one hidden there; perhaps – I wouldn’t know.

The Last Decade: A Sixth Hinge?

Life goes on and there is a further five chapters which are basically a narrative about recent events. The story ends in January 2020 when the book was sent to the printer so it does not cover the Covid Crisis – historians are no better at predicting the future than economists or political pundits.

There is a problem about the last decade or so, which may be exacerbated by the pandemic. The Global Financial Crisis from 2008 provides a trenchant critique of neoliberalism. Curiously, such was the inertia of the neoliberal framework and the international financial system which it justified, that the policy response was largely a repeat of the austerity of the Great Depression, as if the neoliberals had learned nothing from that event or the GFC.

However, during the Covid Crisis, the neoliberals have been remarkably quiet, other than grumbling about the loss of freedom that lockdowns cause.

One begins to wonder whether the world, and therefore New Zealand, is going through another hinge; perhaps it is a long one starting with the GFC. I have two salient reasons for this hypothesis.

To deal with the Covid Crisis – even in those economies which have manifestly failed to control the virus – public policy has introduced extraordinary fiscal, monetary and regulatory interventions, perhaps comparable to fighting the Second World War, perhaps greater in magnitude, certainly faster.

Second, economic theory has broken out of the neoliberal headlock and seems to be going through a renaissance. Partly the new thinking is a response to the GFC but the new policies the Covid Crisis has introduced have broken open the barriers to serious macroeconomic discussion in the last decade. In the intellectual turmoil it is unclear what is going on; there is certainly no new Keynes although a lot of the discussion goes back to the old one. Significantly, I have not seen a weighty contribution from the monetarist-neoliberals. Their silence is deafening (and unfortunate because a new paradigm needs a critique from the old one).

Before reflecting on the implications of a possible hinge, here briefly are five other factors which might or might reinforce a new direction.

            1.         The diminishing global dominance of the US;

            2.         Global warming, climate change and rising seas;

            3.         Secular (long-run) stagnation so that economic growth may stagnate in the rich world;

            4.         Covid has drawn attention to the general problem about the future of global connectedness. It is likely to remain even if the world gets a totally effective vaccine because of the – what may be permanent – breakdown in some supply chains and what seems to be a shift towards self-sufficiency.

            5          There are threats to the sovereignty of nations. The immediate issue is the rise of social media but it may be a wider than that.

(Some may want to add a sixth, of populism crowding out democracy. I am not so sure; it has always been an uncomfortable tension.)

Observe that this list and the two earlier possibilities are essentially international trends. New Zealand’s challenge will be to adapt the international wisdom to local particularities, rather than merely imitating it. That is always our challenge.

Something Nobody Counted On.

Are we at a hinge? I might be able to answer in a couple of decades if I am around. But what I can tell you that if there is one, we will not deal with it effectively by projecting past trends in the expectation they will continue on indefinitely, just as we did in the past.

The prospects are not promising. One online news site commissioned twenty commentaries by ‘experts’ to explain how ‘Covid-19 has changed New Zealand forever’. The substance of all the responses could have been written six months earlier before the Covid Crisis struck. You may say to it is too soon to tell, but one is struck that those described as ‘some of the smartest people in the country’ were not even trying to think through the question that was posed to them. Back to business as usual. The Planning Council is back.

Sadly, one of the central insights of Not in Narrow Seas is once more confirmed. Too often, our public thinking and conversations have been of poor quality.

I finish with Allen Curnow.

And whatever islands may be

Under or over the sea,

It is something different, something

Nobody counted on.